Joshua Lim (2:52)

Yeah, happy to be here. I run the trading business at Falconex, which is a global prime broker and trading shop. We provide liquidity across a broad range of markets and also bilaterally directly with counterparties, mostly consisting of hedge funds and venture firms, high net worth individuals nowadays, a lot of corporate treasuries as well. Um, but yeah, mo most almost entirely institutional customers.

Steve Ehrlich (3:19)

Okay, all right, great. And it looks like Rahm Alawalia, maester of Lumina is, is joining us. So. Welcome, welcome, Ram. We have a.

Ryan Yee (3:29)

A full crew here today.

Ram Alawalia (3:31)

My favorite people. This is great. We had Josh and Austin together and Steve. This is amazing.

Steve Ehrlich (3:36)

And I, I have to admit I, I'm. I'm really happy to be here with all you guys because I'm on pins and needles about the baseball playoffs and the Phillies start in an hour and a half and this is.

Austin Campbell (3:45)

So we distract you for a little.

Steve Ehrlich (3:47)

Yeah, this is. And they're already down 1 0. So this is keeping. All right here.

Austin Campbell (3:51)

I'm going to give you a life look at Steve in about one to two hours.

Steve Ehrlich (3:55)

Yeah, probably. As always, nothing that we say here is meant to be investment or financial advice. For full disclosures, please check out our website, Unchained, crypto.com, backslash bits and bips. And with that, away we go. Josh, let's start with you. You just came back from asia from, from 2049 and some other events. Good time to be out there because last week we were here talking about October and whether or not it was going to live up to its reputation. So far, so good. So what were some of the key themes that you saw out there?

Joshua Lim (4:36)

For sure. It was pretty exhilarating to be out there. Honestly. It's something I do every year to try to get a good sense of what's happening in a part of the world that I don't normally have a lot of visibility into. And yeah, this year there are a couple of major themes that were emerging. I will say it started off in a pretty rocky way. Right. Because a lot of us were out there at the end of September for the Korea Blockchain Week. So obviously a lot of people were positioned pretty long going into those two set of conferences. Korea Blockchain Week and Token 2049 in Singapore. Unfortunately, that coincided with some End of month de risking at the end of September. So we saw a lot of names actually get hit pretty hard. I think a lot of people were liquidated on the way down and then that obviously set up a good base for the recovery rally going into token and some of the major themes there that were emerging. So yeah, I just want to call out that there was a little bit of maybe people positional over their ski tips at the end of SAP. What we've seen since obviously has been extremely bullish and it kind of reinforces some of the things that I learned at the conference. So one big thing is everyone is sort of all in on this bitcoin to some extent, like ETH and a few of the other major Solana as a way to get away from the US dollar, basically the dollar debasement trade. And in many ways crypto is lagging gold and equities to all time highs. And of course we got it today, right. Bitcoin hit a new high of 126k and that was a long time in the making and it really took a lot of, maybe even geopolitical wobbles to get us there, including some of the turmoil overseas. You had the Japane and the French Prime Minister resigning. And of course here closer to home we have the US government shutdown kind of overhanging all of us. I think that's sort of the big theme, right? There's this sort of asset that doesn't have any sort of sovereign overhang. It can operate sort of independently, it's uncensorable and it serves as a way to sort of protect your assets against inflation. So that's been a big theme that we're seeing. And the rotation is really just starting now with the Bitcoin on that side and then on the sort of like top 10 alts, right? Like the theme was around upcoming ETF listings. You already have the tailwind from the DATs, the digital asset treasury trade. A lot of inflows coming in from there and we're seeing a lot of the sort of second order effects, right? So once all these assets are sitting in the etf, sitting in these digital asset treasuries, what benefits? It's really things like lending protocols, things like staking tokens, LSTs, all of these things are going to be ways to deploy capital for these treasury managers directly on chain. You've already had a couple of the more forward thinking managers pretty explicitly say they're going to take those Solana or those ETH and deploy them in some yield generating way. So we're seeing a lot of that. It starts obviously in the more kind of benign ways like trading options with, with a regulated counterparty or on exchange or, you know, CME options, things like that. But then, but then it can become much more complicated or in some ways much simpler. Right. Like if you're just taking an asset and you're generating in a protocol native way, generating yield in a protocol native way, that's something that is justifiable and pretty easy to explain as a, as a, you know, cio. Those are some of the high level things. I mean, there's a lot of things going on under the hood. Right. There's the rotation trade happening into stablecoin governance tokens like Athena and some of the other ones we heard repeatedly. There are a lot of funds that have historically operated as market neutral vehicles or quant strategies that were thinking about launching more complex, actively managed strategies under the guise of a stable coin wrapper or some kind of stable value on chain, you know, token. There's also a lot of focus on perp Dexs. We kind of saw that with the explosion of Aster as a competitor to hyper liquid. But there's maybe three or four other tokens that have seen a healthy appreciation like 3 or 4x from pre Asia conference levels. And a lot of this is just, it's really hot money that's kind of rotating across these assets. It's really money that would have been in meme coins not that long ago. Right. Like kind of things that we're launching on pump Fun. But there is this now this sort of renewed interest on like the revenue meta of investing in crypto, which as most tradfi people just call investing. There's a lot of that happening right now and a lot of rotation going to tokens that could potentially generate revenue from actual utility. So that's. That's kind of exciting. Yeah. Those are kind of the main themes.

Steve Ehrlich (9:51)

Yeah. All right, let's pour one out for the meme coins real quick. I want to go to Ron, but before Josh, your team came out with a report that was talking, I guess it was today or yesterday about how the options market is now driving spot price when it comes to bitcoin. I was hoping you could just briefly touch on that.

Joshua Lim (10:13)

Sure. I mean, it's pretty clear that there's endless appetite for options in Bitcoin, particularly like you can kind of see it in the growth of IBIT options oi, which surprisingly in a year and a half has exceeded the open interest on Deribit. So there's just a lot of demand out there for people to use these instruments to hedge and also to generate yield. We're starting to see pretty significant movements going into major expirations. So like that end of month expiration in September is a meaningful one to take note of. Right. There were several billion dollars of options that rolled off at that point. And it's really every quarter you see a lot of those options roll off and that is generally going to have some volume increasing impact because a lot of the options that have been sold into those expiries as they roll off, there's a lot less gamma supply within dealer hands. So meaning like dealers that own a lot of options no longer own them. And so it really loosens up the market a little bit for the spot price to move higher or lower dramatically like post expiry. So that's kind of like one theme that we're seeing is I would say if you asked me a couple of years ago, I would have said not a chance. You know, the spot market and the perp market is a lot deeper than the options market. But we're at a point now where that's having some meaningful impact on spot prices.

Steve Ehrlich (11:38)

Got it.

Austin Campbell (11:39)

So I would also hop in here to say as we think about that sort of dynamic, if you want to see clues as to where that activity is coming from, we see the same, same thing in a lot of stocks that US retail like to trade in the United States. Because especially when you're looking at relatively short dated option expiries that constantly roll out dealers. Exactly. As Josh was talking about, you see that phenomenon driven by US Retail specifically. I mean we saw the same thing in the whole GameStop and then after phenomena with retail stock trading. And it should just tell people something about, call it bitcoin entering into a new regime compared to a lot of the other tokens that we're dealing with. Like I would tell you at this point, bitcoin is mainstream now. Right. You're starting to see retail trading, you're starting to see institutional trading. You've got all of the crypto natives trading it. Like this is disseminating into the world in a way that maybe we're not seeing yet. Josh, I'd be curious as to your opinion with a lot of the other tokens.

Joshua Lim (12:39)

Yeah, I mean not yet. Right. There is a robust all coin options market, but that all exists in crypto world, not in tradfi world. Maybe the closest thing that trades without much interest is like microstrategy because there's that MicroStrategy Yield ETF that sells a bunch of options on MicroStrategy stock. But yeah, like other altcoins, not really as much.

Steve Ehrlich (13:04)

All right, cool. So Ram, let's come to you. Josh mentioned the debasement trade. That is a very nice segue to a debate that you had with Vinnie last week that was very well received on sort of the competing merits between gold and the S&P 500. And sort of like unstated within that whole debate is where bitcoin fits in. Gold still going up, Bitcoin's still going up. Stocks are still doing well. About four or five days since that debate, Bitcoin hit all time highs. What are your kind of takeaways from that conversation and, and what are you seeing right now?

Ram Alawalia (13:40)

Yeah, well, I think Vinnie's up two days in a row on that gold versus S and P. So I don't mind holding myself accountable to this. I got nine, got eight months and 28 days to go.

Steve Ehrlich (13:50)

Yeah, you still have a while. For anyone who has it, who did not listen yet rom bet Vinnie $10,000 that the S and P would beat gold over the nine funds from from Thursday to late July 4th.

Ram Alawalia (14:07)

Late momentum moves. You often kind of see that as, as Josh and Austin know, too late momentum moves, they keep going up and up and up and up and then that's it. So timing, this is always hard. Timing is always hard. But this is a chart of, on the topic of debasement is USD jpy. So the funny thing about this is a trade, this is a sorry US dollar, Japanese yen. I could tell you a similar story for dxy which is like a trade weighted approach, look at the dollar. But the headline around this is that actually the dollar is increasing in value. So the debasement trade is a trade that's alive and well, but it's actually not about dollar debasement. It's a narrative that got momentum and legs underneath it and it's continuing. That's it. Which is fine. That doesn't make the rally less legitimate, actually. You start with an idea and a concept gets rooted in people's minds and then assets start to attract momentum and it keeps continuing. I see the same phenomenon, small caps. It started as rates compressing and companies can refi. Now those assets have momentum and they're going to keep rallying. Even though the 10 years come down to 4%, it's kind of leveled out here. So I don't think this is really a debasement trade. People like to call it that, what it Is it's an asset revaluation. This is animal spirits, this is excitement. We're entering the fourth quarter now and things could get really nutty here. In a bullish way. In a bullish way. So it's really. People are marking up each other's bags is what asset revaluation is. That's what that means, right? Someone moved into the neighborhood and they decided to spend 30% more on the house in the neighborhood. So all the houses are worth more. And everyone's agreeing each other's houses are worth that much. So everyone's wealthier as a result. That's what markets do. That's how markets create wealth.

Steve Ehrlich (16:05)

Do you see it as just animal spirits or is there anything more substantive behind it?

Ram Alawalia (16:10)

And a couple other drivers, of course.

Steve Ehrlich (16:12)

Of course.

