B (3:18)

Okay. And tax loss harvesting. This is something that is not unique to crypto. I mean, anybody can do it for any asset. And correct me if I'm wrong, but I think there's a limit that you can offset up to $3,000 a year, and then if your loss is more than that, then it can just be extended outward until you reach the total. Is that correct?

A (3:38)

So this is how it works. So let's say maybe. I'll use an example. That's probably the easiest way to kind of understand this. So let's say you sold an asset at a loss, and then you created, let's say, like $10,000 worth of capital losses. And for the same year, 2025 tax year, there's no capital gains coming from crypto or stocks. In that case, you can only claim 3,000 out of that $10,000 worth of total capital losses. The remaining 7,000 goes to future years. So in the future years, if you have any capital gains, you can use those 7,000 to offset that capital gain. Now, same scenario, let's say 10,000 capital losses. But let's say you have $8,000 worth of capital gains in 2025. You can fully offset that $8,000 worth of capital gain using that 10,000. The remaining 2,000 goes to next year. So that's how it works. So in other words, it's not necessarily limited at the 3,000. It's limited at 3,000 if you don't have any amount of capital gains. But if you have capital gains, actually there's no limit. You can offset everything.

B (4:50)

You can do the full boat. Okay. All right, now, thanks for that clarification. And this kind of leads into something I know we've spoken about a lot in the past. Kind of crypto's sort of superpower in the sense that crypto is not banned from quote unquote, wash trading. As far as I can tell, regular stocks are. Regular securities are. Can you please explain that difference? And also just maybe kind of to add to the conversation Talk about. I know there's been discussions about changing this rule, but it hasn't actually changed as far as I can tell. And from what I can tell, it seems relatively safe now that Paul Atkins and whatever. Yeah, it seems like given the current SEC's like disposition with regards to most crypto assets, wash sale seems to be relatively safe.

A (5:41)

Yeah, so maybe it's worth kind of explaining what, what a wash sale is for, at least for tax purposes. A wash sale happens when you sell a stock at a loss and you buy back the same stock within 30 days. If that happens, IRS does not allow you to take that loss because it's kind of considered like a paper loss. Right. I mean, you just, you just had it. But did you really lose it? Not really. So if you buy back the same stock within 30 days, you're not allowed to deduct that loss. IRS wants you to defer that loss to future years by making a basis adjustment. Now for crypto, if you read the IRS tax code, section 1091, the wash sale rule is applicable only for stocks and securities. But crypto is treated as a property according to IRS rule, as I explained earlier. So as a result, technically speaking, wash sale rule is not applicable to crypto transaction. This means you could sell, let's say Bitcoin at a loss, buy back the same unit without having to wait that 30 days. But that said, there are other rules in the IRS code that prohibits you from doing stuff like that. For example, you cannot sell crypto asset at last and buy back in the very next second because that type of transaction lacks the economic substance because you're just doing that to create tax losses, which is bad. So the point that I'm trying to make here is that even though you don't have to wait that 30 days, I would at least wait like a reasonable period of time, maybe like few days to buy back the same coin if you want to maintain that position. So that's the difference between like, you know, wash sale as it's applicable to stocks versus versus crypto. Yeah, it's not applicable, but, but it doesn't mean that you can abuse the rule either.

B (7:33)

Yeah, and I was going to say, I think this is where the whole, this is not financial, this is not tax, this is not an investment advice disclaimer becomes really important. I know we've spoken about this in the past, so maybe just to kind of drill down a little further like, like it sounds like you need to have some sort of. The IRS comes, it comes knocking if you did this and Sold Bitcoin at a loss, for instance, and bought it back a week later. You'd have to have like some alibi might not be the right word, but a plausible explanation for why this is an economic move. Like why this was not just simply to, to maximize how much of a capital gain you can offset. Like there has to be some sort of plausible story. Is that, is that kind of what you're. You're saying?

A (8:16)

That's right. You know, I haven't seen like audits related to, you know, these wash sales rule yet because these type of audits are very hard to conduct and hard to streamline because everything is kind of based on facts and circumstance of like each taxpayer and each situation. But you're right. So if I were to sell something at a, you know, lost today and buy it back on December 31st or like, I don't know, like tomorrow, I should, I should be able to like, you know, justify why I did that. And in some cases it's justifiable because unlike stock, stocks, you know, crypto goes to like these huge swings, like you know, every day, even every hour. So is it justifiable in some cases? Yes.

B (9:01)

Yeah. I mean, you say someone could read a really great article on Unchained about Bitcoin being about to go into a new cycle right after they sold.

A (9:10)

Exactly.

B (9:11)

And it would make perfect, perfect sense for somebody to buy back in. So, so I certainly get it. Just, just one more thing related to the wash sale rule because I know it's been on the chopping block in the past, but it has never actually been kicked out. Do you have any sense of what the future of it looks like and how is to expand the conversation a little bit, how is this rule or just tax treatment of crypto being impacted by either the Genius act, which went into law in July, or the various market structure bills that are being passed along the halls of Congress.

A (9:48)

Yeah, War sales has been a topic, you know, for a number of years. Right now a bunch of, you know, draft bills, you know, have proposed to kind of eliminate war sale rule. The, you know, crypto being, you know, not subject to it. The Genius act doesn't talk about watch zero because it talks more about, you know, stable coins and etc. But there's like, I would say like at least like a handful of bills that are, you know, somewhere in D.C. i don't know which step they're in that says that, you know, crypto should be subject to the wash sale rule similar to stocks. So I would say, I don't know when those bills gonna get momentum or it's going to get passed. But I don't think this, this loophole that we, we spoke about is something that's going to exist forever. I think it's going to get closed down pretty, pretty quick.

