ROLLUP: Will FAILING Banks Bring Down the Economy?!

Bankless Weekly Rollup 1st Week of May 2023 ------ ✨Stake with Swell https://bankless.cc/Swell ------ 🚀 Airdrop Alpha is waiting for you on Bankless.com https://bankless.cc/Alpha ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask ------ Topics Covered 0:00 Intro 3:30 MARKETS 4:42 FED raised rates by 25 basis points https://www.federalreserve.gov/newsevents/pressreleases/monetary20230503a.htm https://twitter.com/carlquintanilla/status/1653822271520223232 https://twitter.com/RyanSAdams/status/1653856569145081856 10:31 Jim Bianco’s take: THEY KNEW THE RISKS https://twitter.com/biancoresearch/status/1653777745791401986 15:20 Banks Failure - Season 2! https://www.fdic.gov/news/press-releases/2023/pr23034.html 24:40 Comparison of the US banks’ failures since 2002 https://twitter.com/mbostock/status/1653221977895882752 27:49 Arthur Hayes’ take: The U. S. Banking System is now Nationalized https://twitter.com/CryptoHayes/status/1653175131123126272 33:41 Meanwhile, Balaji lost the Bitcoin bet https://twitter.com/balajis/status/1653451860488130565 https://twitter.com/balajis/status/1653449321185169409 https://imgur.com/a/Eu4aIIb https://imgur.com/a/Zg9Gh8r 41:48 Coinbase Going International https://twitter.com/coinbase/status/1653385513011740672 https://www.coinbase.com/blog/introducing-coinbase-international-exchange 44:44 In good news…Gary’s GOT 10 DAYS https://twitter.com/iampaulgrewal/status/1653898889311948800 48:35 VENMO bringing Wallets to 60M Americans https://twitter.com/RyanSAdams/status/1652049681050943489 51:00 EigenLayer Stage 1 Mainnet is set to launch https://twitter.com/eigenlayer/status/1653536292171567104 55:20 Sui Mainnet https://twitter.com/SuiNetwork/status/1653731940107956225 SUI coming in at a $13B valuation https://www.coingecko.com/en/coins/sui https://thedefiant.io/sui-raises-300m 59:10 Alexlar https://twitter.com/axelarcore/status/1653384907085737985 Bankless Show https://www.youtube.com/watch?v=erZyGlxchsA 1:01:59 Lens Layer 3 https://twitter.com/StaniKulechov/status/1651898620973576193 1:03:30 New Zachxbt Victim https://twitter.com/zachxbt/status/1651238822963826694 https://twitter.com/CoinGurruu/status/1651250297530974208 1:04:40 Biden proposes 30% climate change tax on cryptocurrency mining https://www.whitehouse.gov/cea/written-materials/2023/05/02/cost-of-cryptomining-dame-tax/ 1:08:12 Jobs https://pallet.xyz/list/bankless/jobs 1:11:24 Questions from the Nation 1:16:27 Takes of the Week https://twitter.com/RyanSAdams/status/1653011542563069952 https://twitter.com/TrustlessState/status/1653674756715978752 https://twitter.com/erikvoorhees/status/1653935801338822663 1:20:44 What David’s Bullish On https://twitter.com/TrustlessState/status/1652053503307644930 1:24:34 What Ryan’s Bullish On 1:26:41 MEME of the Week https://twitter.com/natfriedman/status/1625850766039842824 1:30:05 Moment of Zen https://twitter.com/dcbuild3r/status/1653737344170618882 ---- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

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

• 0:00Ryan Sean Adams?

  The reason Powell is raising rates is because he's trying to fight inflation. And the more he raises rates, the more economic turmoil that seems to be causing. Namely, and we're going to get to this in a little bit, in the realm of bank failures. Okay, so that's starting to happen. Another bank failed this week, which we'll talk about in a minute.

• 0:21Ryan Sean Adams?

  Bankless Nation, it is the first Friday of May. It's Friday morning. Hope you brought your coffee. David, what time is it?

• 0:27David Hoffman?

  Ryan, it's the Bankless Friday Weekly Rollup, where we cover the entire weekly news in crypto, which is always an ambitious endeavor, yet we persevere nonetheless into the frontier. How are you doing this week, David?

• 0:38Ryan Sean Adams?

  I'm doing well. I don't know if the banks can say the same, though, because we got more bank failures on the menu.

• 0:44David Hoffman?

  Season two.

• 0:45Ryan Sean Adams?

  That's a big topic, big topic of conversation. We're also going to talk about Jerome Powell and the Fed raising interest rates. How high can they go? That's the question we got to ask. David, what else are we covering today?

• 0:58David Hoffman?

  Balaji waves the right white flag on his bet a little bit early. He capitulates, says Bitcoin's not going to go to $1 million in the next six weeks?

• 1:08Ryan Sean Adams?

  Yeah, by June 17th.

• 1:10David Hoffman?

  June 17th was when it was over. Okay, well, it is May 4th. So he's waving the white flag, donated $1.5 million. And so we're going to cover that. And then also, there are some other mainnets just dropped. So Eigenlayer Mainnet, the Sui Mainnet, the Axilar has an announcement, and Lens has a Layer 3 that we talked about last week. We got some stats. And then, speaking of mainnets, not really mainnet, but Coinbase International, new exchange, just got announced. So a bunch of stuff to run through in this Friday Weekly Rollup.

• 1:43Ryan Sean Adams?

  Yeah, totally. Always jam-packed for you guys. Of course, if you like this episode, if you like what we're doing over here at Bankless, make sure you like and subscribe. That's how we pop up on the charts on Spotify, on Apple Podcasts, on YouTube. You know how to do it. Just like, subscribe. It's very important, yeah, especially in the bear market. Can you spare a like, guys?

• 2:01David Hoffman?

  Please spare a like.

• 2:05Ryan Sean Adams?

  One thing before we get into the markets today, David, we've got to talk about our friends and sponsors over at Swell. Swell is a staking protocol, and this is a staking season? I'm calling it. Not just spring, but it's also staking season. David, tell them about Swell.

• 2:19David Hoffman?

  Swell is a brand-new staking-as-a-service protocol entering the foray of the LSD world. But since they are brand-new, they are charging 0% staking fees, so they are the highest-yielding staking provider out on the market. Brand-new, simple interface. And one of the new competitive advantages about Swell is that you can also get DeFi yield along with your ETH yield. So some interesting new innovations to be competitive in this market. And they are also looking to frontier technologies to improve the product, something that's getting me excited, like DVT is something that is on the Swell roadmap.

• 2:53Ryan Sean Adams?

  Decentralized staking.

• 2:55David Hoffman?

  Yes, yes, squad staking, squad staking, exactly. They have this thing called a Voyage, which they are teasing. I don't know what's in the Voyage, but it is starting soon, and they would like you to know about it. So there is a link in the show notes to go explore.

• 3:09Ryan Sean Adams?

  It is staking season, David. Look at that APR, 4.5% on your ETH. And I don't know about you, David, but risk-free sounds pretty good right now with all the bank failures going around. I'd rather have my ETH in a staking protocol than in a bank account, that's for sure.

• 3:24David Hoffman?

  Protocol or bank, protocol or bank, what you want, what you want.

• 3:29Ryan Sean Adams?

  Speaking of that, let's get to the markets today, all right? How are we looking on Bitcoin on the week? Are we up? We down? We sideways?

• 3:36David Hoffman?

  We are sideways, sideways week. Literally nothing to report. $28,000 and 900.

• 3:44Ryan Sean Adams?

  You're telling me we could have just skipped this entire week? It didn't even matter?

• 3:47David Hoffman?

  Yeah, that's about right. Yeah. Not even 1% move on either Bitcoin or Ether.

• 3:52Ryan Sean Adams?

  The same, both just flat, flat?

• 3:55David Hoffman?

  $1,888. The most interesting thing about Ether right now is that there are 3 eights in the price.

• 4:01Ryan Sean Adams?

  Man, we could have just saved the last roll-up recording clip and just replayed it, huh? Same price, nothing changed.

• 4:07David Hoffman?

  We got some volatility. We went down to 800. We almost got back above 2,000, but...

• 4:13Ryan Sean Adams?

  ETH Bitcoin ratio also flat?

• 4:15David Hoffman?

  It's also unchanged.

• 4:16Ryan Sean Adams?

  This is weirdly flat.

• 4:17David Hoffman?

  Yeah. But also, bank station, I'll remind you, please pull up your tracker apps, your price trackers, and make sure that the prices have not moved in the last 24 hours.

• 4:26Ryan Sean Adams?

  And if you want some of the best charts in the biz, you gotta go check out Kraken Pro over here. pro.kraken.com. Professional interface, so all of my charts look very professional these days, David. It wasn't like that before. And I'm learning how to chart a little slowly.

• 4:40David Hoffman?

  There you are. Slowly, but sure.

• 4:41Ryan Sean Adams?

  It's taking some time. Well, let's talk about the big news today, David, which is the Fed raising rates. The big news this week at least. So the Fed just raised rates, interest rates, by 0.25%, or as you like to call it, 25 basis points.

• 4:56David Hoffman?

  I love hearing that.

• 4:58Ryan Sean Adams?

  I know, you always speak in terms of basis points. So here is the press release, if you want to read something, you know, kind of boring, and what the notes are about this, but 5.25%, between 5 and 5.25% range, that's a 16-year all-time high. We haven't been higher in interest rate in 16 years. It was 16 years ago. When was that, David? Was it before 2008, before the financial crash? Yeah, we're talking like mid-2000s. What were you doing in the mid-2000s? Last time the rates were this high?

• 5:37David Hoffman?

  Middle school?

• 5:38Ryan Sean Adams?

  Were you buying a house?

• 5:40David Hoffman?

  I was not under strain.

• 5:42Ryan Sean Adams?

  Did you know that rates existed?

• 5:44David Hoffman?

  Not at all. No, I just understood that my parents were stressed. Oh, wait, no. This was pre-housing crisis. Never mind. Yeah.

• 5:53Ryan Sean Adams?

  Yeah, no, everything was fine, but it was about to get, things were about to get bad.

• 5:57David Hoffman?

  Yeah, right, right, right.

• 5:58Ryan Sean Adams?

  Huh. Okay.

• 5:59David Hoffman?

  Oh, it does make sense that high interest rates created the housing bubble to pop. That makes sense.

• 6:04Ryan Sean Adams?

  Do you think kids in middle school right now are talking about inflation or interest rates at all? Are they still just kids in middle school?

• 6:10David Hoffman?

  Way more than I was when I was in middle school.

• 6:12Ryan Sean Adams?

  The kids are getting smarter every generation. That's what's happening, I think. But you know what? This is kind of the decision point here, right? Because Jerome Powell has a question. They want, the reason Powell is raising rates is because he's trying to fight inflation. And the more he raises rates, the more economic turmoil that seems to be causing. Namely, and we're going to get to this in a little bit, in the realm of bank failures. Okay, so that's starting to happen. Another bank failed this week, which we'll talk about in a minute. And I kind of feel like Powell is choosing maybe the worst of both worlds? Like, so we're going to end up with high inflation anyway? And also, bank failures? That's my critique as to what's going on.

• 6:56Ryan Sean Adams?

  On the other hand, like, I don't know, maybe the guy's actually not in control of anything. It just seems like, what happens, David, if we tighten so much? That we cause a cascade of 2008-like economic effects, right? We just had our third major bank failure this week. And we're still raising rates? It seems like a bad time to be raising rates. But I'm not a central banker.

• 7:21David Hoffman?

  I want to, yeah, I want to present the, actually, the counterargument to that point.

• 7:24Ryan Sean Adams?

  Go for it.

• 7:25David Hoffman?

  So, we gotta, we gotta raise rates because inflation's still up, right? Core inflation has not gone down. The more volatile, more expressive inflation has come down. But core inflation, things like services and goods have gone up, right? That's the hard part. So that's why we gotta keep on raising interest rates. And then when the bank failures occur, that's a sign, that's a sign of raising interest rates. Of course, economics and finance are just harder. And I think that what the Fed is able to do with bailing out these individual banks as they fail is like, the Fed is raising the interest rates.

