Genesis & DCG Meltdown? | Was 2021 Just a Gigantic PONZI?

Is Genesis the next domino to fall in the 2022 Contagion? As one of the biggest lending desks in the industry, what does it mean for Genesis to be in danger? In this episode, we dive into David's conspiracy theories about unravelling ponzi schemes and the death of the bull market. Has David figured it all out? ------ Infura | Join the New Decentralized Infrastructure Network www.bankless.cc/infura http://www.bankless.cc/infura ------ SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/?utm_source=banklessshowsyt ️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ️ ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 👯 DESO | DECENTRALIZED SOCIAL BLOCKCHAIN https://bankless.cc/Deso 🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave 📡 TRUEFI | CRYPTO FINANCIAL HUB https://bankless.cc/TrueFi 👾 SEQUENCE | ALL-IN-ONE PLATFORM https://bankless.cc/Sequence ⚡️FUEL | THE MODULAR EXECUTION LAYER https://bankless.cc/fuel ----- 0:00 Intro 4:30 Barry Silbert in 2021 7:00 The Pyramid 11:30 Who Made the Money? 16:15 The Yield Game 23:00 The Players 27:00 Arbitrage 35:45 Deploying 41:00 The Macro Picture 45:00 Terra Luna Crater 48:30 The Blow-off Top 54:00 The GBTC ETF 58:00 3AC Liquidated 1:02:00 Saviors FTX and Genesis 1:05:30 FTX Threatened 1:09:50 Greyscale vs SEC 1:13:00 SBF Crumbles 1:20:00 SEC's Role 1:25:20 The Genesis Domino 1:32:00 Is this it? 1:36:00 2021 Was a Scam 1:40:00 Hitting the Reset Button 1:44:00 Comparing Bear Markets 1:47:00 Looking Forward ----- Resources: Barry Silbert Tweet https://twitter.com/BarrySilbert/status/1408191462324441092 Bull Market Pyramid https://docs.google.com/drawings/d/1BoRcwjJx3yp1UG9G2eFMNEzKDG4ufThLI1_JR1wk2y4/edit?usp=sharing Who Made the Money? https://twitter.com/TrustlessState/status/1590483734650056706 https://twitter.com/bmcmillan888/status/1590516943211368449 GBTC https://www.sec.gov/Archives/edgar/data/1588489/000110465921000026/tm2039668d1_sc13ga.htm https://miro.medium.com/max/4800/1*Axga-kkSolJ1eG0VfdRE_A.webp Investing into AVAX https://www.theblock.co/post/117895/polychain-three-arrows-capital-lead-230-million-avalanche Solunavax https://twitter.com/zhusu/status/1471807725742931969 Inflation https://www.cnbc.com/2022/02/10/january-2022-cpi-inflation-rises-7point5percent-over-the-past-year-even-more-than-expected.html ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Ryan Sean Adams?

  Bankless Nation, we've got another segment for you. Something special today, something different, something I guess we need to talk about. We had a regular State of the Nation planned, but events overtook it once again. It's been the story of the last three weeks. I think what people want to know in today's episode is what's happening with Genesis? This large institutional crypto lender, is this the next domino to fall? If that happens, what happens next? And then higher level, as David was pitching me this episode, I don't know if you guys have ever seen that picture of Charlie from Always Sunny in Philadelphia? And he's got like, let me show the picture as I'm talking. He's like in front of some kind of a board, like a half crazed detective. This is David coming into this episode.

• 0:46Ryan Sean Adams?

  All right, because I think, David, you feel like this has linked this last series of events with Genesis, has linked a whole series of things in your mind and is helpful to explaining and for you to explain

• 1:03Ryan Sean Adams?

  what happened.

• 1:04David Hoffman?

  Everything.

• 1:05Ryan Sean Adams?

  The last two years in crypto.

• 1:06David Hoffman?

  Everything.

• 1:07Ryan Sean Adams?

  I mean, the question is like, I'm coming to this episode and David's like, yo, I think the last two years, solid 12 to 18 months at least, have been a ginormous Ponzi game.

• 1:18David Hoffman?

  Dude, the whole 2021 bull market was a gigantic Ponzi scheme.

• 1:23Ryan Sean Adams?

  Can you make the Charlie face?

• 1:27David Hoffman?

  The whole thing, dude.

• 1:28Ryan Sean Adams?

  What's going on in thumbnail?

• 1:29David Hoffman?

  The whole thing. The whole thing was a Ponzi scheme and now we're at the end. It's completely unraveled and now we're at the final conclusion. And so I was going to make a show about, all right, is Genesis insolvent? What's going on with grayscale? What's going on with Barry Silver and Digital Currency Group? And like answering that question, what's going on in the last seven days? Has been the final puzzle piece that fits over the broad category of 2022 contagion, contagion, contagion. Why was there so much contagion? We now know. We have all the answers.

• 2:05Ryan Sean Adams?

  The good news. I think we have all of the answers in today's episode. If you had any question coming into today's episode, you'll leave with the answer to your question. But really, I think this is, we're going to walk through it. We're going to end with the last domino, we hope is one of the last dominos to fall, which is Genesis, Digital Currency Group, what's going on with kind of even ties into retail products like Gemini Earn, people still have funds stuck on that, what's going to happen to all that? We end with that, but in order to explain that, we're going to take you through 2021, 2022, and the series of dominos that led to this final domino falling. So this is going to be an interesting episode. And guys, I just got to like, I looked over some of David's notes real quick coming into this, but at some level, I'm along for the ride with you too, all right?

• 2:50Ryan Sean Adams?

  Because I think David's going to unpack his brain and I'm just here asking questions. And before we get in, I want to tell you about our friends and sponsors at Consensus, more specifically at Infura. If we're going to rebuild crypto, which we absolutely are going to do, we have to build it on decentralized infrastructure. And Infura is an Ethereum infrastructure provider that is doing God's work to make sure that all of our DeFi tools load in the pages and in the ways they're supposed to load. They are taking steps to further decentralize this infrastructure as well. And they wanted us to let you know that there's an opportunity to find out more about what they're doing.

• 3:33Ryan Sean Adams?

  David, take it from here. What does Infura want to communicate to the Bankless Nation?

• 3:37David Hoffman?

  Yeah, so Infura has been this critical infrastructure provider for all of Ethereum. Like running a node, if you just want to easily build something, you would just plug into Infura in order to access Ethereum. Well, they themselves want to decentralize their own stack. So they want you to help them foster a brand new decentralized infrastructure ecosystem. And so we can get this journey done, we need all these people, we need more people to come and help Infura in this role of decentralizing themselves. So there is a link in the show notes, so you can plug into the Infura stack as an independent infrastructure provider, so we can decentralize a core piece of Ethereum.

• 4:19Ryan Sean Adams?

  Good stuff there. All right, let's. Let's talk about the high level of the episode that we're about to get into, kind of the daisy chain of events. And I'm going to bring up a tweet from Barry Silbert, who is kind of, I guess, the first player in this story, but also one of the last players of this story. Why did you want us to look at this tweet? And this is from June 24th, 2021, a tweet from Barry Silbert, who of course, we'll introduce the actors in a little bit, but he is the leader of Digital Currency Group, Genesis. What else, David? I guess the GDBC and ETH, ETH Trusts, that people can buy in their retirement accounts.

• 5:02Ryan Sean Adams?

  What is Barry saying here? And why is this relevant to the story?

• 5:05David Hoffman?

  Yeah, so this was June 24th, 2021, which if you remember, was this first big crash in crypto after a meteoric rise of basically all crypto asset prices. Ether hit $4,300, Bitcoin hit like $60,000. And then in one or two days, we lost like 50 to 60% of the crypto market cap. And then, as the dust settled, we, the bull market actually resumed. Again, this was in the middle of 2021. And Barry Silbert tweets out, "There is a daisy chain of borrowers and lenders in the crypto space, most well-capitalized, but some are not. Lots of leverage still in the ecosystem, including in some non-obvious places. Important to understand counterparty risk and where the weak links are in the chain."

• 5:50David Hoffman?

  Now, this tweet was like, was the indication of all things to come over the next 12 to 18 months.

• 6:01Ryan Sean Adams?

  In our Shakespearean tragedy story, this is a foreshadowing.

• 6:05David Hoffman?

  This is foreshadowing. This was the tweet to pay attention to at this moment. No one really wanted to, no one really knew how to unpack these things, because all of these were centralized lenders. So it's a black box. So we didn't have that information. But this tweet became true in fantastic fashion. And the irony, Ryan, is that Barry Silbert tweeted it, and that daisy chain of borrowers and lenders has come full circle back to his own.

• 6:33David Hoffman?

  His own trading desk, Genesis, which is part of his company, Digital Currency Group.

• 6:38Ryan Sean Adams?

  Okay.

• 6:38David Hoffman?

  The full circle nature of this story is absolutely insane.

• 6:41Ryan Sean Adams?

  Back to Barry, this is where the story starts, this is where it's actually gonna end when we get into it. I'm gonna pull out a few phrases here. Daisy chain of borrowers and lenders, he says, most well capitalized, some aren't, lots of leverage, he says, important to understand counterparty risk and where the weak links are in the chain.

• 7:04Ryan Sean Adams?

  What do we have here, David? This is a diagram, I think, you put together for this episode and maybe is kind of the different sections. All of these layers maybe represent dominos? Explain this for us.

• 7:14David Hoffman?

  Okay, so I stayed up like late last night because I was going down this rabbit hole. So I made this pyramid, Brian.

• 7:20Ryan Sean Adams?

  Happy Thanksgiving, by the way.

• 7:22David Hoffman?

  This was the 2021 bull market. So like the 2017 bull market was determined by ICOs, printing tokens out of thin air to fundraise, and they would buy Ether and USCC and that. And it was a bunch of printing tokens out of thin air, and that's what the ICO mania was. I regret to inform you, Ryan, that the 2021 bull market was the same damn thing. We had these yield farming, DeFi yield farming, pool twos. Remember pool twos with like 500% APYs? If you were like willing to take the risk of like other yield farmers to dump on you. So like pool twos with incentivized APYs and farmers would play chicken after they, after like everyone would want it to farm.

• 8:05David Hoffman?

  And then, and that was like, you know, crazy 100 to 1,000% APYs. That rested on top of the pool once, where it was lower risk, you weren't providing liquidity, you were just incentivized to stake your tokens, whether it's like, you know, whatever DeFi yield farm. You would stake your tokens and you'd get a yield, you didn't really have to have as much risk. Moderate 10 to 90% APYs.

• 8:28David Hoffman?

  That was the top of the pyramid. That was

• 8:30Ryan Sean Adams?

  DeFi summer.

• 8:31David Hoffman?

  That was DeFi summer and also like that. And then Solana, Avalanche, Phantom. That was their game as well after Ethereum took it over.

• 8:39Ryan Sean Adams?

  Okay, hold on, you're saying top of the pyramid, but actually, the way you're describing it, I almost think that this pyramid should be flipped on its head. Do you know what I mean? Like, so the top should be kind of like the weakest part, but that's where it really starts, right? It's like pool 2s and pool 1s, the DeFi summer is actually kind of like the start of the pyramid and what the full 2021 bull market builds into. Is that right?

• 9:02David Hoffman?

  Sure, it depends on your perspective.

• 9:04Ryan Sean Adams?

  Okay.

• 9:05David Hoffman?

  What we are looking at here is a risk spectrum as well. Where if you are at the top of the pyramid, you are on the highest end of the risk curve. You are the things with the most APYs, with the most risk, and then the risk actually gets lower as you go down, which is why-

• 9:18Ryan Sean Adams?

  The perceived risk gets lower?

• 9:20David Hoffman?

  No, no, the real risk. Like, it's just like, this is why people are concerned about Genesis and Digital Currency Group, because they are the foundation of all yield. All that yield, all that crazy speculation, all fell down at the end of the day to Genesis. And that's why we are talking about Genesis today and why we feel, I feel confident that this is like the last big domino to fall. Okay, so pool 2s, pool 2s and DeFi yield farms were supported by pool 1s. Pool 1s, which were the basic yield farm, that's where Alameda and Three Ours Capital got a lot of their money in the second half of the bull market. Head funds maxed out lines of credit from anyone that would allow them to borrow from them. This is what Alameda and Three Ours Capital did, and this is where so much contagion came from.

• 10:05David Hoffman?

  Because Three Ours Capital and Alameda borrowed from as many different lending desks as possible. BlockFi, Voyager, Celsius. And then when Three Ours Capital and Alameda went under, they took all the lending desks with them, except for- Alameda and FTX found a way to print a bunch of FTT to support all the lending desks. But ultimately, all of that money, all the capital to block five or your Celsius, where were they getting their yield? They were getting their yield from Genesis, the GBTC arbitrage, and ultimately, the whole entire digital currency group system. And that, Ryan, was the 2021 bull market. All of these high, high-risk yield farms ultimately was supported by the largest player in the game,

• 10:48David Hoffman?

  which was Genesis and also the arbitrage for the grayscale premium.

• 10:52Ryan Sean Adams?

