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- [00:00]
A
Well, good morning everyone. It is Wednesday, February 11th. We're here at 10:19. It's Crypto Town Hall. And when you see stories like this one that we put in the title, it just makes me, I don't know, All I can say is when markets stink and you see news stories that piss you off, it just feels like, just so much worse. I mean this notion of Sam Bankman fried trying to act like some movie character from inside his jail cell, writing and you and studying law to try to get a new trial based on new, new witnesses when the facts are really not in dispute, just, I, I just find it crazy but almost perfectly symptomatic of the mood of the day. So, you know, you know, without talk before we talk about markets. I mean Carlo, I, I asked you up here. I mean, what, what do you make of all this stuff? I mean, I, I can't. All I can say is that the easiest way for people to understand what Sam did was this. The, the scene from Dumb and Dumber where, where Lloyd and whatever the hell, you know, Jim Carrey and Jeff Daniels characters stuffed a briefcase that they had been using cash full of IOUs, which is pretty much exactly what he did in terms, except he replaced Bitcoin, Ethereum, etc with FTT tokens. So whatever. I mean, what do you think this morning? Good morning by the way. Carlos.
- [01:24]
B
Good morning. You know, I haven't really paid much attention to it because it's not surprising. It's a motion for new trial. He needs to try the best he can to get another crack in the courtroom. And his best path to that is to say that there was alleged witness tampering and that there's new evidence that would change the outcome of the trial. It's not going to work in my opinion. It's going to be very hard to make a case for any of this. And I agree with you with everything else that's happening right now and all the important things we need to be talking about, this is not going to get much traction in the news cycle other than some short term attention. He's going to follow this up with a post conviction writ where he's going to attack probably every aspect of the trial, including, and I've been doing this, you know, 30 years as a criminal defense lawyer, including attacking the trial strategy of his own lawyers and arguing that they were probably ineffective. It's just, it's just the way it is. It's a cost of doing business when you do criminal defense work and it's to be expected. It's sort of baked into the process. So I don't give this much attention. I'm more pissed about what's going on with this Clarity Act.
- [02:44]
A
We, we'll get there, I think.
- [02:46]
C
I know.
- [02:46]
B
Yeah, I know you will, man. I know you will. I'm here.
- [02:51]
A
What, what do you think?
- [02:53]
C
I, I, yeah, I think, look, most criminal defendants who have the resources would do that. I think the important context here is we know he's angling for a pardon and he's like, very incentivized to do anything he can. That, like, is a gesture towards, he thinks this is unfair and, and like, whatever he needs to give Trump the political cover to give him the pardon and say that he was railroaded. And so he's going to make sort of all sorts of wild claims about trial, none of them true, none of them are going to work in the courts, but it's really an audience of one, which is the White House.
- [03:25]
D
So.
- [03:25]
A
But, you know, how does he get past the fact that he was the largest donator to largest donor to Biden?
- [03:32]
C
I mean, like, here, here, I need to, like, I think probably most of you listening can imagine what the process is like to get a pardon. I don't think that that's going to be like, it might be that his reputation is bad enough that it stops him from getting a pardon. I don't think the Biden thing is.
- [03:46]
E
Gonna be a problem.
- [03:47]
A
I mean, I don't know personally, if you, you ranked it did a ranked list of things Trump could do to make crypto politically more toxic. I'm not sure there's anything he could do.
- [04:00]
C
It would be, it would be a disaster. But the President is extremely transactional.
- [04:04]
A
Well, exactly, transactional. But his kids company, could you basically cut it in half if he did that? I think, I mean, that's my opinion, anyway. We got a bunch of hands. William, you were first, then Adam, then Jamie.
- [04:17]
F
Yeah. Since the headline is about sbf, I was wondering if this was driven by, I'm not sure if everybody saw that tweet yesterday saying that the investments that SBF had made in Anthropic, Solana Mistin Labs and, and Robin Hood would have equaled $80 billion in profits, 70 billion of which in anthropic, specifically. And he responded from jail. A lot more than 80 billion, apparently, he says. I mean, I do believe that, and I think what I'm surprised a bit is that people are not too outraged about the law firm that's been handling the bankruptcy. If, if we're on that topic for A little bit, because.
- [05:08]
A
Unfortunately, it's normal.
- [05:10]
F
Well, they are, I mean, I am, I am a recipient, but from the beginning, the, the way they priced it to how they've been handling it and it's, it's really, it's really bad. It looks really bad.
- [05:24]
B
Let me chime in on that for a second because I agree. And I'll tell you, one of the most scathing opinions I ever got in my legal career was in a bankruptcy proceeding where I attacked how the bankruptcy trustee was handling the case and the billing and how it was eating into my client's recovery that I was trying to get from someone who had declared bankruptcy. And yeah, that entire system is ridiculous.
- [05:49]
G
Yeah, I would say anybody who wants to kind of peek behind the curtain, our friend Bruce Fenton's done a nice breakdown of just, I don't know what you'd call it, Grift theft from, from the lawyers handling the case. I, I don't know who spoke earlier, but the, I think just keep in mind, guys like that sort of article that popped up yesterday or, or the day before about the, oh, look how much SBF would have made. That shit's propaganda. I mean, I know for a fact, I know a lot of KOLs in the space who got messages basically from SBF or his mom or whoever's doing his handling, offering payments for basically these undisclosed shills, basically soft shills, changing the narrative. This is the new method. It's, it's paid propaganda. I don't know. You know, I, I'm not, I'm not saying CZ is paying for propaganda, but you saw CZ go on an all in pod, obviously using connections to spin your narrative. I mean, obviously this has been going on as long as we've had, you know, newspapers, but this is the new model, right, where they're literally paying KOLs to do these kind of soft puff pieces, reframe the arguments. Just be aware, this is happening, you know, as we speak. So it is what it is. Sbf. I hope he rots in jail.
