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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Joe Wish and I'm Tracy Allowaite Tracy the coins.

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Speaker 1: Time's time to talk about the coins again. The coins

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Speaker 1: you mean, like you know, fiat coins, right, No, the

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Speaker 1: electronic digital coins? People are you know what? It feels

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Speaker 1: like It's been a while, isn't it. Well, so this

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Speaker 1: is the crazy thing. This is my like, what what

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Speaker 1: what makes the crypto difficult for me? Which is that

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Speaker 1: if you like, and I've said maybe you said this before,

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Speaker 1: but if you step away for like a month, then

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Speaker 1: you like some other stuff like the price of corn

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Speaker 1: or wheat or oil or something, Russia's invasion of Ukraine. Yeah,

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Speaker 1: and then you come back to crypto and it's like

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Speaker 1: the entire narrative has completely changed. It's all this new terminology,

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Speaker 1: new tokens that you've never heard of, Like you can't

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Speaker 1: step away from for a minute, let alone a month,

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Speaker 1: and feel like you have any sort of hope of

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Speaker 1: understand what's going on. It does feel like it requires

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Speaker 1: a certain intensity to make it in crypto. And then

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Speaker 1: after that month, it's like, well, I'm already so behind,

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Speaker 1: I don't want to come back and actually, you know,

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Speaker 1: you're like fore or four months behind, so we have

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Speaker 1: to reverse it. We can catch back up with what's going. Yeah,

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Speaker 1: we need to reverse that. I mean, I am vaguely

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Speaker 1: aware of some of the big picture stuff that has

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Speaker 1: been happening. So I'm looking at the price of bitcoin

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Speaker 1: at the moment, it's just under forty thousand. It is weird,

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Speaker 1: and I think he wrote about this, It is kind

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Speaker 1: of strange that in this environment bitcoin hasn't been doing better.

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Speaker 1: I know. So you know, here's what I've been thinking about,

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Speaker 1: which is that the prices of especially the big ones.

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Speaker 1: You know, there's always tokens going to the moon, but

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Speaker 1: the prices of like the big ones overall market cab

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Speaker 1: rough year kind of gone sideways in the last year

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Speaker 1: or more down. But um, the interest in the space

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Speaker 1: continues to be on debated and it feels like every

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Speaker 1: day someone is leaving a big bang, big fund to

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Speaker 1: do something new in crypto, crypto hedge fund, crypto VC.

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Speaker 1: Interest in investing in the space does not seem to

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Speaker 1: have abated at all, even with the price of big

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Speaker 1: coins out of going sideways to down. No, absolutely, And

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Speaker 1: also the other thing that's sort of happened is rather

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Speaker 1: than crypto going off and being its own ecosystem, which

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Speaker 1: if you think back to bitcoin and its origins, that

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Speaker 1: was really kind of the point of the whole thing.

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Speaker 1: But it feels like crypto as a whole is becoming

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Speaker 1: more and more integrated with the existing financial system, or

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Speaker 1: at least with Wall Street. Uh. And so you know,

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Speaker 1: you see people who are collecting n f T s

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Speaker 1: and now they're talking about the bond market in interest rates,

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Speaker 1: which is kind of funny, but you're right, we haven't

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Speaker 1: spoken about it for a while, and we should definitely

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Speaker 1: rectify that. So I want to know basically what all

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Speaker 1: this new money entering the space is doing. Something I've

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Speaker 1: been thinking about is that you could make a fortune

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Speaker 1: essentially just buying bitcoin or maybe buying bitcoin in the US.

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Speaker 1: And still I get in Japan because the market was

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Speaker 1: so inefficient that there were like multiple prices around the world,

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Speaker 1: and you can make a ton of money doing that.

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Speaker 1: These days, I suspect that the market is vastly more

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Speaker 1: efficient than it was back then. On the flip side,

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Speaker 1: I also get the impression that, compared to trad fied

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Speaker 1: that the spreads are still a mile wide and that

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Speaker 1: there's still big opportunities for all this money coming into

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Speaker 1: the space. So I'm very let's have a conversation about

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Speaker 1: how to make money in crypto? All right, I'm really excited.

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Speaker 1: We're gonna be bringing back into his third time on

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Speaker 1: the show, the one and only Sam Bankman Fried SPF.

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Speaker 1: He's the co founder of f t X, And we're

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Speaker 1: also going to be joined by Matt Levine, Bloomberg opinion columnist.

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Speaker 1: We had them both on last fall. Everyone liked hearing

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Speaker 1: them discuss the state of the markets together, so we

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Speaker 1: figured let's have them both back on. So Sam and Matt,

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Speaker 1: thanks to both of you for coming back on odd

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Speaker 1: lots of course, thanks for having me back absolutely So, uh, Sam,

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Speaker 1: let's start with you. Actually, you guys have a big

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Speaker 1: conference coming up at the end of April, the FTX

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Speaker 1: Salt Conference Crypto Bahamas, the Bahamas being your new your

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Speaker 1: new corporate home, which sounds pretty nice, am I am?

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Speaker 1: I basically right that there is a sort of still

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Speaker 1: this huge essential tidal wave of money coming into the space,

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Speaker 1: Like well, how would you characterize very big picture the

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Speaker 1: all the interest right now in crypto, There is a

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Speaker 1: huge tidal wave of money trying to come into the space,

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Speaker 1: is what I would say, just sort of you know,

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Speaker 1: gobs and gobs of it that that sort of has

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Speaker 1: been desperately you know, sort of like trying to to

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Speaker 1: to like find its way in over the last few years.

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Speaker 1: Every month another sort of like nice little pile of

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Speaker 1: that of that you know, larger gob nags to make

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Speaker 1: it in. So one thing I saw recently is that

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Speaker 1: you took a stake in i X, which I think

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Speaker 1: a lot of people will recognize as the firm that

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Speaker 1: was founded by Brad katsu Yama, who's the guy who

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Speaker 1: was written about in Michael Lewis's book Flashboys, all about

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Speaker 1: the evils of high frequency trading and stuff like that.

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Speaker 1: What exactly is the thinking there? And you know, I

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Speaker 1: guess I understand some of the maybe the ideological alignment

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Speaker 1: or the stated ideological alignment there, But what exactly are

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Speaker 1: you going to be doing together? Yeah, and you know,

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Speaker 1: obviously we'll have to see what happened, because is you know,

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Speaker 1: highly regulatorily dependent space. But the core of it is

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Speaker 1: like some digital assets are our securities. Different people might

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Speaker 1: give different quotes for exactly attraction of them are, but

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Speaker 1: but certainly some fraction of them are. Let's say that

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Speaker 1: you want to offer trading in a digital asset security,

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Speaker 1: what would you do right now? This is not a

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Speaker 1: problem that people have really confident, regular right solutions for.

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Speaker 1: It's something that there's certainly a lot of thought going

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Speaker 1: into from the regulatory perspective, you know, at its core,

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Speaker 1: like we're experts in in you know, things to do

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Speaker 1: with with tokens and offering trading and tokens I x

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Speaker 1: er know, experts in offering trading insecurities and more generally,

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Speaker 1: they're also really good at being creative and sort of

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Speaker 1: building out new market structures that might not be exactly

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Speaker 1: the same as what they're sort of used to doing.

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Speaker 1: And that's exactly what we need to do right now,

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Speaker 1: is to build out a new market structure that is

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Speaker 1: consistent with our existing rules and regulations in coordination with

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Speaker 1: the SEC and other regulators for digital docity securities, and

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Speaker 1: that is our big goal with them. It's something you said,

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Speaker 1: Sam in your first answer I thought is really interesting.

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Speaker 1: You said there's always some money and it tries to

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Speaker 1: get into this space, which I sort of took as

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Speaker 1: to me, and there's like some constraint or that it's

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Speaker 1: not easy, it's easy to just sort of jump into

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Speaker 1: crypto as perhaps people imagine, what is the country, Why

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Speaker 1: why is it that the money is just trying to

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Speaker 1: get in? Yeah, I mean it's a really good question

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Speaker 1: and the answer is a little bit different for different

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Speaker 1: lots of money. But the high level structure if it

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Speaker 1: looks somewhat you know, similar, which is basically your let's

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Speaker 1: say a big bank, right, and all of your clients

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Speaker 1: are asking you, can you please get into the digital

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Speaker 1: assets space. We want to invest and we want to

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Speaker 1: access token through you, and all of your traders are saying, hey,

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Speaker 1: we want to be trading crypto, you know, as for

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Speaker 1: the prop desk for the firm, and you know, random

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Speaker 1: employees are are coming up to you, the strategy person

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Speaker 1: or or whatever at this bank every day and think, hey,

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Speaker 1: why aren't we doing the crypto thing yet? And um,

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Speaker 1: And so you go to compliance basically and you say, hey,

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Speaker 1: we'd really like to do with the crypto thing, like

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Speaker 1: I know, last time we asked you sort of groaned, well,

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Speaker 1: like could you give you know, maybe give us a

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Speaker 1: little bit more than a grown right, like like put

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Speaker 1: some words that grown and it's sort of like growing

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Speaker 1: really loudly, and they say, can you tell me what

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Speaker 1: regulatory framework are we going to be under? You know,

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Speaker 1: Compliance comes back and says, well, okay, like you want

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Speaker 1: to have this conversation, sure we'll have it. Talk to

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Speaker 1: me about why you think we are allowed to do this? Right,

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Speaker 1: and uh, you know, at its heart, people are sort

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Speaker 1: of like, oh boy, like you know what, why are

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Speaker 1: we allowed to do this? Well, people bush track and say, well,

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Speaker 1: what regulation are we breaking? And Compliance is like, you

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Speaker 1: know what, understand like we're the first ones who are

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Speaker 1: going to get sued if there's anyone who's gonna get

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Speaker 1: sued here by a regulator. We can't point to a

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Speaker 1: regulation we're breaking here. We need to know what regulatory

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Speaker 1: framework are we a part of? What licenses are necessary

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Speaker 1: to play different roles in this space? Right and and

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Speaker 1: and the answer is as it is right now basically

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Speaker 1: like we're working on it right from like as a country,

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Speaker 1: like as as as a global society, we're working on it.

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Speaker 1: That's not that's not a great answer. And that's like

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Speaker 1: roughly where the money gets trapped. So when you say money,

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Speaker 1: is that like I mean what you're describing sounds like

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Speaker 1: the sort of regulatory environment that a bank lives in.

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Speaker 1: I'm less convinced that's like what an asset manager lives in.

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Speaker 1: Like do you mean, do you mean mostly banks are

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Speaker 1: like sort of everyone in trad fun Well, yeah, it's

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Speaker 1: a good question. It certainly isn't everyone in trad by

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Speaker 1: and and in particular, the closer that you get to

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Speaker 1: something that looks like proprietarily owned and controlled money, the

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Speaker 1: more you are able to do something here, right. And

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Speaker 1: so when you look at, for instance, a prop trading

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Speaker 1: firm that is trading I mean on wine extreame, you know,

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Speaker 1: take one, this trade entirely for its own book, so

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Speaker 1: it doesn't even have customers, doesn't have LPs, does not

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Speaker 1: have anything right from their perspective, this is this is

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Speaker 1: a lot clear right from their perspective, The answer is

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Speaker 1: a lot closer to like, oh, well, you know, here's

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Speaker 1: our deal, Like we trade things, that's what we do.

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Speaker 1: We're going to trade this other asset class. And the

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Speaker 1: often see of themselves is like, look, we're not showing

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Speaker 1: this customers or anything. We're not sort of in the

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Speaker 1: line of fire here. So that is the area that

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Speaker 1: we've seen sort of most come in early to the space,

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Speaker 1: but if you sort of take a step back, actually

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Speaker 1: even a lot of other money managers end up in

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Speaker 1: the more concerned bucket. Shall we say, take a look

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Speaker 1: at like a giant et F company, right, Like, that's

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Speaker 1: an example of like an asset manager. A lot of

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Speaker 1: assets are in our in our in ets and other

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Speaker 1: sort of similar funds. How many ETFs currently have cryptocurrencies

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Speaker 1: in them? Well, the answer is like two or something

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Speaker 1: like that. And again you're getting back to questions of well,

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Speaker 1: what are these are these commodities? Are these securities under

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Speaker 1: which statute are we putting them in the fund? Do

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Speaker 1: we need to register them? They're having active conversations with

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Speaker 1: regulators about this, and and there's obviously been a lot

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Speaker 1: of back and forth about attempts to have a bit

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Speaker 1: poin ETF which have only sort of come together so far.

