Diaries of an ETH Maxi on Wall Street | Sam Jernigan

Sam Jernigan, the “Unofficial ETH Maxi of Wall Street”, has been evangelizing Ethereum to institutional funds and billionaires from inside the house for the past five years. Having the perfect blend of deep Ethereum knowledge and the full Wall Street experience, Sam guides us through how he became an ETH Maxi, why the lack of understanding of ETH in TradFi is the most bullish case for the asset and what the future holds for ETH institutional adoption. ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/17 ------ 📣STAKEWISE | LIQUID SOLO STAKING https://bankless.cc/Pod_StakeWise ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🌐 TRANSPORTER | CROSS CHAINS WITH CONFIDENCE https://transporter.io/ 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⚡️ CARTESI | LINUX-POWERED ROLLUPS https://bankless.cc/CartesiGovernance ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum ------ TIMESTAMPS 0:00 Intro 7:47 Defining TradFi 20:05 Ethereum’s P/E Ratio 23:49 Sam’s Background 40:44 Becoming an ETH Maxi 52:57 The State of ETH in TradFi 57:38 ETH Bull Case 1:06:11 The Flippening 1:12:11 ETH ETF 1:19:26 Security vs Commodity Debate 1:24:00 TradFi: Friend or Foe? 1:34:39 Regulation 1:46:07 Closing & Disclaimers ------ RESOURCES Sam Jernigan on X https://x.com/sjerniganiv Sam Jernigan on LikedIn https://www.linkedin.com/in/samjernigan07302015/ ------ Not financial or tax advice. 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.

• 0:00Speaker 00

  The most bullish thing about ETH right now is the fact that the understanding of TradFi is that it's this crypto asset like Bitcoin, because I think when they fully understand it, it's going to blow their brains out.

• 0:15Ryan Sean Adams?

  Welcome to Bankless, where today we're exploring the diaries of an ETH maxi on Wall Street. Yes, David and I came up with that title, and I think it's a perfect description. As usual, this is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Our guest today is Sam Jernigan. He is the unofficial ETH maxi of Wall Street. Now, those are his words. Sam's been evangelizing Ethereum to institutional funds and to billionaires, really rich people from inside the house for the past five years, and giving them the ETH narrative so that ETH killers don't take all of the marketing oxygen. That was a discussion we had in today's episode. I think this was a fascinating look at the inside baseball of Wall Street's crypto adoption and the Ethereum narrative.

• 0:59Ryan Sean Adams?

  "Where early" is an expression Sam kept coming back to, and I definitely felt like that in the episodes, very early in Wall Street's understanding of the Ethereum narrative today.

• 1:09David Hoffman?

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• 1:52David Hoffman?

  through the Stakewise vaults marketplace. There is a link in the show notes if any of this stuff piqued you. Sam's been on Wall Street longer than some of you listeners have been alive, probably. So he's seen a thing or two about Wall Street and has just is one of those guys that was open enough to crypto to really get Pilled on crypto like in a very deep way. And Sam's connected to a lot of just like the Ethereum OGs. People like Justin Drake have been like going back and forth about like the Ethereum narrative, why it fits inside of Wall Street. But for a long time, Sam's been more or less had like wearing the Wall Street gag. If you work in Wall Street, you can't really talk. You don't really have total freedom of ability to express your thoughts and opinions about things. But Sam has since left Wall Street.

• 2:37David Hoffman?

  So we get an exclusive peek into the stories that Sam has from being on Wall Street in 15 years, as well as just all of the times that different crypto people have come into the world of Wall Street to pitch their layer one, among other things. And so just hearing the takes about like somebody who's a Wall Street veteran, that's also crypto native, who's finally get to tell their story after such a long time is always a pretty interesting episode.

• 3:01Ryan Sean Adams?

  All right, guys, let's get right to the episode with Sam. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange for crypto natives. And I guess Wall Street can use this too. That is Kraken. Go create an account today.

• 3:15David Hoffman?

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• 4:00David Hoffman?

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• 4:43David Hoffman?

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• 5:28David Hoffman?

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• 6:11David Hoffman?

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• 6:19Ryan Sean Adams?

  Bankless Nation, today we have an opportunity to pick the brain of someone who I think perfectly straddles both TradFi and Ethereum. Sam Jernigan is a macro investor who spent the last 15 years trading Many different asset classes, including crypto. He built and ran crypto at Moore Capital, which is one of the largest, oldest macro funds in the world, space in New York. And before that, Sam launched a global macro fund that could trade digital assets. This is one of the first out of Mike Novogratz's family office. So he's done so many things in finance. He helped pioneer crypto options, executed the first ever option on ETH. And before that, he even spent some time in the belly of the beast at Bear Stearns and JP Morgan. And to give you a sense of the straddle and what he's up to right now,

• 7:02Ryan Sean Adams?

  Sam is currently both a participant at the US Monetary Policy Forum. So that sounds pretty central banker. And also, at the same time, an Ethereum ZK EVM advisor to the project Scroll. That's a layer two, which you've heard about. So that is deep crypto and central bank, again, straddling these two worlds. Sam, this episode has been a long time coming. We've wanted to get you on for a while, but you have not been able to, because I think you've been under some TradFi rule sets that have not allowed you to speak out and talk about crypto in the way we're about to talk about it. So, welcome to the Bankless episode.

• 7:40Speaker 00

  Thank you, guys. So, thank you for having me. I am a longtime listener. I rarely miss an episode. I'm a big fan. I think you guys do a public good.

• 7:47Ryan Sean Adams?

  Appreciate it. So, let's talk about, we want to get your background in a minute and how you kind of ended up here and like what you've been up to, just like the behind the scenes, because that's super interesting for Bankless listeners, what it's like in the belly of the beast. But I think the context for this episode is we want to talk about Ethereum and Ether and how to sell it to TradFi, like what narratives resonate? In order to do that, I think we need to set up this term. TradFi is something that crypto natives use. I don't know that institutions call themselves TradFi. They're just like phi, they're just like finance, right? But I think that like for crypto natives, yeah, finance. For crypto natives, right? It's basically anything not crypto is TradFi. I mean, that is maybe a simple way to explain it.

• 8:31Ryan Sean Adams?

  But when we say the word TradFi, like what does that mean in your world?

• 8:36Speaker 00

  Right. I remember the first time, one of my best friends is a chief economist at one of the largest banks. I remember the first time we were out one night. I remember the first time I said this word TradFi to him. He's like, what is that? What is that? And that was not long ago. I think I would say, you know, we think about, when I say finance, you know, I think about basically like the investment banking world. So it's sales, trading, research, investment banking. And then that's what we call the the sell side. And then the buy side would be what most people would usually consider like hedge funds and private equity funds. Venture funds are really outside of Wall Street, really. You know, I was pointing

• 9:21Speaker 00

  out to somebody that like Andreessen Horowitz may be a huge fund, but I doubt they're even a client of JP Morgan. So they're just, they're not, I think they probably use Morgan Stanley or something, maybe, right? But in general, venture funds are just separate really from Wall Street or what I call TradFi, or what most people I think call TradFi. I think you would be thinking of Goldman, JP Morgan, Citibank, you know, etc. The the investment banking world that comprises institutional buy and sell side.

• 9:52David Hoffman?

  So why, what I want to get out of this episode, Sam, is we are entering the era in which crypto and TradFi are becoming closer than ever. We now have the Bitcoin ETF, we're about to have the Ethereum ETF, and now our conversations are going to go directly into the ears of quote unquote TradFi. And so I'm trying to learn how to best sell what crypto has to offer. And right now, that's Bitcoin and that that's it, that's ETH. But in order to really like, put the correct words in the correct order, we really need to understand the audience. And so, understanding that the audience is not venture capital, but it is Wall Street, let's keep on going down that that path. Like, what is, what's the makeup of TradFi? Who are these people that we are actually like, connecting to

• 10:37David Hoffman?

  via the ETFs?

• 10:39Speaker 00

  Right. Well, I mean, I think the ETFs, I mean, there are some hedge funds that probably, okay, so I mean, I think, I remember probably a couple of years ago, I actually, in a chat, I mentioned to you guys that most major funds are now papered up. That means that they are now papered, they have legal documents in place with, say Coinbase in particular, to actually trade spot. That can be a very long process. I would say we got about Maybe a third of the way through that process in the last cycle. I remember at one point, like, I think Coinbase had a backlog of like a thousand funds that were waiting to onboard. They simply couldn't do it. And then the things kind of went off the rails. And then I would say like half those docs probably didn't get done.

• 11:23Speaker 00

  And they have of the last year or a third didn't get done. And then the last third probably have been getting done over the last brief kind of emerging bull market. So, yeah, so most funds are actually now like more wired or papered, as we say, to trade crypto. And the the infrastructure for that's gotten a lot better, like Coinbase Prime, which will be the primary platform that institution are going to use. I can't even describe to you like the evolution of that platform has gotten a lot better. It's also much more crypto native. We we could save that for another another conversation, but the the web wallet integration, particularly on the back of their win at the SEC, is going to really change things. I don't, I haven't seen that picked up on crypto Twitter.

• 12:07Speaker 00

  But so, yeah, so the the infrastructure is very good. That kind of actually goes back to my origin, you know, Tagomi is the smart router that was acquired by Coinbase and is now what's integrated into Prime. And I was one of the first people ever demo that back in 2018. So, yeah, so the infrastructure is very good and a lot of accounts are are quote papered up to be able to trade spot. But there are still other funds and I would say like even like just smaller prop shops and and then like family offices, some family offices I would consider like TradFi institutional, right? In the Wall Street sense.

• 12:47Speaker 00

  And then the next tier, I would kind of, you know, I would almost kind of put them in the next tier out because they don't trade a lot or they're not as active. The next tier out are going to be, you know, more like pensions and endowments. And they're obviously also, you know, part of TradFi, but this is kind of like permanent allocated portfolio capital. And there's, that's actually a very compelling story. I'm actually not surprised by the adoption of Bitcoin ETFs by large, long term allocators.

• 13:16Speaker 00

  And you know, we can, we can get into this, the, the portfolio allocation benefits. And that was to having not just Bitcoin, but ETH and other crypto assets. That was that, understanding that story from an academic standpoint, based on some work a former senior Fed official friend of mine had done while he was actually at the IMF, is what actually convinced me to start the first fund. So I guess that's a long way of saying, you know, TradFi is definitely going to be very involved. I think in terms of selling it, Bitcoin is digital gold. Maybe we're seeing a little bit of a change to that with OP Cat and some of these other initiatives. I saw a Starkware actual little video earlier from earlier today.

