Cas Piancey and Bennett Tomlin discuss the continuing collapse of the cryptocurrency ecosystem.

This episode was recorded on November 14th, 2022.

Other episodes mentioned in this episode:

• Episode 79 – Celsius Collapse: Causes, Concern, and Catastrophe (Feat. Dirty Bubble Media)
• Episode 98 – FTX and Alameda are dead, long live cryptocurrency
• Episode 98b – FTX Collapse feat. Mike Burgersburg (Recorded Live) (Bonus Episode)

Other resources mentioned in this episode:

• Strange FTX Transactions
• Coverage of Alameda Research Balance Sheet
• Coverage of Alameda Research halting withdrawals
• Coverage of Binance purchasing FTX

Where to find Crypto Critics’ Corner:

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• Bennett’s Twitter
• Cas’ Twitter
• Bennett’s Newsletter
• Cas’ Blog
• Bennett’s Blog
• Bennett’s YouTube
• Bennett’s Mastodon

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English Transcript:

welcome back everyone I am Cass PNC I'm joined as usual by my partner in crime Mr Bennett Tomlin how are you I am filled with the seething rage how are you Cass I'm uh I'm just exhausted I think I'm I'm honestly I'm just I'm just so tired um we're doing another update on this we're doing this is now we did one um several days ago with Mike bakersberg um and we did one before that the day before um I think people are kind of hoping that there will be some sort of uh that that we already have all the updates that everything has happened the collapse is over like here we are we're at the bottom but that isn't the update the update is that things haven't really changed all that much as far as I can tell um we kind of have a lot of noise um can we can we talk about I guess I know there's I know there's fears of contagion we haven't seen anything confirmed at all yet but uh let's talk about some of the entities that are involved in what's going on or which one of the entities do you want to start with feel free to pick pick your pick your poison here let's start with blackfy since it was just reported this afternoon that they're likely going to file for bankruptcy which makes sense because they were on the verge of bankruptcy until they got that line of credit from FTX us so the fact that they are now bankrupt is not particularly surprising yeah uh um uh for anyone who doesn't know we did a previous episode about all of the cryptocurrency lending platforms um at that time uh we the main ones that we were focused on were block fi Celsius and nexo and so now with block Phi officially looking to file bankruptcy that means we're swinging two out of three so far the Celsius is long gone I don't think anyone even really thinks about it these days um but outside of that yeah now we have one project it's coming back the Kelvin right we're going straight to zero um yeah so we have that we have uh and then we have nexo which I haven't heard a lot of rumors about nexo have you well no uh there were the I mentioned in some in some of the reporting approaches that there were the withdrawals to nexo totaling like 116 million or something in like the days right before FTX closed off withdrawals nexo was one of the largest withdrawals by far um or someone was posting a bunch of collateral over at nexo if someone might have had a loan there that was getting close to a liquidation price hypothetically um and so those flows went to next so I've not heard any real concerns over Nexus solvency Beyond like the general crypto lenders seem to have a business model that involves them lending out to counter parties who are not responsible and so all lenders have serious risks that you should seriously consider before using them like and salt lending today closed withdrawals because they were they were exposed to Alameda and FTX