  So you're telling me everything that happened in 2021, all of the price appreciation that we've now, by the way, walked back and reset, was just smoke and mirrors, was almost like a Ponzi scheme of stacking risk and stacking like, interest that wasn't really real?

• 11:10David Hoffman?

  Yes, and it was all in the whole reason why this whole thing worked was because we were able to print tokens out of thin air, which is the way that every single crypto bull run has gone since its genesis. So like, you want to go to then click on that tweet? You remember, remember this tweet that caused a bunch of like,

• 11:29David Hoffman?

  like crypto Twitter murmurings? Because this was the one that like Richard Hart responded to. And Richard Hart, like I tweeted out, okay, three hours capital is insolvent, Alameda is liquidated, FTX is insolvent. If all these people are insolvent, I ask then who made all the money? Richard Hart comes in like, hello there, it was me. Well, it wasn't him, Ryan. The actual answer is the next tweet. The actual answer is this guy who used this illustration of a neighborhood with 100 houses and has one sale for a million dollars. Therefore, the collective houses are worth 100 million dollars. But then the remaining 99 houses only sell for like 10% of that. So actually, like 91 million dollars of equity is actually gone. This is what happens when all these e-liquid shitcoins,

• 12:13David Hoffman?

  all the DeFi yield farming, all of the degeneracy high APY pool one and pool twos, when all of those tokens go down in price. The entire system gets wiped out because of all of the systemic risk that got built up by players like Three Arrows Capital and Alameda. And so that's what happened, Ryan. That's where the money went. We printed all these Bitcoins.

• 12:34Ryan Sean Adams?

  You're saying the money, the money was just not real. It was just fabrication. It was just numbers on a page. There may have been some people, by the way, that cashed out close to the top based on those valuations. Some few people walked away with with some amount of money. But what you're saying is the price of

• 12:52David Hoffman?

  They walked away with Bitcoin, Ether, USDC.

• 12:55Ryan Sean Adams?

  Yeah, yeah. Real monies, like hard monies.

• 12:58David Hoffman?

  Yes.

• 12:58Ryan Sean Adams?

  And left everyone else kind of holding the bag. And that's where we are. So now here we are. Genesis has what's reported to be like a $1 billion hole. People are now worried about the solvency of Grayscale and Digital Currency Group Empire. We're going to talk about that. And when we get back, David, I want you to walk us through this whole story. If you could, I think we just, we just saw the preamble, if you will. And I think what we're going to go through is I'll show you domino by domino. How these pieces were stacked and what caused to, what caused their fall? And what's going to happen next? So guys, stick with us. We'll be right back.

• 13:39Ryan Sean Adams?

  But first we want to tell you about the fantastic sponsors that made this episode possible.

• 13:44David Hoffman?

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• 14:28David Hoffman?

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• 15:11David Hoffman?

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• 15:53David Hoffman?

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• 16:24Ryan Sean Adams?

  Was the 2021 bull market just a gigantic Ponzi scheme in crypto? That is the central question we're raising in today's episode. And David has brought some of the receipts. Going to take us through the timeline here, all the way back in January 2021, when this Shakespearean tragedy started to first unfold. I think in order to set this story up, David... And do it justice. We should do a couple of things. First, we should set the stage where we were in January 2021. The feeling of the market, the prices, that sort of thing. And then we should talk about the key players. As any good, I guess tragedy does, we have to lay out the background and the actors and the players,

• 17:10Ryan Sean Adams?

  the characters that are going to be in this that are somewhat reoccurring as well. So let's talk about where we were. And I remember it actually coming out of December 2020. ETH was low in December 2020, or we had a show.

• 17:26David Hoffman?

  Four to $700 in December.

• 17:28Ryan Sean Adams?

  Four to $700. We had a show that was kind of like the bull case for ETH. And what was really interesting is DeFi had had its moment back the previous summer. This was a summer that came to be known as DeFi summer. This is the summer of 2021, where people realized that DeFi tokens were real things. Previous to that, all tokens were kind of dead. There was Bitcoin, there was a little bit of ETH, but then all of the other tokens, nothing mattered.

• 17:53Ryan Sean Adams?

  DeFi summer 2020 showed people that no tokens did matter and talk about yield farming, that sort of thing. But ETH was still kind of lingering in the 400s. Bitcoin had seen a moment. And there was this move of to say, all we need is Bitcoin and DeFi tokens. And there's no real use case for ETH. So ETH had not yet popped at the end of December 2020. So take us back to that feeling as we start this story in December and January 2021. What had the market done with DeFi? What was the price of Bitcoin? What was the price of ETH?

• 18:26David Hoffman?

  Yeah. So at the time, DeFi summer compound really announced the governance token. And that was the new primitive that everyone was super stoked about. This is how we're getting a decentralized ownership and control over these systems to as many people as possible. And that was the shiny new object that really incurred DeFi summer and the concept of yield farming to begin with. And like I said at the beginning, yield. Yield farming, liquidity mining was this era's ICO. And before the ICO era, there was the proof of work fork and fair launch phenomenon, which like almost zero tokens made it through. So like we had the 2013 bull market was the proof of work fork and fair launch. We just made a bunch of tokens.

• 19:09David Hoffman?

  2017 bull market was the ICO mania where we just made a bunch of tokens. The 2021 bull market, Ryan, was the DeFi yield summing era where we made a bunch of tokens. This time with yield. This was the thing. Yield was the thing that identified the 2021 bull market, not just at the very high risk end of the spectrum, but down all the way into how regular institutions got involved in crypto and why they got involved is because there was demand to borrow assets. And this is the story of how everything got built up and how everything fell apart. So if we're injecting ourselves into this story in January of 2021, which is kind of when the story starts, Ether began January at about $900. It ended January at $1,700.

• 19:53David Hoffman?

  Bitcoins, Bitcoin started January around $2,500, $25,000. It ended that January somewhere around $35,000 to $40,000. And so it's on. The bull market is on.

• 20:05Ryan Sean Adams?

  2021, people felt like the bull market was fully on and they were also hungry. I feel like maybe, maybe like we could start to inject terms like greedy and they're certainly hungry for more yield, right? Things were frothy like, oh, let's do that 2020 DeFi summer thing again.

• 20:22David Hoffman?

  That felt great. Let's do it all over again.

• 20:24Ryan Sean Adams?

  Yeah. And this starts to inject, I think this idea that we've seen in many cycles, David, is the concept of a metaphor. We call it the euthanasia roller coaster. This is a picture of the euthanasia roller coaster and it's a, it's a theoretical construct, but the physics of it would actually work. And basically you start the roller coaster and by the end of it, after all of the loops, you're kind of dead.

• 20:46David Hoffman?

  Yeah.

• 20:46Ryan Sean Adams?

  Like it's just been a one-way ride. There's no life left in you. But each of these loops, like describe this in some more detail and what's, where's the analogy fit? Because we've seen this in previous cycles as well.

• 20:59David Hoffman?

  Yeah, so again, proof of work for can fair launch. What happened? Somebody Charlie, Charlie Lee made Litecoin by forking Bitcoin. And that created like a, like a billion dollars in market cap. People saw that and they did that on repeat. They did that over again.

• 21:15Ryan Sean Adams?

  Another loop.

• 21:16David Hoffman?

  Another, another loop like, oh, that worked for Charlie with Litecoin. Let's make 17 other forks and then let's make 17 forks of that fork. Eventually it created a mania and then eventually people got fatigued and people just got done. And so they left, they left the, the bull market. Same thing with ICOs. What was the great big ICO that, that triggered the 2015 ICO mania? It was the 2015 Ethereum ICO, followed by the very successful 2016 Augur ICO. And all of a sudden, people realized that they could do ICOs to mint tokens and that would generate a bunch of hype and that's how you could do things. So it started off legit, it ended in tragedy. And so as the ICO mania went on, ICOs got the loops got faster and faster and faster.

• 22:00David Hoffman?

  Until people just got fatigued. These things were just way too scammy. Retail investors just lost all their money. And no new inflows of money came into the system. And then we had a bear market. This was of course, DeFi summer, the first OG yield farm, the first, the first liquidity mining event was Compound. Followed by every other DeFi app that had yet to issue a token, followed by copycats on Ethereum. Think about Sushi Swap, which I mean allegedly was Sam Bankman Fried. And then we had Avalanche, Solana, Phantom, all of these Ethereum, Ethereum killers show up and then start doing yield farms on their chains. And eventually people got fatigued, people stopped making money and the energy ran out of the system. But this is, this is the pattern of every single bull market so far.

• 22:46Ryan Sean Adams?

  The, the first few loops in the euthanasia or locoaster are fun and the last couple actually kill you.

• 22:51David Hoffman?

  Yep.

• 22:52Ryan Sean Adams?

  And that's how all bull cycles end, including this one. So we're going to talk about some of those loops. But as we get into this, the other thing to introduce is I think the players here, the reoccurring actors that are important. I want to talk about a few of them. First is the House of Barry Silbert. Okay. This is like. The Montagues and the Capulets, right, in their Shakespearean tragedy, the House of Barry Silbert. So Barry has been a crypto OG from the very beginning of crypto. I don't know, he might be, have been in crypto as long as like Eric Voorhees and people like this. Early Bitcoin holder for sure. But he decided to go the institutional route behind things. So he formed this company called Digital Currency Group.

• 23:36Ryan Sean Adams?

  There's a group within that called Genesis, which maybe you can explain some details. Also Grayscale, which is a trust type product, maybe you can explain that to us. And there are some other products he owned, including media. So CoinDesk is actually owned by Digital Currency Group. So talk about the House of Silbert and who is Grayscale and who is Genesis?

• 23:55David Hoffman?

  So Grayscale is this trust that what allowed people to have Bitcoin exposure on the traditional stock market. If you didn't want to go and set up an exchange that maybe you didn't trust. Maybe Coinbase is too sketchy for you because you are an institutional investor. You could just buy access, buy exposure to Bitcoin via the Grayscale Bitcoin Trust. The thing is, it doesn't trade one for one. And so the GBTC share on the traditional stock markets are a subject to market forces in the same way all assets are. Even though that they are backed by Bitcoin, they do not represent a one-to-one redeemable share for Bitcoin. Why not? Because we weren't, we aren't able to have a Bitcoin ETF. That an ETF would have solved this problem, but we don't have one of those.

• 24:38David Hoffman?

  So we have to have the next best thing, which is a Grayscale trust. There's a BTC trust, there's the Ether trust, there's a few other trusts. But the Bitcoin and Ether are the very big ones. So that's Grayscale. That is owned and operated by Digital Currency Group, which is where Barry Silbert started. Also, part of Digital Currency Group is Genesis. And Genesis is crypto's only, like, full-service prime brokerage. What is a brokerage? It's a custodian, it's an OTC desk, it's a lending desk. It basically, all financial services, all under one roof.

• 25:12Ryan Sean Adams?

  It's like a fidelity account or an E-Trade account or a Charles Schwab account, except for big institutions. Not for everyday users, not for mom and pops, not for retail, but for big institutions. It performs all of those services.

• 25:24David Hoffman?

  Yes, correct. And so these are the two big players. CoinDesk is also related here because they were actually the ones that published that Alameda report. But not really a key player here. But that's the House of Barry Silbert, that's the House of Digital Currency Group. This story starts there, it also ends there because that is where the contagion has finally come home to roost, back to where this whole thing began. But we'll get into how it began in a second, because how it began was some players in this game. The next house we're going to talk about are the house of the hedge funds. Three Arrows Capital, Alameda, both came into fame in 2019, 2020, and these are the people that spread out of the contagion. They are the things that connect everything because of how this bull

• 26:09David Hoffman?

  market progressed. They ultimately borrowed from whoever they could get their hands-on money, that wherever they could get their money from, they would borrow and borrow and borrow, and they are the middlemen of all the contagion. And so we'll get to that story as well. There's also, of course, the house of Do Kwan and Terra Luna, which probably started the cascade, was probably the first domino to fall. There's the ETH killers. I think you remember the acronym Soluna AVAX, Solunavax, if you remember that. And then, and then, of course, there's the house of Sam Bankman-Fried, also Alameda, FTX, and all of the Sam coins, FTT, SRM, Solana. And also, Ryan, the last player in this game

• 26:49David Hoffman?

  is the SEC and Gary Gensler, or what they chose to not do rather than do. So these are all the players.

• 26:55Ryan Sean Adams?

  The house of the regulators, the cops on the beat. Okay, so we've got our players, we've got our background, people hungry for yield, traveling on that euthanasia rollercoaster. Take us to Domino One. Right now, I think what we're going to do is we're going to lay out the major dominos that haven't fallen yet, but that are being stacked in a row. Yep, and they're being set up right now. So the first domino is in, back to December 31st, basically January 2021, Three Arrows Capital and the GDPC premium. Let's talk about this. And I think it begins with the SEC, our cop on the beat. We're looking at

• 27:38Ryan Sean Adams?

  an SEC filing for the grayscale Bitcoin trust for this product called GDPC. Why are we looking at this? Why does our story start here?

