ROLLUP: $300M DeFi Hack Fallout | Arbitrum Freezes Funds | AI Deflation Debate | Productive ETH

Summary

Bankless Weekly Rollup: $300M DeFi Hack Fallout, Arbitrum Freezes Funds, AI Deflation Debate, Productive ETH

Date: April 24, 2026
Hosts: Ryan & David

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Episode Overview

In this high-stakes edition of the Bankless Weekly Rollup, hosts Ryan and David dive deep into what they describe as the most consequential DeFi hack in history—a $300 million exploit with reverberations across the entire crypto landscape. They analyze the immediate fallout, the unprecedented move by Arbitrum to freeze funds, and the broader implications for the DeFi ecosystem. Beyond the hack, the discussion transitions to macro markets, the incoming Fed chair’s provocative AI/deflation stance, wealth inequality, and the new "Productive Money" thesis for ETH. The hosts also sound an alarm about mounting device-level KYC and surveillance state risks, while ending on the state of new launches and prediction markets.

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Key Segment Timestamps

• Markets & Macro: [00:44]–[12:26]
• Fed Chair AI & Deflation Debate: [13:12]–[24:39]
• Wealth Inequality & Social Fabric: [21:45]–[24:39]
• DeFi Hack Details & Fallout Analysis: [25:04]–[48:21]
• Productive Money Thesis for ETH: [49:41]–[55:01]
• Prediction Markets & Oracles: [56:22]–[59:58]
• Device-level KYC & Surveillance Rant: [61:51]–[67:14]

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1. Markets & Macro: Buoyant Yet Fragile

[00:44]–[12:26]

• Equity & Crypto Markets:

  • S&P and major tech stocks (Amazon, Apple, Nvidia) hit all-time highs; "markets are kind of just resuming their normal thing which is just going up and to the right" (David, [02:09]).
  • Oil is up 10% on the week—"inputs into inflation, inflation numbers are going to be downstream of oil prices" (David, [03:23]).
  • Crypto: Bitcoin up 5% at nearly $78K; ETH flat—"that dichotomy is going to be because of the hack" (David, [04:19]).
  • Market sentiment: "When they are left to their own devices, they inch upwards...it's nice to know that when they are left alone, things still go as planned, which is going up" (David, [05:07]).

• Bitcoin ETFs & Institutional Flows:

  • Strong inflows across all timeframes ("green, green, green, green, green across the board"–Ryan, [06:54]); "Bitcoin ETF buyers...are proving themselves to be diamond hands."
  • Michael Saylor's MicroStrategy now holds more BTC than BlackRock's ibit ETF—"Michael Strategy owns more bitcoin than the Ibit ETF, so more Bitcoin than BlackRock, which is pretty impressive" (Ryan, [07:11]).

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2. War & Geopolitics Impacting Markets

[09:03]–[12:26]

• Iran-US Ceasefire & Oil Blockade:
  • "Kinetic war is seemingly just indefinitely paused, allowing room for actual talks and negotiations" (David, [09:03]).
  • Ongoing US naval blockade is "constraining the flows by 95%+"—crippling Iran's oil sector, damaging long-term output capacity ([10:54]).
  • Prediction markets only slightly optimistic: "54% chance...permanent peace deal by end of June" (Ryan, [12:06]).

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3. Fed Chair Kevin Warsh, AI, and the Deflation Debate

[13:12]–[24:39]

• Warsh's Outlook:

  • Forecasts "AI-led productivity boom" causing structural deflation:
    • "AI is going to make almost everything cost less and the US can be a big winner" ([13:50]).
    • "We could be at the front end of a productivity boom...structural decline in prices" ([14:09]).
  • Warsh's dovish take is politically convenient for Trump, who wants lower rates—but some economists (Ed Yardeni) disagree, warning of speculative bubbles if rates fall too far ([15:56]).

• Productivity Boom Evidence:

  • Morgan Stanley report shows sharp productivity growth post-2020, potentially AI-driven ([17:22]).
  • UK data: "No evidence for significant impact of AI on overall employment...occupations with AI exposure have actually grown faster" ([17:49]).
  • Counterpoint: Tech leaders (e.g., Dario of Anthropic) predict massive tech job losses—"50% of all tech jobs, entry level lawyers, consultants and finance professionals, will be completely wiped out within one to five years" (Ryan, [19:39]); other experts sharply disagree ([19:54]).

• AI, Wealth Inequality, and Social Change:

  • "Wealth inequality in the US has never been wider"—top 0.0001% up 3500% since 1976 ([23:05]).
  • "US wage growth turns more K-shaped...higher income individuals are receiving higher wage growth" (Ryan, [24:01]).
  • Ryan: "This will be exacerbated by AI productivity as well, where a lot of the gains will go...to the 1% who are leveraging AI."

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4. $300M DeFi Hack Fallout and Arbitrum Intervention

[25:04]–[48:21]

The Attack: What Happened?

• Exploit Chain:

  • Hack started with Layer Zero bridge used by KelpDAO to propagate rseth (restaked ETH) across chains; KelpDAO used only a "1 of 1" validator setup ([29:02]).
  • North Korea’s Lazarus Group exploited this, minted fake rseth, deposited to AAVE, and borrowed real ETH—"gave AAVE fake vapid tokens and then withdrew real ether" ([29:02]).
  • AAVE now faces ~$200M in bad debt.

• Arbitrum's Unprecedented Asset Seizure:

  • "Arbitrum Security Council...froze and recovered $70M of the stolen ETH" ([31:18]).
  • "I don't think this has ever happened in layer two" (David, [31:18]).

Layered Blame and Systemic Issues

• Who’s at Fault?
  • Layer Zero: security/design.
  • KelpDAO: single-point-of-failure validation.
  • AAVE: insufficient risk controls/rate limiters.
  • "Defi as a whole collectively is not built to withstand these attacks...everyone was kind of trusting each other to operate as they intended" (David, [34:34]).
  • "You actually need to assume that every component...is malicious" (David, [34:34]).

Rollups, Bridges, and Decentralization

• Rollup-centric Roadmap in Question:
  • Doug Colkitt and others argue the hack is "downstream consequences of the rollup centric roadmap"—the need for fast bridges led to insecure bridging ([33:06]).
• Arbitrum’s Recovery Move: Slippery Slope?
  • Esteemed as 'the right thing to do' but sets a precedent: "If you have assets on a layer 2 and the layer 2 has the means to protect your exploited assets...that layer two kind of needs to do that because Arbitrum did it this one time" (David, [39:56]).
  • Forces all L2s to choose between immutability or intervention; could invite future legal obligations ([40:20], [41:54]).

Aftermath: What Next for AAVE, KelpDAO, L2s?

• Aave Bank Run & User Losses:
  • Still $200M in bad debt; withdrawals restricted ("bank run on AAVE"–Ryan, [44:32]).
• KelpDAO’s Choice:
  • Option 1: Spread losses among all rseth holders (L1 & L2) for ~15% haircut.
  • Option 2: Assign loss only to L2 rseth holders, wiping out up to 75%—“that's the main point of decision making next, and then everything will fall downstream of that" (Ryan, [46:30]).
• Call for Circuit Breakers, Failure-Resilient Design:
  • "We need circuit breakers and rate limiters..." (David, [46:51]).
  • “Our DeFi ecosystem...needs to get rewritten...every part is designed to fail and the system remains intact” (David, [47:28]).
  • "What doesn't kill Defi makes it stronger. This has not killed Defi, and I think we're going to come out of this stronger" (Ryan, [48:21]).

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5. Productive Money Thesis for Ether (ETH)

[49:41]–[55:01]

• New ETH Bull Case:

  • “The best ETH thesis since ultrasound money and the triple point asset. We’re on to a new one.” (David, [01:12]).
  • "Productive money": ETH as both Menger’s ideal money and Buffett’s productive asset—“Ethereum is both of those things...it is bringing the money like properties that Menger values and the productive yielding capital compounding asset that Buffett admires...smushing them into one single asset" (Ryan, [51:01]).
  • Productivemoney.org compares ETH’s monetary and productive characteristics to gold and Bitcoin.

• Skepticism & Price Projections:

  • Critics (e.g., Scott Melker) say "Ether has so far to go on this score...Bitcoin already has that covered".
  • Discussion of "ETH to $250K":
    • “If Ether became a civilizational store of value asset of the size that that gold is and Bitcoin is, that's what it would be worth" (Ryan, [53:25]).
    • “That's a price prediction. You're just saying a price prediction and saying—well actually it's not a price prediction, but like why are you saying the number though?” (David, [53:43]).
    • ETH at $250K is less “crazy” than BTC at $21 million per coin (David, [54:01]).