- [07:11]
A
Yeah, well, I, I, I, I agree. I mean, I just, I just find it hysterical if you literally took out a gun and robbed a bank, took the money, went to Vegas, bet it on black five times in a row, won, then bet it on a number one, made, you know, a billion dollars, went back to the bank and said, okay, here's your money back. I'm pretty confident that you're going to still go to jail. And that's literally what he did. I mean, he stole his client funds and invested it in all sorts of shit he actually did produce. I quoted, you know, my, my favorite super bowl ad of all time. I mean, that was probably the best use of his money. You could argue anthropic was a better use of his money, but the fact is he stole money and he spent it on buying off politicians. I mean, donating to politicians. Actually, no, I really do mean buying off politicians and making ads and marketing and all that other stuff and making some investments. And he got lucky on some of the investments, but he still stole the money. And so it doesn't really matter. But anyway, you know, whatever. Just, just, just my, my, my thought for the day. But the real question is, why does it always seem that when markets feel like they're. And I, I will say the word bottoming, when markets are at the lowest sentiment and we look, you know, and, and what are we at today? I hadn't checked. Okay, we're at 11. So we're still. Extreme fear. You know, when markets are extreme fear, they're bouncing along the bottoms. Nobody wants to talk about anything. Altcoins are an absolute dumpster fire. That's when we see these stories. I mean, William, is your hand up from before or is it.
- [08:45]
F
No, I was just expressing my surprise to. Yeah, I mean, I agreed with the commentary after my, My comment, basically.
- [08:56]
A
Yeah, it's. It's crazy stuff. So anyway, I mean, anybody else have any comments on this before we talk about jobs data and why markets are doing what they're doing? Because we got a couple of experts here, or should we go straight. Carlo, you wanted to talk about clarity and I cut you off. So you want to go back to.
- [09:13]
B
Oh, yeah, man. I mean, I'm seeing all these comments in the feed about how there's compromise and how the banks are compromising. Look, let's cut to the chase of what went down yesterday. The biggest players in the banking sector came to the White House with a list of demands for whether they'll give a blessing to the Clarity Act. And baked into those demands is zero yield on stablecoins. And to say that that is progress is honestly laughable to me. It is so obvious what they're doing. They are trying to. They're trying to backdoor amendments to the Genius act through the Clarity act in order to protect their monopoly on how people can go out and earn passive yield on stable coins because they don't want depositors to flee from their accounts. And I think at this point, they probably do need to have competition and they probably do need to lose depositors because what they're trying to do is protectionism and they're trying to maintain a monopoly. And I've been saying this for a long time, but that list of demands and to suggest that that is somehow a road to a compromise is just utterly laughable to me. And they're saying all this under the guise that the biggest banks showed up at the White House to protect community banks.
- [10:40]
A
I mean, it's crazy. I mean, look, the fact that the banks pay so much money into the politician's pocket that they actually get a seat at this table is, is, is insane. I mean, it's sort of like, you know, if back in the day when, you know, Standard Oil was running the oil industry and it was all one, one monopoly, if they said, well, we're going to break you up, Mr. Rockefeller, but give me your demands of what you want and you know, how much money we have to pay you along the way. I mean, it's, it literally is like that. I mean, when less than 20% of bank deposits get used in business loans, it is unfathomable to me that they'll talk about, and it's probably slightly higher in community banks, but the fact is the number is around over 80% of bank deposits are simply invested in yield bearing instruments in order for the banks to make money. And that's just an insane amount if you think about it. And if you think about defending that system, it makes no sense. But the politicians don't seem to care. The people in the crypto side will make the point, but it doesn't matter. And so we're stuck in this. In this.
- [11:52]
B
And when the Clarity act dies, I think you have a pretty clear picture of who killed it. I don't actually.
- [11:59]
A
Like everything else in Washington anyway. Zach, you were saying?
- [12:01]
C
I mean, I'm not sure I like fully agree with like, I don't know, I've spent a lot of time dealing with clarity over the last few months. And like, I think everything that you guys are saying about bang. Protectionism is, is true. But like, I think it also might be a little bit missing the forest for the trees. Like if we're being really strategic about this, right, like, let's take stock of where we are with crypto now. You know, we need a new narrative. We need to build useful things that really probably does require some level of durable regulatory clarity that we don't have. So the next administration, right, if the Democrats win, can't just undo it. And so it's really, really important. The Clarity act pass. Yes. The banks are trying to add these backdoor amendments to like retrade what happened in the Genius Act. Yes, that's unfair. But like, if we don't get this done, I don't see a way that in a Democratic administration or really any administration, if this goes down in flames that like, I don't see a path towards fixing this and getting something like the Clarity act in the next few years. And that's going to be really damaging. However, like I see Coinbase is kind of a bad actor here. Like, yes, it's unfair. They have to give up their yield program on usdc. Yes, it's very profitable to them. But I do see a path where if we pass clarity and we start building useful stuff in crypto and people start using, you know, stablecoins under the Genius act that like consumers will demand yield on their stable coins. Like that is an issue that is way easier to understand for the American people. I have this thing that doesn't pay me interest. I would like it to pay me interest. That's way easier to understand than what's a security, what's a commodity. When are developers, you know, creating non custodial tools versus money transmission. Like the hard stuff is in the Clarity Act. This is the shot that we have to get it done. The banks have absolutely no incentive to come to the table on this because they want this to die. They don't like any of the crypto stuff. And from where I'm sitting, the party that is like most responsible, that has skin in the game, that should know better, honestly, is Coinbase. And I like good on Scott for calling that.
- [14:03]
B
Zach, you're right. Coinbase wants to be a NEO bank. Coinbase wants to maintain their profit margin on Circle. They don't want to do that with all the constraints that come with traditional banks. They have shareholders to answer to and this is going to hurt their bottom line. I 100% agree with everything you're saying. And the thing I don't like about all this is that the biggest talking point in the Clarity act, which should be about tokenized assets, it should be about the lanes of which agencies are going to control digital assets, is being completely dominated by stablecoins. That's the thing that the bank lobby has done here successfully is they've moved the narrative from what's the least important aspect of this thing.
- [14:43]
A
So, but if you take that into account and you understand where things are going, the real question is will. I mean, look, I think that, you know, the industry will do what the industry is going to do. If they do re litigate the. And you end up having to take a deal that you don't like, that hurts clients. But there is a, there is a workaround. I mean, let's face it, there's a workaround and sadly there's precedent for the workaround. So if you have a Charles Schwab account, you can happily sweep your money into a money market fund because it's a securities account. Right. So the real question is, and with token, with tokenized everything, there's absolutely. The only real question is, will stablecoin payment Rails allow people like Coinbase and Kraken and Robinhood to effectively offer the same, you know, be part of the Zelle network, you know, whether it's Venmo, whatever, but using stablecoin Rails to be able to make pay your bills. Because once that can happen, then automatic sweeps from stablecoins into tokenized money market funds by. Or the Benji or whatever become absolutely not just possible. But will there will be a rush to implement that? Either of you guys disagree with that? I mean, and no, no, there's, there's.