• 27:46David Hoffman?

  So this is actually a filing by Three Arrows Capital at the start of 2021. And if you scroll down, you'll see that Three Arrows Capital is declaring that they have become an owner of 6.1% of the total

• 28:01David Hoffman?

  GBTC supply, as in they own 6.1% of the trust. How did they get 6.1% of the GBTC trust?

• 28:11Ryan Sean Adams?

  They bought it, right?

• 28:12David Hoffman?

  They, they put up some money.

• 28:15Ryan Sean Adams?

  Okay.

• 28:16David Hoffman?

  But not with Grayscale. They put, they had some money. They had investors. Three Ours Capital got investors somewhere. They probably put up some of their own money. And what did they do? They gave their, they gave that money to Genesis as collateral to borrow Bitcoins. Because they could take those Bitcoins, because at this moment in time, Ryan, the GBTC, like I said, it doesn't trade one to one. It does, it's not equivalent to one Bitcoin. It is at a premium or at a discount to Bitcoin based off of the net present value of all the assets in the trust. And so for a long time, GBTC traded at a significant premium to actual Bitcoin. And so what, what could you do? You could take one Bitcoin, you could deposit it into the trust.

• 29:00David Hoffman?

  Six months later, you could receive and redeem a GBTC share, which had a premium associated with it versus the Bitcoin that you deposited. And then you could sell that premium and pocket that arbitrage.

• 29:13Ryan Sean Adams?

  Okay, so this is, this is an arbitrage opportunity for Three Ours Capital. And it seems like a riskless arbitrage opportunity, right?

• 29:21David Hoffman?

  With six months of time, but yes.

• 29:23Ryan Sean Adams?

  The context of this is Three Ours Capital just made a boatload of money. DeFi summer and all of the yield products and degening away over there. And now they're like, where's our next hit going to come from? And they're seeing this big juicy arb opportunity in between the spot price of Bitcoin and GBTC. And by the way, they're the only ones that can kind of access this. And when I say the only ones, I mean, large institutions like Three Ours Capital are the only ones. Because retail investors cannot buy this product from groups like Grayscale, OTC, over the counter, that is.

• 29:55David Hoffman?

  They cannot, they cannot produce this arbitrage.

• 29:57Ryan Sean Adams?

  They cannot produce this arbitrage.

• 29:58David Hoffman?

  They can only buy GBTC on the secondary market, right? They cannot mint new GBTCs.

• 30:03Ryan Sean Adams?

  Okay, so the Suzu Kyle Davies are like licking their lips. Here's another arbitrage opportunity. That's what our fund is set up to do is make money through our capital. It goes in and buys 6% of this product.

• 30:13David Hoffman?

  Right, but it's not like this coming in like ape into 6.1%. What do they do? They take, they take whatever winnings they got throughout 2020 and 2019.

• 30:22Ryan Sean Adams?

  Yes.

• 30:22David Hoffman?

  And I mean, you know, starting at February 2020, after the COVID crash, it was up only from there. So if you were in at 2020, February 2020, you're, you're making money, especially DeFi summer was probably the most lucrative time in the last like three years. And so 3R's capital takes all their money and they gives it not, again, not to grayscale, but to Genesis. They put up their capital, capital in Genesis as collateral and they buy as many Bitcoins as, borrow as many Bitcoins as possible. And they take it and they give it back to grayscale to produce GPTC.

• 30:51Ryan Sean Adams?

  So they're buying this on margin?

• 30:53David Hoffman?

  They are borrowing Bitcoins on margin from Genesis. However, the thing that is crazy is that grayscale and Genesis again are both under digital currency group. And so, hang on, let me open up a document to make sure I get this right.

• 31:11David Hoffman?

  Since they are both owned by digital currency group, there's this unique position that Genesis has because Genesis is like the only

• 31:21David Hoffman?

  from Genesis is the only authorized participant, AKA in crypto native speak, the only party that can mint and burn shares of GPTC. So when 3R's capital borrows Bitcoin from Genesis, they were actually giving it straight back around to Genesis because Genesis is the one that's minting GBTC in the first place. And so it's this very incestuous relationship between Genesis and grayscale that is the linchpin of this whole thing and why there's so much contagion. Because what Genesis, what Genesis would do is they would just like, hey, grayscale, come put up capital and then, and then have this free arbitrage opportunity.

• 32:00David Hoffman?

  And why, why is Genesis incentivized for this? Well, when you can take and Genesis is, is like giving out people for depositing their Bitcoins or giving them a yield Gemini earn, for example. If you come and deposit your Bitcoin in Gemini earn. Gemini gives it to

• 32:14Ryan Sean Adams?

  That's how it flows down to retail.

• 32:16David Hoffman?

  That's how it flows down to retail, right?

• 32:17Ryan Sean Adams?

  Access to these yields.

• 32:17David Hoffman?

  So retail gives their Bitcoins to Gemini Earn. Gemini Earn pays retailer yield. They Gemini gives that Bitcoin to Genesis. And Genesis pays Gemini and Earn. Gemini takes a percentage, passes that on to retail. Genesis allows Three Arrows Capital to take that Bitcoin and then convert it into GBTC through their sister subsidiary company, Grayscale. And the thing is, when that happens, Grayscale takes 2.5% yearly fees of all assets under management. And so there is this huge question as, what are the incentives of Genesis? Why does Genesis, what we think about this, like as a system, part of this overall system, it's Digital Currency Group.

• 33:00David Hoffman?

  Digital Currency Group makes more money, the more assets are under Grayscale's management. So if Genesis can get all of the Bitcoins into Grayscale, that means

• 33:10Ryan Sean Adams?

  It's a revenue engine for

• 33:11David Hoffman?

  It's a revenue engine, right? And so all they have to do, all Genesis has to do is create this arbitrage opportunity that allows people like Three Arrows Capital to come in and arbitrage. And so they do. And so Three Arrows Capital milked the absolute F out of this premium. And so at some point in the early 2021, that premium, which is what we're looking at here, that is all premium and you can like all of that premium on the left half

• 33:36Ryan Sean Adams?

  It's the arbitrage opportunity.

• 33:37David Hoffman?

  Is the arbitrage opportunity. At some point in very early 2021, it gets milked and the premium goes to a discount. This is

• 33:45Ryan Sean Adams?

  Because everyone's doing the same trade, basically.

• 33:46David Hoffman?

  Everyone's doing the same, well, Three Arrows Capital is like leading this trade, but everyone starts to follow them because of how incredibly lucrative and profitable it was. And so it's actually a big problem when the premium goes to a discount because this was, Ryan, the original yield farm. The GBTC premium arbitrage opportunity was Three Arrows Capital yield farming as much possible out of this premium. Who and who is buying that on the other side? It's any retail investor or anyone who's buying GBTC on the other side of the trade. And so that is who Three Arrows Capital is milking.

• 34:20Ryan Sean Adams?

  Retail is doing this because like Their money is generally it's stuck inside a retirement account, for instance, or some sort of locked institution that doesn't have access to spot. This is not a real ETF type product. It's just a trust type product. So they kind of have to buy if they if they want to buy here. What what are we looking at here, David? What is this chart?

• 34:41David Hoffman?

  Yeah, so this is, well, this is the Barry Silbert that we talked tweet that we talked about earlier. This is when after this week, we go from January to May and we have that first crash. And Barry Silbert starts to see, why is Barry Silbert the one that has all this information about this daisy chain of borrowers? Because he created it. Digital Currency Group incentivized the creation of this daisy chain. That's why Barry Silbert can see it. And so when going back to like the discount versus premium on the GBTC, this was the first domino to fall, but it actually didn't cause too many problems in that moment, where all of the GBTC that Three Ours Capital and others that held as collateral under Genesis or BlockFi or whoever, when that turned into a discount, that was bad because they start to become underwater.

• 35:26David Hoffman?

  But at the same time, Bitcoin is up only, Ether is up only, like the part of this part of the market is like up only. And so this is the second part of this this whole like setup.

• 35:36Ryan Sean Adams?

  Yeah, so let's talk about that. So that's the first domino, but like Three Ours Capital, they're feeling good right now, right? And so what do they do? This is the second domino to get to get put up there, which is Three Ours Capital. They're taking their winnings and they're actually deploying it into crypto. And some of maybe what we might call at this point in the rotator's rotation is what Three Ours Capital are, they just rotate in and out of things. The blue chip assets like ETH and Bitcoin. So what are we looking at here, this tweet?

• 36:04David Hoffman?

  Yeah, so domino number two is Three Ours Capital takes their winnings from this and they go long on Ether and Bitcoin. And then this tweet, and particularly fast forward to November, where we actually skip into domino number three, where after

• 36:18Ryan Sean Adams?

  November 2021.

• 36:19David Hoffman?

  Yeah, November 2021, where they they take their Bitcoin and Ether winnings and they start to go even further out on the risk curve. And so they, 2020 for them was milking the GBTC premium. That premium turns into a discount in February of 2021. So 2020, they were milking the GBTC premium. 2021, that premium turns into a discount and they but they've made enough money to go long on Ether and Bitcoin. And that was the first half of the year. That was the first half of 2021. But then they start to go out on the risk curve. And so this next tweet is 3O's Capital leading a $230 million investment into Avalanche tokens. And so that happened on September 16th, 2021.

• 37:04David Hoffman?

  I think that's the next link, Ryan, if you want to click that one.

• 37:06Ryan Sean Adams?

  Yeah.

• 37:08David Hoffman?

  So this is, yep, Polychain 3O's Capital lead $230 million investment into Avalanche. Importantly, Ryan, locked AVAX tokens, illiquid AVAX tokens. The next two, the next two tweets here says Suzu being bullish on Soluna AVAX. And this was a tweet, like hashtag, that got really, really popular. And it's because they were going out on the risk curve. They, they were done with Ethereum and they were going on to the Ethereum killers. This next tweet is Kyle Davies, Davies being bullish on Luna. When was this next tweet? Want to click on the next tweet?

• 37:42Ryan Sean Adams?

  Yeah, this is from March 28th.

• 37:45David Hoffman?

  March 28th, the beginning of 2022, right? And so 3O's Capital went out on the risk curve. They borrowed a bunch of money from Genesis. They won with Ether and Bitcoin. They started to go out on the risk curve with Soluna AVAX, right? Remember all this, remember this phase in the bull market?

• 38:02Ryan Sean Adams?

  Yeah, are you guys seeing that euthanasia roller coaster of the circles getting smaller? Like, we just went through the, so what's happening is 3O's Capital and, you know, other degen hedge funds like them are doing similar kind of trades. But they just made a whole bunch of money on DeFi summer. They're coming in, right now they're coming back and they're arbitrage, using arbitrage opportunity in GBTC, right? They're making money at the beginning of 2021 in that way. And then, and they're going margin long, by the way. And then they're pouring that into blue chips like Bitcoin and ETH, right? And then that's not enough. They've kind of milked that and then they rotate down the risk curve or up the risk curve, I suppose we might say, into the Soluna AVAX communities.

• 38:43Ryan Sean Adams?

  And then by the time we get to you, this tweet from Kyle Davies in March of 28th, 2022, all of the previous things have not been enough. So now you could see they're getting ready to rotate into Luna. And you could just, it's so transparent because what they are doing as degen hedge fund. Managers, of course, is they want to, you know, what the saying is, fill then chill. So anytime you see a Kyle Davies or a Suzu tweeting something like this, Kyle Davies goes, "Grandpa, what would the world look like when Luna was less than three digits?" It's less than three digits now, Kyle. Definitely a lot less. And he's tweeting that because he's hyping up a fill that they had previously made. He's hyping up the Luna rotation that they're in.

• 39:26David Hoffman?

  But also, remember, Ryan, their foundation is underwater. Their GPTC collateral, which is their collateral in Genesis, is below when they bought it for. They're not insolvent.

• 39:36Ryan Sean Adams?

  Wow, that's right.

• 39:37David Hoffman?

  But this whole time, GBTC is supporting their loans and that they don't want to pay back because they'll take the loss on it. So they got the one, they got, they got the dub on Bitcoin and Ether. And then they got the dub on Solana, well, actually, they missed Solana, Avalanche and Luna. But they need to go out on the risk curve because they don't want to sell their GBTC because it's underwater.

• 39:58Ryan Sean Adams?

  Yeah. Well, so far, they're getting the wins, right?

• 40:01David Hoffman?

  They're so far, they're getting their, they have one big loss because they didn't sell their GBTC, but they're still stacking wins.

• 40:06Ryan Sean Adams?

  Okay. And then take us to, so this tweet is March 28th of 2022. And guys, I just want you to remember that time, timeframe we were in. It was basically like alternative layer ones were kind of kings and boss. You know, Luna was kind of the, the next Ethereum killer. And people like Kyle Davies and Suzu and Three Ours Capital were trader gods. Okay. Everybody else was wrong. All the holders were wrong. The Bitcoiners were wrong. The Ethereum people were wrong. And these were trader gods, where they're like top of their game, like pristine reputation in the last couple of years of making money every single cycle. That's where we left things in March 2022. But David, we've got these three dominos that I think we've, we've kind of stacked up.