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Speaker 1: There are now big when futures ets which or something,

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Speaker 1: but they're certainly this is not a solved problem. Even

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Speaker 1: if if you sort of like allied the specific you know,

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Speaker 1: registered creation requirements around a publicly listed et F and

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Speaker 1: you look at sort of like private mutual funds for

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Speaker 1: high net worth individuals. Most of those are sort of

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Speaker 1: sitting there thinking, like, are we going to get in

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Speaker 1: trouble somehow for this compliance to somewhat on, you know,

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Speaker 1: uncertain and nervous about it. And so I think they're

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Speaker 1: you know, you're you're still in a pretty messy situation

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Speaker 1: all things consider. The thing you're describing sounds like incredibly

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Speaker 1: bullish for like the prices of crypto assets, because basically

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Speaker 1: you're saying, there's a title wave of trillions of dollars

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Speaker 1: of institutional money that they all own up at ten

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Speaker 1: percent into crypto and they can't but they'll figure it out,

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Speaker 1: and then like crypto assets will expect Like is that

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Speaker 1: the right way to read it? Or is there like

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Speaker 1: I mean, like the counter narrative would be like you know,

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Speaker 1: the sort of prop traders and and like retail speculators

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Speaker 1: have gotten so far ahead of that trend that like

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Speaker 1: prices already reflect that demand. How do you think about it?

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Speaker 1: I think those two sides are the right way to

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Speaker 1: think about it. And I do think this is the

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Speaker 1: thing that makes me the bullish about like crypto asset

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Speaker 1: pricing is just the amount of money that isn't able

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Speaker 1: to access it today or able to that that isn't

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Speaker 1: accessing it today, you know, one way or another, but

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Speaker 1: directly could be and very well might start doing so

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Speaker 1: over the next few years. That that is I think

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Speaker 1: the most bullish trend going on in the space. And

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Speaker 1: on the flip side, right there's this question of will

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Speaker 1: has that already been priced in? And that can only

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Speaker 1: be the narrative in some sense for like so many

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Speaker 1: years in a row before at some point you have

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Speaker 1: to start saying, well, the way, isn't that why people

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Speaker 1: were buying last year and holding you know, anticipation of this.

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Speaker 1: I mean, in the end, it's messy, like there's lots

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Speaker 1: of reasons that people would be and I don't think

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Speaker 1: that there's a very clean tally of this, and I

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Speaker 1: think I'm still not bullish because of it, but I

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Speaker 1: definitely do think this has already been prepositioned for a

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Speaker 1: decent amount. Now there's a limit to how prepositioned it

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Speaker 1: could be, right because if you think about it, the

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Speaker 1: scale of what could roll into crypto. If you think

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Speaker 1: that a few trillion dollars of actual capital is what

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Speaker 1: could happen, that's the entire market cap ofcrypto right now.

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Speaker 1: If a few trillion dollars rolled into crypto, I'm guessing

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Speaker 1: it would ten x in price roughly speaking from where

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Speaker 1: it is. And so if you think that the odds

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Speaker 1: of that are at least ten percent, that alone can

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Speaker 1: sort of justify And it's sort of like an argument

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Speaker 1: that it sort of probably hasn't been fully prepositioned for

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Speaker 1: by the world, which I think, I like, roughly believe

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Speaker 1: in expected value terms also like in median terms, what

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Speaker 1: are the odds crypto will go up or down versus

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Speaker 1: like how much we'll go up or down? You know,

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Speaker 1: I certainly don't think it's like anything close to conclusive

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Speaker 1: argument that like it's you know, very likely to go

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Speaker 1: off you say crypto, Like, I mean, my impression of

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Speaker 1: like giant institutional interest is like the idea of having

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Speaker 1: some portion of your portfolio in bitcoin is very attractive.

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Speaker 1: My impression is that there's a sort of like sharp

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Speaker 1: falloff where like they're not sort of thinking about the

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Speaker 1: difference between other black chains and like how to you know,

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Speaker 1: yield farm and stuff like that. Because that your impression

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Speaker 1: as well, or do you think that a lot of

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Speaker 1: this institutional money is like you know, wants to actively

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Speaker 1: trade lots of different cryptocurrencies. Yeah, I don't think they've

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Speaker 1: decided is the real answer, right, Like, I think the

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Speaker 1: real answer is that, like, you know, if you ask them,

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Speaker 1: they would say something like I don't know, you know,

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Speaker 1: if you like what you mean by crypto, like what crypto?

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Speaker 1: I think they're honest answers like I don't know, you know,

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Speaker 1: the crypto thing, right, like there's bitcoin, Like yeah, they're

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Speaker 1: more like yeah, totally there are more like are you

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Speaker 1: you know, intending to trade more? You know, I don't know,

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Speaker 1: Like I certainly want to consider that, you know, down

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Speaker 1: the road, Like right now, our focuses on finding a

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Speaker 1: way to get bitcoin access and maybe ethereum access to

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Speaker 1: users like you know, but like absolutely, you know, we considered,

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Speaker 1: you know, would be we'd be potentially interested in offering more.

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Speaker 1: I think that's a sort of like messy confused answer

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Speaker 1: that that you would here in practice, which is just

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Speaker 1: another example of like, you know, things are not very

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Speaker 1: orderly right now in in sort of like money looking

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Speaker 1: at the space just on this point, and Joe kind

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Speaker 1: of touched on it in the intro, but I guess

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Speaker 1: this is sort of an existential question, but it feels

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Speaker 1: like the market is in the process of maturing, And

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Speaker 1: it also seems like f t x's whole purpose is

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Speaker 1: to improve liquidity and crypto trading, and some of that

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Speaker 1: should happen naturally as more money comes in, but some

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Speaker 1: of it is you making a conscious effort to do so.

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Speaker 1: But at the same time, it seems like a lot

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Speaker 1: of the opportunity in crypto has historically been from illiquidity

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Speaker 1: and frictions and fragmentation in the market. Is there attention there, like,

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Speaker 1: does the attractiveness of the crypto world start to ebb

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Speaker 1: away as the market actually matures. It depends on how

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Speaker 1: mature is in theory, and this this might not happen,

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Speaker 1: but certainly I think you would ask most of the

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Speaker 1: traders in the market what they think. What they would

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Speaker 1: say would be something like, well, yeah, we do think

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Speaker 1: that pian l in basis points you know portrayed will

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Speaker 1: will sort of like go down over time, but we

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Speaker 1: also think volume will go up, and that that certainly

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Speaker 1: has been what we've seen so far. Work you compare

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Speaker 1: today to right. You know, I was busy trying to

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Speaker 1: to make money arbitraging bitcoins here versus Japan, and those

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Speaker 1: trades were good by many per cent um. But you know,

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Speaker 1: there's a billion dollars a day of volume going on

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Speaker 1: in each side, which is a whole lot if you're

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Speaker 1: making many percent on it. But you know, what do

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Speaker 1: things look like today, Well, there's one or two hundred

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Speaker 1: billion dollars a day of volume that are trading in crypto,

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Speaker 1: and so I think volumes are probably up like fifty

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Speaker 1: x or so since then spreads on the other hand,

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Speaker 1: or down, and they're down sort of a comparable you know, ratio,

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Speaker 1: And so I think that's so far like the story

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Speaker 1: of crypto has sort of been like spreads are coming

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Speaker 1: in and at the same time volumes are going up

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Speaker 1: such that actually the arbitrageures are making about as much

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Speaker 1: as they always did, although it's it's maybe harder than

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Speaker 1: it was before. And you can imagine the future that

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Speaker 1: like that continues, that that things continue to get more efficient.

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Speaker 1: But that as part of you know, the asset class

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Speaker 1: getting more institutionalized, like you know, volume and liquidity goes

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Speaker 1: up a therapy which increases the sort of like scale

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Speaker 1: of activity people can have. That being said, and and

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Speaker 1: part of me doesn't believe that, but but not all

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Speaker 1: of me, because it is also the case that like,

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Speaker 1: at least as of today, we are probably over indexed

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Speaker 1: on you know, volume relative to liquidity. And I think

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Speaker 1: one way to look at that is just looking out

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Speaker 1: ratio daily trading volume to market cap they're trading, you know,

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Speaker 1: comparable amounts to how much US stocks trade each day,

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Speaker 1: but you know, have the market cap of Amazon. But

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Speaker 1: I would definitely guess on the margin that like we

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Speaker 1: are going to see compression in that Rob people who

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Speaker 1: haven't listened to last April was the first time we

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Speaker 1: had you and Sam, and we talked a lot about

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Speaker 1: that trade whereas like really difficult sort of operationally to execute,

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Speaker 1: but just these crazy spreads between the price of bitcoin

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Speaker 1: in the US and Japan four or five years ago,

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Speaker 1: and how you could just you know, how simple that

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Speaker 1: that sort of opportunity was once you found a way

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Speaker 1: to make that trade. As you've described, volumes way up,

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Speaker 1: spreads way down. Where are you know? And you mentioned

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Speaker 1: too that there's like a range of sophistications. So there

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Speaker 1: are some entities that I just want to have Bitcoin exposure,

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Speaker 1: I want to have etherorum exposure, and then there's other

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Speaker 1: tread five that's clearly way more sophisticated, like entities like

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Speaker 1: jump trading or doing all kinds of wild stuff. And

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Speaker 1: we had their head of crypto on the podcast last

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Speaker 1: year kind of Korea. But what you know, like where

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Speaker 1: are the current frictions as you see them or the

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Speaker 1: arbitrarge ores entering this market are seeing, like what kind

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Speaker 1: of things? Obviously it's gonna be way morephisticated than just

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Speaker 1: by USL Japan. Like where are the existing inefficiencies sort

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Speaker 1: of broadly in crypto right now? Yeah, I mean they're

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Speaker 1: a little all over the place, although obviously way smaller

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Speaker 1: in particular. I think it's a lot less well you

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Speaker 1: buy on this echanges on that exchange. As you said,

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Speaker 1: it's it's a lot less identifiable in some sense, is

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Speaker 1: what it is? So what is it if it's not that?

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Speaker 1: You know, some of this is just traditionally jef T stuff.

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Speaker 1: You know, there's a hundred fifty billion dollars a day

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Speaker 1: of volume that traded. It's trading on a bunch of

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Speaker 1: different order books. And when you say how efficient is it, right,

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Speaker 1: like how much price might be order books be? Well,

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Speaker 1: I don't know, take two bitcoin or bitcoin futures order

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Speaker 1: books right now, they probably each have these of a

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Speaker 1: couple of basis points and a spread of a basis

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Speaker 1: point or you know, some fraction of basis point or

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Speaker 1: something like that. And you know, given sort of like

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Speaker 1: the funding rates and the premiums of futures and things

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Speaker 1: like that, and the time and costed to do one

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Speaker 1: of these ARBs, they can absolutely be a few BIPs,

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Speaker 1: you know, out of line with each other. And so

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Speaker 1: in theory you can sort of do out the math.