- [16:03]
B
There'S a total disintermediation happening.
- [16:05]
A
I don't understand Coinbase's opposition based on the yield problem for that exact reason. Now, yes, that we forget that a few weeks ago there was the. A draft from the Democrats that had things that effectively would have banned what I just said because it would have been not let the SEC write rules for tokenized securities. And, and you know that that is obviously a very big deal, I think. And, and, and I actually asked some of the, the people involved and got the answer that. Yeah, that. That is a major deal, I think too.
- [16:38]
B
David.
- [16:39]
A
Doa. But that's a major deal, I think.
- [16:41]
B
Dave, one thing we have to look at from all of this is that there's a possibility here that Coinbase may have overplayed their hand in exactly how much. You know, you have Besson going out on a press tour and talking about recalcitrant players in the, in the conversation who are not. I mean, they may have re, they may have overplayed their hand here and it may backfire. But by the same token, we wouldn't be here having these conversations if it wasn't for the incredible grassroots movement that they created. So they're walking a very odd pipe rope here.
- [17:14]
A
Yeah, I suspect they'll, they'll do what everybody does. I mean, Brian Armstrong will, will just do what everybody does in this situation, which is. Oh, I didn't mean that. And you'll end up Getting, and you'll end up getting some version of a compromise done. I think that the political power is there now. The funny part is the market is pricing this thing dying. That's just, that's just fact. I mean, you know, the market, you know, whether it's Bitcoin or altcoins, it's. And, and don't get me started on meme coins because I don't think that's relevant. But, but I think the market is price and clarity doa. And I think that there's enough people out there, including the Democrats, who have a very strong reason not to give the crypto lobby effect. They can't have the situation where, you know, $200 million is going to one side over the other. I mean, that, that's just really bad for them in swing states as we approach the midterms. So.
- [18:04]
B
And there's no, there's no compromise on the ethics provisions that we've talked about so many times on this show that that really is the biggest hurdle for this action.
- [18:11]
E
Well, we'll see.
- [18:11]
A
I mean, we haven't gotten to it yet. Right. You know, we will see. There's, it's, it's a fascinating one, but I can easily see the Republicans, even Trump saying, yeah, I wasn't president when I launched these things, basically agreeing to a provision that says any elected official and their families can't issue a meme token or can't issue things. I mean, I think that could happen. Anyway, that, that's me talking too much. Jamie, you have had your hand up for a while and been patient.
- [18:35]
H
Yeah, no, I just think, you know, Carlo, I'm just curious, like, obviously, you know, this is your area and we've talked about this a lot, but like, from listening to you and kind of discussing this, I mean, this whole thing was surrounded by creating US Debt demand versus foreign debt dependence.
- [18:51]
D
Right.
- [18:52]
H
And it's like, okay, like the banks are forcing this to stay fractional, which will discourage the stables from growing. Having the U.S. treasuries as the cornerstone reemergence of this whole debt issue that's going on in the country. The one thing is the yield is still going to go to defi. I don't think that prevents that. Am I wrong in that?
- [19:18]
B
No, I don't think you can stop that as much as they tried to in some initial proposals to kill defi. I don't think they're going to be able to get that across the line. And Jamie, you're right. The administration wants stablecoins to be the engine for treasury demand globally. They have a very huge incentive to do that given what China is doing with this move to create a gold backed yuan. And the administration is going to get what they want here. It's probably going to come at the expense of coinbase being able to get what they want, which is this passive yield on circle. And I think people will be able to get yield creatively in stablecoins. Especially when you start to look at the fact you have conflicting provisions between genius and clarity. And that's going to spawn litigation, that's going to spawn fights over how far one can go and how far one can limit the other.
- [20:13]
H
Yeah, I just feel like this administration has to, I just feel like this is the only thing that I've heard as a solution to our, to the US debt moving forward that could really turn things around for the country.
- [20:29]
A
It's part, let's be careful, part of a solution. There's no, there is no solution without hyper growth. But yes, you're, you're right. They need a place to, they, they need the dollar to stay dominant without the dollar having to be propped up by, by you know, unfair tariffs and all sorts of, you know, other stuff and higher rates. You know, so they need a, they need a reason for the dollar to be the engine of global, of global commerce at the same time as the dollar not having to have a pre, not having to have a premium on treasury yields. That, that's, that's the needle they're trying to thread. It's a hell of a yield. It's a hell of a needle. But it is exactly what they're trying to do. Right. Does that make sense to you, Jamie?
- [21:11]
H
Yeah, absolutely, yeah. 100.
- [21:13]
A
I just like, I mean Williams had his hand up so we should go to him next.
- [21:17]
F
But you know, so quickly. I mean I, I don't understand if, if the issue is the yields, why, why can't banks, since eventually they'll be able to take stablecoin deposits or allow consumers to transfer their money into stablecoins, why can't they offer yields and be as competitive as coinbase?
- [21:36]
A
They're being subsidized. So I'm actually, I'm glad you asked the question because it kills me that people don't get this right now. There's, you can look at whichever number you want to look at. The number is somewhere around 7 trillion. It might be more if you do the math and, and compare what's actually being paid in interest on bank demand deposits and what would be paid if you paid a market Rate, the number is over a hundred billion dollars a year in net interest capture from the banks. A hundred that's risk free. That's not because they're taking risk and giving out loans to businesses and growing the economy. It's a hundred billion dollars a year in net interest capture. It's actually more than that, but you have to give some of it because some of it is actually in productive uses and productive loans. It is an insanely large subsidy that they're getting. Now all I will tell you is to expect an industry that's getting $100 billion a year in subsidies for them to spend a billion billion a year. Lobbying is a small number. Just think of it that way. Does that make bigger part of it, too?
- [22:42]
B
Bigger part of it too, Dave, is that if they offer, let's say that they could figure out a way under the Genius act to do that and there's ways they can get creative, they're then going to have to offer more enticing interest rates on the fractionalized deposits that they're holding.
- [22:56]
A
It's called competition, Carlo.
- [22:58]
B
Bingo. And what incentive do they have to do that? Because the biggest problem with the Genius act for banks is they can't take stablecoin reserves and rehypothecate them and loan them out the way they can fractional reserve. That's the bottom line.