• 40:50Ryan Sean Adams?

  And then something happens with old Jerome Powell around this time.

• 40:55David Hoffman?

  Right.

• 40:55Ryan Sean Adams?

  Tell us about the macro story, because if we're looking for an outside actor, the one that actually pushes these dominos over and starts to cause the cascade that we now see up to November 2022. Have to like, I think Jerome Powell was the finger behind this initial push of the domino. What are we looking at here?

• 41:16David Hoffman?

  Right, so this is in February. Inflation surges 7.5% on an annual basis, up highest since 1982. And so not long after that, the Federal Reserve starts hiking interest rates. Remember that, that episode we did with Macro Alf, Brian? Where interest rates and bond market volatility are at the bottom of the pyramid? Well, in the bottom of the crypto pyramid, it's all about low rates. Because this bull market was a bull market on yields. We were printing free money because risk was free. And these yields were like, there were zero yield in the normal markets. Because that's because the interest rates were set to zero.

• 41:56David Hoffman?

  But as soon as the Federal Reserve gets into the game of in jacking up interest rates. That shifts the whole entire crypto pyramid. Because this was a bull market on rates, on yields. And when the Federal Reserve increases interest rates, it pulls down yields from the whole rest of the stack.

• 42:15Ryan Sean Adams?

  This is what starts to happen. And this is the federal funds rate, a historical chart. And we could see, right? This is what we're starting to see in April 18th. So the federal funds rate, April 18th was about 0.33%. And of course, now we are, here we are today, about 4%. One of the fastest, steepest inclines in history on that rate. So the risk on days are over for crypto and for the cost of capital. And we are now moving to a risk off regime. Guys, this is the first part of the story. This is the part of the story where Powell tips over the first domino. And the rest of them start to collapse. We're going to tell the rest of that story when we come back.

• 43:00Ryan Sean Adams?

  But before we do, we want to thank the sponsors that made this episode possible.

• 43:04David Hoffman?

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• 43:46David Hoffman?

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• 44:29David Hoffman?

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• 45:14David Hoffman?

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• 45:47David Hoffman?

  And of course, Terra is the first domino to fall. An unbacked algorithmic stablecoin, of course it is, of course it is, it's the most risky thing. A stablecoin with nothing behind it. But first, before it falls, they have to prop up their reserves, right? And so this is coming in, when was this, April 7th? Terra buys $200 million of AVAX tokens to bolster their reserves beyond Bitcoin. An interesting choice because of how illiquid and, and non-collateral like AVAX was. On May 5th, the Luna Foundation Guard, if you guys remember that, buys $1.5 billion in Bitcoin. $500 million of that came from Three Ours Capital and it would be later revealed, Ryan,

• 46:32David Hoffman?

  that 200 million of that purchase that got sent from Luna to Three Ours Capital, 200 million of that was USDT. USDT, of course, went to zero. And so-

• 46:44Ryan Sean Adams?

  So Genesis bought that?

• 46:46David Hoffman?

  Uh, Three Ours Capital.

• 46:47Ryan Sean Adams?

  So Genesis did an OTC swap and they also did an OTC swap with Three Ours Capital.

• 46:54David Hoffman?

  Three Ours Capital, out of the $500 million of Bitcoin that Three Ours Capital sold to the Luna Guard Foundation, Three Ours Capital agreed to take $200 million as USDT for compensation for that. Now remember-

• 47:08Ryan Sean Adams?

  Yeah, look at this, the OTC swap includes 1 billion USDT for 1 billion worth of Bitcoin. Imagine trading USDT, which is on its way towards zero, just people don't know it yet, for a billion worth of real assets, which is Bitcoin.

• 47:21David Hoffman?

  And then it actually, and so people, this was the event that actually triggered the collapse of UST where UST liquidity was sold off for Bitcoin. And so there was not much to prop up. There was not much liquidity left to prop up UST. And so this happened on May 5th. May 5th, Luna Foundation Guard buys 1.5 billion dollars of Bitcoin. May 13th, Luna UST collapses. So just eight days later. And this was also, Ryan, the beginning of the end for FTX. So if you want to go to the next link, this is where the contagion really starts to hit. And this was a, this is an article out of Decrypt that was, had a ton of analysis from Nansen.

• 48:05David Hoffman?

  Nansen has been going on chain, trying to track all the money that happened as a result of this. And so in 4 billion, this is when 4 billion dollars in FTT token tracked from Alameda to FTX aligns with a report of FTX loans to Alameda using customers' funds. And so this is where the House of Sam enters the story, and the House of Alameda, and the second hedge fund to trigger a bunch of contagion enters the game.

• 48:30Ryan Sean Adams?

  Okay, so where are we in the story? So we've got the fourth domino, which is the collapse of Terra. Now that has tipped over. Again, Powell is kind of the finger at the one end of the dominos. That tips over. And by this point in the story, has Three Errors Capital gone under yet?

• 48:47David Hoffman?

  They are about to. I'm so happy you asked.

• 48:49Ryan Sean Adams?

  They are about to. Is that what's next?

• 48:51David Hoffman?

  Yeah, so I would say like domino number five, if we want to add on dominos, Ether and Bitcoin are about 50% off of their highs in this present moment, right?

• 48:59Ryan Sean Adams?

  Okay.

• 49:00David Hoffman?

  The federal, this is when you and I are doing a bunch of macro shows, we're understanding interest rates, we're understanding inflation, everyone's kind of learning about interest rates for the first time. Ether peaked out at $4,800, Bitcoin peaked out at $69,000. And by this moment, right at the end of that red square, Ryan, which goes from about middle of November to the start of June, was all of that. Like, this was pre-Terra Luna collapse. And so pre-Terra Luna collapse, Bitcoin and Ether are 50% off of their, excuse me, about 60% off of their highs. And that is the collateral base for Three Errors Capital, for Alameda. But not only that, because Soluna Vax, which I think is at the next?

• 49:44David Hoffman?

  Link? No, no, it's not. It's just like this is Suzu just talking about the super cycle, right? So Luna AVAX, which was the other collateral base for Three Ours Capital is off 80% off the highs.

• 49:56Ryan Sean Adams?

  No way.

• 49:56David Hoffman?

  In this moment, before the, before the Terra Luna collapse happens. So at this moment, Three Ours Capital is in an extremely tough spot. So if you're in a tough spot, Ryan, as a hedge fund with a bunch of illiquid collateral that you can't sell, what do you do?

• 50:13Ryan Sean Adams?

  Narrative spin, my friend. Narrative spin. And yeah, I don't know.

• 50:17David Hoffman?

  You also borrow from any lender that will give you money. You also forge documents and defraud investors to give you more capital so that you don't have to sell anything because Suzu and Kyle Davies were so goddamn delusional that they were doing the whole super cycle thing that the entire industry fell for. So they were pounding their super cycle chests while they had.

• 50:37Ryan Sean Adams?

  What is the super cycle for people who don't know?

• 50:39David Hoffman?

  The super cycle, Ryan, was the cycle of crypto that we get two cycles instead of just one. And so while it might have felt like we were off on at the end of one cycle, we were actually going to go on and begin a second bull cycle. That was the narrative that Three Ours Capital led. And they needed that narrative to be true because they were locked up in a liquid shitcoins.

• 51:01Ryan Sean Adams?

  Basically, the way I remember it is, you know, we've always had boom and bust cycles in crypto like forever, right? And so the narrative around the super cycle was like, those days are over. Now we're mainstream. Now we have like suits, we have like FTX, we have Wall Street here. And like, and so that's not going to happen anymore where we've matured. And so we'll get blips down, but gone are the days where you see a down 83% Bitcoin. Like that was last cycle stuff. Gone are the days where you have Ether off 90% all time highs, right? This is kind of a new era. And boy, were they wrong. They got a lot of people on that, though.

• 51:37David Hoffman?

  Yep.

• 51:38Ryan Sean Adams?

  You know, would you count yourself among one of the people that was kind of seduced by the super cycle?

• 51:43David Hoffman?

  Yeah, dude, it was intoxicating. Their super cycle idea was super intoxicating. It's like, oh yeah, like the one cycle to to rule them all. Like, yeah, I'm on board with that.

• 51:53Ryan Sean Adams?

  Sounds nice.

• 51:54David Hoffman?

  Right. And but and so like, that turned out to like, start to become threatened, right? And this is where Three Ears Capital started to increase the level of contagion that they had. They borrowed from anyone that would ever give them money, like the big lending desks like BlockFi and Genesis, down to like the C-tier lending desk that would give them any amount of money, down to the money that they stole from people that traded on their accounts, right? So this is one of the, rather than becoming humble and selling for a loss, they doubled down, they borrowed as much money as possible, and they increased the amount of contagion in the system. And that was just as a result of the Terra Luna collapse, which was a big part of their position. But that was just the start of it.

• 52:41David Hoffman?

  Yeah, let's see, where are we at? Where are we at here? Okay, so this was in June 1st. Interestingly, June 1st, while the, well, the whole entire industry is on fire, FTX passes Coinbase in market share, while the next day Gemini lays off 10% of its staff to prep for winter. So FTX somehow doing great, yet Coinbase, yet starts to beat Coinbase in market share, and while in contrast, Gemini starts to laying off people. And this is when you and I, when we were reporting on the Thursday Weekly or the Friday Weekly rollup, you're like, yeah, FTX is coming to save the day. FTX is just like this huge story of just like success.

• 53:20Ryan Sean Adams?

  It was, it basically seemed like, okay, so at this point in the story, we were at, what, like, June or so?

• 53:27David Hoffman?

  June of 2022.

• 53:28Ryan Sean Adams?

  And there was more, there was contagion, right? Obviously, from the Terra Luna collapse and Three Ears Capital went completely down, a whole bunch of other funds were completely wiped by this whole mess. And what it looked like is the, the, the exchanges and the funds left standing were the ones that were responsible with their funds. They were the ones that made it through the storm and came out stronger, and Alameda was among those. Look at FTX is like surging on the back of this relative to Coinbase, whereas Gemini is like laying off 10% of its staff. So it looks like there's a changing of the guards here.

• 54:06Ryan Sean Adams?

  The move, move fast kind of exchanges and like funds are the ones that have made it out. But that was all a facade, as we later learned. But what's this tweet from Grayscale here?

• 54:19David Hoffman?

  Yeah, so we're going to take a quick rabbit hole here because in this moment, Grayscale had previously, or Grayscale, yes, they hired this guy, Donald B. Verilli, who's a former Solicitor General of the United States as an illegal counsel. And they put a thread together as to why. And basically, if you just want to skip forward to the Jake Travinsky tweet, Jake is, oh, I guess I didn't put that in there.

• 54:43Ryan Sean Adams?

  I don't know if I have that.

• 54:44David Hoffman?

  Basically, I'll just read it out because I have it in front of me. Somebody asks, hey, Jake, just to check my reasoning on this. They are hiring this individual because they want to sue the SEC. When in a few days, the Grayscale request to turn the GBDC trust into an ETF. Well, the SEC has to give an answer in like two or three days. And Grayscale is predicting that the SEC is going to give them a no. So they are hiring this legal counsel to take them to the Supreme Court. And Jake Travinsky is like, yeah, this is exactly what they're doing.

• 55:15Ryan Sean Adams?

  Okay, but so Grayscale wants to convert their GDBC product to a real ETF, right? It's like kind of Pinocchio wants to become a real boy. And this trust product is not a real ETF and they want to convert it to a real ETF. By the way, that would be great, wouldn't it? Because this would be a more capital efficient, retail friendly product. And there, retail is already buying these trust products, which are trading off of like NAV or not like necessarily, you know, you're getting ripped off potentially if you're buying this product. You don't know how it's just trading off the spot market price of Bitcoin and ETH. And so they want to convert this. So the entire industry is cheering them on. Is there some other ulterior motive towards converting this?

• 56:00Ryan Sean Adams?

  Or do you think this is a real sort of pure motive from Grayscale saying just like, let's make this thing an ETF? What would that solve for the kind of contagion story here?

• 56:11David Hoffman?

  The timing of this is really interesting because in this present moment. GBTC is the collateral for Three Arrows Capital and so many others in this space. Smaller people that, you know, we don't say their names because they're just not as big as Three Arrows Capital. But GBTC is the collateral that is backstopping a lot of these loans. Also, the loans coming out of Genesis, a big player here. In this moment, in, when is this, June 7th of 2022, the discount on GBTC is negative 30%, as in there is 30% of Bitcoin collateral that is not being accounted for because it's not an ETF. As in, anyone that is using GBTC as collateral is only accessing 70% of the total potential collateral

• 56:55David Hoffman?

  that is there in Bitcoin, but they aren't able to tap into all of that collateral because of the discount on the GBTC trust because it's not an ETF.

• 57:05Ryan Sean Adams?

  And so that's a lot of problem if you're using GBTC as your margin, as your collateral source for a loan that you take against it.

• 57:15David Hoffman?