• 8:03Ryan Sean Adams?

  Surgical?

• 8:04David Hoffman?

  And then they are catching the distressed banks on the way down. So it's not a, like, an impact. They're just cradling the bank failure into the ground.

• 8:14Ryan Sean Adams?

  Cradling the bank failure.

• 8:15David Hoffman?

  And then they're catching the next one. And so they are actually able to continue to increase rates. Because they are surgically catching the catastrophes that they are causing. Which allows them to continue to raise rates. Because they're not, they're, they're like, oh, there's contagion, go, gotta go catch it. And it's working.

• 8:35David Hoffman?

  So far.

• 8:36Ryan Sean Adams?

  So far and maybe, but also has a whole bunch of unintended consequences as well that we'll get to and I worry about, one of which is-

• 8:43David Hoffman?

  Like bank consolidation into too big to fail banks so that the banking sector becomes nationalized doesn't sound like it's unintended.

• 8:50Ryan Sean Adams?

  That's kind of what's happening, right? But I do think the picture you just painted is what the central bankers and Powell would like to have happen, right?

• 8:58David Hoffman?

  Right.

• 8:59Ryan Sean Adams?

  I just worry, I think we're gonna get, there's a very real possibility, David, at this point, we get the worst of both worlds in that we're not able to cradle the banks on their way down, but we just get cascading bank failures and also-

• 9:11David Hoffman?

  High inflation.

• 9:12Ryan Sean Adams?

  Massive high inflation, right? So just like, what was the point? I don't know, that's the risk that we're running.

• 9:17David Hoffman?

  We get currency inflation but economic deflation? Oh, that sounds awful.

• 9:21Ryan Sean Adams?

  We'll have to see what happens. I, we do know this-

• 9:24David Hoffman?

  Is that what stagflation is?

• 9:25Ryan Sean Adams?

  That is what stagflation is.

• 9:26David Hoffman?

  That is what stagflation is.

• 9:27Ryan Sean Adams?

  From the policy statement, this week, anyway, the language saying that the Fed, this has been previous Fed language, that it anticipates further rate increases would be needed, that wasn't in here.

• 9:39David Hoffman?

  Right.

• 9:39Ryan Sean Adams?

  So this does seem like this is the last-

• 9:42David Hoffman?

  The top rate of interest.

• 9:44Ryan Sean Adams?

  Rise.

• 9:45David Hoffman?

  Right.

• 9:45Ryan Sean Adams?

  And it was only 25 basis points, as you like to say, so I guess not that big.

• 9:50David Hoffman?

  But we were hoping for the pivot. The pivot of we are no longer increasing interest rates and now we're just gonna hold it is not exactly the pivot that we were looking for as an industry that has very high-risk crypto assets on this curve.

• 10:05Ryan Sean Adams?

  I mean, ultimately-

• 10:06David Hoffman?

  We were hoping for a reversal.

• 10:07Ryan Sean Adams?

  Look, ultimately though, David, I want crypto to deserve it. I want our, like, industry to deserve it and not just be kind of a money printer hedge completely, like, I want us to provide pure utility. I want the US economy to be in an okay shape and I don't want things to kind of cascade downward and, you know, just the casino markets to rain. So I'm not sure what the best position is here, but Jim Bianco here has a different take. His take is the Fed knew the risks already of bank failures. Powell knew the risks and he's being a careless being here. He's being reckless here. He puts this in a tweet thread, "On February 14th, the Fed Board was-" Given a presentation that went through the risks to the banking system due to unrealized losses because of the rapidly rising interest rates.

• 10:52Ryan Sean Adams?

  It gave this example of a bank sitting on unrealized losses and particularly vulnerable. This was February 14th, mind you, before the bank failures. After hearing this presentation, Powell went ahead with very hawkish testimony. That was on March 7th and 8th. The probability of a 50 basis point hike on March 22 soared, based on Powell's words. And less than 48 hours later, Silicon Valley Bank failed and the Fed backed off to a 25 basis point hike. The point Bianco is making here is that Powell is getting into reckless territory, right? He's making these policy decisions and then he's seeing bank failures and he's adjusting

• 11:32Ryan Sean Adams?

  them a little, but he's still edging towards kind of the brink of cascading bank failures. I think Bianco's criticism is, he knows this is a risky game. Why are we playing this game with the US banking system right now? So that is the critique of Powell's actions.

• 11:50David Hoffman?

  I guess the illustration that I gave is that, oh, bank failure, Fed steps in and like cradles it on the way down, really depends on that they fail in a very orderly manner.

• 12:02Ryan Sean Adams?

  Gracefully fail.

• 12:04David Hoffman?

  And I don't think that's how that works. I think orderly and contagion banking crisis are not things that I would put into the same sentence.

• 12:12Ryan Sean Adams?

  It's a little bit like the bike wobbling downhill, you know? When you start to oscillate and it's like, okay, now we're oscillating right here. And then it gets to a point where it's catastrophic, unrecoverable, and the bike tips over if it's going too fast. And that is the word here.

• 12:27David Hoffman?

  If it's going too slow. And if it's going too slow, it's because interest rates are adding friction to economic transactions. And so in order to correct for wobbles, we needed to go faster, which means, we gotta lower the interest rates, baby! We gotta take them down! Let's get that Fed pivot going!

• 12:44Ryan Sean Adams?

  Well, David, I think that's what we have to talk about next. First Republic Bank failure, the biggest since 2008. That's coming up next. What else we got?

• 12:51David Hoffman?

  Coinbase International launches in Bermuda. So one trad bank down, but one crypto bank up. Igen Layer Mainnet is incoming as well. The SUI Mainnet as well. Bankless listener, put a number in your mind as to what you think the market cap of SUI is, because that number will come later in the show, as soon as we talk to these fantastic sponsors that make this show possible, especially Kraken, a preferred crypto exchange for 2023, the one that we all know and love while we watched the charts earlier in this episode. If you do not have an account with Kraken, consider signing up using that link in the show notes. Let's go hear from Kraken right now. Kraken Pro has easily become the best crypto trading platform in the industry. The place I use to check the charts and the crypto prices, even when I'm not looking to place a trade.

• 13:34David Hoffman?

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• 14:19David Hoffman?

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• 15:03David Hoffman?

  The Bankless Token Hub is launching right now, and it's already been beta-tested by your fellow Bankless citizens. So stay tuned in the Bankless Discord for updates. And if you're not a Bankless citizen, well, you better sign up if you want access, because this corner of Bankless is available for citizens only. I'll see you in the Discord.

• 15:19Ryan Sean Adams?

  David, we have bank failure season two. The second biggest bank failure ever in US history just happened this week. And I feel like people are barely talking about it. They're kind of talking about it. This is a First Republic Bank based in San Francisco, California. Pretty big, 200 billion plus in assets. So this was a big one. David, what happened?

• 15:43David Hoffman?

  Well, I'll think of a further question to you, Ryan. What happened that was different than any of the other banks? So banks bought a long, a lot of long-term dated securities. And then the Fed jacked up the interest rates. And then the bank, this bank failed just like the other ones. This one was different in that it got a $30 billion injection from JP Morgan and a number of other too big to fail banks. And then that depleted, that also ran out because customers chose to withdraw. And then eventually the FDIC said like, man, this bank's not going to make it. We're going to throw the white flag on behalf of First Republic. That was my interpretation of events.

• 16:21Ryan Sean Adams?

  So regulators took possession of First Republic on Monday. This is the biggest bank failure since 2008, the second biggest in US history. When there was a bank called Washington Mutual that exploded in the 2008 crisis.

• 16:36David Hoffman?

  That was my first bank ever as a child. That was my first checking account.

• 16:39Ryan Sean Adams?

  Really? Your first was Washington Mutual? Is that based in like the Seattle area?

• 16:43David Hoffman?

  Yeah.

• 16:43Ryan Sean Adams?

  Washington State?

• 16:44David Hoffman?

  Yeah.

• 16:44Ryan Sean Adams?

  Yeah, well, so it no longer exists. I'm not sure what happened to them. I'm sure they became part of a bigger bank here. But yeah, I think.

• 16:54David Hoffman?

  What did you do with that account?

• 16:56Ryan Sean Adams?

  It's still there. You still got it, David. I think this has a lot of similarities with the first bank failures that we saw, including Silicon Valley Bank. The difference here is, you know how Silicon Valley Bank, their big kind of, you know, debt was in startups, very Silicon Valley startups. Well, for First Republic, they were in the jumbo mortgage business. So, you know, big mansions, not crypto, big houses.

• 17:20David Hoffman?

  That's not what Gary Gensler said.

• 17:22Ryan Sean Adams?

  It's another asset. Well, he, he, yes, he, he'll probably blame this one on crypto too, David. Don't, don't you worry. Give him some time. All right. Have faith in Gensler. Jumbo mortgages were their shtick. Okay. And so when rates were low, of course, they gave out a ton of these loans, you know, as one does. And then the Fed raised rates, the value of the mortgages, the collateral went down, of course. But then also, yeah, the, the treasuries on the balance sheet also went down in value too, under par value, thus making the bank insolvent. So for me, it reminds me a lot of Silicon Valley Bank. So all the lessons that we learned a couple of weeks ago have come into play here, except the asset class wasn't Silicon Valley tech companies. It was jumbo mortgages.

• 18:05David Hoffman?

  Well, it also wasn't United States treasuries. And so I think this is probably like where the fear kind of strikes. Two, two reasons. One, we have another bank crisis, bank failure. Excuse me. Not, I guess a single bank failure isn't a crisis. But like, all of the other banks that failed happened those numbers of weeks ago in that like pocket of time.

• 18:26Ryan Sean Adams?

  It's all related.

• 18:27David Hoffman?

  Now we have this bank failing for the same reasons, different asset class. So mortgages, not treasuries.

• 18:34Ryan Sean Adams?

  They did have, they did have some treasuries on the balance sheet. So that didn't help. But yes, go on.

• 18:38David Hoffman?

  I think the point is, this is like, the balance sheet, doesn't matter what the balance sheet is, doesn't matter what the asset class is. The issue was that the Fed raised interest rates too fast. So it doesn't matter, like, was it United States treasuries or just like long dated securities or whatnot. Like, all banks are getting distressed by the whiplash of the rising interest rates.

• 18:59Ryan Sean Adams?

  Particularly.

• 19:00David Hoffman?

  And also the, the timing, like, how long were the, how long ago were the other banking crises? Like, six weeks ago, right?

• 19:05Ryan Sean Adams?

  Yeah.

• 19:06David Hoffman?

  And so, six weeks later, we have another big banking crisis. It would have been made, it would, I would have felt better. It would have been easier to be comfy if all of the banks collapsed in the same timeframe.

• 19:17Ryan Sean Adams?

  And then it was over?

• 19:19David Hoffman?

  And then it was over. But now we have one that's six weeks later. And so the question is, to me, that I have, is like, okay, clearly, the common denominator is not the asset class. This is not, this contagion is not contained to a specific type.

• 19:34Ryan Sean Adams?

  It's not just crypto. It's not just Silicon Valley tech companies, for sure. This is something different.

• 19:39David Hoffman?

  This, and that's the big common denominator, is the whiplash behind the rising interest rates, which affects all banks. And now, six weeks later from the crisis, we have another bank that fails, which begs the question. How do you know when it's over? And are there more shoes to drop?

• 19:55Ryan Sean Adams?

  Yeah, I mean.

• 19:56David Hoffman?

  To fail?

• 19:57Ryan Sean Adams?

  So this is.

• 19:57David Hoffman?

  And are we at the beginning of this thing?

• 20:00Ryan Sean Adams?

  Another pattern here for you is another mid-sized bank, basically. It's not one of the too-big-to-fail banks here, right? It's another Silicon Valley bank-sized bank that just went belly up. And yeah, so in the common denominator, as you said, is rising interest rates. So here's what happened. The bank failed effectively. FDIC stepped in. That happened on Monday. And then what they do is they auction off all of the assets. All the people's savings account in First Republic, somebody's got to bank them still, right? The FDIC is not going to just say, sorry, your money's gone, right? Of course, shareholders get wiped out in these sorts of situations.