- [23:14]
A
So we're getting very wonky and I don't think our audience gives a crap. So let's, let's pass on. But the answer to that is you'd be surprised at how easy it is to create fractional reserves and take risks. If you're inside of a bank, don't. I wouldn't put it past it. And, and a large part of our regulatory structure is because of exactly that point. Right, but does that answer your question, William? Because I want to talk about we did a, we did get a big, a lot of data this morning and you know, we have Robert and Mike here also, so and all and that clearly the markets are reacting. Plus I, I want to give Mr. McGlone, who he and I fight every week, one thing he has been saying unequivocally for three years, four years at least, is that the stablecoin crypto dollars, as he calls them, is the way for the US to move forward. So obviously we understand that. But Mike, what do you guys make of the data this morning and what's going on in the markets as a result?
- [24:10]
E
Well, Dave, I think everybody gets the data. The numbers yesterday were weaker than expected. Retail sales was Kind of a shocker. And the numbers today were stronger than expected. But the revisions mean that we only basically created barely any jobs last year, all downwards. So for now there's somewhat weaker. We've taken a little Fed easing out of the market. But the significance so far the trade is as you said, starting out cryptos and bitcoin is just sick and that's just the fact of the market. And I think right now you can blame the failure in that stock market rally. This morning it was up almost a full percent S&P minis. Now it's unchanged and NASDAQ's actually down. I can't think in my view in the macro you can blame the fact that cryptos are going down and then some of these things backing off like silver and copper and certain cryptos. But the bottom line I think I was glad you started there to me would start with the most enduring bull market in all cryptos is the proliferation of stablecoins. I love to come crypto dollars. And to me the next thing to think about is first of all let's look at it focus on an absolute enduring trend in this space. Tether has been flipping everything and only has two left now, Ethereum and Bitcoin. I think tether is going to flip in ethereum this year, maybe even sooner rather than later. That'd be around a fifty, fifteen hundred dollar price in Ethereum and then I think it's going to just eventually flip in bitcoin. Now that's about $10,000 in Bitcoin. Now that to me are those are getting towards low price cures. There was just on the fintech and crypto chat on in Bloomberg there was someone who just messing around about bitcoin. He pointed out well crude oil's bouncing. I'm like yeah, they're both just like bitcoin bouncing in bear markets act according. So now we have bear markets and they're great for trading but you have to be nimble. So so far we proved Bitcoin 90,000 was too much. Now I'm putting putting that potential ceiling going back down to 70,000 unfortunately. And to me the number one level to really watch is 64,000 in Bitcoin. That's basically the mode since 2024. 2024 was the year I think shifted the whole mantra where Trump jumped on board. He proved to us the most significant space in here are crypto dollars, not highly speculative digital assets that track nothing are due to rebound. They do to plunge. And those are happening. And see even theory the mode in Ethereum since 2024 was 2000, was 2500. We blasted blue below that level. So my key, some of the signals I remember learning in the trading bits decades ago is would you blow through a key median or mode like that? It means you're going to take out the low. So it signals to me that theorem's going to 1500 bitcoins. Ceiling out is around 70. Just so any signs of recovery has got to stay above 70 inches on anything but a bear market. We have to see either a low price cure which you already heard the mention that level mentioned there or signs of divergent strength. The thing I want to end with is what you started with when you point out how bears the crypto market is. And then I look over to what's been really, it's been its primary companion since 2009, the stock market and I look at that S P 500180 day volatility at the lowest in about eight years and I keep saying well there's not going to be bottom in cryptos it looks until we get some normal normalization of stock market volatility if that ever happens. But to me now the trade still remains. We're going to get some stock market volatility to recover just on the back what's happening in precious metals and cryptos and there's a big trade here but the trade for the year so far means to be responsive trader and sell rallies and risk assets in cryptos. I just don't see where the bottom is going to be right now at this point. Not that number one level Bitcoin around 64,000.
- [27:35]
A
So not, not, not to interrupt but you're multiple points there. I'm sure William wants to talk a little bit about what you said about Ethereum. I see your hand up William. So before we go off in a different direction.
- [27:44]
F
No, no, I had no comments. I mean there's nothing for me to say at this point but I don't know if we want to talk about something else that was very important today which is the BlackRock Uniswap deal. Oh yeah, that's very significant. I don't know if you want to talk about that, David.
- [28:00]
A
I, I think it, it is actually important to talk about. I mean I was up Robert and talk about you know, some of the data and some of whatever but you know we could look, I don't know if anyone has a particular comment comments on it in, in my mind fading the train that says that defi is coming and blackrock is, you know, blackrock is not a bank. And, and, and I think that people in Bitcoin completely ignore the fact they, they look at Larry Fink and Black Rock. Oh well, they're part of the institutions. It's all the institutions except for the, the simple reality is there is no, it's not one monolithic financial system. Banks and, and, and, and brokers are, you know, called the sell side. The buy side is BlackRock and they don't all always agree. In this particular case, blackrock is staking out the t, the, the, the turf for Defi and the banks are afraid of Defi because it breaks their monopolies in prime brokerage, etc. And by the way, BlackRock loses to the banks on prime brokerage because they have these.
- [28:59]
C
This space was downloaded via spaces down.com this visit to download your spaces today.
- [29:04]
A
Huge portfolios that could be hypothecated out for yield and they get a. Just the crumbs. Whereas the banks, the prime brokers make the money there. So make no mistake, and this is information that a lot of people here don't have. This is showing some of the fault lines among what, what you guys all refer to as tradfi, which believe me, having spent 35 years in IT, I know is not unified. I mean not that the crypto community is unified either, God forbid, but, but that's important. Anyway. Zach, what do you think?
- [29:35]
G
Oh, I just want to give a.