Ram Alawalia (16:13)

I mean, I mean this is. What's the mean for this? Like the right meme is the person in the face who's in anguish and smiling or whatever. One of those things. Like this is a pain trade rally. It is a hated non consensus rally where a lot of people look, I saw a study, we see a study come up once a month where people interview on the, you know, what's your view of the economy? And if you're Democrat you think the world is ending. If you're Republican, you're like, oh wow, this has never been better. It's only getting better. We're addressing issues and the people on the Republican side are optimistic about the future. People on the Democrats that are not. Historically we haven't seen this. We go back like 10 years before, we haven't really seen that. Maybe we have during the George Bush era, I don't know. But historically, to my knowledge, we haven't quite seen that. Austin will correct me on the history if I'm wrong around that. But over overall, this is a people caught offsides story, right? They, they studied in school, tariffs were bad. The cause of the Great Depression was tariffs and now they're offsides. And you know, you see it like objectively, immeasurably, in long short positioning. For example, which is the data set I look at like every week. And the Percentile exposure is 50% percent of their historical three year exposure, meaning they're underinvested while markets are hitting all time highs. So they have to buy every dip. If they don't buy a dip, they look silly to their LPs. Why don't you buy the dip? Like if they could go back in time and get long stocks, they would. So it is a. When you look at a Chart what you're seeing is emotion and anguish driving this higher. The other thing I would say to this, it's a really interesting diet. I have so many cross cutting dynamics that are at work in this market. Here's another one. So the consensus earnings expectations, the S and P have been steadily coming down over the last month and a half just as credit spreads have widened and there's been fear around non farm payrolls and are we in another recession which is not going to happen. Okay. But probably you're going to see earnings beat that 6%. You know, last quarter earnings came in year over year, like 12%. So suddenly we think that we're in advance one quarter and year over year we're going to drop to 6%. No, no, no, that's not going to happen. We're going to hit 10% or 12% again. So all that's super constructive. All that's very constructive. So it is an interesting time though because you're seeing these like you saw the AMD deal this morning, right? OpenAI got like 10% of the AMD. I want to dig into that transaction more closely. Essentially AMD gets an anchor customer for their inference chips in OpenAI and OpenAI gets 10% of AMD. AMD stock went up and OpenAI has got these warrants, I guess so their stock theoretically has gone up too. Usually there's a loser in one of these trades, but both went up. It's that kind of market. It's a funny market.

Steve Ehrlich (19:11)

Right.

Ram Alawalia (19:11)

So yeah, look, I think you might have a scenario like we're at Q4. I could, I could see S&P above 7,000 by year end. I could totally see that. I do think dips will be bought. There's a lot of local over positioning and Monday rallies are, are kind of like shitty rallies to be honest. Or don't over read into them. I think it's good to have Josh as you because Josh is from Falcon X. I don't know if he had a chance to introduce Falcon X. But like you're at the flows and you're, you're helping to cross markets and you're seeing what institutions are doing, I think. So you provide a lot of good market color there. And I always like talking to people like Josh regularly because it's a different data input than you might not ordinarily get. Just looking at like research and other elements there.

Steve Ehrlich (20:03)

Ram, don't give away all my reporting secrets.

Ram Alawalia (20:06)

You got it? Mum is the word.

Joshua Lim (20:09)

Yeah, we went into it a little bit at the top of the call. But I honestly feel like the amount of excitement and, you know, almost, almost euphoria in crypto is it's near a high for the year and I mean, mirroring the price action. But I think it's partially because there are ways to outperform now just given the amount of sectoral rotation happening within crypto assets themselves. So it's like these fund managers could, historically could outperform by just being ahead of the trends and sort of like hearing things quote unquote from other people and moving capital faster. And those opportunities exist again. Right. We already talked about the stablecoin trade and the perp Dexes, but even in the last couple of days, you saw this new emerging narrative around privacy tokens, which has really gone unnoticed by a lot of people. Unless you're kind of deep in the weeds and you're kind of watching, you know, top 1,000 altcoins and seeing what's outperforming. You know, like things like Zcash is trading at like $160 and two weeks ago, it was like a $40 token. So these things that have been forgotten for five years or more are coming back. That's really exciting. Yeah, there's a lot of dispersion. Yeah, a lot of dispersion.

Ram Alawalia (21:39)

Do you see, like, back to euphoria? I mean, that's one of the things I always look for as a sign of like market cap. I don't think we actually have that. If I look around just markets broadly, I don't see that. I think people have a lot of. There's still fear, there's still people off sides. But you made the qualifier in crypto markets. In crypto markets, yeah. So, you know, I think a lot of funds have lagged bitcoin in, in crypto. So what are they going to do now? Are they like forced in a performance pace now or like, what's their, you know, what are the top three moves? It's like revenue back to the DAT trade. Seems like it's mostly in the rear view mirror now, although some of them are really starting to work in recent months. But people have realized that, like, you don't need 97 DATs. You've just seen a handful of that liquidity and a good mean person to lead it. But are we actually at euphoria or is it an octave below Euphoria?

Joshua Lim (22:42)

Yeah, octave below is probably the right way to put it. It's almost like I could see a path towards later this year or even in Q1 of next year, like a Real blow off top type of move in crypto and we're not quite there yet. We just broke all time highs. Right. And the money, like you said, is not really in crypto and it hasn't been for the last year, two years it's been in equities. It's like all the speculative capital is trading meme stocks and AI and the quantum computing narrative and all this other stuff. And now you could see all that come flooding back into crypto and that will meaningfully move asset prices for our little corner to the world.

Steve Ehrlich (23:29)

Josh, what do you think is behind the privacy? I was actually just looking at zcash and Monero and Nims. Yeah, I think Rom, you know, maybe Austin, I've had my heart broken too many times over privacy coins because it's one of the things that I wish people valued more. And I actually wrote a story on zcash back when I was at Forbes and I know they didn't like it because we called them a zombie token, even though I said I was rooting for the project. And why is it's up 225% in the last two weeks, but the other tokens haven't moved all that much. I'm curious if there's something I'm missing because I would love.

Joshua Lim (24:09)

Yeah, there's a couple of things. There's like one is people now are realizing that the sky's the limit again when it comes to crypto valuations. For the longest time you're like, well, you know, can this, is this thing really worth like $10 billion? And you know, with, with hype trading where it is, and then like all these, these perp dexes starting to move again and people are realizing that like you can actually start putting the huge amounts of multiples on things that are revenue generating and then if it's not revenue generating, you can even put higher like L1 type valuations around things. So yeah, it's all coming back. I mean like this, these are things that have been forgotten, like you said, for many years, and they're all trading at 200,500 million FDV while there are new tokens that are gaining traction today that are like 10, 20 billion FDV, right? Think about something like plasma, right? Plasma just went live like a month ago and it's already achieved like a $10 billion FDV, right? So it's, it's one of these things where it's like we're all remembering again the animal spirits that happened, you know, last cycle and now we're Everything's getting rerated higher. I think that's a big part of it.

Steve Ehrlich (25:26)

Okay, cool. All right, Austin, what are your thoughts on what Josh just shared?

Austin Campbell (25:32)

Yeah, so as I was sort of noodling over Josh and what Ron was saying, I think there's a couple of things that are colliding narratives that are producing the current price action. So, one, especially when you look at bitcoin, bitcoin don't just look at the United States. Right. Like, it's important to remember the bid for bitcoin is global, and a lot of it historically has come out of Asia. So we just had kind of a surprising election result in Japan. And I will summarize the economic views of the new prime minister there as let's run it hot. And if you're looking at that and you're looking at bitcoin starting to go parabolic as you're having these sorts of moves, I. I do think there's a certain element in affecting, like, all of this, which is the debasement trade that we've been talking about. Right. It's important to remember, if we really believe it's the value of fiat money falling, then in price terms, everything should be rising. You know, witness, for instance, gold also, like, really cranking up at the highs that you see bitcoin following. Right. Two is, as Josh said, crypto this time around has not been the leader. Gold went first. Crypto is like backfilling into where gold and equities have already gone. And if you believe that, that means if you're an alt season person, we're going to see at least some of these, either old coins or some of the new ones, like say plasma or aster, start popping off occasionally as well. Like, that sort of price action is not totally shocking to me. And it's one of the things that I think people misunderstand when they make comparisons about these regimes. Like Rahm earlier brought up, like tariffs as the cause of the Great Depression. And I would remind people we were in a deflationary environment already after a credit shock at the time that tariffs were hitting in the Great Depression. And you could think of them as trying to defend the gold standard and preserve the value of money here. They're just throwing the value of money overboard. They're basically like, no, it's gonna. We're gonna just keep doing this. Nothing stops this trade. And so in that world, the correct answer is, you know, and I think we're seeing this in the options market as well. Get long hard assets and risk assets, probably Using moderate amounts of leverage. If you could borrow in like dollar denominated terms and go buy things like bitcoin. And as a result of that, as and as I look at the market action, I'm not seeing a lot of things in call it bitcoin or gold that yet speak to euphoria. Euphoria, right. Like we're not seeing like, you know, cab drivers being like, I'm retiring, I'm buying a condo, it's all over, like we're done levels of euphoria yet we're definitely in a bull market.

Steve Ehrlich (28:14)

You should have been looking to Vinnie on Thursday. Austin that that's where he was.

Austin Campbell (28:18)

Yeah, no, but we're in a bull market. All bull markets like climbed to some degree. Both a wall of worry and certain levels of optimism. The point at which, you know you're at euphoria is when all of the bears have capitulated and we're not there yet.

Ram Alawalia (28:33)

Yes, I agree, I agree. Just sharing a screen here again, this is the Invesco commodity index. And what you can see here is that it's really gone nowhere, you know, in a year. It's actually lower than levels we saw from 2022. So if you look at the holdings, this includes various commodities such as gold, silver, copy copper, corn, crude soybeans. So what's the point? The point here is that I contend this is actually not a dollar debasement rally. That's the narrative. Again, it doesn't disqualify the nature of the rally. Gold is rallying, but like oil is A$60 a barrel. If there's dollar debasement, then the core energy source source that runs the real economy should re be repricing higher. In real terms, it's not oils at $60 a barrel.

Steve Ehrlich (29:21)

Right.

Ram Alawalia (29:22)

This is momentum and traders and trends and trend following. That's what this is.

Steve Ehrlich (29:31)

What are, what do you see as the limits? Like what are the key thresholds look for next?

Ram Alawalia (29:38)

I think what Austin said is exactly right. When there's no bears anymore. When does Jim Chados cover his Bitcoin short or mstr? Sure, right. I mean, how is Ms. Do we got to check in on? Has someone sent a, like someone's got to do like a safety check or kind of a neighbor's got a visit knock.

Steve Ehrlich (29:57)

Well, they're all on this track. I think that's what you're looking for.

Ram Alawalia (29:59)

Like Jim, are you okay? Check, you know, send him a gift basket to his office. We can put in some calls in MSTR to hedge him out a Little bit. I would check on Jim Chanos. If Jim Chamos Chamos has to cover mstr, that would be. That would be actually when the short starts to work.

Steve Ehrlich (30:17)

But. But short of that, like, like, are we in like new price discovery mode? Are we just still in like a. Like a general, like.

Ram Alawalia (30:25)

I think it would be good to get Joshua perspective.

Austin Campbell (30:27)

I think.

Ram Alawalia (30:28)

I think you are. You're at all time highs and you're at all time highs.

Steve Ehrlich (30:32)

So.

Ram Alawalia (30:32)

Yes, that's what it's supposed to happen now.

Steve Ehrlich (30:35)

And.

Ram Alawalia (30:37)

That'S. Yeah.

Joshua Lim (30:38)

Yeah.

Ram Alawalia (30:39)

Every single day. You are now in price discovery.