• 20:41Ryan Sean Adams?

  So that means a bigger bank has to go buy the assets, buy First Republic. So it can still say functional and operational. That bigger bank happened to be our friends over at JP Morgan, Jamie Dimon and company. There was an auction. JP Morgan won the auction against two other bidders. Those other bidders were also very large banks. And so JP Morgan ended up with the $92 billion in deposits, which includes $30 billion that it and the other large banks put into First Republic to try to prop them up previously, as you mentioned, and $137 billion in loans and $30 billion in securities. Okay, so that's what they took over. So the bigger bank just got even bigger.

• 21:25Ryan Sean Adams?

  And then the FDIC absorbed the losses on the mortgages and the commercial loans. And it also provided a $50 billion credit line. So it's going to cost FDIC Deposit Insurance Fund about $13 billion. SVB costs $20 billion for comparison. These losses, David, what happens to them? Oh, the FDIC just takes care of them. They were socialized. We, taxpayers, like, it cost us. And so these risky investments and the interest rate rise is ultimately costing taxpayers. So that is a cost. We were talking about like earlier of, you know, Joe Powell is hopefully like cradling these banks down as they die. Well, there is a cost to this.

• 22:10Ryan Sean Adams?

  And the cost is JP Morgan gets bigger. JP Morgan, David, now has 10% of all American deposits. All right? Under federal regulation, it actually can't rise anymore. They made an exception for JP Morgan to actually make this acquisition. So the banks just get even bigger. The too-big-to-fail banks get bigger. And then also, these losses are socialized, right? It's like, the average taxpayer wasn't responsible for that loan for a jumbo mortgage. I mean, this is reminiscent of 2008 all over again. And you also can't say, um, I don't think Congress-

• 22:47David Hoffman?

  Wait, before you move on. So I heard a slightly different story, so I want to throw in what I think could be a correction here. Taxpayers are not, it's not going to the taxpayers. It's going, because of the FDIC Deposit Insurance Fund, that comes from banks. Banks pay for that. So that comes from bank money to fill up the deposit insurance fund. So that's coming out of that. But where does the banks get the money to pay for the insurance fund? Like, fees on customers and in the economy. And so while taxpayers aren't being charged directly, it ultimately goes back to the consumer because banks are going to have to charge higher rates for all their products and services down the line. That was the take that I heard. And then the other thing that I, the take that I heard is like, you said that they made

• 23:32David Hoffman?

  an exception so that JP Morgan could buy this bank. That was not an exception made right now. That was an exception already made in Dodd-Frank forever ago, where big banks that are so large, above a certain threshold, can't get bigger by buying banks unless that bank is failing. And so this was an exception built into Dodd-Frank forever ago. That was, these are my interpretations of, or what I've heard.

• 23:57Ryan Sean Adams?

  Yeah, I think you're right, David. Those are definitely worthwhile details to clarify. So the banks got bigger. The losses were socialized in the form of higher, you know, bank fees, taxpayers ultimately-

• 24:08David Hoffman?

  It ultimately paid by us.

• 24:09Ryan Sean Adams?

  Yes, ultimately get paid by the people. I also think that it's becoming less defensive. I haven't heard anyone in Congress, anyone in the US government, blame a particular party for this one, right? Very easy to blame kind of the crypto bros first, and then more widely, kind of the tech bros, Silicon Valley people, for the second. But when you have this pattern of mid-sized banks failing, right? And like, who are you going to blame now? This is starting to look systemic, guys. It's starting to look like a problem. And I want to pull up this chart. I think this was the graphic of the week. Did you see this, David?

• 24:42David Hoffman?

  Yeah.

• 24:44Ryan Sean Adams?

  Describe what we're looking at. This is a timeline. I'll start by describing this is timeline from 2002 all the way to 2023. And we see on this timeline, a series of circles, series of what look like dots. And the size of the circle represents the number of assets in the bank that failed. So for every bank failure, there's a circle. And the really big banks get bigger circles. And so David, describe what we see in bank failures around the 2008 to 2012 time range. What are we looking at?

• 25:17David Hoffman?

  Yeah, so we talked about how the First Republic Bank is the second largest bank failure in US history. Well, the first largest is the big, the big circle that is in the 2008 housing crisis, Washington Mutual Bank, $307 billion. And then you see like, how would you describe it? Just like dots?

• 25:36Ryan Sean Adams?

  Stacked snowballs, all the way up.

• 25:38David Hoffman?

  Big, big circle, and then a mountain of tiny little snowballs that you actually can't.

• 25:45Ryan Sean Adams?

  Spiky mountain.

• 25:46David Hoffman?

  There's like 300 dots in there of various sizes, but they're all small. And only three of these dots, I can actually, that actually have the names of the banks in them. So Indy, Mac Bank, Colonial Bank, Guaranteed Bank. All the other ones are just dots, because they're too small to actually fit the names of the banks into.

• 26:04Ryan Sean Adams?

  These are all bank failures. All bank failures. So what happened to these dots? What happened to these dots, David?

• 26:10David Hoffman?

  Um, nom, nom, nom, nom, nom. Is that a technical term?

• 26:14Ryan Sean Adams?

  Yeah.

• 26:15David Hoffman?

  They got gobbled up by the bigger banks. Right? And so fast forward to where we are today, 2003, there are only three big dots. First Republic Bank at $229 billion, Silicon Valley Bank at $2,009 billion, and Signature Bank at $110 billion. Which goes back to my question. This is just season two of the bank crisis TV show. How many seasons are there? Is the right side of this timeline, which we are about to go into in the 2023, 2024, going to be similar to what we see on the left, but with bigger dots?

• 26:54Ryan Sean Adams?

  Right? And look how big these dots are already.

• 26:57David Hoffman?

  There's a lot more money out there in banks and right like is there like 300 dots in 2008? We got three dots.

• 27:07Ryan Sean Adams?

  Yeah, picture if you we're trying to describe this, the best way is just to go to YouTube and get the visual, okay, podcast listeners. So sometimes you just got to capitally and look at the video here to get to get the graphic. But what we're looking at is a mountain of snowballs in in 2008 versus a snowman in 2023.

• 27:23David Hoffman?

  Right.

• 27:23Ryan Sean Adams?

  Right? We just got big circles and a slightly smaller circle and then kind of a head circle. That's what that's what we're looking at. And this represents David, what looks like the second, third, and fourth largest bank failure in US history.

• 27:39David Hoffman?

  In very quick succession.

• 27:40Ryan Sean Adams?

  This year.

• 27:41David Hoffman?

  Yeah.

• 27:42Ryan Sean Adams?

  It's pretty big. Like, this doesn't look good. This doesn't look healthy. And yeah, to your question is, what happens next? David, do you want to hear Arthur Hayes take?

• 27:51David Hoffman?

  Hit me with it.

• 27:53Ryan Sean Adams?

  All right. So here's Arthur Hayes. Of all of the season one banking crisis conversations we had, the Arthur Hayes conversation sticks out the most in my mind. And I think is maybe the most predictive of what we're seeing start to happen. And if you recall, David, from that conversation, in fact, you were on it, I wasn't, I just listened to it a couple of times after that episode. He basically predicted. Okay, I will remind you, I will pod explain it to you, David. It's like, he said that the midsize and small banks were in real trouble in the US, that they're basically insolvent, but slow motion type insolvent. So he wasn't predicting that Bitcoin would

• 28:34Ryan Sean Adams?

  go to a million in 90 days and, you know, massive bank crisis. He said like, it could take a year or two, and the Fed would have to basically step in and do something absolutely massive that would result in a whole bunch of money printing, trillions and trillions of dollars worth of money printing. So here's his take after the FRC, the First Republic collapse. A longer essay coming soon on my take. This JP Morgan First Republic deal means the US regulators decided to nationalize the banking system.

• 29:07Ryan Sean Adams?

  Nationalize the banking system. He goes on. The eight too big to fail banks are effectively nationalized because they have government guarantee on their entire deposit base. They will not be allowed to fail regardless of decisions they make. Socialized losses, privatized gains, it's a great deal. But when called upon, the eight too big to fail banks must absorb their shitty cousins who couldn't handle the rough and tumble free market. The prodigal children's equity holders will get a zero first, but the depositors will find a new home in a safe, too big to fail bank. That bank, of course, is JP Morgan in this case. The government will provide rule exemptions and mates rates on loans like how the OCC waived deposit concentration limits in FDIC loaned $50 billion to JP Morgan to get them to do the deal.

• 29:51Ryan Sean Adams?

  But a deal will get done. The whole point is for the federal government to claim it isn't bailing out a failed bank, but a private company is. It's a bit of left hand, right hand, but those are the policies of the day. Just look at how China allocates losses as a blueprint for the US. As long as inflation remains high and the politics surrounding banking, credit and debit are toxic, there will be more contorted solutions to try to confuse you as to who bears the loss. If you aren't one of the eight too big to fail banks, you are effed. As long as inflation is sticky at these high levels and possibly rising. Today, I will choose a bank with large CRE exposure and 50% to 50% OTM puts that expire before June. This is Arthur, of course, being the trader and betting against small and midsize banks. What do you think of this idea?

• 30:35Ryan Sean Adams?

  Nationalizing, we are de facto nationalizing the US banking system.

• 30:39David Hoffman?

  Well, it reminds me of the article that he wrote, which brought him on to the podcast last time, which the whole theme of that article is the destination is known, but the route is uncertain. He was actually applying it in a different way, but I'll apply it here. The destination is a nationalized financial system. Because that is, that is the era that we live in. The era of the CBDC. It becomes really easy to roll out a CBDC when there's only eight banks in the commercial banking sector. And so like, that is the conclusion of things. A financial system that is just highly centralized, controlled with a ton of oversight and a ton of regulation because it's not hard to control things when there's only eight banks. And so this is, to me, a convergence upon.

• 31:24David Hoffman?

  We talk about CBDCs and like the evils of CBDCs because it just means central control. So this is the conversions that we're going towards.

• 31:32Ryan Sean Adams?

  Here's the insidious thing about this too. It's like you heard him talk about like these contorted measures that were being made. They're not going to announce that the US banking system is being nationalized. There's never going to be legislation that goes in front of Congress, which is like, check yes or no. Let's do a vote. Should the US banking system be nationalized or not? It'll happen like this, slowly. And with them doing the the theater of basically, we're not nationalizing it. It's private. See JP Morgan, look, a private company went and won the bid, right? So it'll happen, like, no one will directly tell you that that is what is actually happening. As as an investor and as a participant in

• 32:14Ryan Sean Adams?

  this economy, you just have to keep your eyes open and connect the dots and see the pattern playing out. And you're right, I think that is the destination of this. Just don't expect the trumpet from Jerome Powell saying, we are nationalizing the banking system because they know that that would be soundly rejected by the American people.

• 32:34David Hoffman?

  Well, the way that you're saying is that is that like they are the puppeteers of this master plan and they want that. I'm not necessarily sure that they do want that. It is, if you zoom out and see nation state and fiat currency systems as the powers that be and with a mind of its own, that is a conclusion because the aggregate incentives pushes it there.

• 32:57Ryan Sean Adams?

  Oh, yeah.

• 32:57David Hoffman?

  Like the individual players, like Jerome Powell's like, I'm gonna nationalize the banking sector. I don't, he's not doing that.

• 33:03Ryan Sean Adams?

  No, no, no, no.

• 33:03David Hoffman?

  He's just one cell in a larger body with a direction that it wants to go in.

• 33:06Ryan Sean Adams?

  I agree with that, too. I don't think that there's like an intent to like, I'm an evil emperor to nationalize the system. But there is an intent not to tell you that that is the game being played.

• 33:16David Hoffman?

  A hundred percent true.

• 33:18Ryan Sean Adams?

  That is intentful. They're not going, like, they know what they're doing. They know. Where this inevitably goes. They're not stupid, is kind of what I'm saying. They're not like, "Oops, I guess we have to take over another bank. What's gonna happen?" They know exactly where this is leading, but they're not going to tell you that this is where it's leading. They're going to boil the frog, which is exactly what's happening. So meanwhile, speaking of this, Balaji, alright, do you remember the 90-day Bitcoin bet?