• Narrative Importance:

  • "This gives a nice narrative to Ether the asset as a store of value asset, which I think in the future, increasingly people will come to view it as such. But I guess we're still early with $2,000 Ethereum." (Ryan, [54:33]).

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6. Prediction Markets & "Meatspace Oracle" Attack

[56:22]–[59:58]

• Markets Expand to Perps:

  • Prediction platforms (Polymarket, Kalshi) are launching perpetuals for mainstream speculation ([56:22]).

• Paris Temperature Oracle Exploited:

  • Someone apparently used a hairdryer or similar to spike a Paris airport thermometer at specific times to exploit Polymarket bets—“Whatever the thermometer reads is the outcome...It's a meat space Oracle attack" (David, [58:49]).

• Tether's Biggest Freeze Ever:

  • Tether froze $344 million on Tron—"my claim is this is...the IRGC's $344 million" (David, [59:39]).

• Launches:

  • MegaETH’s token launch is next week, Monad token also trading above presale, indicating strong appetite for new, performant EVM chains ([61:15]).

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7. Device-Level KYC & Surveillance State — Ryan’s Rant

[61:51]–[67:14]

• Age Verification Bill in Congress:

  • Would require KYC on every internet-connected device at the operating system level—"That means government ID, a photo, KYC for every device" (Ryan, [62:39]).
  • Potential for massive surveillance: “This is just a Marauders Map for the United States government...names attached to devices running around in real time” (David, [65:04]).
  • Serious privacy and security issues: “That is a bow wrapped gift to North Korea where they get identification information of every single American who uses a device” (Ryan, [64:46]).
  • ZK-passports suggested as alternative, less invasive solution.

• Anthropic's CLAUDE Already Requiring KYC:

  • “They're already requiring the same KYC...to Persona in order to start using Claude" (Ryan, [65:20]).

• Core Concern:

  • "The idea of government logs of humans is always scary" (David, [66:54]).
  • Ryan worries about the “prisoner’s dilemma” of needing to use good UX KYC systems versus more cumbersome self-sovereign options.

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Notable Quotes & Moments

• "Defi as a whole collectively is not built to withstand these attacks...everyone was kind of trusting each other...You actually need to assume that every component...is malicious." — David, [34:34]
• "AI is going to make almost everything cost less and the US can be a big winner." — Kevin Warsh (as quoted by Ryan), [13:50]
• "What doesn't kill Defi makes it stronger. This has not killed Defi, and I think we're going to come out of this stronger." — Ryan, [48:21]
• "If Ether became a civilizational store of value asset... that's what it would be worth [$250K]." — Ryan, [53:25]
• "It's all like digital network effects at work. And I think this will be exacerbated by AI productivity as well." — Ryan, [23:48]
• "This is just a Marauders Map for the United States government of just like names attached to devices running around." — David, [65:04]

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Final Thoughts

The Bankless hosts urge DeFi to treat adversarial risk as inevitable, call for architectural changes, and stress that industry response now will shape DeFi’s future. The Productive Money thesis aims to shift ETH’s narrative into the Overton window alongside Bitcoin. Meanwhile, threats of government-mandated device-level KYC loom large for digital privacy and the crypto ethos. The episode closes as always: this is not financial advice—crypto is risky, the frontier is uncertain—yet the journey continues.

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For detailed breakdowns on specific segments (such as the DeFi hack or Productive ETH), listeners are encouraged to check out Bankless interviews with domain experts, as referenced throughout the episode.

Transcript

[David]

Foreign.

[Ryan]

Station. It is the fourth week of April. Time for the bankless weekly roll up. We got the most consequential defi hack, I think, in history.

[David]

Yeah, big words. I think they're true.

[Ryan]

I think they're true because there was so much fallout reverberated all around crypto and all around Defi, including our layer twos. A lot of questions were raised. This was a $300 million hack. We'll talk about who's to blame. Was Arbitrum right to freeze some of the funds? And what does this mean for Defi and for the rest of crypto?

[David]

Zooming out to all the markets. Still bullish, still all time highs in equities just last week. Can that be sustained? We're also going to be learning a little bit more about Fed chair, incoming Fed chair Kevin Warsh and what he believes about AI and how it is going to be factored into Fed policy. It's interesting to have a Fed chair thinking about how the Fed as an institution will need to adapt to the AI world. And then also we've got, according to the words of my co host, and also me, the best ETH thesis since ultrasound money and the triple point asset. We're on to a new one.

[Ryan]

Yes, Productive money.

[David]

The best case for eth. We're going to talk about this whole thesis and why we think it's the best.

[Ryan]

Oh yeah, productive money. There you go. Also, if we get to the end of this and we still have some time. David, I want to get into a rant. Okay.

[David]

Ryan's got a rant.

[Ryan]

Yeah. It kind of feels like the US government is trying to kyc, that's know your customer, all of our devices. There's some bills I want to talk about. I feel like the surveillance state is the final boss here.

[David]

And what does that mean? I need to like link my driver's license to my iPhone.

[Ryan]

Yes.

[David]

And have that registered with not just

[Ryan]

your iPhone, like your, your MacBook, your, like any device, anything connected to the Internet. I. I think we gotta talk about this and what's at stake if we lose this battle. Cause it's not great. But let's get bullish for a minute and let's look at the market. So David, I know you love sharing your screen, you love showing me some charts.

[David]

I've taken over the charting section of the weekly roll up six years into the bankless podcast and finally figured out that.

[Ryan]

What do you want to show me,

[David]

David should do the charts. Oh, we are looking at the S and P, which is at all time highs again for the second week in a row. Last week we were right above 7,000 at like 727,020 points. We're at now 7,100 in the S and P and so the equity is continued to look good. We can take a peek at Nvidia. Not at all time highs but pretty close, pretty close. And if you kind of go down the list, Amazon basically at all time highs. Apple is at near highs. And so if you're a tech equity investor you're probably doing okay. In recent times the markets are kind of just resuming their normal thing which is just going up and to the right. Not universally true. In this not universal good news we have oil going up which we don't want, we want to go to go down. Yeah, it's up on the week. I, last week I think I called it wartime lows. Wartime being high because we're in war and a war around oil. But lows in the sense that it's a lower end of the prices that oil has seen during the war. We are at now war middle warm prices. And so we're up on the week. We're about up, up 10% on the week on the oil prices for both Brent and WTI.

[Ryan]

And so that's about what upper 90s price per barrel.

[David]

Yeah. So $100 for a barrel Brent and then $95 for wexcessis intermediate crude. And so like what does that tell us? It just means oil coming out of the Strait of Hormuz is increasingly constrained that is not resolved. And then also importantly inputs into inflation, inflation numbers are going to be downstream of oil prices. Oil prices, oil are. I was hoping they were going to go down this week again seeing as like the conflict of war in Iran has like somewhat found some sort of like equilibrium. I guess we'll talk about that in a second. We'll get there. And then 10 year yields also going back up. So again they were going down. Now they have kind of trended back towards like the middle, middle highs of wartime 10 year yield prices.

[Ryan]

Yeah, 4, 3% I believe on that. How about our crypto assets? David, I think you said bitcoin was up.

[David]

Bitcoin up 5% on the week. So we're at almost at $78,000. We almost touched $80,000 this week. We're a little bit down from that but up 5% on the week. So a healthy week for bitcoin, flat on the week for Ethereum. And that dichotomy is going to be because of the hack that we're going to talk about here in a second.

[Ryan]

Oh yeah, that's fallout from the defi.

[David]

Almost, almost certainly because of how significant this was in the edges. Word. Like the idea of trust in defi. I think that is showing up in the ETH BTC price. We talked Ryan, about the ETH BTC ratio last week.

[Ryan]

Yeah, you were.

[David]

And how it was trending upwards and we were like for curse.

[Ryan]

Talk about.

[David]

Because we don't want to jinx it. We jinxed it.

[Ryan]

Jinxed it. You take credit for that? Not me. I said never look at the ETH bitcoin ratio again on this show.