  It's a huge problem, right? I mean, like, you cannot have the GBTC price go down, especially when Bitcoin is going down, but the GBTC token price is going down even more than that, right? So like in January, when Bitcoin was like $69,000, then back into, moving forward into July, it was something like $25,000. That's bad, but the GBTC price went from above 30 to negative 30%. So it had an additional negative 60% move versus Bitcoin. And so Grayscale is preparing to sue the SEC to get the Grayscale GBTC trust to turn into an ETF and fix this discount that is sucking up so much capital out of the industry. Anyways, we'll come back to that later.

• 58:00David Hoffman?

  First, we have to get to this first round of contagion. So a bunch of dominos have started to fall. The Block 5 valuation goes from $4 or $5 billion down to just, what is it? $1 billion in their attempted raise in June 7th. That $1 billion valuation does not last. And let's see, what's the next one? And then as a result of this, and this is the middle of 3Rs Capital has, this is the title out of CoinDesk, 3Rs Capital Faces Possible Insolvency After Unforeseen Liquidations, right? And so this is Terra Luna going to zero, this is their Ether and Bitcoin like losing 60%. They have locked Avalanche tokens. If they were in Phantom, that thing's at zero. And so they don't have any money left.

• 58:43David Hoffman?

  And so this is, they are getting liquidated because they borrowed all this money to backstop any of their loans so they couldn't have to sell. But then the final nail in the coffin, which is Terra Luna, closes and they start to get liquidated.

• 58:56Ryan Sean Adams?

  BlockFi liquidated them as well, one of the others that liquidated them.

• 59:01David Hoffman?

  Yeah, so lingering on that for a moment, it's actually unknown how big of a hole 3Rs Capital left in BlockFi, but this is definitely when the BlockFi troubles start. So 3Rs Capital, it's liquidated by BlockFi at the same time BlockFi becomes significantly insolvent.

• 59:17Ryan Sean Adams?

  Well, it's the story of this, like at the, at the far end, at the, at the tail of this human centipede of like greed and yield is like retail.

• 59:25David Hoffman?

  Yep.

• 59:26Ryan Sean Adams?

  Which is like, if you, if you wonder where, not in all accounts, but like say for example, BlockFi, how is it generating the yield on ETH and BTC? It's this whole process of arbitrage between GBTC and Bitcoin and large funds and Genesis, they're all kind of tied up in this and retail is kind of like just downstream of these yield. They just get a smaller cut than the big guys, right? So 3Rs Capital is making a lot of money on this arbitrage and this shows up in like maybe a 3 to 4% yield in BlockFi at the other side of this. But when that opportunity goes away, the yield goes away too. And so does some of the margin that has been kind of protected against this. The same story with Voyager.

• 1:00:09David Hoffman?

  Before you move on, Ryan, in that, in that article right there, there's a line here that says, "A substantial amount of the Bitcoin that customers deposited at BlockFi was directed to GBTC." Or 3R's Capital. As a result, a large number of BlockFi's Bitcoins are illiquid. So where was, in addition for 3R's Capital was paying BlockFi to borrow from them. BlockFi was also taking customer funds and working the GBTC premium, just like everyone else. But they could, once the net asset value went negative, they couldn't redeem that because it was underwater. So not only 3R's Capital needed the trust to turn into an ETF, BlockFi also needed that too. They were doing the same thing that 3R's Capital was.

• 1:00:53David Hoffman?

  So here's a Voyager. Of course, we all remember Voyager gave 3R's Capital an uncollateralized 660 million dollar loan. So that's not bad. So that went to zero. But then Alameda comes in with $200 million in cash and a USDC revolver,

• 1:01:13David Hoffman?

  $200 million in USDC as a line of credit, along with 15,000 BTC intended to help Voyager meet customer needs during this liquidity crash.

• 1:01:22Ryan Sean Adams?

  Good old Alameda, Sam's empire.

• 1:01:23David Hoffman?

  Thank you. Alameda saving the day.

• 1:01:26Ryan Sean Adams?

  And that's why at this point in the cycle, you were like, well, if Alameda's bailing companies out, like they must be doing okay.

• 1:01:32David Hoffman?

  Right.

• 1:01:32Ryan Sean Adams?

  Must have cash while everyone else is like underwater. And so that seemed to be bullish for Sam's empire and the house of Samcoin here.

• 1:01:41David Hoffman?

  And you know, that's the first of two. FTX also backstops BlockFi to keep them solvent. So BlockFi valuation drops down to as low as $25 million after being as high as $5 billion just a year prior. And FTX gives BlockFi a $4 million line of credit to keep customers liquid. And the quote from this article, FTX CEO Sam Bankman-Fried has been seen as the lender of last resort in the space. In addition to BlockFi, Sam Bankman-Fried's company Alameda Research also provided a $5 million loan to Voyager. So this is where SPF really like rose and saved the day. Like everyone else was insolvent, FTX seemed to be the one solvent one in the room. And he just bought up and backstopped the entire industry.

• 1:02:27David Hoffman?

  Turns out that that was not the case. Turns out that he was not the lender of last resort. That turned out to be Genesis, which we'll get there.

• 1:02:35David Hoffman?

  This is Zach Prince's thread announcing, very happily announcing that he was going to be able to restore customer deposits, thanks to FTX.

• 1:02:43Ryan Sean Adams?

  It was really a lifeline at that time.

• 1:02:45David Hoffman?

  It was a lifeline.

• 1:02:46Ryan Sean Adams?

  Who would have gone under without it?

• 1:02:47David Hoffman?

  Meanwhile, the Dominos continue to follow Theras Capital's files for bankruptcy in the British Virgin Isles. This was announced on July 1st. On July 18th, Genesis was discovered to have lent $2.36 billion to Theras Capital using only an 80% collateral margin requirement. And so, 20% of $2.4 billion. That hurts. And of course, they are seeking repayment of the outstanding debt through arbitration in New York. A spokesperson for DCG told the block that both DCG and Genesis' balance sheets remain strong. With no remaining exposure to Theras Capital, Genesis continues to be well-capitalized and its operations are business as usual. That might have been true.

• 1:03:32David Hoffman?

  Here's Michael Morrow, which I found this tweet while I was staying up super late.

• 1:03:35Ryan Sean Adams?

  Who's he? Who's this guy?

• 1:03:36David Hoffman?

  He is at DCG, former CEO of Genesis Trading. I found this tweet, which says, "Since then, we worked with DCG to find the optimal strategy to further isolate the risk. DCG has assumed certain liabilities of Genesis related to this counterparty, that's Theras Capital, to ensure we have the capital to operate and scale our business for the long term." Basically, DCG bailed out Genesis. And that's where one of the big holes in Genesis comes to be, or DCG as a whole.

• 1:04:05Ryan Sean Adams?

  You know, so much was going on in July that I don't think I really noticed this so much, right? We were all like, okay.

• 1:04:11David Hoffman?

  We didn't know what it means.

• 1:04:12Ryan Sean Adams?

  Teradata blew up, Theras Capital blew up, you know, is retail going to be okay? Celsius, we'd missed Celsius, but of course, they were long gone by July.

• 1:04:20David Hoffman?

  Yeah, Celsius, I actually went through this agenda and deleted all the Celsius mentions because they just went under, under their own steam.

• 1:04:27David Hoffman?

  Apparently she didn't have any contagion.

• 1:04:29Ryan Sean Adams?

  Can't even blame anybody on the instance. It was just Alex Mashinsky was like degen gambling with the company funds. Okay. And then what's this?

• 1:04:37David Hoffman?

  This is the summary, right? July 22nd, Suzu says that Terra and GBTC led to three Arrows Capital insolvency.

• 1:04:44Ryan Sean Adams?

  This is like their retrospective interview, right? It's like, why did things go wrong? And they point to what? GDPC trades?

• 1:04:51David Hoffman?

  GBTC and Terra Luna as the big ones. But of course, they never sold, they never took profits, they were up only, it was a super cycle. And yeah, they just got, they Icarus too hard.

• 1:05:04Ryan Sean Adams?

  So I think we're a domino five now that has fallen. All right. And this is where um.

• 1:05:09David Hoffman?

  So things are like, starting to like settle out. The dust is starting to settle. And we're like, was that the bottom? Like, are we just crab market from here?

• 1:05:16Ryan Sean Adams?

  It felt really bottoming.

• 1:05:17David Hoffman?

  It felt very bottoming.

• 1:05:18Ryan Sean Adams?

  Wait, was it in July or was it later in August?

• 1:05:20David Hoffman?

  It was the end of July when things started to calm down and we didn't really make new lows.

• 1:05:25Ryan Sean Adams?

  Prices were low, like ETH price was down to like new lows. Did it spike down to 800?

• 1:05:30David Hoffman?

  850 was the low, but that was, that was in, that was in like July or June or something.

• 1:05:35Ryan Sean Adams?

  Yeah. So that's where we are. Okay. So now domino six. Enter FTX, the FTX fraud, which we have now uncovered, which people didn't know about at the time. Nobody knew about this. But there is some, I guess, records, some things on the blockchain, because of course, all of your transactions, all of your fraud is, when you put it on chain, it's always on chain. This is from Nansen. I think you have some like maybe stats to read out about FTX and some of the things that they've they were tracking retrospectively. This is a report they put out last week, it sounds like.

• 1:06:09David Hoffman?

  Yes.

• 1:06:09Ryan Sean Adams?

  Okay, tell me about this.

• 1:06:11David Hoffman?

  Okay, so three big transactions. On the 12th of May, FTX transferred 90,000 Ether, 211 million dollars and 6.8 million FTT tokens, 224 million dollars to Alameda. The Alameda address is 0x780, which was then transferred to Genesis. That same day, FTX sent another 155,000 Ether, 320 million dollars to Alameda.

• 1:06:37David Hoffman?

  Which then eventually was transferred to Genesis once more. May 26th of this year, FTX sent 3.5 million FTT tokens, 1.103 million dollars to Alameda Research, which was eventually transferred to Genesis once more.

• 1:06:52Ryan Sean Adams?

  Well, I noticed all of these transfers are only going in one direction. This is FTX to Alameda, not the other way around.

• 1:06:59David Hoffman?

  And then Alameda to Genesis.

• 1:07:01Ryan Sean Adams?

  Why to Genesis?

• 1:07:02David Hoffman?

  Because Alameda had loans from Genesis that they needed to collateralize. They were about to be margin called. This was the FTX bailout. This is how FTX plugged the hole temporarily. We were, the whole industry was just like gushing, flesh ruined. And FTT, or excuse me, FTX and Sam Bankman-Fried, she says, I know what can plug that hole. FTT tokens.

• 1:07:25Ryan Sean Adams?

  Is it FTT tokens?

• 1:07:27David Hoffman?

  Yes. It's a bunch of Ether and also FTT tokens.

• 1:07:30Ryan Sean Adams?

  Okay, where's that Ether coming from?

• 1:07:32David Hoffman?

  Those are probably customer deposits, Ryan. Those are the customer deposits.

• 1:07:37Ryan Sean Adams?

  So Alameda gets a hole blown in it, like a bazooka hole. And then, and then Sam is doing the thing where like, here's the Band-Aid over that. And what am I going to do? FTT tokens, which is a basically a valueless token that I can mint and have, you know, unlimited access to, and then depositor funds.

• 1:07:58David Hoffman?

  Yep.

• 1:07:58Ryan Sean Adams?

  Very likely through this.

• 1:08:00David Hoffman?

  Probably investor money to like wherever they could get their hands on. So like the big question was, where did Alameda get all the money to be able to bail out the, bail out the industry? And the same rules to answer this question apply to where Three Arrows Capital got their money to try and plug their holes when they were underwater right before Terra collapsed, which was wherever they could get their hands on to cash. Customer deposits on FTX, which Sam made sure that he was able to do with that custom backdoor.

• 1:08:31Ryan Sean Adams?

  In the accounting system.

• 1:08:32David Hoffman?

  In the accounting system. They also minted funny money, FTT that they used as collateral to borrow from anyone who would take it regardless of its liquidity profile. Genesis then took that FTT as collateral and the $2 billion that they raised from investor money. But this was the capital that FTX and Alameda were using to plug the holes of the Luna collapse.

• 1:08:54Ryan Sean Adams?

  Is it very strange to you that Genesis is using all of these weird, like funny money tokens as collateral? Like, to me, I would be like, my collateral is dollars, it's Bitcoin, and it's ETH. Anything else, I don't even know about. Like, don't even come to me with your FTT tokens. I don't, I wouldn't accept that as collateral. I guess they, they thought that maybe they hedged against these things. But of course, they didn't. Um, is this, uh, where do we go to next?

• 1:09:21David Hoffman?

  Uh, yeah, so this is just a summary. Uh, Genesis received over a billion dollars of FTT tokens from Alameda and FTX within the last three months. Surprisingly, the hole in Genesis is about $1 billion. Weird.

• 1:09:34Ryan Sean Adams?

  Meanwhile, uh, on the SEC side versus Grayscale, uh, what are we looking at here? What's, um, the House of Gary Gensler doing at the SEC?