• 14:02Speaker 00

  Really kind of tried trying to prod the Bitcoin community into embracing scaling, embracing a lot of the technologies that Ethereum has pioneered, by the way.

• 14:10Speaker 00

  But for the time being, you know, Bitcoin is just digital gold. It's, and I, I look, I understand why that has been a very attractive for Bitcoin investors. Right. It's like, if we ever get to the size of gold, like we're all rich, we've done great. Like what more do we, why risk, why take any, any of these risks, you know, or potential risks that they perceive anyways to try and do more. And that opened up this opportunity where Ethereum, you know,

• 14:39Speaker 00

  entered and said, hey, we can do a lot more with this ledger than just have a meme coin on it, or some, something that we all agree has value, like, like gold. I do think, by the way, that Bitcoin is a superior gold. That was also part of my evolution into, into the space, and I can kind of explain that.

• 15:00Speaker 00

  And it is a, you know, I was one of the first people to really begin advocating for it as a macro asset and telling the story of that as this permissionless, non-sovereign asset that can be transferred, you know.

• 15:13Speaker 00

  But you know, the, the part that getting to Ether, you know, ETH took this one step further and added a Turing complete, adding a Turing complete, which maybe is a little overused term, but adding a Turing complete programmable environment. Now, I think the reason people think it's very difficult to tell the story of ETH is because it's so compelling. You can really almost do anything with this, with this, this environment. And that is a good problem for us to have. Telling the story of Ether being difficult is okay. I can tell you one, the way I kind of view it, the way I've tried to explain it to TradFi people, it doesn't always stick. You know, this is going to be a long process. But again,

• 15:53Speaker 00

  that's, you know, to the hashtag early, these are good problems to have. The, the actual way that one simple way to think about a functionality of ETH that every TradFi person can understand is very simply to, to explain that Ethereum, the network, is a little bit like SWIFT plus CHIPS. So CHIPS, so everybody now knows what SWIFT is. SWIFT, SWIFT is a messaging system. It does not settle, right? So it is literally just a format for, for banks to communicate, or even, you know, banks to communicate basically on sending of dollars and increasingly other types of securities. But at the end of the day, banks have to settle and they use primarily

• 16:38Speaker 00

  CHIPS, which stands for the Clearinghouse Corporation. It goes back, you should look into it, it goes back probably almost 200 years. It's owned by the 25 or 30 largest banks in the United States. You know, we're talking about gross settlements every year of hundreds of trillions. And Fedwire. And these are basically 24-hour cycles. And what Ethereum is, again, in this one very narrow definition where I can show you what it can do that's game-changing to this otherwise massive and critically important global financial system, market infrastructure, is to think about Ethereum, the network, as SWIFT plus CHIPS. So messaging

• 17:21Speaker 00

  of financial transactions, not just cash, but any type of financial transaction, plus the settlement of those transactions, and you pay a fee. And that fee then accrues to ETH, which is basically these, this equity. And that, that is then transferred via a buyback, right? So when you pay a fee to do a transaction on Ethereum, that, that ETH is then burnt. And it's the same as, you know, one way that you can take that, that, that application, then kind of another analogy is to say, it actually lines up well from a modeling standpoint, actually. Is to look at Ethereum a little bit like Mastercard or Visa.

• 18:03Speaker 00

  So Mastercard and Visa, you usually do not pay the fee yourself when you, when you check out at, you know, the grocery store or a restaurant, but the, the merchant does. They pay anywhere from a three to 5% fee. And imagine if that 100% of that fee was, was basically cash flow, which it's not. It has to pay for OpEx and it has to pay for taxes. So the drop through from cash flow, those fees actually to net earnings is about, or cash flow is about 50%. So they, that model has very high margins, but ETH basically has 100% margins. But at any rate, so you know, you have to pay the employees that run Mastercard and you have to pay some marketing expenses maybe.

• 18:48Speaker 00

  And then you have to pay taxes and the net of that, if it were all to be used to buy back stock, that would be very similar to what Ethereum is, right? So, but here, Mastercard Visa traded like a 25 times price earnings multiple. And I think that, you know, I've, I've generally thought that a reasonable framework is that ETH, Ethereum should have roughly a 2X that multiple. So 50 times price earnings multiple. One, because it's growing faster, but two, because it doesn't have to pay for OpEx and it doesn't have to pay for taxes, doesn't have to pay taxes. So it's a very clean revenue and return of revenue to, to holders of the equity like asset ETH.

• 19:32Speaker 00

  And it's important to understand that for the system to be permissionless, the, the ownership of that asset, which you have to use to pay the fees like oil, has to also be permissionless and it has to be highly decentralized. And so that's why it can't be, you know, eat the security or eat the publicly traded stock. It has to be. This permissionless crypto crypto used but crypto asset that anyone anywhere in the world can have access to and can use to access the network.

• 20:05Ryan Sean Adams?

  Sam, I think you've given us a taste, a preview of the rest of this episode, right? Where we're going to be camping on some of those subjects. I guess a few things, just to tie off one thing, what is ETH's PE ratio right now? Just out of curiosity.

• 20:19Speaker 00

  I don't know if I had that.

• 20:21Ryan Sean Adams?

  It's like in the hundreds, right? Like, I don't know, I saw like 150, something in that range. So maybe a bit more than like 2X what Mastercard and Visa are.

• 20:31Speaker 00

  Right, so I think I would have to check. I don't know offhand, to be honest. And so if I don't know the answer, I don't want to make it up. I think you also need to make sure, to be clear, issuance is a cost. And I want to kind of set the record straight on this. I just, like a lot of people, watched your episode with Justin and Anatoly. And Anatoly's had a very strange, I think I said on Twitter last night, naive understanding of economics for some time. I remember he said something very similar to this back in December. And on Twitter, it is definitely, it is definitely a cost. You can think about it a little bit like paying the employees, right?

• 21:14Speaker 00

  So issuance pays the miners or it pays validators. And if earnings are the net of that, that the, what you're taking in, in terms of the fees, minus your costs, that is your, that's your net, your net earnings, going back to that Visa or Mastercard example. So Ethereum is the only system that has positive net, you know, net earnings, net yield also for staking validators. And, you know, I've seen your previous episodes on, you know, the risk free rate. Another, another issue I'd like to get into, because I feel like I, I was trying to.

• 21:58Speaker 00

  I saw a previous episode you guys did on the risk-free rate and the staking yield. I feel a little bit guilty in a lot of ways. I actually helped point out to a lot of the people behind the scenes, I point out to people that this was a positive real yield, the only positive real yield that is economically sustainable and generated by user activity. That's very important. It's the only positive yielding, real positive real yielding asset in all of crypto. And part of that is accrued through that buyback mechanism and part of that can be via staking. But I think that one of the reasons I say that I kind of regret

• 22:42Speaker 00

  heavily pushing this understanding is that this is now running into this issuance problem we're having that several very bright researchers like Ansgar and Casper have been talking about. And it's worth us having a follow-up episode on that. But it is very important that ETH, the asset, maintain this quality of a positive real yield and being ultrasound deflationary money in the same way that every year Apple is able to buy back its stock and it's the outstanding stock of Apple's equity declines in value. That is how that is how value from

• 23:21Speaker 00

  the network is returned to Apple shareholders. And we need to make sure that the issuance curve is adjusted to maintain that same quality for a lot of reasons. That a company that returns its earnings via buybacks, and in our case, buy and burn, the burning of ETH used for transactions, that we're able to retain that, this unique and very powerful differentiation.

• 23:49Ryan Sean Adams?

  So Sam, there's so many ways we could fork this conversation, right? Like, we've just brought up a ton of different topics, right? You know, one is I'd still kind of like to get your background and how you came from this place of straddling sort of TradFi and Ethereum. That's important. You know, I feel like we've mostly talked about who TradFi is and what we mean by that, but I don't think folks still understand the size of TradFi right now. And then you just like branched out into a conversation around ETH kind of monetary policy and like how issuance is a cost to the network and Ethereum is kind of like the only crypto network with a true source of yield.

• 24:30Ryan Sean Adams?

  So like, I want to hit on all of those things, just like not sure where to go first. So let's do this, let's backtrack. And could you give us some of your background on how you came to be? And then we'll hit some of those other items, how you came to be here. So I have sort of, you know, like, seen your personal trajectory a little bit from afar. I've like heard rumors of Sam sort of, you know, in the TradFi space as this liaison role between kind of TradFi and particularly Ethereum. Like, I think you've been described to me as like, you know, a TradFi ETH Super Bowl, you know, kind of like a, you know, Michael Saylor behind the scenes only for Ethereum, right? And so I'm wondering how you took that role. Can you give us the, how you got into crypto?

• 25:15Ryan Sean Adams?

  You said you were originally pilled with Bitcoin. How did that start? And then how did you come to the place where you are like ETH-pilled and having conversations with the movers and shakers in the institutional TradFi world? Like, how did that come to be and why are you doing this?

• 25:31Speaker 00

  Sure. So I started my career in New York at Bear Stearns in sales and trading.

• 25:42Speaker 00

  I successfully made the transition over to JP Morgan. And while there, you know,

• 25:51Speaker 00

  Got the crisis right, the 08 crisis right internally. I was, they almost fired me actually because I was trying to tell people that all hell was about to break loose and they were like, if you don't stop telling people this, we're gonna like fire you. Anyways, thankfully, all hell broke loose and I kept my job and got promoted. And I, I worked on a, a internal desk that basically traded the bank's capital or what's called proprietary trading. So I worked on a, I worked on a portfolio that reported to senior management and we did both long short equity and global macro.

• 26:31Speaker 00

  You know, one of the, one of the early trades I had there, so just to kind of, you know, I, having got the crisis right, I was very deeply learning about economics and JP Morgan has probably the best economics team, period. And I had this unlimited access to this huge resource, both of the publications, but also to the economists and I took advantage of that and became very good friends with several, one in particular, former Fed, but senior economist at JP Morgan. That's how I developed a lot of my Fed network and former staffers

• 27:08Speaker 00

  and, and one of the early, you guys had a recent interview with Timothy Massad and where you talked a lot about the euro-dollar futures market. That was great interview for everyone watching. I highly encourage you to go watch that. Euro-dollar futures was actually one of the biggest trades I had early in my career at JP Morgan. So they're commonly used to bet on their, it's, it's, the market has evolved since, since then, but at the time, they were the most liquid asset for trading, basically expectations about Fed rate hiking cycles. And as compared to everyone, whether, you

• 27:50Speaker 00

  know, you know, Bitcoin maxies at the time that emerged in this period of time of the crisis or tradFi people, everyone thought that the Fed was printing money and we're gonna have hyperinflation. And I didn't think that was the case. And so the way you would do that is you would buy euro-dollar futures that were pricing in Fed rate hikes, betting on quote, lower for longer. And so that was a trade we nailed, both in 2010 and 2011. Proprietary trading was outlawed, though, under the Volcker Rule. And so in 2012, I left. I worked at a few different macro funds.