B (10:45)

It's, I mean it's kind of interesting when you think about it. It's sort of like almost an accident that, I mean maybe not an accident but like the wash sale rule. I think of it more applying to things like cars or houses. Like, like very like esoteric, like non fungible goods where it's like, I mean, how could you sell a house and then buy it right back? Like it's just not practical. Whereas in crypto treated as property, but these things are fungible and relatively liquid. It's just certainly a lot easier to do. So I can kind of understand why there's a bit of that mismatch and everyone's trying to figure out the right way to handle this moving forward. So a couple more questions and then we'll move on to a little bit of what people should expect in the spring. But I do want to ask you about just a few issues that I know come up a lot. Stable coins, they're becoming much more popular and while they're all kind of mentioned as they're all worth a dollar. They're all worth a dollar, but prices fluctuate and there's times when they can significantly deviate from their pegs, people are using them in everyday transactions. Are there any special treatments, tax treatments for stable coins or anything that, anything that people should keep in mind when it comes to transacting in stable coins.

A (11:58)

So for tax purposes, every crypto asset is treated as property, including stable coins. So yes, you're right. Some of these stablecoins could be not necessarily pegged one to one for the dollar. And if that happens, you still have to capture that tiny gain or loss. But generally speaking, unless you do hundreds of thousands of transactions, these minor fluctuation kind of round up to zero because in, in a tax return you cannot put like you know, multiple decimal places. But that said, even if you don't have a gain or loss, you're still required to report your StableCoin transactions on 89.49. Let's say for example, you used, I don't know, maybe like 5 USDC to buy a cup of coffee. You still have to report that on Form 8949, even though that may not result in a significant gain or loss. Because again, stablecoins are realized property. So that's how stablecoin should be reported on taxes.

B (13:06)

And there's still no de minimis exemption. I know that's something I think even Senator Lummis had been speaking about as recently as a few months ago. So that I guess people can avoid having to put on tax forms if they bought a cup of coffee with, with usdc. But there's still no de minimis exemption right there.

A (13:24)

There's still no de minimis exemption. People are talking about 600 threshold, you know, in some cases thousands and etc. Yeah, there's still no de minimis, but yeah, I mean I'm a proponent of, you know, having something like that because that would, you know, increase the adoption and people will start using stable coins and even other coins for like day to day purchases and etc.

B (13:47)

And one more question before we take a quick break, but I'm curious if there's any. We've spoken a lot about different. And in your intro you spoke about a lot of different ways that people can, I guess, incur tax generating events, for lack of a better term, airdrops and staking and passive income, so on and so forth and how they're treated. But I'm curious, the world of crypto is always evolving. Are there any sort of new or novel forms of like, like tax generating events that people should really be aware of as they're getting ready to finish out the year?

A (14:21)

Yeah, I think a new one is this like ETPs, Exchange Traded Products. So obviously you know, if you're buying like an etp, like in other words ETF or something like that, you just buy it from a broker. It works very similar to stock. You have a cost base, you're selling something and that results in a capital gain or loss. Now there's a little hidden piece here. These granto trusts can only hold digital assets inside this trust and periodically they dispose of these digital assets to cover fund expenses, paying their employees and et cetera. Now you have to go to the fund website, download the statement and calculate your allocable share of Bitcoin or whatever the digital asset disposed at the fund level to figure out your own gain or loss. So that's something very hidden because it's not captured by the broker. The broker is only capturing when you sell your ETP interest at a gain or loss, but the broker is not capturing your allocable share of gain or loss that the fund spend in terms of Bitcoin. So that's like a very nuanced thing. So something to keep in mind, basically the idea is that if you traded like ETPs, if you have ETFs, there's this second step that you need to do in addition to relying on the 1099 B that you are getting from the broker.

B (15:49)

Well, that does sound quite complicated. I guess that's why people need to. Well, I would imagine. I guess that's why people really need to be careful when it comes to filing their taxes and seek out professional advice if necessary. Okay, a very quick break and then we have a few more questions. Look, if you're deep into crypto, but traffic and macro are a different language, or vice versa, we get it. That's why we created Bits and bips, a podcast and newsletter that bridges these two worlds. No jargon, no gatekeeping, just smart, clear breakdowns of how these systems actually connect. So you stop feeling lost when one side starts speaking their language. If this sounds like something you need, check out Bits and bips. You'll find the link right in the description and show notes. Just scroll down. So I want to turn a little bit to what, what to expect in the coming year. I know that there were some recent guidance that came out from the IRS and actually, no, I think it was from the infrastructure Bill back in 2021, where exchanges like, like Coinbase and Kraken and Robinhood, et cetera, are going to have to start issuing a form called 1099 DA, I believe, starting this, this, this coming cycle. Can you explain what that is? And I know you've spoken a lot in the past about some of the benefits, but also some of the limitations of especially this year's form that is going to be received by, by investors.

A (17:19)

Right. So this whole 1099 DEA ruling kind of came out of the infrastructure bill passed in 2021. The TLDR is that the government wants, you know, centralized exchanges to act very similar to stockbrokers. So if I'm a user, at the end of the year I get a tax statement showing my gains and losses so I can easily file my taxes. So that's in theory. I mean, if, you know, in theory it sounds really good, but in practice it's going to create like a lot of issues. So, so starting 2025, this, this tax year, meaning like in January, you know, 2026 funding year, if you sold anything in a centralized exchange like you know, Coinbase, Gemini and Kraken and etc, you will be getting this brand new form called Form 109 98, showing only your proceeds. Like for example, let's say you sold a Bitcoin for 100,000 and you paid 50,000. But in this tax form in the first year it will only show 100,000, it will not show the cost basis. So I think a lot of people going to get confused when they first receive this tax form because it's a brand new form that they have never received. And then secondly it will overstate your gains because it's not going to have the cost basis. So then you had to go to your own books and record. So you had to rely on a crypto tax software to figure out the cost basis. Yeah, now. Yeah, go ahead, go ahead Steve.

B (18:49)

No, I was going to. Just, just to follow up, just two quick things. I believe in 2026 though, they're going to include cost basis there. But, but, but going back to 2025, one question that will inevitably come up is say I have two Bitcoin at Coinbase and how do I know? And I bought one at 25,000, I bought one at 50,000, how do I know which one I sold?