- [29:37]
C
Short rant of the irony of this being the moment where like, like half of crypto, Twitter and the crypto industry is crashing out and leaving. I think this is like the worst possible time to be doing that. I think what is happening that is causing all of the unhappiness in crypto is the narrative that people told themselves the last five years. Now it turns out we're wrong and people were huffing glue and saying that like VC token launches were going to go to trillions of dollars and that's where the value is going to be and we don't need to build real things. And that thesis has been sort of strongly invalidated and they're leaving and they're taking their toys and going home. I think what is happening right now in crypto are two like really important things where like if you're like here to build something of value and you're willing to stick it out, like now is the best time ever, ever to be in crypto. One of those things is like tradfi coming to crypto in a real way. It is real world asset tokenization where we're Going to get a framework, you know, it's already here in limited ways. There are like tokenized Treasuries on the blockchain. These markets for them are incredibly inefficient. There's incredible alpha and arbitrage available for people who are willing to provide liquidity to those markets and make them efficient. I'm working with companies, you know, with former Tradfi people that are doing just that. And like there is a lot, a lot of profits to be had. Just taming the wild west of Defi sort of as the back end and sort of the global Internet of traditional assets. And like now is just an incredible time to be involved in that. At the same time there is like what is beginning to look like, like the real deal beginning of a technological singularity with AI. And at the very least, like people are using their CLAUDE desktop as the front end to their, you know, entire world, right? The Internet. Like in my own law practice, like I have an instance where like I used to spend six or eight hours a day in front of Microsoft Word. I don't touch Microsoft Word anymore, right? Like, I come up with the edits when I'm drafting contract anyone and my, my CLAUDE agent makes the edits that I would have had to hire, you know, a human associate to make. And it's just incredibly powerful. It's going to do the same thing for DeFi. The reason, part of the reason why we haven't built anything useful in crypto is A bad incentives around tokens, B, just awful UI and C, inefficiency compared to the centralized incumbent. I think AI is really going to fix all of those things to the extent that there are inefficiencies in DeFi compared to CEFI, like the fact that people can program their Multbot to be like, find ways to make me money, some version of Multbot. Maybe not this generation, but two or three from now, within the next year or two are going to be like, oh, here's this really inefficient market where I can do basic arbitrage and make money that is going to make those markets more efficient and more liquid and more attractive. And like, you know, we had this whole, you know, legal fight about tornado cash and the front end. And what's the, what's the illegal part of that? Front ends aren't going to matter anymore. You're not going to need to go to a website to use Defi. You're just going to tell your AI to do it. And because blockchains are permissionless and they're purely digital and they're composable. There's going to be a natural fit between AI in the front end and DEFI in the back end. That's going to make the stuff much more powerful. And so like the fact that people are like oh, crypto is dead because I didn't make as much money as I wanted on ICOs is like such a hilarious miscalculation for so many people in the industry right now.
- [33:02]
A
I mean that was a very long and lots and lots of really good stuff in there. I will, I want to amplify one which is your, your conclusion. I, I agree with completely. I mean literally completely. In fact, I've said many, many times the same exact thing. The but you do need to understand that a large thing that holds crypto back is the is fear. And AI is going to amplify that fear for a while. Because if people relying on, on their own AIs to not get hacked, if they're set, if they're setting up their own stuff, that's going to be a huge frigging problem. I mean absolutely grifters are going to figure out ways of sneaking into the cracks. Hell, I lost my, my X account. Now I don't know what the people who stole it gained nothing from it because within seconds I saw it started telling people and they, and ex suspended of course they haven't given it back to me. So they lost nothing. I lost money, but they, they lost nothing. And the way they lost it is they managed to fool me. And, and I'm not easy to fool because I looked at the, at the domain, right? You know, it was a, they somehow had a domain that was x.com or at least looked like x.com maybe it was x.com or something. I have no idea. And while I was putting, when I was doing an appeal, you know, in their own system, they grabbed my stuff by my two factor in the 15 seconds or 10 seconds they had and stole the account. Well, I mean if you think about DEFI and people having to do all this stuff themselves, that's going to be a nightmare and it will cause it'll be much, much worse. But the flip side to that is intelligent software companies can far faster iterating on building better, better what I will call centralized software, trusted software that people know and use and can validate that will ultimately make the UI UX better. That's where it's going. And you know, I saw a bunch of other people who were talking about it, but there was it Was there was a lot in that rant, Zach, and I think there was a lot. But the important point is token projects that pass through value from the project themselves and improve the ecosystem are going to be worth many, many multiples of what they are today. Tokens that don't pass through value are going to slide in the dustbin of history like all the Internet crap did, you know, 25 years ago. And I've been saying that for a while and at this point I'm not going to shut up about it because the market is sort of doing it, sort of. But I'll, I'll be be blunt until, and I don't want to start picking on projects, but we all know, you know, which ones I'm kind of talking about. Until those go from billions or hundreds of millions to zero, we haven't cured.
- [35:43]
G
I mean, Dave, like lay layer 0 yesterday obviously was like the obvious one that just kind of proves your thesis, right? It's like almost everybody on Twitter is saying how amazing this is for layer zero, blah, blah, blah, Cathie woods giving speeches, you know, all this stuff and the price goes down, right? Because nobody believes the value is going to pass down to that token.
- [36:03]
C
Right.
- [36:03]
A
I mean I always pick on, I pick on the two poster childs for this and I own them. Right? Chain Link, I mean Chain Link, you know, has had an, just an absolutely uninterrupted news flow of people using their token in an echo using their, their ecosystem that if in fact they're all true. And the, and you were actually buying a piece of the network or a piece of the revenues when you bought the, the link token, the link token would literally have a zero. It wouldn't be $8, it would be $80. But the fact is, is they still haven't done that and they can. And that's the thing that really pisses me off is under Gensler they couldn't, but under Atkins they could. They could easily walk into the SEC right now and say we would like to say 75% of all revenues in Chainlink. We want to build it into our smart contract will get passed on through this chainlink reserve to token holders and we want to memorialize it. Can we get no action relief that says because of the way it is, it's not a security and they would probably get it. And I find it almost unfathomable that founders aren't doing this because look, I sat and had dinner with.
- [37:19]
G
Well, Dave, they are doing it. I mean, I don't know if I don't Know, if you do that, they are doing it. I mean there's this movement over the last year to make basically the token, you know, a proxy for holding stock in the company.
- [37:33]
A
Right.
- [37:34]
G
So they are, they are moving in that direction. It is happening.
- [37:36]
A
It's glacial though. And, and, and until, and I think what I think is that the market is pricing. It is if, until there's a Clarity act, nothing is, is going to happen because everyone's afraid of Gensler 2.0, which by the way, I mean since we have Zach and Carlo here. Am I, am I on drugs here? Do you think against her 2.0 could come and, and undo sec? You know, you think they.