• 28:25Speaker 00

  I think the kind of the the next kind of little anecdote here, I think that that fits well is, I think, where I I was exposed to Bitcoin a few times between 2012 and 2014. And I probably cost people, being billionaires, talking them out of this asset that I viewed as like, yeah, look, I think, you know, I thought it was, I thought it was a joke. I thought it was an incarnation of the reach for yield or this incarnation of this view that I felt was wrong, that the Fed was printing money and they were going to have hyperinflation. I disagreed with that, you know. I thought that the Fed would have to keep rates low for longer to facilitate a slow recovery.

• 29:09Speaker 00

  And that inflation expectations have been significantly de-anchored to the to the downside, or at least, you know, were were very low.

• 29:17Speaker 00

  And so I missed it. In fact, I remember it went from 100 to 50 and I declared victory and I never, I don't think I looked at it again for like two years. So I was like, I see it went from 100 to 50 and that was, you know, that was, that was the extent of it. That what changed for me was in 2015, I was at a different fund. I actually told this story just before COVID at the first macro conference to talk about Bitcoin for Wall Street that I ever helped put on back in 2019. And the the my former boss was in the room. We were betting against the Chinese RMB.

• 29:54Speaker 00

  So in in 2015, 2016, we have, we had a very large

• 30:00Speaker 00

  options trade in the forward market on basically that the dollar would go up against the Chinese RMB. And when you're playing against something like, you know, when you're betting against the, you know, CNY or CNH offshore, you're playing for like this like 4% to 6% move, right? This very small move. And, you know, I remember I was on the phone with our HSBC salesperson in Hong Kong. And I was like, hey, you know, or like the Chinese billionaires still trying to get money out of China, like, do they still want dollars, basically? And he was like, yeah, the only thing they want more is Bitcoin. I'm like. What are you talking about? He's like, he's like, they love Bitcoin, they can't get enough Bitcoin. They, they basically buy Bitcoin, they move it out of the country and they swap it, the OTC brokers into dollars.

• 30:45Speaker 00

  And I was like, oh my God, this is unbelievable. You know, he's like, pull up the chart, overlay dollar C and H versus Bitcoin and put Bitcoin on log, which you have to do. So I do that. And of course it's like this perfect correlation. I was like, holy shit. You know, we're playing for this like 4% move and this Bitcoin is moving like 400%. And so I printed out this chart. I remember I took it into my boss's office and he did not like being disturbed during the daytime. By the way, he liked to read in his office. He's, you know, whereas like I'm a little bit the opposite. He did not like to be disturbed. So I went in, I was like, David, I'm sorry, I need you to look at this. We have the wrong trade on. And he's like, what are you talking about? And I was like, look at this. I was like, we have the wrong trade on.

• 31:28Speaker 00

  He looks down and he goes, what is this? I said, it's Bitcoin. Looks, he looks back up at me, he goes, we don't trade Bitcoin.

• 31:37David Hoffman?

  And you're like, yeah.

• 31:39Speaker 00

  I was like, but we should be. So I was like, but we should be, you know? And, you know, that was, I think, you know, that was the first realization that this, this was a macro asset. And, you know, I think that an important thing I wanted to kind of communicate, I did it recently at a, at East Denver. Actually, at this panel I spoke to, like, I think, you know, when you think about macro, we spend so much time, or I think the popular press and CNBC really over like dramatizes like 25 basis points, even 100 basis point hikes here from the Fed. If you're dealing with an asset like Bitcoin, who cares, right? If you're dealing with crypto, this is much bigger than a small Fed cycle, right? Don't, you know, this, this is about the movement of, of, of, of capital, global capital, about people, about politics.

• 32:25Speaker 00

  This is about the, for the first time in really ever that you've been able to instantly and permissionlessly transfer assets across borders and around capital controls. This is so much bigger in a lot of ways than. Anything the Fed can do and don't let, you know, that is why every macro person on the planet is is literally blowing their brains out that the Fed is is much higher than they ever thought they were going to hike to. And yet, ETH and Bitcoin are basically at all time highs. That was not possible for anyone you could have gotten on your show, you know, a year or two ago. And it's because they just, you know, don't let the noise, let you lose sight of of the forest here. So, or was it the forest for the trees? Maybe I have the throng.

• 33:10Speaker 00

  So anyways, but I think, and this will come back when we talk about like, what do traders, what people understand about crypto like? Look, after that experience, I was like, well, you know, we can't trade Bitcoin, right? And frankly, just, I didn't think about it again until later in 2017, I was hired away to another fund to cover US policy, so Fed policy and DC policy for another fund and

• 33:41Speaker 00

  you know, one of the things I realized was that a lot of the hedge fund billionaire founders were, and this was coming out, some of this in the press, but a lot of them were trading Bitcoin and ETH in their PAs.

• 33:55Ryan Sean Adams?

  It's a P A.

• 33:56Speaker 00

  I was hearing this from friends that I know at a lot of funds. When we say PAs, we mean personal accounts.

• 34:02Ryan Sean Adams?

  Personal account. Yeah, okay.

• 34:03Speaker 00

  Yeah. I was hearing this from a lot of my friends who work at these funds and I was, you know, so, but, but none of these hedge fund macro billionaires and, and guys running these funds were doing it in the, in the fund because they didn't want to take the risk of alarming or startling existing investors in their fund. Or what we call the, you don't want to take, you don't want to take LP risk on the 2%, basically, right? So they, you know, so I saw an opportunity there. So I saw an opportunity to, basically a greenfield opportunity to start a, a macro fund with the ability to trade digital assets in the docs.

• 34:43Speaker 00

  But I'll admit, I wasn't completely convinced. Just because people are speculating on something doesn't mean it's a, you know, it belongs in a macro fund, you know, people speculate on Ferraris or art, doesn't mean it belongs in a macro fund. What, and even with the experience I'd had of seeing how it was being used in the context of capital flight out of China, that still wasn't enough. What really, what really moved the needle for me was that a friend of mine, I think I can use his name because his work is published and he still updates, Benson Durham, who was then a, I think he was a deputy director at the IMF under Christine Lagarde, he had previously been associate director of monetary affairs at the, at the board, the Federal Reserve Board.

• 35:28Speaker 00

  And he had been asked by Christine at the time to look into whether or not, this is 20, late, probably mid 2017, whether or not what was going on in crypto was a reach for yield, was this just pure speculation, or was this the emergence, was it possible that we were seeing the emergence of a new asset class? And for, for Fed economists and, you know, people of this ilk, like that is a very high bar. And there's a lot of statistical tests that I would never even begin to explain, much less do I barely understand them. So, but the short answer was that their surprising result was yes. And the reason I knew about this, because Benson knew that I had some

• 36:11Speaker 00

  interest and he was reaching out and talking to me and, and asked me to kind of review a draft. And, and I was taken aback because one of the findings was that it was bumping out on what's called the efficient frontier. And that basically means that, and this, a lot of this, he ended up publishing this research in a, the portfolio of journal, Journal of Portfolio Management 2019.

• 36:37Speaker 00

  It basically means, and now BlackRock is like running away with this whole theme. But it basically means that almost every portfolio should have a little bit because on a volatility adjusted basis, because it is uncorrelated or has no correlation to any other asset, it provides diversification benefits and the benefits are massive. We're not talking about, you know, one or 2% portfolio diversification. We're talking about,

• 37:04Speaker 00

  huge, huge

• 37:08Speaker 00

  benefits to what's called, again, the efficient frontier. And so I was like, that was, that was really convinced me to, that I had to do this. Unfortunately, we were just way too early. We, Mike Nevergratz, you know, a great macro PM who had very publicly gotten into crypto.

• 37:34Speaker 00

  I was introduced to someone who was working out of his family office. Anyways, we, Mike gave us some sort of capital and space to start up the, the fund. But, you know,

• 37:50Speaker 00

  I think that, you know, I, I, you know, everything takes longer than you think that it will, even when you would take account for how long it's going to take, you know, Hofstadter's law. And it was definitely the case, not only was the whole realization of crypto as a, as an asset class not yet mature, the, the, the tooling and the infrastructure and just like the, the accountants and the, you know, the auditors, like none of that stuff. It was very difficult.

• 38:17Speaker 00

  But it was still an amazing experience. I, you know, just to kind of put you back in this period of time, you know, my, I remember my then future partner said to me, you know, Sam, just FYI, Mike is not convinced that, you know, Bitcoin belongs in a macro portfolio. If you remember, like, he was really confined to venture funds at the time. And Paradigm had just raised a lot of money, I think, at this time. And

• 38:42Speaker 00

  And I remember the first question Mike said to me was, why is Bitcoin a macarasa? And I said, it's a macarasa by birth. It's written in the genesis block, Chancellor on brink of second bailout, Jan 2008. He's like, that's a great answer. I'm gonna, I'm gonna use that. And, you know, but, you know, it was, there was a very long and difficult bear market. But it was great. You know, I mentioned earlier that I was one of the first people to use Togomi, which ultimately was acquired by Coinbase and became integral to Coinbase Prime, you know, Paradigm Trading, which is now where 70% plus of all options, Bitcoin and ETH options, even CME is now, block trades are done through Paradigm. I

• 39:23Speaker 00

  was one of the first people to do that. Anand is an amazing builder. We were probably 10% of the Bitcoin options open interest at this period of time, you know, Bitcoin was at like 3,300 and we put it, you know, we were the first people, which this is crazy in retrospect, people watching this will laugh that know this derivative space. We were the first people, it even got written up by LedgerX. LedgerX, by the way, was the only, like, legitimate place to, the CFTC registered and, and to really trade Bitcoin options. It was difficult though, because it's fully collateralized and liquidity was low, but

• 40:05Speaker 00

  it took, and there was only one market maker. It took us, I think, two or three weeks just to get, like, a few million notional of, of options premium on in Bitcoin, which is not a lot, but at that time, that was like 10% of the options open interest, which is crazy for something that's now 20 billion market. So it was, it was an amazing experience. I got to, you know, see a lot of the early infrastructure that, that now is being used by institutional investors that are papered up to trade spot and help facilitate the growth of that market. We were very early on Deribit.