A (19:14)

Yeah. So in that case it comes down to your books and records. Like let's say in your example you're using something like Cointracker and you have picked hiful as your accounting method. Highest in, first out. In that case you can marry your highest cost basis with the proceed statement issued by Coinbase and that will result in the gain or loss. So in other words, exchanges are not reporting cost basis for the 2025 tax year. You get to input the cost basis based on your own books and records.

B (19:49)

I wonder how that's going to line up then with the next year. Is the exchange actually going to be keeping track of which bitcoin is sold? And I can imagine where there's mismatches where like they don't, the exchange doesn't know that you use the HIFO method and whatever. I guess that might be a problem for next year.

A (20:06)

Let me break down the 2026 year because that's where I feel like issue is going to get even more amplified. So for the 2020 six year exchanges will report proceeds and cost basis for transactions that happen only inside the exchange. So going back to my example before, let's say you sold a Bitcoin in 2026, 400,000 and you bought that Bitcoin in let's say Coinbase in 2026, same year for 40,000 then you will get a complete 1099 DA. But if you transfer in that bitcoin from let's say your self custody wallet or crack into Coinbase and sell it on Coinbase your DA will not show the cost basis. So you will still have those missing cost basis issues. So that, that's, that's, that's one issue. Issue number two is what you just said. There will be mismatches between what you see on the DA versus your own books and record slash crypto tax software. Because think about this. I mean maybe you have been using HIFO on your crypto tax software but you have not, probably not set up that hypo accounting method on your Coinbase. So Coinbase is selling something else but according to you, in your head you are selling some, some, some other unit that results in some, some, some different gain or loss. Now you had to reconcile. Yeah, the third thing is so there are like seven different types of transactions that exchanges are not reporting to you on the DAs like stable coin transactions under 10,000, they're not reporting to you. You got to rely on your own books and records, NFT transactions on 600, you got to do your own records wrapping, lending and most importantly like if you use a centralized but a non US exchange, let's say like binance.com or something like that, they're not going to send you a DA because they're not US based. But you still have to report those things. And then last but not least the defi stuff, it's, it's all your responsibility. And then you had to keep your own books and records. So, so the point is that DA is going to show just a very partial truth of like you know, what you did in a given year. But these forms still have a lot of gaps. And now you had to marry that truth that's on the DA with your book books and records and hopefully everything ties when you file your taxes.

B (22:31)

Gotcha. And just to wrap up here, any other last minute advice and anything that our viewers and listeners should be paying attention to as we get ready for the year to wrap up?

A (22:44)

Yeah, so a couple of things we spoke about Texas harvesting. So consider doing that to save tax bill because don't wait until April 15th. By that time you're already late. The second thing is that if you're using a centralized exchange, make sure your accounting method is, is set right now because if you don't set an accounting method like HiFO, FiFO, LiFO starting 1126, they're going to default you to first in, first out which may not be ideal. So I encourage you to go to the tax centers of each exchange and make sure that accounting method is set correctly.

B (23:17)

Okay, great. Well she and we'll have to have you back. Thanks for taking the time to speak with us. Thank you to everybody for watching and listening and please stay tuned. In a few minutes, I'm going to be back with Sebastian Daravo of Steakhouse Financial.

C (23:32)

Doesn't make any sense to make 1% more per year if you have 10% chance of losing all your money, which is what can happen.

B (23:40)

Hi, everyone. Once again, I'm Steve Ehrlich, executive editor at Unchained. And this will be the second part of our back to back bits and bits, the interview live stream for today. I'm here with Sebastian Daravo, co founder of Steakhouse Financial. So welcome Sebastian.

C (23:57)

Nice for having me. Excited to be here?

B (24:00)

Yeah, yeah, as am I. So, I mean, look, Steakhouse has been around for a little while, but for anyone watching or listening that is not familiar with your product, can you just please give us a brief overview?

C (24:13)

Yeah, sure. Stack House has roots at Makedao, where we started five years ago. The company was created in 2022, 2023. And what we are doing those days is really creating product for the stable code economy because we are feeling, as most people obviously on this show, that the stable economy is coming and is growing. So we have tools for onchain, providing tools for onchain asset management. To give you an example, we are the leading creator on Morpho, which is a lending protocol on FM and other layer tools, and a leading creator on Camino, which is the lending protocol on Solana. We are also operating Groove, one of the stars of the sky ecosystem, which is allocating 1.5 billion to institutional credit.

B (24:59)

Okay, great. So, yeah, let's kind of get into it. Give me some numbers to just kind of show your traction. I know that in particular you've seen some, seen some impressive growth in your partnership with Morpho and Coinbase, correct?

C (25:13)

Yes. So just to give you a rough idea, Stack House is more or less 3 billion. On the 3 billion, there is 1.5 that are on Groove. So the star that is managing some sky capital and on the other part, which are tools for asset management, mainly lending protocols, morpho and Camino, 1.3 billion for pharma, 4 and 200 million for Camino on those 1.2 billion. As you, as you mentioned, Coinbase, we have an exclusive partnership with Coinbase and the vaults there where people can lend USDC on the Coinbase app as currently $400 million just crossed 400 million today.

B (25:55)

Okay. All right, congratulations.

C (25:58)

So, thanks.

B (25:59)

I want to get into like a big part of what you Guys do your secret sauce is like quote unquote, risk curation. The ways that you kind of construct your vaults in order to provide enticing yields to your lenders, but also ensure proper risk compliance and safety. Can you talk a little bit about sort of your overall approach to that and how you try to differentiate yourself from some competitors?

C (26:31)

Yeah, sure. So since the start, we try to differentiate on two axes. One, which is we try to be more institution focused, meaning we have less risk in vault. So vault creation is we provide, we package some risk, we provide some tools, backend tools to create the vault. And obviously it all depends on the user appetite because we are providing those tools and people can decide which tools are which rules are better for them. So we are more institutional focused vote, meaning there is less risk. We don't have the long tail of assets that you can see on some vault to get some few basis points of additional yield. We try to make sure that it works because it doesn't make any sense to make 1% more per year if you have 10% chance of losing all your money, which is what can happen. So we try really to make a hard due diligence on all cultural. We are onboarding, monitoring them. We have also some, a lot of tools. We rely a lot on automation to make sure that if something happen, we try to put our vaults in a safe spot as fast as possible.