Joshua Lim (30:43)

Yeah, I mean, I agree. I think by definition, right. We're through all time highs. People are trying to figure out where supply comes back in. And we've actually worked through a lot of supply issues in the last couple of months. There was very famously the $8 billion of stale coins from a long time ago that were sold into the market. And a lot more like that. Right. Just like old coins moving and getting liquidated and the markets absorbed all of that pretty well. We stayed well above really like the 110 level in Bitcoin throughout the summer. And I think we're at a point now where there is this latent demand for. Yeah, just. Just something that's not dollars, basically. I mean, yeah, maybe it's not a dollar debasement trade, but there's something happening. Yeah, yeah, there's. There's like a desire to get into real assets, like hard assets and things that are not necessarily tied to some of the political uncertainties around, like fiat.

Ram Alawalia (31:58)

Yeah, good. Yeah, this is.

Austin Campbell (32:00)

Yeah, I wanted to push back on a little bit of the like, momentum versus debasement thing to ro. I want to go back to what I said about this isn't only a US dollar trade. You are seeing things like food inflation in Japan. Right. So as we think about rerating, especially with regard to bitcoin, I would really urge people don't just look at dollar inflation for that one. Like, it is possible we're going to have different things going on in the US economy than elsewhere. And that could drive like more than stocks that could drive bitcoin. It is much harder for people in Asia to buy US Stocks size and like the retail level.

Joshua Lim (32:36)

Fiat to basement, maybe. If that's the right way to put it.

Ryan Yee (32:40)

Yeah.

Ram Alawalia (32:41)

Fiat to basement. You should still see commodities rally if that's the case though, versus dollar.

Ryan Yee (32:45)

Right?

Ram Alawalia (32:47)

Yeah. And certain commodities are like gold.

Steve Ehrlich (32:51)

What do you guys make of like this doomsday narrative that I'm seeing on Twitter? A little bit, which is why people are going into. Into bitcoin and gold. I think there was a report from ARCA that was talking about it. Is that just like cheap marketing speak and taking advantage of an opportunity, or do you think there's something there? It kind of speaks to Ron what you were talking about a little before that. People were kind of like clenching their jaws. They hate this rally, but they have to chase it.

Ram Alawalia (33:18)

I think everyone that needs to chase is late in buying power. That's what it is. So I think dips will be bought. There's a lot of change that's happening in the markets now, like you pointed out, Josh, like the IBIT options are larger than Deribit now, which is a massive statement, you know. So BlackRock has about $100 billion in Ibit now. So $100 billion worth of bitcoins in Ibit. They make 10 bips off of that. So you wonder, like, is Citadel making more money off of Ibit's options market than BlackRock? Maybe it could be.

Ryan Yee (33:53)

Right?

Ram Alawalia (33:53)

So there's. I mean, the ecosystem just starting to shift now is starting to center on Blockrock and their options market. Coinbase put in a bid to acquire Deribit. I don't know if that transaction closed.

Joshua Lim (34:04)

It's closed.

Ram Alawalia (34:05)

Yeah, it's closed.

Joshua Lim (34:06)

It's official. Deribit changed their official color scheme to blue.

Ram Alawalia (34:11)

Interesting. Have they opened up that market to retail investors or are they still going through cftc?

Ryan Yee (34:16)

It's international market still, right?

Joshua Lim (34:18)

International market, yeah. Not us yet.

Steve Ehrlich (34:22)

And what do you make of CME launching or Planning to launch 247 crypto futures and options? How does that fit in here?

Joshua Lim (34:29)

Yeah, it's not that much of a stretch. Right. I mean, they're just adding weekends, basically. It's big for traditional markets for sure. And I think that was the biggest crypto native angle that most firms had, was like, hey, we're opening our markets even on weekends for. For traders. And I mean, I also think that trading, like tradfi firms are going to hate trading weekends. They're going to have to hire more people to hire to cover Saturday, Sunday, things like that. But yeah, I mean, that's just the first step. I think the bigger thing will be when equities are going to be trading 24 7. And that's actually going to be a hard problem to solve for most people. I guess once, once there's like more venues that are trading around the clock, there'll be a natural base of liquidity. But right now it's like you know, where, where should some, some random like mid cap name in equities be trading on a Saturday that you know, especially if it's like linked to things that might be happening in geopolitical realm, it's anyone's guess, right? It's very tough.

Austin Campbell (35:41)

I, I would also say I think this aligns with the trend we're going to see across markets that while related to blockchain, is not specific to blockchain, which is things moving to 247 in general. Like there are a lot of places now that for instance have 24, 7 real time, like money movement. So one of the preconditions that you end up with for actual effective trading 247 is you need to be able to, I don't know, pay for something. Right. And so you get into this sort of iterative upgrade cycle whereas underlying money movement moves, then you tend to see trading instruments move because like, oh great, I can agree to a trade but can't settle anything for T +2. Kind of makes weekend trading like academically nice, but not nearly as powerful as it could be when also I could settle the trade at like 3am on a Saturday. Right. And so one of the things that blockchain technology is going to do to traditional markets. So if you're looking investing theses like people at the intersection of this, like the coinbases and the Robin Hoods and Citadel are all very interesting sort of objects to monitor, are the ones that could venerate or excuse me, like benefit from sort of this upgrade cycle across financial markets. Because I would tell you, my central opinion is 30 years forward, everything is trading 24 7.

Ram Alawalia (37:01)

Yeah. And it's the vision of NASDAQ. That's the direction of travel.

Joshua Lim (37:05)

The right meme here is the North Korean farmer meme. It's also tiresome if we're all going to be around the clock trading every asset in the world. No more breaks for traders, I suppose.

Ram Alawalia (37:19)

No good for cortisol level than sleep, not good for overall health.

Austin Campbell (37:26)

AI is going to be trading at all. Why are you guys worried?

Ram Alawalia (37:29)

AI will trade it all. Which is another way of saying Citadel again, right?

Steve Ehrlich (37:33)

So by the way, that story I wrote last week about zero gravity that I know has not made many friends in the crypto ecosystem. One of their value adds in that investor deck that we obtained is that they're going to use an AI agent to rebalance and manage the investing of the zero G tokens that they're putting into the machine or into the company.

Austin Campbell (37:57)

So what could possibly go wrong as somebody who's maybe helped at a place that had algorithmic trading strategies before, there.

Ram Alawalia (38:07)

Are a lot of venture funds that are raising money now. Venture funds know when to raise money. You raise money when everyone's in the money. And there's quite a few that have recently announced closes of new raises. That's good for the ecosystem, like longer term, right. There's more recycling of capital, goes back into the ecosystem. Never been a better year for them to do that. And they really couldn't have in the last few years. They didn't have much to show for it. Now they have points to show for it. But I do think the proliferation of DATs and all the rest, I thought. Josh, you're pointing around. Yeah, I think we are an octave below blow off top. But sometime in early next year, or maybe Q1 next year, or maybe towards year end, I think it's worthwhile to prepare for something like that. You know, there's just so much issuance out there. Like who. Who's not in? Who's not in that. Well, I guess there are people that aren't. There's really two segments of capital that the left behind crowd, that clenching teeth that are buying every dip and waiting for the cracks that doesn't show up right then. They're the folks that are in and have more confidence now because they're up a lot from the April lows and they just keep pressing it higher, right? So that momentum just keeps pressing higher and this crowd has to buy the dip and maybe they'll short. They get squeezed out and it goes higher. You look at like Quantum stocks, for example. I've talked to a number of money managers in the last week around these Quantum stocks. Virtually everyone I know is just waiting to short the hell out of these things. They're just waiting, but they aren't really doing it yet. Even myself, like, I'm in. I'm like, it's not working. Okay, get out, get out, get out. Just wait. You put a foot in it, it's not working. I'm out, I'm out. Right? But there is going to be some moment in the future where everyone has this recognition moment. We're like, oh, yeah, it's done, it's done, right? When does that happen? What does that moment look like? I would keep an eye out for that. That moment will happen on social media, though. That much I'm 100% sure of. But there's a meme this weekend about how they took the headquarters of all these Quantum stocks. You guys see this? They looked at the HQs of these quantum stocks. One's above a dry cleaner in midtown somewhere. These random buildings in the middle of nowhere. Clearly they're not indenting quantum cubit technology, you know, next to like the corner bodega.

Austin Campbell (40:38)

Right.

Ram Alawalia (40:39)

So you know, I thought gee like maybe that's the moment. But no, that's apparently not the moment. So it is, it is a real, it's a super interesting time right now. Definitely 2021 vibes. But I think yeah, between now and year end you should be, you should be bullish overall.

Austin Campbell (40:57)

I will remind people that the thing that cracked the original tech bubble was when the CEO Cisco finally guide it down. So again as you're looking for when are we in a blow off top? What are symptoms that were there? It's all the like bears have given up. The fact that Rob is still trying to short quantum stocks tells you that we have a way to go right? Like that as like indicative and has value because he's somebody who's thinking about these things that has not yet given up on how stupid the retail people are going to be pushing this to the moon and they have a lot more potential power to do that. But number two is insiders start to defect from the consensus, right? Like let me tell you what would crush the entire market right now is sailor comes out and goes I'm going to hold off buying for a while. I don't like how bitcoin looks. I'm not saying he will do that. But my point is like it's when insiders who have been part of the cycle guy down is another.

Ram Alawalia (41:52)

I agree. When insiders say enough is enough and this is stupid and we were the fanboys all along and we think this is silly. So there are two points, right? Like what broke the dot com cycle. One was missed earnings estimates and shifts in guidance to your point, that was one. The second one, like what started Black Friday, there was an article in Barron's and it just laid out how all these expectations were just silly and absurd and we didn't have social media then but it went the equivalent of going viral. The most widely read article Internet da da da. And that was like that recognition moment. And then people said okay, this thing is.

Steve Ehrlich (42:29)

Yeah, I feel like this case though we need to sort of like bifurcate crypto with tech and general tri fi.

Austin Campbell (42:37)

Because back to the bifurcation we were making earlier, I think these things are blending together a little more. And the correct bifurcation here is certainly bitcoin is behaving differently than a lot of the other tech stocks. Right. Like, I could totally see a world in which we hit this blow off top. And yet, because of, like, the backdrop, fiscally, bitcoin and gold continue to do fine, but it's a lot of the altcoins that get wrecked. So I'm just saying I would be careful about saying crypto is one thing at this point, at least, without taking.

Steve Ehrlich (43:08)

Fair enough. And that's a good clarification because I was actually going to talk specifically about bitcoin. I mean, we've all been in crypto for a long time, and I'm sure we all remember Black Thursday in 2020. I was a Kraken at that point in time. And I think bitcoin dropped, what, below 4,000 or something? And we were all furiously just trying to buy it because we're like, you know what, if it goes to zero, we're out of jobs anyway, and let's just go down with the ship. And I was angry at Coinbase because I hadn't bought in a little while and they didn't accept my credit card, so I wasn't able to buy anything. But there's just this religious fervor about bitcoin that, like, I. I can't. I mean, we're all joking when you talked about sailor capitulating, because there's just no way that would ever happen. There's just no one. Like, I know plenty of, like, bitcoin billionaires that have already said, like, I'll buy any bitcoin at a certain price. Like, if people want to sell out, like, it just has that. That type of religious fervor. But. But on the stocks that. I mean, sure, it's. And like, when that unravels, like, that thread gets pulled out or the pin gets pulled out of the grenade when all this stuff comes down, because nobody expects. I mean, Nvidia would be damned. No one expects them to be able to cash the checks that are being written right now in terms of earnings, I don't know. But there's that saying that being early is the same thing as being wrong. And how do you time that?