• 40:44Ryan Sean Adams?

  So to finish out your story, Sam, what got you kind of ETH-pilled as well? Because that's how you've been introduced to me as well. I think like maybe like three years ago, it was just like, hey, meet Sam, the guy who is popularizing the Ethereum narrative to a bunch of unbelievers in TradFi. And so you told the story of basically crypto and Bitcoin and how you kind of like dialed in there in Bitcoin. But correct me if I'm wrong, I don't think it stopped there. And now I know you as more sort of a TradFi's Ethereum evangelist. So tell me, how did that happen?

• 41:18Speaker 00

  The unofficial self-proclaimed ETH maxim Wall Street.

• 41:21Ryan Sean Adams?

  Yeah, is that what they say?

• 41:25Speaker 00

  So, you know, you mentioned earlier, I, we traded the first option on ETH. We did that with a, via an NISDA, an OTC trade. I remember ETH was at $100, I'm sorry, $160. And we bought, no, I'm sorry, it was, it was at 120 and we bought 166 month call, six month calls. I remember there was no Vol curve for ETH at that time because Derbit had not yet launched. And so I remember we were negotiating and we're like, what are we going to use for this, for the Vol curve? And it was like, we'll just take Bitcoin and add five points to it.

• 42:02Speaker 00

  That was like, that was the, that was the logic that went into figure out what the forward volatility curve of Ethereum should look like. You know, I was, I never really expected to get as deep into the, into the Ethereum ecosystem as I did. I was pretty happy playing this more TradFi, you know, being an allocator and trader in the space. What kind of happened? So in a flash forward a little bit, I was hired to come in and I was the, pretty much the only person who had really built what is a sufficiently credible institutional setup for trading digital assets.

• 42:41Speaker 00

  At that time, I was asked to come in and build out crypto for more capital to, to a sufficient standard. And During the course of 2021, in particular, and I think it reached kind of a crescendo for me, and it was actually in December 2021, I think it was, when JP Morgan had its first and only digital asset conference. You know, there, you know, I've, and this goes a little bit into one of the bullets I put that I wanted us to talk about, like, what does TradFi know about crypto? The knowledge level is very low in a lot of ways. You know, I joke that TradFi is worse than retail.

• 43:25Speaker 00

  And the reason why, when it comes to FOMO, and the reason why is because TradFi often is not allowed to use MetaMask, or is very highly, like, concerned about getting caught by combines. It's a little bit vague in my prior job, whether or not even I was allowed personally to use it, or did that $3 ETH transaction count as something I need to report? You know, like, that, you know, people, this is not sufficiently important enough for people that they, like, even want to play with it, right? In a lot of cases, that ambiguity. And it's not until you really get into these deep bull cycles that people are, like, trying out MetaMask, and you see that, those usage spikes. So, knowledge is unfortunately low, because TradFi doesn't actually know what private keys are, you know?

• 44:08Speaker 00

  They just haven't interacted with it the same way retail has. So, I've actually said, I think, at a permissionless conference a few years ago with you guys, that I actually think retail has a little bit of an advantage over TradFi or the billionaires, because they actually engage with the technology, and that, that's very helpful. So, I became very concerned that I was seeing a lot of, at that time, what we called ETH killers, coming through, making the rounds in, in New York, telling institutional investors that Ethereum was going to die, that, you know, that so-and-so was going to be the new, it was going to replace Ethereum. And we, you know, we still see some of these coming, coming around, but not to the degree it reached then.

• 44:53Speaker 00

  And I, I don't think Anatoly was as guilty of this. And again, I'm referencing conversations that, and pitches that I saw happening in TradFi-type environment and conferences. Eman Van Gooch definitely went around saying this.

• 45:12Speaker 00

  Yeah. That's the founder of Ethereum for people who don't know. Yeah. Anatoly not as much. Kyle Samani did. But that was not actually a new thing for Kyle. Yeah. Kyle told me the night, the day we bought those first call options on Ethereum, it was at 120. I remember we were, I met Anatoly during the seed round. Because Kyle had introduced us and I remember, I wasn't going to tell the story, but I remember it was like nine o'clock and I was talking to Kyle on the phone. And we had just, again, ETH was at 120, we had bought six month forward 160 straight calls.

• 45:54Speaker 00

  And I was like, Kyle, what do you, what do you think of ETH here? He's like, it's going to zero. Focus. Let's focus on Solana. I was like,

• 46:04Speaker 00

  reminds me of a younger version of myself, this kind of, you know,

• 46:09Speaker 00

  you know, when you're younger, you, you think you know a lot, you're very overconfident, you know, as you get older, you get beat up in the market enough, you become a little bit more, a little bit more humble, but. Yeah. Flash forward to 21, I think he in particular was out there telling, I remember seeing on Twitter this comment that he said he was getting called by all the billionaires. So you know what? I think that was probably true. I think they probably were. And he was telling them like Solana is going to kill Ethereum, basically. And so, so that, that whole thing was very frustrating to me. And the reason why is because guess what? Ethereum does not have a marketing department, the way that Solana does.

• 46:47Speaker 00

  It does not have a marketing department, the way Eva Labs or whatever it is, does that plasters the New York City subways with Avalanche advertisements. And then we had Luna and this thing, I knew within 15 minutes of looking at it on the website, this thing was a Ponzi scheme. There were little toy versions of this on EOS and Ethereum back in the prior bear, prior bear market. There were, everybody knew there were jokes and here this thing's actually become like a real, this thing's like a huge thing. I was genuinely alarmed. And so.

• 47:20Speaker 00

  I reached out to Justin Drake and I said, look, I understand that Ethereum and the EF, etc., doesn't, you know, have any interest in or doesn't have like a, any type of interaction. I mean, one of the problems was like JP Morgan didn't even know how to get in touch with the EF.

• 47:43Speaker 00

  The team that is building their blockchain solution could not get in touch with anybody at the EF. And

• 47:48David Hoffman?

  And I would assume like TradFi deals in like handshakes and meetings and conversations. And so if they can't have that form factor, they probably just have to sit on their hands.

• 48:00Speaker 00

  Well, I mean,

• 48:04Speaker 00

  they're certainly not supposed to use messengers as, as the SEC has enacted these very large fines on messaging apps. I don't know if you've seen these like billions of dollars on the banks. And now they've been looking at some of the funds. That's why I was not allowed to use messenger apps until I, until I left my prior employment.

• 48:22Speaker 00

  So what I would say is, you know, it just, Ethereum doesn't have a marketing department. There is no single person you would reach out to. Like, I remember I said to Tyrone Loban, you know, who like runs Onyx at Jim, and I was like, oh, my God, Ethereum is so decentralized. This is like, I like this, call me to court in the future and I can like testify as to how decentralized Ethereum is. That literally the group running a get client at JP Morgan cannot get in touch with anyone at the EF.

• 48:51Speaker 00

  And so I facilitated its introduction and the first call that took place between JP Morgan and the EF in 2021, which is just a, it's pretty remarkable, but it's also a beautiful story. And I think it really speaks to the robustness. And I think it's getting back in a long way. I apologize to like, why I ended up getting pulled into this, right? You realize that these are assets, these, this is a space where you've got to do a little bit of your part. When, when the opportunity or when the, the, you know, when you're kind of called upon to do that. And I had to do it in a very careful way in my prior job.

• 49:31Speaker 00

  You know, that included, for example, trying to do reference calls for Coinbase to keep people from going on to FTX. Because anybody who was close enough to these markets, looking at what shenanigans Alameda was doing, I was terrified, frankly, that it was going to drag down my career and the respect for the space, or not that we had a lot to begin with, but. And so I was trying to do my little, my, my part, right? Both to say, you know, on the, on the sec side, prevent a lot of Wall Street firms from onboarding at FTX. Unfortunately, I, I was not sufficiently successful and that really set us back. But that was me trying to really protect my career in a lot of ways.

• 50:16Speaker 00

  I didn't want us to go through this. But it was also that there was opportunity for me to play a little bit of a role in the Ethereum ecosystem that wasn't being filled. And part of this again was that because nobody, you know, if when Iman Van Gooch or Anatoly and to a much lesser extent, Kalasamani comes in and tells TradFi people something that's slightly sophisticated sounding, they don't know any better than just to like nod along and be like, yeah, that makes sense, you know? Anatoly in particular has this debate style where he says something kind of complicated sounding and then he laughs about it as though you should have, this is obvious, everybody knows this.

• 51:00Speaker 00

  And it kind of almost makes you feel if, if you're not Justin Drake or Dank or Vice, you, you, you know, you're not sufficiently competent or confident in your view to really refute that. And I'm not saying that he always does that in a malicious or negative way. I think it is just part of the way he communicates. But there was a lot of, there was just, you know, again, Terra Luna was just a. I needed, I felt a need to try to stop a Ponzi scheme from promulgating throughout all of crypto, all of, sorry, traditional finance. And that meant that we needed to have people that could speak on behalf of what I feel is, is going to be the global

• 51:43Speaker 00

  settlement layer for the global financial system, Ethereum. And, you know, people like Justin Drake, or Dankred, or Ansgard, these like really brilliant, really smart, earnest, great communicators that are also researchers in Ethereum space, and try to get them, or at least be know enough to then communicate it back to people in TradFi.

• 52:08David Hoffman?

  Well, I feel a lot of resonance with that story, actually. One of the reasons why Ryan and I started Bankless is because there was just a void about the story about Ethereum. Like, no one was really telling it. And as a result of that void, that if the Ethereum community wouldn't really fill, just, it just didn't really have that sort of desire. Like you said, there's no marketing department at the Ethereum Foundation. Because the Ethereum community didn't fill that void, like, the Bitcoiners did. And like, the alt-layer ones did, just because it was free real estate. And so that was like, one of the main motivations of starting Bankless is like, well, let's, let's make a media organization that actually can effectively tell the fair story of Ethereum, at least how we see it.

• 52:51Speaker 00

  And you did it. I consider myself a, you know, a bankless acolyte, a follower.

• 52:57David Hoffman?