B (27:40)

When you say institutions, I want to be clear. Are you talking about like hedge funds, prop shots, like those types of trading firms, or are you talking now more about traditional institutions like Tradfi or even other businesses that perhaps are trying to manage their Treasuries on chain?

C (27:58)

So I would say all of the above. What we are not doing is selling to retail for obvious reasons, but we have a lot of what we call B2B2C. For instance, with Coinbase, Coinbase propose a service to their users. But we, we face Coinbase directly. We are working with a lot of other fintechs wallet providers. We are for instance on Ledger, we are on Trust Wallet. Lehman Cash is using us as an example of fintech. But we're also discussing with a lot of more institutional partners some key names that are well known in the space that are, let's say 200 million in ovals. So those are key clients or key users with which we have weekly calls to update them on the activity of the market. So really B2B and B2B2C.

B (28:52)

Gotcha. And what are some of the typical rates? I mean looking, I guess just first at the USDC vaults that you curate. I know the answer is it depends and it will fluctuate based on supply and demand. But generally what are the types of supply or lend and borrow rates that people see on your platform?

C (29:09)

So it's very interesting because the rate on those, what we call prime volt meaning there can be seen as somewhat safe. Even if I don't make this classification. They are usually quite close to the T bill rate of of the US government. The 3 months T bill rate or so far if you, if you prefer and are usually a bit above or below depending on the fluctuation of the supine demand. For instance, when there is a price jump of Bitcoin, people want to borrow against the BTC to get more leverage and that makes the yield you are getting as a lender grow. If there is a price decrease in the price of BTC or ease, then it's the opposite. People don't want to speculate on the value increase of those assets and then they are less, less willing to borrow at high rate. So the rate on those platform decreases. That's for the prime Volt I would say so far plus or minus 50 beeps maybe plus 100 beeps when when the market are quite, quite aggressive. On the high yield vote you have 100 to 400 beeps more than the risk free rate.

B (30:20)

Okay. And I want to. I was going to ask you about the difference between the prime and the high yield. I mean prime. I mean certainly usdc is that the only. Is that the only type of vault in prime or am I missing something else?

C (30:35)

No. So each currency, what we call currency. So let's say USDC USDT ETH as a prime vote in which the collateral against which we are lending are usually more blue chip, blue chip or more regulated. So for instance in the USDC prime you will have is CBPTC Rap 6 more or less. Only those if you go on high yield you might have some ethina like collateral, some infinify, some reservoir collateral. So those are more complicated collaterals, those are more on chain and those can fluctuate a bit more. As we saw for instance over the last months with the stream finance. Some vault adds such collateral as in their vault and that was a key risk and that was taking a loss on this front. So prime volts are really when you want to be exposed to blue chip and high yield vault are more when you want to have a higher yield meaning as well higher risk.

B (31:39)

Okay, I want to also I'm curious too, like your level of actual like governance control, involvement in platforms. I mean maybe just talking about morpho. So all these vaults are non custodial, meaning that the customer is, they're placed in smart contracts and like you don't have direct, you as in steakhouse do not have direct control over funds but, but you do have control over setting up the parameters and, and when I was looking over some of your website materials, etc, I mean there are like you have ways to change necessarily to kind of sometimes change the, change the rules, et cetera. So can you talk a little bit about precisely what type of control you have and how you kind of delineate that between you guys and Morpho and sort of like what your plan is in case there ever is an adversarial event impacting one of your vaults?

C (32:36)

Sure. So let's start with the morpho level because that's the easiest. Morpho is a piece of lending infrastructure, pure infrastructure. So everything that morpho is deploying is imitable and there is almost no parameters. The only parameters that can influence by them, I mean the morpho governance is to take morphees. It's a fee switch like Uniswap in that sense. It's quite similar at the steakhouse level. Obviously a vault needs sometimes to add new collateral, remove collaterals that are becoming too risky or change the Oracle because the oracle is not good enough. Because I don't know, we are migrating from one Oracle provider to another that is might be better so we can add new markets. That's the main impact that we can have adding new markets. How we design the vault is we can propose to add a new market and then on the prime vault depositors into the vault have seven days to veto this change. Meaning that's why we are not in custody of the funds or even controlling the vote. Because whatever we want to do or most operations, the users themselves, we are using Argon Dao for that can make a vote and vote against us and it's not possible for us to go against this vote. So in that case we are always trying to find ways to be as non custodial as possible.

B (34:07)

Has that ever happened where there were sort of changes to collateral parameters and there was some sort of delay or this pause.

C (34:18)

So we made a test at the beginning to make sure that everything is working smoothly and helping people to understand how it works. But since then we never tried to add a bad market or try to steal collateral or whatnot. So we don't know if it's because people are not watching or if it's just that we didn't try to make something that was bad for users so users added nothing to. The good part as well is that we have ensemble some key institutional players that are watching closely. Some protocols for instance, or for some key institution. So that's also one of the benefits is that even if you are just invested in vault, if anyone invested in this vault can make the veto, you are kind of protected. So that's quite key in our system. If you know that in the world there are a lot of smart players that are following closely what is going on, you can be sure that those players will be notified and take action to veto whatever decision we are making. And it's not so much about just us making a bad decision. Let's say for instance that your curation multi sig is compromised. It can propose some bad decision and thanks to the guardian mechanism we can veto those decision and put the vault in a safe place.