[David]

We won't, we won't look at that anymore. But the thing that I'll know, just zooming out and talking about like what was all of this mean? A this the war markets are painting a not short continuation of the war. Like there's, there's more of that but the equity, these markets. And even with the crypto markets, it seems to be when they are left to their own devices, they inch upwards, they like to go up, they want to go up and like then like we do a war thing and they go down and there's a defi hack and they go down. But like when you leave them alone, they go up. And so I'm. That, that is my. Like last week I came out as bullish. I said I did. I will. I'm maintaining that position just because I assume at some point the bad news will stop or the bad events will. Will stop. Probably as my default case. Like they can always. There can always be more than you expect. But it is nice to know that when they are left alone, things still go as planned, which is going up. That's my take.

[Ryan]

It does seem like there's still upward momentum here. Right. It's hard to keep the balloon underwater a little bit. Let me show you some more upward momentum here in the Bitcoin ETFs. This is Eric Balchunas on Bitcoin ETF Flows. He's showing a Bloomberg terminal here and he's looking at Ibit. That's a BlackRock ETF. You see this? On the one day flow, on the one week flow, on the one month, on the three month, on the year to date, it's all green. We got green, green, green, green, green across the board. This is what he said. Bitcoin ETF flows are back in the high life. Every single rolling period for what we track is now positive. Haven't seen that in months. So bitcoin ETF Buyers, they're hanging in there, David. They are proving themselves to be diamond hands.

[David]

Eric's Gen X is being being shown there in his Steve Lynwood quote.

[Ryan]

Yeah, the only more diamond hands though, than the Bitcoin BlackRock ETF holders is actually Mr. Michael Saylor or Michael Strategy as you.

[David]

Michael Strategy. Just name his name to that.

[Ryan]

He just flippin'd so he just flipping ibit. That's wild. Yeah, so mstr, that's strategy. Michael Strategy owns more bitcoin than the Ibit ETF, so more Bitcoin than BlackRock, which is pretty impressive. I guess they've been kind of neck and neck, but you can see this red line. Michael's strategy just passed.

[David]

See, now I got you saying it.

[Ryan]

So impressive. Fun fact. They're competing to own a little bit more. Of course, you know, I bet is the aggregate demand of many thousands, tens of thousands of investors, whereas. Well, I guess so is so is so strategy.

[David]

But anyway, the conversation of is strategy a big Ponzi kind of continued this week.

[Ryan]

Oh, did it?

[David]

We talked about Coffee Zillow last week. There was a debate from some, maybe some guy at Strategy or just a big Michael Saylor bull, like went and like tried to like challenge Coffeezilla to a debate. Peter Schiff got into like some Twitter spaces and was taking the side that like, he wished that Coffeezilla was said the Ponzi word more strongly than he actually did. And so that's so silly to me.

[Ryan]

It's also silly to me. Of course. Bitcoin is a faith in flows asset. That's the thing. Just like gold.

[David]

No, no, no, no. Stretch, stretch. And strategy is the Ponzi.

[Ryan]

That's just a little sauce on top of the faith and flow.

[David]

Ponzi on top of a Ponzi.

[Ryan]

Yeah, I mean, it's not that much more. Right. If you. Again, if you. If bitcoin keeps going up at the rate that it's been going up, Michael's going to be just fine and it's all going to work out. If not, then we got bigger problems and. Yeah, well, speaking of bigger problems, what is the update on the war this week? Why is oil, I guess, ticking up? You know, do some of the headlines have anything to do with that?

[David]

Yeah, relative to previous weeks, I'll call it kind of a quieter week. And that's not just happen since. That's because I think the United States has found itself in a position that it's kind of content with for the short term. So, like the ceasefire first off was Set to expire Tuesday of this week on April 21st. Trump then as a deadline got, as a deadline approached, Trump moved the deadline just one day later to kind of like allow Iran to collect itself and coordinate. But then ultimately Trump extended this ceasefire indefinitely until Tehran submits a proposal and then talks actually like move forward. And so that's kind of where the, the kinetic war is. Kinetic war is seemingly just indefinitely paused, allowing room for actual talks and negotiations to happen. Why are we okay with the kinetic war pausing? Like why, why is that? The status quo? Definitely downstream of the strait. Of course, everything's downstream. Stream of the Strait. The US Naval blockade of Iranian ports has continued throughout the ceasefire. There's been just significant tension in the strait. The United States struck and seized an Iranian vessel trying to make it through the blockade. It does appear that the US Blockade is leaky, so some ships are getting through, but the closure is nonetheless doing the job that it intends to, which is like constraining the flows by 95% plus. So the economic pressure on Iran is happening and that is importantly threatening the longevity of their oil facilities. Secretary Scott Besant, who is like, so the kinetic war, Operation Epic Fury is now basically, I think, in the rear view mirror. And now we have moved on to Operation Economic Fury, which is being led by Secretary Scott Besson, the Treasury Secretary. That's blockades and that, that's the blockade and then the, specifically the acute pain. This is reading from the tweet from Scott Bessant. In a matter of days, Carg island, which is where all of the Iranian oil flows out of, it's in this rate, Carg island storage will be full and the fragile Iranian oil wells will be shut in. Something I learned, Ryan, is when you pump oil and then you stop pumping oil because you're forced to, because you have nowhere to put the oil, then you, you stop pumping and then water floods back in and it causes irreparable damage to the, the pumping. And so they need to get oil out of Carg island so that they can continue to pump. Otherwise their actual oil production capabilities will be deleted. And it, it's costly and time consuming to get those things up and running. And you can imagine that Iran just doesn't have the capability of fixing those things if it gets to that point. And so this is why the United States is like, oh, we're cool with the. Where things are right now. Iran is just getting choked out and we don't need to resume the kinetic war because they are going to just lose economically under the current conditions and so that's kind of where things are kinetic war seem is seemingly over because we have the chokehold around Iran and they are just slowly getting suffocated.

[Ryan]

And so the US Iran permanent peace deal that really hasn't moved too much I suppose on the prediction markets on we have poly market pulled up here and there is a 54% chance, it's I guess up a little bit that we will have a permanent peace deal by the end of, by the end of June.

[David]

Yeah, yeah, 50, 50 chance. Not like interesting that it's not being priced in that much. We were just in this kind of like wait and see position. Like if, if the, if the story that I just told is correct, which is the story being told out of like United States government and a lot of the analysts is like it's up to Iran to kind of like tap out and say like we can't take this pain anymore. And that's going to come downstream of the fact that their oil wells are going to be just damaged and then also they're not going to be able to fund the paychecks of people in the regime causing descent and fracturing.

[Ryan]

I mean they have shown some resistance to economic pain in the past and particularly in the form of sanctions. I guess this is more blockade oil based pain which is perhaps more painful,

[David]

but it's more severe, more acute.

[Ryan]

Yeah. This could last for a while though. That's what the markets are telling us. Let's talk about Fed Chair Kevin Warsh. We talked about him last week. Now he is testifying in front of Congress as part of his nomination as the incoming Fed Chair. By the way, the poly market around this is an 82% chance by the end of June. So it looks very probable that Kevin Warsh is going to be our next Fed Chair. But he had some interesting takes that I think separate him from his predecessors, particularly on AI. Play the clip. What we call AI in a couple

[David]

of years we'll just call business and

[Ryan]

AI is going to make almost everything cost less and the US can be a big winner and, and it's a hugely exciting moment.

[David]

If I were to step back for a minute, if I were the President, what I'd be worried about is a

[Ryan]

central bank that doesn't see any of that, a central bank that is stuck with models from 1978 governance from a

[David]

prior period and don't recognize we could be at the front end of a productivity boom.

[Ryan]

And if I were the President, I'd be worried that they might not see

[David]

it and they might think economic growth

[Ryan]

is somehow going to be inflationary. I think we were probably in the early innings of a structural decline in prices. Ken sees it on the front lines of real businesses and I think if you look over the period of the next year or two, it's a pretty special moment. Wow. So this is Kevin Warsh saying that he actually forecasts because of AI productivity, he actually forecasts deflation rather than inflation.

[David]

I kind of think these are huge statements because we, we did a podcast, it'll come out next week and one, one of the big themes of, of the, the, the podcast was like is AI doing the things that everyone thinks that it's doing or is there just a bunch of hype and we don't know shit?

[Ryan]

Yeah.