lending platforms have this built-in risk just by the way they conduct their business model yeah this is part of my point um is essentially that we we in the episode long ago the question that we had about the lenders as well was where is this magical high yield coming from um and it is impossible to answer that because now we're seeing that there was no magical high yield it was all it it wasn't magic at all it was imagined um it it it's gone it's all gone now um so that's that's update one you know also also on the note of lenders we should talk about what's probably the largest loan book in all of crypto Genesis Trading Genesis trading who initially came out and said they only had a seven million dollar loss who then got an emergency Equity infusion sorry not an emergency Equity infusion a totally routine Equity infusion for a totally healthy balance sheet for like 140 million dollars or something from dcg and then they announced that oh also we had 140 million dollars in assets on FTX we probably aren't going to get back and they want us to believe that is the total extent of their losses I think it's important here for me to mention that like their OTC desk was one of the most active FTX token OTC desk and like at one point had over three million sitting in their wallets that I could easily see and like a whole bunch of it flowed from three arrows capital and from Alameda research through Genesis for these trades of FTX token and that they are claiming that they had no exposure at the time and it looks like all the FTX token was transferred out of their wallets like in the days immediately preceding like things getting closed but I think it is very plausible that there is additional exposure that we have not heard of yet yeah in Genesis so I like the did you mention that that that money that they received I believe that was from um dcg is that right yes yeah the equity infusion was from dcg their parent company right so their parent company is a digital currency Group which again if anyone is unfamiliar they uh man they just have their they have their hands and everything we got to have um Nick from coindesk on and I specifically discussed with him like how much exposure to the to the system dcg maintains and it is a lot um on the note of dcg's many products and exposures gbtc which is the Bitcoin vehicle that has caused problems for three years capital and now Alameda research is trading at like a 45 discount to net asset value I think right now and may descend further when whatever Alameda research is still holding ends up liquidated and they are still also currently suing the SEC to convince the SEC to convert them into an EFT yeah good luck with that um another episode that we have we talked to James safart um uh from Bloomberg and we specifically talked about the ETF and the likelihood of it being realized and uh I think even then I'm pretty sure James told us like it's just not likely it's going to happen this year or really anytime soon um revisit that episode if you want because yeah spot on not gonna happen not right now so sorry this is a bit of a tangent nothing I just realized um there was some reporting that came out that suggested that Gary Gensler and Sam Bateman freed may have been having a conversation about onshoring FTX bringing FTX back to the United States and what's interesting about this is that we talked about with James safer that the Bitcoin ETF was being used as like a point of Leverage we thought to potentially allow the SEC to get these surveillance agreements with the exchanges so that they could see better into them and so if FTX was going to be like one of the first ones to sign this surveillance agreement as part of like this them coming back on short to the U.S and presumably some of their previous behaviors no longer being looked into that that would have then further pressured other exchanges to then agree to it and so I wonder like what the current stance is in the SEC and like whether they're still going to continue to use the ETFs and stuff to try to get that kind of surveillance because I think there's going to be more popular support for that now that there's another highly visible crash um so I think it's worth discussing this because this is an entirely different point really I know we're somehow finagling away to discuss it with an ETF fine but um Gary is in trouble Gary Gensler is in deep deep doo-doo there is no doubt about it I like no coiners coiners critics schillers everyone is on the same page with this one this dude is going to have to sit in front of Congress and explain himself and it isn't going to be easy and this this to me you know who knows maybe I'll be proven very wrong but to me this is the end of his career like that there is no comeback here as far as I'm concerned he's lost the confidence of the industry of this industry but of the financial industry it feels like um because he didn't prede he didn't protect anybody but then people will say well FTX wasn't on American soil but as you just said boy he sure was trying to get that to happen and that's that's unfortunate maybe maybe assuming the reporting is accurate there is some

SCC negotiations to onshore a massive criminal fraud certainly do not look good sorry we don't know it's a criminal fraud yet

anyone anyone suggesting that there wasn't a crime committed here seek help like this this is theft this is theft this is fraud this is it you want anyone to be specific about what kind of frauds I I think it it sure as [ __ ] looks like wire fraud and bank fraud to me but we'll see we'll see how it plays out allegedly allegedly allegedly we're not well I'm telling you what it looks like we're not lawyers I'm telling you what it looks like to a random guy who's followed the industry for five years okay so anyway I think uh it you can hear our both of our frustrations truly on this uh the SEC did a [ __ ] job they did a really bad job they haven't been go they haven't been doing anything they've been asleep at the wheel we've talked about that before as well um it's it's all coming back to bite Gary and okay the last thing I was gonna add is I'm I'm still not entirely convinced that the cryptocurrency industry is important enough that their General dislike of Gary is going to end up being enough to force him out and I think that that will depend on how much gets confirmed about like what the conversations between Sam and FTX and Gary were so I am very interested in that yeah me too but I also think that having

there definitely were American entities and individuals exposed to this situation 100 sure about that as well and having that happen under his watch having a a multi-billion dollar fraud transpire where you're in conversations with them and you're letting it happen I mean he posted a tweet not so long ago suggesting that FTX us has all the money to cover customer deposits I you mean sorry he he did he he and then he did it again like he very recently tweeted again at oh like three hours ago and said to the best of my knowledge as of post November 7th with the potential for heirs Alameda had more assets than liability Mark to Market but not liquid exclamation point Alameda had margin position on FTX International and FTX us had enough to repay all customers and then it ends with not everyone necessarily agrees with this and I am going to say very bluntly right now Sam bankman freed is lying

