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ROLLUP: Bull Market Over? | BTC 50W Breakdown | Balancer Hack | Stream Finance Collapse | Brian Armstrong’s Prediction Market Drama
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Foreign.
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Nation is the first week of november i've got haseeb qureshi filling in for david hoffman david is up climbing a mountain i think he's somewhere in the patagonia right now hopefully he's doing some work for us haseeb hopefully he's like slaying some balrogs he's fighting some demons and he's going to save us from this bear market yeah i don't.
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Know if i could rely on david to do that right now it kind of feels like this bear market's coming for us whether david's out there or.
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Not oh my god well we gotta talk about that it feels like we are so one topic of course we're just hanging above crucial price levels for bitcoin the fifty week moving average is the bull market over i want your perspective on that also there was a major setback in defi this week a four year old protocol was hacked actually it's even longer than that the balancer protocol what's the fallout also october tenth maybe we're starting to get some dead bodies rising to the surface after that major liquidation event we've got steam finance which is like this quasi defi stablecoin hedge fund thing that has imploded are there more dead bodies out there and i want to get your perspective on this to see brian armstrong he had some fun with prediction markets on the coinbase earnings call some people didn't like that he was having fun about this so what does this say about prediction markets all that and more we'll get to that i do want to call your attention bankless nation to a uniswap survey and an opportunity for you to win some uniswap uno swap decks so this has got to be a deck of cards i haven't seen it yet it's like a uniswap themed uno deck of cards all we need you to do is complete a survey that's going to be in a link in the show notes and you can get a chance to win they just want some information from the bankless community so go do that you could win an uno deck haseeb did you ever get the unisox back in the day from uniswap.
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I did not have any unisocks but i know several people who did and who flexed them on me very jealous.
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Of unison yeah so are they still valuable or have they gone to zero with the rest of the nfts i.
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Don'T know because they were like it.
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Was like a physical item attached to.
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A token right yeah that's right that's.
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Right okay yeah i don't know well maybe there's a future for these uno swap cards in your portfolio as well let's start here though bitcoin prices on the week they are down at the time of recording one hundred one thousand four hundred dollars so that's down about six point five percent on the week we got as low as ninety nine thousand six hundred on bitcoin and we're just floating above that ether price on the week three thousand three hundred so down about twelve point five percent on the week that's double digit we got to the three thousand one hundred range and all this feels bad because we've lost about a trillion dollars in total crypto market cap haseeb so we're at three point five trillion dollars so the question of course we have to discuss is the bull market over and i want to ask you with this context so some of the charters out there you know the cycle charters like ben cowen and others right they go through and they're like okay how does this cycle match previous cycles that we've seen in crypto and all of these have tended to be boom bust four year cycles and people like ben are saying there is a indicator that we're going to bear zone anytime bitcoin drops below the fifty week moving average that confirms that the top of the cycle is in that's always previously been the case and we're back into bear market territory for another twelve months so that number right now is something like one hundred two thousand dollars for bitcoin so if bitcoin closes multiple weeks so at least two weeks below one hundred two thousand keep in mind that number is ebbing up as well then previously the bull market would be over and so i want to ask you maybe this question do you think that's still a good indicator is one hundred two thousand for bitcoin still our number if we drop below that on the two week period of time it's over and we can call it quits or what's your take.
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On this i mean look i have no idea i'm in general skeptical of people drawing shapes on charts and telling you that this will definitely happen if this thing happens i think the track record of people doing that is very bad if you remember bitcoin spent quite a while under ninety k it came down to eighty eight during the tariff crisis and when markets were throwing a tantrum over all the stuff that trump was doing now markets they seem to be defending the one hundred k level obviously it's psychologically important so i can i can i can there's definitely a real thing going on there where that when markets dip below one hundred k it's like you know damn where where are they going my view on all these things is that i don't think anybody really knows yeah you think you.
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You think this is like just horoscopes for crypto bros looking at the charts and watching channels like this pretty much.
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Pretty much i mean like on some level it's obviously true that if prices keep going down that's a bear market that's what a bear market means so just you know like some of these things are almost tautologically true is that oh if this is like going below the last fifty week average level then that means prices are going down sure yes it does it does mean that yes correct yeah but it's like is this predictive of anything i don't know that's true i mean again it's pretty clear like macros in the driver's seat right now and flows are in the driver's seat and flows like this is an output not an input into what is actually driving the market right now almost all of the money is chasing ai stocks yes right if you just look at the s and p five hundred there's like forty stocks that are responsible for almost all the gains in the s and p and they're all ai stocks and everything else is flat on the year besides those forty one stocks in the s and p five hundred so what that tells you is that this bid that has seemingly dried up for everything besides ai is just everywhere it's kind of metastasized to the entire market so gold is down massively crypto's down massively the only thing that's not down is ai so i don't know that this like drawing a chart and putting some sine waves over like okay bitcoin goes up and down what are you learning from that other than like yeah you know if bitcoin keeps going down it'll probably keep going down.
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B
So haseeb does not believe in a magic number but let's talk a little bit more about kind of equities and the ai trade that's on right now so it seems like and maybe you have an explainer for this um i've got a few ideas here but it seems like every time equities sneeze crypto catches a cold okay so like some of this big drop in crypto happened on monday and tuesday of this week on tuesday of this week stocks went lower by about two percent the nasdaq dropped two percent and then crypto goes and does like a negative ten percent that day and like in higher in some cases and you know so some people of course this is ai stock market jitters you know people talking about an ai bubble you know we got bulls and bears on on both sides of that michael burry is actually you know he's the big short guy he's he's he's shorting some ai stocks at this point in time i don't know if that signal others are warning about an overvalued equity market golden goldman sachs you know still there's a ton of capex going on in ai of course you also have the the us government shutdown which is now the longest in history so we're at above thirty five days and we're at thirty eight days now in the government shutdown and so there's just some jitters in the market around that but how come anytime risk on assets ai stocks catch like a little sniffle crypto gets walloped is that just like we're fragile like what's going.