[David]

And I, I'm kind of in the latter camp by default. Just like until there's data proven to, to prove that is doing anything to the economy to actual like revenues anything, then like I'm in the camp of just like it's, it's business as usual until we can get something to prove otherwise. When a Fed chair is saying that there is going to be an AI led productivity boom, it's hard to, it's hard to like, I would like to see why he thinks that reasoning but like he's the guy with the job that's supposed to take those things into account. So it's hard to argue with.

[Ryan]

Do you. He genuinely believes it. Let's, let's take the case that he genuinely believes it. So he thinks AI productivity is going to lead to deflation. Well, that would cause him to want to I guess, lower rates. Right.

[David]

Which is what Trump wants him to do.

[Ryan]

Which is conveniently what Trump wants.

[David]

Conveniently what Trump wants him to do.

[Ryan]

So there's that aspect, although it is the thing you probably should be doing if we are going to get once in a lifetime productivity gains and deflation accompanying that. Now we might see this is what Jordan Jordy Vassir, he came on the Bankless podcast that was the guest that you were talking about. That episode comes out on Monday. His take was like we might, we'll see a lot of deflation as a result of AI, but we'll, we'll see inflation in some commodity type goods, energy type goods, kind of the hard physical items that are getting more expensive as their scarcity, you know, becomes greater because we need these kind of hard physical products in order to feed the AI machine. There are some economists that disagree with Kevin Warsh's take. This is Ed Yarden. He disagrees. He's bullish on productivity, but he says that stronger growth will likely push the neutral rate. They call this our star in Fed circles. Higher, not lower. So he said this productivity, you should actually be raising rates in that productivity because if you don't do that, he warned, you could fuel speculation, financial instability bubbles that you actually don't want. So people are divided, even if you get this productivity gain, on what the outcome of the Fed should actually be, which is interesting, you brought this chart into the agenda, which is productivity, a productivity boom graph. What are we looking at here?

[David]

Yeah, this is a report out of Morgan Stanley. It goes all the way back. It's a graph that goes all the way back to the 1960s and it has the era of productivity boom because of the personal computer adoption from the nineteen, 1985 to 1995 and then again with the Internet adoption from 95 to 2010. And then we had like a kind of a bottoming in productivity right at Covid. Huge slump.

[Ryan]

Yeah, slump from. For the 2010s where just basically productivity decreased growth.

[David]

Yeah, but it's been up since then and it's labeled AI adoption. We are likely in the early stages of another productivity boom due to AI. Again, a report from Morgan Stanley. So like big names with a lot of, a lot at stake, a lot on the line to be putting their weight behind like AI adoption. And then we can go and just talk about unemployment because unemployment and AI is also a big conversation. There's another report, this is out of UK that says that after all this new data, three years of data after the release of ChatGPT, there's no evidence for significant impact of AI on overall employment in the UK. Surprisingly, occupations with AI exposure have actually grown faster than. Than lesser exposed ones. And there's a bunch of just data to correlate all of this. Now I think it's early, Ryan, because chat G B T3.5, the thing that kind of started off all this AI revolution was not replacing anyone's job. And I will kind of say that like competent AI is a late 2025, early 2026 thing. And so this data might be preliminary. And so saying the last, the last three years of data, I think could, it could be argued that it's just too soon, but nonetheless, like it is data. People are making these statements, you know, big people, big institutions are making these statements that AI is leading to productivity gains. AI is actually leading to employment, not unemployment. And again, I think it's very early, but it's trending in the positive direction,

[Ryan]

which Is good, Yeah, I think. But this is very counter to what some of the AI CEOs are saying. So Dario, the CEO of Anthropic, keeps going on the media circuit saying like this. This was just this week too. Dario Amodi, 50% of all tech jobs, entry level lawyers, consultants and finance professionals, will be completely wiped out within one to five years.

[David]

He needs to stop saying that.

[Ryan]

But you get the sense that he thinks it's true. I genuinely think he's true.

[David]

I agree that I think that he thinks that what he's saying is true. It doesn't really seem to have any nuance to it.

[Ryan]

I just think he's just connecting some dots and saying AI agents are becoming much more capable. They're able to do these things that entry level consultants, professional services workers are able to do. Therefore those jobs will go away. Yann Lecun says, who's another AI leader. Dario is wrong. He knows absolutely nothing about the effects of tech revolutions on the labor market. Don't listen to him. Listen to these economists. And he lists a whole bunch of economists, I think the UK study and the point that he said that occupations with higher exposure to AI have actually grown faster than the least exposed one. That's the biggest data point in favor of AI not causing employment issues, but actually creating more opportunity. And this doesn't mean that. I mean, the case of the radiologist. Jensen went on to our cash. She talked about the radiologist, how everyone expected radiology jobs to kind of drop and go away. What's in fact happened is there are more radiologists being hired than ever and they're becoming much more productive through the use of AI tools. We're also seeing this happen with software developers where software developer employment's actually only gone up. I come down on the side that AI is actually going to not reduce jobs, but it's going to make some jobs obsolete. Of course it's going to shift job demand. It's going to make some super users of AI more valuable. And overall, I think it means that people can't keep doing their job in the same way they've always been doing it. So they're going to have to shift. But once they do shift, I don't necessarily think it's going to cause massive unemployment issues in the way that Dario says. I mean, this is not how previous tech revolutions have worked. The creative destruction powers have always produced more jobs. They've just been in areas that we can't imagine, you know, before we started the revolutions.

[David]

Yeah, I think, like, I think people Like Dario and Sam Altman. And they kind of think of these big grandiose terms where no, a human will be replaced by an AI agent. And man, that is just not how things work. Like, our entire society is built on humans talking to other humans. And AI is not a human replacement. It is a tool like every other tool that we've ever had. And so maybe one radiologist can actually be ten times more productive. And maybe that's why people think that, like, oh, there's going to be job displacement because, you know, one radiologist is one good radiologist is actually going to equal 10 other radiologists. And so that's the way the wipeout comes. But then also at the same time, it's like, how many people have cancer that can't afford treatment? And who would otherwise would have demanded those services had those things been better priced because of a supply of them.

[Ryan]

So much more radiology demanded.

[David]

Right.

[Ryan]

That's kind of the Jevons paradox aspect of it, where you just keep demanding these things. There is one thing that I think they should actually be talking more about, which I do think will start to fray our social fabric in the social contract, and that is the increasing wealth inequality that will probably just continue to be exacerbated by AI in particular, like wealth gains to those with assets. This is a report from the Kobayasi Letter. Wealth inequality in the US has never been wider. The real wealth gap of the top 0.0001% of US households has grown 3500% since 1976. So here's a chart showing the wealth gap in the various tiers. And you can see, I mean, these top percentiles are just getting super gains as a result of this. This is all like digital network effects at work. And I think this will be exacerbated by AI productivity as well, where a lot of the gains will go to the, you know, to the 1% who are leveraging AI to continue to be hyperproductive. And of course, these gains are going into asset holders and capital holders rather than labor. This is another chart. US wage growth turns more K shaped. The gap is widest since 2015. You can see higher income individuals are receiving higher wage growth than the lower and middle. Lower and middle are barely keeping up with inflation. So this is a continuing fraying, I would say, of our social fabric. Like wealth inequality, it has a way of biting back in society and causing political problems, as we're seeing now, the rise of populism, et cetera.

[David]

Yeah, I definitely think the gap in wealth Inequality has got to be an input into consumer sentiment that we know has been just very, very low. Yeah. And it's kind of like the tail that wags the dog. Like you're going to see that show up in 2028 politics. Absolutely.

[Ryan]

Well, do you see? But like the, the White House is tweeting stuff like this out, you know, as this is a picture of Trump 500 Nasdaq close at record highs. Big picture of Trump smiling.

[David]

That is an Iran war victory lap that he's doing.

[Ryan]

But that's his scoreboard, right? That's his scoreboard. S and P. It's market prices, it's equities, it's stocks. Right. What Americans care about, the average American cares about is their cost of living

[David]

and which is higher because gas is higher.

[Ryan]

Yeah, exactly. So that's going to play into our midterms, I'm sure, into our politics, into the future. David, we got to talk about the Defi hack, Kelp Dao, the bank run on AAVE. $300 million hacked. 200 million in bad debt from AAVE. All of this. But before we do, we want to thank the sponsors that made this episode possible.