B (35:42)

Yeah, and that's a pretty common tactic, security tactic. And of course I know a lot of crypto protocols having a waiting period or a cooling off period, so I can certainly appreciate that. Very quick break and we're going to come back with Sebastian. If you're deep into crypto, the tradfi and macro is a different language. Or if you're in tradfi and crypto feels like chaos. We get it. That's why we created Bits and bips, a podcast and newsletter that bridges these two worlds. No jargon, no gatekeeping, just smart clear breakdowns of how these systems actually connect. So you stop feeling lost when one side starts speaking their language. If this sounds like something you need, check out Bits and bips. You'll find a link right in the description. Just scroll down. So let's. I want to talk about usage of your platform during like the current market chaos. There's been a lot of volatility, especially in the last two months or so. What have you seen how. How are people using your. Your vaults and. Yeah, let's just go from there.

C (36:49)

Yeah, sure. So there was two main events, I would say there was a lot of a big volatility event on the 10th of October, price going down. I think that was when USD was blowing up on Binance, those kind of stuff on those events, not much happened on, on Morpho for instance, or even Camino because it's quite, quite unrelated. The price of Bitcoin in this was crashing, but because there is open liquidation. So anyone can liquidate a position that is starting to get a Loss or get get in the to getting to a point that it's a bit risky. Nothing happens. There was liquidation, borrowers were liquidated said for sure. But for lenders it didn't have any impact. Then fast forward just the months after there was one incident where some creator were landing against Stream Finance or Elixir which are two protocols from Defy Stream Finance which is kind of an unregulated hedge fund use gave money to. To someone that was using this capital to make leverage looking so quite risky strategies in exchange of a very high yield. I think the Yield was from 10 to 30% so quite high yield and people who are lending against it at a high rate as well to. To to get a higher yield for sure. And Elixir which is a stable coin, a defi stablecoin being on chain was exposed to Stream Finance because they were investing part of the balance sheet into Stream finance. Suntream finance lost 80 million. I'm not sure there is any postmortem on how and why. And so everyone was rushing out and obviously there was a lot of issues. Now there is a bankruptcy process in my understanding. But the main issue is that the price of X USD which was a stablecoin or the token went from $1 to almost nothing. So to protect against those behaviors on lending protocol it is quite custom to use a softener on the price to say that because there is no actual price or no deep price like usdc. So they were putting a price of one because it was always close to one or at least they were using. No, sorry as they were using the nav provided by the platform. So it was a 1.1 and it was increasing on the world but the price was still reporting an inflated value. And so there was no liquidation possible which is not per se an issue. But if the protocol was getting solvent again it never got solvent. And then that means that some people needed to to take a loss. Some markets were cut and the money was was lost. So obviously when you have an impact like that, some people will think about it and say well maybe I shouldn't be in a very risky vault in the first place. And there was a lot of exodus of votes that were impacted or not impacted. The prime vault we had some users leaving them and they were saying well we know it's there is no risk but management think that might be a risk. So we remove and we will come back. And on a high yield vault we did go from 250 million I think to 60 million in a few days. And now it's going back. We are at 150 million because people needed some time to reassess the situation and make sure that there was no risk which is quite usual because we are a repo protocol. The month is a repo so you should be able to remove your money anytime.

B (40:34)

Gotcha. Okay. Anything else? I mean just related to how people are trading or trying to, especially in a bearish market, stretch out additional yields, passive income. Anything else? Aside from those couple of very I guess discrete events that kind of stand out to how your protocol is being.

D (40:54)

Used.

C (40:57)

Now really for now and that's actually what we are planning to expand into in 2026 is if you look at how to generate a yield in defi today you have the lending protocols, the Ave, the morpho, the Camino, the compound of the world. But then the rate is just a repo market. There is maybe less risk than what you want to absorb. And so the rate is, let's call it from 4 to 8% and we have plenty of people that are asking well I want something more than 10% at least. But those are different kind of product. And usually those products are kind of black boxes like Stream Finance which was quite black box, completely black box because the money was taking off chain. You have some basis trade product and you have new product coming in. But obviously it takes time for the market to understand what are good products, what are bad products, what is the product that match the risk appetite of everyone. So going in 2026 we will deploy new product to enable a new risk appetite for people that want. For instance, I'm willing to put my money for six months and I'm willing to take a bit more risk, let's say just a duration risk. So the fact that my money might be liquid and so that should drive a higher yield on as a reward for those users. We also see actually the increase of real world asset.

B (42:25)

I'm sorry, the increase of what?

C (42:28)

Of real world assets. RWA where people can start. Exactly. Yeah, but it's still quite early.

B (42:38)

Yeah, I was, I was going. Yeah, yeah, I was going to ask about that because I know there was. I don't know if controversy is the right word but there was, but there was some discussion about one particular I think tokenized credit fund on your platform. That that had to be I guess devalued a slight amount because the, the underlying asset itself which was being tokenized gotten marked down maybe. Why don't you just talk about that now? What does all that mean? Stoke a lot of confusion but it Also comes, I think with the territory of trying to tokenize what is inherently an illiquid asset, or I guess largely illiquid asset that you're trying to make liquid. But maybe just kind of walk us through what happened there. And I know that there are some other tokenized credit funds. Apollo has one with securitized in Hamilton Lane. And these products have had a bit of trouble getting a lot of traction because of their inherent liquidity. So maybe talk about that.

C (43:36)