  I appreciate that. And also doing our same role inside of the world of Wall Street, right? Where there is a void that many of the VCs with ETH killer investments will happily fill the void of like, the lack of understanding around ETH with their own, with their own narrative. I'm wondering, and maybe you can kind of give us the download on, on what is the current understanding of Ether and Ethereum in TradFi? Like, what is the average TradFi member, the Wall Street goer, understand about Ether and Ethereum? Like, how should we think about this?

• 53:29Speaker 00

  You know, I once asked someone, you know, a TradFi person, what is ETH? What is Ethereum? And the answer was Ethereum is a cryptocurrency like Bitcoin, but it has some utility. And I was like, that's actually a very good answer.

• 53:46Speaker 00

  You know, it's, it's very concise. It's, it's like a very high level and it is descriptive, but it, under the surface of that simple statement is like all the juicy details, right? And so that is probably a good line to just, to think about when you're like, what to strive for now? They know it's a cryptocurrency like Bitcoin, which is digital gold and it has some utility. But they don't really know what that means. And, um, you know, one of the other topics, this, this person will be okay with me telling this story, one of the other topics that we're going to get into later is like, um, you know, have there been like TradFi or like, in particular, like Fed people that have been

• 54:31Speaker 00

  pulled in, you know, been, been ETH-pilled? And, um, you know, besides my friend Benson, who had written this, this paper, one of the first papers on the portfolio benefits of having crypto assets in a portfolio. There was a guy who worked for him at the time and, um, we met like five years ago and I haven't seen him since, but I was in Dubai, uh, representing Scroll and I was actually at Arthur Hayes' party and this guy comes up to me behind me, goes, you're Sam Jernigan. You used to, you, you know, my friend Benson Durham, who I used to work for at the Fed. And I was like, oh my God, who is this? You know, I turned around and I couldn't remember his name at first, so he was like, Dion. I was like, oh my God, Dion, how are you? He's like, good. I was like, what are you doing here?

• 55:12Speaker 00

  You know, this guy used to be, used to work for, you know, a, you know, a asset pricing theorist at the, at the Federal Reserve. I was like, Dion, I was like, what, what are you doing here? Like on this, you know, this like beach party for Arthur Hayes in Dubai. And he goes, oh, I, I come into crypto now, I'm a DeFi founder. And I was like, what did you start? And he was like, uh, term lending. I was like, oh my God, it's brilliant. One of the, the missing pieces in DeFi is actually fixed rate lending. So Dion and his partner have started, uh, a term dot finance and, um,

• 55:46Speaker 00

  He goes, you know, what have you been up to blah, blah. And I told him, he, he asked me, he goes, well, what, what do you think tradfi people understand about crypto? And I used this line and I remember Dion looked at me, he goes, so you're saying I should still be buying ETH? I was like, basically, you know, like the most bullish thing about ETH right now is the fact that the understanding of tradfi is that it's this crypto asset like Bitcoin. Because I think when they fully understand it, it's going to blow their brains out. You know, I had a breakfast last week with a financial institution that has some periphery exposure to crypto, let's say. And I had to explain this. So we walked through what is digital gold.

• 56:30Speaker 00

  Bitcoin is digital gold and you know, they had knew the Michael Saylor routine well. And then I, I was like, but you know, for example, Tether, which you've probably heard of, USDT. So of course I was like, you know, none of that is on Bitcoin. He's like, what do you mean? I was like, there's no tether on Bitcoin. And he did not know this. I was like, I was like, you know, I was like, all of it is on Ethereum and Tron, which we don't want to talk about. Is on Ethereum and Tron and you know, Tether, the company pays fees to the Ethereum network. They do not pay any fees to Bitcoin. And this was, he, I think he said something to the effect of, tell me more, explain this.

• 57:15Speaker 00

  He did not know this. So that the, the understanding is, is, is pretty low even for, you know, I would say people that on in tradfi that are, are reasonably exposed to this, to already to the space. And so that's a very, that's very bullish, but it also should again, hashtag early, it's, it's, it's early.

• 57:38Ryan Sean Adams?

  Okay, so TradFi has very limited understanding of Ethereum. They sort of like now have barely wrapped their minds around Bitcoin, but by and large, they don't understand Ethereum. Sam, you said something interesting there. You said, "Once they do understand it, minds will be blown."

• 57:51Speaker 00

  Yeah.

• 57:52Ryan Sean Adams?

  So why? And maybe this gets back to the conversation we were having earlier around sort of the risk-free rate in Ethereum and this idea of ETH producing positive yield was the term you said. And we said we'd get back to this in the podcast, but does this have something to do with why you think TradFi's mind will be blown when they understand what this asset actually is? Give us the case here.

• 58:19Speaker 00

  Well, you know, this is where, this is where like you risk, you run a lot of risk doing an hour-long podcast for this because I tried to give you one very simple vertical, one simple utility of Ethereum, say, Swift messaging of financial money, assets, and this simultaneous settlement of those funds. That alone is going to change the world. You can think about stablecoins as having pressed a button on unstoppable progression at this point, but that alone is a huge deal.

• 58:59Speaker 00

  But, you know, and I think, you know, the natural kind of evolution of that is that if you have this decentralized permissionless asset ETH that is effectively accruing value and becoming, whether you want to call it outright deflationary or ultrasound or whatever you kind of description you want to put around it, now it becomes collateral because this is a cash flow-bearing asset. The cash flows from that asset are returned right now via two primary issues, primary means. The first is cash flow is bought and burned, like Apple buys back its stock to return the earnings to shareholders here.

• 59:39Speaker 00

  The ETH is burned to return the cash flows to ETH holders, and then some of it is accrued to stakers. But the system as a whole is, over a meaningful period of time, fees are very low right now. That's partly because we're still on bear market. Basically, I mean, I think traditionally a bull market is when you're making new highs. Um, you know, we're not quite there yet in Ethereum.

• 1:00:10Speaker 00

  Part of that's because we're in a bear market and, you know, we haven't started that virtuous process of bringing in a lot of new people playing with MetaMask or Argent, et cetera.

• 1:00:21Speaker 00

  Part of it is because the recent upgrade, uh, proto dank sharding was a scalability enhancement, right? So this was not a minor upgrade. This is one where we actually scaled Ethereum in a very meaningful way. We scaled it so much that fees are cheap and that's what we wanted. And that is likely to be a temporary phenomenon, right? You know, you've had Justin on here to talk about this, but it's, you know, if Anatoly is like, you know, there used to be that the Solana Bear case on Ethereum was that fees are too high. Well, you know, guess what? We did a lot of really advanced cryptographic work. I mean, you know, the work Dankred does, I think he's probably, probably the smartest person all of crypto.

• 1:01:01Speaker 00

  You know, Dankred's team, these are, you know, cryptography, ZK and very advanced cryptographic schemes are scaling Ethereum in a way that I don't even think crypto understands. Certainly TradFi does not, you know, one of the things, you know, this, this line that Vitalik has that I think is hugely underappreciated is that, you know, ZK is, uh, and maybe even eventually fully homomorphic encryption, but ZK is Ethereum's transformer moment, right? Uh, you know, uh, this is hugely underappreciated. Uh, this is a largely not just a crypto manifestation driven by Ethereum, but even in academia, you know, Ethereum

• 1:01:41Speaker 00

  community has driven the academic community within cryptography around ZK and now FHE. And, um, you know, so fees are the, the burn right now temporarily is low because we have proto dank sharding significantly, you know, via the addition of blobs, uh, has, has made it cheaper to transact on Ethereum. It's made it cheaper for L2s to consume Ethereum DA. And that's great, but over time that the cheaper fees will onboard a lot more users and eventually they'll go back up. And that's why we will progressively increase the number of blobs and will also eventually have a full dank shorting, which will, you know,

• 1:02:23Speaker 00

  as you guys know, well, basically allow infinite scaling for for pennies and the number of transactions will be much higher. So right now temporarily, the burn looks a little bit lower, but again, that's for good reasons. It's because we have actually scaled Ethereum to make to allow more onboarding cheaper via cheaper fees. And but long term, you know, again, with with the right thoughtful changes to the issuance curve or other appropriate adjustments such so we can keep ETH a outright deflationary asset, it acts like collateral. And now you have a permissionless decentralized collateral that exists in the world that has

• 1:03:05Speaker 00

  never existed before. And I think one of the most underappreciated bull cases that Justin Drake has laid out actually a few years ago at DevCon in Bogota, I guess, maybe a year and a half or so ago, where he explained how, you know, what would be the, what would be if you had a ETH only governance free ETH collateralized stablecoin, how, what would the price of ETH need to be in order to provide for this utility? We need ETH to be ultrasound collateral, to use the meme, but basically deflationary collateral such that it cannot

• 1:03:48Speaker 00

  go to zero. And that is really crucial because then you can very safely, again, with the with the addition of removing as much governance as possible and keeping it capital efficient.

• 1:04:01Speaker 00

  Which we're, which we have a plan for, but we're not there yet. You know, ETH can be collateral, not just for stablecoins, which there's a trillions of demand for that, but for other, for other types of assets as well. You know, I remember it was like five or six years ago, I think it was Joe Lubin who like had this, had this idea, he said, hey, like you could make, you could have a smart contract in Ethereum that was an agreement between say the US and Iran that is collateralized by ETH, this permissionless collateral, where they both have to put up, and if one of them violates it, you know, neither of them can control Ethereum or ETH. And so you could, this would

• 1:04:41Speaker 00

  be a slashable type of penalty, right? So you can, you can enforce behavior, good actions, you can basically enforce contracts using this, this, this asset. And that's, I, I don't think people have even like really wrapped their head around the, the design space beyond just again, crypto collateralized stablecoins that we can have. But we're talking about trillions of additional value for this, of collateral value on top of the cash flow value. So you have this, you have the cash flows that are accruing to this SWIFT plus chips or Fedwire settlement system, right? This moving of financial assets and the fees

• 1:05:22Speaker 00

  that accrue. And then that then allows you to have this permissionless collateral that can be, that, that has an additional value. So I think this is one of the reasons it's very difficult to tell the story of, of ETH is that it is, it's, well, it's infinitely kind of infinite possibilities. But I would say like that is the, at a high level, you have the cash flow story, and then you have the potential value of this permissionless collateral. And the smallest, what I, I used to jokingly say, this is the SAM or the smallest addressable market for ETH is 5 to 10% of Chinese deposits. So call it.

• 1:06:03Speaker 00

  Two to four trillion dollars. That is the smallest addressable market for ETH the asset.

• 1:06:11Ryan Sean Adams?