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On i mean it's a good question i don't think i have a clean answer to that i mean one thing again is that whatever you're seeing in the ai stocks is happening worse in non ai stocks because the ai stocks are outperforming they're pulling up the s and p massively everything else that's not ai is flat on the year right so remember that so what that's telling you is that crypto is just outside of the bullseye right now in terms of what this kind of secular trend that markets are following tends to be you also have this tale of two cities is that all of the bid even over the last six months was mostly concentrated in crypto equities and not in crypto tokens right so we were not seeing bitcoin do crazy rallies we were seeing dats do crazy rallies we were seeing circle do a crazy rally but we weren't seeing it happening on the crypto native side quite as much so now look i think it's pretty hard to come up with a theory for this it's more of a description of reality than it is a prediction of reality i suspect that at some point that is going to change but it may not change until after we see some air let out of the ai bubble so now you know is it a bubble is it not very clearly like historical earnings are overstretched right like the fact that everything else is flat that's non ai and ai companies are trading at massive multiples like the revenue growth is happening you can see it in openai you can see it anthropic they're making money there's a lot of demand for this stuff these are the fastest growing consumer apps in history those things are all definitely true so in that sense is it a bubble is it not like it's a bubble in the sense that clearly people think that more people are going to come in to buy right more people think that these numbers are going to keep going up and a lot of things are trading on optimism that doesn't mean that optimism is unearned that optimism is very warranted i think it's pretty clear to everybody that ai is the most transformative technology of this decade but if you see risk risk off happening in the stock market yeah people are going to risk off even more in crypto and the thing to remember ten ten why did ten ten happen ten ten happened also because crypto trades twenty four seven three hundred sixty five right so when when trump was announcing that he's going to tariff china one hundred percent or whatever it was on a friday evening and there's nothing you can sell markets are closed there's absolutely no liquidity you can raise the only place for markets to express their panic is in crypto so oftentimes what i what i think you see here is that markets and crypto are selling off because they're the only thing that you can get liquidity on at the time when the market wants to ingest some fear so you know what does this tell you for the future i don't know i do think that probably it's going to remain pretty rocky for a while but all market like every bull market you've ever seen in crypto had a lot of pit stops along the way right if you remember the twenty twenty one cycle it was kind of this dual peak cycle where you know bitcoin went up to sixty drew down really really aggressively and then about nine months later it came back and bitcoin hit sixty again so it's not uncommon in these longer cycles that you're going to get peaks and troughs of sentiment peaks and troughs of confidence and you kind of got to shake people out so this whole you know what happened on ten ten and also what happened over this week has really been a shakeout of leverage and usually those are healthy that's how markets can find a bottom and then have a spot driven rebound we maybe are starting to see that spot driven rebound a little bit right bitcoin bottomed at like it was like ninety eight k ethereum hit even lower prices might not be the bottom you don't know but from a secular perspective crypto is fine fundamentals are good if you rewind back the clock to what twenty twenty one was like twenty twenty two when everything was overstretched everything was insanely leveraged there was so much hubris and stupidity and nonsense in the market that was just getting walloped it's actually not what the market today looks like even the deleveraging that happened on ten ten it was like okay well nobody really did anything wrong it's not like wow the industry was so foolish i can't believe that we were bullish on ethereum and bitcoin and stablecoins and defi and perp dexs and it's like no actually all this stuff is correct hyper liquid is still a huge exchange making a lot of money stablecoins are still growing like crazy there's still huge volumes everything fundamentally about crypto is correct it's just the biz not there yeah that's the.
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Thing this cycle can't be over because we haven't gotten our super villains yet there's no sbf or alex mashinsky screwing us over there are a few other reasons i want to run by you for why every time equities sell off crypto sells off harder one is just the basic idea that there's like much more leverage in the system with crypto at least kind of on the surface layer so this is a kobese letter saying what is happening in crypto right now even though the fundamentals are strong what's going on and the answer here is leverage basically crypto adoption is at record highs deregulation is in full swing technology is advancing rapidly those are all the strong fundamentals however leverage is at unprecedented levels which is amplifying moves in the market such as the october tenth the ten ten move so this is just making the case that crypto has more leverage in it you mentioned the success of perps exchanges like hyperliquid well that's a that's a leverage based exchange of course do you think we're just like we have a higher amplitude of moves directionally just because crypto has more leverage trades twenty four seven that sort of thing versus stocks possibly i mean look.
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It'S not obvious to me that crypto is more leveraged than any equivalent market but it's very leveraged for being so volatile right and really the risk of that leverage is higher than it would be for in stock market obviously because it's just way higher volume it is true that open interest in crypto has dramatically grown over the last few years even though trading volumes are not as high as they were at all time highs the open interest is higher than it was during previous market booms so that's nominally true in terms of the amount of leverage but is it enough to be able to attribute this to just saying well things are more leveraged that's why things are down so much i don't know again this feels like too simplistic of an explanation because things can go up when they're leveraged they can go down with their leverage leverage amplifies moves but it doesn't explain.
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The sign let me give you another i guess narrative explanation for why crypto has moved like this and why maybe it's been somewhat stagnant on the year right so you mentioned a gold run up gold's up fifty percent sixty percent what about bitcoin what about our debasement trade i thought that should be up too right so this is jordy vassir he wrote an article called bitcoin's silent ipo i don't know if you had a chance to read this let me give you the tl doctor summary okay you didn't read it okay so basically he makes the analog he says i used to work in kind of the ipo market i've seen how equity ipos kind of work and we're seeing bitcoin silent ipo here and he's basically making the case that the early bitcoin believers you know the cypherpunks that invested in bitcoin in the first decade they're rich you know and so this is kind of now that bitcoin has its etf moment blackrock et cetera they are not in a panicked way but they are slowly diversifying out of bitcoin it's kind of bitcoin's ipo moment right so they're dollar cost averaging out you saw it was a month or two ago galaxy digital announced a nine billion dollars bitcoin sale this is for a single customer some bitcoin whale out there for nine billion dollars is selling bitcoin imagine that they still have more bitcoin behind that but they're just kind of diversifying out and he says this is not a bear market because we are getting the institutional buyers in retail they're slowly and steadily stepping in just not aggressively just not emotionally and this is the exact pattern you might see after a major ipo right so a major ipo all the early believers all the employees in an equity ipo they they're exchanging their shares the public they're selling maybe not all but a portion when the lockup periods expire and the stack the stock really doesn't crash in those scenarios it just kind of consolidates into this accumulation mode this is just a changing of the guard he says what do you think of that as the explainer for why bitcoin is flat in twenty twenty.