• 1:09:42David Hoffman?

  Yeah, so this is the June 29th announcement that Grayscale initiates a lawsuit against the SEC because the SEC denied their request to turn the GBTC trust into an FT, into an ETF. Uh, and so, uh, they, in this thread, they, they say, "Through the ETF application review process, we believe American investors overwhelmingly voice a desire to see GBTC convert to a spot Bitcoin ETF, which would unlock billion dollars of investor capital while bringing the world's largest Bitcoin fund further into the US regulatory perimeter. The SEC is failing to apply consistent treatment to a similar investment vehicles and is therefore acting arbitrarily and capriciously in violation of the Administration Procedure Act and Securities Exchange Act of 1934."

• 1:10:25David Hoffman?

  Why? The timing of this, to me, Ryan, is really interesting. I think, you know how we, we started this whole thing with Barry Silver saying, "Hey, there's a daisy chain of borrowers and lenders. Some are capitalized, some are not." The timing of this, when is they sue the SEC, the moment that the industry needs the GBTC trust to convert to an ETF the most.

• 1:10:46Ryan Sean Adams?

  Oh, right.

• 1:10:47David Hoffman?

  The thing that would bail out most of the industry and would actually plug the hole rather than a liquid exchange tokens like FTT would be the unlocking of all the capital that would, that is lost.

• 1:10:58Ryan Sean Adams?

  Because right now, GDBC is way underwater. It's trading at a massive discount to NAV. And what's happening is this is making all of the collateral on Genesis basically underwater. And it is kind of like rocking the entire foundations of this crypto lending and borrowing institutional market. And Sean and Sean here is maybe it's like, obviously, the whole crypto industry can get around this because we want a ETF product rather than having trust products. But also selfishly, they kind of need it to bail out Genesis. And all of the large institutions that are kind of underwater on their GDBC collateral and ETH collateral, is that right?

• 1:11:41David Hoffman?

  Yeah, that's right. Meanwhile, what's the SEC doing? Charging Kim Kardashian for touting crypto securities. That's what, in this same timeframe, that's what the SEC was up to.

• 1:11:52Ryan Sean Adams?

  Do you think, do you think Gensler's playing 4D chess here? Where he like knows how much pain the crypto industry is in and is like, I'm not doing this right now. I'll just let you guys get crushed.

• 1:12:01David Hoffman?

  The conspiracy hat is on right now, man. Like, this whole thing seems like Gary Gensler is like, hey, if I don't allow for the GBTC trust to convert to an ETF, the whole crypto thing will, will like.

• 1:12:15Ryan Sean Adams?

  You think he knew that? I don't know.

• 1:12:16David Hoffman?

  He probably didn't. But man, is it just like, the scripting on this is insane, man.

• 1:12:23Ryan Sean Adams?

  Yeah, the script writers have outdone themselves in season 2022 of crypto. All right, so that's the sixth domino. And then the seventh domino is when we start to see the fraud. This is the most recent domino to follow. And this takes us to, I think, like, maybe three weeks before that domino fell. So right now, we're coming, we're in October, we're like, oh. That was tough. Wow. What a...

• 1:12:48David Hoffman?

  Yeah, glad that's over.

• 1:12:50Ryan Sean Adams?

  Glad that's over. We had all of the underwater funds, they're out of here. The algo stablecoins are out of here. Now we have the players that are remaining, which is like finance, Coinbase, the responsible exchanges, the responsible funds like Alameda. Good job, guys. You're bailing people out. Thank you so much. Oh, and FTX, of course. You know, Tom Brady supports you.

• 1:13:09David Hoffman?

  So thankful.

• 1:13:10Ryan Sean Adams?

  You're still here. And then Sam starts to weigh in. This is Sam Bankman-Fried on crypto regulation. That's where we're picking up the story with Domino number seven. So this is the famous tweet thread on his current thoughts on crypto regulation.

• 1:13:25David Hoffman?

  Yeah, this is, of course, where a lot of people started to pay attention to Sam Bankman-Fried. What's he doing over there? And of course, the FTX blog, possible digital asset industry standards. I thought DC Investor had a pretty good take, which I put next, which was, SBF is the most effective value extractor in crypto. He's very transparent in that he wants to siphon value out of your account into whatever causes he claims to care about. Couldn't care less about decentralization. Meanwhile, NPCs and simps worship him like a hero. This was in October 19th, Ryan. This was before all the people, we all realized that FTX was insolvent.

• 1:14:00Ryan Sean Adams?

  What's interesting is when I saw this tweet from DC Investor, and of course, silently, I'm nodding my head, being like, this could very well be true. This is probably true. And yet, you want to give people the benefit of the doubt, right? And so, how do you steel man Sam Bankman-Fried's arguments around regulation? So, you know, DC, October 19th is painting him as a pure villain. And that was not at all clear at the time that he was. Of course, he turned out to be.

• 1:14:31David Hoffman?

  I think the wording "siphoning money out of your account", it's just like so prescient, man. Like, that's exactly what happened. And remember how I said, like, when Three Hours Capital went under, the last thing that they did was they maxed out the contagion of the system. They were underwater on GPTC. They were down bad on Bitcoin and ETH. They were down even worse on Soluna AVAX.

• 1:14:54Ryan Sean Adams?

  Just borrow money from wherever.

• 1:14:56David Hoffman?

  Borrow money from wherever you can get.

• 1:14:57Ryan Sean Adams?

  From your depositors.

• 1:14:58David Hoffman?

  Unsecured from Voyager, BlockFi, like investors, wherever you can get forged documents. So you don't have to sell.

• 1:15:05Ryan Sean Adams?

  Well, you know, you know, Sam was like, when this recovers, I'll pay all the depositors back.

• 1:15:09David Hoffman?

  Oh, I'm sure.

• 1:15:10Ryan Sean Adams?

  I mean, like, you know, that's true. It wasn't the long term plan to to just be in a a constant state of like, not having a one to one backing of all of the Bitcoin and ETH on these exchanges. Uh, this is kind of the the gambler's play. When you're down bad, you borrow and then double down some more.

• 1:15:25David Hoffman?

  Right. And so, yeah, this is the exact, there's like the through line between SBF and Three R's Capital. Was that in their last moments, they levered up instead of levering down.

• 1:15:35Ryan Sean Adams?

  Instead of saying sorry.

• 1:15:37David Hoffman?

  Instead of saying sorry.

• 1:15:38Ryan Sean Adams?

  We screwed up, but we don't want to make it worse. They just were trying to save.

• 1:15:41David Hoffman?

  Their egos got in the way. They loved their personalities and they refused to take the L. It was wins. It was going to be a win or destruction. And that is the commonality between both of these parties. And as a result of their ego, Ryan, they made choices that maxed out the contagion in the system, which we are now feeling to its massive effect today, but we're still not there yet.

• 1:16:07Ryan Sean Adams?

  Okay, so so this is FTX at this point in time and Sam was, you know, weighing in on crypto regulation as if everything in his house was like fully in order and he's just helping the crypto industry have a seat at the table with with regulators. Meanwhile, this was the first big report that came out of CoinDesk, right? And so many dismissed it as FUD, as fear, uncertainty and doubt at the time. But this report really revealed that Alameda and FTX were kind of interlinked. And the balance sheet between these organizations was not looking too healthy. That came out on November the 2nd.

• 1:16:43David Hoffman?

  This is because what happened was that all the real money, the USCC, the Ether, the Bitcoin and FTX was paid back to all their margin calls and all they had left was FTT. And so they were minting FTT to backstop Alameda. And this was also when like a lot of the confusion as to like, all right, where's the line between Alameda and FTX? I don't really know. They're just like swapping FTT tokens between each other. And so CZ, as a result of this report, in a bunch of on-chain analysis, I'm sure, realizes that he's like the last big bag holder of FTT. That is where FTT is being used as collateral everywhere. And so CZ is like, well, I'm not going to be like SBF's like.

• 1:17:29David Hoffman?

  Exit liquidity. Exit liquidity, right? Like I'm going, he's going to be my exit liquidity. So if he's going to do this to me, no, I'm going to front run him. I'm going to dump all of my FTT because I'm not going to be. Very publicly. Very publicly, right? And so because Binance invested in FTX, they had a bunch of FTT tokens. And so at once this report that came out that showed that FTT was being used across the SAM universe as collateral for all of these loans. He's like, well, that puts FTT in extremely precarious position. I would like to actually cash in on my investment into FTX before it goes to zero. And so I'm going to start selling. That is where the FTX empire gets punctured.

• 1:18:08David Hoffman?

  Here he is like tweeting out like here, here's me moving to almost 600 million dollars of FTT tokens to move to Binance. And then I really like this tweet, this next tweet, which of course CZ retweeted. Let's be clear, Binance did not define SBF stance on the bill that's going to regulate DeFi or debate Eric Voorhees on the merits of FTX stance and regulation. Or shippost on Twitter or like ruin Alameda's balance sheet or fail to address the concerns of FTT liquidity. Basically, all of this was Sam Bankman-Fried's doing, right? This was his contagion. This was his responsibility. And then CZ really just drives a point home. Two big lessons, never use a token you created as collateral. Don't borrow if you're going to run a crypto business.

• 1:18:53David Hoffman?

  Don't use capital efficiently, have a large reserves. And then Binance says, Binance has never used BNB for collateral. We have never taken on debt.

• 1:19:02Ryan Sean Adams?

  This is the striking point of, this was November 9th when we realized, we were first realizing that there was an absolutely massive hole in FTX and Alameda balance sheet. And it just struck me because out of that original regulatory post that Sam Bankman-Fried laid out, we actually invited him onto Bankless to have a debate with Eric Voorhees on the merits and the path forward for crypto regulation. And of course, you guys will remember, SBF was giving the case for why DeFi should be much more harshly regulated, including DeFi front-ends. And he was saying that if we don't do this, far worse things will happen.

• 1:19:43Ryan Sean Adams?

  This debate was going on in the midst of a $10 to $16 billion hole on the FTX and Alameda balance sheet. Well, this guy in the background knows he has tried to cover the Alameda hole by taking depositors' funds from mixed exchange, and he has the audacity, the audacity to argue for greater DeFi, you know, regulation. It was just an incredibly bizarre, you know, episode to have happened. And I tweeted this, "11 days ago, we hosted a debate in crypto values with a billionaire who is secretly gambling away billions of dollars of depositors' funds. This guy was lecturing us, David, on crypto regulation while committing the biggest fraud in crypto history."

• 1:20:27David Hoffman?

  That same day, he finds out that FTX tapped into customer funds to try and plug its $10 billion hole. That was actually where it created the hole. Crazy, crazy timeline. Back to the SEC, resume that rabbit hole. Here's a tweet that I really liked. "By failing to create an ETF for Bitcoin, the SEC, one, allowed the grayscale GPTC trade to rip retail investors for five-plus years. It's created a GPTC negative premium, forced most crypto trading outside of the US jurisdiction, and let FTX's fraud hit millions of Americans it shouldn't have." Ouch. This is where I just get on to like this simulation scripting, like conspiracy theories. Like, you could not, as the SEC...

• 1:21:13David Hoffman?

  Created a worse environment to protect retail investors in 2021 and 2022. They created what like one of the biggest reasons why the contagion was so bad is the SEC is a it's 300's capital's fault, it's FTX's fault, and it's also the SEC's fault.

• 1:21:32Ryan Sean Adams?

  Yeah, they certainly created the circumstances that led to this and for kind of the arbitrage and greed and I guess closed room meetings to kind of happen, right? I mean, if we just had an ETF product from the beginning, this GDPR arbitrage would not have been there in the first place. I do think they play a role, but but certainly, we can't say that they are the reason that this happened to crypto.

• 1:21:57David Hoffman?

  They were a significant player.

• 1:21:59Ryan Sean Adams?

  Well, obviously, the greed, the margin trading, the yield chasing, all of the things happening out of 2020 in this effort to get more and more and more, right? We can't, you can't just blame the SEC for like FTX and what Sam Bankman Fried was doing with Alameda versus like, there are so many unethical players involved in this at this point in time that it's just, yeah, it's a it's a it's a house of actors. This is a this was interesting, too. Why'd you include this this piece here, the story of Coinbase dropping its lend program?

• 1:22:36David Hoffman?

  Yeah, so Coinbase, which didn't have like an earned program with Genesis in the background, I think they wanted to make this lend program where you could get yield on your deposited assets and they would get yield via their own routes asynchronous, independent from grayscale from from GBDC from Genesis. But the SEC denied them. The SEC said, hey, if you guys do this line program, we're going to see you sue you. And so like we had this systemic like lending desk daisy chain of borrowers and lenders that Barry Silbert talked about and Coinbase wanted to make this onshore US regulated lending program and the SEC said. If you guys do that, we're totally gonna sue you. And so Coinbase had to drop it. It's absolutely insane.

• 1:23:20David Hoffman?