- [37:59]
C
Of course, yeah, absolutely.
- [38:01]
B
That's why we need the Clarity Act.
- [38:04]
A
So if that's the base case, then that's why. And so, and there's also a lot.
- [38:08]
B
Of ptsd, Dave, from the prior administration, which I think has really scared a lot of founders from going forward and doing this and opening a dialogue with the sec. Although I have to say, you know, Hester's been on a world tour talking about Sandbox and Atkins is doing an amazing job. But I, I, you know, I'd love to get Zach's impression because he probably does more of this startup work than I do. But I think there is still a degree of ptsd.
- [38:31]
A
I'm sure there is. Zach, what do you think?
- [38:33]
C
Yeah, I mean the, the rules technically haven't changed, right. Like we still have like the securities laws from the 1930s. That's the bigger problem. Clarity would give some like clarity and protection to early stage token projects. But I actually don't even think that the securities law stuff in Clarity solves the bigger issue. I think the SEC is going to do the opposite of what the last administration did and they're going to provide all sorts of guidance and frameworks and no action relief. And that's going to be useful. But the risks are both that a future administration rolls all of that back and the sort of shark that's still out at sea is the plaintiff spar. That's the tough conversation I have with every token project. Like listen, if you lose people money, a class action lawyers, like the class action lawyers are going to wake up to the fact they can use the same until Clarity, they can use the same Gensler era theories in a private cause of action. And they are highly financially motivated to do so. And there's a lot more of them than there ever was SEC enforcement lawyers. And so you need to think about that downside risk as well.
- [39:33]
A
So to, to paraphrase what you guys are saying, it sounds like what your, your view, and I'm not saying you're wrong, actually you're probably right, is that getting clarity passed is far larger of a deal to altcoins than even the market might think. Because essentially early stage, you're basically saying it's a red line. Without that, the market kind of, you know, any utility token withers with it. People can start pricing them based upon what their actual expectations are.
- [40:06]
B
Yeah, because the regulators can pull the literal rug out from under you in a future administration. And like Zach, very well put. You can get sued. Doesn't cost much to file a lawsuit and get a certification and go forward and do this, and it can destroy your entire Runway to build.
- [40:22]
A
So, Zach, do you agree with my, my kind of terse and oversimplified summary?
- [40:28]
C
Yeah, I think, I think that's right. At the same time, like, we still have the current administration and like, I don't want to lose sight of like, how much safer an environment practically it is. Like, yes, it is all like, by the grace of this administration and by the grace of the fact that plaintiffs lawyers don't realize how much of a gold mine this is.
- [40:48]
D
Right.
- [40:48]
C
Like, don't, don't tell them. But I don't know. Like, I think people still, people do feel more comfortable building now than they did before. And I'm not saying that that's crazy.
- [40:57]
A
No, I understand that. I mean, there's also startups versus the, the, the ongoing projects. I mean, if you talk to different people, you know, a lot of your, your colleagues, you'll get the idea that crypto brought, you know, you had two different adaptations that happen in two different waves in the world of crypto. One was, let's set up foundations, wink, wink, nudge, nudge, nonprofits, yada yada, to build projects. And then the other, as opposed to corporations. Right. You know, and, and the other was let's do meme coins and governance tokens and things that clearly don't confer the, the kind of rights which, which investors would actually want. Those are the two things that happen. Both need to get undone, at least in my.
- [41:43]
C
Yeah, I gotta be honest. Like, my real feeling about this is the biggest risk to utility tokens right now is that nobody wants utility tokens. Like retail investors and VCs have been burned so many times over and over again by like just insane low float, high FDV projects that like, that is the thing that is the, you know, putting the biggest damper on, like, crypto token startups, I think that that is good for the ecosystem overall. Like to my earlier rant, I think there's an incredible amount of value in like building out good like piping for defi that probably just should run on stablecoins. Unless yes, there's an underlying network, but there's a plethora of underlying networks you can use. And I think there's incredible, incredible like set of greenfield opportunities marrying crypto and AI and like I, you know, every time I try and think about what those are, it feels like an acid trip because anytime you go two steps in any direction in that world, it's like an infinite fractal of things you can build and builders that are focused on that are going to do great. The people that just want to launch VC token, like the market isn't there for that anymore.
- [42:42]
A
The problem is. Sorry, go ahead.
- [42:45]
G
I was going to say the problem is Zach, it's like we see two. I mean I don't know if you've noticed, but there are a couple companies doing these kind of equity tokens as well. And you know, there's just no track like crypto. Twitter doesn't want those.
- [42:57]
D
Right.
- [42:57]
G
Because there's not enough speculation to them. It's not enough, you know, there's not.
- [43:01]
C
Enough the thing that's the biggest problem right now. I'm curious what to get others reactions on this from like a securities law perspective where I am seeing a market but I am seeing still very difficult legal arguments are with vaults. Right. Like everyone loves Morpho now. Everyone likes the idea of they can be a hedge fund manager in a vault. To me, being a vault curator looks a lot like both being a securities issuer and if you're taking other people's money, it also looks like being an investment advisor. And yet, you know, like large firms are getting involved here and I don't really know how that works out because that seems like that is there's a lot of money there, it's a slow target and that's something that I could, I would see easily both a lawsuit or an enforcement action.
- [43:42]
A
I mean look, there's a simple bottom line here. There are two sets of rules in the securities world that were built pre Internet pre technology that make no sense anymore and that crypto has been trying to find a way around from the beginning. The two are the accredited investor rule and the second is the complex of rules that effectively makes fundraising incredibly slow. And you know, and, and what's the best way to say it? Incredibly slow and expensive. Right. You Know, those are the two things. I mean, you could launch a token for a hundredth, a thousandth of the cost of launching an equity. And you know, that just doesn't make sense.
- [44:28]
C
Before we get to tokens, do you guys agree with me that vaults are probably securities?
- [44:32]
A
No, I'm not going to comment. But I, I think there's, I understand your arguments.
- [44:37]
C
I mean if BlockFi was a security, like, right, if you're depositing and then they have a strategy to get you yield as a security.
- [44:46]
A
It really begs the question and, and actually there are people in Washington now who, who kind of agree with me, which is why is being a security a necessarily a bad thing? You know, the answer is that's the big question.
- [45:00]
C
But the clarity doesn't solve that.