Yeah, sure. So the product in question is Midas MF1. That is a tokenized version of Fazanara F1, which is one of the fund of Fazenara which is an asset manager in London managing $5 billion specialized in private credit. What is a bit specific with this product is that compared to other tokenized private credit, you can go in atomically, you can deposit, I don't know, 10 million and you will get 10 million token of MF1 directly. To get out. There is a 10% liquidity sleeve so you can get out. Sometimes if there is liquidity you have a 1% haircut but you can get out immediately. Obviously when there is no liquidity then it's private credit and it takes 30 to 90 days to replenish the liquidity. So what was the event in question as you mentioned, is that the underlying fund, like many private credit had exposure to first brand which was one of the blow up and fraud this year. And so they marked down the fund by 2% recently. And the the main issue is that people were looking at the chart of MF1, it was just going up almost the same amount every day, plus of minus and then there was a drop. Now the issue is that in private credit because of the underlying kind of assets they have, it's a credit. So you are just marking every day you are accruing interest and when you have a default then you take the loss because you need to amortize or put a provision for the amount that you might lost because obviously there is a bankruptcy process and that will take quite some time. So it's a bit different because if you look at, I don't know, for instance High yield ETF or even JAA or Accred of Maproom which is one of the private credit on chain, the price fluctuates every day because there is some liquidity in tratry and they are using the price of this liquidity. But for the real illiquid private credit it's different. It's just you have an investment, you accrue every, every day and at some point when the fund administrator, which is a regulator, says well you should depreciate by X percent, then you deprecate by X percent and it was 2%. So it's also quite important to know that if you are an investor in this product, you are losing 2%. And but for instance, we are investor as well. And so even after the 2% loss we made 4% for the last six months. So it's still quite a good ROI. And if you are a lender, you are not losing any money if there is a lost loss of 2% because there is a haircut or over collateralization, meaning that even if the price decreased by 2,4% you are still good for your money and the borrower is still paying the interest.

B (46:42)

Yeah, there's, there's a bit of a buffer zone, but yeah, it just speaks to the complexity of, of, of these products. I mean ACRED is I think like what's called an interval fund where it doesn't have like daily liquidity, like, like an etf. But I forget all the. I actually wrote a story about this a few months ago where I think they can only Redeem Something like 5 or 10% of the total AUM on a quarterly basis. And if more people went out then it has to be sort of prorated. And that's sort of the puzzle that people like you are trying to solve when you're taking illiquid assets and put them on chain. But private credit is such a big market and it's only growing that I would imagine there's going to be many more bites of the apple coming. What are some of your key lessons learned from this particular instance? Either just like technically from a business point of view or even publicly from a messaging aspect, because a 2% drop in Bitcoin, that's nothing. But it certainly created a lot of panic among your users because of this and it seemed like there was a lot of misunderstanding. So what are your takeaways from this episode?

C (47:54)

So on the technical front, maybe on the valuation policy there should be some stuff that can be improved. Maybe, you know, the bankruptcy was two months ago, but obviously traffic is not working on 12 second interval. They are one month process. You need the fund admin, they need to analyze what's going on. We are, we live in crypto, we don't have time to analyze. I mean, you know, that's well better than me. You need to react fast. You don't have two days or two weeks to make an informed decision. So maybe we can improve on that front, obviously there is a lot of contractual obligation and regulatory obligation. So we cannot just say, well, let's change it. What was interesting and to relate those two events, MF1 losing 2% and stream finance losing more or less everything, I mean, blowing up. What is interesting is that Stream Finance was completely unregulated. It was someone on the other side and they just mishandled the money on the MF1 side, which is private credit. And as you mentioned, it's more complicated for people to understand. At least you have someone that is regulated. Fazenari is regulated, the fund administrator is regulated. So it's not like coming from nowhere and managed by random people on the Internet. Yet there is a lot of complexity because maybe we are using the word private credit. We didn't convey enough that there was a risk. I mean it was written in document that maybe the document was too big. And I think it's just the learning. You know, in 2020 at MakerDAO, some people wanted to use USDC as collateral for DAI, the stablecoin. And that was an outcry because how can we know that Circle is a serious company and that the money is there and it's not decentralized? Now, fast forward five years, does anyone still care that USDC is any risk? I mean in crypto at least no one cares. Everyone is using USDC more or less. So it's just social evolution of the ecosystem.

B (50:01)

Sorry, yeah, I was just making a joke. I mean notwithstanding March 2023, but. But I think we're. With regards to the USDC, but I understand the point you're trying to make. Let's look ahead a little bit more. I am curious given your intense focus on stablecoins. Genius act has been put into law, but it hasn't been fully enacted yet. What are you seeing in terms of growth and how are you positioning to really take advantage of what could be an explosion in the stablecoin field? Not just in the total value which could move into the trillions in a few years if you believe the U.S. treasury Secretary. But also lots of new types of issuers from like Wall street banks to maybe even fintechs and tech companies.

C (50:52)

Correct? Yes, we are speaking with most of them and as you know, they all have one particular problem is that they are not allowed to give a yield if they are genius compliant or MICA in Europe. And so view as a defi tool provider is that those users will want to have a yield. And so if they cannot get the yield of the underlying investment in T bills which is what genius stablecoin are doing. They will want to be able to lend their money and get yield or compensation this way. So we think it's a enormous opportunity for us to provide those kind of services and those tools to all stablecoin issuer we are speaking with with most I see a few, few issues is that currently we still have a lot of stable coin coming on the market which are not all compatible or fungible between each other. Some, some. Some stablecoin issuer like I think Agora, M0 or Stripe are providing white label stable coins so you can have your own stable coin but it's fungible with the rest of their own ecosystem. So that's one solution. But I think we need to crack how to make sure that we don't end up with 1000 stable coins that are not one to one all the time. So I think that's. That will be challenging. Yes. And then we will provide and support as much stablecoin as we can to provide the user of the stable coin to get a yield.

B (52:25)

I know that blockchains like Ark and Tempo are kind of still being built out and I would imagine that AAVEs and Morphos and compounds in the world will migrate over or those products will build their own defi lending protocols. I would imagine that you are looking to get onto those or even. I'm blanking on the name. Was it stable? The one that Tether has.

C (52:50)

Has also sponsored Stable and Plasma.

B (52:52)

Yeah, yeah. You're looking to integrate with those as well, correct?

C (52:58)

Yes. So every time there is a new chain, I mean the last one we integrated was a monad. If you go on morpho monad you will see there is only Stackers vault. We try to be as much everywhere as possible. Obviously it's quite an investment. So we cannot do everything. We will probably focus more on institutional chain, the like of Tempo, ARC and so on because we think we can provide the basic infrastructure. And as you mentioned, any stablecoin chain will need to have lending because the lending component is the basis of the financial ecosystem as we live today. If we remove repo, the repo market is a few trillion dollars of volume every day. So we need this to have a functioning stablecoin economy that's at least obvious takeouts.