Ram Alawalia (44:30)

And you still have good catalysts ahead. Clarity act is still coming, right? Future IPOs that can happen. I think we've had one hell of a run in IPOs, and you're starting to see weak performance from IPOs, which is another kind of warning sign. Like, FIGMA had a big pop. Now it's down a lot from the pop. So when retail investors get burned on those bets that they're cut into. Then they become twice shy. So those are things to look for. But again it's also Q4 so they also know everyone's a trader now. Right. So it's going to go. It's like self fulfilling prophecy time, I think.

Steve Ehrlich (45:06)

Is Gemini still below its IPO price?

Ram Alawalia (45:09)

Oh, let's take a look.

Steve Ehrlich (45:11)

Because I feel like, I mean if they are, they're like the one outlier and they're a crypto firm.

Austin Campbell (45:16)

It's a ticker.

Steve Ehrlich (45:17)

I think it's G N N I.

Austin Campbell (45:19)

M I G E M I.

Ram Alawalia (45:22)

It says Gemini Space station. Yeah, I thought I saw a second. If you put.

Joshua Lim (45:29)

I think it's still up.

Steve Ehrlich (45:31)

I know depth, but I don't know, I haven't.

Ram Alawalia (45:33)

It depends how you measure it. Like there's the IPO price then the close of the opening day. Man, I don't know what it opened up at.

Austin Campbell (45:41)

So what we're saying is it's gone sideways. Right.

Ram Alawalia (45:44)

So you got, you got this, you've got circle which hasn't hit their unlock yet. This could add future pressure. You know, the unlock is like six months. Obviously it was a great ipo. But then you know, you can see it still hasn't approached the unlock yet. You know, core weave went through this process already. It's on the other side of that. I'll show you a quick example. This is core weave. The unlock date was this day here, September 3rd. See that big red line there? That was also the bottom right now it's up like 30% or whatever. The price changed since then. So that's going to happen for some of these recent IPOs in call it like four to five months time because it's some of these issued a few months ago. So that puts you into like Q1 next year.

Steve Ehrlich (46:31)

Are those good short opportunities for, for companies, people that don't want to get caught up.

Ram Alawalia (46:36)

Oh, I wouldn't do it now. I wouldn't do it now. That's in the later bucket. And if you do that you should position size very small.

Ryan Yee (46:44)

Okay.

Austin Campbell (46:45)

Or, or you've, or you've got to be offsetting with other stuff like circle is an interesting case there because it's not clear how much of their revenue they retain long term. Like there's a of lot a lot of competitive trends like working both for and against them simultaneously. I would certainly say it's not an obvious short, you know, but kind of in the same way like so to go back to our bitcoin comments, like actually there's a really obvious time to Short Bitcoin, if it ever happens. And that's when the US government gets serious about the deficit and balancing the budget. That's when bitcoin's going to get shelled because the debasement trade is over. But until that happens, that's not a thing. And so it's important to understand like, what is the fundamental story here. For me, what would spook me about Circle is either rates going precipitously down because that's driving the majority of their profitability right now, or thanks to Genius, we actually see people coming in with distribution at scale who just start absolutely clubbing them, right? Like if Amazon partners with somebody, it does a stable coin, I'm terrified for certain.

Ram Alawalia (47:52)

Well, that's going to happen, right? They're going to internalize their own stablecoin. Walmart's going to attempt to internalize as much as they can. Right, the big banks. I think Circle is in a tough position for all those reasons, like competition's coming. So it's almost an axiom after Newman's Third Law, like stablecoin competition is coming.

Steve Ehrlich (48:11)

I'm really interested to see what Stripe does if they decide to launch their own, launch their own stable coin to sort of be natively or be native to their, what's it called? Tempo, their blockchain. I know they created a white label service to let their clients do it, but there's just so much money in running stable coins. I mean, I'm guessing they're going to take a cut of whatever, whatever white label stable coins they help create, but it seems like a very easy way for them to leverage their scale before they let someone else do it for them.

Austin Campbell (48:43)

They, they have an ability to do some things there that people like Amazon don't though, right? Like I'll remind everybody in the Genius act, if you're a publicly traded non financial company, you're prohibited from having a stable coin without some pretty exceptional approvals that I have doubts will be granted to anybody. And what that means is so Amazon will be white labeling somebody's stable coin and or just using somebody else's. And by the way, that's not to say they're not going to strike a deal like Coinbase has with Circle to take a huge amount of the economics. I think they totally will. Because the lesson of stable coins so far is that distribution is king. But what it also means is these things are going to be more either interoperable or fungible that people expect. We're really building another base layer for money. Back to my earlier comments on 24.7money movement. And so as you're looking at where the value accrues and part of why I look at Circle and I'm like, I have questions is I'm not sure that goes to call it the public utility layer. It might end up going, I 100 agree.

Ram Alawalia (49:45)

So Amazon will pick a coin other than circle because Amazon wants to be a super app, Coinbase wants to be a super app. So they're competitors. So you're right. And you're right, Austin's right. Amazon will king make some other stablecoin issuer. Who is it? Is it Paxos?

Steve Ehrlich (50:00)

I don't know.

Ram Alawalia (50:01)

Those are interesting things to think about. Like maybe it's Paxos, I don't know or de novo entity that is focused on meeting the needs of Amazon and their peer groups.

Steve Ehrlich (50:12)

Maybe Amazon would just auction off the ticker AMZN or USD AMZN and then just see what happens there. All right, so one other thing I wanted to ask about maybe Austin, this is again, I want to start with you, Coinbase applying for a banking license license. What's the play you see there?

Austin Campbell (50:32)

So I will note specifically Coinbase is applying for a trust bank license. Like it's important. Banks are not monolithic. There are a lot of different subspecies within the family, so to speak. That to me feels like Coinbase is looking at custodial applications, they're looking at clearing applications. And if you're a company that's expecting everything will be tokenized, you're like, yeah, and I want to be the guy holding all the that stuff or like doing all of the transit work. This is exactly the kind of license you would get. They're not going to become an idi, AKA insured depository institution where they're going to be going and getting FDIC insurance and like ticket tail deposits through that thing. So like let's be very specific about what they're doing there. But it tells me, back to your super app point that Coinbase is thinking of themselves as how do I start getting myself into the conversation of taking our sort of 1970s era paperwork crisis band aid solutions and massively upgrading them. And I want to be standing in the nexus of that.

Steve Ehrlich (51:38)

Do you guys have any thoughts, Josh or Rahmad?

Ram Alawalia (51:41)

Yeah, I think I agree. Look, it's a payments play. Brian Armstrong, CEO of Coinbase has always been focused on payments and I think the OCC license helps them in payments. There's 200 other fintechs that want an OCC charter too. It's It's a highly coveted thing and the administration will be granting dozens of these OCC licenses. You know, a few years ago it was just Anchorage, I think one other bank that got the occ. Think about how hard it was to get an OCC chartered OCC charter. Now you're going to have dozens and dozens and dozens. And I think they're trying to issue as many as they can before the midterms. So if you want to get something done with the bank and a bank license, now's the time.

Steve Ehrlich (52:24)

Yeah. One other thing that caught my eye too. Galaxy kind of launching a retail focus like trading and savings app. That wasn't something. I guess maybe I was mistaken, but that wasn't something. And I necessarily saw my bingo card. They have a.

Ram Alawalia (52:38)

What's going on there? What's going on there?

Steve Ehrlich (52:41)

I don't know.

Ram Alawalia (52:42)

Or you're retail or you're both or.

Joshua Lim (52:44)

You'Re an AI data center company.

Ram Alawalia (52:49)

The Galaxy story is first of all it's been a great asset. It's done incredibly well. Like hats off to Mike Novogratz on the team. We have many favorite people there like, like Alex Thorne who's been on the show. We'll have back on again. But there's so many things going on here. Right. Like you could tell in storm by a trader. These are traders operate. Right. Traders like hot thing go AI data center, Bitcoin miner thing. Let's get that one too. Retail trading up. I'll have some of that. When can I issue stablecoin? It's a trader on organization.

Steve Ehrlich (53:19)

Yeah, yeah, it's.

Austin Campbell (53:21)

So what we're saying is Galaxy is the super app.

Steve Ehrlich (53:24)

I guess they're trying to. It's curious. I mean they hired Zach Prince a little while ago.

Ram Alawalia (53:28)

I mean, I mean founder of BlockFi.

Steve Ehrlich (53:30)

Yeah. This is kind of like what he did at BlockFi. And I mean notwithstanding everything that happened with Blockfi, he built a really good consumer brand that had a lot of loyalty. So I wonder how much of a role he had in putting this out. But it costs a lot of money to build. I mean not to build a retail brand but to actually market it and get that client base. I'm curious to know what the economics were of that and how they have.

Ram Alawalia (54:00)

Shareholders and those shareholders can be customers. And this is what we've seen with Robinhood. Customers are shareholders, shareholders, customer. It's read, write, own.

Joshua Lim (54:09)

Well, I think it's a little different. Right. This is maybe more akin to Goldman Sachs trying to launch a retail operation with the. With you know, acquiring like retail deposits and then the credit card stuff, which, like, I don't know. I think if you ask like people internally at Goldman, I think it's like pretty mixed reviews fundamentally.

Ram Alawalia (54:28)

Well, Goldman's Marcus foray into retail is a complete failure and disaster. They could go back in time and not do what they would credit card business that they do with Apple to Citibank, it was off customer. It made no sense at all.

Joshua Lim (54:43)

And by the way, that's the analog, right? Like if you talk to Novo, that's what he thinks of Galaxy as the Goldman of crypto.

Austin Campbell (54:51)

But I would pause people here and remind everybody, part of why Marcus was such a fiasco is something Galaxy doesn't have to deal with, which is the entity segregation rules that you're dealing with for customer deposit taking when you're a bank. That is one that I think is very, very niche. Because unless you're a very specific kind of commercial bank that also has a large trading arm, it's hard to wrap your arms around how brain damaging it is to try to do that thing. But like people who had done that kind of looked at Marcus from day one and are like got to do with like, does Goldman intend to build a consumer lending franchise? Because otherwise, I'll tell you what, the.

Steve Ehrlich (55:31)

Austin I was at Citibank when they announced it. I was in cities like retail bank. And people were scared because notwithstanding everything you said, because they know how banking works and how things have to be segregated. But just Goldman's brand as being the smart person investment bank where they could pick whoever they wanted for business schools and stuff. And now they're getting into retail and that's where the money's going to be made. And this was like what, 2018, 2019, whatever it was, they launched it. People were nervous about that. Did not be a huge fiasco like it was.

Austin Campbell (56:06)

I will contra that and say somebody who's quite senior in J.P. morgan, who's a friend, texted me the day the Marcus announcement came out and the exact quotas they're grants.

Ram Alawalia (56:18)

Yeah, I mean it was a complete failure of execution. I mean, I remember those original slides. They were forecasting a return of assets of 3.5% from that business. Never came close to that complete failure. It was ego over kind of humility. But back on Galaxy, so I hear your point, Josh, you're saying, look, doesn't Novo hold Galaxy out as Goldman for crypto? Look, Galaxy's a meme stock why current shareholders adopt the app. That's all I'm saying.