• 33:43David Hoffman?

  Yeah.

• 33:44Ryan Sean Adams?

  He's capitulated on it.

• 33:45David Hoffman?

  Yeah.

• 33:46Ryan Sean Adams?

  Uh, so six weeks, it was due, uh, June 17th. He bet that Bitcoin would hit a million dollars, there'd be a cascade of bank failures. What is the status update on that, David?

• 33:57David Hoffman?

  Balaji tweets out, "I just burned a million to tell you they're printing trillions." He really loves his, like, limericks. He loves-

• 34:06Ryan Sean Adams?

  He's good, he's good at it, yeah.

• 34:07David Hoffman?

  -rime-ing little, like, quips. Um, "The million-dollar bet is now closed by mutual agreement. I made $1 million improvable on-chain donations, which you can verify. Half a million to Bitcoin Core Development, half a million to give directly, half a million to Medlock, who I think is the winner of the bet." Uh, and then he goes on to explain, like, why did he do this? He's basically saying, "The whole, like, Bit Signal was a marketing stunt that he has paid. He just took $1 million to the face to broadcast that they are going to print a trillion dollars." Um, so, that's what he's, that's what he said.

• 34:41Ryan Sean Adams?

  Did you watch his video, David?

• 34:43David Hoffman?

  I watched part of it.

• 34:44Ryan Sean Adams?

  Okay. I, I, I watched it, it was good. It was a lot of our, our episode with him, kind of a recut, recast.

• 34:50David Hoffman?

  It actually made me a little bit frustrated, it was like, "Balaji, like, you can say things in nine minutes." Next time we do a podcast, can you do something like this, please?

• 34:58Ryan Sean Adams?

  I don't know, I enjoy the long form with Balaji, although, although I think we had like, uh, two and a half hours of content, and we kind of pared that down to like, you know, under two hours or something, but-

• 35:06David Hoffman?

  An hour forty, yeah.

• 35:08Ryan Sean Adams?

  So I wa- I, I think the TLDR for people, we'll include it in the show notes, is, um, Balaji says, "It's still gonna happen, it's just not gonna happen in 90 days."

• 35:16David Hoffman?

  Right.

• 35:16Ryan Sean Adams?

  And he gave the parallels to, this is like, 2008. Uh, he said Bernanke said it was fine, uh, that the economy is fine, and then two quarters later, we got hit with 2008 major recession, and so he draws parallels to that. He also draws parallels to COVID.

• 35:32David Hoffman?

  By the way, all of the federal, like, chair members and everyone else is like, "The economy's totally sound, banking system's fine, guys."

• 35:38Ryan Sean Adams?

  Same thing.

• 35:39David Hoffman?

  That was the messaging this week.

• 35:39Ryan Sean Adams?

  Yeah, he's, he basically pulled up press releases in the same time period, and then he's like, "Look what Bernanke said, we're fine," I, you know, didn't use the exact same terms as, as, um- You know, kind of the landing the plane term that Powell uses. But basically he said, we're fine, mild, no recession, it'll be fine.

• 35:58David Hoffman?

  It's chill, guys.

• 35:59Ryan Sean Adams?

  And then two quarters later, didn't happen. So he's basically saying, look at the signals. We got debt at astronomical levels. We've got de-dollarization happening. He's got some charts about that. We've got gold buying from central banks at all time highs outside of the US in particular. And now we have bank failures and runs. And so he's basically saying, I lost the bet, but I still got the word out on the most important thing. That's kind of his take on it. Which is interesting because he didn't exactly tell us in that conversation. We asked him if this was sort of just a marketing stunt. He said, no, it wasn't.

• 36:33David Hoffman?

  So I remember, I remember thinking about that part. Cause he, I can't remember the details, but I think there, he might have been saying, I am not doing this to pump the Bitcoin price to make a profit.

• 36:45Ryan Sean Adams?

  I think so.

• 36:45David Hoffman?

  Different than saying, I am doing this as a marketing stunt.

• 36:49Ryan Sean Adams?

  I also think he still views that there is a probability that it could happen in 90 days. And when we had that conversation with him, he was like, yeah, there's a probability that could happen. It's not a certainty. All of this is like probabilistic. And actually, this is, I think, worth watching. I think we should watch this clip because the question is, okay, Bology, if you still think it's going to happen, and it's not happening in 90 days now, and you're willing to capitulate on that, when is it going to happen? So this is what he says here.

• 37:18Speaker 02

  And so then, of course, the question is, okay, but when? Everybody wants to know exactly when things are going to happen. So I don't have a crystal ball. My guess is 10% months, 70% years, 19% decades, 1% centuries. Okay, I can give a case for each of those. That when I say 10% months, what I'm saying is, you know, we have some serious crisis in months or 70% I think it happens in years. And when we are thinking about this is sort of the, you know, stay in dollars or exit spectrum. If you think the current status quo of printing can go on for an endless amount of time, the US establishment de facto believes it can go on for centuries, then you stick on one side. If you are seeing fire alarms, you're seeing claxons, then you exit, whatever that means to you.

• 38:01Speaker 02

  Personally, as I said, I'm like 10% months, 70% years, 90% decades, 1% centuries. You should figure out what your own percentage is there. If you think that all of this is totally stupid, you know, and, and the US, of course, has infinite hit points and the Fed can print forever, then you're at centuries and you should ignore all of this. But if you have some probability that actually system collapse may happen sooner than people think, then you should, you know, take, take appropriate action.

• 38:26Ryan Sean Adams?

  What do you think of that, David? So he's giving a much more probabilistic bet here, right? And this kind of implies, you know, for him, if it's 10% months, maybe he has 10% in fiat, for example, 10% in the, in the dollar. And that's how he allocates his, his portfolio.

• 38:44David Hoffman?

  Fair. I'm reminded that there's that quote that sometimes there are decades when weeks happen, and then sometimes there are weeks when decades happen. And I'm also reminded that biology was way ahead of the curve with COVID, which was an exponential event. 2008 was an exponential event. The worry that we had with the, with the snowman and what could happen in the future, like what we're saying is like, there could be an exponential event in the future. So it's not like, it's not like if Bitcoin goes to a million, it's not going to be like at the last second, it touches a million and it just gets there and then it comes back down. It's going to be like, no, it'd be like, it skyrockets and it breaks the meter because of an exponential event.

• 39:30David Hoffman?

  10% is exactly like what he said, is an exponential event. It's a 10% chance. Like, we live in a time of chaos. The pendulum of the global order is no longer in the time, in the era of stability. That was the last four decades. It's been shifting towards chaos and it's been shifting that way for a long time now.

• 39:53David Hoffman?

  Yeah.

• 39:54Ryan Sean Adams?

  Yeah, that's when you break it down, here's what you can do. You can, what I love about this sort of thing is you can actually bet whether Bology is right or not, and you don't, it doesn't have to be a binary, all or nothing type of thing. You have to be like, oh, it's, it's certain. So, and it's certain, it's going to happen in the next six months. Therefore, I'm going to take all of my fiat, I'm going to convert it to crypto, right? You could, you could just do a little bit of it, or a lot of it, depending on where you are in kind of the spectrum. But I will say, I do, over the long run, I will not, I'm definitely not betting that Bology is, is wrong. Over like the long time period. It's like, this seems totally reasonable to me, that 10% probability happens in months, 70% years.

• 40:37David Hoffman?

  10% in months, sounds like 10% in 2023. There's a 10% chance that Bitcoin hits $1 million this year.

• 40:44Ryan Sean Adams?

  But, and we know, David, that it's 100% probability that fiat is going to like trend towards zero over a long enough time span. That's every single fiat system, like go chart it over time. Ray Dalio does this wonderfully. Right? It's like, all of them hit a reset mark. And we're like, what, 50 years into this experiment? With, you know, the 1970s and the US dollar. So it's gonna happen at some point. It's just a matter of when. And I don't think people fully understand that. And Bology does. So I'm glad he's getting that message out.

• 41:17David Hoffman?

  Did you, I don't know if we have it in the agenda, but do the conversation of the $1 trillion coin is back on the menu?

• 41:23Ryan Sean Adams?

  Oh, yes. I, I saw some of this, yeah. This is.

• 41:27David Hoffman?

  We got some takes later in the show, but yeah. So the, the establishment has resurfaced the possibility of minting a $1 trillion coin.

• 41:36Ryan Sean Adams?

  What does that tell you? I mean, I'm sure that was a snippet in Bology's video too. I think he's brought that up, actually. Well, that's that. Bank failures, Bology capitulating on his bet, but not really. He still thinks he's going to be right in the long term. David, we'll talk about Coinbase for a minute. They are going international. What does that mean?

• 41:55David Hoffman?

  The Coinbase International Exchange has launched. This is up and running, offering Bitcoin and Ether perpetual futures settled in US SEC with up to 5x leverage to institutional clients and people in eligible jurisdictions outside of the US. So Coinbase enters the international game. Just at a high level, Ryan, like, what do you think about this? What's your take?

• 42:17Ryan Sean Adams?

  I think they're not putting their eggs in the US basket anymore, at least not all of them. It's just smart. And the other thing I think is like, wow, I'm an American, and if you're in the US, if you're American listening to this episode, you don't have access to these products because your government won't let you. You live in a financial prison that will not allow you, it doesn't think that you are able to handle Coinbase Bitcoin and Ether perpetuals.

• 42:42David Hoffman?

  Yeah.

• 42:43Ryan Sean Adams?

  And that kind of sucks.

• 42:44David Hoffman?

  You can't play with big boy toys.

• 42:46Ryan Sean Adams?

  So this is like, this is not an unregulated marketplace that they're running. This is, you know, in the EU, they can, they can offer this sort of thing. And so, but, and they can't do that in America, and it's sad, I think.

• 42:59David Hoffman?

  My take on this is this is really bullish for Coinbase. Because we know that they're like, the FTX US versus FTX, back before we thought it, knew it was a fraud, FTX International dominated in spot revenue and PERTs revenue, just like, it was just a gargantuan compared to FTX US.

• 43:18Ryan Sean Adams?

  So someone's got to step in, basically?

• 43:19David Hoffman?

  Yeah, there's a huge void in the market. And so, like, it's bullish for Coinbase because Coinbase gets to step into that market and service that demand that we know is verifiably there. And of all the other offshore derivative exchanges that has ever, that have all come and gone in the world of crypto, this is the first time that we have seen a meaningful, entrenched, established player that people trust, that operates by the rules and operates in the, in the light, not in the shadows. And so, it's bullish for Coinbase, I also think it's bullish for this industry because finally, we have a legitimate player to fill that void, and we have a legitimate player answering towards that demand. And so, it's bullish for two reasons.

• 44:01Ryan Sean Adams?

  Yeah, at some level, the crypto exchange game is very much about just outlasting everyone else. I mean, I throw Kraken in this category too of like just over a decade of servicing crypto and just not necessarily being fastest.

• 44:16David Hoffman?

  Right.

• 44:17Ryan Sean Adams?

  But just being the most secure, most stable, most predictable, like doing the core things really well. And at the end of the day, the FTX is they burn out.

• 44:24David Hoffman?

  I mean, like. Being fast is a huge liability in this industry. Look at the real capital.

• 44:29Ryan Sean Adams?

  I think so.

• 44:30David Hoffman?

  The low and slow game plays out real well in crypto.

• 44:33Ryan Sean Adams?

  Yeah, a tortoise, not hare. David, there's an entire episode about this with Tom Duff Gordon, who's the VP of International Policy that we put out. You guys will catch that on the feed. We'll include a link in the show notes as well. Also, some more news from Coinbase. Do you remember they picked a fight with Gary Gensler? They they they're bringing the SEC to court. What's this tweet say, David? Here's an update on that.

• 44:55David Hoffman?

  Yeah, so they got a response from the court. So the Third Circuit Court just issued a text only order directing the SEC to file a response to our mandamus petition. I hate legal talk.

• 45:06Ryan Sean Adams?

  Mandamus.

• 45:07David Hoffman?

  10 days. Is that, how do you pronounce it? And what does that mean?

• 45:12Ryan Sean Adams?