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Five i think that's a really strong thesis i think that resonates quite a bit yeah an ipo is a way to change turnover ownership of something it goes from private hands into public hands and i think that's a good analogy for what's happening with all of crypto is that there is a broader set of institutional buyers who are now coming in or buying the bitcoin etf or buying the ether etf or who are adopting the story and so like the the thing that does need to happen at some point is like that turnover needs to be complete is the people who got in crypto early they made their money they were right they were vindicated and they and they and the process of turning over those coins putting them in the hands of blackrock out of the hands of the early ogs it takes some time takes some time to get absorbed but eventually those ogs are done they're done diversifying they're still going to own some bitcoin but they're not going to be balls along bitcoin and have it the only thing in their portfolio basically or have it dwarf everything else that they own and once they're done the market can keep on the march of like you know we have to realize blackrock is an early adopter on wall street right all these people we're talking about right now like bitcoin it just got cool to own bitcoin ten minutes ago there's so much more capital that is still not ready to put their toes into the water there's still so many people who are i mean look i talk to a lot of lp's a lot of investors like institutional investors into crypto you know what dragonfly our fund represents is one of those ways in which those kinds of people can dip their toes into crypto and still so many of those institutions there's like old curmudgeonly people on the boards or on the investment committees who are just like i don't know about this crypto thing you know isn't this just sad is this really safe enough for us to invest in maybe in five years right which means like in five years those people are going to retire they're going to get off the board or they're just going to say okay fine i guess we can finally buy some crypto there's so much stuff like that out in the world that for at least bitcoin like i sleep very soundly at night that bitcoin is going to be worth a lot more in the future just because it's kind of an inevitable march of people just saying like all right fuck it like that's kind of what happened to blackrock they eventually were like all right fuck it let's just make a product and see what happens and every single one of these groups it's not like they were chomping at the bit to buy bitcoin it's that they gave up in saying no no no no no and then eventually it's like all right.
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Fine we'll buy some bitcoin aseeb let me give you a darker theory as to why we might be weak right now you ready for this and that is actually what you call ten ten so that was that liquidation major liquidation event on october tenth of this year like twenty dollars to thirty billion dollars in liquidation in one single day largest we've ever seen in crypto that there are still some dead bodies out there that we don't know about that are waiting to float to the surface and one i guess kind of scare maybe for some under this theory is we saw a quote unquote defi protocol we'll explain exactly what that means called stream finance it collapsed this week okay so they announced this on twitter yesterday an external fund manager overseeing stream finance funds disclosed the loss of approximately ninety three million in streamed fund assets so what is stream exactly well they are a recursive looping yield focused defi platform all right my take on what stream actually is is it's kind of like kind of like a hedge fund almost posing as defi so they got their stablecoin type thing called x usd this collapsed by the way down to like i don't know fifty cents or below on the back of this but it reminds me a little bit in terms of mechanics as celsius back in the day which is you basically put some funds whether it's a stablecoin or something into a black box you give them your money they give you juiced yield and returns i think it's like ten to fifteen percent yield in return we all pretend it's defi because it's list says defi on the website and they are deploying these funds into yield strategies into some risky shit to be honest right.
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Into god knows what i mean that's the important thing they don't tell you.
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What they're doing they don't and you don't know it and it seems like a stable coin but it's really like kind of a they're trying to be a delta neutral fund but they're not doing the athena thing like the way they should be and so it's kind of janky and it's out on the risk curve anyway that blew up okay and there were some downstream effects in the rest of defi so you had some morpho vaults that were temporarily kind of frozen they were illiquid i think that's since been somewhat resolved but this was like a hundred million dollars or so in that in that range but this is a body that floated to the surface and some of the sell off this week i gotta say has not felt organic and that's maybe just a vibe from my side but i'm just like looking at the these massive moves and it's just like did somebody is somebody getting margin called right now is some under collateralized hedge fund borrower that we don't know about somebody that's out there just in the process of getting blown up now this is a bit conspiracy theory and i don't want to name names as to who this might be right because you don't want to cause a run on anything but what do you think like could this be a possibility here that there's a three errors capital somewhere out there that's really in trouble.
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So i will say i think the truth is always a little bit of something in the middle in that it's almost certainly true that probably most of the big market makers face losses on ten ten because it was just a brutal day tons of dislocations shorts blowing up or getting adl'd or whatever so obviously people lost money on ten ten it's very hard to make money on ten ten now that being said and there's definitely people who died and we know people who died so obviously this group stream finance or whatever i'd literally never even heard of them until hearing that they went under so there's a lot of small fry.
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Doing that's a good thing you don't want to know the name of the thing that blows up because if you know the name it's probably really good.
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So there's a lot of things that you've never heard of that have blown up um there's a lot of market makers on hyperliquid that people were like you can actually see their accounts on hyper liquid and so there are a lot of hyperliquid market makers that people know blew up had you know double digit million dollar losses but probably the big guys my guess is that almost all the big guys lost money but they're fine right like the amount of credit and the amount of leverage that you can take on in this industry is a lot less than what it was in twenty twenty one twenty twenty two and people forget that that there was a huge credit crunch that happened after the collapse of blockfi and celsius and genesis and ftx and it never fully recovered we do not have as much credit in this industry as we used to and it is harder to take on leverage or like just just debt to the same degree so now that does mean that there's you know like when you get liquidated on an exchange you have the collateral when three arrows was borrowing they didn't have the collateral that's a different story it's a different kind of borrowing so like the amount of credit like actual credit that's been extended in this industry has decreased a lot since twenty twenty two so it's one of the reasons i don't worry as much now that being said you are absolutely right that when you have losses across the industry people are going to raise their hand and say i'm okay no matter how okay they are right so there's a lot of people who are trying to paper over the loss who will try to hope they can make it back who will try to like gracefully unwind their lo who will try to slowly get out of their positions and they don't want to draw attention to themselves and say hey we blew a gigantic hole in the size of the ship fyi everybody it was us oh yeah right so you should expect that you're not going to hear about what actually happened for quite a while if ever and to be clear that also happens in traditional finance it's not like a crypto only thing so my guess is that people got hurt a lot of people got hurt some people died probably it's not the big guys because it's just hard for big guys to die that's why they're big and the system is not as it's not as fragile as it was in twenty twenty two because the fact that there's not as much credit in the industry as there used to.