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Speaker 1: Let's say that you know, you made one basis point

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Speaker 1: on each side, which would be a lot and would

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Speaker 1: be like, you know, an impressive amount to make on

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Speaker 1: on the third volume, on fifty of volume in crypto,

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Speaker 1: giving the extreme of like you were the arbit charger,

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Speaker 1: you're the h f T firm, then you know, how

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Speaker 1: much is that a day will a bip on you know,

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Speaker 1: fifty billion dollars of volume is five million dollars of

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Speaker 1: profit a day, which is you know, what what a

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Speaker 1: billion and a half a year, And so that gets

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Speaker 1: some sense for and again obviously I'm sort of like

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Speaker 1: putting a lot of corners in that, like I don't

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Speaker 1: want to sort of imply that that's like you know

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Speaker 1: that is the amount that could be made. But but whatever,

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Speaker 1: maybe that gives some sense for like what the available

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Speaker 1: scale here is of arbor charge profit in the space,

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Speaker 1: and it is like substantial, and so that's part of

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Speaker 1: what they're doing. You know what other things are there? Well,

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Speaker 1: farming is actually probably I hesitate to say that it's

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Speaker 1: been the biggest source of but it might be like

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Speaker 1: I wouldn't be shocked if you added up all the

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Speaker 1: civicate firms together and said, like, over the last couple

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Speaker 1: of years, have they made more from farming or trading?

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Speaker 1: The answer might be farmed. Can you give me an

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Speaker 1: intuitive understanding or farming? I mean, like, to me, farming

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Speaker 1: is like you sell some structured puts and collect premium.

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Speaker 1: But perhaps there's a more sophisticated understanding than that. Let

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Speaker 1: me give you sort of like a really a toy

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Speaker 1: model of it, which I actually think has a surprising

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Speaker 1: amount of legitimacy for what farming could mean. You know,

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Speaker 1: where do you start. You start with a company that

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Speaker 1: builds a box, and in practice this box they probably

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Speaker 1: dress it up to look like a life changing, world

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Speaker 1: altering protocol that's gonna replace all the big banks in

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Speaker 1: thirty eight days or whatever. Maybe for now actually ignore

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Speaker 1: what it does or pretend it does literally nothing. It's

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Speaker 1: just a box. So what this protocol is, It's called

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Speaker 1: protocol X. It's a box that you can take a token,

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Speaker 1: you can take a theory, and you can put it

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Speaker 1: in the box and take it out of the box

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Speaker 1: like you put it in the box, and you get like,

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Speaker 1: you know, an IOU for for having to put it

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Speaker 1: in the box, and then you can redeem that IOW

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Speaker 1: you back out for the token. So so far, what

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Speaker 1: we've described is the world's dumbest e t F or

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Speaker 1: a d R or something like that. It's a It

430
00:22:22,920 --> 00:22:25,840
Speaker 1: doesn't do anything but let you put things in it

431
00:22:25,880 --> 00:22:28,440
Speaker 1: if you so chose. And then this protocol issues a

432
00:22:28,520 --> 00:22:32,639
Speaker 1: token we'll call it whatever X token, and X token

433
00:22:32,760 --> 00:22:36,760
Speaker 1: promises that anything cool that happens because of this box

434
00:22:37,560 --> 00:22:42,720
Speaker 1: is gonna ultimately be usable by you know, governance vote

435
00:22:42,920 --> 00:22:45,879
Speaker 1: of holders of the X tokens. They can vote on

436
00:22:45,920 --> 00:22:49,359
Speaker 1: what to do with any proceeds or other cool things

437
00:22:49,400 --> 00:22:51,880
Speaker 1: that happened from this box. And of course, so far

438
00:22:51,920 --> 00:22:55,159
Speaker 1: we haven't exactly given a compelling reason for why there

439
00:22:55,160 --> 00:22:58,720
Speaker 1: ever would be any proceeds from this box, but I

440
00:22:58,720 --> 00:23:00,800
Speaker 1: don't know, you know, maybe maybe there will be. So

441
00:23:00,840 --> 00:23:03,040
Speaker 1: that's sort of where you start. And then you say,

442
00:23:03,080 --> 00:23:06,879
Speaker 1: all right, well yeah, this box and yeat X token,

443
00:23:07,760 --> 00:23:11,480
Speaker 1: and the box for a call declares or or maybe

444
00:23:11,560 --> 00:23:15,199
Speaker 1: votes byonunting governance or you know something like that. That

445
00:23:15,320 --> 00:23:18,920
Speaker 1: what they're gonna do is they are going to take

446
00:23:19,440 --> 00:23:21,920
Speaker 1: half of all the X tokens that will as remnted,

447
00:23:21,920 --> 00:23:25,280
Speaker 1: maybe two thirds of two thirds well ever X tokens,

448
00:23:25,359 --> 00:23:27,760
Speaker 1: and they're going to give them away for free to

449
00:23:27,800 --> 00:23:31,520
Speaker 1: everyone uses the box. So anyone who goes takes some

450
00:23:31,600 --> 00:23:34,760
Speaker 1: money puts in the box. Each day they're gonna air drop,

451
00:23:35,160 --> 00:23:37,680
Speaker 1: you know, one percent of the X tokens pro rata

452
00:23:37,960 --> 00:23:40,960
Speaker 1: among sephron who's put money in the box. That's for now,

453
00:23:41,080 --> 00:23:44,199
Speaker 1: what X token does. It gets given away to the

454
00:23:44,320 --> 00:23:48,439
Speaker 1: box people. And now what happens, Well, X token has

455
00:23:48,480 --> 00:23:51,879
Speaker 1: some market cap, right, it's it's probably not zero, but

456
00:23:52,080 --> 00:23:55,000
Speaker 1: let's say it's you know, twenty million dollar market cap

457
00:23:55,320 --> 00:23:58,040
Speaker 1: and a bunch of arbitreasures from from like first principles

458
00:23:58,040 --> 00:24:02,600
Speaker 1: that should be zerre But okay, sure, okay, I completely

459
00:24:02,600 --> 00:24:06,240
Speaker 1: resmall comments like I mean, like that's not quite true.

460
00:24:06,280 --> 00:24:08,600
Speaker 1: But it like, when you describe it in this totally

461
00:24:08,680 --> 00:24:10,840
Speaker 1: cynical way, it sounds like it'd beasier. But go describe

462
00:24:10,880 --> 00:24:12,879
Speaker 1: it this way. You might think, for instance, that in

463
00:24:12,960 --> 00:24:15,720
Speaker 1: like five minutes with an Internet connection, you can create

464
00:24:15,760 --> 00:24:17,879
Speaker 1: such a box in such a token, and that it

465
00:24:17,880 --> 00:24:20,600
Speaker 1: should reflects like, you know, it should be worth like

466
00:24:20,680 --> 00:24:24,080
Speaker 1: a hundred eighty dollars or something market cap for like that,

467
00:24:24,160 --> 00:24:26,199
Speaker 1: you know, that effort that you put into it. In

468
00:24:26,240 --> 00:24:28,440
Speaker 1: the world that we're in, if you do this, everyone's

469
00:24:28,440 --> 00:24:31,200
Speaker 1: gonna be like box token. Maybe it's cool if you

470
00:24:31,240 --> 00:24:33,919
Speaker 1: got in box token, you know, that's gonna appear on

471
00:24:33,920 --> 00:24:36,000
Speaker 1: Twitter and all have a twenty million dollar market cap.

472
00:24:36,400 --> 00:24:38,560
Speaker 1: And of course one thing that you could do is

473
00:24:38,600 --> 00:24:41,080
Speaker 1: you could like make the float very low and whatever.

474
00:24:41,760 --> 00:24:44,000
Speaker 1: You know, maybe maybe there haven't been twenty million dollars

475
00:24:44,040 --> 00:24:46,240
Speaker 1: that flowed into it yet. Maybe that's sort of like

476
00:24:46,400 --> 00:24:49,720
Speaker 1: is it's you know, mark to market fully diluted valuation

477
00:24:49,840 --> 00:24:52,640
Speaker 1: or something. But I acknowledge that it's not totally clear

478
00:24:52,680 --> 00:24:55,080
Speaker 1: that this thing should have market cap, but but empirically

479
00:24:55,119 --> 00:24:59,920
Speaker 1: I claim it would have market cap. Agree it should

480
00:25:00,080 --> 00:25:06,320
Speaker 1: any series, but that's right, So and obviously already we're

481
00:25:06,359 --> 00:25:08,440
Speaker 1: start of hiding some of the magic in that, right,

482
00:25:08,480 --> 00:25:10,720
Speaker 1: Like some of the magic is in like how do

483
00:25:10,800 --> 00:25:13,280
Speaker 1: you get that market gap to start with? But you know, whatever,

484
00:25:13,359 --> 00:25:14,879
Speaker 1: we're what We're going to move on from that for

485
00:25:14,920 --> 00:25:18,480
Speaker 1: a second. So you know X tokens being given out

486
00:25:18,480 --> 00:25:21,800
Speaker 1: each day all these like sophisticated firms, Like that's interesting,

487
00:25:21,840 --> 00:25:23,600
Speaker 1: Like if the total amount of money in the box

488
00:25:23,640 --> 00:25:27,600
Speaker 1: is a hundred million dollars, then it's gonna yield sixteen

489
00:25:27,640 --> 00:25:31,760
Speaker 1: million dollars this year in X tokens being given out

490
00:25:31,800 --> 00:25:34,400
Speaker 1: for it. That's a sixteen percent return. That's pretty good.

491
00:25:34,400 --> 00:25:37,040
Speaker 1: We'll put a little bit more in, right, and and

492
00:25:37,080 --> 00:25:39,560
Speaker 1: maybe that that happens until there are two million dollars

493
00:25:39,600 --> 00:25:42,920
Speaker 1: in the box. So you know, sophisticated traders and or

494
00:25:43,240 --> 00:25:46,119
Speaker 1: people on crypto Twitter or or other sort of similar

495
00:25:46,160 --> 00:25:48,560
Speaker 1: parties go and put two hundred million dollars in the

496
00:25:48,560 --> 00:25:52,360
Speaker 1: box collectively, and they start getting these ex tokens for it, right,

497
00:25:52,400 --> 00:25:54,520
Speaker 1: And now all of a sudden, he's like, wow, people

498
00:25:54,560 --> 00:25:57,439
Speaker 1: just decided to put two hundred million dollars in the box.

499
00:25:57,720 --> 00:26:00,680
Speaker 1: This is a pretty cool box, right, Like this this

500
00:26:00,760 --> 00:26:04,920
Speaker 1: is a valuable box as demonstrated by all the money

501
00:26:04,960 --> 00:26:08,080
Speaker 1: that people have apparently decided should be in the box.

502
00:26:08,760 --> 00:26:11,439
Speaker 1: And who are we to say that they're wrong about that? Like,

503
00:26:12,160 --> 00:26:14,560
Speaker 1: you know, this is I mean, boxes can be great.