this is not the first time or the second or the third or the fourth or the fifth this is It's countless it is countless he doesn't speak the truth he can't he doesn't know how I don't think he physically understands how to be honest with people don't believe him for [ __ ] sake don't believe him which again now let's go to another topic the New York Times reported yesterday about that Sam bankman freed is getting sleep I guess is how I'll turn it that's what they reported Sam bankman freed is getting enough sleep that's good um as as uh someone pointed out on Twitter No mention of the word fraud no mention of the word crime no mention of any of the the absolute [ __ ] that has transpired over the past week or two real realistically for years but over the exposed to the public over the past week or two like that it's not being addressed in this article this big long profile of like the executives at at Alameda and and FTX I infuriating and and not just for me for every coiner out there for all for people who like defy for people who love Bitcoin for people who who are no coiners for Skeptics critics everyone was insanely frustrated by this article some people are suggesting it's literally trying to whitewash this guy's crimes which you know I'm not gonna suggest that necessarily but it didn't make him look bad it didn't make him look bad at all and I I can't fathom writing this piece and not feeling weird about it yeah so on that there was another part of it that really bothered me be and it's when they mentioned that Sam was playing video games and the specific video game which they mentioned is one that Sam owns that FTX owns and there is no mention of that and the game is mentioned by name one more mention of like this like Sam owned product that got into this reporting without even a disclaimer that it was this thing that Sam was connected to

the the entire thing was incredibly frustrating from from everyone's perspective and that and and you hate to see it um we've talked about some of their reporting before I think I've I've mentioned uh I think I've mentioned Kevin Roost by name uh the he did the late comers guide to crypto it's just a sorry excuse for an explainer um and it's got to be embarrassing now it has to be embarrassing now uh if it wasn't three or four months ago um but I this is this is the frustration we're feeling this is this is I think the frustration that Skeptics are feeling over the past days and week as opposed to I know there's people who are frustrated because they lost money I know there's people who are frustrated because uh they trusted uh some of these individuals and they've proven to not be trustworthy there are people who are frustrated for a lot of different reasons and I'm I'm seeing everything we've tried to talk about play out in real time man suzu coming back tweeting about how he's so frustrated because he tried to go and expose this Ponzi hold on because I I tweeted directly at him about this saying what it sounds like to me because this is his his explanation his own explanation for it is I saw this term sheet and the term she said that they were offering 15 no risk I mean it literally sounds like a Ponzi scheme some people push back kind of like well but you know their trusted 15 seems fine he's like no this isn't fine I and then he said he sent it to whatever I don't know what was it the block he sent it to to a media outlet and the media Outlet at the time didn't didn't run with the story and then he was incentivized to trade on FTX via great incentives sorry it sounds to me like you you've had fear of missing out like the price of the Ponzi went up you got really upset because you were trying to call out a Ponzi especially a competitive Ponzi and you feared missing out so you jumped into the pool like a [ __ ] [ __ ] and you jumped into the Ponzi and then now there's repercussions I are you why are you the hero it's unfathomable to me that these people are coming back and getting heroic like red carpet rollouts for them it's embarrassing this is embarrassing it's worse than that do you know why he's play acting the hero they're trying to raise a new fund

yeah okay yeah that is among the reasons that I am filled with rage because holy [ __ ] [ __ ] you are not the hero Kyle and you are not the Euro Zoo you did so much with Alameda you were deeply entwined with them co-investing investing in their products trading with and against them and when Alameda was not at the top of ftx's leaderboard most of the time it was you there I can't I also can't imagine trying to call out what you suspect is a legitimate fraud and Ponzi scheme and going to one media Outlet saying something to them having them go like sorry we can't run with it and then being like okay I guess I'm done with this there's how many media outlets in the world like how many individuals that can be trusted to try to figure out if this is indeed the case like you you could go to anyone you're you have you're a rich dude in crypto lots of media Outlets would at least listen to you and you and you're trying to posture like well I went to one person and they said no get the [ __ ] out of here dude get the [ __ ] out of here I yeah it's infuriating all of it is super infuriating and people have the memories of worms I like I can't it's I don't let him come back what in what in God's name could possess this industry to be like oh yeah he's a victim too what there are people actively currently at this minute in my mention suggesting that like there's more to come on FTX and it will eventually be revealed that they were the victims of this attack by these unknown people people join these Cults of personality and once they join them and once they follow these individuals it is very challenging to break some of them of it