Steve Ehrlich (56:46)

Okay, all right, so Good discussion. Let's start to wrap up. Josh. One of the things I like to do when I, when I get to host is ask all of my panelists to kind of either share something that was left on the cutting room floor or just a contrarian opinion, something that they'd like to highlight. Curious what you think. Or again, as Ron was saying, before you really have a visit, you really have visibility by being a Falcon X into like what the smart people are doing right now in this market. Would love it perhaps if you could share like one or two things that maybe you're seeing or especially if they're not obvious tokens or strategies.

Joshua Lim (57:29)

Sure, yeah. I mean, I think I got a lot of questions while in Asia.

Ryan Yee (57:36)

How.

Joshua Lim (57:36)

Does the cycle end? And I think it's going to be pretty different than last cycle. Right. So if you think about last cycle and coming back to BlockFi and the question, and you know, of, of. Of retail deposits basically funding, you know, larger trading operations, that was the main kind of downfall for the last cycle is that the, the leverage that was afforded by retail deposits in sort of like undersecured lending, you know, that became like pretty endemic to crypto. And I think this cycle is going to be pretty different. And also if you think about last cycle, like Defi was sort of untouched in a way, like Defi was pristine and performed the way it was intended to. Things like AAVE worked just fine throughout the process of unwinding the leverage. I think this cycle is going to be different and I think it's going to surprise a lot of people. But things like DATS are not inherently that levered. There's some of the treasuries that have converts on them and people raise that as a point to say this is kind of concerning and it's going to be the cause of the next cycle unwind. I kind of don't believe it. I think there are some of these equities that do carry debt, but they're being underwritten by banks and there are sophisticated investors that are buying those converts. So there is some underwriting standard being applied there. And the vast majority of DATs will never be able to issue debt because nobody will underwrite it. So I think that's actually not the cause of the next unwind. I think it'll be actually in Defi. So what's happening now is a lot of strategies that are sort of like actively managed strategies that are a little bit less transparent are getting put into tokenized formats. So either through Fawn tokenization platforms or, you know, explicitly as vaults or even, you know, in some cases being issued as some kind of like a stablecoin wrapper. And these things are then being put through looping strategies. Right? So like people are going into something that's maybe like a 10 or 12% yield, but they're borrowing something, they're borrowing USDC at let's say like 7% to loop that strategy up to something like 20, 25% yield. So when it turns out people become aware that these are not basically risk free strategies, I think basically there's going to be a ton of leverage built up into some of these trades and that will actually be how the deleveraging happens this cycle. So it'll happen actually in defi is it'll be like the same sort of issue, which is like underwriting standards being debased in a way. And I think it'll be because people will be using bad forms of collateral in the forms of some of these actively managed tokenized strategies.

Steve Ehrlich (60:47)

Interesting. Ram, how about you?

Ram Alawalia (60:52)

Yeah, look, I agree, by the way, Josh, always right on the mark too. So banks are reporting in two weeks. So I think getting ahead of earnings season is a good idea. We know mortgage refi picked up. There are a lot of ways to express a view on that. Wells Fargo is a leading mortgage originator. It looks set up well too. But I think the broad base of financials will report and they will crush earnings. Austin also spent a lot of time at banks and every quarter these banks just crush earnings. And what happens is midway after the earnings seasons have moved on to other topics, they kind of trade down again. But like the deregulatory backdrop around banks is strong, the consumer is strong. We saw GDP clock in strong earnings growth last quarter was strong. There's a lot of good things happening out there if you can kind of look past the doomerism. So I think that's an interesting idea and not just tactically, but also as a strategic investment.

Steve Ehrlich (61:48)

All right, Dr. Campbell, so I'm going.

Austin Campbell (61:51)

To leg on to what Josh said. Say the kinds of things that quote unquote, stop this train in times like now are actually unexpected, really bad breaks. Honestly, I think people are watching a lot of defi and prepared for that. But one of the areas where crypto has definitely not learned their lessons and continue to do stuff that we know not to do in some areas of the traditional financial system is like single point of failure risk. So like understanding how sophisticated. And by sophisticated I mean incredibly sophisticated. Some of the threat actors are far out there in this space. The Kind of thing that's going to break the crypto rally badly is like North Korea compromising, like tether circle smart contract. Right. Just minting a trillion dollars, buying all the assets, like sweeping it into bitcoin. Because that is, I want to be clear, that's the kind of stuff they are every day they're trying right now.

Ram Alawalia (62:47)

That is not a hypothetical.

Steve Ehrlich (62:49)

That's what they use to fund nuclear program. Why would they? Why would they?

Austin Campbell (62:53)

So, so the answer is if you're a truly nihilistic group of people who are only motivated by getting a big score, because that's how you get whatever you want, you go do that. By the way, you'll notice the North Koreans have a strong preference to taking whatever they successfully capture and getting it into bitcoin as quickly as possible. Right. If you look at how they've swapped things cross asset, what they exchange things for, if they get stable coins, if they get something else, they're going to swap them. And so I would just. I banged this drum before, but I'll say it again. There's a lot more single point of failure risk in elements of defi than people.

Ram Alawalia (63:29)

So bitcoin is the primary FX reserve for North Korea.

Austin Campbell (63:34)

Wow.

Steve Ehrlich (63:35)

I mean they don't, they don't bank. Yeah.

Ram Alawalia (63:39)

So Austin, do you think we could get a private key compromise from a major party? I mean that would be a kind of a left tail risk, people.

Austin Campbell (63:46)

I mean that's what I'm saying is a good example of left tail risk. That can't really be if you had.

Ram Alawalia (63:51)

That because if you look, that would end every like the dats, they would all crumble. I mean everything would just be, it would be like.

Steve Ehrlich (63:59)

I'm actually speaking.

Austin Campbell (64:00)

It would also end defy. Right. Because think about it, every blank against USDC pool is all the bridges. If USDC gets compromised, all the bridges, etc. And that's why I like raise it. Because if you look at the governance structure, a lot of these chains, if that happens up like Ethereum or Solana, they functionally don't have a way to do anything about it. Right. Like there may be a hand like you know, for all that people make fun of them for being a zombie chain to raise one of Steve's previous victims. Like there are structures on like Stellar or Avalanche where you can have coordination very quickly between certain kinds of validators to stop that. But most chains are not centralized.

Steve Ehrlich (64:39)

I'm actually speaking at a quantum computing conference in I think a week and a half or so ago, which I think is kind of funny.

Austin Campbell (64:48)

Hold on. Is that, Is that the one that was above the bodega?

Steve Ehrlich (64:51)

The. What.

Austin Campbell (64:55)

I was like was that at the headquarters that was above the vertega.

Steve Ehrlich (64:58)

And I, I think, I always think it's kind of funny because I think you got a C in computer science at my freshman year at Carnegie Melling. But.

Ram Alawalia (65:06)

It'S hedge for crypto, right? Like if they crack quantum computing, your quantum stocks will go through the roof. Bitcoin.

Ryan Yee (65:12)

Yeah.

Steve Ehrlich (65:12)

But if they crap that terrible idea, by the way, and it can compromise private keys, that's going to end all privacy. Like finance, stratify crypto, everything. So defi will be the least of our problems. For me, I guess just the last thing. I saw a couple announcements today. I think the Winklevoss twins put money into a dad. I've still seen a couple of smaller announcements on dat and I'm really curious. The value, like, especially for ones that aren't like, associated with like a long tail asset, which I. I'm already pretty bearish on. I'm really curious, like, what's the thought process behind some of those at this point, like nav.

Austin Campbell (65:53)

Okay, pay attention, hold on. Pay attention to how people are contributing to those. Because one of the things driving the DAC proliferation is, as is always the case in all markets, tax on. Right. Because if I've got bitcoin with a very low cost basis, I could contribute it to a DAT in kind, get shares back and go borrow against those shares from sources that I can't borrow against in crypto. So that's a very favorable trade for some people where they're not really expressing an opinion on anything other than I.

Steve Ehrlich (66:21)

Don'T like tax and I guess with the assumption that the premiums won't drop below one or through.

Austin Campbell (66:29)

It does. It's not that it won't drop below one. It's just that it needs to not go so far that you get liquidated on the loan. And sort of given the fact that if you are a shareholder, you can be your own activist in some ways that seems pretty doable.

Steve Ehrlich (66:42)

Otherwise, we didn't get a chance to talk about it today, but. But obviously Grayscale started launching staking for their ether and Solana ETFs. I don't. I'm not a lawyer. I don't. Austin, are you a lawyer? I'm not sure. You have so many. You have this professorial look. I almost assume you. But no, we got to get James back.

Ram Alawalia (67:00)

But we're going to.

Steve Ehrlich (67:02)

I think we all expect in a couple of weeks. We're going to see a lot of staking come to ETFs, and we're going to have to discuss what that means for the market, but also especially for for dats, especially the Ethan Solana dats, because their hurdle rate, I think, quote unquote, is about to get a lot higher. But with that, thanks Josh for joining us. We'll definitely have to have you back Rom and Austin, as always, thanks everybody for watching and listening. And we'll be back next week with another episode of Bits and beps. All right, that's it for this week's episode of Bits and bips. Now for the second half of our double feature, we're turning the Spotlight on the Onchained 5. I sat down with Ryan Yee, who authored a three part series for Unchained, laying out the five content companies that are quietly leading the next wave of crypto adoption. Here's our conversation. And remember, you can find all of these articles in the show Notes. Don't forget to subscribe to our newsletter.

Ryan Yee (67:56)

As these bets start to pan out across these five companies, it's going to become clearer to the world and a lot of the other tech companies that it's actually table stakes to have a crypto forward strategy and an on chain strategy. And if you don't, you're going to be left behind.

Steve Ehrlich (68:11)

Tight. Hey everyone, Good afternoon. My name is Steve Ehrlich. I'm executive editor here at Unchained and I am with Ryan Yee. Ryan wrote a terrific series of articles for us called the Onchain 5. And we're going to share them with you and break down some of his key conclusions. But before that, Ryan, hello. Welcome. And why don't you just briefly introduce yourself to the audience.

Austin Campbell (68:36)

Sure.

Ryan Yee (68:36)

Thanks, Stephen. Yeah, My name is Ryan. Been on the show before, but just quick Background is started mostly as a crypto investor, so spent some time at Coin Fund as a venture investor there and then most recently was over at Coinbase Ventures building out their investment practice.

Steve Ehrlich (68:54)

Okay, great. So why don't we just start with sort of the origins of this project? I mean, why did you decide to sort of list out what you kind of saw as the first five, the Onchain five? I mean, the five companies that are really going to define sort of the next level of adoption in crypto. And in your first article, one of the things he wrote was that distribution is going to really be the defining variable given where crypto is in its current level of adoption. Walk us through that, please.