  And then remember Brian Armstrong's tweet thread about like how they want to go toe to toe with the SEC? And he starts off the tweet threads like really sketchy behavior out of the SEC. And so like, come on, like all the onshore regulated stuff we can't do. Pushed it all offshore, push it all unregulated, allowed for the FTX fraud to happen, allowed for the three hours capital to defraud investors. And this created this extremely toxic situation outside of the jurisdiction that they were able to regulate.

• 1:23:50Ryan Sean Adams?

  Yeah, you're muted.

• 1:23:54Ryan Sean Adams?

  It's interesting about this though, David, is like, I'm not sure why Coinbase lend got the ax, but like Gemini's earn program didn't. For example, and BlockFi was still able to exist and some of the other institutional mentors were still able to exist. It does feel very arbitrary, I guess. Uh, what's this tweet showing us?

• 1:24:14David Hoffman?

  This is Colin Wilhelm says Gensler, who was pressed on CNBC as to why the SEC had gone after lower hanging targets in the crypto space. And if he was hoodwinked by FTX after meeting with them in March. Uh, Gensler replies, building the evidence, building the facts often takes time.

• 1:24:32Ryan Sean Adams?

  Okay. This is a response to Elizabeth Warren, who of course, this is November 9th. Blamed the crypto industry for the largest collapse in history, shows how much crypto, she says, uh, the industry is uh, smoke and mirrors. And Brian Armstrong replies, FTX was an offshore exchange, not regulated by the SEC. And he says, the problem is this, that the SEC failed to create regulatory clarity in the US. So American investors going, need to go offshore as well as 95% of trading activity. Punishing US companies for this makes no sense. So regulators created this loophole for uh, some of the, the big villains in this story.

• 1:25:12Ryan Sean Adams?

  To uh, to exploit retail anyway, by not approving things and not letting the good guys have a path forward.

• 1:25:20Ryan Sean Adams?

  So now are we here?

• 1:25:22David Hoffman?

  Now we are at present times.

• 1:25:23Ryan Sean Adams?

  Present time. Okay, so we've just sped around through all of this. We're almost here. This, the contagion started to feel like it was spreading beyond just the Sam FTX empire and other things, of course. When, I think my first inkling of this, there was a tweet before this, but when Gemini Earn paused their accounts. And so if you were part of Gemini Earn, you could no longer withdraw.

• 1:25:49David Hoffman?

  That happened later. So this is November 9th, this tweet that we're looking at, and Gemini Earn paused on November 16th.

• 1:25:55Ryan Sean Adams?

  Okay, so they paused November 16th. So I wasn't even paying attention to this because so much was going on and just like following Sam's tweet threads. But what is this tweet from Genesis on November 9th?

• 1:26:04David Hoffman?

  Yeah, so November 9th tweet from Genesis, and that date's important because the timeline events start to speed up. "We want to provide an update on where things currently stand with our lending business. In anticipation of the extreme market volatility yesterday, we hedged and sold collateral resulting in a loss of $7 million across all counterparties, including Alameda." The Genesis saying, "Hey, we took a $7 million haircut, but it was to control risk." The next day, Genesis tweets out and says, "We also had $175 million in locked funds in our FTX trading account. This does not impact our market making activities." Fast forward six more days, Genesis halts withdrawals in the wake of the FTX collapse.

• 1:26:45David Hoffman?

  And so their lending desk is shut. Gemini Earn is now unable to do a facilitate customer redemptions because they use Genesis in the backend. And so getting closer and closer. And then this is Grayscale tweeting out on the 16th, so four, six days ago. "In the wake of recent events, our investors should know that the safety and security of their holdings underlying Grayscale digital asset products are unaffected." This is basically saying, "Hey, there's Grayscale, there's Genesis, there's a firewall between these things, unlike Alameda and FTX." So I could see how you guys would get that confused.

• 1:27:21David Hoffman?

  But the assets inside of Grayscale did not go to Genesis. It's actually the other way around.

• 1:27:28David Hoffman?

  And this is where we come to today, or just more recent times. It's apparent, from the rumor mill, we haven't really seen this confirmed, that DCG owes 1.1 billion dollars to Genesis via an undisclosed promissory note that has been hidden from potential investors, which now indicates why Digital Currency Group is doing a 1 billion dollar raise, which apparently that they cannot find investors for. And so this timeline of events is kind of a big oof. So, November 8th, no material net credit exposure. November 9th, we lost 7 million dollars. November 10th, oof, okay, we actually lost 175 million dollars. November 16th, sorry, no new withdrawals. November 17th, okay, we need to borrow and raise a billion dollars. November 21st, we'll go bankrupt without the money.

• 1:28:13David Hoffman?

  It is now, Ryan, November 22nd. That was yesterday.

• 1:28:18Ryan Sean Adams?

  Let's, uh, let's start looking. Has CZ tweeted anything? Has Barry Silbert tweeted anything? Have any of these people weighed in on things?

• 1:28:25David Hoffman?

  Yeah, so Barry Silbert recently tweeted out something. I haven't had the time to, uh, to look at it yet.

• 1:28:31Ryan Sean Adams?

  Should I pull that up?

• 1:28:32David Hoffman?

  Yeah. So, yeah, so that was the last two years.

• 1:28:37Ryan Sean Adams?

  Okay, I mean, we're gonna summarize this, uh, right now, but this looks like a very long Dear Shareholders, um, uh, message from Barry Silbert.

• 1:28:46David Hoffman?

  This got tweeted out about an hour ago, yeah.

• 1:28:47Ryan Sean Adams?

  Tweeted out an hour ago. That brings us to the current time. So, current time, what everyone wants to know is, is Genesis going under? Right? Is, uh, GDPR C backed, uh, all the Grayscale products? Is that, is that backed by assets somewhere? And there's some kind of, um, shakiness as to whether, like, GDPR C and, uh, ETH, the ETH products from Grayscale are backed. And Coinbase has, has come out and said they're in Coinbase custody. It's all good here. But there's some, like, FUD going on about that. I don't know what's true and what's not. And the big question is, is Genesis going to get a bailout here? Are they gonna be able to raise, uh, funds or not?

• 1:29:30Ryan Sean Adams?

  Word on the street, uh, recently is that CZ looked, as he looked at, uh, SBF's balance sheet, and FTX Empire's balance sheet. balance sheet and said, nope, I ain't touching it. Also did so with the Barry Silbert empire and stepped away. So now here we are. Have you, as I was talking, had a chance to scan through this, uh, this letter from Barry? What's it saying?

• 1:29:52David Hoffman?

  Yeah, the, the line, they, they're basically going through a recap and saying, hey, uh, we are, we borrowed, DCG borrowed a loan from Genesis. Alongside of hundreds of other crypto investment firms, it's a normal thing that we did, normal business operations. Uh, and in that third paragraph, that third big paragraph, he goes, aside from the Genesis global capital intercompany loans due in May 2023. And the long-term promissory note, DCG's only debt is a $350 million credit facility, a small group of lenders led by Eldridge. And so the chatter that I've heard on crypto Twitter, so I've seen my notifications pop up is that, um, uh, the contagion is perhaps not as bad as people thought.

• 1:30:33David Hoffman?

  However, I will remind people that this is a picture of text and not a verifiable on-chain view source that is DeFi. So we are still just trusting people. Uh, but right now people seem to be like, okay, the contagion's not so bad. But I don't think we will really know until time.

• 1:30:51Ryan Sean Adams?

  So we don't know if Genesis is going under yet. Uh, for, for those that have deposits in Gemini or in it's very, it's contingent upon what happens with, uh, with Genesis. I think you're not going to have any answers until the market knows what to do with Genesis. It seems like the GDBC products and ETH products, I mean, they're all likely fully backed by the ether and Bitcoin behind them. And the big question is if this is the last domino to fall, um, is this going to take down the digital currency group empire, the house of Barry Silbert with it? Or is the house of Silbert going to survive another bull bear market, uh, and what will become of Genesis?

• 1:31:34Ryan Sean Adams?

  David, what kind of contagion do you think will, will come following out of this? And by the way, I, I've seen the chat as we've been talking about this. Also ask about a few other things that like, in these types of markets, everything is in question, right? It's like people are saying, let's get all of our funds out of all of the exchanges. People are saying, uh, USDC is not safe. People are saying tether's not safe. All of these other things.

• 1:31:56David Hoffman?

  Fear is everywhere.

• 1:31:57Ryan Sean Adams?

  Fear is everywhere. So by the way, what I would say is general practice, I hope we have learned at this part in the cycle is don't keep your funds on exchanges, people.

• 1:32:05David Hoffman?

  All bankless for a reason.

• 1:32:07Ryan Sean Adams?

  Go bankless as soon as you can. So that goes without saying and is at any stage in the market. Use an exchange like a public bathroom. Get into your stuff, get out. Okay. So that now like we're going to hammer that home as long as we can. But do you think this is the last domino to fall? Or do you think that there are other landmines here waiting for us? Like in a stable coin, God forbid tether could explode. What do you think about this?

• 1:32:29David Hoffman?

  Well, if we don't have as much clarity as DeFi will give us, then we just don't really know. But there's a reason why I put that pyramid structure at the very beginning with the pool twos at the top and grayscale Genesis GPTC at the bottom.

• 1:32:46David Hoffman?

  I the gen, this is the epicenter in my opinion. And this is why I started off this, this whole entire thing stating that, I can't remember what the term for this Ryan is, but there's this term in musical composition where you start like a musical piece. You take the end and you place it at the beginning and then you play that. You play the beginning, which sounds like the end. This sounds like the outro, but then, then it starts. So you start the whole song with the outro and that's what it feels like is going on right now. We started this conversation talking about how three errors capital was the missing, was the link between grayscale and Genesis. And they would borrow a Bitcoin from Genesis and they would give it to grayscale.

• 1:33:30David Hoffman?

  And that would prop up the GPTC trade. The reason why the GPTC premium is negative is because so many people did this, including three hours capital. This is where Genesis started making a ton of money. And it's because they were able to facilitate these trades, but they were also able to incentivize the siphoning of money out of retail investors, out of Gemini earn, out of FTX, out of whoever wanted to get yield. Because again, Ryan, the marker of the 2021 bull market was yield. Where did that yield end up going? Into the grayscale Bitcoin trust, which they could then charge 2% of the AUM as a yearly fee. And that was printing money for digital currency group.

• 1:34:14David Hoffman?

  And so all of this yield that we got from 10,000% like 10,000, 10,000% DeFi yield Ponzi pool twos with stacked on top of pool ones stacked on top of Alameda and three hours capital stacked on top of Gemini earn. Like all of these lending desk block five Voyager was stacked on top. Of Genesis, which was an umbilical cord to the grayscale Bitcoin trust. And that was the foundation of all of the yield that happened over the last 18 months. And why, Ryan, I feel like this is, this is the foundation. Since the, all of that collapse, the collapse of illiquid, high-risk assets because the Federal Reserve turned on interest rates,

• 1:34:59David Hoffman?

  that all of that came collapsing down and now we're at the bottom. This is the end.

• 1:35:04David Hoffman?

  You're muted.

• 1:35:06Ryan Sean Adams?

  So Genesis was the tube connecting this whole human centipede contraption together, basically. And this, this kind of does go back to like the dominos, right? It turns out the dominos were stacked, but they're kind of in a circle. I think this might be the last domino to fall in the circle. And we certainly hope that's true, but it goes back to the, the tweet that we started with Barry Silbert, the prophet.

• 1:35:28David Hoffman?

  Why did Barry Silbert see this before everyone else?

• 1:35:31Ryan Sean Adams?

  2021, that summer, there's a daisy chain of borrowers and lenders in the crypto space. Some are not well capitalized, lots of leverage in the ecosystem, including some non-obvious places. Important to understand the weak links in the chain, the weak links in the chain. And so that brings us to, I think, the question we, we started this episode with. And maybe the realization that, that we now have, which is like, if you look at all of the gains of 2021, and even early part of 2022, it now looks like all of those gains were a scam. What I mean is just like

• 1:36:09David Hoffman?

  2021 bull market was a Ponzi scheme, Ryan. What the hell is our industry?

• 1:36:15Ryan Sean Adams?

  Nothing real happened, probably, post-January 2021. Yes. In terms of fundamental value and utility. And this is how markets go, by the way. This is also how 2017 happened. There was a point at which, like the price of crypto and particularly Ethereum kind of caught up to the hype. And then after that, it was all kind of ICO raises and smoke and mirrors and nothing, nothing, nothing. Do you remember the euthanasia roller coaster? Okay. The first couple of loops feel pretty fun. They're actually valuable. By the ninth loop or so, you're dead.

• 1:36:50David Hoffman?

  Sick.

• 1:36:50Ryan Sean Adams?

  You're actually dead. G-Force has killed, well, you're dead. So you, I mean, you will be dumped off, right? So this is, this is essentially how these cycles go. And it's, it's, what's interesting to me is like, remember we started this episode trying to explain all of this with in January 2021, what was the price of ETH? It was a thousand dollars right now. Well, where are we? We're back to ETH at a thousand dollars. And that, the reason I say ETH is because um, it's kind of like, for me anyway, it's sort of like that blue chip asset of like, it kind of is, yeah, it's the benchmark asset for me. It's really what I denominated in uh, like, to a lesser extent Bitcoin, but much more ETH than Bitcoin for me. And look, we've just erased all of the gains from 2021 Ford.