B (53:47)

I also want to ask about. I don't think you deal with these and I mean they're just getting started with tokenized deposits. JP Morgan is already I guess piloting if that's the right term on base. And I've always, I understand the need for stable coins. But from a bank point of view, I guess I've always been sympathetic to the idea that tokenized deposits. Deposits are much are a much more capital efficient tool for banks than stable coins. They have to be fully collateralized whereas tokenized deposits are fractionalized. Is that something that you're looking to potentially integrate as well?

C (54:22)

Yeah. 100 so I would agree with you. I mean there are some nuance. If you look for instance the Euro convertible issued by stablecoin issued by General in France. The wall backing is just a bank deposit as the City General. So in that way it doesn't break too much. I think it was genius. It's more, it's less compatible. The idea as well is when you have to bank deposit is that you know who are the users and that has a big impact on the liquidity profile that you can apply on the asset side of your balance sheet. There was a lot of paper discussing this precious issue that if you are only providing stable coins or funding or being the the bank of stablecoin you cannot invest for long term because the liquidity might be needed quite, quite fast. So we, we, we love tokenized bank deposit as well. Currently as you mentioned it's super early GP Morgan launch one on in June on base but it's obviously more difficult. One of the key aspect of the blockchain is is a permissionless nature. That's why we have such a big capital pool on Ethereum, Solana and other blockchain because it's permissionless and anyone wherever they are they can play with each other and build the financial ecosystem. If you need to permission everyone obviously that way way slower than if you let people to create every day.

B (55:54)

Okay, and just. Just to wrap up here, I'm curious. I know you started to hint at some of your plans for 2026. I'd love for you either to expand on that a little bit more or just share any final thoughts that you have that we didn't have a chance to speak about.

C (56:10)

Yeah sure. So we have two targets in 2026. One which is developing new product that will be more for Volt V2. But I think Avi has something as well which you will have a yield curve. Currently everyone is landing for 12 seconds more or less and then the rate can go up or down. So it's a viable rate which is not very good if you want to plan for the next six months. So it will be able to land at six months. There was already a lot of protocols trying to do this but for some reasons I didn't find phone product market fit maybe because there was too small to to get the the size sufficient enough to to get something good. And the second part is the new new Stable coins non USD stablecoin We have launched Singapore Dollars vault recently. We have a long list of new vaults that we want to launch with a new stable coins that are not USD denominated and that will be interesting because we will be able to make cross currency repo and that could be something quite quite helping at least for for to have a better ecosystem on the blockchain. I live in France so I need euros so whatever I can do to create more fluidity or liquidity for the euro USD pair that's good. There is a lot of user of stable coins that are in emerging markets. They are using only USD. I mean maybe they want USD but I'm quite sure for the everyday life they would be fine with a local currency stablecoin.

B (57:44)

All right, well Sebastian thanks for coming on bits and Bits the interview. Look forward to tracking your progress and thank you to everybody for watching and listening.

D (57:57)