Ryan Yee (69:30)

Yeah, sure. So I Think a lot of the genesis of this was just based on my observations while I was over at Coinbase. What became sort of clear to me was that there are kind of two things. One is there's massive sort of leverage that is created when a centralized company actually uses on chain technology. And so one of the largest products at Coinbase is usdc, which is a USDC stablecoin. And it's one of the largest sort of money generators in crypto. But that is not built by a decentralized team or a decentralized product. Right. That is built by a centralized team, effectively issuing a product that is used by the entire crypto ecosystem. And so I think one truth was that there's massive leverage of centralized companies using decentralized technology. And then I think secondly, it kind of became clear, as you know, I was talking to a lot of startups in the ecosystem who wanted to chat with Coinbase and the Coinbase Ventures team that they really wanted to know how to learn how to sort of have our users and have our services interact with their protocols and decentralized technology. And so I think the combination of those two things kind of really led me to this belief of, I think there was going to be this era where companies are going to start to really invest into on chain products, especially the big companies that already have users and liquidity and partners. And so the thinking then expanded into, hey, obviously I'm very familiar with where sort of Coinbase and Base are going to go. What does this mean for the broader ecosystem? And I think as I was thinking through this, a lot of the news around Robinhood and Stripe and a lot of these others started to come out. And so I figured, hey, maybe this deserves its own piece of literature and we should explore this.

Steve Ehrlich (71:21)

Yeah, that makes a lot of sense and certainly seems appropriate given sort of the support crypto is getting in Washington D.C. and as well, I guess just this unprecedented level of attention that is being heaped on the space, especially from some of those big. I don't know if tradifi is the right word, but maybe like traditional fintech companies, if that's not a misnomer. So it certainly makes a lot of sense. Let's dive in each one to just sort of explain the thought process and some of your key takeaways from the companies you did a nice job of in the articles of providing an overview of sort of their strategy so far, how they're trying to leverage blockchain technology in different ways. That's. That's one of the things I Liked about the article. Every company is using crypto and blockchain in a different. In a different manner. And then you also highlight some risks, risks associated with each company too, on why they may not fulfill those expectations. Let's begin with, with Coinbase. Everyone listening here, I'm sure, has heard of them. They are the largest US exchange. They're a massive custodian, I think you call them like Uncle Sam's on ramp, because of this sort of pristine type of image that is created for itself. But beneath the surface of its massive centralized trading platform and custodian system, or custody system, I'm sorry, is Base. They're proprietary, level two blockchain that you sort of explained is going to be a launch pad for a whole ecosystem of financial services. So talk about that, please.

Ryan Yee (73:03)

Yeah, sure. So I think it's important to understand what Coinbase was before Base. So Coinbase is effectively a centralized financial services company for the crypto ecosystem. And so what that effectively meant is that a lot of the sort of crypto utility that Coinbase was allowing its consumers to actually interact with was mostly through trading as well as custody and related sort of products like that. But I think if you look at sort of the vision and the mission of where Coinbase is trying to go, I think they really do believe that there's a lot of different sorts of actions and ways in which consumers are going to be interacting with crypto. And so this might be called things like crypto utility, things like, you know, crypto applications and so forth. And so I think, you know, that of genesis, of Base really makes sense in that context because it allows Coinbase to have its own platform where it can really drive its users to interact with this technology, but they can also invest into making it as seamless as possible for the sort of existing Coinbase user base to interact with on chain technology, which, you know, as we all know, can kind of be a little bit cumbersome and scary if you're not sort of working in this industry full time. And so, you know, they've, they've gone on this journey now. I think the experiment is definitely working, but I think the core question I was asking myself is what does on chain uniquely solve for Coinbase in this aspect? And I think the biggest takeaway for me at least, is that it really helps them scale this concept of financial services that would otherwise be a little bit not scalable or just a headache to deal with, because on chain technology is actually a much better alternative compared to trying to build this out and maybe decentralized offchain, closed source kind of way. And so, you know, I've highlighted a couple of examples of products whether that's you know, bitcoin backed loans. They obviously announced crypto lending recently for USDC and then I think they also announced Dex Trading. But the core idea of this is effectively that, you know, Coinbase doesn't actually have to through its own infrastructure build the liquidity for all of these services. They can actually bootstrap and use a lot of the liquidity that exists on chain and basically use these protocols or interact with these protocols that have that basically the hard job of bringing the liquidity and managing all those things. And then Coinbase effectively just provides a simple front end and a service for users that want to interact with these types of products.

Steve Ehrlich (75:41)

Got it. So two things on Coinbase that you raised in the article I want to ask about but for one, for years the company had maintained its stance that there was going to be no base token. That's obviously non changing and it also coincides with sort of, I guess a reimagination of their non custodial app base into I guess what they want to be like a full fledged like all in one financial super appeal. Is there a relationship between the announcement of the token and this app or have you had a chance to play with the app? I know that its waiting list is I believe over a million people long. So it's pretty massive. And what might all of that do for an L2 that is growing but still does not meaningfully impact Coinbase's bottom line financially?

Ryan Yee (76:36)

Yeah, so I think these things are definitely related. So the way that I would think about sort of the app and the token and also just like the general Coinbase interface is in three ways. So I think in the general Coinbase interface there's products that they are launching which still feel very much like typical financial services that a consumer would use on top of like the traditional coinbase.com so things like loans, things like lending, things like trading, but it's just on chain on base that is powering a of lot of those things right now for them. So I'll put that as you know, an existing user on Coinbase is familiar with that type of product and wants to access those things. It's just Coinbase finds that using onchain on the backend is just a much more efficient way of doing that. I think the second thing is, yeah, the wallet app tba, I think that's meant for effectively any user that wants to interact on chain on top of base. So you don't necessarily need to be a coinbase user. You can be anybody that has access to an iPhone or the iOS store or the Android Store. And effectively you could download this app and start playing with things on chain. And so this type of utility or types of applications that you might want to interact with on top of base, I would imagine that this is probably the right consumer application for that type of consumer behavior, although you probably still interact with a lot of the defi things that are on top of base.

Austin Campbell (77:57)

Through that app as well.

Ryan Yee (77:58)

And so I view that as almost as a customer acquisition funnel and a user funnel. And then I think the token is quite interesting. There's not too many details out there obviously yet. And I think I recorded an episode with Unchained maybe a couple weeks ago, kind of giving my thoughts on that specifically. So if people want to hear more there, they should listen to that one. But I view that as kind of the way in which you can get a lot more attention on the developer side and generally on the user side to start, you know, doing transactions and playthings on base, especially if there's a potential sort of reward or incentive structure in the future.

Steve Ehrlich (78:34)

Got it. Thanks for that. Before we move to our next company, we just need to take a very quick break to hear from the sponsors who make this show possible.

Aptos Sponsor (78:42)

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Steve Ehrlich (79:27)

All right, so we're back. Company number two that you listed, and I think it's important just to remind our listeners and viewers that there's no particular order to this list. It's not like Coinbase is number one, and so on and so forth. It's five top five, or I guess five unranked. But the second company that you profiled is Robinhood, and some of the statistics for Robinhood were pretty eye popping. I mean, for one, when you published this particular story, I guess maybe two weeks ago or so the stock was up 400% year to date, over 400%. And the vast majority of that, I think comes from excitement over crypto and crypto trading. Robinhood had its start as sort of just focused on tradfi and, and payment for order flow and new stocks etc, but it's very much a crypto company and, and now it's leaning into that, that identity even further. So why don't you walk us through some of your key findings with Robinhood.

Ryan Yee (80:28)

Yeah, I think Robin Hood's view is that it's, it's kind of two ways, right. So I think one is competing as basically a traditional crypto exchange. So you know, they continue to list crypto assets on top of Robinhood that people can trade. They also acquired bitstamp over in Europe to effectively allow European liquidity to form. And bitstamp is a European crypto exchange. And so I think in that way, I think about a very, in traditional terms of them competing with the coinbase centralized exchange products. Right. And so I imagine that they're continuing to invest more because it's a much bigger driver of growth for the business now than it was before. But I think all the other things are much more sort of medium term and into the future, which is really sort of leveraging on chain technology as a better backbone for the types of financial services that they want to offer in the future.

Steve Ehrlich (81:20)

Right.

Ryan Yee (81:21)

And so, you know, if you open up Robinhood today, they actually offer a ton of financial services that you know, would look, things will look very similar to like a traditional financial products. So things like options, things like, you know, pre IPO products, things like secondary trading. I believe they even listed prediction markets. Like I was, I was at the Rider Cup a couple weeks ago and you know, I could bet on the outcome of the rider cut through Robin Hood. And it was, it was powered by Cal, which is another prediction market company. What's been interesting about that is, you know, as you are trying to offer these different types of financial services, you just tend to increase the level of complexity of the infrastructure that you actually need to build to service those things, whether that's partnering with external market makers or strategic partners, or whether it's literally just like an internal financial system that you are relying on in a traditional Rails that may make that thing actually hard to actually manage at scale over time. And so when I saw their announcement around Robinhood and their tokenized stock and their stock tokens, yeah, I think that that was kind of their way of saying, hey, like this might actually be a better back end for the types of products that we may actually want to offer in the future. But consumers are not going to really know the difference at the end of the day.

Steve Ehrlich (82:40)

Right.

Ryan Yee (82:40)

And so a consumer will still be able to do things like, hey, I bought this stock, maybe I want to do stock lending. There's a traditional way of doing that, but the crypto native way of doing that is, you know, we just wrap this, we tokenize it, and then we stick it into some defi protocol on top of Robinhood Chain, right? And so it begins to form this sort of long term vision of how Robinhood Chain actually becomes this settlement layer that is actually much more efficient in terms of allowing the types of financial services that Robinhood actually wants to offer in the near future. And I think what that then does is it could potentially sort of impact the relationship that Robinhood has with their intermediaries and other people like broker dealers and market makers to then sort of cohesively move into this one ecosystem and create more sort of interesting, accretive ways in which they might work together.

Steve Ehrlich (83:29)

One question that immediately came to mind, I know you discussed it in your story, is what does all of this mean for the future of Pfaff? Payment for order flow, which is how Robinhood built its business? I mean, I guess if they're able to tokenize stocks and put them onto an ultra fast L2 on top of of arbitrum, is there the same need for them to rely on the Citadels and Susquehannas of the world? Because Pfaff is certainly a controversial practice.

Ryan Yee (84:00)

Yeah, I almost think of it like, if I had to use protonated terminology, like, you know, the traditional way of them doing this is that they effectively generate some flows on the user side and then they effectively sell this privately to their different market makers and partners that they have and they monetize in that way and therefore they're able to offer zero commission trading for their users. I think the way that Pfaff might sort of transition into the future is that, you know, that basically just gets baked into the economics of Robinhood Chain, right? And so, you know, it could actually turn out that, you know, traditional words that we use like, you know, MEV and the mempool and things like that, I almost view that as just like the crypto native version of a Pfaff. And so you can imagine a world where all sort of trading and all sort of tokenized assets begin to move into Robinhood Chain. All of their partners start to do market making and actually Play with these on chain financial services. Much of what they're already doing anyway for Robinhood users it's just like one step sort of detached and then through that maybe Robinhood starts to experiment with hey, like maybe you pay us a subscription fee to actually sit and be one of the validators on Robinhood chain. And then that effectively is a form of buying a seat to order flow. It's just that that order flow is represented in some technical fashion that looks like something like an MEV or something like that. Right. And so I think these are much more sort of conceptual ideas. I kind of want to wait and see what's going to happen in practice. But to me that seems to be like a potential natural evolution of their business model.