Okay so we've gotten a bit off of course we've gotten into a Lively discussion about some of the entities and people involved but we flew off the course of contagion and contagion risk which is where I want to get us back to right now um we mentioned Genesis uh we mentioned uh who who else did we mention at this yeah so we we've mentioned blackfy salt Genesis and I think now we should discuss so that covers a lot of the lenders plus lenders generally broadly should be considered risky then we get into I think like exchanges and there has been some [ __ ] weird behavior from exchanges and so let's start with crypto.com who apparently in trying to set up a cold storage wallet sent the entire thing over to another exchange gate and then got most of it back from gate and then the CEO also described a bunch of their activity on other exchanges as them hedging and gave very little details about what that entailed and why these assets were moving between all these exchanges thank God I felt like I was going crazy because no one had called it out yet and at some point I tweeted about that where I was like that is not hedging it's like this this guy's explanation of hedging which I like I don't even know I'm trying to think about the best way for me to try to explain a hedge like in the simplest simplest terms like um

I guess insurance is a hedge right any kind of insurance is a hedge um so I will use the example of homeowners insurance the idea being that or fire and let's say fire insurance for your home the idea being that the likelihood that there's going to be a fire is close to zero like the chance that your home burns down is almost zero but as long as you think there might be some little percentage of a chance it's worth your time to have some sort of a hedge where if the house does indeed burn down you get some of that Capital back so that you can try to rebuild your home that's the idea of any hedge right the idea of any Hedges you have a bet that you're pretty sure is going to be a winner but you're hedging it with something that in case this is a total loss what this guy described was taking U.S dollar derivatives and buying volatile assets on another exchange and then moving those coins back to his Exchange explain the Hedge to me I'm waiting to hear how that's a hedge so Cass do you remember how coinbase had Bitcoins and bitfinex in the 2016 hack

it there have been cryptocurrency exchanges which will sometimes try to take advantage of the liquidity of other exchanges by running their own prop trading desks and Market making firms internally and I think that in some of the worst cases this has involved these firms lending customer assets to these non-independent or not truly independent Market making and prop trading firms associated with this and I and I think that the Alameda research and FTX one that we have most recently seen is not that atypical except perhaps at the scale but this is something that we've seen before like I I I I again I feel like I'm I'm taking crazy pills because we see bitmex and Arthur have a prop prop desk trading against their own customers years ago years ago and they're caught red-handed and everybody knows it's a thing and Arthur Hayes gets in trouble and I'm just curious why anyone would expect that behavior to change

I don't I I don't know Juan Carlo davisoni and silvano Di Stefano the Chief Financial Officer and chief investment officer of tether are currently Partners in a cryptocurrency hedge fund J.L vandervelde the CEO of both bitfinex and tether is the executive director of a VC fund you mentioned Arthur Hayes at bitmex coinbase is being investigated for insider trading we had Alameda research in FDX we have crypto.com which has historically run their own Market maker for years like even Gemini is currently being sued by the cftc for their manipulative trading practices when they were running the Futures auction and so like it has been common for these exchange owners to take on these very compromised positions