[David]

Quick shout out to OkX. They are live in the States building the new Money app and Wall street is taking notice. The parent company of the NYSE just invested at a 25 billion valuation and took a board seat. That's the New York Stock Exchange coming to crypto, not the other way around. And why OK X It's the only app combining a full centralized exchan exchange and self custody wallet in one place. Sex trading, dex access on chain activity all in a single interface. Nora bouncing between five apps, copying pasting addresses or bridging tokens in separate tabs. They support Bitcoin, Ethereum, Solana Base and more. Millions of tokens, just a few clicks and an infrastructure that processes trillions in transactions and keeps assets fully backed. OkX users are set to get tokenized New York Stock Exchange stocks and derivatives later this year. Traffi and Defi finally in the same app. Head to the link in the show notes, download OK X and see why it's the NYSE go to for going bankless in the United States, not investment advice services not available in New York and Texas. You would have never thought two years ago that you could soon be trading tokenized oil on Metamask, but here we are. I've been using MetaMask since 2017 and we all remember buying NFTs with it in 2021 and now in 2026 if you haven't checked in on Metamask recently, let me tell you, you can trade tokenized stocks, funds and commodities along with leveraged perpetuals, prediction markets and even yes, you can gaseously swap between crypto tokens across networks too. There's advanced security features like MEV and front run protection and even a debit card. So you can actually spend your crypto directly at merchants all around the world. And it's all self custodial, everything you want to trade in one place. This is the open money future we've all been waiting for. Check out the new Metamask is already on your phone or in the link below. When the market pulls back, most people just wait. They hold cash, hoping things stabilize. But there's another move. And that's where Nexo comes in. Nexo is a platform built to help keep your digital assets productive. You can earn daily interest on supported crypto assets through their yield product or get funds through a crypto backed credit line without having to sell any of your assets. So if you want optionality, Nexo gives you both sides of the equation. You can put your assets to work or borrow against them when you need flexibility. Nexo has been around since 2018 and has over 8 billion in assets on the platform and has paid out more than $1.3 billion in interest to clients globally. So if you're a new US user, there's a welcome incentive waiting for you when you sign up. Check it out at the link in the show notes. And as always, this is not invest investment advice. The $280 million exploit that is rewriting the fabric of Defi. Probably, as we said in the intro, the most significant consequential Defi hack not even breaking the top 10 in terms of dollar value lost, I think it's something like 13, 14 or 15. So like not, not small, like 280, $290 million.

[Ryan]

That's crazy that a $300 million hack doesn't break the top 10.

[David]

Yeah, yeah, yeah, you definitely include a lot of the centralized exchanges, like the $1.5 billion Bybit hack. And so centralized exchanges here is definitely Probably a top 10 DeFi on chain hack, definitely. But, but nonetheless, like the reason why this is so consequential is because it touches everything. And so it was pretty sure the first ever large exploit of aave. We'll get, I'll get into the details. So this happened on April 18th. It's assumed that this is North Korea. This is assumed that it's Lazarus Group. Exploited the Kelp Dao's implementation of the Layer zero bridge.

[Ryan]

And just to be clear, you said this is exploit of aave. It wasn't actually an exploit of AAVE itself. Actually the bad debt rolled over and is causing some pain for AAVE depositors, of course, but AAVE itself was not exploited. Just want to make that clear.

[David]

The code of AAVE was not broken.

[Ryan]

Right?

[David]

An economic exploit of aave. I still will call an exploit a

[Ryan]

failure of some of its collateral, that's for sure.

[David]

Yes, it's a risk management failure. And it's not like a marginal one, it's like a big one. But we'll get into this. So like layer 0 is a bridge. Kelpdao has this token called rseth. It's the restaked eth from Kelpdao. They use layer 0 to have it exist across many, many layer twos. And so you can take your RS ETH and have it be collateral in the arbitrum version of aave or on base or just like spread it around all the chains. When you do that, you give layer zero the ability to lock up tokens on one chain and then mint IOUs on another chain. That's the part that got exploited. There is a validator network. Layer 0 has a DVN, a decentralized validator network that KelpDAO uses that everyone around Layer 0 uses. And that is just like an auditor, a verifier of the validity of messages being passed around. Kelpdao only used a 1 of 1 DVN and so it only took that 1 of 1 verifier to be exploited for this attack to occur. About 40% of Layer Zero's customers clients implementations use a one of one. So you know, there's a big blame game going on here. Some people will blame Layer 0 and say your guys's software got exploited. This is on you. That's a true statement. The other people will say, well, Kelp Dao should have been using something more robust than a one of one because they had $300 million at risk because being secured by only one validator node. Which is also true. Also true statement. When the North Korea was able to mint all of this RSE that it should not have been able to, it was able to deposit these tokens into AAVE as collateral and then they were able to withdraw ether as a result and so basically gave AAVE fake vapid tokens and then we withdrew real ether as a result.

[Ryan]

And they did that because this is the fastest way to get liquidity to actually get ether as cash back rather than just you know market selling all the rs they would have received far less cash. Better to deposit it into AAVE and get the cash that way.

[David]

Mm Overall incredibly sophisticated attack. A lot of moving parts that on chain data shows that Lazarus Group was prepping for months ahead of to exploit this attack. So they knew that they had this, this exploit available to them. They patiently waited until they just decided it was the right time to take the $300 million of opportunity and then they got out not with actually all of the money. And so there is another event that is part of why this is such a big deal. A about $70 million of this exploited funds was on the arbitrary implementation of AAVE and Lazarus Group. North Korea left some of that exploited funds on Arbitrum for a couple days and the Arbitrum Security council which is a 9 of 12 multisig got 9 people to agree to freeze and recover 70 million of the stolen ETH. And so unprecedented. I don't think this has ever happened in layer two an asset seizure. What happened was they just basically changed the state. No transactions were rolled back, no blocks were rolled back but they just moved the ether from one wallet to another. I think, I think that's how that worked and recovered the funds which you can presume will go back to people who lost the funds who deposited into aave.

[Ryan]

There's so much to discuss here. I mean just to underscore this was a very sophisticated nation state level attack. I mean some of the ways they infiltrated where they like replaced RPC nodes with malicious versions anyways incredibly sophisticated on the layer 0 side of things. I mean there is a question as to who's to blame for this and you indicated hey layer zero has some blame. Kelpdao has some blame. There's another party we didn't discuss as much which is aave. I mean their risk parameters let a significant amount of RS eth into the global system. That is part of the reason now some of the AAVE loans the AAVE system is under collateralized by about $200 million. So AAVE has a role in this. You could also say and this was an argument made by I saw Doug Kolkat and others that really the rollup centric roadmap is to blame. He says this can't help but reflect on how much of this mess is downstream. Consequences of the rollup Centric roadmap For years we were told L2s are just Ethereum rollups share a security zone. Every app needs its own chain. He's basically saying the rollup centric roadmap is the reason we have all of these bridges that are multi sigs. You know the UX of moving from Ethereum mainnet to a rollup wasn't fantastic. So we had to put in these security holes, these bridge based multisigs and that's how a lot of these hacks are actually happening, including this one. It was a bridge hack and so it was because Ethereum had a bad architecture in place and a bad plan for the rollup centric roadmap that this hack happened. Of course you could use the rollup native bridges, optimistic fraud proof rollups on something like Arbitrum but that's you know, seven day withdrawal period. So no one practically uses that. They all use solutions similar to layer 0 of the different pieces of blame. David, how would you allot the blame that goes around here?

[David]

Layer 0 got hacked so I want to, I think it's fair to start with them. The maybe I, maybe I want to zoom out. Defy as a whole collectively is not built to withstand these attacks because there is like trust going around. And so aave trusted layer 0 to not get hacked. Kelp also trusted layer 0 to not get hacked. Layer 0 trusted kelp to use an appropriately sophisticated level of safety when using their own protocol. Everyone was kind of trusting each other to operate as they intended and that is not the correct disposition to build in defi. If you are going to build in a, in a public permissionless protocol, you actually need to assume that every component of your stack is malicious, not not in alignment with you. And that was the universal failure. And so but I'll still, I'm happy to play the blame game. I like drama like layer zero got infiltrated and exploited so like they take some of the blame. Kelp Dao had the reason why I, I said earlier layer zero had like 47% of its implementations using its one of one setup rather than a two of what? A two of two or three of three or whatever. Well why did they choose KelpDao if you know Kelp Dao is just one of many one of ones. Well it's because KelpDao had the most economic bandwidth at at risk and so Kelp Dao shouldn't have been the tallest poppy. They should have had a two of two or a three of three or a four or four. Just something, something better than a one of one. And so Kelp Dow also takes some risks and then AAVE needs to fundamentally reconstruct Its risk parameters. It needs circuit breakers, it needs, like, rate limiters, so that somebody can't deposit $300 million in one block and withdraw $300 million in the next block. We need to be a little bit more pragmatic here. Like, these are like nuclear weapons of mass destruction in terms of, like, financial tools. And we need to just like, if you want to withdraw $300 million, I'm sorry, you. You can wait two days, like, you can wait a couple days to make sure that you are not North Korea. And our defi apps need to be built around that assumption.