- [45:02]
A
No, of course it doesn't. It doesn't, but it does. If it doesn't include the wrong world, the wrong words in there. It does give the SEC the ability to modulate securities rules to take into account the fact that we have this thing called the Internet. Right. So you don't need a 30 day IPO cooling off period because that's how long it takes for a print shop to print prospectuses.
- [45:21]
G
And it's true. It's tricky with vaults too because you can have non custodial vaults, right, where it's like, yeah, okay, somebody set up the vault, but not the owner of the vault. So it gets very, very complex.
- [45:31]
C
I'm talking about specifically curating a vault. If you're setting up a vault where you are either exercising ongoing discretion or you're pre baking discretion into a smart contract of some sort where this is the risk profile the vault is going to get. Like if we just run through the Howie test on that. Are people investing money in the vault when they deposit? Of course, yes. Is there a common enterprise? Well, the funds are cooled in a vault, so also obviously, yes. Are they doing that in the investment of profit? Of course, yes. Why else would you use Evolved? And is that expectation of profit based on the managerial efforts of a particular group of people? Sure. Like, isn't that why you would choose one vault curator as opposed to another? Like what, what's the counter argument to that?
- [46:15]
G
Well, you could do vaults that, you know, you can set up a vault where you're not necessarily making money on the vault.
- [46:21]
D
Right.
- [46:22]
C
That's not part of the Howie test though.
- [46:24]
A
I mean, by the same argument, Zach, then, then how are copy paste trading kols who do actually make money because they buy first and then they convince their followers to buy after Them.
- [46:35]
D
How.
- [46:35]
A
How is that not.
- [46:37]
C
Well, I mean, it depends on the specific setup for that, but I'm not saying that that couldn't be. I'm just saying that, like, institutions are interested in vaults. Like, that seems to be something that Wall street is genuinely excited about. But like, there's an, there's a, there's an obvious classic crypto securities law. Howie test problem.
- [46:51]
A
Yeah, well, I mean, I think there are, there are many of those things. I mean, my point is basically that the securities laws need to be modernized and there's no way around it. And I think that's why, you know, there's a lot of work being going into trying to do exactly that. And, you know, we'll see. I mean, I don't know what else to say.
- [47:08]
G
Yeah, I think we might be at. This is one of the things where we might be at this kind of move fast point with vaults, right. Where you just become. And I think, you know, Morpho's doing a great job at it, where you just become so embedded that you kind of can't unwind it. I love their strategy. I love what they're doing. Being in the vault business myself, I just think it's a really smart strategy, which is just go big and, you know, then let the lawyers. Let Zach figure out how to fight it. I guess.
- [47:41]
D
So.
- [47:41]
A
Yeah. In any case, you know, we've done on, on, on the securities topic because we did have some data this morning and we do have lots going on in the markets. Actually, the person I wanted to talk to just left.
- [47:54]
D
So.
- [47:55]
A
Okay, so we don't have to go there. Anybody else have any other thoughts on any of these topics for today? There's, it's one of those things, whether it's the UNISWAP stuff or, or markets going up and down or.
- [48:09]
C
Did you guys talk about the Something Big is Happening article?
- [48:13]
G
Actually, I wanted. Zach, it's funny because you were mentioning AI and obviously AI for anybody who's really using it is incredible. But the great thing about that article, which I very much agree with, is you look at the guy's bio and the companies he's built, go click on those companies. They haven't posted in six, eight months.
- [48:35]
D
Right.
- [48:36]
G
It's like he, he's talking about automation and how amazing AI is and stuff. And yet his company, his companies are not doing the thing. He's very, he's very much talking about doing. He's actually not implementing in the day to day. And I'm seeing this all across AI. It's, it's all a bunch. I'm not saying it's all hype, but, and I do agree with his article, but boots on the ground, how are we using this stuff? It's still at like very, very first inning stuff. I mean, just look, go look at the guy's bio who put out that article.
- [49:12]
C
That the tech is here, the adoption is not and people need to be prepared for the tsunami that's coming.
- [49:17]
G
No, I don't think the tech is here even for, even for developers. When you take a developer, he's a developer, he can barely use it himself. He can barely, he can't even automate his own Twitter account. Like he can't even do it yet. That's what I'm saying. It's still very, it's so dev heavy right now where even good devs have trouble implementing it and getting it to work right. Getting multiple agents to work right is still very, very difficult. We're many, many miles away from the average person having any kind of real.
- [49:51]
B
There's no doubt, there's no doubt that we are in the beginning stages of the entire vibe coding revolution and that there are certainly a lot of things that are being put out that are mostly hype and mostly engagement farming to build, you know, audiences around something. But you can't deny the fundamental premise of his article that he is witnessing in real time that the AI agents are self directing and improving upon the products that these companies are launching without with very little he human interaction. And that's, I think the exponential, I think that's the exponential explosive effect of this. That look, it already destroyed for many intent and purposes the entire SAS sector. If you're a VC and want to invest in sas, you got to be very careful where you put your money because whatever's being developed can be replicated and improved upon instant by bots. And that is very disruptive. And well, I think that's the bigger takeaway.
- [50:46]
A
Be careful. There's. How do you, how do you, how do I say this? A SaaS company that has no embedded moats, advantages, understanding and, and data sources and client networks. You're absolutely right. Right. So the key word is startup. So if basically you saying, okay, going to build an app that's going to do X, Y and Z and I need to raise millions of dollars to do it. Well first of all, what this is, what you're learning is, is it doesn't take millions of dollars to build an app to just build the damn thing, attract the customers, build the network, at which point you have an advantage. And I had a whole argument with some person from the XRP army who insists on calling names, so I won't call him a name. And result about, you know, first mover advantages. And, and a lot of engineers will always say, well, the first mover doesn't have the best tech. And in fact, almost always that's true, except the first mover to network effects have enormous advantages. So Uber, for example, did not. I mean, and I'm not saying it isn't now, but I'm saying at various points there were multiple competitors with far better technology that actually worked better, didn't matter, they had the drivers, the network effect effect, etc. The same thing is true in every place. So it's not fair to say that destroying the SAS model. What it is fair is saying that the barrier to actually build code is coming way the hell down. And the value of somebody whose job it is to translate English into working code is coming way the hell down. But that does not change the value of understanding and architecting and figuring things out. Now that will of course also come down if, if your expertise is based on things that are rep. Repeatable. Right. It will, will be there. But there's all sorts of, of frictional costs in building stuff that, that don't get it, don't get thought about. Not the least of which, if you're in the financial markets, remember there's a license and there are people who are liable if your software doesn't do what you think it's going to do. And if an I. Yeah, that's the.