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Be that's comforting so where does this leave you with respect to the cycle then so that question is is the cycle over we've talked about maybe some reasons it is some reasons it's not but what's your personal take on this.
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Yeah look if you're in exotic strategies like you know these are exotic strategies when you have a volatility blow up exotic strategies get hit because most exotic strategies are short volatility if you're leverage looping doing some crazy like what that means is that if the asset price moves against you you will get blown out you will get liquidated you will you will lose a lot of money so that's what happened to all these levered looping strategies so it's very unsurprising that the people you are hearing about are people who are doing some kind of levered looping thing if you know that's why it's risky it's risky because if the underlying moves a lot the thing explodes what about for the average.
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You know eth bitcoin holder kind of you know top ten crypto asset holder you know like how should they be.
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Thinking about this look if you're sitting in spot like remember ten ten bitcoin started at i think it was like one hundred seven k and then ended at one hundred three one hundred two by the end of by the time ten ten was over so if you were sitting in spot you might not even notice anything that big of a deal happen right like bitcoin's down three percent at the end of the day now alts different story and clearly that's a result of for selling and margin calls but my view by and large is that this stuff is deleveraging are ugly they happen in the course of a cycle so again rewind the clock go back to twenty twenty one there was a lot of deal there were many moments of forced selling and deleveraging that happened over the course of the entire cycle even before that second peak so does this mean that crypto's cooked does this mean the cycle's over not necessarily could be i have no idea but i think it has a lot more to do with macro than it has to do with oh there was for selling and therefore okay the skeleton you know look we can always get surprised by something and crypto's full of surprises but the reality is if you look at like the big things look at athena athena is the big thing right so usdx or whatever was tiny it's a you know little little baby within defi compared to all the other stuff that went that could go wrong if athena is going wrong that is a you should be terrified if athena goes wrong but athena was fine athena chugged along as usual and the fact you know you talk about is this thing really defi the advantage of athena is that everything is transparent everything is public all these dashboards twenty four seven you can see the custody you can see the assets you can see the p and l whereas with a lot of these things that are quote unquote decentralized stablecoins you know they're not decentralized they're not stable coins they're basically someone running celsius back i think i'm with.
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You haseeb i'm like fifty fifty on whether it's over or not so but if it is over then i guess i would say i totally missed the euphoria phase that we're supposed to get because i didn't feel that about a.
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Month and a half yeah basically like december till mid january was the euphoria that was then it was pulled from.
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Us all right well we'll have to see what the rest of the year brings coming up next we got to talk about the balancer defi hack one hundred twenty million exploit you know carnage across defi so if balancer isn't safe is anything safe and also brian armstrong his prediction market fund all this and more but before we get there i want to thank the sponsors that made.
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B
Haseep let's talk about the balancer hack one hundred twenty eight million dollars the biggest defi hack all year this one felt significant i think hasu put it well balancer v two that's the version that was hacked was launched in twenty twenty one it's one of the most looked at and old forked smart contracts uh it's very scary every time such an old contract can be exploited it sets defi adoption back by six to twelve months that's his take and you could just see i mean balancer v two was audited by about ten different auditing firms it was deployed across i don't know dozens of chains out there it's been in existence for a while and i thought we had the thing that defi protocols are supposed to have which is lindi right it's been out in the wild for a while it's been hardened and yet this was hacked we can get into maybe how it was hacked in just a moment but how significant do you think this hack is you think hasu and this account here are overstating it when they say it's setting defi back six to twelve.
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Months it's definitely setting defi back and it's a big blow that being said it's important to contextualize so this was balancer balancer one of the ogdefi protocols balancer is not the biggest amm uniswap way way way bigger than balancer thank god right yes yes and the other thing of course is that this is balancer v two the current version of balancer is v three so most of the tvl and balancer is in v three not in v two and in v two the only pool that was vulnerable was the eth pool so if you have your native asset in there now of course this is multi chain so any other chain that also deployed the same code they were also vulnerable but if you had three assets that were not the native asset of the chain that those that was not vulnerable to this accounting bug the accounting bug was only in that particular subset of the contract so i actually didn't realize important to get a sense of scale yeah it's important to get a sense of scale right is that this was really bad but could have been way way way way way worse in multiple different ways in terms of being balancer v three or in terms of being uniswap rather than balancer now that being said with all that is a big caveat in a sense of framing of the scale of the hack one hundred million dollars hack is terrible a lot of people lost a lot of money on these hacks and of course it was also cross chain so it wasn't just on ethereum the other thing like you said this is a very highly audited contract now that being said it's an old contract it's not the one that people recommend that you keep money in but it's an og it's been around for a long time it's had a lot of eyeballs on it and that's a big part of the reason why people were so surprised to see this kind of vulnerability in a contract like this so now that being said if you you know if you look at traditional software if you remember spectre and meltdown from you know four or five years ago that was some of the most basic code that exists in all of computing that turned out to have a bug in it right that was speculative execution or speculative decoding that existed in intel chips microcode we saw similar things in javascript right that had huge vulnerabilities from the same spectrum meltdown bugs similar things that we saw with open ssl you know and heartwarm and all these other bugs so these things happen software is never done there are always vulnerabilities that show up in any of these things so i think this is part of the difficulty of defi now if you look at the balancer remediation i actually felt pretty good about the way in which they approached fixing these bug so one they did have some white hats some white hat hackers who went in and were able to secure some of the funds and some of the chains that were vulnerable that were vulnerable they did get freezes of the contracts and so for example bear chain they froze the chain and brought it back online after remediating the hack same thing happened with sonic and gnosis so i think gnosis actually froze all of the bridges in and out of gnosis chain order to remediate the hack so we did see some recovery of some of the some of the damage here but the majority of the funds which are on ethereum about seventy million that stuff is going to be very difficult to recover so very unfortunate for the people who had assets exposed there.