  Do you think the addressable market for ETH or the asset is bigger than the addressable market for Bitcoin? This is a test of your ETH maxiness, Sam. So do you believe in the flipping? Do you think that's going to happen? You think these are equivalent assets or is just like one destined to always be larger than the other? Or is Ethereum going to flip in Bitcoin? Does that question even matter in your world?

• 1:06:35Speaker 00

  The answer is yes. The market opportunities is definitely larger. I think that the Bitcoin community is probably figuring that out. That's why all of a sudden you're seeing efforts like OP Cat and some of these turning on opcodes that previously, you know, the religion of Bitcoin said was unacceptable.

• 1:06:59Speaker 00

  Yes, unquestionably so. Does that mean that they'll ever evolve or evolve on time or evolve sufficiently or enable, you know, sufficient functionality to challenge it? Probably not, even in like the 100% scenario of a Bitcoin maxi. Or let's say like a, let's say a, you had a great guest on recently who kind of walked through some of this. I don't remember his name.

• 1:07:24Ryan Sean Adams?

  Is it Eric Wall from Bitcoin on the Bitcoin side?

• 1:07:28Speaker 00

  I'm not sure. I remember he was from North Carolina, actually, because I grew up in North Carolina.

• 1:07:33Ryan Sean Adams?

  Who are we talking about? So many guests, Sam.

• 1:07:36Speaker 00

  But anyways, you know, like I think like people who want to do more with Bitcoin and have been inspired by the, what Ethereum has done and want to enable some of that capability, even in their wildest dreams, I don't think they'll ever really get there, I think. But, and look, I mean, I think, you know, even if you are able to get all that, the Bitcoin community is, may not, you know, at the end of the day, this is, these are social systems. I think it's underappreciated, the degree to which, at the end of the day, these are social systems. And, you know, one of the things that caused me to want to put my reputation, my career behind Ethereum is

• 1:08:18Speaker 00

  After spending a few years now, getting to know and interacting regularly with the Ethereum community, the breadth of it, but also the individuals that, like I say, like on the research side, this is probably the highest functioning and executing group of people anywhere in the world. And, you know, I had a better, I said that better, probably a year or so ago to someone, and I wish I could remember the exact wording, but, you know, it really is, I mean, I'm close enough to understand just how both functioning,

• 1:09:01Speaker 00

  but also like the values and the way that people interact with each other. You know, this is one of the reasons you don't hear on Twitter, you know, maybe with a couple of exceptions, a lot of screaming about ETH or degrading Bitcoin, etc., the same way the Bitcoin maxis do, it's just not part of the culture. So I was both impressed with the people, the culture, the way that people communicate with each other, the focus on research and not noise. And that, I guess I was ETH built. And, you know, now I'm trying to tell that story to a broader TradFi audience.

• 1:09:35David Hoffman?

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• 1:11:03David Hoffman?

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• 1:12:11Ryan Sean Adams?

  Okay, so the story for TradFi is Ethereum as this, almost this like unified ledger for global financial settlement, right? So like, there's that part of the story. And then as this collateral asset that is like, you know, supra-national and exists outside of the nation-state control, that's the dual story. Now we have a new narrative that's sort of entering. This is maybe on the shorter-term time horizon, which is The Ethereum ETF. And going to this episode, the reason like Dave and I kind of prefaced it the way we have is because now it's time to explain some of these things for TradFi. And I'm just wondering, in your mind, as you see the Ethereum ETF finally being approved,

• 1:12:56Ryan Sean Adams?

  like, what's the significance of this for TradFi? Does it de-risk things? Do you have any assessment of what the impact might be for Ether, the asset, like what the flows might look like? Just in the broadest of like terms, how big of a deal is this for TradFi?

• 1:13:14Speaker 00

  To begin with,

• 1:13:17Speaker 00

  you know, people watching, people that spend too much time on Twitter or just a normal person that spends time on Twitter, don't worry so much about what happens in the very short term.

• 1:13:27Speaker 00

  You know, I remember when Bitcoin ETFs launched, people were like, oh, it was priced in, fell down for like, you know, like went sideways for a month and then it, you know, kind of ran off again and blah, blah. You know, don't be so short-term focused. I have no expectations as to what the initial adoption of Bitcoin ETFs will, I'm sorry, Ethereum ETFs will look like. And in the short term, it just doesn't matter, right? But when that does happen, again, partly, again, this, this, if you want to be able to accrue a little bit more ETH over time, like myself included, like, I hope it actually is, it goes a little bit slower, to be honest. I hope that I get a little bit more time to buy ETH below all-time highs.

• 1:14:13Speaker 00

  So I would not pay a whole lot of attention to what happens in the very short term, again. But over time, it's kind of inevitable that, that more people will get exposure to this asset class and a broader audience. And they, they'll be able to do it more comfortably. Even those firms that are quote papered up in, like the Wall Street firms, the, the hedge funds have been in the offices that are papered now to trade spot Bitcoin based. They're never going to do it in the same size as if they can hold it in an ETF form. So I think that's, that's one of the reasons the ETF flows on the Bitcoin side have exceeded people's expectations. So this doesn't surprise me.

• 1:14:55Speaker 00

  It's just a form factor that the organ, that an organization, a Wall Street organization can get more comfortable with. And when I, when I mean comfortable, I mean size, right? Like hundreds of millions, billions of dollars.

• 1:15:11Speaker 00

  And so I think, I think the, what will happen with ETH, you know, it seems likely just on, based on my understanding of how they're arriving at this, or my, my understanding until now as to, as to why, how the process has worked.

• 1:15:30Speaker 00

  You know, they've been able to, the ETF officials have been able to show a tight correlation between spot and Bitcoin CME futures and ETH CME futures. And there are no CME futures on any of their assets. So these two are likely to be kind of quasi entrined, unfortunately. But, you know, kind of quasi entrined because of that narrow path by which we're going to have spot ETFs for Bitcoin and ETH. And over time, when flows do come into ETH, say they, let's say that they're the organic new flows into ETH, there simply will not be any ETH for sale.

• 1:16:11Speaker 00

  You know, the, the, the dollar values, even with fees very low on ETH. And of course, once ETH starts making new highs, you know, transaction, transactions are going to go up, fees are going to go up. And that means you're back into a deflationary mode. So even with the very modest amount trickle of new ETH that is flowing onto the market with activity low post proto-dang sharding, it's, it's nowhere near, you know, one average day of Bitcoin ETF inflows is 10x the net issuance of, of ETH, whereas that barely offsets the issuance of Bitcoin on a daily, daily basis. So I think the price reaction could be actually. Pretty absurd.

• 1:16:55Ryan Sean Adams?

  What about the clearing of the regulatory?

• 1:16:57Speaker 00

  By the way, once it starts making new highs, then you have new users and you're entering that cycle where now it's like supplies contracting as more money is flowing in via these ETFs. I think it could be quite dramatic, to be honest. I don't, again, I don't know if it'll take two days to happen. I don't, I don't know if it'll take two years and it doesn't really matter. Like, hope that it takes longer, to be honest, for me personally.

• 1:17:20Ryan Sean Adams?

  What about the?

• 1:17:21Speaker 00

  Hold on, but let me just, let me just, there's a second derivative here is that I don't care if you are, you know, a hundred dollar retail investor or a hundred billion dollar, you know, Bitcoin billionaire investor, everyone chases. And so you've got what 25, 30 billion in Bitcoin ETFs? When ETH starts to outperform, this is going to your question about the flipping. That money that's sitting in those Bitcoin ETFs, again, this is just simple economics. This is relative, so in FX, you value currencies on relative inflation, right? And the relative inflation of ETH is lower. So, you know, when the, when, when, when ETH starts outperforming Bitcoin, people will chase.

• 1:18:06Speaker 00

  And so money will not, we're not just talking about new money into ETH. We're talking about money that is, that the 20 or 30 billion that is sitting in Bitcoin ETFs is now going to start chasing Ethereum ETFs. And so you already have this large pocket, you know, in the beginning, they'll call it a diversification of their, their crypto asset investment, you know? So it's like, maybe it's 2% of some, you know, pension fund, right? That they've got in the BlackRock Bitcoin ETF. And so they'll say, oh, well, the market weighting of, you know, when ETH starts outperforming, after a while, everybody gets FOMO, remember? You know, they'll start saying, oh, well, we shouldn't have all Bitcoin. We should have some of the ETH ETF as well. And so they'll do like a market weighting, you know, they're like, oh, we'll start with 10%.

• 1:18:49Speaker 00

  And then, well, you know, you know, we should have two to one, right? Because Bitcoin is twice the market cap, right? So they'll, then they'll add more ETH to get a market weighting of Bitcoin to ETH. But it's just a, it's just human nature.

• 1:19:03Ryan Sean Adams?

  They just FOMO.

• 1:19:04Speaker 00

  I do think the flipping will happening, I, again, I don't know the timing. It is very difficult in markets. One of, I've, I've got a lot of gray hair at this point. One of the things I've learned in markets is that it's hard enough to get the direction and the magnitude correct. Don't try to also get time correct. You know, leave that, leave that one alone. Expected to take longer and focus on the, the direction that I get to.

• 1:19:26Ryan Sean Adams?

  How about this breaking of the, kind of the regulatory haze? Uh, I don't know if that's made a big difference for, for TradFi, right? But it's like Ethereum, because of the lack of action of the SAC or, you know, the, the sort of the banning about of, uh, people like, you know, Chair, Chair Gensler. It's been unclear what its status was, uh, was, is Ethereum a security? Is SEC going to try to claim this? Is it a commodity? And now with the SEC's approval of the Ethereum ETF, it's just quite clearly a commodity. Has, has, was there, is there a group in TradFi that was just like waiting for this to happen? Like there was some regulatory haze over Ethereum and they had not purchased Ether, but now they will because it is securely a commodity? Or does, does that not matter very much?

• 1:20:12Speaker 00

  I'm not sure. I don't, I'm not sure I have a view on that. I, one thing I would say that I know from, you know, in 22, I think that there were some large, well-known hedge fund, hedge funds that were long some of it. And I remember I got a message from one of the large bank, uh, sales coverage. And I remember she basically was like, hey, like, uh, some, so somebody's telling me it's going to be declared a security. This is like two years ago. And I was like, that's not gonna happen.

• 1:20:48Speaker 00

  It actually, I wanted to give you guys credit. You guys, you know, this is the reason why you need to watch Bankless, every single one, is because there are alpha drops in Bankless episodes that people don't realize. The biggest alpha drop that nobody realizes was in a Bankless episode where Justin Drake, it was right before the merge, towards the end of a conversation. He, you remember this, the list of reasons to like be bullish on ETH or like ETH won't be a security or something like that? And one of them was a statute of limitations.