504
00:26:14,600 --> 00:26:17,360
Speaker 1: Look I love boxes as much as the next guy, right,

505
00:26:17,440 --> 00:26:21,520
Speaker 1: And so what happens now all of a sudden people

506
00:26:21,520 --> 00:26:25,280
Speaker 1: are kind of recalibrating, like, well, twenty million dollars, that's it,

507
00:26:25,560 --> 00:26:28,160
Speaker 1: like that market cap for this box and it's been

508
00:26:28,200 --> 00:26:30,320
Speaker 1: like forty eight hours and it already has two hundred

509
00:26:30,359 --> 00:26:34,159
Speaker 1: million dollars, including from like sophisticated players in it, Like

510
00:26:34,480 --> 00:26:36,879
Speaker 1: come on, that's too late, right, like, and and they

511
00:26:36,960 --> 00:26:40,520
Speaker 1: look at these ratio TVL total value walked in the box,

512
00:26:40,880 --> 00:26:42,679
Speaker 1: you know, as a ratio to market cap of the

513
00:26:42,720 --> 00:26:45,720
Speaker 1: boxes token, and they're like ten x. That's insane. One

514
00:26:45,920 --> 00:26:48,639
Speaker 1: x is the norm. And so then you know, X

515
00:26:48,680 --> 00:26:51,120
Speaker 1: token price goes way up and now it's a hundred

516
00:26:51,160 --> 00:26:54,119
Speaker 1: thirty million dollar market cap token because of you know

517
00:26:54,160 --> 00:26:59,120
Speaker 1: the bullishness of people's usage of the box. And now

518
00:26:59,119 --> 00:27:00,600
Speaker 1: all of a sudden, of course, the smart money it's

519
00:27:00,600 --> 00:27:02,399
Speaker 1: like go wow, like this thing is now yielding like

520
00:27:02,440 --> 00:27:05,199
Speaker 1: sixty year in next tokens. Of course, I'll take my

521
00:27:05,240 --> 00:27:08,199
Speaker 1: sixty percent yield, right, so they go they were another

522
00:27:08,280 --> 00:27:10,280
Speaker 1: three million dollars in the box, and you get a

523
00:27:10,280 --> 00:27:12,639
Speaker 1: site and then it goes to infinity and then everyone

524
00:27:12,640 --> 00:27:15,359
Speaker 1: makes money. I think of myself as like a fairly

525
00:27:15,400 --> 00:27:20,000
Speaker 1: cynical person, and yep, that was so much more cynical. Yes,

526
00:27:20,920 --> 00:27:24,840
Speaker 1: I described farming like you're just like, well, I'm in

527
00:27:24,880 --> 00:27:28,560
Speaker 1: the ponzi business and it's pretty good. And did any

528
00:27:28,600 --> 00:27:31,520
Speaker 1: of this require any sort of like economic case is

529
00:27:31,600 --> 00:27:33,600
Speaker 1: just like other people get money in the box and

530
00:27:33,680 --> 00:27:35,800
Speaker 1: so I'm going to two and then it's more valuable,

531
00:27:35,800 --> 00:27:37,439
Speaker 1: so they're gonna put more money in. And at no

532
00:27:37,560 --> 00:27:39,680
Speaker 1: point in the cycle did it seem to like describe

533
00:27:39,720 --> 00:27:43,320
Speaker 1: any sort of like economic purpose. So, on the one hand,

534
00:27:43,359 --> 00:27:46,240
Speaker 1: I think that's a pretty reasonable response. But let me

535
00:27:46,240 --> 00:27:48,720
Speaker 1: play around with this a little bit, right, because that's

536
00:27:48,800 --> 00:27:51,520
Speaker 1: one framing of this, and I think there's like a

537
00:27:51,520 --> 00:27:54,480
Speaker 1: a sort of depressing amount of ablidity. Can you can

538
00:27:54,520 --> 00:27:58,719
Speaker 1: you comment on the sustainability of that, like, because like

539
00:27:58,760 --> 00:28:00,040
Speaker 1: you know, on the one and you're like, well, in

540
00:28:00,119 --> 00:28:02,120
Speaker 1: dollars money is going to come into a pit ground.

541
00:28:02,119 --> 00:28:04,399
Speaker 1: On the other hand, you're like, basically there are a

542
00:28:04,480 --> 00:28:08,080
Speaker 1: lot of ponzis that have done really well, right, so

543
00:28:08,800 --> 00:28:11,240
Speaker 1: let me okay, cool, I'll sail on the cynical route,

544
00:28:11,560 --> 00:28:15,440
Speaker 1: think about, like cynically what could happen here? Well, okay,

545
00:28:15,640 --> 00:28:18,840
Speaker 1: so you've got things boxes kind of dumb, but like

546
00:28:18,880 --> 00:28:21,720
Speaker 1: what's the end game? Right? Because boxes where zero obviously,

547
00:28:21,760 --> 00:28:24,600
Speaker 1: and like that, you know, you can't like keep this

548
00:28:24,680 --> 00:28:28,840
Speaker 1: market cap or something like the other hand, if everyone

549
00:28:28,920 --> 00:28:31,600
Speaker 1: kind of now thinks that this box token is worth

550
00:28:31,600 --> 00:28:33,959
Speaker 1: about a billion dollar market cap, that's when people are

551
00:28:33,960 --> 00:28:35,920
Speaker 1: pricing it at and sort of has that market cap,

552
00:28:37,160 --> 00:28:39,720
Speaker 1: everyone's gonna market to market. In fact, you can even

553
00:28:39,720 --> 00:28:41,880
Speaker 1: finance this, right, and you put x token in a

554
00:28:41,920 --> 00:28:44,600
Speaker 1: borrow lending protocol and borrowed dollars with it. If you

555
00:28:44,640 --> 00:28:48,320
Speaker 1: think it's worth like less than two thirds of that,

556
00:28:48,360 --> 00:28:50,200
Speaker 1: you you can even just like put some in there,

557
00:28:50,280 --> 00:28:52,480
Speaker 1: take the dollars out never never, you know, give the

558
00:28:52,520 --> 00:28:56,080
Speaker 1: dollars back and get liquidated eventually. And it is sort

559
00:28:56,120 --> 00:29:01,320
Speaker 1: of like real monetize herbal stuff in some senses. And

560
00:29:02,360 --> 00:29:04,520
Speaker 1: you know, at some point, like if the world never

561
00:29:04,640 --> 00:29:07,400
Speaker 1: decides that we were wrong about this in like a

562
00:29:07,480 --> 00:29:10,840
Speaker 1: coordinated way, right, Like you're kind of a guy calling

563
00:29:10,840 --> 00:29:13,320
Speaker 1: bullshit and saying no, this thing is actually worthless. But

564
00:29:13,360 --> 00:29:15,960
Speaker 1: in what sense are you right? Sorry? Can I just

565
00:29:16,000 --> 00:29:18,560
Speaker 1: ask on this point? I mean, so, are you saying

566
00:29:18,560 --> 00:29:22,600
Speaker 1: that the value has to derive from everyone agreeing that

567
00:29:22,680 --> 00:29:25,240
Speaker 1: it's worth something? And I know, like, on the one hand,

568
00:29:25,280 --> 00:29:27,840
Speaker 1: that seems like a simple point about crypto, but on

569
00:29:27,880 --> 00:29:30,880
Speaker 1: the other hand, throughout crypto's history there have been these

570
00:29:30,920 --> 00:29:34,920
Speaker 1: different arguments about how it actually gets value. You know,

571
00:29:35,280 --> 00:29:39,680
Speaker 1: use cases for the underlying technology for blockchain, Everyone's going

572
00:29:39,760 --> 00:29:41,840
Speaker 1: to start migrating stuff on blockchain and then you're going

573
00:29:41,880 --> 00:29:45,200
Speaker 1: to have a real economic use attached to these assets,

574
00:29:45,200 --> 00:29:47,000
Speaker 1: and that's where the value is going to come from.

575
00:29:47,240 --> 00:29:49,400
Speaker 1: But are you saying that it depends more on everyone

576
00:29:49,600 --> 00:29:54,080
Speaker 1: just agreeing that these are worth something? So really, what

577
00:29:54,120 --> 00:29:56,360
Speaker 1: I'd say is that it could come in theory from

578
00:29:56,400 --> 00:29:59,080
Speaker 1: either you can sort of get a market cap either

579
00:29:59,120 --> 00:30:02,520
Speaker 1: because of cash show right, and then like Warren Buffets

580
00:30:02,560 --> 00:30:04,440
Speaker 1: like fun this, like I'm going to buy this if

581
00:30:04,440 --> 00:30:06,920
Speaker 1: it's at too cheaper price, result just buy it and

582
00:30:06,960 --> 00:30:08,920
Speaker 1: own it and get cash flor from it and that's great.

583
00:30:09,840 --> 00:30:12,440
Speaker 1: Or you could see something get market cap in the

584
00:30:12,440 --> 00:30:15,400
Speaker 1: way that I don't know, Dodge point or ship coin

585
00:30:15,520 --> 00:30:18,120
Speaker 1: have right where people just kind of like ha ha,

586
00:30:18,400 --> 00:30:21,200
Speaker 1: and then they buy it and if you're like that's dumb,

587
00:30:21,200 --> 00:30:23,320
Speaker 1: it has no cash flow, I'm gonna short sell it.

588
00:30:23,680 --> 00:30:27,560
Speaker 1: You lose all your money, and h you know that

589
00:30:27,840 --> 00:30:30,480
Speaker 1: those like at least like over the last few years,

590
00:30:30,520 --> 00:30:32,920
Speaker 1: those are booth in ways that like assets have gotten

591
00:30:33,680 --> 00:30:37,880
Speaker 1: market cap, and I I sort of like, I think

592
00:30:37,920 --> 00:30:41,480
Speaker 1: that this starts to hint at like at least some

593
00:30:41,720 --> 00:30:46,360
Speaker 1: interesting angles on this, because like it's not just cryptocurrencies

594
00:30:46,400 --> 00:30:49,520
Speaker 1: that have had this dynamic, right, Like how about like

595
00:30:50,280 --> 00:30:54,880
Speaker 1: you know, a m C or hurts or game stop

596
00:30:54,960 --> 00:30:58,400
Speaker 1: or meme. Stocks in general have like a very similar

597
00:30:58,440 --> 00:31:01,320
Speaker 1: pattern to this, And and the sort of like concept

598
00:31:01,320 --> 00:31:04,040
Speaker 1: of like maybe people will pay something for it even

599
00:31:04,040 --> 00:31:07,920
Speaker 1: though it doesn't seem traditionally valuable is not a crypto

600
00:31:08,200 --> 00:31:12,719
Speaker 1: specific concept, although it certainly has become Like I mean,

601
00:31:13,040 --> 00:31:15,960
Speaker 1: I've seen game stuff though it's like usually that's the

602
00:31:16,080 --> 00:31:20,040
Speaker 1: perception and I'm not judging, but the perception is that

603
00:31:20,040 --> 00:31:22,680
Speaker 1: that it's sort of like a perversion of what the

604
00:31:22,680 --> 00:31:26,080
Speaker 1: whole point of like the stock market is as opposed

605
00:31:26,120 --> 00:31:28,640
Speaker 1: to like this is going to be like the basis

606
00:31:29,320 --> 00:31:32,880
Speaker 1: of this yeah, I've written that sort of thing before,

607
00:31:32,920 --> 00:31:35,360
Speaker 1: Like I would have I would have sort of drawn

608
00:31:35,360 --> 00:31:37,800
Speaker 1: the causality the other way, like I would I've said that, like,

609
00:31:38,360 --> 00:31:40,480
Speaker 1: you know, the rise of bitcoin allowed for things like

610
00:31:40,520 --> 00:31:42,480
Speaker 1: game stop at AMC. But I also think that like

611
00:31:42,480 --> 00:31:45,920
Speaker 1: there's a difference between something like bitcoin where people are like, well,

612
00:31:46,120 --> 00:31:47,840
Speaker 1: this thing is the story of value, and enough people

613
00:31:47,920 --> 00:31:50,520
Speaker 1: accept that that it becomes a story of value and

614
00:31:50,560 --> 00:31:54,200
Speaker 1: the box that you're describing, where like, like no one

615
00:31:54,280 --> 00:31:57,040
Speaker 1: has an emotional attachment to the box in your description,

616
00:31:57,040 --> 00:32:00,240
Speaker 1: and I think also empirically, like what they have is

617
00:32:01,040 --> 00:32:03,400
Speaker 1: and and an a p y number, right, what they

618
00:32:03,400 --> 00:32:05,200
Speaker 1: have is they're like, oh, this box is paying us

619
00:32:05,200 --> 00:32:06,880
Speaker 1: a lot of money, so we're gonna stay in it.