[Ryan]

So the whole system has failed at various levels.

[David]

The whole system needs to be rebuilt,

[Ryan]

which is a lot of challenges, which

[David]

is why this is such a consequential exploit.

[Ryan]

Right. The other philosophical debate here, or consequence is the Arbitrum recovery, which you talked about. And so this security council, this 9 of 12, some people weren't aware that this could actually be done, including, it

[David]

seems like North Korea question, did you know or think that this could be done or were you surprised?

[Ryan]

I think hypothetically, I knew it could be done because. So it all comes down to this L2B, right? So look, remember the PI slices on L2B? Well, there's this one pie slice that's called exit window, that's still yellow. This is why Arbitrum is a stage one rather than a stage two, which says this, the Security Council can upgrade with no delay. So There is this 9 of 12 group that can upgrade anything. They basically have root access to anything on Arbitrum, any state on Arbtrum, and they could do whatever they want if they get 9 out of 12 to agree. I knew that hypothetically that was a possibility, but I was still surprised that it happened. And I didn't actually know that North Korea had the 70 million on Arbitrum at the time. Obviously, North Korea didn't think that this was a possibility because as you said, it was unprecedented. They wouldn't have kept it there. So there's a debate, though. It's kind of a code is law type of debate, right? Which is, should Arbitrum have done this? What about immutability? What about, you know, code is law? And some, some people are saying, here's a, here's a critique here from a poster. This is a perfect example of how, when left to their own devices, people will overwhelmingly cheer on the loss of freedoms for the sake of security. Obviously, in this case, North Korea is indefensible, but that's just how it starts. Personally, only really in favor of Things like this, this is the intervention when it's survival of the chain itself that's at stake. So there was some division. Right. Some people were saying, oh yeah, like well done, you fro, you stole from the thieves, you got the funds back, you did right by your users. Well done, Arbitrum.

[David]

It was the right, this is the

[Ryan]

right thing to do.

[David]

It was the right thing to do.

[Ryan]

Others said, no, this is a breach of decentralization and immutability and code is law. What's your take on this debate?

[David]

I, yeah, I understand this slippery slope argument of well, like now, now this has set a precedent. This is almost like a court case of sorts. Like this is set a legal precedent of sorts that if you have assets on a layer 2 and the layer 2 has the means to protect your, your exploited assets, if they ever get exploited, then that layer two kind of needs to do that because Arbitrum did it this one time, so we know that it's possible. And so now not doing that is much more of a conscious, explicit choice than it was in the past. And so it kind of puts pressure on layer twos to like, you either need to actually get to stage layer two, so you cannot do that.

[Ryan]

Yep.

[David]

Or you need to remain at stage one and then make codified rules about when you do and when you do not do that. And that was not. And so now this, that impacts the whole entire industry and honestly, not even layer twos. Solana validators might need to make a decision around what this looks like for them or any other layer one. This isn't even a layer two versus layer one conversation.

[Ryan]

That's right. I mean, I think ethically, I think morally, if you have the ability to do this, you should do it. You kind of have to. Now it's a question for arbitrum in all layer 2s, whether they want to keep this responsibility or not. Because what this responsibility implies is taking intervention in maybe far less severe cases. Maybe they have not only moral and ethical obligations around that, but maybe they also will have legal obligations in the future.

[David]

Exactly.

[Ryan]

So I was thinking of this as

[David]

like, well, did you see, do you see the statement out of the Arbitrum Dow? It was like we, we seized the $80 million downstream of communications with law enforcement. Oh, like law enforcement influence to make this choice.

[Ryan]

Right. And so this is, I think this is going to be a hollowing out of the middle. I think layer twos and maybe all crypto protocols will really have to make a choice. Do they go full decentralization, like full Stage two in this case, where they don't have the ability to intervene even if they want to, or do they intervene in many cases? Do they automate the intervention? Do they become a bit more like fintech, have the ability to block fraud, to reverse, you know, hack transactions and all of this. And it's unclear what users will. We would prefer in the case of rse, of course, the RS ETH holders on Arbitrum, I'm sure they were overjoyed that Arbitrum had the ability to freeze and redeem some of their stolen RS eth. Right. But I mean like, I guess, I guess what's good about this is we have the experiment playing out on Ethereum, which is like never going to do this.

[David]

This would not have happened on the Ethereum if this was only layer. One group would get away with it.

[Ryan]

That's right.

[David]

And they did.

[Ryan]

That's right. So the bar would be so much higher for something like this to actually take place. And so we have that experiment and I just wonder what happens with the layer 2s. Right. I mean base put out a release this week saying they were getting closer to Stage two. They have the tech in place to actually go to stage two with their Azul upgrade that's happening on May 13th. They have multiproofs, this is tee and ZK multi proof. So the ability to kind of get to Stage two, they just have to disband with the Security Council, not have the ability to upgrade or to do these state changes in the future. And I'm not sure what direction they're going to go in actually.

[David]

Wait, so is it planned that they will go to stage two on May 13?

[Ryan]

No, that's not a stage two on May 13. They just have the, they have the

[David]

technology they need to make the like the moral choice or the strategy choice about like do we want this for us and our users?

[Ryan]

Yeah. And I mean we did an episode earlier this week, we had two, I guess, guests who had different views. They said, oh, base will move towards Stage two because they don't want the responsibility, they don't want the liability.

[David]

Yeah. And so it's an interesting predicament because I think that is worse off for their users and it's better for Coinbase to not have the liability. Coinbase gets to do more this way. They get to kind of probably get to put more things like securities on chain because they aren't doing the transaction ordering responsibility and other things like this. And so it just benefits the Coinbase by removing liability. Not necessarily to the benefit of their users.

[Ryan]

Yeah, maybe you could argue that. It depends. They might go in that direction. The other guess was making the opposite case, basically that this will push Coinbase to be a bit more like fintech and automate some of the freezing and discovery here. I mean, that seems to be the direction that Circle is going with USDC.

[David]

For instance, the worry that I have if layer 2s and companies like Coinbase choose to go in the more fintechy direction is that, like, they're probably going to want to, to have more like custodianship and control over user assets.

[Ryan]

Yes.

[David]

Just like, well, North Korea is not going to hack you guys if you stop being so dumb with your bear assets and keep getting fished all the time and putting them into stupid protocols. So we're going to build you a fintech app and you can put your money in our custodial wallets and we're going to protect you guys that way. And then all of a sudden this whole, like, bankless thing that we're doing is like, not, not. It's not really the vision that we kind of thought.

[Ryan]

But maybe that's an okay fit for Layer two. So maybe that doesn't happen on Ethereum.

[David]

Yeah, yeah.

[Ryan]

Remains to be seen. There's still some issues to deal with, which is like DEFI is still in limbo, so there's a bank run on aave. You know, a bunch of assets could no longer be withdrawn. And so there's, at the end of the day, still $200 million in bad debt wrapped up in AAVE. So what are we going to do with that? This all comes down to, I think, kelpdao and what they decide to do next. And at a high level, there's probably two different options for kelpdao. They have to decide how they split the loss to RS holders. So they could do option one, which is spread the loss to everyone, to all the RSE holders, Both on Ethereum mainnet and to all the layer 2s. And of course the, the, the effect happened on the bridged layer two assets, not mainnet assets.

[David]

But that'd be a spread. They get a 15% haircut across the board for everyone equally.

[Ryan]

That's right. And that would bring AAVE's bad debt to like 120 million or so. AAVE has an insurance fund for 55 million. What do they do with, you know, the, the 70, 75 million remaining? Well, who knows? AAVE governance would have to decide that. Or KelpDAO could decide to hit only the L2 users. So technically, the RS ETH on Ethereum L1 was just like, not affected, has always remained fully backed and fully collateralized. But that would.