- [34:51]
B
Yeah it just does feel like a setback this is a moment where we're saying you know defi is ready institutionally ready basically and you have even some of the dats deploying into some of these defi protocols non balancer thankfully but they're deploying to in search of yield for into other defi protocols you had vitalik about two months ago who hasn't said very much about defi over the years and he came out with a post talking about low risk defi and tracking the hacks going down over time and we're starting to get a sense in twenty twenty five that hey defi is now ready for funds because unlike open ssl or some debugs you might see in the wild with other code bases when something goes wrong in a smart contract right i mean there can be hundreds of millions if not billions of dollars at risk so it did feel like a setback from that perspective if not you know yeah you just don't know what else is out there right and you really got a sense of that this week let's talk a little bit more about the the chain responses because this is somewhat interesting and caused some like some back and forth in the community so ethereum of course like didn't do anything that sort of decentralization that's the social contract of ethereum it kind of like the validators can't intervene and stop some of these alternative layer ones like bear chain they they actually had their validators halt the network as you said right and i don't know if they did a rollback i believe they might have polygon validators did something similar so polygon had a hundred k stolen from the balancer v two hack and they their network validators not only censored the hacks transactions but they effectively froze the stolen assets in place right and you mentioned sonic and some others so you can look at this and you could be like this is not these other chains are not decentralized if the validators can sort of freeze things or you can look at this and say no this is a good rational response for alternative layer ones this is a feature the fact that they can if something really bad happens like a hack they can freeze funds and restore those to users and i can imagine if you had money stolen on the chain you really want that like you really want that feature in place however does it not completely undermine the entire immutability decentralization that where that's the entire basis for the crypto space i know you have some takes on this but like what are they yeah so.
- [37:16]
A
You and i were debating this in the comments on the day that all this came down so my view is that if you are a young emerging ecosystem then probably the right answer is just stop the hack right especially if it's a large hack i mean so for different ecosystems it was a different scale bear chain was probably the biggest especially because for bear chain they have balancer built into the protocol itself as a core protocol primitive so for them it was the highest stakes but for sonic it was also reasonably significant i think for the most part you just want to get to the right answer and the right answer is protect your users i agree with you on that.
- [37:53]
B
Though haseeb i agree with you if you're a small chain and you can so if you can restore the funds then you should but there's the underlying question of like you shouldn't be able to restore the funds once you get into like you know like if you're fully decentralized if you're a real depends.
- [38:08]
A
On depends on what the attacker's doing depends on how the attacker does it right so for a lot of these chains the attacker was just kind of hanging out so the attacker you know did the bouncer hack and then they just had the funds sitting there right if they already bridged out and got out to some other chain then it's like it's over there's obviously nothing you can do even a rollback is going to be just kind of irrelevant because they bridged out they've got some other asset so you've got a double spend issue right but if the attacker is just sitting there they've got their funds there and the fund is the native asset you know they've stolen because in all these cases it was kind of a perfect candidate for this because the fact that the pools that were vulnerable were pools that had the native assets and they had the equivalent of eth on that particular chain so it is the one thing that the chain has total authority over it's also for whatever reason that the attacker was kind of moving pretty slow i guess on a lot of these chains so if the attacker had already moved too much or already swapped or already done all this stuff that it's too difficult for you to really track the flow of funds but much like the dao hack the dao hack could only have been reversed on ethereum back in whatever it was twenty sixteen or whatever it happened because of the fact that the funds were idle the funds were stuck there for a while and the community could pause and decide what to do with it.
- [39:22]
B
And of course it caused a fork in all of these things you had.
- [39:25]
A
Ethereum that's right that's right that's right yes and many people see this as the original sin of ethereum you know i made the point is that every chain has a threshold at which the hack or the attack is so big and so disruptive that it's worth breaking the glass and having a conversation about.
- [39:43]
B
A hard fork like even bitcoin if there was some sort of supply overflow thing where you had one hundred million rather than twenty one million like what's going to happen there one hundred percent.
- [39:51]
A
Yes instantly instantly and for bitcoin it's actually relatively easy because it's such a the state of bitcoin is so simple compared to ethereum but even for ethereum i think there would be that conversation if there was inflation bug on ethereum then obviously people would move to do a hard fork but even let's say that eigenlayer got hacked and five percent of all the eth all of a sudden was stolen and held by one party i think there'd be a conversation about hard forking ethereum not even eigenlayer i mean obviously the staking layer if the staking layer of ethereum not eigenlayer itself but the staking contracts themselves on the beacon chain had a bug and got hacked definitely there would be a conversation about hard fork and so every chain the way i put it every chain has a price right there's a famous old story i think by george bernard shaw where he approaches some woman in a hotel and says excuse me you seem like maybe a woman of the night would you be willing to sleep with me i can't remember what it was it was something like would you be willing to do it for for one hundred thousand dollars and she says oh i don't know maybe and she says okay we'll be willing to do it for ten dollars and she says what what kind of woman do you take me for and i said well we've already established that now we're just haggling over price and the same thing is kind of true of blockchains is that like there is no blockchain that's not willing to fork under any circumstances question is what is the threshold at which you're willing to fork when you're ethereum and you are the global commons you are the global financial layer you've got tens of billions of dollars you cannot fork over a seventy million dollars hack it's just totally inappropriate the sense of scale is wrong the amount of disruption you would create by forking would be much more than the value that you would end up protecting i.