yeah we I this is so again here bringing it back to Contagion so we uh are talking about exchanges now which I think we're we mentioned crypto.com I think the cons there's concerns we don't have any there's no hard evidence or anything exactly there's no hard evidence of anything there is CEOs acting weird there's proof of them doing inexplicable Unchained things things that suggest incompetence like sending your cold wallet to another exchange the best case scenario for that is incompetence right right which is it questions whether you should be trusting them with your funds um but I think the reason no so just to be clear I think the reason I keep bringing up these conflicts of interest and stuff is because that's part of what causes the contagion is because when you have these people who are conflicted who have these different groups of Interest pulling against them it becomes more easy to get pulled and to take this action that is unethical that is wrong because you exist in this compromised position and so because of that we end up seeing a lot of the behavior we've seen in cryptocurrency of lending to related parties like the story of bitfinex and tether like the story of FDX and Alameda like all of these different examples and so it's because we have allowed so many of these conflicts to persist yes and and this again bring it back is uh we've got we've got essentially mention of crypto.com gate uh dot IO uh who was involved in this weird transaction um I there's some other there's some other names being dropped around for exchanges I don't think um I don't think they're generally hugely traded well I think Kobe is one um name getting floated around again names get included around doesn't mean anything it just means that people are discussing it and wondering exactly what's going on and we can't there's no suggestion we know we know um so a lot of exchanges though I think the concern is a lot of exchanges might be doing weird stuff um but it doesn't end there unfortunately because the contagion that I also want to talk about is that there could be contagion risk within Banks within actual Banks and we know we don't know what the exposure is we don't know if it's just deposits or what exactly it is but we know that for instance Dell tech had exposure to FTX Alameda we know that because they said it was not a large exposure essentially they said it wasn't a big deal we had exposure um so we don't know what that means but deltec had some sort of exposure to this um I think there's word being passed around that did silvergate or did they not silvery didn't silvergate had deposits I don't think they had exposure to Alameda via lones because silvergate only offers at this point the Bitcoin backed loans and I don't think Alameda ever had enough Bitcoin for that to be like a real source of exposure for them and if they did silvergate would just liquidate those positions right and so I think it's just that a meaningful portion of their deposits may have been Alameda research and those may now be tied up and there will be presumably less demand going forward for crypto deposits because I expect this uh bear market to continue as we see the full extent of this contagion speaking of Dell tech deltex an interesting case because they have they besides running Del Tech Bank and Trust also have Del chain which is their cryptocurrency-based offshoot which is a combination of a whole bunch of different things including like fulgar Alpha the cryptocurrency hedge funds that they onboarded to bitfinex back when Paulo Arduino was an executive director of Del chain um and then they've got some various other funds in offshoot that invest in various crypto things and have exposure to various crypto things and we knew that Alameda research was banking at deltec presumably in part because it made transacting with tether easier because as we've previously discussed like in our episode about the tether papers Alameda was the single largest issuer of tethers they also Del chain may have been trading against or doing other things with Alameda research so we have to figure out like what's the exposure just in terms of what deposits to delameda there but also what other business could Alameda research in Del chain be doing together yep that's a good question and uh we also this again now here we go final contagion risk I think here so as we've we've discussed um initially lenders we see that lending contagion and risk getting transferred onto Equity firms and private Capital once those are getting hit then we're seeing flight Capital flight and liquidity crunches at exchanges which seems to be causing problems and if we can if we can zoom out a bit there's a couple more things here which is One banks like we just mentioned um there's also stocks that are exposed to the industry so we can you know mention microstrategy obviously coinbase trades um on the I believe NASDAQ we've got uh we've got a bunch of blockchain like Bitcoin mining companies that are public uh in one way or another they seem to all be going belly belly up um and finally the last one I'm going to mention which I think is something a lot of our listeners and viewers have been pushing us on is stable coin risk what is gonna happen and look I just want to start this up we have no idea what's going to happen um last last episode you and I were in agreement I truly hope that everything is safe and sound in all of these stable coins and that they have been conservative and um cautious when it comes to using these funds and staying solvent but I have my doubts um and I I you know at some point when we get this up I'd love to point people to um patio uh Patrick McKenzie's Thread about their solvency and essentially saying like even if we go and take them at their word their transparency reports they're insolvent um and I think there might be some truth there um he generally knows what he's talking about when he's doing uh back of napkin math um so I don't know yeah let's uh let's get your thoughts on the the stable coin contagion risk