[David]

The argument There is that RS ETH holders on the Ethereum layer 1 never chose to have themselves exposed to the bridge. So therefore, why do they deserve the haircut? Because they chose safety. So why expose them to the thing that they never expose themselves to? Yeah, which is a fair argument.

[Ryan]

Yeah, I guess so. And, but. But if they did that, if they pushed it all to the L2Rs ETH holders, they. They could lose 70 to 75% of all their value. So they'd get pretty much wiped out. So that's the main point of. Of decision making next, and then everything will fall downstream of that. So there's gotta be a tremendous amount of pressure on Kelpdao right now.

[David]

Yeah, yeah. Overall, I'll kind of just zoom out and say that this, this is just a very real world event happening to DeFi that I think kind of just informs us of like a lot of the things that happen in tradfi. Tradfi. We are in our Tradfi era. Ryan. I don't know if you've noticed everything about cryptos like tradfi these days and

[Ryan]

bare assets, except bare assets.

[David]

But like, the lessons that we learned here is like, we need circuit breakers and like rate limiters. And maybe this doesn't really look like traditional finance because they don't really have this bare acid problem. But one of the guests on our podcast, which we. I recommend everyone just go listen to that podcast with Odysseus and Dan that came out yesterday. Odysseus wrote this article that's like, we need DEFI to start looking like our aeronautics industry, which is building a piece of a system that every part of that system is designed to fail and the system remains intact. And that was not the way that our DEFI ecosystem is built. Our defi. The reason why this hack happened and this exploit happened was because only one thing failed. And it caused the whole cascading set of interdependencies to also fail with it. And we just cannot inside of an adversarial environment, we just can't build that way. And so all of the fabric of DEFI needs to get rewritten under this assumption of like, all components will fail and you need to mitigate harm for the day that they do. And so, like, you know, the silver lining here is like, we actually have an opportunity to build DEFI in a way that onboards and is more secure to more TVL and so it hurts. It sucks. Like the morale in the industry wasn't even high to begin with and now we have this. But like our work's cut out for us and at least the path is clear and like we're going to do it, we're going to get there. And at least, at least we know the destination. And that's exciting for some reason.

[Ryan]

That's right. What doesn't kill Defi makes it stronger. This has not killed Defi, and I think we're going to come out of this stronger. More to talk about coming up next, we got to talk about the productive money thesis for Ether and the case for why Ether could be at some point in the Future, not now. David. 250k, let's go. I kind of like that piece of that number. We'll do some updates on the Clarity act and other things before we get there. Let's get to the sponsors that made this episode possible.

[David]

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[Ryan]

Some exciting news. We are launching a new podcast to help people figure out the crypto cycle, how to navigate it. The best crypto cycle investor I know, his name is Michael Naito. He runs the Defi Report. This is the guy that sent me a sell alert before the 10:10 price drop happened. His cycle analysis has been absolutely on point. I've been following him for years and this year we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes. They're short. They're punchy. I think this crypto cycle is harder to navigate than most. So let's do it together. Go subscribe to this podcast Search, Search the Defi Report wherever you get your podcasts, YouTube, Apple, Spotify, or find a link in the show Notes There's a new episode waiting for you now. The Etherealize team and Mike McGinnis put out this paper this week that you and I thought was fantastic. We did an episode on it. It was called the Productive Money Thesis and this is a thesis for ether the asset. David, I thought this was the best thing I've read on ether since you wrote the Triple Point Asset thesis, since you know, the meme of ultrasound money. That was a long time ago, since the meme of ultrasound money came into existence. It felt like a cousin of those two ideas, really.

[David]

The modern, modern reincarnation of the thesis around eth.

[Ryan]

That's right. And part of the reason it was powerful is because it was a synthesis between Menger, Karl Menger, notable economist, he laid out the attributes of what makes a good money and ether has many of those attributes. That's what the thesis is arguing. And also Warren Buffett, who quite famously just only invests in and buys productive assets. Assets that generate capital, generate yield over time, compound, compound, compound, compounding, always compounding. And so the author of this post argues, essentially Ethereum is both of those things. It is bringing the money like properties that Menger values and the productive yielding capital compounding asset that Buffett admire so much and smushing them into one single asset, which is Eth A not just the money, but a productive money. You know, we've said often the most bullish thing for ether is to be understood. I think this is a paper that really helps ether be understood to investors. There's a whole website about it, productivemoney.org that shows the Productive Money Thesis compares ether the asset to gold and to Bitcoin on all of these dimensions that Menger cares about so much scarcity, fungibility, divisibility and really makes the case. It was a well written paper, a fantastic podcast guest in Michael and Vivek who we had on and I think this is worthy of pushing far and wide. There were some dissenters about this idea, of course.

[David]

David always has its haters.

[Ryan]

Yeah, I read one from Scott Melchor, you know, the Wolf, I think, Wolf of Wall street guy. So his main take was like, hey, don't get too ahead of yourselves. Like ether has so far to go on this score. Stop Focusing on Ether as a money, just focus on the network. Bitcoin already has that covered. Bitcoin is special. Ether is not. You're so far away from gold, it's embarrassing to even talk about prices of 250k. Like what are you smoking? So obviously there's non believers out there. What was your take on this overall

[David]

though, the pushback is like normal and expected because again like ether just rubs people the wrong way for some reason. Like $250,000 is a very large number. That is how many times larger? A hundred times larger.

[Ryan]

Now okay, let's just specify that wasn't a price prediction in the, in the article itself. That was a, if you, if Ether became a civilizational store of value asset of the size that that gold is and Bitcoin is, that's what it would be worth.

[David]

Sorry, Ryan. That's a price prediction. You're just saying a price prediction and saying. Well actually it's not a price prediction. But like why are you saying the number though?

[Ryan]

Let me, let me ask you, do you think this is crazier than Michael Saylor saying that Bitcoin is going to $21 million per bitcoin, or is it?

[David]

I think that is also crazy.

[Ryan]

It's in the same order of magnitude of craziness. Right.

[David]

So just crunch the numbers, Ryan. So if Saylor thinks that bitcoin is going to go to 21 million, it's currently at $80,000. That is a 262X from its current price. And as we just did the math, $250,000 ether is a little bit more than a 100x.

[Ryan]

Yeah.

[David]

And so that is the sailors 21 million is roughly, scientifically speaking, 2.6x times more crazy to answer your question.

[Ryan]

Yeah, exactly. And also I just think this moves the Overton window to talk about Ether the asset more. That's been one of our criticisms of the entire crypto community and just investors in general. This obsession with Ethereum the network without talking about Ether the asset. This gives a nice narrative to Ether the asset as a store of value asset, which I think in the future, increasingly people will come to view it as such. But I guess we're still early with $2,000 Ethereum.

[David]

Yeah, yeah, my, my kind of bullish. I, I'm, I'm as bullish on Ether as the next guy. Maybe that's not totally true these days, but like I will say that the bowl case for Ether kind of just depends on Bitcoin rattling apart. And we do kind of see that like Fees keep on dropping. Quantum is an existential threat. And so like Ether, I think will kind of always be a call option to like leapfrog Bitcoin, because people realize that actually safety and security and longevity are the properties that you want in your money. And Bitcoin doesn't really have as many of those. Anyways, since we're into the world of making predictions, let's talk about prediction markets. First off, prediction markets are adding perps. Perpetuals, perpetual futures. Both Polymarket and Kalshi have announced their perpetual futures platform. Now this is regular perps as opposed to prediction market perps. To my knowledge, there's no such thing as a prediction market perp. So this is like, like 10x long Bitcoin or 10x short, like Nvidia or something regulated inside the United States. Or at least call call sheets is regulated inside the United States. I'm assuming polymarket is offshore because that' Polymarkets really based and so interesting that the prediction markets are going into like an adjacent strategy at an adjacent vertical that is separate from prediction markets. But they're just, hey, seeing like, I think, hey, the window is open for us to build a perps platform. Let's go ahead and do that though.

[Ryan]

The window is open, they can expand. Perps are a very exciting, interesting product. A lot of growth ahead. They have a common user base, I'm sure, you know. So this would be competing against Coinbase, Robinhood, Hyper Liquid Crack and all of the other perps asset, you know, investment and trading platforms out there. It's a good move.

[David]

Yeah, yeah. Speaking of prediction markets, did you hear this story, Ryan, about this one? Actually surprisingly not small market about the temperature in Paris prediction market and it getting exploited. Did you hear this?

[Ryan]

I saw something about this. Yes.