Welcome to this week's news recap. Let's begin. Do Kwon receives 15 year prison sentence Over Terra Collapse Terraform Labs co founder Do Kwon was sentenced to 15 years in prison by a federal judge in New York for orchestrating a sweeping crypto fraud tied to the collapse of the Terra USD stablecoin in May 2022. The sentence imposed by Judge Paul Engelmeier of the Southern District of New York exceeded the 12 year term sought by prosecutors and far surpassed the five year request from Quon's defense team. Quon pleaded guilty in August to conspiracy and wire fraud, admitting he knowingly misled investors about the stability of Terraform's products. Prosecutors said the scheme wiped out roughly $50 billion in market value over three days. Judge Engelmeier cited the scale of losses, the number of victims and Kwon's attempts to evade arrest using false passports as key factors in the decision. Calling aspects of his conduct despicable. Kwon must serve at least half of his sentence before seeking a transfer to South Korea, where he may still face additional charges. OCC Clears Path for stablecoin Issuers with Banking Charters US Banking regulators have taken a major step toward integrating stablecoins into the traditional financial system. The Office of the Comptroller of the Currency has granted conditional approval for national banking charters to five digital asset firms, including Circle and Ripple. Circle's First National Digital Currency bank and Ripple National Trust bank were approved as new entrants, while Bitgo Fidelity Digital Assets and Paxos Trust company Received conditional approval to convert their existing state charters. New entrants into the federal banking sector are good for consumers, the banking industry and the economy, said Comptroller of the Currency Jonathan V. Gould, citing increased competition and innovation. The approvals come as the stablecoin market has expanded rapidly, reaching $313 billion in 2025. Wall street builds safety net into Ripple's $500 million raise Bloomberg reported that Ripple's latest fundraising round drew some of the biggest names in finance, but only with unusually strong protections attached. In November, the company sold $500 million in shares at a $40 billion valuation to investors including Citadel securities and Fortress Investment Group, marking the largest valuation ever for a privately held digital asset firm, according to people familiar with the terms. Investors secured the right to sell their shares back to ripple after three or four years, with a guaranteed annualized return of 10%. If ripple opts to repurchase the shares itself, that return rises to 25%. The group also negotiated a liquidation preference that places them ahead of other shareholders and in a sale or bankruptcy. The structure reflects how some funds view Ripple as heavily tied to XRP, which accounted for roughly 90% of its net asset value in assessments by two participating firms. XRP has fallen more than 40% from its July peak, though Ripple continues to expand through acquisitions, including the $1.25 billion purchase of prime broker Hidden Road and a $1 billion deal for G Treasury. BlackRock advances bid for staked Ethereum ETF BlackRock has taken its first formal step toward launching a staked Ethereum Exchange traded fund, filing an S1 registration statement with the SEC for the proposed iShares Ethereum Staking Trust, or ETHB. The application would allow the firm to introduce a product that stakes between 70% and 90% of its ether holdings and pays out yield on a quarterly basis. A separate 19B4 filing from NASDAQ is still required to trigger the SEC's review clock. The move reflects a shift in regulatory posture under new SEC chair Paul Adkins, who has shown openness to staking features after earlier filings were forced to remove them under previous leadership. BlackRock's existing Ethereum fund holds roughly $11 billion in ether and will operate independently from the staked version. The filing arrives as Ethereum's staked supply reaches record levels. About $108 billion worth of ETH is now staked, representing 28% of total supply. Adkins outlines new boundaries for ICO oversight, SEC Chair Paul Adkins signaled a major shift in how initial coin offerings may be regulated in the US Stating that most token launches fall outside the agency's authority under his proposed token framework. Speaking at the Blockchain Association's annual policy summit, Adkins explained that his taxonomy breaks tokens into four categories network tokens, digital collectibles, digital tools and tokenized securities. ICOs transcend all four topics. Three of those areas are on the CFTC side, so we'll let them worry about that and we'll focus on tokenized securities, he said. Atkins emphasized that ICOs tied to network collectible or utility tokens should not be treated as securities. His comments align with the SEC's ongoing project crypto effort, which envisions exemptions and safe harbors for compliant token launches, airdrops and network rewards. The stance could pave the way for a resurgence in US ICO activity. Industry momentum is already building with Coinbase launching a new token offering platform in November after acquiring echo for $375 million. Gemini secures CFTC greenlight to launch US prediction markets Gemini has received approval from the Commodity Futures Trading Commission to introduce regulated prediction markets in the United States. The authorization grants Gemini Titan, an affiliate of the exchange, a designated contract market license and after a five year review process. Today's approval marks the culmination of a five year licensing process and the beginning of a new chapter for Gemini, CEO Tyler Winklevoss said, crediting the Trump administration for ending the Biden administration's war on crypto. The designation allows US Customers to trade event contracts directly through Gemini's Web platform, with mobile access expected later. Sample markets could include questions such as whether Bitcoin will finish the year above $200,000. The approval puts Gemini in direct competition with Kalshi and Polymarket, both of which have seen rising activity as regulators adopt a more permissive stance toward event based trading. CFTC launches pilot, letting crypto serve as derivatives collateral the Commodity Futures Trading Commission has introduced a new pilot program permitting regulated derivatives firms to use Bitcoin, ether and payment stablecoins such as USDC as margin collateral. Acting Chair Caroline Pham announced the initiative, saying it establishes clear guardrails to protect customer assets and provides enhanced CFTC monitoring and reporting. The program applies to approved Futures Commission merchants, which must meet strict oversight requirements for the first three months. Participating firms must deliver weekly disclosures on digital asset holdings and alert the agency to any issues. A separate no action letter also gives firms limited permission to hold certain digital assets in segregated customer accounts. The CFTC simultaneously withdrew a 2020 advisory that had restricted crypto collateral, calling it outdated in light of the GENIUS act. Updated guidance now covers tokenized real world assets, including Treasuries, which must still satisfy enforceability, custody and valuation standards. Circle unveils Privacy Enhanced USDCX for institutional use Circle is developing a new privacy preserving stablecoin usdcx, designed for banks and other institutional users that require confidentiality while maintaining regulatory transparency. The asset is fully backed one to one by standard USDC and issued through Circle's X Reserve system, but transactions take place on the privacy focused Aleo blockchain using zero knowledge cryptography. This setup conceals details such as sender, receiver and transfer amounts from public view. Despite the added privacy, USDCX is not anonymous. Each transaction generates a compliance record accessible to Circle and if requested by regulators or law enforcement. USDCX is live on Aleo's Testnet and is expected to move to Mainnet around late January. Circle says the model could support use cases ranging from corporate payments to cross border remittances with interoperability across other USDC networks planned Farcaster retreats from Social first vision refocuses on wallet growth Prominent decentralized social platform, Farcaster is stepping back from its years long push to build a Twitter style network, with co founder Dan Romero announcing that the team will shift future development toward its in App Wallet. Romero said, we tried social first for 4.5 years. It didn't work for us. Wallet has been growing so we're doubling down on that direction. Romero said the wallet, launched earlier this year, has accelerated faster than any prior product. We think it's the closest we've been to product market fit in five years, he added. The new strategy inverts Farcaster's original approach. Rather than adding a wallet to a stagnant social layer, the team will layer social features onto a tool users already find useful. The shift follows Farcaster's acquisition of Clanker, an AI driven token launchpad, signaling a deeper pivot toward on chain utilities. Community reaction has been mixed as the protocol posted $1.84 million in fourth quarter earnings, down 85% year over year. ETF proposal bets on Bitcoin's night owl behavior A boutique wealth manager is leaning into one of Bitcoin's quirkiest patterns with a newly proposed exchange traded fund designed to hold BTC only while most of America is asleep. Nicholas Financial has filed with the SEC for the Nicholas Bitcoin and Treasury's After Dark ETF, a product that would buy Bitcoin at 4pm ET right as U.S. markets close and sell it again before the opening bell at 9:30am rotating into short term Treasuries during the day. The strategy hinges on data showing Bitcoin tends to post stronger returns outside regular US Trading hours. BTC has been more likely to trade in the green overnight over the past year, while daytime sessions skew negative. Bloomberg's Eric Baltunas said similar patterns appeared in 2024 and may reflect ETF flows and derivatives positioning. If approved, the After Dark fund would add a playful yet data driven twist to bitcoin investing by treating time of day as a core part of its strategy. Time for fun bits the banana meme strikes back Crypto never misses a plot twist, but this week's headline belonged to a fruit after Binance admitted it had suspended an employee for allegedly using official accounts to hype a freshly minted token. The wonderfully named Year of the Yellow Fruit went up because, of course, it did. According to Binance, the employee posted promotional images less than a minute after the token appeared on chain, which is either impressive reaction time or a dead giveaway. The exchange called it abuse of their position for personal gain, contacted authorities and reminded everyone about its zero tolerance policy. Traders, meanwhile, saw the words insider trading and apparently read Buy now, sending the tiny meme coin to a new high in crypto. Even the scandal pumps.