- [41:36]
B
Agree with you i think largely on this i guess one subtlety i'd add it does seem like we might be bifurcating into sort of cypherpunk chains that are supposed to be sort of the global value layer essentially and they won't fork unless it's existential for their chains so a bitcoin and ethereum of more in that direction and then everything else and i worry about the everything else category that they just get out competed by some of the tradfi chains that are out there you know the tempos of the world that are basically like hell they'll for if north korea was on tempo and stripe right i i completely they would freeze accounts they would shut things down i'm projecting the chain is not launched yet but i'm just imagining a world that is more tradfi and they're just going to lock it down and then i also see like regulators i mean last time you were on we were talking about roman store tornado cash and that in his court case there was like did roman storm have the ability to block north korea or not and of course it's smart contract it's on ethereum he doesn't have the ability to decide who uses it well won't there be facts and circumstances where regulators will look at this and they'll take notice of which chains freeze different things or censor transactions and start holding them accountable for that or start questioning the level of decentralization putting them in different categories based on that like i could see this coming up in court cases in the future and any future gary gensler that's out there i can imagine he's looking at this or could look at this and say ha ha they're not truly decentralized they're in control of the validators to begin with.
- [43:06]
A
I think it's so this is this is also one of the points of contention that you and i had which is that i don't think being able to freeze transactions in and of itself is indicative of whether or not you're decentralized right decentralization means that there are many parties that are working together to run a blockchain but if those many parties all agree on something it's obviously possible for many parties to agree just because you have many parties doesn't mean that they all disagree with each other most of the time they do but some of the times they do all agree and they do all say you know what screw this attacker this was a bug this is catastrophic for the chain we all agree there's thousands of us and we all agree we are going to freeze this attacker in place that is in principle possible and i think for a system that has you know fifty validators one hundred validators doesn't sound crazy to me at all that you could say that ecosystem is decentralized there's no single actor and no single party that could force them to do something that they don't want to do but if they do want to do it then they will right so if a regulator comes in and says okay they're these one hundred validators you all agreed to go unfreeze this hack and reverse it well i now want you to go and freeze russia's assets because i don't like russia and i want to sanction them right i think it's quite plausible that the same ecosystem that said yes we're going to freeze the hacker is going to say no screw you you want us to enforce a sanction against russia i don't care i have no ill will against russia right so your ability the ability for this ecosystem to coordinate is not the same thing as this ability for this ecosystem to be coerced those are two very different things and i think the decentralization what you really want from decentralization is not that this ecosystem cannot make decisions it's that this ecosystem cannot be coerced.
- [44:47]
B
Interesting yeah i guess we have to acid test this in the real world and this is one of those tests but there will be others and see how these social contracts and various systems respond to it let's talk about another acid test that's happening which is prediction markets and the overton window i think haseeb you just tweeted before this episode that polymarket was actually being added to google which is amazing of itself but the news this week was actually brian armstrong got himself in a little bit of hot water at least some would say that at the end of a coinbase earnings call so i'm going to just play the clip this is what brian armstrong said on that i was.
- [45:26]
A
A little distracted because i was tracking the prediction market about what coinbase will say on their next earnings call and i just want to you know add.
- [45:34]
B
Here the words bitcoin ethereum blockchain staking.
- [45:38]
A
And web three to make sure we get those in before the end of.
- [45:41]
B
The call all right so he's just adding the words bitcoin ethereum blockchain staking in order i suppose to satisfy some prediction market that was out there there's about ninety thousand dollars in wagers on polymarket and kalshi that he would say that at some point during the earnings call and so he said it at the end of the earnings call obviously not organic the market resolved in favor of those who bet this and brian armstrong tweeted later this was fun it happened spontaneously when someone on our team dropped a link in the chat i felt there there seemed to be two camps responding to this haseeb there was a negative camp so this is a take from hasu not sure if brian thought he was helping anyone here but the opposite feels true the subjects of our bet are becoming self aware and actively changing their behavior that's ironically the failure of prediction markets so he's basically saying like you know if a subject that is involved in a prediction market is influencing the outcome it kind of breaks the market and so maybe brian shouldn't have done this this is adam cochran he says if i were the ceo of an exchange with a cftc regulated product let's remember these poly market prediction markets seem to be under the purview of the cftc i would simply not purposefully manipulate the outcome states of a prediction market on other cftc regulated exchanges during an earnings call and then post it to twitter okay this is kyla scanlon she's sort of outside of crypto but observes it he knowingly influenced a market outcome with insider control which is inconsistent with fair and orderly markets under the law if we still have those the cftc could go after him for attempted market manipulation this is jeff dorman i'm tired of dumping on clownbase wow that's that's a lot but you need your head examined if you think it's cute or clever or savvy that the ceo of the biggest company in this industry openly manipulated a market so people saying he openly manipulated manipulated a cftc regulated market vitalik on the other side weighed in and says i think brian was just having fun and i want to be part of a fun loving society others have said this was bound to happen sooner or later glad coinbase made the move also there was a take basically like if the market could be manipulated this easily with someone saying a few words then obviously the market itself was broken no harm no foul it's not like brian was in the market with insider information betting on it what's your take on this so.
- [48:12]
A
I'M not an expert on cftc regulations or any of this stuff i thought it was funny i thought it was a viral moment it clearly brought a lot of attention to these mention markets which i think is in a way like kind of the best marketing for these kinds of products is just most people don't even know that this exists that there's like a whole bunch of people in the corner sort of throwing dice and gambling on what a ceo is going to say or what a politician is going to say during their speeches so i think that alone was tremendous marketing for polymarket regardless of how the individual betters in that market ended up faring i think this is fair game i think it's one thing to be betting in the market yourself i think that would be much more of the failure mode of markets so say.
- [48:57]
B
Brian armstrong personally had some sort of bet in that exact market that he.
- [49:02]
A
Was going to betting on himself if he bet yes on every market and then said yes at all those words that is the actual failure mode the market becoming quote unquote self aware and or affecting the underlying market that is actually not a failure mode of prediction markets that's i agree that's supposed to.