620
00:32:07,040 --> 00:32:10,000
Speaker 1: And so there's like with bitcoin, you know, you can

621
00:32:10,040 --> 00:32:12,680
Speaker 1: sort of say there's a sustainable value because of like

622
00:32:13,200 --> 00:32:15,880
Speaker 1: just sort of like a broad social acceptance. But like

623
00:32:16,680 --> 00:32:19,280
Speaker 1: I feel like with a lot of this like farming

624
00:32:19,280 --> 00:32:23,080
Speaker 1: stuff like the kid his box act, like no one

625
00:32:23,160 --> 00:32:25,080
Speaker 1: knows the name from day to day. It's just like

626
00:32:25,120 --> 00:32:27,080
Speaker 1: this is the box that is yielding the most today,

627
00:32:27,280 --> 00:32:28,880
Speaker 1: So I'm gonna put money in and I'm sort of

628
00:32:28,880 --> 00:32:31,920
Speaker 1: curious about the sustainability of that. Yeah, so certainly some

629
00:32:32,000 --> 00:32:35,080
Speaker 1: of them are unsustainable and some of them are, you know,

630
00:32:35,200 --> 00:32:37,960
Speaker 1: many of them by number, and exactly the way you

631
00:32:38,040 --> 00:32:40,440
Speaker 1: think that they work, right, Like the way these end

632
00:32:40,640 --> 00:32:43,000
Speaker 1: is that like eventually people decide that this is no

633
00:32:43,080 --> 00:32:47,040
Speaker 1: longer today's school box, this is yesterday's lane box, and

634
00:32:47,800 --> 00:32:49,880
Speaker 1: they go down a lot in price, and then people

635
00:32:49,880 --> 00:32:52,680
Speaker 1: start move on to box number two. And if everyone

636
00:32:52,680 --> 00:32:54,960
Speaker 1: did a careful accounting of where they ended up, I

637
00:32:54,960 --> 00:32:56,840
Speaker 1: don't know, you know, what they've made money? Would they not?

638
00:32:56,920 --> 00:32:58,760
Speaker 1: If it's a whole unclear like some people would have,

639
00:32:58,800 --> 00:33:01,680
Speaker 1: some people wouldn't have. It's a messy And that's like,

640
00:33:02,040 --> 00:33:06,720
Speaker 1: certainly how some of these quickly end up, but it's

641
00:33:06,720 --> 00:33:10,280
Speaker 1: not how all of them do. And in particularly, let's

642
00:33:10,320 --> 00:33:13,760
Speaker 1: let's be revisit one of the earliest assumptions about this, right,

643
00:33:13,920 --> 00:33:16,400
Speaker 1: the point where I said, this is a box that

644
00:33:16,440 --> 00:33:19,280
Speaker 1: does nothing but be a box, right, And that was like,

645
00:33:20,040 --> 00:33:22,160
Speaker 1: I think a little facetious er, although I do think

646
00:33:22,160 --> 00:33:24,360
Speaker 1: it's like an important way to understand part of what's

647
00:33:24,400 --> 00:33:27,120
Speaker 1: going on. But it's not really the case that the

648
00:33:27,160 --> 00:33:29,800
Speaker 1: biggest of these claimed to be a box that is

649
00:33:29,880 --> 00:33:32,080
Speaker 1: nothing but a box. They claim to be a bit

650
00:33:32,120 --> 00:33:35,160
Speaker 1: more than that. And you know, you can query how

651
00:33:35,240 --> 00:33:39,960
Speaker 1: much you believe the story that their value at its

652
00:33:40,000 --> 00:33:44,320
Speaker 1: heart is coming from them being more than just a box.

653
00:33:44,880 --> 00:33:47,800
Speaker 1: But people certainly perceive them to be more than that.

654
00:33:47,920 --> 00:33:52,320
Speaker 1: And you know examples of this, right I Well, let's say,

655
00:33:52,360 --> 00:33:55,400
Speaker 1: you know, what are some of the most popular steaking programs.

656
00:33:55,640 --> 00:33:59,200
Speaker 1: They're like, you know, historically unite swap of a compound.

657
00:33:59,600 --> 00:34:03,080
Speaker 1: These are various boxes that have an actual product tied

658
00:34:03,120 --> 00:34:05,880
Speaker 1: to them that has like a narrative about why it

659
00:34:05,960 --> 00:34:09,439
Speaker 1: might become the world's next big thing. You know, maybe

660
00:34:09,480 --> 00:34:12,200
Speaker 1: it's gonna be like the preeminent depths. You know, maybe

661
00:34:12,239 --> 00:34:14,959
Speaker 1: it's going to be the preeminent borrow lending protocol and chain.

662
00:34:15,560 --> 00:34:18,280
Speaker 1: And it's like you know, weird box sticking things starts

663
00:34:18,280 --> 00:34:21,120
Speaker 1: out is just this sort of like side show. So

664
00:34:21,280 --> 00:34:24,120
Speaker 1: the bigger story of we're going to change the world

665
00:34:24,280 --> 00:34:27,279
Speaker 1: with the protocol that we just built. Now, sometimes that

666
00:34:27,440 --> 00:34:32,080
Speaker 1: side show becomes the main show itself because sometimes you know,

667
00:34:32,200 --> 00:34:34,960
Speaker 1: in the end, what really happens is that like the

668
00:34:35,280 --> 00:34:39,879
Speaker 1: box plus yield nature of it becomes more popular than

669
00:34:40,680 --> 00:34:44,080
Speaker 1: the original use case of it. But it makes it

670
00:34:44,200 --> 00:34:46,359
Speaker 1: at least seem a bit less dumb and a bit

671
00:34:46,440 --> 00:34:50,600
Speaker 1: less circular and a bit more like, you know, there's

672
00:34:50,640 --> 00:34:53,239
Speaker 1: something real that many of these are drawing on and

673
00:34:53,280 --> 00:34:56,000
Speaker 1: a real hope that it's going to become itself a

674
00:34:56,080 --> 00:35:01,479
Speaker 1: valuable protocol. So obviously, okay, maybe defied crypto will become

675
00:35:01,600 --> 00:35:04,360
Speaker 1: very important, but I'm still just sort of like curious,

676
00:35:04,440 --> 00:35:07,759
Speaker 1: you know, just the sort of pure making money side

677
00:35:07,760 --> 00:35:11,040
Speaker 1: of this. You estimated that sort of the arbitrage market

678
00:35:11,080 --> 00:35:13,720
Speaker 1: for bitcoin, maybe there's potential one and a half billion

679
00:35:13,719 --> 00:35:16,560
Speaker 1: dollars and profits out there for the taking. Like how

680
00:35:16,600 --> 00:35:19,880
Speaker 1: big is the farming industry when you talk about like

681
00:35:19,960 --> 00:35:22,040
Speaker 1: this is a news besides trading? This is the other

682
00:35:22,040 --> 00:35:24,960
Speaker 1: big way. How big is the putting money in a

683
00:35:25,000 --> 00:35:28,759
Speaker 1: box industry getting? And I'm also curious, Like, you know,

684
00:35:28,840 --> 00:35:30,680
Speaker 1: one of the things that people in this space talk

685
00:35:30,719 --> 00:35:34,080
Speaker 1: about is you can, thanks to ft x specifically and

686
00:35:34,239 --> 00:35:37,160
Speaker 1: thanks to the perpetual futures that it lists for so

687
00:35:37,200 --> 00:35:41,240
Speaker 1: many coins, I could buy the coin farm it short

688
00:35:41,400 --> 00:35:43,600
Speaker 1: the future on ft X so that I don't even

689
00:35:43,600 --> 00:35:45,840
Speaker 1: have to take a directional position on the coin itself

690
00:35:46,239 --> 00:35:49,040
Speaker 1: and just sort of milk the farming yield. So can

691
00:35:49,080 --> 00:35:51,560
Speaker 1: you just describe like how big is this sort of

692
00:35:51,600 --> 00:35:55,720
Speaker 1: like ecosystem, and how sophisticated are the trades getting beyond

693
00:35:55,800 --> 00:35:58,120
Speaker 1: just sort of like the naive or simple like CREWD

694
00:35:58,239 --> 00:36:01,120
Speaker 1: put money in the box trade. Well, let's do like

695
00:36:01,200 --> 00:36:06,080
Speaker 1: some rough ballparking. There's something two billion dollars of quote

696
00:36:06,120 --> 00:36:11,359
Speaker 1: unquote TVL quote value locked on chain, and now a

697
00:36:11,400 --> 00:36:15,560
Speaker 1: lot of that is basically irrelevantly lost on chain, and

698
00:36:15,600 --> 00:36:17,600
Speaker 1: you can sort of ignore. Maybe a hundred billion is

699
00:36:17,600 --> 00:36:19,279
Speaker 1: sort of like the real number or something a little

700
00:36:19,280 --> 00:36:21,920
Speaker 1: bit less than that. Yields are certainly down a fair bit,

701
00:36:22,000 --> 00:36:24,319
Speaker 1: but I think we're looking at like, you know, mid

702
00:36:24,360 --> 00:36:27,160
Speaker 1: to high single digit percents on average or something like that.

703
00:36:27,760 --> 00:36:30,399
Speaker 1: And so I don't know, you know, mid to high

704
00:36:30,440 --> 00:36:33,520
Speaker 1: single digit billions of dollars a year of quote unquote

705
00:36:33,520 --> 00:36:36,480
Speaker 1: profit that that are being made by farmers actually doesn't

706
00:36:36,480 --> 00:36:38,560
Speaker 1: sound insane to me as as a ball park of this,

707
00:36:39,040 --> 00:36:41,400
Speaker 1: which that's a big number to the extent that this

708
00:36:41,440 --> 00:36:44,719
Speaker 1: is real profit, it's you know, we might be talking

709
00:36:44,760 --> 00:36:46,680
Speaker 1: five billion a year that sort of like traders are

710
00:36:46,719 --> 00:36:49,680
Speaker 1: making from farming. So yeah, that the numbers are not

711
00:36:49,760 --> 00:36:53,080
Speaker 1: are not tiny, and and they're plausibly bigger, probably bigger

712
00:36:53,120 --> 00:36:56,880
Speaker 1: and aggreeate than treading returns and group im not. I

713
00:36:56,880 --> 00:36:59,239
Speaker 1: don't want to like a hundred percent square by that comparison,

714
00:36:59,320 --> 00:37:03,120
Speaker 1: but I am might be right, is not out of

715
00:37:03,200 --> 00:37:06,560
Speaker 1: line with like my my sort of instincts and prior

716
00:37:06,600 --> 00:37:08,680
Speaker 1: and and did some pieces of knowledge I have here?

717
00:37:09,160 --> 00:37:13,839
Speaker 1: So it's a lot one I think one thing which

718
00:37:13,880 --> 00:37:18,880
Speaker 1: is worth noting here, right. One parallel is well, okay,

719
00:37:18,960 --> 00:37:21,560
Speaker 1: let's say that you have a company, right, and this

720
00:37:21,640 --> 00:37:25,239
Speaker 1: company delivers food. Right, what it does is it it

721
00:37:25,560 --> 00:37:27,759
Speaker 1: goes to restaurants and picks up food and takes it

722
00:37:27,800 --> 00:37:31,200
Speaker 1: to houses and puts the food there. And there's a

723
00:37:31,200 --> 00:37:34,640
Speaker 1: few of these, right, what would be like how you

724
00:37:34,640 --> 00:37:36,920
Speaker 1: would think this company would do during a pandemic? You

725
00:37:37,239 --> 00:37:40,640
Speaker 1: think spectacular? Right? In fact, the pandemic was a very

726
00:37:40,680 --> 00:37:44,040
Speaker 1: trying period for some food delivery companies because their unit

727
00:37:44,040 --> 00:37:47,879
Speaker 1: economics were negative, like they were. They were running out

728
00:37:47,880 --> 00:37:50,200
Speaker 1: of loss and it had been for years, and the

729
00:37:50,239 --> 00:37:53,959
Speaker 1: pandemic meant more business, which meant more loss for them,

730
00:37:54,480 --> 00:37:58,920
Speaker 1: so paradoxically it was negative. And how did that happen? Well,

731
00:37:58,920 --> 00:38:01,560
Speaker 1: what's the actual whole well a funds there if you

732
00:38:01,640 --> 00:38:04,400
Speaker 1: take a step back, Well, the company, why are they

733
00:38:04,480 --> 00:38:08,000
Speaker 1: running out a loss? Well, vcs keep funding them, right,

734
00:38:08,120 --> 00:38:11,200
Speaker 1: People keep putting money into the company here, and the

735
00:38:11,280 --> 00:38:18,120
Speaker 1: company then has stock price goes up because this metric

736
00:38:18,280 --> 00:38:22,520
Speaker 1: business revenue, a metric that isn't actually profit, goes up.