Steve Ehrlich (85:36)

Yeah, that's interesting. I mean the idea of them almost paying to be like a validator, I guess a sequencer in L2 nomenclature. Although the ironic thing is that as far as I can tell, Basically every major L2 is fully centralized at this point, even base with just a single sequencer operating it. So I think a lot of the hope for base and I guess Robinhood, the aspirations are reliant on actually decentralized these networks over time. Just one more quickly on Robinhood before we move on. There are lots of numbers being thrown about or thrown around about the potential size of the tokenization market. Billions and billions and potentially trillions. And I wonder where do you see the real low hanging fruit or the sweet spot for Robinhood? I mean they can tokenize stocks of Apple and Tesla, but those are already pretty liquid markets. I know companies have been trying to offer access to like tokenized private equities for years. Robinhood got into a little bit of hot water with derivatives that quote unquote track the price of OpenAI and SpaceX. What do you see?

Ryan Yee (86:41)

Yeah, I really think it's three things. So one is I think yield offerings. So I think through stablecoins and related products like that I could see, you know, Robin, I think they offer some version of this already but effectively using onchain to offer a better version of that seems like very low hanging fruit to me. What's been kind of interesting to me is like that secondaries market, so that pre IPO market, you know, I think actually Robinhood today does offer the ability for users to participate in IPOs. Obviously like it gets super filled and like the amount that people want, it's, it's on almost never the size that they, they're looking for. But it kind of goes to show you that you know I think the private markets are. There's just so much money behind a lot of these companies. Obviously, you know, all the AI companies minus Nvidia are all private right now. And so, you know, that's definitely like a hot area currently. And I know that retail definitely wants to participate in that. I think, you know, the, the OpenAI stock token thing. Yeah, there was some news around it, but I think conceptually it's the right idea because I do think that is a product that users probably want to interact with. And so I'd imagine those are the two things I would say long term, it would be interesting to see sort of how they start to meld different types of traditional financial assets with like, you know, crypto style products. So can you build sort of perpetual features or purpose products for, you know, things that look like traditional assets and things like that?

Austin Campbell (88:06)

Got it.

Steve Ehrlich (88:07)

Okay, so let's move on to, I guess, I don't know if controversial is the right word, but I think the one company that has certainly gotten the most conversation going in the last few weeks or months, Stripe. And the news that Stripe was going to create, or I guess it has already created its own blockchain Tempo that's really designed to be focused on stablecoins. This fits into a broader, I guess, movement of, of stablecoin companies or payments companies launching their own blockchains. I mean, Tether is kind of doing the same thing. Circle's launching its own blockchain. But Stripe, because of its massive scale and network effects, launching their own chain is forcing people to pay attention. So just briefly, in case there are some people who aren't familiar with the Stripe business model, can you explain exactly how they process payments and what they're looking to do with a new, I guess, vertically integrated blockchain tech stack?

Ryan Yee (89:08)

Sure, yeah. So, you know, if you're an online business today, or even an offline business, but generally speaking of online business, I think it's pretty, you know, if you ask every one of them, like probably nine out of ten of them are using Stripe. And so, you know, the way I look at it is that Stripe effectively is a payment processor, especially for these online native companies. And you know, they've been building this for many, many years now and they've built like this huge scale. But if you look at all the sort of infrastructure that they're running on, it's all legacy style products. Right. And so they still rely on partner banks, they still rely on, you know, credit card partners and all of these things. And so if you're A company that's on Stripes platform, I think that, you know, in terms of like money in, in terms of like money, certain money out, you can use that on, on Stripe. But any other sort of financial service, like whether that's like capital management, balance sheet management, you know, other sorts of services that they might want to offer, they probably need to go and like, you know, use a bank or use one of these other people in terms of their sort of, sort of traditional sort of business workflow. And so what's been interesting about Stripe is that, you know, there's a, there's a graphic and it's part of the article series. But you know, if you look at all the bets that they have made, they're effectively trying to tackle all the areas where they could basically bring these things on chain and effectively have businesses never actually leave the Stripe product or the Stripe network. And so, you know, those three bets are effectively, you know, privy. So do we have a wallet layer for effectively businesses to hold assets like stablecoins or otherwise? B is do we have basically a layer that is able to map sort of off ramping and on ramping into crypto and into banks? I would basically say Bridge is the infrastructure that allows for that thing. And then third is do we have a native chain that we have that is purpose built for our use case which seems to be payments. And that's why they're incubating a project like Tempo right now. And so it seems to me like they're making these sort of three different bets which, you know, if you sort of tie into all tie the strategic vision of all how these three things fit into. You can almost view this future world where Stripe sort of is running on chain and it's just a much more A an efficient way for them to actually grow, but also B, offer a better product experience for their customers and then C actually get much better margins through offering new types of products and not just being kind of one person within the flow of traditional payments flow.

Steve Ehrlich (91:43)

I think one question that immediately comes to mind, especially you talked about the acquisition of Bridge, which I think at the time was the biggest acquisition in the history of crypto. 1.1 billion or something like that. Many people associate it with sort of being a white label stablecoin provider or launchpad. So companies on Stripe's platform can, can launch their own stable coins. But given how profitable stablecoins are as a business, I have to do is look at tether's profitability circles, gangbuster, ipo. The question everyone's going to have is, is Stripe going to launch its own token? And if it does, what does it mean for all these other companies on the network that might be thinking of doing the same?

Ryan Yee (92:27)

Yeah, so I think they announced something last week called open issuance. Maybe I'm getting the name wrong. But effectively this is exactly that tool where basically if you are on top of Stripe, it's effectively a one click experience where you can effectively issue your own stablecoin and the benefit is clear. It's like, you know, you can generate yield, you can do all sorts of things that, you know the benefits that stablecoins effectively bring to your business. And so I think that's very much in line with how sort of stripes, you know, business and product DNA is reflective of, which is, hey, can we offer this experience to our customers which is effectively one click and giving them everything that they need in a box. Right. And so I think my view is like, that is a very smart strategy because it effectively allows their customers and their businesses to start to understand the benefits of onchain. Whether Stripe launches its own stablecoin or not, I think is a TBD question. I don't think they need to because I think there is a world here where you have all of their merchants effectively issuing their own Stable coins through Stripe, but those stablecoins effectively get issued as assets on top of their own blockchain Tempo, which they already own in terms of the stack. Right. And so I could see a future, more probable future here where they have their own chain which is Tempo, and then all of their partners that are issuing Stable coins are issuing stablecoins on top of their chain. And I think that's probably a much more interesting model for them because then they don't have to actually introduce their own currency and potentially be perceived as having conflict of interest with all the clients that are on their platform right now.

Steve Ehrlich (94:08)

Yeah, that makes a lot of sense. And I guess also maybe it comes down to the negotiation of these agreements. I'm sure with the ease of a one click issuance there is probably some sort of management fee etc that will go back to Stripe as compensation for doing that. And, and then, I mean, same thing too. They announced the partnership with Coinbase and Base to allow merchants to accept USDC from, from Base too. I don't know, I would imagine they're probably not doing that for free or maybe now they're not going to be doing it for free for, for much longer because I would, I don't think they get any money from, from Base and, and The. I'm sorry, from. From USDC and the yield generated from it. So it will be interesting to see. But that idea of sort of being a neutral party, I know that's something that tether values, circle values it as well. And we'll talk about a lot of the big Wall street banks potentially issuing their own tokens on their own stable coins. They. They're going to have to sort of deflect that narrative. So that certainly makes sense with what you're saying. Okay, let's move to the next one. I found this particularly interesting because I wasn't very read up on the finances of Telegram, but the company mentioned was Telegram, very closely associated with the TON network and the TON token. And this one was particularly fascinating to me because you made the argument that the TAN token is really a financial necessity for the company to keep moving forward. So why don't you just walk us through that before we get into everything that they're trying to do to build a whole developer ecosystem on top of ton.

Ryan Yee (95:51)

Yeah, so I think where the core of this came from is Telegram is a very, it's a very unique asset, I think, among tech companies because, number one, most of their users are not in the U.S. right. So it's primarily an international product. Obviously folks in crypto, in the crypto ecosystem are super familiar with Telegram. But you know, if you ask most people like in the US like they, they actually don't use Telegram.

Austin Campbell (96:17)

Right.

Ryan Yee (96:17)

And so I think there's this interesting sort of geographic aspect where Telegram is really huge, but it's huge in places that maybe typically in Western economies, they might not realize how big it is.

Austin Campbell (96:29)

Right.

Ryan Yee (96:29)

And so it's a huge asset. I think it's like 1 billion monthly active users. I think the second unique thing about Telegram is that it is kind of like a non traditional tech company in a sense, where they haven't really done that traditional sort of life cycle of raising equity, growing, creating profits, creating revenues. I think a lot of those questions have basically been kind of delayed because they were so focused on building a product that is very in line with the founder's philosophy. Right. And so, you know, if you see interviews with Pavel and how he kind of talks about his own views of like, freedom and things like that, it's very clear that he wanted to create a product that was kind of different. Right. And didn't really rely on that sort of traditional monetization model where he's basically making money off people's data and things like that. Because I think that's. That's basically what he believes in, which I think is, yeah, that's. That's what he believes in. And I think that's. That's great. But it does come at the cost of sort of running a traditional business model. And also it does come at the cost of kind of going through a traditional financing life cycle and process. And so, you know, if you look at sort of Telegram's financial situation now, there's really two things to pay attention to. One is that they only started to really generate revenue in like the past two years. Right. And so, you know, things like Telegram subscriptions, things through gifts, you know, different ways, like they're experimenting with. And, you know, I think they've like, generated like a decent amount of revenue, but this is something that needs to grow over time. And then the other is like the cost structure. Right. So running Telegram, running servers for a billion people like that, that costs a lot of money. And so how do you sort of finance that? I think to date, they've basically raised money through debt vehicles from different sovereign wealth funds to basically manage that. Right. And so they're kind of in this game where they raise a bunch of debt to make sure the company is and the product is continuing to run. Yet at the same time, they also are starting to experiment with monetization. And I think there's always going to be some delay in which, like how much they can actually cost basically meet their cost of financing while also driving growth and value back into the Telegram ecosystem. And so I think the TON token is extremely interesting because it offers them kind of an alternative path where it kind of can address both of those things.

Steve Ehrlich (98:54)

Right.

Ryan Yee (98:55)

So on one side, if you have TON tokens on the balance sheet, obviously you can use that as a financial lifeline and, you know, use that as a way to basically finance and finance yourself and your operations. At the same time, I think there are also interesting ways in which you can start to implement TON as sort of this growth driver and value driver within the Telegram ecosystem, which is the other sort of thing that they've been doing on the side. And so, yeah, I think Telegram's a really interesting company because, you know, the founder has his own views on certain of freedom and. And his own philosophy there. And it almost makes perfect sense that, you know, he is looking at crypto and tokens as like, you know, one of the paths that is actually aligned with how he wants to view, like, the outcome of his company, where he doesn't necessarily have to rely on sort of the traditional Rails and the traditional you know, sort of capital markets for, for the business that he's trying to create.