• 1:37:35Ryan Sean Adams?

  But now maybe there's some hope in that. Okay. Because we, there was fundamental value from uh, back from like 2016, uh, you know, up, up, up to now. We didn't even have DeFi in the 2018 cycle when, when, when the bull market came crashing to a halt. We were propelled into another bear market. Now we have all of this stuff. Maybe a fair price for that is around hot, very low four-digit ETH. Maybe that's the fair price. And we just hit the rewind button and now we're in a rebuild phase again. That's what this is telling me as well. And so much has evaporated. Um, but also the feeling that like, David, um, I'm buying ETH this week.

• 1:38:18Ryan Sean Adams?

  Um, you know, it's not quite triple digits, so I'm not deploying like everything, all the dry powder for that. But like, we are approaching lows, I think. We're approaching the end to all of the token years, right?

• 1:38:33David Hoffman?

  No more pool twos. When's the last time you heard the phrase pool two?

• 1:38:36Ryan Sean Adams?

  Yeah, it's all gone. Um, so wow, I guess we could have like stopped the podcast in January 2021 and then just resume now? And been okay?

• 1:38:49Ryan Sean Adams?

  Without all of the pain and learnings?

• 1:38:51David Hoffman?

  The other big takeaway that I've gotten from this is like, one of Vitalik's takes was that he was really glad that we haven't had ETFs approved, because if we did, all of our Ponzi shenanigan games would have gone into retail investors even more. Like, that's what he said, like, the world, we are, as an industry, not ready for an ETF, because look at the games that we play.

• 1:39:14Ryan Sean Adams?

  But they still did. That's the thing, is they still did. They still found their way and squeezed in there. You can't actually plug that. You know, there's no way to kind of plug that, because the way they found their way to retail was through like three steps of the human centipede. If you had to go through Genesis, and then Three Hours Capital, and then ultimately you got your yield in Gemini Iron. So retail still found these things. So I don't think, I don't even think that would have protected us. It's just, if you're playing the crypto game, right? You have to kind of protect yourself. Don't invest more than you afford to lose. Careful, when you look at that yield, where does it come from? Do you know?

• 1:39:58Ryan Sean Adams?

  Look, man, crypto is volatile enough, like, maybe don't go after yield. Take, stake your E, just hold it. There's all sorts of lessons coming out of that that we've learned, but do you feel somewhat defeated, like?

• 1:40:11David Hoffman?

  Yeah, dude, this is the second bull market that I've been through, where both of them are just gigantic Ponzi schemes. And like, is that just what crypto cycles are? Is like, we just find a new way to find a new Ponzi scheme? And then like, dude, what, how many times, like, the reason why I was-

• 1:40:28Ryan Sean Adams?

  It was real, it was real until, it was real and, look at-

• 1:40:32David Hoffman?

  It was real until it wasn't.

• 1:40:34Ryan Sean Adams?

  It was real until the end of 2020. That was all legitimate, and like, yes, we have built something real here. And then it stopped being real. And it's no mistake to me, like, there's no accident to me that we see people like Chris Berninski, like, kind of check out, you know, sometime early 2021, be like, this is stupid. This has gone too far and start to get bearish. It's because he saw the signs of just the kind of Ponzi game smoke and mirrors that happened after that. But that doesn't mean, David, that each cycle we haven't built, you know, things that didn't exist the previous cycle and just kind of added, like, our- Our bottoms are are lower, right? And I mean, our last bottom was 80 ETH. We're not even going to touch that this cycle.

• 1:41:18Ryan Sean Adams?

  Like, look, I, you know, I don't trademark like, but like, we're not going there, not even close. Um, so.

• 1:41:26David Hoffman?

  Yeah, the timing of that Molly White episode where she's like, yeah, but like the what crypto brings to the table versus the harm that it creates like is not worth it.

• 1:41:33Ryan Sean Adams?

  But she's gonna be right. She's gonna be right in the short run, but wrong in the long run. I think it's the kind of the arc of critics.

• 1:41:41David Hoffman?

  So how many more cycles are Ponzi schemes versus when we actually have sustainable real world use cases? How many more Ponzi?

• 1:41:49Ryan Sean Adams?

  What if it's every cycle? What if it's every, it's every cycle I've been in? I mean, it's kind of the Bitcoin fork mania.

• 1:41:56David Hoffman?

  Is that like our new branding is like, hey, guys? Come in during the bear market, stick around for the bull market, make sure that you exit at the top of the Ponzi scheme and don't, don't go on loops four through 10. Get off at loop three of the euthanasia roller coaster.

• 1:42:11Ryan Sean Adams?

  Just dollar cost averaging the whole time and just don't play the games and just like back to, I remember that the, like the first bankless post, uh, we wrote about like Bitcoin and Ether are the only assets that matter. And that was a thesis about like crypto money and value accrual in the base protocol, right? Um, there's other assets that are going to be important as productive assets, but like those are, and I'm back to like, what am I excited about right now? It's primarily Ether, like I'm kind of back to that post from, um, you know, 2019. It's a full, it's a full reset. Um, so yeah, that's, I guess that's the other lesson from all of this. Um, wow. Waste of time. I don't know.

• 1:42:53Ryan Sean Adams?

  I don't know what the last two years have been, David, but, um, they've been something. I feel older.

• 1:42:58David Hoffman?

  I remember, I remember like getting so optimistic and just happy about like NFTs and how they were going to come and like revitalize human culture and like, like allow artists to like create.

• 1:43:12David Hoffman?

  And like, oh, crypto is finally here. Like, we made it through the 2018 to 2020 bear market, and we're finally mainstream now. And then I look at all the shenanigans that we got up to in 2021. I'm like, dude, we are so far away.

• 1:43:24Ryan Sean Adams?

  I'm just reminded of two things. One thing is something that Vance Spencer said in another podcast, which is like, you measure the success from cycle to cycle, not by the peaks, but by the troughs, right? And so what's kind of the lowest point? That's the actual value. Measure trough to trough rather than peak to peak. Okay, that's the way you make sense of these markets. So that's kind of the investor tip. And the other thing is, somebody asked me earlier this week, hey, this market's pretty bad. Like, the 2022 bear market is pretty bad. Like, have we ever been through something comparable? Do you still think, because they heard me say that, you know, 2018 was still worse? Do you still think 2018 was worse? And I just want to come back and say,

• 1:44:05Ryan Sean Adams?

  having been through these market cycles, I think I speak for many of the veterans is, yeah, 2018 was still a whole lot worse than this.

• 1:44:14David Hoffman?

  I don't know. I'll push back on that.

• 1:44:16Ryan Sean Adams?

  Okay, well, so let me state my case, and you can give me the pushback. The difference for me is 2018 felt like we might not make it, like, we might not recover. So the difference to me was like, Ether still didn't, Ethereum didn't have product market fit. Bitcoin did. I knew Bitcoin would recover, but I didn't know that there'd be a future in crypto for smart contract platforms, for anything beyond Bitcoin. And Ether was just like, I don't know, it could actually die. It might not be able to scale. It might not be like, do all of these things. And so that was existential. This time, I am not at all worried about the existential risk of the core crypto assets,

• 1:44:57Ryan Sean Adams?

  like Ethereum, for example. And last time was much different than that. So, last time I was a little, it was much harder to press the buy button in the depths of the 2018 bear market. It is not so hard now in 2022. And that's why I kind of measure it. But yeah, what's your perspective on this? Do you think it's worse?

• 1:45:16David Hoffman?

  I 100% agree with that take. Whether or not this current bear market is worse than the 2018, like, crypto peaked at December of 2017, and it bottomed in like, December of 2018.

• 1:45:30David Hoffman?

  Which one was worse? Ether and Bitcoin went down way more in last bull market than this bull market.

• 1:45:36Ryan Sean Adams?

  Eighty-three percent for Bitcoin, ninety-five percent for ETH.

• 1:45:39David Hoffman?

  Right, and so by that measure, this bull market or this bear market's not as bad. However, in 2018, well, I guess we had ICOs and ICOs kind of went down ninety-nine. Maybe that was pretty damn bad.

• 1:45:51Ryan Sean Adams?

  Not just ICOs, like Cardano, like all sorts of things went down that hard.

• 1:45:56David Hoffman?

  Cardano came back, actually, so.

• 1:45:59Ryan Sean Adams?

  I did, yeah.

• 1:45:59David Hoffman?

  Yeah, like Substratum, like remember those, like stupid ICO tokens, those went to zero. So maybe, maybe that was worse. But the things I don't remember in 2018 was an exchange as equivalently large as FTX go to zero and take all used customer deposits with it. Same thing with Celsius, same thing with BlockFi, same things with like people that attracted retail.

• 1:46:23Ryan Sean Adams?

  Yes, it's affected more innocents.

• 1:46:25David Hoffman?

  People that owned Bitcoin and Ether, like, oh, we're only down sixty percent versus the eighty-five to ninety-five percent. But some people, Ryan, are down a hundred percent, and a lot of them are retail.

• 1:46:36Ryan Sean Adams?

  Yes, I, I see. When you, when you invest your money, like you think you're putting your money into a centralized exchange, you think that's a bank type experience.

• 1:46:46David Hoffman?

  Remember Luna, like Luna DeFi, it's great, twenty percent yield.

• 1:46:50Ryan Sean Adams?

  Oh, no, it's at zero. I feel like it's a little bit like more degen on the spectrum, but like.

• 1:46:55David Hoffman?

  But no, they had, they had centralized lending to like, hey, come and just like wire us money and we'll give you like twelve percent yield. And that, that sucked them so much money out of Asia.

• 1:47:04Ryan Sean Adams?

  I see. Yeah, I, I get it from that perspective. So your argument is that 2022 is worse in that it impacted more kind of like, I guess, innocents. Let's just call them like people that weren't playing the pure degen game.

• 1:47:18David Hoffman?

  There was more capital destructed, certainly, because like the total.

• 1:47:21Ryan Sean Adams?

  Oh, there's way more capital destructed.

• 1:47:23David Hoffman?

  And so by that measure, like this bear market has been like two to four times worse. In terms of capital destroyed.

• 1:47:29Ryan Sean Adams?

  Yes, I think that's true. I think that's another way to look at it. My way of looking at it was more like, you know, because now what's going to be, look, guys, the next, if you're listening still now is the next few months of your life in crypto, if you're still here, if you want to be that seller, not that tourist, it's just going to be complete, it's going to be crypto is dead, never going to recover.

• 1:47:50David Hoffman?

  Boring.

• 1:47:51Ryan Sean Adams?

  FTX like was the end of crypto, scam the entire industry like, and this will be month after month after month coming from here. Right? And so you'll feel like it really is dead. Once we get six more months into this, nine more months into this, you'll feel like it's dead. And I guess the difference there, when I compare that to 2018 is like, I kind of felt like maybe it was possible that the bankless future was actually going to die. This time I know there's no effing way. I'm confident that we will recover and we won't, we won't build back in the fragile way that we've built this industry, which is like the Genesis lending and kind of the,

• 1:48:35Ryan Sean Adams?

  the centralized exchange and the custodian, like we'll learn the lessons and we'll build back stronger. In 2018, I was not sure that that would happen. In 2022, I sit here, even though the impact is greater in terms of total capital affected and innocence and all of these things. I am much more confident that we're going to come back like close, approaching a hundred percent uncertainty. Again, look, this is just me. Again, we're going to end this episode with all the usual disclaimers, which I could like, we could be wrong. SaaS class could drop to zero. Like we could be completely wrong on all of these things, but that's the way I'm feeling versus 2018. It's much different.

• 1:49:11David Hoffman?

  Yeah, I think in 2018, can people go bankless was in question. In 2022, can be people go bankless seems like the most simple and logical and justified and supported path forward. In fact, how do we build back better? It's by not doing centralized lending and doing bankless lending. So actually, I think where like previously we thought like, oh, maybe, maybe this thing won't really work. Now I'm like, this is the only way that this works.

• 1:49:41Ryan Sean Adams?

  Yeah, there's no other option. Well, that's it, guys. I hope you enjoyed the episode. David, thanks so much, man, for doing all the research to put this together and put these pieces in play. I do think that this is a really good analysis of what the heck happened the last 18 to 24 months.

• 1:49:59David Hoffman?

  I don't think anyone's actually put this full, comprehensive story together. Because like, we needed the DCG grayscale piece, piece of the puzzle, to map everything together, and now we know.

• 1:50:09Ryan Sean Adams?

  Yeah, yeah. And whether grayscale, whether, sorry, whether Genesis falls or not, I think this is still like, probably the last domino to fall in this. Guys, of course, thanks for hanging with us. Risk and disclaimers. Gotta remind you once again, none of this has been financial advice. This entire asset class could drop to zero. We have no idea what we're doing. Ether is risky, crypto is risky, DeFi is risky as well. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.