- [49:18]
B
Be doesn't that just get priced in as well people are just like absolutely.
- [49:20]
A
It gets priced in it doesn't actually affect liquidity it affects odds right because now you have to take probability that okay what's the odds that these markets are so low that this guy is just going to say oh well great i'll say all these things when the odds get too high and this person looks at the market and says oh everyone thinks i'm going to say x i will play the game of not saying x in order to fuck over these guys in the market so if a market becomes too strong one way or another then it sort of equilibriates and says okay now it's too high this person is going to troll us but if a market's like seventy percent then this person is not going to troll you right nothing about this is incompatible with markets being able to price risks totally you can price risks based on that so it's in the same way like look if you if you bid up the price of a stock too much then the incentive from the company is going to be to sell stock into you and to just you know hit the atm and start dumping stock which is why a stock can never run up too much relative to fundamentals right this is this market manipulation no that's markets working and pricing things the way that they're supposed to so i think this is you know obviously you could you could scream and say oh my god how could he do this this is terrible is not what the market is meant to capture but the market is meant to capture human behavior that's what the market is it's a human behavior market and the human changing their behavior in response to the market is no different from a stock changing its behavior in response to you.
- [50:40]
B
Buying it i think i agree with this and my big hope is that society does shift the overton window to just see that like this is not market manipulation if somebody says a few words it's just the market can self.
- [50:50]
A
Correct we'll see it's obviously a stupid market i don't think the cftc cares that much about protecting the integrity of stupid markets yeah exactly all right we.
- [50:59]
B
Got a few more things to cover coming up ethereum layer two is they are scaling twenty thousand transactions per second i want to check in with hasee and if he thinks that's real also maybe it's a vanity metric real world assets so there's been one point five billion of blackrock's biddle fund that has moved from ethereum to other chains what's going on here we'll talk about all that and more but before we do want to thank the sponsors that made.
- [51:21]
C
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- [53:24]
B
The eth bulls myself included have been touting layer two scaling here lately and they've been pulling up dashboards like this one so this is from grow the pie this is the ethereum ecosystem's transactions per second something historically ethereum has been weak on for l two s in particular okay you can see this number it's like oscillating between seven thousand and eight thousand right now twenty four hour peak sixteen thousand transactions per second okay how how did this happen that that wasn't happening a couple of weeks ago much of this has been the lighter chain which is this perps exchange that is an app specific layer two product.
- [54:04]
A
Market clear almost all of it is.
- [54:06]
B
Lighter almost all of it yeah ninety five percent let's say of this you know throughput and so eth bulls are saying yeah it's a zk rollup right somebody's finally done the thing that's hard and put this on ethereum others are saying well that's not an apples to apples comparison with evms in fact you shouldn't even aggregate the ethereum ecosystem transactions per second together because it's not synchronous it's not composable it's not the same as being on the ethereum l one l two guarantees are not as strong what's your take on all of this around like the message i think eth bulls want to send is eth is scaling the l two roadmap seems to be working now we're in this period where it's about to go exponential with zk rollups and such and i think eth bears want to say look guys these are just a whole bunch of different chains and lighter's doing most of the work here like chill i don't.
- [55:03]
A
Even i just genuinely don't care about this debate like this feels like kind of stupid like playground why you don't.
- [55:12]
B
Care about transactions per second anymore is that not a well one i think.
- [55:16]
A
Yeah it is it is kind of a vanity metric especially if you're aggregating like lighter trades yeah as equipment like next to base transactions like they're obviously very different in kind but then second like you know i mean it's good to see that this number is going up but like it's not really something you can compare directly with another chain right like aggregating all of the ethereum transactions and comparing them to solana transactions it's just kind of they're two different things you know and it's good that they're both going up but like you want to sort of look at one in isolation and that it's been going up and like that's good but saying like oh well ours is bigger than yours it's just kind of like but.
- [55:54]
B
Hasn'T that been the whole thing with you know why do things outside of ethereum why have layer twos it's because it's not scaling why have solana why have something like monad it's because your.
- [56:05]
A
L two s are scaling that's it's great it's great that the l two s are scaling i'm just like you know i don't even know how to describe my problem with this it's just.
- [56:15]
B
Like a pissing contest problem but it's.
- [56:18]
A
Like not even the right pissing contest to be doing this is such a not useful metric for anything like you know adding together all the tps across all the l two s it's like okay did we solve the problem did we build a better blockchain did we actually give people financial freedom did we create better applications did we get more stablecoins did we onboard more users those are the things that actually matter if you are comparing tps between two chains with respect to their max throughput then okay that's a useful technological comparison but just adding like look if you add all these forty five chains we have this number and you have that number and ours is better than yours it's just like what does that map onto in any way that matters what do.
- [57:09]
B
You think of the lighter construction though that seems to be somewhat of a breakthrough right we're investors in lighter i.
- [57:14]
A
Think lidr is great lidr is awesome very bullish on lidr i think it has nothing to do with this conversation it is completely orthogonal from whether or not ethereum is doing a good job.
- [57:24]
B
Well let's talk about another metric and i want to get your take on this so one thing people have been following is real world assets this year okay in particular we got blackrock on chain blackrock the biddle fund it's a money market fund they're putting treasuries on chain isn't this amazing the bulk of that has been on ethereum so far about you know two billion or so two to three billion or so what we've seen in the last i don't know week or two has been actually the migration of about one point five billion of that biddle fund onto aptos polygon and avalanche and so people are asking the question like are the rwa stats right the amount of tokenized treasuries let's say that i have on chain or even for that matter stablecoins or other things is that all vanity metric like why isn't this sticky it seems to be the the you know capital is flowing to other chains maybe part of bd deals we don't really know but like it's not sticky on ethereum right now do you have a take.
- [58:20]
A
On this so i i didn't know that in the last month and a half that so much of biddle has moved to these other chains i mean the story makes sense that there's not a lot of interaction going on with these assets right now i mean these you know you have to be kyc to hold biddle it's not really deeply integrated into defi the same way that something like athena is so well in.