[David]

Okay. Okay. So there were two odd temperature spikes registered at the Charles Dugal temperature. That's the airport outside of Paris temperature sensor on April 6 and April 15. Each of them just lasting a few minutes. Also with no corresponding changes in nearby temperature monitors or any sort of like humidity or wind data. So people are like, why did the temperature just jump 7 degrees? Both anomalies occurred precisely at the threshold needed to resolve this one Poly Market contract about highest temperature in Paris that apparently this event happens every single day. So like I we can look at it right now. The highest temperature in Paris on April 23rd and then you can go and bet on April 24th and April 25th. It's a surprising amount of volume. There's $190,000 volume on today's market. And on yesterday's market, it was another $180,000 of volume. And it was just weird that there was this temperature spike on April 6th and then also on April 15th that paid out 14 and 20 thousand dollars respectively. And at least one winning account had been created days before the first anomaly, suggesting that there was some premeditation about this lucky speculative bet. There has been a criminal complaint filed by entities in Paris about this. And somebody suspected. This is unconfirmed, but this is why it went viral. That somebody is just taking a heat gun or like a hairdryer or a lighter or something and is pointing it at the therm. Right. As they have like, like a $10,000 bet on the line. And the why this is a problem is because the Oracle for Polymarket, the, the Paris temperature of Polymarket is just this one thermometer.

[Ryan]

Yeah.

[David]

And so whatever the, or whatever the thermometer reads is the, is the outcome.

[Ryan]

It's a meat space Oracle attack, I guess.

[David]

Yeah, right. Funny, funny.

[Ryan]

What are the chances this is somebody from North Korea just, you know. Yeah. Making their way over to France and hacking this market?

[David]

I think it's just some hooligan who's having a good time.

[Ryan]

You're going to get busted. This is not going to work. I think.

[David]

Speaking of getting busted, Tether has frozen. $344 million in tether on Tron in coordination with OFAC and US law enforcement. Biggest ever, largest stablecoin freeze ever. $344 million. We do not know why. We do not know whose assets got frozen.

[Ryan]

You have a guess?

[David]

I have a guess. Ofac. You know who's doing what OFAC is busy with right now? Ryan.

[Ryan]

Yeah, I bet they're Economic Fury.

[David]

Operation economic fury. $344 million in tether on Tron. You know who might be doing that? You know who we know works with Tether on Tron? The irgc. I'm. I'm making the claim that this is, this is the IRGC is $344 million.

[Ryan]

I bet we'll find out pretty soon. I bet we'll find out by the next roll up. Next week we'll report in on.

[David]

Do we just get that money? Did we just have that?

[Ryan]

Who gets that?

[David]

Does it go to the strategic reserve?

[Ryan]

U.S. government? Yeah, they probably can do that. It's kind of like the Arbitrum Council there. Just freeze and reroute that. They have firmware level access there.

[David]

And for all the crypto natives out there who are still paying attention to on chain stuff and new Chains Mega Eth. The Mega ETH TGE is happening on Thursday the 30th, that is next week. They put their TGE behind a bunch of KPIs. One of those KPIs. They just need to hit one of the KPIs. One of the KPIs was 10 live apps. They had their 10th live app go live yesterday.

[Ryan]

Nice.

[David]

And so now there is a TGE countdown for seven days. So we're gonna get the Mega Eth token trading on chain next Thursday, which is pretty exciting. Hyper Liquid is currently valuing mega eth at $1.7 billion, which is above the pre sale price. It's hanging in there, which is. The Pre sale was at 99, $9999 million. So we are at $1.7 billion. So all pre sale buyers are up. And just for context, I think we can also check in on Monad which is for some reason like lumped together with Mega Eth. Both are very high throughput, high performance EVM chains that are kind of launched at the same time. The Monad token launched a while ago, currently clocking in at 3, $3 billion, fully diluted. Also above the pre sale price of 0.025 cents. It is at 3,2 cents. So it's nice Ryan, to have healthy tokens, healthy new tokens. Because you know, usually in bear markets when consumer sentiment, if you will, is down, bad prices don't go up. And so the fact that prices are above pre sale prices I think is

[Ryan]

pretty just hanging in there. Hanging in there. There's not much supply though, I will say on this Monad. Right. So the market cap, you know, supply 386 million, a little bit over like 11% float.

[David]

11% float, yeah.

[Ryan]

That's not a lot of flow. But they're hanging in there. You are right about that. David. Let's end with this. I am becoming increasingly concerned with governments taking action on what you might call device level, know your customer kyc. So this is an age verification bill coming out of the U.S. congress. And there, you know, it's not really an age verification bill because what it is specifying is that every operating system, so Windows, Mac OS, iPhone, you know, Android would need a proof of age requirement in order to just set up the device as part of the install package. And what that means practically in order to prove your age in a verifiable way, that means government id, that means a photo. It means something we're quite familiar with in crypto, which is kyc, the implementation of this that we've seen in other setups like Discord, for instance, who's implemented age verification is you have to send your driver's license or your passport and a selfie to a third party company called Persona and they verify that you are indeed who you say you are. Okay, so imagine if this type of legislation gets passed and that is the default. It would effectively mean KYC know your customer for every device that anyone uses in the U.S. right. And for anything that's connected to the Internet that destroys. Like if you're, you're talking about, what are the implications of, for, for crypto, basically we could have private crypto, but if we have firmware level at the device, at the operating system level, kyc none of that matters.

[David]

Okay, wait, this is just for phones, right?

[Ryan]

No, this, this is broad enough that it would cover any sort of device. Now this is addressed my computer.

[David]

So my computer. Anything that talks to the Internet.

[Ryan]

That's right.

[David]

If it talks to the Internet, it has to have a government issued ID to go along with it.

[Ryan]

That's right. And I'm. That's wild. There's, it's, it's crazy. This is a bill in Congress and you can read the full text. I don't think that this will actually make it through the, you know, the process, the bill creation process in Congress. But there are about like four or five states that have already passed through the state legislators, something pretty similar. So I'm very concerned about the Overton window shifting on this. And it's terrible from multiple angles. One is the way they're actually implementing it, the defaults where it's your government passport KYC to Persona. I mean that creates the biggest honey pot for hackers. That is a bow wrapped gift to North Korea where they get identification information of every single American who uses a device. And like we have the tech to do this differently. ZK passports, for instance, that's a way to do, if you're going to do this, you could do government mandated identification, age verification without actually creating a honey pot and giving up your passport and a selfie photo. So from that perspective, it's offensive. The other, the other way it's offensive is of course like, like this is a government mediation of any device or connectivity. Right.

[David]

So the amount of surveillance that can come out of this, you know, you know the Marauders map from Harry Potter where you have the names running around Hogwarts. Yeah, this is just a Marauders map for the United States government of just like names attached to devices running around. Yep. In real time.

[Ryan]

Yep.

[David]

That's scary.

[Ryan]

So it's not great. And you know they're already rolling this out. I don't know if you've seen this was a couple of weeks ago on claude. For new CLAUDE users. This is not fully rolled up, but you can look at this in CLAUDE support. They're already requiring the same KYC Persona where you have to submit a government ID and also a selfie to Persona in order to start using claude. And they're doing this for age verification reasons. And this is CLAUDE and Anthropic just adopting this? Not by government regulation. They're trying to be kind of the good boys that are staying ahead of this thing. Anyway, KYC for AI, right? KYC for devices. We gotta keep this stuff on our radar because this could create a massively dystopian surveillance state for sure.

[David]

Ryan, I know you're a CLAUDE power user. I know you like your claude. If you had to continue to use CLAUDE to give up your and but you had to show your ID to Anthropic, would you do it?

[Ryan]

What else are you supposed to do? Right, Like I think I would. I would run it it in parallel to some sort of self sovereign system that I have to go figure out how to set up. Right. And I would have these two systems in parallel.

[David]

So you would. But how do you just not erode yourself to the good UX version because your self sovereign AI is going to be so cumbersome and produce worse results for you.

[Ryan]

I know that's the whole prisoner's dilemma coordination trap we have right now that you know. I hope these don't become system defaults or else we're all in a world of hurt.

[David]

Yeah, I. I think. I think the idea of government logs of humans is always scary.

[Ryan]

Yeah, I agree. Well, let's end it there. Gotta let you know, none of this has been financial advice. Crypto is risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey.

[David]

Thanks a lot, Sam.