- [52:55]
B
Other side of this entire vibe code thing that. Yeah, exactly, Dave. There's so many legal consequences to full porting and giving your bot all this power to execute and build these things that people are not seeing. And I think it's going to be a very, very big part of the conversation when you start to see people get wrecked as a consequence of these very fast moving things that they are deploying.
- [53:18]
C
I think that's totally right. And there'll be fascinating legal questions and that intersect with the crypto stuff we're talking about.
- [53:25]
A
I see you, David, by the way. Yes, David, you've had your hand up, you've been patient. By the way, if anybody has their hand up and I don't see them, blame X, not me. If I see you, I'm calling it.
- [53:35]
D
Yeah, Dave, thanks. The extent we're going in and talking about AI and vibe coding, I would say that from what we do at fio, you know, we're basically in the Security review business, we check people's code as it's generated and we're finding that a lot of the AI vibe generated code code, you know, has as many security vulnerabilities as what's been created more traditionally. So just to the extent that AI is generating things faster, there is the likelihood that more holes are being created more quickly than might have previously been the case. And otherwise, I've been finding the conversation great. Zach, you've made some great points and yeah, know right now with AI and coding, it's creating a mess and the lawyers will be there to shout about it after it happens.
- [54:26]
A
Well, not to mention, you know, during it's happening. Right. You know, there's, there's all sorts of, there's all sorts of implications here. I mean, the other huge implication is if you take emotions out, you know, if you, you think, you take emotions out of investing, you think that we have, that we are lemmings now. People look at investing and they, they see stupid all over the time, where people as a, as a herd do things and the herd is almost always wrong. What happens when there are literally millions of bots running around? Are they going to differentiate themselves or are they going to be more herd like? That's a really interesting question from a quant investing perspective. It's fascinating.
- [55:03]
B
And you want to talk about market manipulation at scale.
- [55:07]
A
Well, I mean, it. How do you prove it? The thing is, right now with humans, you can prove market manipulation if you were inclined to do so. So I will make the point that if the CFTC and Mike Selig decides that he really wants to make an impact and improve crypto, what he would do is he would do a grand bargain with OKEx, BYBIT and Binance, among others, as well as Hyper Liquid, because their liquidation engine is centrally managed, whether people want to understand that or not, and agree to give us professional investors access in exchange for market surveillance. And if you did have that, you'd be able to prove when people do momentum ignition, when people dump spot and, and make their money back on the future on the per side and do that kind of manipulation that we all hate. And, and you could do that in a world where there are millions of bots operating supposedly independently and you can't find the connections, that's going to become really hard. So think of it as tornado cash for market manipulation. I mean, I think that scares the bejesus out of regulators.
- [56:14]
C
I think there'd be so many new and interesting legal questions and so many people are going to get wrecked in exactly the ways you're talking about and in many ways we can't anticipate. But I think it's all of that. Granted it's still important not to miss the, the, you know, the forest for the trees here. I think the main point of this article, which unless you're like really going deep in the latest generation of the tools like I'm worried is very easy to miss. Like AI is really, really, really, really good now at the frontier and it might take a while to proliferate into the economy and there might be some moats for like lawyers or accountants that have regulatory licenses. But like I don't know, like the, the hour is later than we think.
- [56:58]
A
I think that's right. I don't think anyone disagrees. But the hours later for what is the question? Are we talking about Skynet?
- [57:05]
C
Well, I mean I don't think we can know. I think the, I like the point of a singularity is you can't see what's on the other side of the event horizon. Like maybe we're all gonna die. Like I, I would say my personal p doom is like 10 or 20%. Like if you get recursive self improved improvement with something that's not aligned like I think that is a, that is a real risk. I don't know that we're going to get all the way there with this generation of technology. But the like sort of economic singularity where like AI can do people's jobs functionally better than people. Like it's very hard for me to imagine that doesn't start happening in a big way in the next few years.
- [57:38]
B
Because the latest operating system of the human brain is actually incapable of seeing exponential growth in real time. And that's fascinating to me too.
- [57:48]
A
Yeah, well this is a topic we could talk about for hours, but we're running up against time. I saw Jamie and David with hands up. So if you guys have final comments, that's cool, otherwise we're going to wrap it. Yeah, yeah, maybe.
- [57:59]
H
It's a quick question, but I was just curious. Who do users hold accountable if an AI bot does something that they feel is inappropriate? I mean, how does that work?
- [58:07]
B
I got what I put in the nest.
- [58:10]
D
Hey Dave, I just put something in the comments. There was a table taken from a paper that was published looking at how effective various LLMs were in terms of remote work automation. The scores are coming in very, very low. If people want to look at a link to the actual paper itself, I'm happy to provide it. I can just throw it in the comments if you give me a couple seconds.
- [58:33]
A
Yeah, I'm sure it's true. I think that the issue is that a year from now it will be dramatically different.
- [58:39]
D
We'll see.
- [58:41]
C
Also you're looking at lots of people's results. Like I think the important signal in the noise right now is what are the power users getting. And like I'm just telling you like you know I have human well trained lawyers who work for me who are terrific and I have AI that works for me and it's incredible what I can get out of the AI.
- [59:02]
A
Yeah. So on that note, you know, and the one thing I will say is AI agents are not going to be using paper dollars to make transactions. They are going to be using if it's good, if they're going to be trading in USD, they're going to be using stable coins and they're going to be using tokens, whether it's Bitcoin, Ethereum, whatever the else it will be or something that has yet to be developed. There will be money that is going to be tokenized because it is the technology that scales to that. But we shall see. In fact, if you believe the XRP army, it'll all be XRP and that's why it'll be worth a hundred trillion dollars. So on, on that in their dreams. On that note, we can call it. Yeah, well you know I, I poke the bear every once in a while. Just, just, just, just to see, see what, what shakes out. But we will be back again tomorrow. I think Scott's out again so you're stuck with me if that's true. But every, in any case, we'll be back tomorrow at 10:15 on Crypto Town Hall. Thank you very much to all the speakers. If anyone's not following them or me, please click the follow button because that's about the only thing that we get out of all of this is sharing our time. Thank you everyone.