737
00:38:23,160 --> 00:38:25,600
Speaker 1: And you know, as long as sort of like that

738
00:38:25,680 --> 00:38:28,319
Speaker 1: keeps happening, right, people keep putting more and more money

739
00:38:28,360 --> 00:38:32,200
Speaker 1: into the box. And the associated security in this case

740
00:38:32,400 --> 00:38:34,640
Speaker 1: is because it is tied to the ultimate profit or

741
00:38:34,840 --> 00:38:37,879
Speaker 1: something like that of this company goes up and up,

742
00:38:38,520 --> 00:38:41,839
Speaker 1: and you know, it keeps spending more money than it's

743
00:38:41,880 --> 00:38:44,239
Speaker 1: making on things that are causing it to make that

744
00:38:44,280 --> 00:38:46,880
Speaker 1: money in the first place, like negative unit economics or

745
00:38:47,040 --> 00:38:49,799
Speaker 1: or just hip tons of advertising or something like that.

746
00:38:50,200 --> 00:38:51,719
Speaker 1: And and then it gets more and more business. And

747
00:38:51,719 --> 00:38:53,960
Speaker 1: because it gets more business, people like, that's great, using

748
00:38:54,000 --> 00:38:56,440
Speaker 1: even more money, bigger numbers. Let's put more money in

749
00:38:56,880 --> 00:38:59,920
Speaker 1: the goal here being collect all the money in your box,

750
00:39:00,480 --> 00:39:02,239
Speaker 1: you look a lot bigger than your competitors, and they

751
00:39:02,239 --> 00:39:04,520
Speaker 1: started give up, and you win, and then in the

752
00:39:04,600 --> 00:39:07,080
Speaker 1: end you get all the real business and and and

753
00:39:07,080 --> 00:39:10,279
Speaker 1: and basically it's all an advertising budget, right, as much

754
00:39:10,280 --> 00:39:12,160
Speaker 1: as anything else This is all a way for like,

755
00:39:12,800 --> 00:39:16,760
Speaker 1: you know, your box to get more notoriety and ultimately

756
00:39:16,840 --> 00:39:19,640
Speaker 1: end up getting real business six years later because of that.

757
00:39:19,640 --> 00:39:22,440
Speaker 1: That's sort of like standard operating procedure frankly for startups

758
00:39:22,520 --> 00:39:25,280
Speaker 1: right now. And it's very similar to what we're talking

759
00:39:25,280 --> 00:39:44,960
Speaker 1: about in some ways with these high verticals. Can I ask,

760
00:39:45,280 --> 00:39:48,360
Speaker 1: I mean, what we're talking about here is basically circularity

761
00:39:48,480 --> 00:39:53,360
Speaker 1: and the circularity of defy And there's one other aspect

762
00:39:53,440 --> 00:39:56,600
Speaker 1: of it that I've been thinking a lot about lately,

763
00:39:56,760 --> 00:39:58,400
Speaker 1: and I'm trying to think how to phrase this, But

764
00:39:59,200 --> 00:40:01,920
Speaker 1: it's pretty clear in crypto that you want to avoid

765
00:40:02,040 --> 00:40:05,920
Speaker 1: dealing with FIAT currencies as much as possible. So onboarding

766
00:40:06,000 --> 00:40:08,520
Speaker 1: is tough, or there are tax reasons to avoid doing

767
00:40:08,520 --> 00:40:11,040
Speaker 1: that or whatever. So the way everyone gets around that

768
00:40:11,160 --> 00:40:14,759
Speaker 1: is through stable coins. But stable coins are basically just

769
00:40:14,760 --> 00:40:17,600
Speaker 1: trying to replicate the dollar for the most part, right

770
00:40:17,680 --> 00:40:19,799
Speaker 1: So you're not really getting away from FIAT, You're just

771
00:40:20,000 --> 00:40:24,320
Speaker 1: replicating it in a way that fits into the crypto ecosystem.

772
00:40:24,560 --> 00:40:28,480
Speaker 1: Is is that a problem for crypto or like, at

773
00:40:28,520 --> 00:40:33,680
Speaker 1: some point conceptually should stable coins go away? What I

774
00:40:33,680 --> 00:40:35,200
Speaker 1: guess the question is, like, what is the point of

775
00:40:35,200 --> 00:40:39,280
Speaker 1: crypto if everything is eventually underpinned by the dollar anyway,

776
00:40:39,320 --> 00:40:43,160
Speaker 1: there is an interesting question of, like what happens to

777
00:40:43,239 --> 00:40:49,000
Speaker 1: the price of bitcoin and other digital assets in the

778
00:40:49,000 --> 00:40:52,400
Speaker 1: face of stable coins if they obviate they need to

779
00:40:52,560 --> 00:40:56,799
Speaker 1: have an actual asset that is not tied to the

780
00:40:56,840 --> 00:41:00,440
Speaker 1: dollar in the first place, right if just like dollarization

781
00:41:00,920 --> 00:41:03,120
Speaker 1: takes over service fool Like, I think that's sort of

782
00:41:03,120 --> 00:41:05,520
Speaker 1: an interesting question. I think when you look at well,

783
00:41:05,680 --> 00:41:07,239
Speaker 1: is it bad to have a dollar like guess in

784
00:41:07,280 --> 00:41:09,480
Speaker 1: the system? I think no, I think it's super powerful.

785
00:41:09,520 --> 00:41:11,399
Speaker 1: And I think what I'd say is like, I'll try

786
00:41:11,480 --> 00:41:14,240
Speaker 1: and send a hundred thousand dollars to the guy saying

787
00:41:14,239 --> 00:41:17,040
Speaker 1: next to me, um or is the woman saying next

788
00:41:17,080 --> 00:41:18,640
Speaker 1: to me? And you know, you'll try and send a

789
00:41:18,680 --> 00:41:21,160
Speaker 1: hundred thousand dollars the person sitting next to you. And

790
00:41:21,160 --> 00:41:23,640
Speaker 1: we'll have a race. And I'm going to use USDC

791
00:41:23,760 --> 00:41:26,840
Speaker 1: and you're gonna use USDC or USD rather. And I

792
00:41:26,920 --> 00:41:28,600
Speaker 1: have a guess as to who's gonna win that race.

793
00:41:28,640 --> 00:41:30,239
Speaker 1: I have a guest as to whose money is going

794
00:41:30,280 --> 00:41:32,279
Speaker 1: to get there first. And if we want to do

795
00:41:32,360 --> 00:41:36,120
Speaker 1: some you know, a race to someone who's sitting in Nigeria. Boy,

796
00:41:36,160 --> 00:41:38,439
Speaker 1: do have a strong guest about you know, whose money

797
00:41:38,480 --> 00:41:39,920
Speaker 1: is going to get there first and who's gonna have

798
00:41:39,960 --> 00:41:42,239
Speaker 1: spent more doing it? And so I think that to

799
00:41:42,360 --> 00:41:44,880
Speaker 1: some extent right away you can see this is can

800
00:41:44,920 --> 00:41:47,319
Speaker 1: you unpack that a little? Like when you get the

801
00:41:47,440 --> 00:41:50,000
Speaker 1: u s DC to the guy in Nigeria and then

802
00:41:50,040 --> 00:41:53,000
Speaker 1: he wants to buy a sandwich with it, what happens right,

803
00:41:53,120 --> 00:41:56,759
Speaker 1: So right now there's a sense in which it doesn't

804
00:41:56,760 --> 00:41:59,239
Speaker 1: accomplish all that much if the next thing he has

805
00:41:59,280 --> 00:42:02,040
Speaker 1: to do is CD to cash out USDC for a

806
00:42:02,160 --> 00:42:05,840
Speaker 1: USD wire transfer anyway, right, and then like by the

807
00:42:05,840 --> 00:42:08,520
Speaker 1: time he's bought the sandwich, you know your crypto transfer

808
00:42:08,600 --> 00:42:12,160
Speaker 1: did nothing because it all bottomed out in the same place. Anyway.

809
00:42:12,200 --> 00:42:14,960
Speaker 1: That being said, I think there's like two reasons that

810
00:42:14,960 --> 00:42:18,560
Speaker 1: that I don't fully buy that response, one of which is,

811
00:42:19,080 --> 00:42:21,080
Speaker 1: you know, eventually you can imagine a world where the

812
00:42:21,080 --> 00:42:24,960
Speaker 1: sandwich guy accepts USDC, right, and what's the sandwich guy

813
00:42:25,000 --> 00:42:28,640
Speaker 1: accepts it, then he actually never needs to go into

814
00:42:29,120 --> 00:42:32,560
Speaker 1: you know, into fat directly, right? Can you just stay

815
00:42:32,680 --> 00:42:35,680
Speaker 1: in in cryptoland the whole time? And I think that

816
00:42:35,719 --> 00:42:38,600
Speaker 1: it is in some ways actually just more efficient. So

817
00:42:38,640 --> 00:42:42,400
Speaker 1: that's that's one answer to your question. But another answer

818
00:42:42,480 --> 00:42:46,279
Speaker 1: to your question is, you know there are services of

819
00:42:46,440 --> 00:42:49,680
Speaker 1: text is one of them that can convert easily between

820
00:42:49,680 --> 00:42:52,600
Speaker 1: dollars and currencies and connect as you know, point of

821
00:42:52,640 --> 00:42:56,960
Speaker 1: sale converters there, so that people could go to a

822
00:42:57,920 --> 00:43:01,360
Speaker 1: sandwich store and like, hey with so, but the Sandward

823
00:43:01,400 --> 00:43:05,560
Speaker 1: store receives local fiat currency, and there still does have

824
00:43:05,600 --> 00:43:07,879
Speaker 1: to be a conversion involved. But now what we're saying

825
00:43:07,960 --> 00:43:10,439
Speaker 1: is that like one, a few companies have to figure

826
00:43:10,480 --> 00:43:13,760
Speaker 1: out how to do that conversion in large bulk size,

827
00:43:14,280 --> 00:43:16,920
Speaker 1: you know, netting it all out somewhat efficiently, which is

828
00:43:16,960 --> 00:43:20,000
Speaker 1: a lot easier than if you're trying to live in

829
00:43:20,000 --> 00:43:24,239
Speaker 1: a world where like person had to figure out how

830
00:43:24,280 --> 00:43:26,359
Speaker 1: to do this in order to send money to like

831
00:43:26,600 --> 00:43:29,600
Speaker 1: their aunt back home. And you can still end up

832
00:43:29,600 --> 00:43:32,200
Speaker 1: in a world where, like, for almost everyone, this system

833
00:43:32,239 --> 00:43:34,480
Speaker 1: is extremely easy, and like, there are a few points

834
00:43:34,520 --> 00:43:37,160
Speaker 1: that deal with the converting back and forth, but like

835
00:43:37,520 --> 00:43:41,880
Speaker 1: removes eight of difficult parts that would have needed to happen.

836
00:43:42,120 --> 00:43:46,080
Speaker 1: What's your take on the rise of either algorithmic or

837
00:43:46,160 --> 00:43:49,960
Speaker 1: partially algorithmic partially backed stable clients One of the most

838
00:43:50,040 --> 00:43:54,280
Speaker 1: interesting phenomenons happening right now is the rise of Luna

839
00:43:54,560 --> 00:43:58,279
Speaker 1: and Ust. And Luna has this treasury reserve consisting of

840
00:43:58,280 --> 00:44:00,439
Speaker 1: a lot of bitcoin, which seems a little you see,

841
00:44:00,760 --> 00:44:03,239
Speaker 1: But some people say, any idea of like an algorithmic

842
00:44:03,280 --> 00:44:06,080
Speaker 1: back stable coin is a perpetual motion machine. It's only

843
00:44:06,080 --> 00:44:08,719
Speaker 1: a matter of time before it fails. Like do you

844
00:44:08,760 --> 00:44:10,520
Speaker 1: believe there can be like a truly sort of like

845
00:44:10,600 --> 00:44:15,160
Speaker 1: decentralized stable coin, Like what do you make of these

846
00:44:15,360 --> 00:44:19,239
Speaker 1: these projects? I think they're really cool. I do have

847
00:44:19,320 --> 00:44:22,560
Speaker 1: some sympathy to the perpetual motion machine crowd here they

848
00:44:22,560 --> 00:44:25,239
Speaker 1: consider some useful purposes. But if you do zoom out

849
00:44:25,360 --> 00:44:28,040
Speaker 1: right and you say, this is a stable coin backed

850
00:44:28,080 --> 00:44:31,080
Speaker 1: by volatile assets, what's going to happen in a big

851
00:44:31,120 --> 00:44:33,719
Speaker 1: market move right? Like you know how this plays out?