  I, no, I don't, mandamus. Let's go with that. Someone can, someone, the lawyer can practice.

• 45:18David Hoffman?

  The SEC has to respond to Coinbase's petition that they filed last July in 2022 in the next 10 days. Because Coinbase said they were going to take the SEC to court if they didn't. And so at the direction of the court, the respondent is ordered to file an answer to the petition within 10 days of the date of this order.

• 45:38Ryan Sean Adams?

  So Gary, you got nine days.

• 45:41David Hoffman?

  Gary, get your pencil out.

• 45:43Ryan Sean Adams?

  From the time that this episode releases, if you're hearing us, you got nine days to reply to this.

• 45:50Ryan Sean Adams?

  All right, David, what do we have coming up next?

• 45:52David Hoffman?

  A bunch of stuff, Ryan. We got Venmo bringing crypto alts to 60 million Americans. We got Eigenlayer Stage 1 mainnet set to launch. We got the SUI mainnet. Again, pull out the number of the market cap that you think that it is. We got an Axilar announcement, and then also the newest Zach XBT victim just dropped. So all of that and more. But first, a moment to talk about some of our fantastic sponsors that make this show possible, especially MetaMask, who not only makes the show possible, but also makes Web 3 jargon easy to comprehend. So if there's ever a word that Ryan or I use that is a crypto word that is confusing to you, MetaMask has built MetaMask Learn at learn.meta mask.io, which is a place to get onboarded into the world of Web 3.

• 46:34David Hoffman?

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• 47:18David Hoffman?

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• 48:02David Hoffman?

  and Nova leverage the security and decentralization of Ethereum and provide a builder experience that's intuitive, familiar, and fully EVM compatible. On Arbitrum, both builders and users will experience faster transaction speeds with significantly lower gas fees. With Arbitrum's recent migration to Arbitrum Nitro, it's also now 10 times faster than before. Visit arbitrum.io, where you can join the community, dive into the developer docs, bridge your assets, and start building your first app. With Arbitrum, experience Web3 development the way it was meant to be: secure, fast, cheap, and friction-free.

• 48:35Ryan Sean Adams?

  David, this is absolutely huge and no one's talking about it. Venmo is bringing crypto wallets, the gateway to crypto wallets, anyway, to 20 million Americans. Do you want to hear the Ryan Sean Adams hype tweet about this before we get into what happened?

• 48:48David Hoffman?

  Straight into my veins, sir.

• 48:50Ryan Sean Adams?

  All right, let's go. Okay, Venmo is now allowing its 60 million customers to withdraw directly to a non-custodial crypto wallet. Exit the banks and go bankless. Fintech has become a gateway to crypto. Crypto is quietly eating the world, just no one is noticing because it's a bear market. That's the take here.

• 49:07David Hoffman?

  There's a lot of words in that tweet that I like, man.

• 49:09Ryan Sean Adams?

  Well, tell us what really happened. Ground us in reality. What's going on with Venmo when we get past the hype tweets here? Introducing crypto transfers for Venmo customers. What does that mean?

• 49:20David Hoffman?

  The big news here is that Venmo is no longer just a place to buy crypto assets, but you can now make ledger updates to these crypto assets because these things are money, and you need to make ledger updates to money because that's how money work. So you can send your crypto to other Venmo users inside of the Venmo ledger, the Venmo centralized database ledger, but you can also...

• 49:41Ryan Sean Adams?

  Sidechain?

• 49:42David Hoffman?

  Sidechain, if you will. But you can also make a decentralized, open permissionless blockchain ledger update by sending your crypto assets to another wallet. This is just basically Venmo doing payments, which isn't any surprise. But it's a very big company with 60 million users making on-chain ledger updates of Ether transfers and stablecoin transfers in using our blockchain payment rails. So this is all rolling out to customers May of 2023. I know it's like, it's a small deal because yes, we can, we can now transfer crypto. We've all, we've already been transferring crypto. But now Venmo, 60 million people are able to transfer crypto using Venmo. So big.

• 50:23Ryan Sean Adams?

  I think it's the big thing here is to non-custodial wallets. That's the exit, right? Like this is like DeFi mullet thesis playing out, which is basically like fintech provides a user interface for a crypto which is more difficult, but it's all built on top of those ledgers, the decentralized ledger of Ethereum, Bitcoin, other cryptocurrencies. And now we can hold our own private keys. So our job, I think, as a crypto community is to get those 60 million people into bankless wallets. That's what we gotta go do next. We gotta go do that hard work.

• 50:55David Hoffman?

  Before they shut the gates.

• 50:56Ryan Sean Adams?

  Before they shut the gates, before they stop letting us. David, we got mainnet season here. Who's going to mainnet this week?

• 51:03David Hoffman?

  Coming up first in mainnet season, we got Eigenlayer. So Eigenlayer has been extremely hyped. This is the topic of restaking. Eigenlayer really opened up the door to the concept of restaking. And so they are launching their mainnet stage one, stage one mainnet soon, soon TM. They said they've got over 9,000 submissions with interest between 0.1 ETH and 30,000 ETH to all begin doing restaking things, to restake for other networks.

• 51:32Ryan Sean Adams?

  What does restaking mean for people, right?

• 51:34David Hoffman?

  I'm so glad you asked, Ryan. Restaking is when you stake your ETH to Ethereum and then you stake it again.

• 51:43Ryan Sean Adams?

  Double stake?

• 51:44David Hoffman?

  Do you have further questions?

• 51:46Ryan Sean Adams?

  Okay, so does that mean I get like, I could stake it twice in Ethereum? Or am I staking it somewhere else? What does that mean?

• 51:53David Hoffman?

  So restaking, are you familiar with merge mining? I know some listeners aren't, so I'll answer the question anyways. Merge mining is when you have an ASIC, like a Bitcoin ASIC, and you use your ASIC to mine Bitcoins. But you could also mine another network at the same time that operates on the same hashing algorithm. So if you're mining for Bitcoin, but you're just doing a SHA256 mining algorithm, you can also simultaneously mine for another chain because it uses the same hashing algorithm. Restaking is the same concept for Ethereum proof of state.

• 52:24Ryan Sean Adams?

  For a token?

• 52:25David Hoffman?

  For a token, exactly. Exactly. So you stake your Ether to Ethereum. But then, instead of also, when you stake your Ether to Ethereum, you are signing up for slashing conditions. If you propose an invalid block, you get slashed. If you missed your block slot, you get marginally penalized. There are certain slashing conditions that come with the responsibility of being an Ether holder, an Ether staker. And restaking lets you sign up for new slashing conditions for new networks, completely new networks. Another layer two, an oracle network, literally anything. And so this is why, when I just leave it open-ended and let you stake it again, it's intentionally open-ended. You can stake it to any network that needs security

• 53:10David Hoffman?

  just by signing on for new slashing conditions. And Eigenlayer is like the hub for all of this.

• 53:16Ryan Sean Adams?

  You're not just signing up for new slashing conditions, because that doesn't sound too fun. You're signing up for rewards as well.

• 53:22David Hoffman?

  Right.

• 53:23Ryan Sean Adams?

  Higher interest rates.

• 53:25David Hoffman?

  Paid for it.

• 53:26Ryan Sean Adams?

  Exactly. And so the risk is the slashing, but the reward is basically if you have a 4.5% APR on Ether staked in that protocol, you can also take that staked ETH. And you can use it to secure another protocol. Now, you have some risk there, of course, but then you get some reward for that. So this is really cool. This is like Ether as an Internet bond. I think we're going to do entire episodes on this concept of restaking the future because it is that big for ETH as a monetary unit and also for like the entirety of cryptocurrency. I mean, it's going to shake everything up if this is successful, I think.

• 54:01David Hoffman?

  Yeah, and if Bankless listeners' minds are boggled and you have further questions, I have great news for you. An article that I wrote went out on the Bankless newsletter Thursday, yesterday, by the time of listening, which are kind of the theme is like the big questions that restaking brings to the table, that Eigenlayer brings to the table. And so I explain restaking in further detail and I go through what I'm calling the restaking meta. This is a, this is a big deal, by the way. I would like to flag and say this is a significant deal. And in the same way that like, once upon a time, we had these arbitrage bots. And then one of these arbitrage bots did something weird by like reordering transactions when they were proposing a block. And then we discovered the world of MEV and like our minds were blown and like the entire industry shifted.

• 54:45David Hoffman?

  This is like restaking. And so the whole like Justin Drake, Dankrad, Vitalik are all talking about how does restaking change the natural equilibrium of the staking industry? Because we don't know the answer to that question.

• 55:02Ryan Sean Adams?

  MEV is a good analogy here because there's some good things about it, right? And it increases, you know, yield and rates and all sorts of things. But there's also some scary things about it in the way that could shake things up and change protocol incentives. So we're doing episodes on this too, right? In the future, so we have an episode for you. But that was just the first of a couple of mainnets. What's this one, David?

• 55:22David Hoffman?

  SUI, the SUI network, I think the sister network to Aptos. I think these are like coming around the same time. The newest, shiniest Layer 1 blockchain on mainnets. So they are boasting a whopping number of 100 globally distributed validators to achieve a peak throughput of 300,000 transactions per second with finality inside of

• 55:45Ryan Sean Adams?

  That's a lot of transactions.

• 55:46David Hoffman?

  480 milliseconds. So these are the numbers, the super speedy Layer 1. I have not looked under the hood of this thing, but I'm going to classify this as what I would call a juice Layer 1. Ryan, have you come up with your number?

• 56:00Ryan Sean Adams?

  I already knew the number, so it's not fair for me to actually say what that number is. But I will say, it surprised me when I first learned what the number was.

• 56:08David Hoffman?

  The market cap of fully diluted valuation of SUI is coming in at $13 billion. $13 billion, just launched to mainnet. So went from Series A, Series B, launched to mainnet, coming in at $13 billion, making it the number 66 crypto asset. It's got a market cap of $700 million. And I would like to point out the discrepancy between the market cap and the fully diluted valuation. I will also say that some Layer 2s have this discrepancy as well. $13 billion is the fully diluted valuation. $700 million is the market cap. That means there are $12.3 billion of tokens locked up that have not been issued to the network.

• 56:53David Hoffman?

  That has to be absorbed by sufficient buying pressure to justify a $13 billion valuation.

• 56:59Ryan Sean Adams?

  Because the way like SUI and CoinGecko values market cap is based on the circulating supply, which is very low right now.

• 57:08David Hoffman?

  Right.

• 57:08Ryan Sean Adams?

  5%.

• 57:09David Hoffman?

  This is a normal thing at the beginning of all networks, but it is also a symptom of a VC chain.

• 57:15Ryan Sean Adams?

  It's something you have to watch out for because when you're buying a SUI token, you're actually, I think, you're totally, I always value these things as a fully diluted valuation because this is a long-term what it's going to be.

• 57:27David Hoffman?

  Yeah, yeah. The Series B, Ryan, do you know who led the SUI, SUI, SUI, Series B?

• 57:36Ryan Sean Adams?

  Polychain, MultiCoin, one of the big Layer 2 investors, you know, you know the names, am I right?

• 57:43David Hoffman?

  No, FTX Ventures.

• 57:47David Hoffman?

  They were forced to sell their stake for $96 million recently, which was probably a fumble because if, I don't know how they valued it.

• 57:58David Hoffman?

  They sold, they made, they had to liquidate for 96 million dollars. I don't know what the valuation is, but like the Series B valuation was $2 billion and we are currently at a 6.5X of that. And so I don't know if that was a fumble or not, but I'm assuming they sold it somewhere between $2 billion and $13 billion, but not $13 billion.

• 58:17Ryan Sean Adams?

  I guess they didn't want to speculate, huh? All right, so we got some more releases though.

• 58:21David Hoffman?

  And I would say that the tone that I just gave about SUI was totally biased and definitely negative, and I'm totally aware of that, and that's my deal.

• 58:31Ryan Sean Adams?

  Wait, your deal is being biased and negative?

• 58:33David Hoffman?

  Yeah, towards centralized new Layer Ones, totally.

• 58:36Ryan Sean Adams?

  Why? Because they have to prove themselves, or because you hate them, or because you're bag bias and you're angry that you didn't get on this deal? Why, why, why is your tone negative?