- [58:43]
B
This case actually this was kind of i believe it's you know athena uses biddle as collateral for instance usgtb right right right so this is actually athena part of the driving force behind moving.
- [58:55]
A
This i believe oh this is athena's collateral so does that mean that athena's collateral has moved from ethereum to aptos.
- [59:02]
B
Polygon avalanche some of it at least maybe not all of it i'm not clear but i think much of this move was driven by athena it is still bittle but athena is kind of.
- [59:11]
A
Oh i see i see i see okay now i understand got it so usdtb which is the athena asset that is backed by these blackrock treasuries that is still mostly circulating on ethereum but the collateral backing it has moved to aptos polygon avalanche et cetera okay i see got it so i mean my assumption here is that like the main thing that matters is the claim usctb is a claim on these treasuries the treasuries themselves like that's just an accounting record right right it's kind of like the dcc if i told you the dtcc moved its servers to you know atlanta or to you know i don't know to to russia or something it mostly doesn't matter what matters is you know where is the new york stock exchange that's what really matters right the new york stock exchange is in new york that's why it's called the new york stock exchange like where where are all the companies that are coming and going and actually getting traded and where all the traders live the answer is they they live where the money is and the money's in new york so i think that feels to me like more of a detail if the usdtb is still sitting mostly on ethereum but.
- [60:20]
B
It'S a question because maybe a lot of these real world asset metrics then in terms of the amount of tvl and rwas and biddle fund or whatever i have on my chain maybe that's all just a vanity metric because it's not like it's tied into the rest of the network effects of the underlying chain right so i mean should we.
- [60:36]
A
Even be using it it's a decent point i think it both is and isn't like it clearly maps onto something real right if if you see rwas go from two billion to ten billion to thirty billion to fifty billion something real is happening there something important that you should be paying attention to is happening there so in that sense it's not just a vanity metric that being said you know if you are if it's sort of like the front end is usdtb and the back end is the biddle fund and the biddle fund is moving to this chain to this chain to this chain because like the you know the treasuries themselves they don't move they don't need to get touched so like they just sit there as the backing collateral for this thing basically forever that's getting shoved around it's a little bit like you know the treasuries that circle holds where does it hold the treasuries the answer is okay it holds them with you know blackrock and with bny mellon and with you know these people and those people it doesn't really matter that much as long as they're treasuries right i think that's largely true so i think the direction of travel is is relevant and important but you know if it moves from ethereum to this to that probably doesn't make.
- [61:41]
B
A huge difference seb as we close out this week i want to get your perspective on one more thing so this is definitely it's felt like recently this has been sort of an institutional cycle right and first decade was very much not that okay larry fink has changed his mind on crypto now this week i'll actually play the clip we have jamie dimon admitting he was wrong and that crypto is real this is him skeptical of crypto at one point.
- [62:05]
C
You'Re still gotten away with no damage so far crypto is real if you mean blockchain stablecoins you have a jp morgan deposit coin you can move stuff smart contracts are real all that stuff is real it will be used by all of us to facilitate you know better transactions and customers anybody i agree.
- [62:21]
A
With him it's all real okay so.
- [62:23]
B
That'S jamie dimon right but i feel like inside of crypto is kind of two wolves here okay because we've been wanting institute we've been wanting jamie dimon's approval for a very long time and now we have it but something about that is making some people bearish so this is actually a clip from peter thiel this week and he was talking to andrew ross sorkin i'm not going to play the clip i'll give you some of the quotes andrew asked him thiel have you sold any of your bitcoin he said i still hold some i didn't buy as much as i should have but i'm not sure it's going to go up dramatically from here we got the etf edition and i don't know who else buys it quickly from here i have a small position it probably can still go up some but it's going to be a volatile bumpy ride he says he has two reasons for this dual reasons one the ideological decentralized future of computing that i really do believe would be better and it seemed like the perfect vehicle for that for such a long time but he's much less convinced of that now that ideological future maybe larry fink with the blackrock etf surrendered to the esg forces or maybe bitcoin's been co opted by them and i worry more it's the latter the idea that we've wanted institutional adoption but we don't necessarily want institutional control and now peter thiel is saying this is like a blackrock coin and he's pointing to bitcoin and saying it's being co opted what's your take.
- [63:45]
A
On this so i mean it's a little vague of like what exactly is blackrock co opting here what are they doing to bit corrupt it or make it more esg yeah it's a little vibey i think also peter thiel you can tell he's got a little bit off the deep end he's like ranting about antichrist and the end of the world and that ai it's just if you look at what they do and not what they say you look at founders fund founders fund is dumping tons of money into crypto projects they are full porting into tons and tons of deals investing a ton in this industry so i think now peter is not at the helm of that he's not the one making the decisions at founders fund on a day to day basis most of those decisions are being made by people who are deeper in the industry than peter is i'd say look it's like what we talked about at the opening of the show as crypto matures the early adopters give way to the middle adopters and the late adopters peter thiel was very much an early adopter right a lot of the people who believed in bitcoin early and a lot of the institutional capital that came in in the early days was silicon valley capital silicon valley capital is small relative to wall street capital and that is this changing of the guard that is happening now that it's going from peter thiel to larry fink and jamie dimon now that is part of maturing you are not going to keep peter thiel the entire time peter thiel originally he was on the board of facebook now he talks about how facebook is a force for evil he was one of the very first checks into facebook in the same way he was early bitcoin adopter believes in the cyberpunk mission now he says oh blackrock is the enemy and you know they're co opting bitcoin or whatever i think this is you're going to see this this is part of growing up this is part of winning is that the crazies who once embraced you are now saying you're not crazy enough so i don't think there's anything to be alarmed about i don't think it's really indicative of anything besides the fact that bitcoin has now.
- [65:33]
B
Graduated well said i think that's the theme of the cycle haseeb thank you so much for filling in for david backed by popular demand everyone loves you appreciate you coming on gotta end with this of course you guys know crypto is risky you could lose what you put in none of this has been financial advice neither has sib nor i know what's happening with the cycle 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 thanks a lot.
- [66:08]
A
Sam.