852
00:44:33,960 --> 00:44:37,680
Speaker 1: It certainly seems like that's only asking for trouble eventually.

853
00:44:37,719 --> 00:44:41,920
Speaker 1: But yeah, I think that's I think that's right now. Again,

854
00:44:41,960 --> 00:44:43,839
Speaker 1: you could say, like, look, we want like this on

855
00:44:43,920 --> 00:44:47,000
Speaker 1: chain algorithmic coin for these reasons and like the goals

856
00:44:47,000 --> 00:44:48,480
Speaker 1: and for someone to sit there and hold it for

857
00:44:48,560 --> 00:44:51,120
Speaker 1: five years. The goals start to use briefly for like

858
00:44:51,440 --> 00:44:54,600
Speaker 1: transactions on chain, and they created and redeemed on chain

859
00:44:54,760 --> 00:44:58,200
Speaker 1: really frequently, and I think answers like that can can

860
00:44:58,360 --> 00:45:00,759
Speaker 1: make sense. I think there's all of versions of quote

861
00:45:00,800 --> 00:45:03,759
Speaker 1: unquote algorithm makes stable points that do have risk in them,

862
00:45:03,760 --> 00:45:07,719
Speaker 1: but that also have massively enhanced yield because they're they're

863
00:45:07,719 --> 00:45:09,760
Speaker 1: taking that risk on in order to do a trade

864
00:45:09,800 --> 00:45:12,600
Speaker 1: that makes money effectively. Right there, They're almost like money

865
00:45:12,600 --> 00:45:15,200
Speaker 1: market funds in some sense, you know, that cross of them,

866
00:45:15,400 --> 00:45:17,520
Speaker 1: and that can make sense as well from sort of

867
00:45:17,560 --> 00:45:21,040
Speaker 1: like an economic perspective. But but I am skeptical of,

868
00:45:21,160 --> 00:45:23,920
Speaker 1: you know, thinking that like a typical person is going

869
00:45:23,960 --> 00:45:27,400
Speaker 1: to want to for long periods of time hold a

870
00:45:27,800 --> 00:45:31,920
Speaker 1: typical algorithmic stable coin that isn't paying interest because it's

871
00:45:31,960 --> 00:45:34,839
Speaker 1: just like you know, someone said, hey, great, it's it's

872
00:45:34,880 --> 00:45:36,359
Speaker 1: new things kind of like a bank, and put your

873
00:45:36,360 --> 00:45:38,920
Speaker 1: money on it. But every four years it might go

874
00:45:39,000 --> 00:45:42,840
Speaker 1: to zero. And that's the difference. It's not it's not

875
00:45:42,920 --> 00:45:47,720
Speaker 1: super compelling. So we've covered straightforward h F two arbitrage

876
00:45:47,800 --> 00:45:51,160
Speaker 1: type stuff, covered yield farming. If you ask how people

877
00:45:51,200 --> 00:45:53,640
Speaker 1: are making money in equities, right, like one of those

878
00:45:53,680 --> 00:45:55,480
Speaker 1: things that is true anyway, But then like a lot

879
00:45:55,520 --> 00:45:58,279
Speaker 1: of it is options and structured products and like kind

880
00:45:58,320 --> 00:46:01,239
Speaker 1: of packaging stuff in weird ways. Where are we in

881
00:46:01,280 --> 00:46:03,520
Speaker 1: that part of the ecosystem and crypto? I know there's

882
00:46:03,560 --> 00:46:05,960
Speaker 1: things where like people are doing like kind of defy

883
00:46:06,080 --> 00:46:08,440
Speaker 1: structured products where like you can like kind of put

884
00:46:08,440 --> 00:46:10,680
Speaker 1: your money into butt and sell options. How should I

885
00:46:10,680 --> 00:46:13,960
Speaker 1: think about that as being part of the ecosystem. Yeah,

886
00:46:14,000 --> 00:46:17,920
Speaker 1: it's a good question, and I think the answer here

887
00:46:18,000 --> 00:46:20,920
Speaker 1: is actually a little bit weird and surprising given everything

888
00:46:20,960 --> 00:46:25,279
Speaker 1: else that's going on, which is not that much Like

889
00:46:25,880 --> 00:46:27,960
Speaker 1: it's not that surprising when you like listen to the

890
00:46:28,000 --> 00:46:32,279
Speaker 1: description of field farming. But okay, right, I didn't thinking

891
00:46:32,280 --> 00:46:36,720
Speaker 1: about mechanically does clarify a little bit why options haven't

892
00:46:36,719 --> 00:46:39,160
Speaker 1: taken off, But they really haven't. Volume and options is

893
00:46:39,600 --> 00:46:42,840
Speaker 1: very small compared to volume in futures. I you know,

894
00:46:42,840 --> 00:46:45,319
Speaker 1: when you look at most these defy primitives that have

895
00:46:45,400 --> 00:46:48,719
Speaker 1: taken off, most of them are way simpler than a

896
00:46:48,760 --> 00:46:52,680
Speaker 1: typical launch options contract would be. By and large. I

897
00:46:52,719 --> 00:46:54,520
Speaker 1: do think it's the case right now in crypto that

898
00:46:54,680 --> 00:46:58,480
Speaker 1: like sort of more complex structured products are just are

899
00:46:58,520 --> 00:47:01,560
Speaker 1: not that big compared are to this sort of like

900
00:47:01,640 --> 00:47:05,799
Speaker 1: simplest pseudo perpetual motion machine you put vision Because you

901
00:47:05,840 --> 00:47:09,200
Speaker 1: read all these stories about like Goldman doing OTC options trades,

902
00:47:09,280 --> 00:47:11,680
Speaker 1: I mean, is that like kind of oh no volume?

903
00:47:11,760 --> 00:47:15,880
Speaker 1: I mean, yeah, I don't move for sure, but I

904
00:47:15,920 --> 00:47:18,759
Speaker 1: strongly suspect that where that's coming from. You know, I

905
00:47:18,800 --> 00:47:22,520
Speaker 1: don't think that that's coming from Goldman sitting there and

906
00:47:22,560 --> 00:47:26,320
Speaker 1: saying we're gonna go like, do OTC options in crypto,

907
00:47:26,360 --> 00:47:28,759
Speaker 1: because that's where all the money is. Like, everyone's just

908
00:47:28,880 --> 00:47:33,360
Speaker 1: printing money doing OTC options in crypto. Why are they

909
00:47:33,400 --> 00:47:36,640
Speaker 1: doing OTC options in crypto? What's the actual reason that

910
00:47:36,800 --> 00:47:40,279
Speaker 1: that's the thing they're doing? In advertising? Can I guess, yeah,

911
00:47:40,400 --> 00:47:43,920
Speaker 1: go for it. My guess is that someone at Goldman

912
00:47:44,040 --> 00:47:46,719
Speaker 1: was like, let's put money into a box. That's a

913
00:47:46,800 --> 00:47:49,759
Speaker 1: Ponzi scheme, and someone else at Goldman is like, We're

914
00:47:49,760 --> 00:47:51,759
Speaker 1: absolutely not going to put money in a box. It's

915
00:47:51,760 --> 00:47:54,200
Speaker 1: a Ponzi scheme. And then someone the Goldman was like,

916
00:47:54,400 --> 00:47:57,200
Speaker 1: what's our comparative advantage? Well, is this with a bunch

917
00:47:57,200 --> 00:48:00,400
Speaker 1: of hedge funds, we uh, you know, we can present option.

918
00:48:00,840 --> 00:48:03,800
Speaker 1: Let's let's try to like, you know, rub some sticks

919
00:48:03,800 --> 00:48:06,239
Speaker 1: together and drum up an OTC options business, because then

920
00:48:06,239 --> 00:48:08,880
Speaker 1: we'll have we'll have, you know, have customers for that,

921
00:48:08,920 --> 00:48:12,759
Speaker 1: whereas like the actual money making place is a little

922
00:48:12,800 --> 00:48:17,040
Speaker 1: too insane for for our kind of regulated, uh somewhat

923
00:48:17,120 --> 00:48:21,160
Speaker 1: risk averse situation. So that's absolute a lot of it,

924
00:48:21,320 --> 00:48:23,000
Speaker 1: But at the end you touched upon a key part

925
00:48:23,040 --> 00:48:25,640
Speaker 1: of it, which which is regulation. Right, if you're a

926
00:48:25,680 --> 00:48:28,480
Speaker 1: Goldman and you're trying to think, like what crypto things

927
00:48:28,719 --> 00:48:32,279
Speaker 1: can I definitely do? What will my compliance department just

928
00:48:32,400 --> 00:48:35,080
Speaker 1: sort of stammer if they try to object to, like

929
00:48:35,120 --> 00:48:37,360
Speaker 1: what do they just not have a case on? The

930
00:48:37,440 --> 00:48:45,360
Speaker 1: answer is, well, CFTC listed cash settled products where I

931
00:48:45,480 --> 00:48:51,040
Speaker 1: never ever ever have to have the physical where I

932
00:48:51,200 --> 00:48:56,439
Speaker 1: never have to actually have on me any cryptocurrencies. And

933
00:48:56,640 --> 00:48:58,960
Speaker 1: why is that important that you never have to have

934
00:48:58,960 --> 00:49:03,319
Speaker 1: any cryptocurrencies on you? Well, it's because if you need

935
00:49:03,400 --> 00:49:06,479
Speaker 1: to actually hold a cryptocurrency, you start thinking about things

936
00:49:06,480 --> 00:49:10,279
Speaker 1: like Bossel's capital requirements right and other sort of like

937
00:49:10,360 --> 00:49:13,160
Speaker 1: fun notions like that, and it becomes a ship show

938
00:49:13,280 --> 00:49:16,840
Speaker 1: really fast. But if you do nothing but cash settle derivatives,

939
00:49:16,840 --> 00:49:18,480
Speaker 1: you never have to touch physical, you don't have to

940
00:49:18,480 --> 00:49:20,239
Speaker 1: figure out the security of it. You don't have to

941
00:49:20,280 --> 00:49:22,480
Speaker 1: figure out capital requirements, you don't have to figure out

942
00:49:22,520 --> 00:49:28,080
Speaker 1: the regulation of doing that. And like SEEFTC structured products

943
00:49:28,120 --> 00:49:30,640
Speaker 1: which are cash settled. I mean, there's the exchange side

944
00:49:30,680 --> 00:49:32,960
Speaker 1: that you can trade, but also there's a well developed

945
00:49:32,960 --> 00:49:39,680
Speaker 1: regulatory framework for OTC cash settled derivatives, contracts for institutional counterparties,

946
00:49:39,719 --> 00:49:43,200
Speaker 1: training with other institutional counterparties, using is to that sort

947
00:49:43,239 --> 00:49:47,520
Speaker 1: of like is another well understood, really clean operational concept

948
00:49:47,600 --> 00:49:50,400
Speaker 1: to do. And so it's lamp posting as much as

949
00:49:50,400 --> 00:49:52,960
Speaker 1: anything else, right, it's them saying, like, what is the

950
00:49:53,000 --> 00:49:57,520
Speaker 1: one thing regulatorially that we feel comfortable doing in this space,

951
00:49:57,800 --> 00:50:00,960
Speaker 1: Let's go do that on the top of making money.