• 58:47David Hoffman?

  Because I believe in constrained Layer Ones that are not led by VCs.

• 58:54Ryan Sean Adams?

  We've played, we've done this before.

• 58:55David Hoffman?

  We've done this before. We've seen this game. We already know how this works.

• 58:59Ryan Sean Adams?

  Many times. You definitely have to prove yourself. That's a hefty valuation for just shipping to mainnet on a new Layer.

• 59:05David Hoffman?

  For an empty ghost chain, yeah. There's a lot of growth priced in there.

• 59:10Ryan Sean Adams?

  All right, AxelR, what's, what's up with them? Going to mainnet 2, that's number 3.

• 59:14David Hoffman?

  Yeah, so AxelR is a network, it's a IBC Cosmos network that connects Cosmos to Arbitrum. So it's a bridge protocol, which previously Banclis has been like dubious about, and I'm still not totally sold, but something new about AxelR, we did a show with them, which is why I know about this. They have this thing called GMP, General Messaging Protocol. So instead of Ryan, instead of sending tokens cross-chain, they send computation cross-chain. So the tokens stay on their respective chains, but the logic passes through chains. So there's less risk.

• 59:50Ryan Sean Adams?

  Yeah, I don't have a problem with that. The challenge with bridges is kind of like the security risk you expose yourself to.

• 59:58David Hoffman?

  Token security.

• 59:59Ryan Sean Adams?

  Token security risk. And you're saying it's not, you know, it's not taking that type of risk.

• 1:00:03David Hoffman?

  It can take that type of risk. But it does the correct, in my opinion, the correct order of operations, which is it passes data, which is less valuable. And then, once you build a secure messaging protocol and you go to mainnet with that and you, and that's what you ship for production and let that be battle tested in the wild, you can then layer tokens on top of that. And like, this was like the breakthrough that I had, like, wait a second. Why did all the other cross-chain bridges not do that? Why did they just skip to the tokens? So there was a bank.

• 1:00:33Ryan Sean Adams?

  What kind of data? Like, what kind of data is it?

• 1:00:36David Hoffman?

  Okay, so part of this announcement is this thing called Somelier, which is Zachy Mannion from the Cosmos ecosystem. We've had him on Banklist. That's his project. Somelier is like this cross-chain yearn, if you will. And manages assets across chains. But because of Axilar is able to manage. So this is actually plugged into Arbitrum. So this is an Arbitrum-Axilar-Cosmos partnership, collaboration, where Somelier, Zachy's DeFi app, is able to reach across chains and manage yield and assets across chains.

• 1:01:08Ryan Sean Adams?

  Manage yield and assets, but not actually transfer them?

• 1:01:12David Hoffman?

  Transfer them, yeah.

• 1:01:13Ryan Sean Adams?

  So you're not actually changing the security profile of the assets themselves?

• 1:01:18David Hoffman?

  Yes, correct.

• 1:01:19Ryan Sean Adams?

  Huh. That's kind of cool.

• 1:01:20David Hoffman?

  Right, yeah.

• 1:01:22Ryan Sean Adams?

  I mean, personally, I am. I mean, we know that bridges are going to be necessary. With all these chains, we need a lot of bridges. I think you're just, you're more in favor of kind of like trustless bridges, like layer-two style bridges, rather than having kind of a mesh network of dubious multi-sig bridges and things that have.

• 1:01:43David Hoffman?

  That get spun up inside of a bull market, inside of Fervors, that are like, our bridge is totally safe.

• 1:01:48Ryan Sean Adams?

  Yeah, oops.

• 1:01:50David Hoffman?

  Yeah.

• 1:01:50Ryan Sean Adams?

  Hack. North 3's got our money now.

• 1:01:52David Hoffman?

  A big fan of putting logic at risk before putting tokens at risk.

• 1:01:56Ryan Sean Adams?

  There you go. It seems logical, David.

• 1:01:58David Hoffman?

  It does.

• 1:01:59Ryan Sean Adams?

  All right. And lastly, David, we've got a mainnet update. This is really cool, actually, from Lens. So they just launched a layer three, I believe. Tell us what they launched and then give us the stats.

• 1:02:11David Hoffman?

  Yeah, so they renamed the layer three and we weren't able to fit it into last week's rollups. This layer three is called Mimoca by Lens. So Stani tweets out, seven days later, Lens has finalized 5.4,000 transactions for a total cost of $4.4. That's for all of the transactions. So the average transaction on Mimoca is .0008 cents with a peak of 25,000 transactions per second.

• 1:02:37Ryan Sean Adams?

  That is awesome. He says, "Close to S3 pricing." That is Amazon AWS data storage pricing.

• 1:02:44David Hoffman?

  I needed you for that one.

• 1:02:46Ryan Sean Adams?

  Well, you know what? I think this is awesome. This is basically, remember Lens, of course, is a Web3 social protocol. So Web3 social can be cheap now because we have broadband. That's what's so exciting about this. And I'm really excited about these use cases moving forward now that we have very cheap transactions.

• 1:03:02David Hoffman?

  Right. And now I will remind Bankless listeners, does that $13 billion Stewie network look all that great to you?

• 1:03:10Ryan Sean Adams?

  Stop. You said you would stop, David.

• 1:03:14David Hoffman?

  Did I say I would stop?

• 1:03:15Ryan Sean Adams?

  No, you didn't. You said that is the new you, actually.

• 1:03:18David Hoffman?

  I said, "That's my deal."

• 1:03:20Ryan Sean Adams?

  That's David's deal now. So now I feel like I have to compensate by being nicer to the alternative layer ones.

• 1:03:26David Hoffman?

  I don't think you need to do that.

• 1:03:27Ryan Sean Adams?

  Just for you. No, I don't need to bring Val's in the universe?

• 1:03:29David Hoffman?

  You don't need to feel compelled to do that.

• 1:03:32Ryan Sean Adams?

  How about this? "Newest Zach XPT victim: One crypto wallet launched 114 dodgy meme coins in 45 days." David, what's the story here?

• 1:03:42David Hoffman?

  Yes, so there's just a business model, I guess, in spinning up random new meme coins. Zach says every time stolen funds from the scam are then sent to the same deposit address. So I'm guessing like some weird new term comes up and then this one person makes a token that is that term and then convinces everybody to buy it and then makes some profit and then rinses and repeats that. Zach found them because they were using the same wallet. Wow, look at that graphic. That is insane.

• 1:04:14Ryan Sean Adams?

  I mean, let me just remind you, listener, because, and I'm reminding myself, buying a meme coin is a choice. That's a choice that you are making, all right? You don't have to do this. You don't have to invest, quote unquote, in crypto this way. In fact, like, I think you're deluding yourself if you're calling it an investment. You take 1%, 2% of your crypto portfolio and you do something like this, totally degen? That's one thing. But like, I think a lot, I don't understand why people are playing these games, David, when there's active scammers out there just stealing their money.

• 1:04:46David Hoffman?

  It seems exhausting.

• 1:04:47Ryan Sean Adams?

  And yet, we continue to play them.

• 1:04:48David Hoffman?

  Yeah.

• 1:04:50Ryan Sean Adams?

  David, speaking of exhausting, the dame tax, or is that damn tax? I don't know. It feels like a damn tax. The dame tax, making crypto miners pay for costs they impose on others. This is from the White House. Biden administration is proposing a 30% tax on crypto proof of work mining. What's your take on this?

• 1:05:11David Hoffman?

  Negative. Because, in the same way that I do not think that we should politicize our banking sector, I also think that we should not politicize our public infrastructure, our energy grids. Grids who should and can access energy should be not governed by politics. And so my take is that if you are deeming some consumption of energy as, some reasons to consume energy as legitimate, and others illegitimate, that is bad, and we should not have that involved with our government. Our government should not be able to dictate who can access energy. Energy is real important. And so, yes, it's easy to harp on crypto miners.

• 1:05:54David Hoffman?

  No one likes crypto miners, except for the crypto industry, and honestly, not even all the crypto industry. And so it's really easy to go after crypto miners to pay for the costs that they impose on others, quote unquote. But it's also not saying that, hey, anytime you consume electricity for any reason, you are increasing the prices for everyone else, because there's only so much electricity to go around, and that's how grids work. And so my take on this, this is politicizing our public infrastructure to say that some things are good and some things are bad, and that is not the role of government, is my take.

• 1:06:27Ryan Sean Adams?

  I think that's a controversial take in some places because they'll say, David, are you ignoring the energy problem? Are you ignoring climate change? Are you doing that sort of thing? I think I agree with your take too. With one kind of caveat or addendum, I think you were also saying this is when you're saying, you don't think we should politicize our energy grid. Some people will point out, well, David, it's already politicized. All right. Like, we regulate solar and wind farms and dirty coal and all of these things. And my take is it's different when you regulate the supply versus regulating the demand.

• 1:07:05David Hoffman?

  Right.

• 1:07:06Ryan Sean Adams?

  The demand part of things is where I think you get into particular trouble. Who is the government to decide how energy should be used based on anything? Right? Like, that seems to be a slippery slope. Let's say, you know, the Grinch gets elected as president in 2024 and the Grinch just hates Christmas and puts a 40% tax on Christmas lights. Right? I mean, like Bitcoiners make this argument all the time. Christmas lights actually cost more energy to the grid than Bitcoin mining.

• 1:07:37David Hoffman?

  That's the same.

• 1:07:39Ryan Sean Adams?

  And so like, you get into this slippery slope of creating kind of like politicizing the demand, I would say, the demand side of the energy grid. And that's where I think you get in trouble. But that's also a controversial opinion because people say, David, you're ignoring climate change. But I don't know that you're saying that. I think you'd probably be in favor of like, you know, regulating dirty coal plants on the supply side, for instance.

• 1:08:03David Hoffman?

  Tax the carbon output of energy producers. That's a simple answer there.

• 1:08:06Ryan Sean Adams?

  There you go. Well, that's what's happening. Biden administration, unfriendly to crypto for sure. We got your jobs of the week. Even in a bear market, crypto companies, crypto protocols, everybody's hiring. We've got a lot of jobs on the board. Why don't you tell them about the first one? An investment analyst intern. What is this?

• 1:08:22David Hoffman?

  Oh, I'd be happy to, Ryan. Bankless Ventures has an investment analyst intern job. Yes, Bankless Ventures, Ryan and I, if you have not heard, are starting a VC firm with our good friend Ben Lakoff, and we need a Intern. I think this is probably one of the sickest jobs that exists in the crypto world. So if you are interested in interning for BBC, Bankless Ventures, click the link in the show notes or go to bankless.pallet.com/drops. And I'll be talking a little bit more about Bankless Ventures and what I am bullish about. Hint: I'm perhaps bullish on Bankless Ventures.

• 1:08:58Ryan Sean Adams?

  There you go. Coinbase needs a staff blockchain engineer as well, and a staff smart contract engineer, a software engineer for mobile, and a software engineer, front end at Phantom. David's dancing now. You know he's excited about Premia, the Web3 product management architect lead role, DeNara, smart contract engineer, Uniswap hiring a ton, backend engineer, product designer, senior mobile engineer. We got a whole bunch more over the Bankless job boards. It's feeling a little bullish on the job boards right now. Talent is firing. This is a good time to get a job in crypto. Guys, we got a lot coming up. David, why don't you tell them?

• 1:09:33David Hoffman?

  Coming up, we got the takes from the week. We got some good ones. Eric Forhe is on fire this week. We also got some questions for the nation. We got three questions from the nation we're gonna run through. And then we're gonna go to what David and Ryan are excited about. Hold your breath, you'll never guess. But first, a moment to talk about some of these fantastic sponsors that make this show possible. You know Uniswap. It's the world's largest decentralized exchange with over $1.4 trillion in trading volume. You know this because we talk about it endlessly on Bankless. It's Uniswap, but Uniswap is becoming so much more. Uniswap Labs just released the Uniswap Mobile Wallet for iOS, the newest, easiest way to trade tokens on the go. With the Uniswap Wallet, you can easily create or import a new wallet, buy crypto on any available exchange with your debit card with extremely low fiat on-ramp fees,

• 1:10:17David Hoffman?