• 1:21:17Ryan Sean Adams?

  Yeah.

• 1:21:19Speaker 00

  I went and looked into this because I had never heard anything about this. I had this was so I went and spoke to several big law firm lawyers, including a former head of longtime head of enforcement at the SEC. She almost would not engage with me on the conversation because she said ETH is not a security. And I was like, but if it was, she's like, but it's not. And I'm like, please help me here. If it was, would this, would it, the, the, and, and here specifically what I don't think he gave this detail, but here's what I figured I found out. Basically there was a change to the National Defense Authorization Act of 2021.

• 1:22:01Speaker 00

  Somebody, if you want to, by the way, we can talk about politics and I had a brief career on Capitol Hill in a prior life. But you know, if you want to get something into a bill, you want to get it in what's called the omnibus, which is a spending bill, and you want to get in the defense authorization bill because everybody's got to vote to pay the troops, right? You got to vote to, you know, there's all these bases, you got to raise salaries and that's, that's done the authorization bill. At any rate, so somebody slid in a change to the statute of limitations into the National Defense Authorization Act of 2021 that changed the statute of limitations from 10 years to five years. And so he was correct that there was, and I again, did some due diligence to, to, to double check this.

• 1:22:44Speaker 00

  I was pretty confident that ETH was not going to be a security and I, that having done some due diligence on that amongst other things, and I said as much. And so the way I would answer David's question is to say that I don't think recently people have like not owned it because of, or rather they've owned Bitcoin and not ETH. I think there's some of that, right? Like it was just, you know, nobody wants to take headline risks like what if? It is a security, that's a small segment of the market, but what I can say with certain is that there were people, say back in 21, 22, that weren't just worried about the Fed raising rates and selling, or FTX blowing up, or whatever. There was also in Wall Street this

• 1:23:29Speaker 00

  concern, even back then, that, I guess 22, that ETH was going to be deemed a security. So I think that there were people that otherwise probably would have been around long for the ride, or maybe on the ride on, you know, on again, off again, and they kind of got off due to that concern back then. But I think it had, people just don't own ETH, right? Right now, really, on Wall Street, it's still pretty small relative to Bitcoin. People are very crowded in that concentration, in that exposure.

• 1:24:00Ryan Sean Adams?

  Sam, one general question, I think, for a lot of crypto natives is like, is it a good thing to have TradFi on our side? Right? It's like, it feels kind of good right now to hear Larry Fink talk about the Bitcoin ETF, and he's also talked about tokenization, and with BlackRock getting an Ethereum ETF approved, I know he's going to be on the media circuit talking about Ether, the asset, as well. And all of that is great, like, great, right? We're excited about that in general. We're not really sure what they think about DeFi, though. We're not really sure what they think of the concept of decentralization. If we create another privacy mixer on Ethereum, like, not really sure where they'll fall on some of these issues, like decentralization. And like, the broadest of questions is, do

• 1:24:45Ryan Sean Adams?

  they consider crypto a threat? You know, could they use it the way they want, maybe for tokenization of real-world assets, but then also be concerned and try to choke off the DeFi touchpoints? Because those are threatening to the large institutions, you know? You got a bank like Wells Fargo that has 200,000 employees, and then you have a, you know, a protocol like Uniswap with just like a few dozen, got to like, you know, trillions in terms of trading volume. Like, we can do so much with far less people, and is that not threatening to the existing institutions and incumbents? So where do you come down on this? I know you're kind of like representing TradFi, but you're also straddled in the crypto world here. So you've got like, you know, a foot in, on both sides

• 1:25:30Ryan Sean Adams?

  here. Do you think TradFi is going to be a friend of crypto, or a foe of crypto, or just like something in between?

• 1:25:37Speaker 00

  So I think it's good. I do not think we want those Ethereum ETF staking. You know, if there were a mass slashing event, that would cause that would cause governance risk. Right? You could imagine if this is actually why we need to limit the percentage of the network that is staked. Or evolve staking in a way where a portion that only a portion of it is slashable staking versus non-slashable. Vitalik has introduced proposals around this. So I do not think for the time being, we want those ETF staking.

• 1:26:18Speaker 00

  They should be simply receiving that the risk-free rate, which is the deflation you get from holding native ETH. That is the real risk-free rate because you can be slashed. And you know, it hasn't happened sufficiently up to now for people to be worried about it. But it freaks me out to think about, you know, BlackRock having getting slashed. Like, I just don't, I don't want that day to happen. I, we need to keep the network such that, you know, the risk-free rate is the deflation at 50 bips or 1% you get from holding native ETH. That's really a side conversation. The next part I would say is like, I think that, look, DeFi is super cool, right? I mean, this is, this is an evolution and they love it.

• 1:27:02Speaker 00

  I think this is why, I think I was surprised that somehow Larry Fink was able to become a crypto maxi within such a short period of time after I did that. I never, I will admit, I did not see that happening that quick. I, I thought that that would take two or three times as longer. It's still, this one, I got a good example why I don't do timing, right? Like this, I did not expect this to happen. So I think that there, this is, remember I said like their minds are going to be blown when they figure this out? This is an example, like TradFi is going to be blown away when they figure this out. And I think actually getting back to this unified ledger, you mentioned this, you know, the BIS introduced this piece around what they call the blueprint for the

• 1:27:46Speaker 00

  for the future financial system or and the unified ledger. And I remember when I read the first half of it, I texted a former Fed friend of mine. I was like, the BIS is trying to fork Ethereum because what they're trying to do is basically deploy a central ledger that all other banks and financial institutions and central banks would then settle to. And that is that, you know, the power of a unified ledger that enables just infinite composability and tokenization is an insanely big concept and it's going to happen. And it's, it's what I would almost say it's, um, it's a little bit like DeFi growing up. You know, I think you'll always have the Uniswap's and these and compounds and Aves

• 1:28:29Speaker 00

  of the world, but I think you're going to have, remember we talked about JP Morgan Onyx, JP Morgan's Onyx that uses basically a to get the client that consensus maintains. Consensus bought that from JP Morgan in 2021, after JP Morgan had been maintaining it for a long time, but it is trivial. So right now JP Morgan basically tokenized dollars and tokenized treasuries and solved one of the last remaining problems from the global financial crisis. And this was what's called tri-party repo. This is where banks basically can't trust each other during the period of time it takes for these two assets to settle at different times. So dollars and treasury settle at different times, but if

• 1:29:14Speaker 00

  you tokenize them, they settle at the same time. And right now they're basically just doing it with a small handful of counterparties. So it's basically just like Goldman and JP Morgan doing what's called repo, loaning each other money for a short period of time overnight, borrowing dollars, using treasury as the collateral, which again have both been tokenized. But it is trivial to, and it's private and permission, right? So, but it is trivial to connect that to the Ethereum L1. And so now put yourself back in my, Sam Dernigan, my prior seat in a very large global macro fund. And let's say we have, You know, let's say we have JP Morgan and it, you know, try to find institutions on the buy side.

• 1:29:59Speaker 00

  So hedge funds, et cetera. We want to trust JP Morgan. We need to trust JP Morgan, but we would love to have the ability to also immediately move that asset with finality to settle, to settle, say, a margin requirement at Deutsche Bank. And so if you were to connect, you know, the JP Morgan Onyx get client and basically make it a validity proof or basically an L2, right? You connect it to Ethereum L1 and now Deutsche Bank or Goldman Sachs has a, has a, their own ZK roll up. Maybe it's a, maybe it's a L2, maybe it's an L3 construction or a validity in most, it most likely will be some sort of a validity construction so that all of the data is not posted

• 1:30:42Speaker 00

  to the L1. It'll be posted to a data availability committee, which is fine because again, you know, we're talking about hedge funds that want to trust, that need to trust JP Morgan. So we're okay that the data is housed there, the data availability is there, but we want the interconnectivity of being able to utilize this unified ledger, the Ethereum L1. So I actually think that most major banks and financial institutions will have their own execution environments that will allow their clients to, that are permissioned to interact and execute in these permissioned environments and then move those assets around via the L1. And this is not a new concept, by the way, like this is, I would, I've had conversations where

• 1:31:27Speaker 00

  like this is the holy grail. This is, this is the goal. And this is why from my perspective, when I read the BS paper, I was like, oh my God, they're, they're forking Ethereum, basically, because this is really transformative. Like, you know, stable coins pushed a button that really can't be undone. You know, it was, you know, stable coins were a phenomenon of the prior bull market that did not go away. And in fact, they've, they've grown and proliferated and they have really legitimized the use case for, for open public systems. But you could imagine this is going to reach a limit. Like JP Morgan is not going to allow a hundred percent of its balance sheet to be monopolized by this, this corporate squid, you know, circle.

• 1:32:12Speaker 00

  Right? So if Circle were to grow to a certain size, JP Morgan would be like, we're not going to just like, let you take over all of our deposits. They're going to tokenize their own. And so you have pushed a button, I, you know, I don't know if you're familiar with tokenized deposits. If, you know, we should, you know, we should have that conversation to follow up. But stable coins pushed a button that can't be really undone. This is basically the global proliferation of dollars. That's, that for the first time ever, really, anyone and everyone in the world, no matter where you are, is allowed to save, hold and transact in dollars. And that is, that's never existed before, you know?

• 1:32:53Speaker 00

  China alone has more than 500 billion of capital flight a year. This is, this, we, we, this is not reported, obviously, but it shows up in what's called IMF air and emissions data. It's the difference between the current account and the capital account. And so we know that money flows out, like the average Chinese citizen is only allowed to hold 50, is, is only allowed to buy $50,000 a year. And they have to hold it with their domestic bank. But if you have an Ethereum account, you can hold as much Circle or Tether as you want, right? In your, in your Ethereum wallet. So this is a, this is a really big deal, right?

• 1:33:31Speaker 00

  Like, I mean, we're, we see it, this is why like adoption in parts of Asia and in South America has been very high for stable coins. And the number of, of individuals in these countries that have either held or used stable coins for transactions. But ultimately that is going to result in banks saying, hey, we want to get on this too. And we, you know, we can't have this like corporate entity with 30 employees monopolizing our balance sheet. We're going to, we want to tokenize our deposits. And they will go on public blockchains because private, we know this from the era of the internet. You know, there used to be what's called the inter, the Intranet. And you know, the internet before the internet of the world by web, right? And now you still have, I'm sure maybe you guys have like a little bankless corporate,

• 1:34:15Speaker 00

  you know, intranet with your HR or whatever most companies do, J.B. Morgan intranet. But you spend your time on the internet. And I think it'll be very much the same way. You know, you, the analogy of you'll have businesses and banks that will have their small permissioned, private and permissioned execution environments, but they're going to be connected via the Ethereum L1, the unified global ledger.