Steve Ehrlich (99:49)

Yeah, it's, it's really interesting. I mean I've, I actually got first involved in crypto 10 plus years ago. The first story I ever wrote was about how blockchain technology could help companies better align with like what was at the time forthcoming European data protection laws. And as I've chronicled a lot of different companies along the years, I mean, talking about like Zcash or NIM, private payments or privateVPN, etc. The monetization problem has always been a problem. These are projects that, perfectly blunt, I root for, but at the same time like their token struggle usage is very low. I mean zcash, the vast majority of transactions on zcash don't use their shielded addresses, which is the whole point of zcash and NIM has been trying for years. So I mean Tan doesn't offer the same level or Telegram doesn't offer the same level of privacy as those products, but it is still in that privacy family. And so I can appreciate the financial struggles with something like that. And it is interesting and pretty clever for them because they, unlike those other products, they have the brand recognition to really leverage a global user base to try to generate lots of funds. Two questions I had before we move on to the last company though. In what has been a pretty bullish year for crypto, the ton token has not had a good year. I think when you wrote the story its token was down somewhere 40 to 50% year to date. I'd love to just kind of get a thought from you as to why and what that might signify and then, and then two, if there's anything that I know you pointed to a couple of examples in your story about some activities happening on time that you're pretty bullish on. Many people who just casually follow the blockchain might only think of Time or the Time network as sort of the place for those push to earn games that were very, that, that were kind of had a fad moment maybe a year or two ago. I forget exactly who's 23 or 24, but can you just briefly address that?

Ryan Yee (101:54)

Yeah, I mean, you know, I'm not, I don't, I don't know like the story of every day or every week of what happens in the token. But my theory is, is a couple of things. So I think one is, you know, somebody was asking me what percentage of Telegram users are actively using on chain applications and I actually don't know what that number is, and my guess is that that's still quite minimal right now. I don't know what the number is, but let's, let's just say it's like 5 to 10%. And so what that really means is that, you know, the majority of the Telegram user base has not actually sort of clicked contributed yet towards usage. That is translated on top of, you know, any of the stats that is running on the TON network. Right. And so I think that's, that's probably one thing. The second is, you know, there's kind of this feeling of, you know, when you have a major asset like that, how much of the present value is baking in the growth or expectations that Telegram is already backing this thing versus how much of that growth do you actually need to actually demonstrate?

Steve Ehrlich (103:02)

Right.

Ryan Yee (103:02)

And so that's kind of related to the first point. And then I think lastly too, it's like what is the average revenue per user on Telegram on top of ton? So if you think about a lot of where Telegram might be downloaded and being used for, maybe there's a lot of these geographies which don't actually have a ton of wealth that they're putting on chain on top of ton through Telegram yet. And so I think there's that aspect where, okay, great, we're getting, you know, a billion plus users. Like we, we have a path towards like bringing them all on chain. But how valuable is each user on top of ton, I think is also a open question mark. And so yeah, I think those are probably the main reasons. But you know, I, I'm, I'd be happy to hear from the community what they think about that.

Steve Ehrlich (103:49)

Time to talk about our fifth and final company on the list, Binance. So with Binance, I think there's two big threads to briefly unpack here. One, it is by far the world's largest cryptocurrency exchange. And it, and with that comes just a lot of distribution value. Excuse me, I don't have to explain why. But two, the company also has enjoyed, I guess, a renaissance of sort under the new Trump administration. And so I'd like to just maybe start there. I mean, Ryan, when go back a year, year and a half ago or so. I mean their founder had to step down from the company. He was in prison for a few months. The company still continued to pace and continued to grow, but. But now it's entirely new world, especially coming from Washington D.C. what does that mean for a company of Binance's size that has already engendered terrific and I guess A terrific brand loyalty and a global user base.

Ryan Yee (104:56)

Yeah, I mean, I think generally speaking, the regulatory climate in the US has definitely become a lot more positive compared to sort of the previous administration. And so I think that's just like a general macro factor that has benefited the entire industry, whether it's Binance or whether it's another company.

Steve Ehrlich (105:17)

Okay, but then the other big point that you hit on with your article is the role BNB plays. A lot of people listening here probably own bnb. They're aware of its usage when it comes to getting certain trading privileges, fee discounts, early access to programs and investment opportunities, et cetera. But one of the things that you revealed in your story is that it's.

Ryan Yee (105:44)

Much bigger than that.

Steve Ehrlich (105:48)

And what you really tried to focus on was highlighting how it's not just like a financial driver for Binance when it comes to quarterly burns, et cetera, but that there's something unique about how BNB fits into this, the Binance ecosystem and the BNB smart chain ecosystem that is difficult to replicate. So why don't you just walk us through that?

Ryan Yee (106:10)

Sure. So it's so interesting because bnb, I mean, BNB is a top five crypto asset. It's the fifth biggest token in the world. I think people forget that sometimes. This is huge. It's really, really big.

Steve Ehrlich (106:25)

I think it's over $1,200 now. I mean, hitting record highs when you publish this a week or week and a half ago, about short of 1100 now. It keeps going up.

Ryan Yee (106:34)

Yeah. You know, I think when I look at bnb, I almost view them as like the final boss of tokens in a way. Like, you know, if you see, okay, so there's all this movement, right? Like, you know, Base wants to launch a token and maybe Stripes Tempo is going to launch a token one day. And I think in general, a lot of people are like, okay, like, you know, there are the fundamentals of the product, but how do you relate that to the value of the token? And I think what's been very interesting to see is Binance obviously has the fundamentals of a product down, right? They're one of the oldest and they're the richest crypto company in the world. But I think also they've been able to bake a lot of that sort of value back into the token, whether that's through all the things like profit, fee sharing, all that kind of and stuff. And if you think about that, it's like, oh, that's probably the future of most tokens in the industry. It's just that we haven't had a big company like that actually be willing to make that bet and actually have the level of scale and the fundamentals to actually drive the value back into the token. And so when people ask me, oh, what do you think the base token might look like? Or what do you think stripes token might look like? I mean, my view is, I'm like, just look at what BNB is though, done right? Effectively, they have kind of created the playbook, but people have like, I don't know if people have forgotten or they just don't look at it as sort of an investable asset because it's so big now. But yeah, I view that as like, no, this is actually probably the model for how a lot of tokens are going to look like. And a lot of people are talking to me like, hey, it feels like this. There's a whole narrative like RWAs, right? Like people affect effectively putting off chain assets, tokenizing them and putting them on chain like a stable coin. And so they're saying, oh, equities are going to become tokenized. But my view is actually maybe the real innovation here that we're seeing is that tokens actually are going to look a lot more like equities, right? They're going to have some sort of value ownership. There's going to be a lot of things that you can do with this token that you can't actually do in traditional equity land, like things like interacting with the products on top of the platform platform, actually investing in ownership of your community and things like that. And so, yeah, I think BNB to me is quite interesting because effectively I view it as like their IPO or like that's the thing I would hold to basically have ownership in Binance's future as a user. And if you think about it now, with all these ETFs happening, like the Bitcoin ETF or the ETH ETF, any of these ETPs, or even the Digital Asset Trade, treasury structures, you can almost see a world where actually it might make sense in the future where you launch a token, the token has value flows related to the product and then you can now wrap this into this equity structure and that is effective via the form in which a crypto company can go public now they can obviously go the traditional path of doing the IPO and the way that Coinbase has done it, but there's almost this alternative path now to effectively the same outcome, in my opinion. And so it can be quite interesting where people are like, oh, what if Binance ever went public. And I'm like, I don't think that's going to happen. The way it's going to happen is basically you have BNB Token, which is effectively the stock or the thing that I would own, and then you just wrap that into the equity market structure and then have that trade and that's effectively the win, win outcome if you're buying.

Steve Ehrlich (109:57)

Yeah, the bnb. It's really fascinating for a number of reasons. And you discussed this in your story. It's almost like it's an equity like token because it doesn't confer any of the privileges, benefits or protections, frankly, that come from actual equity. But for a company like Binance that funded itself through an ICO, I think back in 2017, was it, and you said they're already so profitable and their holdings are still concentrated, there's really not much of a need for, for them ever to go, for them ever to do ipo, this could be the next best thing. And the investments that they've taken, I think from the investment group in the Middle east, it's really more for strategic reasons to open up certain avenues for partnerships, et cetera, as opposed to a company like Telegram that needed to raise that money to secure its own financial future. So there's a very unique mix of factors and circumstances that I think help BNB remain so buoyant, especially in a world where people see it as sort of stock in Binance when it's not. I mean, it's probably in some ways maybe like the best possible version of what XRP could mean for Ripple, where people buy XRP because they want exposure to Ripple. But, but obviously it's very different from Ripple stock. So we're at the end here. I want to wrap up, but, but Ryan, before I let you go, just wanted to give you a chance to reflect on any just key learnings that you had from looking at these, these five companies. If there's any close misses that you just want to highlight or if you have any ideas for future research, additional questions that you want to explore as a result of doing this work.

Ram Alawalia (111:50)

You.

Ryan Yee (111:50)

Know, we're definitely entering into a different phase of crypto now because I think that ever since sort of Ethereum came out, I feel like as an industry we've basically like thrown a ton of darts at the board to see what's going to stick and what isn't. And let's say we threw a hundred and like maybe 5 to 10 of those things have worked. And what I'm noticing now is I think the companies understand the actual value and the benefit of these five to 10 things from a business strategy perspective. And so now I think you're going to start to see really the benefit of on chain demonstrated in a big way because a lot of everyday users and a lot of these big companies are going to be benefiting from that. And so I think that's generally a very bullish thing because I think the amount of user count, the amount of transactions, just the amount of the on chain economy and what's being powered through it is just going to be like exponential over the next couple years. I think that's an awesome thing. I think the question then is going to become, who are the companies that haven't done this thing yet, Right? So, you know, we have five companies that we talked about, but what are the companies that haven't actually explored an on chain strategy yet, which could actually be very, very interesting. And I have some thoughts in my head. I think, I actually think like Twitter or X could be a very interesting company. Sort of looking at a lot of what's happening on the social financial side of things in the crypto ecosystem. I could see X actually start to like potentially have a crypto strategy when it relates to that as well. And so I always ask myself, you know, what is the crypto strategy of the next biggest company that wants to enter crypto and what is that going to look like? Because my bet is that as these bets start to pan out across these five companies, it's going to become clear to the world and a lot of the other tech companies that it's actually table sticks to have a crypto forward strategy and an onchain strategy. And if you don't, you're going to be left behind, right? A lot of, you know, a lot of the similar conversations happening in AI right now, right? Like all the tech companies are like, oh, what are we doing in AI? We got to have an AI strategy. I think the inevitable outcome here is probably going to be the same, but for crypto, right? Companies being like, oh, what's our onchain strategy? What's our crypto strategy going to be? And as that pans out over time, and then in the long term, you can kind of see crypto really powering a lot of things in the world. And that's kind of like the vision of why at least I'm working in the industry. And so I think these are really exciting times because in 2018, 2017, people were talking about enterprise blockchain, if you remember. But I don't think the industry was ready for that. But fast forward, sort of seven, eight years, I think we're actually seeing happen again now for real, which makes me extremely bullish for where we're going as an industry.

Steve Ehrlich (114:28)

Great. All right. Well, I think that's a great way to wrap up. We look forward to the, I guess the, the, the next list of Onchain 5 and see what might change what, what stays the same. So thanks, everyone, and thanks again, Ryan, for the series and for joining us today on Onchain.

Ryan Yee (114:43)

Thanks, Stephen.