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• 1:11:02David Hoffman?

  you can recover a lost Ambire wallet with an email and password, but without giving the Ambire team control over your funds. The Ambire wallet is coming soon for both iOS and Android. And if you want to be a beta tester, Ambire is airdropping their wallet token for simply just using the wallet. You can sign up at ambire.com and while you're there, sign up for the web app wallet experience as well. So, thank you, Ambire, for pushing the frontier of smart contract wallets on Ethereum.

• 1:11:25Ryan Sean Adams?

  Back with the questions for the week. The first one from Scotty. How bullish is 4844 for Eigenlayer? Must be referring to EIP 4844. Explain that and tell Scotty why or if it's bullish for Eigenlayer.

• 1:11:40David Hoffman?

  Okay, so EIP 4844 makes this thing called Blob Space. Instead of Block Space, it's got Blob Space, which is first-class Blob Space that is just for Layer 2s to put call data on. It's Layer 2 Block Space. We call it Blob Space because we're weird. And when we have 4844, Layer 2s can use all that Block Space and they can go super fast. And so, it takes off the brakes for Layer 2s, so our current Layer 2s get better. We have more room for more Layer 2s. Overall, 4844 is bullish for the Layer 2 ecosystem. It makes Ethereum turn the idea and the whole vertical of Layer 2s into something that's just way better. Eigenlayer, I explained it earlier.

• 1:12:24David Hoffman?

  These two things are not directly coupled. They are inside of the same sector and so they experience bullishness because both grow, but there's no intimate relationship between 4844 and Eigenlayer. Eigenlayer can secure more Layer 2s. It can secure types of Layer 2s. There's a Layer 2 network out there called Mantle that's using Eigenlayer for data availability, but there's no intimate connection between Eigenlayer and 4844. So, it's just like bullish for the sector at large and gives Eigenlayer more opportunity, but there's no

• 1:12:56Ryan Sean Adams?

  They're unrelated. They're kind of orthogonal then. Eigenlayer's re-staking.

• 1:13:00David Hoffman?

  It's like actually just like they're only

• 1:13:02Ryan Sean Adams?

  Completely unrelated? You're saying they're

• 1:13:05David Hoffman?

  They're in parallel with each other. They're going towards the same goal, but Eigenlayer is not like waiting for bated breath on 4844 or anything like that.

• 1:13:13Ryan Sean Adams?

  Got it. I can layer, of course, is restaking, which we were talking about earlier in this episode. David, here's another question. This one is from Jakara. Here they go. "My smart friend," oh, smart friend, everyone should have a smart friend. "My smart friend said that in 24 months, every Visa credit card will have an associated 4337 wallet attached to it. What is 4337? And how would that happen?" By the way, I love Bankless, the Bankless Nation, giving us precise EIP numbers in their question. Okay, these are advanced questions. Thank you for these questions. EIP 4337. First, remind everyone.

• 1:13:51David Hoffman?

  Actually, not EIP 4337, Ryan.

• 1:13:53Ryan Sean Adams?

  It's not? What is this?

• 1:13:54David Hoffman?

  ERC.

• 1:13:55Ryan Sean Adams?

  ERC. You got me. You got me. It's Ethereum request for comment.

• 1:14:01David Hoffman?

  Also, a completely unhelpful phrasing of what these things are. EIP, Ethereum Improvement Proposal 4844, is dank sharding. Also a crazy name. God, no wonder no one comes into this industry.

• 1:14:15Ryan Sean Adams?

  But the difference between an EIP, which is an Ethereum Improvement Request, is it's going to take some code deployed to get it working. And ERC, it's just, let's all agree on a standard.

• 1:14:25David Hoffman?

  Yes.

• 1:14:26Ryan Sean Adams?

  It doesn't actually require a fork, a change in the code, not underlying protocol. So EIP versus ERC, that's the difference here.

• 1:14:35David Hoffman?

  EIP is like, hey, let's put this bit of code into Ethereum. ERC is like, let's agree that this is the standard that we use. Add the smart contract layer. So.

• 1:14:44Ryan Sean Adams?

  Yeah, yeah, like ERC 20s. Famous ERC. Let's all agree that this is the way we do tokens.

• 1:14:49David Hoffman?

  Top three ERC.

• 1:14:51Ryan Sean Adams?

  Top three ERC, you sure?

• 1:14:52David Hoffman?

  Yeah. I would also put ERC 4337 in there. Just since we're going down this rabbit hole, we're answering questions that weren't, that wasn't asked. ERC 4337 could turn into an EIP. I don't think it would be called EIP 4337, but like, you could take the guts and turn it into an EIP.

• 1:15:10Ryan Sean Adams?

  How a bill becomes a law?

• 1:15:11David Hoffman?

  Yeah, exactly.

• 1:15:12Ryan Sean Adams?

  I don't know.

• 1:15:12David Hoffman?

  Yeah. Okay, anyways, return to the question. My smart friend said in 24 months, every Visa credit card will have an associated 4337 wallet attached to it. What is 4337? How could that happen? 4337 is account abstraction. It's a smart contract wallet. Your smart friend is smart. They are paying attention. So Visa with the leadership of Kai Sheffield has done like primary research and innovation into smart contract wallets using 4337 on Visa. They are building out a smart contract implementation standard so that they can use it for reoccurring and subscription payments on the Visa network.

• 1:15:53David Hoffman?

  I don't know about the idea of every Visa credit card having a smart contract wallet associated to it, but two years is a long time. Visa is directly pioneering this effort and that conclusion would make sense. I don't have any further information beyond that, but we know that Visa is pioneering into the world of smart contract wallets. That's what 4337 is. So your smart friend is connecting some dots and perhaps knows something.

• 1:16:19Ryan Sean Adams?

  Your smart friend is smart. Don't know about that timeline, but this is a decent prediction. It's based in some realities here. It's technically possible. David, you ready to get some takes of the week?

• 1:16:28David Hoffman?

  Love it.

• 1:16:30Ryan Sean Adams?

  We got three. Number one, why don't you read this?

• 1:16:33David Hoffman?

  Yeah, because you don't want to read your own tweet. Ryan Sean Adams says, "You'll never get a country to adopt ETH as money," in quotes. "We don't need a country to adopt ETH as money," he says. "We need an economy to adopt ETH. The largest economy in the world will be built by AI agents." Oh, it's an AI tweet. It's an AI tweet.

• 1:16:50Ryan Sean Adams?

  Yeah, it's an AI tweet.

• 1:16:51David Hoffman?

  "They'll prefer a digitally native money, unencumbered by nation states. ETH is machine money."

• 1:16:58David Hoffman?

  Tell us about this one.

• 1:16:59Ryan Sean Adams?

  That's it.

• 1:16:59David Hoffman?

  That's it?

• 1:17:00Ryan Sean Adams?

  I mean, the tweet speaks for itself. I think that we have created a program money system that AIs are going to use and AI agents are going to become major economic players. Like AI agents are the future associations and nonprofits and corporations. They are the A in autonomous. Remember DAOs? Digital Autonomous Organizations? Well, we needed the A part. This is the A part. This is the autonomous part.

• 1:17:27David Hoffman?

  The AIOs.

• 1:17:29Ryan Sean Adams?

  Basically. Wow. Did we just create something here? Like, so I am actually less, I think it's less important to get America to put ETH in its central bank balance sheet. Because the robots are going, the AIs are going to prefer a programmable money system that has no strength, that has no geographic boundaries, has no strings attached. You don't have to file in Delaware for this thing. You spin up private keys at a multi-sig and you got a Dow cooking, right? Like, robots aren't going to be able to get bank accounts. They can on Ethereum. All right. Now, hopefully that this all goes well for us, David. I know we've been talking about AI alignment. That's a separate issue.

• 1:18:08David Hoffman?

  Rabbit hole. Don't do it.

• 1:18:10Ryan Sean Adams?

  Not gonna do it. ETH is machine money, though. And by the way, when I said this, people are like, you're changing the narrative already? I thought it was ultrasound money. And people are like, oh, this is, you know, world computer to ETH is machine money narrative switch? I will remind people again, like, like the internet.

• 1:18:27Ryan Sean Adams?

  They all go together. Like the internet, there are many use cases of the internet. The internet's just email. The internet is like just e-commerce. I mean, how like, of course, these are all narratives of the internet. It's like Ethereum has many narratives. Of course it would. It has many use cases. That's a strength. And by the way, ETH being machine money makes it even more freaking ultrasound, okay?

• 1:18:48David Hoffman?

  ETH is ultrasound AI money to pay for computation on the Ethereum world computer. Why is that so hard to understand?

• 1:18:56Ryan Sean Adams?

  I don't know why it's difficult, but anyway, that's the take, David. Let's get to another one. This is yours. Can I read it?

• 1:19:05David Hoffman?

  Yeah, but this is just Ryan and David read their own tweets.

• 1:19:07Ryan Sean Adams?

  Wow, wow, we've gotten, you know, cringe. We're just reading their tweets back and forth. Okay, no problem. David Hoffman goes, you should create an Anon account so I can read your tweets without really reading your tweets. Open money systems are public goods. The unit of account of money is a public utility. When EIP 1559 burns ETH, it's growing the value of a very widely distributed public good. EIP 1559 is a public goods mechanism. Man, your brain was thinking about money as well this week. And what do you mean by this?

• 1:19:38David Hoffman?

  Hang on, you gotta read the other two tweets. I'm not done yet.

• 1:19:41Ryan Sean Adams?

  Oh, there's more?

• 1:19:42David Hoffman?

  Yeah.

• 1:19:43Ryan Sean Adams?

  Normalize thinking of money systems as public goods. We easily understand what happens when money systems break down due to currency devaluing. We should understand that increasing the value of money is something universally beneficial to the money system. How much investment and reinvestment has Ethereum received from ETH appreciation? How much has been donated to public goods because ETH went from 80 to 4K? How many startups and jobs have been created due to Ethereum wealth effect? ETH is the most important public good.

• 1:20:09David Hoffman?

  So this was inspired by Hayden Adams' recent tweet about how we should redirect EIP 1559 ETH burning away from burning ETH to public goods. And I'm like, Hayden, no, don't do that. We've already, A, we've already had that discussion. B, stop thinking that it's not already doing that. Burning ETH is the most credibly neutral thing to do, and it's also contributing to public goods. The money that invests in this entire economy. So that's my take.

• 1:20:41Ryan Sean Adams?

  I get it. I get it. Good take. Here's a take from Eric Voorhees on a headline that he's reading from a news publication saying, "A trillion-dollar platinum coin could save the US from economic catastrophe in less than a month. It would be fast, legal, and no bigger than a regular coin." He goes, Eric goes this, "Thank God it would be no bigger than a regular coin." What does that even mean? What is this headline? A trillion-dollar platinum coin? This is a real thing. And it would be fast, legal, and no bigger than a regular coin?

• 1:21:13David Hoffman?

  Yeah, just the idea of like, it's really important that people know that it wouldn't be bigger. And we're not going to waste any more metal printing this $1 trillion coin.

• 1:21:26Ryan Sean Adams?

  What would, I guess people are thinking it's like, you know, like a dinner plate-sized coin because it's worth a trillion dollars.

• 1:21:31David Hoffman?

  Do you need multiple people to hold the trillion-dollar platinum? How heavy is it?

• 1:21:37Ryan Sean Adams?

  What's it made out? Oh, it's made out of platinum. They're really trying to make this out of platinum.

• 1:21:40David Hoffman?

  What's the point of using a precious metal?

• 1:21:44Ryan Sean Adams?

  What is the point? Unforgeable, David. You can't forge it.

• 1:21:48David Hoffman?

  Why not?

• 1:21:49Ryan Sean Adams?

  You can print it.

• 1:21:50David Hoffman?

  Why not print it on paper?

• 1:21:52Ryan Sean Adams?

  This is a real conversation. So what is the context of the trillion-dollar platinum coin that's arising again, isn't it?

• 1:21:58David Hoffman?

  Right. It's because we need a trillion dollars to backstop the banking crisis.

• 1:22:01Ryan Sean Adams?