952
00:50:01,000 --> 00:50:03,640
Speaker 1: The other obvious thing that's sort of like from the

953
00:50:03,680 --> 00:50:06,680
Speaker 1: beginning of crypto and we talked about arbitrage and farming

954
00:50:06,800 --> 00:50:10,040
Speaker 1: and all this is obviously they're still smaller tokens all

955
00:50:10,080 --> 00:50:12,480
Speaker 1: the time flying, and so I'm just curious, like, what

956
00:50:12,560 --> 00:50:16,719
Speaker 1: are the different approaches essentially that either institutional money or

957
00:50:16,719 --> 00:50:19,000
Speaker 1: a closet I sort of like VC money is taking

958
00:50:19,120 --> 00:50:21,759
Speaker 1: to essentially like find the next big thing. How do

959
00:50:21,800 --> 00:50:24,080
Speaker 1: you like people know, Like I mean, at this point,

960
00:50:24,120 --> 00:50:25,680
Speaker 1: I think I want to sort of like hume out

961
00:50:25,719 --> 00:50:29,440
Speaker 1: a little bit and say, what, let's even put crypto

962
00:50:29,440 --> 00:50:33,120
Speaker 1: aside for a second. How do vcs find the next

963
00:50:33,880 --> 00:50:36,480
Speaker 1: anything that they're going to invest in? Right? Like, how

964
00:50:36,480 --> 00:50:38,920
Speaker 1: did they find the next company they're going to invest in?

965
00:50:39,560 --> 00:50:43,239
Speaker 1: And I think am I answered that is like when

966
00:50:43,239 --> 00:50:47,120
Speaker 1: you break it down mechanically to what's happening, you get

967
00:50:47,160 --> 00:50:50,080
Speaker 1: a bizarre fucking process, Like you get something that does

968
00:50:50,120 --> 00:50:52,880
Speaker 1: not look like the paragon of efficient markets that you

969
00:50:52,920 --> 00:50:55,880
Speaker 1: might expect, where it's like, what was mechanically happening? Well,

970
00:50:56,160 --> 00:50:59,000
Speaker 1: they like see what all their friends are chattering about, right,

971
00:50:59,040 --> 00:51:00,880
Speaker 1: And their friends keep talking about this company or this

972
00:51:00,960 --> 00:51:03,759
Speaker 1: token or something, and they start foe mowing And then

973
00:51:03,760 --> 00:51:05,880
Speaker 1: their LPs are like, yo, have you made us a

974
00:51:05,920 --> 00:51:08,040
Speaker 1: lot of money off of this company or token yet?

975
00:51:08,280 --> 00:51:10,160
Speaker 1: And you're you're kind of like the answers, No, we

976
00:51:10,239 --> 00:51:12,880
Speaker 1: haven't invested in it, but you know that's not a

977
00:51:12,920 --> 00:51:15,880
Speaker 1: good answer given what question your LPs just asked. Instead,

978
00:51:15,920 --> 00:51:18,440
Speaker 1: you're like, oh boy, you're gonna be excited about what

979
00:51:18,480 --> 00:51:21,400
Speaker 1: we have done and or will do. And then you

980
00:51:21,400 --> 00:51:24,120
Speaker 1: find a way to get into that token and or company,

981
00:51:24,200 --> 00:51:26,600
Speaker 1: and all the while you're like, how do we justify

982
00:51:27,160 --> 00:51:29,719
Speaker 1: is this a good investment? Like all the models are

983
00:51:29,760 --> 00:51:31,839
Speaker 1: made up right, like things are currently being valued off

984
00:51:31,840 --> 00:51:36,319
Speaker 1: of right, but it's not yet. It's sort of like

985
00:51:36,320 --> 00:51:40,200
Speaker 1: an interesting property of trying to value things off right.

986
00:51:40,320 --> 00:51:42,520
Speaker 1: You're buying them off of a model built by a

987
00:51:42,600 --> 00:51:45,279
Speaker 1: person who owns the thing that's being sold. So like,

988
00:51:45,360 --> 00:51:47,040
Speaker 1: of course the numbers you can go off between now

989
00:51:47,040 --> 00:51:50,319
Speaker 1: and right, it's gonna go up an arbitrary amount, and

990
00:51:50,400 --> 00:51:53,759
Speaker 1: you can justify anything by just like you know, backgraft

991
00:51:53,800 --> 00:51:57,480
Speaker 1: goes up and off and eventually like holy shit, LPs, boy,

992
00:51:57,480 --> 00:51:59,520
Speaker 1: are you gonna be excited about the stuff that we're

993
00:51:59,520 --> 00:52:03,759
Speaker 1: buying on your behalf? It's like bizarre processes like that

994
00:52:04,320 --> 00:52:09,759
Speaker 1: ultimately that are like shaping VCS investment decisions, both in

995
00:52:09,880 --> 00:52:13,959
Speaker 1: traditional equities, uh and in in cryptic currencies. Well, there's

996
00:52:14,000 --> 00:52:16,120
Speaker 1: tons more to talk about, but we're gonna have to

997
00:52:16,160 --> 00:52:18,439
Speaker 1: pick it back up. Sam and Matt thank you both

998
00:52:18,560 --> 00:52:23,120
Speaker 1: so much for coming on novel. Yeah, that was great.

999
00:52:23,120 --> 00:52:45,120
Speaker 1: Thanks thanks so much, guys. That was that was great, Yeah, Tracy,

1000
00:52:45,239 --> 00:52:48,920
Speaker 1: I love that the best. The highlight was definitely Sam's

1001
00:52:48,920 --> 00:52:51,840
Speaker 1: description of yield farming that even the sort of crypto

1002
00:52:51,880 --> 00:52:55,240
Speaker 1: synic is a magic box that you put money into

1003
00:52:55,320 --> 00:52:57,840
Speaker 1: and more money comes out. And even Matt Levine was like,

1004
00:52:57,880 --> 00:52:59,719
Speaker 1: I would have never described it this way because I

1005
00:52:59,760 --> 00:53:03,520
Speaker 1: thought to be too cynical. Yeah, I don't really know

1006
00:53:03,560 --> 00:53:06,799
Speaker 1: what to say about that. That was a little bit surprising. Um,

1007
00:53:06,800 --> 00:53:08,520
Speaker 1: but it does, I mean, it does clear up a

1008
00:53:08,520 --> 00:53:11,040
Speaker 1: lot of questions that I had about D five. He's

1009
00:53:11,040 --> 00:53:14,080
Speaker 1: sort of hinted at this idea of like the value

1010
00:53:14,200 --> 00:53:18,640
Speaker 1: either coming from actual economics and use cases versus everyone

1011
00:53:18,719 --> 00:53:21,680
Speaker 1: just agreeing. And I think, honestly, one thing we've seen,

1012
00:53:22,080 --> 00:53:24,360
Speaker 1: one thing we've learned over the past ten years is

1013
00:53:24,360 --> 00:53:29,480
Speaker 1: that everyone just agreeing something is valuable sometimes it works. Um,

1014
00:53:29,520 --> 00:53:32,400
Speaker 1: And like I wouldn't necessarily say that it's going to

1015
00:53:32,520 --> 00:53:36,040
Speaker 1: work for all the coins in existence, but the fact

1016
00:53:36,080 --> 00:53:39,640
Speaker 1: that it's been working for so long certainly has surprised

1017
00:53:39,640 --> 00:53:42,640
Speaker 1: many people, myself included. Yeah. No, there's the thing like

1018
00:53:42,719 --> 00:53:45,640
Speaker 1: it's like, oh, this is ridiculous. There's a perpetual motion machine,

1019
00:53:45,680 --> 00:53:48,080
Speaker 1: and yet here we are in twenty two in the industry,

1020
00:53:48,080 --> 00:53:52,000
Speaker 1: troops going, machines are still going. So the way defy

1021
00:53:52,120 --> 00:53:54,360
Speaker 1: works is you put in a money in a box

1022
00:53:54,400 --> 00:53:56,320
Speaker 1: that you think more people will put money into the box.

1023
00:53:56,680 --> 00:54:00,000
Speaker 1: And the way VC works is you hear what you're

1024
00:54:00,160 --> 00:54:04,320
Speaker 1: friends in the industry are investing in based on seven numbers,

1025
00:54:04,600 --> 00:54:06,319
Speaker 1: and then you also want to get on that. So

1026
00:54:06,560 --> 00:54:08,880
Speaker 1: it's really just all the way down. Well, so here's

1027
00:54:08,880 --> 00:54:11,200
Speaker 1: the other thing I would say, and Matt kind of

1028
00:54:11,200 --> 00:54:15,480
Speaker 1: touched on this too, But the idea of momentum trading

1029
00:54:15,800 --> 00:54:20,640
Speaker 1: is not you know, that is not entirely unknown in finance.

1030
00:54:20,640 --> 00:54:23,680
Speaker 1: In fact, it has been a very profitable strategy, arguably

1031
00:54:23,719 --> 00:54:27,880
Speaker 1: since two thousand eight and the financial crisis. So I

1032
00:54:28,239 --> 00:54:30,240
Speaker 1: don't know how to feel about it. I feel weird.

1033
00:54:31,280 --> 00:54:33,719
Speaker 1: We all feel weird. Well, I mean, one thing is clear,

1034
00:54:33,800 --> 00:54:35,520
Speaker 1: which is there is just a lot going on in

1035
00:54:35,560 --> 00:54:37,719
Speaker 1: the space. But in the meantime, shall we leave it there?

1036
00:54:37,800 --> 00:54:40,520
Speaker 1: Let's leave it there? Okay. This has been another episode

1037
00:54:40,560 --> 00:54:42,960
Speaker 1: of the All Thoughts podcast. I'm Tracy Alloway. You can

1038
00:54:42,960 --> 00:54:45,799
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe

1039
00:54:45,840 --> 00:54:48,239
Speaker 1: Why Isn't Thought? You can follow me on Twitter at

1040
00:54:48,280 --> 00:54:51,960
Speaker 1: the Stalwart. Follow our guests Sam Bankman Freed He's at

1041
00:54:52,160 --> 00:54:55,719
Speaker 1: SBF Underscore f t X, and Matt Levine He's at

1042
00:54:55,719 --> 00:55:00,799
Speaker 1: Matt Underscore Levine, follow our producer Carmen Rodriguez at Harmon Arman,

1043
00:55:00,920 --> 00:55:05,040
Speaker 1: followed the Bloomberg head of podcast Francesca Levi at Francisco Today,

1044
00:55:05,160 --> 00:55:08,080
Speaker 1: and check out all of our podcasts at Bloomberg under

1045
00:55:08,120 --> 00:55:13,719
Speaker 1: the handle at podcasts. Thanks for listening. Hey, there are

1046
00:55:13,719 --> 00:55:16,880
Speaker 1: add Thoughts listeners. We are very excited to let you

1047
00:55:16,920 --> 00:55:20,480
Speaker 1: know that Odd Thoughts is nominated for a Webby Award.

1048
00:55:21,080 --> 00:55:24,759
Speaker 1: You know, Tracy, I'm not normally like a big awards

1049
00:55:24,840 --> 00:55:27,680
Speaker 1: person or get excited about that, but now that I

1050
00:55:27,719 --> 00:55:31,000
Speaker 1: saw that we were nominated for the Webby for Best

1051
00:55:31,040 --> 00:55:34,040
Speaker 1: Business Podcast, suddenly I'm feeling very competitive and I want

1052
00:55:34,080 --> 00:55:36,640
Speaker 1: to win. You really want it? Yeah? Okay, Well, on

1053
00:55:36,680 --> 00:55:39,719
Speaker 1: that note, listeners, if you enjoy Add Lots, if you

1054
00:55:39,760 --> 00:55:42,120
Speaker 1: like what we do, we would really appreciate it. If

1055
00:55:42,160 --> 00:55:44,479
Speaker 1: you take two minutes of your time and head over

1056
00:55:44,560 --> 00:55:48,320
Speaker 1: to vote dot Webby Awards dot com. You can find

1057
00:55:48,400 --> 00:55:52,839
Speaker 1: Odd Lots in the Business Podcast category. Thanks so much

1058
00:56:00,360 --> 00:56:00,400
Speaker 1: to