• 1:34:39Ryan Sean Adams?

  So you're painting a world here, Sam, where TradFi doesn't try to choke off crypto and DeFi at all because it's not in their best interest to do so, right? The idea of tokenization on this unified global ledger is very appealing to them, gives them an opportunity to just like upgrade their infrastructure, gives them new products to sell, gives them more things to financialize, which is, I think, bullish. I mean, as we end this conversation, one other topic we haven't uncovered yet is regulators and how they'll feel about all of this because it's a similar sort of, you know, cost benefit analysis when you get into kind of a regulator's head or like a big government's head. There are some things about crypto that are threatening to nation states and common powers and regulators.

• 1:35:24Ryan Sean Adams?

  And there's also clearly some benefits. They're almost in a similar position as the banks. And so from a regulatory perspective, I'm just curious your general take on what you think needs to happen. And you also, I think, wanted to talk about, so we asked you part of this episode, hey, Sam, do you have any, like, any alpha to share, any, like, you know, thoughts on various topics? And you brought up this term that I'm not super familiar with, but I want to ask you about. It's called Chevron deference. And that sounds like a legal mouthful, something that only a regulator could love. But maybe you can explain the regulatory landscape, what's needed, this concept of Chevron deference. What does that mean? Why is that important to this story?

• 1:36:07Speaker 00

  Sure. So the first one, again, I think regulation, I

• 1:36:14Speaker 00

  I once said this with Matt from Van Eck on a panel. I was like, I don't, I never worry about regulation because it takes care of itself. And I certainly recommend 95% of the people watching this podcast, don't worry about regulation. Since I've been in the space, people have always worried about regulation. And if that kept you out of it, well, it has kept a lot of people out, unfortunately. So it doesn't mean that you don't need to call your congressman. And calls work better than an email, by the way. Call when, you know, when important bills are coming up, etc. Or when, I mean, you get the point, but don't let it keep you out of this space. That is noise. That is short term noise. So I think

• 1:36:54Speaker 00

  regulation will evolve fine. And we, at least in the very near future, we are awaiting this, this, basically, 40 years ago, fascinating story, 40 years ago, there was a Supreme Court case involving the Chevron Corporation, EPA, and Environmental Defense Agency, organization. The short version is that the Supreme Court ruling at the time gave the power, basically said, hey, agencies are experts, we judges are not. So when a law is written ambiguously,

• 1:37:36Speaker 00

  we should give deference to the agency. And as it turns out, the head of the EPA at that time, and this was a win for the EPA, the head of the EPA was Neil Gorsuch's mother. Neil Gorsuch is the Supreme Court judge. His mother was head of the EPA at this time. Now, this, it basically, again, it basically says, when there's a law that is ambiguous, say, is crypto a security or a commodity? If it is ambiguous, the courts should defer

• 1:38:16Speaker 00

  to the agency expertise, basically. And this has been used to varying degrees by both Republicans and Democrats. Republicans used it actually to kind of, to reduce a lot of protections in the Clean Air Act and Clean Water Act under Bush, Bush W.

• 1:38:36Speaker 00

  People might remember that. But then that turned very hard the other way under Obama and also under Biden. And so, for example, the EPA, in particular, you know, this has had huge implications. I mean, we haven't had immigration law in God knows how many, I mean, 50 years. So like, everything that is done is interpreted by the agencies and courts give them defer.

• 1:39:00Ryan Sean Adams?

  When you say agencies, you're talking about the regulators, right? The SEC, the CFTC.

• 1:39:04Speaker 00

  Yes, sorry, the regulators.

• 1:39:05Ryan Sean Adams?

  Yeah, yeah, yeah.

• 1:39:06Speaker 00

  The executive agency regulators, okay? So, and the courts simply have to defer to them. Over the last, there had, the Supreme Court is currently very conservative, as most people know, and has taken a couple of strikes at this Chevron deference. Again, goes back to the original company Chevron Corporation 40 years ago, has taken a couple of strikes at it. Most recently was actually last year, they did what was called the major questions doctrine. The Coinbase actually took advantage of that decision as, and part of their defense against the SEC. The idea being that, hey, the court said, hey, if, if a topic is of national significance,

• 1:39:49Speaker 00

  it's a major question, the court should not defer to the agency, for example, right? But then the question is like, what's a major question, right? Well, in October of last year, not many people noticed it, I almost missed it, the Supreme Court agreed to hear a case of, I believe it's herring fishermen. There's actually two cases, one's called relentless, the other is called Loper Bright v. Raymondo. Raymondo is the head of commerce. And what, what's at issue here is basically that these fishermen, these fishermen, there was, there was a law passed years ago that said that the National Marine Fisheries should

• 1:40:31Speaker 00

  require observers on commercial fishing boats. The problem was that it costs money and the, the Congress did not say how to pay for it and they didn't provision money for it. And so the agency interpreted it. To say that they could charge the fishing boats. It turns out that, and you see this in the case, that the cost of having an observer on every single boat was going to cost as much as 20% of the profits for these fishermen. So they sued. And they lost straight up into the district circuit, the DC circuit, where Katanji Brown Jackson was sitting at the time.

• 1:41:08Speaker 00

  And they lost based on the National Marine Fishery Commerce Department claiming Chevron deference, that they had written these rules under Chevron deference. Of course, this was then appealed by Loper Bright Enterprises, the name of the fishing boat company. And the SEC took, I'm sorry, the Supreme Court accepted the case. So they had three options. They could hear the case on its merit, they could hear the case on curtailing Chevron deference, or completely removing Chevron deference, striking it down. And they elected the latter, too.

• 1:41:49Speaker 00

  And Katanji Brown Jackson is recused from that case, having previously heard it. As a result, the conservatives on the court, led by Neil Gorsuch, whose mother originally is responsible for this being in place, he's leading the charge to remove Chevron deference. And so they don't have just a normal majority, as they normally do. They have a super majority because one of the liberal justices is recused. And we must, the way that the Supreme Court term works is they accept cases and it runs from October to June. So any day now, it's June 4th when we're recording this, could be this coming Monday, it could be the Monday after, but anytime in the next, I would say, two to three weeks,

• 1:42:33Speaker 00

  we are likely to get a decision in Loper Bright v. Raymondo on Chevron deference. And you know, if you Google this, you're going to see articles that talk about the potential chaos that could ensue from this because the agency's ability under Chevron deference to interpret and write rules and regulations was so broad, it stretches across finance, it stretches across, like I said, immigration and the environment. But in the hearing, you should go and listen to the oral arguments for the Supreme Court. Crypto comes up a number of times in the oral arguments. And it's even used as an extreme example of how Chevron deference has effectively caused a problem where this uniquely 21st century

• 1:43:17Speaker 00

  phenomenon, digital currencies, is seen overreached by a regulator that clearly doesn't have authority. So the implication there being that if and when, most likely, I would say 90% probability, Chevron is at minimum significantly curtailed, if not completely removed, there will be no question, but that like the regulator assault on crypto is basically done. I mean, it's done. And that actually has significant implications about whether or not you actually want to see legislation. Like, as it stands, I can tell you, you know, I personally do not want any

• 1:43:58Speaker 00

  legislation passed. You know, it's much better. Like, we're so early in crypto. If you write something with a certain definition or understanding now, it may not be relevant six months from now, much less 30 years from now. And it is almost impossible to get something taken out of law once it is put in law. This is why you, you know, like, you hear about, like, these laws of like the 1800s, you know, they like, very difficult to appeal the, to repeal them. You know, Arizona is having to do this now, in the context of Roe v. Wade, and the abortion decision. There's like 1800s law that they're having to quickly repeal. So you don't want, I mean, I think-

• 1:44:41Speaker 00

  In my opinion, with the exception maybe of a very narrow stablecoin bill, I personally would just prefer to have no regulation. And that is especially true because almost any day now, the agencies are going to be completely neutered. The SEC is going to be done. Their assault on crypto is basically going to be cut off at the legs. I think they know that, and I think it's one of the reasons why they have implicitly pivoted.

• 1:45:04Ryan Sean Adams?

  So this is cool. So just like, maybe just to connect the dots and then you'll finish this out. So if Chevron deference is overturned, then it defangs one of the core problems that crypto has had with regulators, which is like regulatory overreach, these unelected officials, Gary Genslers of the world, that are basically like hating on crypto and doing everything they can to just like put up roadblocks. And it completely defangs that. And I guess if we were able to thread the needle, at least in the US, is we'd have regulators, aggressive regulators defanged from their ability to do kind of like overbroad rulemaking. And then we'd also probably have a hung Congress, at least for a while,

• 1:45:47Ryan Sean Adams?

  so that they only get through legislation on like stablecoin bills. And they don't go full, you know, like prying into the business and trying to overregulate everything, which would, which would draw us into a quagmire in crypto. Very interesting. I had no idea that that case had anything to do with crypto. And so, yeah, it sounds like it's a big deal. Well, Sam, this has been excellent. Thank you so much for guiding us through this. Do you have any just like parting thoughts on, you know, like David and I have this, this bet right now, which is on the next roll up, we're going to give our like pitch for Ethereum, like to TradFi. And I just like, I feel under equipped to do this, although he's like, I'm definitely going to beat David, right?

• 1:46:29Ryan Sean Adams?

  So yeah, David's got no chance here, but he's shaking his head. But when we're talking to TradFi, what is kind of the simplest pitch that we can give them? Is it what you said earlier, which is like, hey, this is Bitcoin, but it has extra utility? Is that what Ethereum is? Yeah, how would you close this out?

• 1:46:49Speaker 00

  You know, I say to myself that ETH is like Apple. And Jim Cramer has this line, own it, don't trade it. And that's the way I think about it. You want to own ETH. It is a platform. It is a secular shift with unbelievable fundamentals underneath it. You want to own it, don't trade it. That's how I approach it personally.

• 1:47:15Ryan Sean Adams?

  There you go. Own it, don't trade it. We will leave it there. Of course, got to let you know, none of this has been financial advice. It never is on Bankless. Crypto is risky. 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.