  Plug a hole.

• 1:22:01David Hoffman?

  Is why this conversation is happening.

• 1:22:03Ryan Sean Adams?

  Isn't it the debt ceiling in Congress again? Have you been following this, David?

• 1:22:09David Hoffman?

  No.

• 1:22:09Ryan Sean Adams?

  It's raising its head again, again, for the, I don't know, 11th billionth time?

• 1:22:14David Hoffman?

  It's like a part of our regular cadence. Yeah.

• 1:22:15Ryan Sean Adams?

  Yeah. So we're like, well, rather than have Congress kind of raise the debt ceiling, let's just have Treasury mint a trillion-dollar platinum coin. That's why this is coming up again.

• 1:22:23David Hoffman?

  Right. So for Bankless listeners, there is a moment of zen, which is Eric Voorhees being a stand-up comedian unintentionally. That is a very logical continuation of this conversation. So stay tuned for the very end of the episode for that.

• 1:22:38Ryan Sean Adams?

  You're gonna enjoy that. All right, David, what are you bullish on this week?

• 1:22:41David Hoffman?

  I am bullish on Bankless Ventures. Woo!

• 1:22:44Ryan Sean Adams?

  Hey!

• 1:22:44David Hoffman?

  Ryan and I and Ben Lakoff are raising a fund, Bankless Ventures, $30 million early-stage fund. The line that I like to give is Bankless Media, the podcast you're listening to right now, teaches you how to explore the frontier, and then Bankless Ventures gives you the money you need to establish a settlement out there on the frontier. And so we talked about this a while ago when CoinDesk broke the news before we were really able to like talk about it now. But I wrote an article on Bankless, bankless.com, you can find it. It's called "Why We Are Launching Bankless Ventures," puts some of the backstory and the ideas and the thesis behind Bankless Ventures. People are asking me like, okay, like, what's the thesis behind Bankless Ventures? Like, what's the deal? And the thesis is that Ryan and

• 1:23:28David Hoffman?

  I have really good deal flow, and we're putting it all into Bankless VC. There's certain sectors that we, of course, are looking at. Who's gonna buy all the Layer 2 block space? Like, we need startups to buy the Layer 2 block space. Account extraction, the inevitable AI meets crypto intersection. Like, all of these things are things that we're looking at. But really, the idea is because of the position of Bankless Media, we're at the center of crypto, put all the deal flow in front that we get from the media network that we've created into Bankless VC. So if you're interested in learning more about Bankless Ventures, and also the inevitable conflicts of interest section, which I'm sure some people are curious about, that is available as a link in the show notes.

• 1:24:08Ryan Sean Adams?

  Yeah, and we've got some cool advisors, Justin Drake coming aboard for this, Anthony Sisano, and I heard you pitch in startups to come contact us as well. If you're building something really cool in crypto, get in touch.

• 1:24:18David Hoffman?

  Yeah, we are mostly full of funds, but if you are interested in being an LP, that window is still open.

• 1:24:23Ryan Sean Adams?

  True. Credit investor, all that jazz.

• 1:24:27David Hoffman?

  Gary made us do that part, the accredited investor part.

• 1:24:30Ryan Sean Adams?

  I know, sad.

• 1:24:31David Hoffman?

  It's sad. It is sad. Ryan, what are you bullish on?

• 1:24:34Ryan Sean Adams?

  I am bullish on another accumulation opportunity for Ether, that asset we've been talking a lot about in the show. It's low. I think the price of Ether is low relative to its value. Maybe it's kind of like fair market value. Yeah, I mean, I was just looking at, you know, that website that lists all the assets, like worldwide assets? Do you know Home Depot, the company, is worth more than all the Ether in existence?

• 1:25:01David Hoffman?

  That's not right.

• 1:25:02Ryan Sean Adams?

  David, is Home Depot stock ultrasound? Is it burning? Okay. Like, is it like the cornerstone of the internet financial system? Can Home Depot stock be restaked to secure other decentralized? I'm just like, it's silly. When you zoom out and you look at this context, and yeah, Ether is in one of those places again. It's pretty close. I'm not going to say it's exactly how I felt about this asset in like 20, I would say 2019, end of 2019 and early 2020, where it's just like, oh, we're definitely coming back. We're like, look at all this stuff that's being built. And we went on kind of basically like

• 1:25:45Ryan Sean Adams?

  a rampage of like, Ether is undervalued. Ether is like, it's undervalued. Hello, it's undervalued. I'm not quite there, but I'm getting closer. I mean, Home Depot, David, all right?

• 1:25:57David Hoffman?

  The, when, Ryan, in eight to 20 years, when Home Depot stock becomes a security token on Ethereum and also collateral inside of Eigenlayer, I'm going to come back and be like, actually, you can restake Home Depot.

• 1:26:13Ryan Sean Adams?

  Yeah, you know what, though, what's cool is there's accumulation opportunities where other people get a chance to get on board into crypto. And I'm so glad we have we have these. It's like, it's you have the opportunity to be a settler, not a tourist. When other people aren't looking, you're doing your research, you're seeing what's going on here, you're bullish on it, you could take a very risky bet. I think ETH is kind of like that right now. And it's a good time to buy, in my opinion. Not financial advice. David, we got a meme of the week. What are we looking at?

• 1:26:43David Hoffman?

  Uh, meme of the week, here we go. So this, I think, was a great illustration of the AI alignment problem. And so that particular one, yeah, you sent this to me, Ryan. So this is the AI alignment problem. So that little, there's this, okay, for the podcast listeners, there is this, I don't even know what you call it, a fucking monster.

• 1:27:02Ryan Sean Adams?

  A Lovecraftian monster.

• 1:27:04David Hoffman?

  Like, it's spaghetti, like, monster with teeth. And then all of these tentacles are converging to, like, put up this puppet face, so that it's making this face, because that's what you want to interact with. That's like ChatGPT. So like, the interface that you need to, like, talk to this monster of, like, tentacles and eyeballs and sensors and all that stuff. And then he makes the face, and then the face outputs this, like, little nugget, which is like, your input into ChatGPT is like, hey, what is, like, you know, the information that I want? And then it spits out exactly what you want. Behind the scenes, there's this, like, Cthulhu, that is making that happen. And it's unsupervised learning, like, in the back, in the black box. You don't know what the hell's going

• 1:27:48David Hoffman?

  on. And then you have this face that it's making, because we trained it to make that face, but the face is just like, a puppet of Cthulhu. And then it spits out this little nugget, which is exactly a little bit of gold. It's like, here.

• 1:27:59Ryan Sean Adams?

  Little happy smiley face.

• 1:28:00David Hoffman?

  Little happy smiley face.

• 1:28:01Ryan Sean Adams?

  Here you go. And it's RLHF. So reinforcement learning with human feedback. That's how it kind of learns. That's a smiley face.

• 1:28:09David Hoffman?

  Right.

• 1:28:10Ryan Sean Adams?

  Uh, David, I thought memes were supposed to be funny. This is making me sad.

• 1:28:13David Hoffman?

  Well, this wasn't a meme. This was a rug pull. This was a education about the alignment problem. Yeah, this is us turning, making us into an alignment podcast.

• 1:28:19Ryan Sean Adams?

  I hope this is not true. Is the bottom line, right? I hope this is just an artist's rendition and we need to work to make it not true. But the truth is, the truth is, from everything that we've done so far in this AI alignment series is, we have no idea the nature of this

• 1:28:36David Hoffman?

  Yeah, we don't know what's back there.

• 1:28:37Ryan Sean Adams?

  Thing that we've built. We don't know if it's a Lovecraftian monster, or if it's just a friendly unicorn, or if it's a zombie that we can kind of like train it to do what we want, or whether it's some kind of like an early-stage consciousness. Like, we have no idea. And that is the scary part here.

• 1:28:52David Hoffman?

  All of the above. Yeah, so around here at Montenegro, I've done two AI conversations right now, which I'm gonna throw over to the podcast editors and underhand to you.

• 1:29:03David Hoffman?

  The line that has stuck with me, which I did a full-length podcast with this guy, where the reason why AI alignment problem is an issue is because it is simply a reflection of human alignment. As in, when we look into that black box of AI, we don't understand what's going on. And then people see doom and people see misalignment. It's because it's actually not a black box, it's a mirror. And we are looking back at ourselves and be like, man, that's a human problem, which

• 1:29:30Ryan Sean Adams?

  The monster is us.

• 1:29:31David Hoffman?

  The monster is us, which does not make me feel any better.

• 1:29:36Ryan Sean Adams?

  On that note, we should get to the moment of zen. David, tee it up for us.

• 1:29:40David Hoffman?

  This will make you laugh much more.

• 1:29:43Ryan Sean Adams?

  Yeah, tee this up for us. This is Eric Voorhees giving a speech as part of a debate, a classic speech from 2018. I think you're gonna enjoy this. Gotta let you know before we fade into that, risks and disclaimers, of course, none of this has been financial advice. Crypto is risky, you could lose what you put in, but we're 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.

• 1:30:04Speaker 03

  Next, let's discuss why fiat is bad money.

• 1:30:11Speaker 03

  Why should we care about cryptocurrencies and their attributes when we already have fiat? Fiat works pretty well, right? It's got pyramids and government buildings printed on it, so you know it's valuable. Also, it is backed by paper. Paper can be burned if you're cold in the winter. There's its intrinsic value. Try that with gold.

• 1:30:32Speaker 03

  But a skeptical observer should know that fiat money is an absolute scam, and something altogether inappropriate for an ethical, market-based society. As I like to say, you cannot have a free market when the most important good—money itself—is centrally planned and controlled. Fiat money and a market economy are mutually exclusive concepts. Like oil and water, they can certainly be mixed up together when force is applied, but they will naturally separate and dispel one another over time. Indeed, the average lifespan of fiat is less than 50 years. The US dollar only became fiat in 1971. That's less than the length of William Shatner's career. And as it happens, last week he announced that he has started to mine Bitcoins as well.

• 1:31:20Speaker 03

  Regardless, when examining its specific properties as money, most ways fiat is unimpressive. First, it is not scarce. It is systematically created out of thin air, with no limit on supply, nor can supply even be known. Fiat is willed into existence by politicians and banks because printing money enriches the printer at the expense of the public who holds the previously printed money. The phenomenon is known as inflation or currency debasement. Fiat also struggles with durability. Your fiat will only last so long as your bank permits, and even then, it slowly loses its value. Your bank can destroy your fiat with the click of a button. Ask a Cypriot. Ask an Argentinian how durable fiat is. With fiat, you are ever-dependent on a third party with your wealth. Is that an attribute of money that you find attractive?

• 1:32:03Speaker 03

  Some people are comfortable with it because they trust their government, but requiring trust in politicians seems a poor foundation upon which to build a prosperous society. Finally, fiat is not nearly as portable as Bitcoin. Try to send an international wire right now. You can't, because it's after 5 o'clock. How quaint is that? You can try tomorrow morning, as long as it's not Sunday, because apparently God doesn't want you to use the financial system on the Sabbath.

• 1:32:30Speaker 03

  But even when successful, you'll discover it takes 3 to 5 days for your wire to arrive. You often have to physically go to the bank to do this. You have to fill out a form on paper while someone making $15 an hour takes that info and types it back into a computer. Why do people put up with this nonsense? Indeed, it is faster to strap cash to an anvil and FedEx it to Tokyo than it is to send an international wire. Do you really think that that system is going to out-compete Bitcoin in an open marketplace? And you can only send fiat if you have permission. Try to send it to a family member in Russia, you'll be censored. Want to donate to a relief effort perhaps in Venezuela? Too bad, you'll be censored. Are you sending a suspicious amount? Your payment will be blocked and you better get ready for questioning or outright confiscation.

• 1:33:12Speaker 03

  Yep, the Orwellian nanny state is alive and well and fiat currency is one of its most insidious tentacles. Fiat has these poor monetary attributes because it is a tool and appendage of the state. It exists to serve the state, not to exist market participants. Its attributes as money are intentionally constrained and inferior so as to siphon wealth to the state through debasement and to surveil and control the behavior of the king's subjects. Remember that fiat means valued by decree, not by merit.