so let's start with the basics if any of the major stable coins break let's say paxos Circle or tether there are immediate and severe consequences across exchanges across defy and across a whole bunch of places as they collapse now we're talking about tether because we know as was reported in the tether papers that Alameda was the largest issuer of tether tether's balance sheet has always been razor thin assets over liabilities and as their balance sheet has gotten less liquid from the like original full cash backing into now having these treasuries and these ETFs and all these other commercial paper well they're gone with commercial paper now right it's all gone I think it's all gone let's say it's all gone whatever fiduciary deposits and CD accounts and whatever other things they say they have um secured and in unsecured unsecured loans and uh and then we definitely have cryptocurrency tokens equity in other aspects and other Investments yeah and so because of that because of the relative illiquidity of some of the assets backing tether compared to these small amount of assets over liabilities they have they are not structurally well set up for Mass redemptions this has been true for quite some time and has arguably gotten better as they've shifted more to treasuries away from the more relatively illiquid commercial paper but the other problem here is that we are taking tether at their word tether with a history of manipulating their attestations to other who sense Stuart hogner went on CNBC and promised an audit was months not years away has changed Auditors two times that by the way by the way no audit no audit he said that over a year ago he said it was months away months weeks or months away and uh it's been another year no audit I don't think we're ever going to see a real audit from them they keep trying to posture that BDO uh you know what do they say it's the fourth or fifth largest um Auditor in the world no they use BDO Italia they it's different it's different it's like using KPMG China and saying we're using one of the top Auditors in the world no you're not no you're not um so I take that with a big fat grain of salt as well um and their their assurances their assurances they're not audits we don't know how the money got there we have we don't know how much proof is being shown and what that proof actually is like there's a lot of question and we've seen things before where tether moves funds moves funds from bitfinex and puts them into a bank account so that it looks like they are solvent when there's a snapshot and then move the funds right back to bitfinex so we've seen this stuff before they have lied they've lied to their customers just like just like FTX just like SPF trying to Herald them as as Heroes right now I think is a huge mistake I've been seeing made by a lot of dudes a lot of Traders a lot of people in the cryptocurrency space suggesting like well see this is proof that tether's great weird lesson to take away from all of this well and I think the other thing is um like Alameda and is is just to kind of emphasize some of the strangeness here is Alameda was issued by November of 2021 about 31 billion tethers I think the total by now has reached over 35 billion um and they were like one of the people who was heavily arbitraging the tether Peg during the UST related depegging of tether a while back and so Alameda research was a very important counterparty for tether and they got issued this absurd amount of tethers and did not redeem near that amount of tethers at least when we at least when the analysis was conducted and when we went through all the Alameda research wallets and stuff there was like a hundred million tethers I think 150 million maybe and like when tether was ordered by law enforcement supposedly to freeze all the tethers and ftx's account luckily a few hours before they were hacked there was only what like 45 million to others that were at all of FTX and so there's there's this kind of weirdness where I have struggled immensely to figure out something like the flows from tether to Alameda and where those tethers were dispersed out to and where they have gone and so if I had a better understanding of like where that demand was coming from and where they were being sold to I might be more confident in like starting to think tether might be okay but like there's this kind of weird inexplicable flow in this inexplicable demand like where those where was the demand sync that those tethers were going to where did they float to and why have they stayed there why like and this is another thing like the overall cryptocurrency market cap has fallen to something like 500 billion dollars and like a hundred billion dollars of that or more is comprised of stable coins they are just this increasingly massive portion of the total like market cap of cryptocurrency and yet redemptions have happened but they've been relatively slow well and there's no way we can prove a Redemption right we can see the supply go down but that doesn't really mean anything like we don't know what that transaction actually is we don't know what they get back or what was given for that tether in the first place that's and that's the point I want to drive home right there that that's exactly the question that's the question we don't have an answer to which is what how did they get these tethers because there's reason to believe and this is through history I'm not I'm not just making this up there's reason to believe that they loan out these tethers for you know they're just they're loaning them out they're not this is not they're not getting dollars in return when they loan out these tethers um and we we know that they've done this before just based on their discussions with crypto Capital core uh crypto Capital Corp um where they they essentially acknowledged lending crypto Capital um tether or we also know that they have secured lending agreements with several other places they had agreements with Babel Finance with Celsius with nexo and with platforms like that where they take on Bitcoins and then issue them a loan denominated in tethers right but um yeah this is kind of the fundamental issue is if tether up reads as they say they do they are they or the way they were supposed to historically the way they promised to operate was to only take in dollars and then give out the tethers and keep the dollars right and the fundamental issue is if tether has taken in all those dollars and bought these yield generating assets like why is it so illiquid why is there so few assets over liability and why is it like structured the way it is why does it seem like there's like the there hasn't been that same amount of dollars that have gone in and is it just that tether is taking all the yield off the top and they're keeping it as illiquid as possible so they can make as much as possible maybe but it's like this other kind of just challenging part of understanding the full like truth of the financial picture of these interrelated entities I mean thank God interest rates are high right now because they are at least they're seemingly profitable at least they could seemingly be sitting on these reserves of assets um I don't know why we called I just thought about this the other day too I don't know why we call them reserves they're not reserves they're customer deposits like this is not reserves aren't customer deposits that's a separate thing reserves are like a a rainy day fund like we're we we keep talking about reserves when it comes whether it's like cryptocurrency exchanges or stable coins or these different entities within within the industry and I we shouldn't be using the term reserves these aren't reserves they should all be there it's not it's not a reserve it's customer deposits you can't touch them you can't touch them unless you are explicitly told that you can um so I I don't know it's all of this is so frustrating for me and eye-opening eye-opening for how naked everyone was swimming during all of this uh it's it's not surprising it's just disappointing I think

FTX and Sam bankman freed were just given so much unjustified laudatory coverage the conflict of interest with Alameda research was incredibly obvious the entire time the extent of the behavior may not have been but that was that was clear from the very first day FTX started and that was a thing that every single person who promoted it who invested in it whatever had to look past in order to convince themselves it was a good thing to do and some of them found themselves overlooking a lot of things in their rush to convince themselves it was a good idea like the idiots at Sequoia yeah I I it's um it's pretty interesting to me that like we're two guys who are amateur sleuths essentially I mean not maybe not anymore I guess now we professionally uh get to sleuth around on chain and check things out but but up until the past year uh we were doing this for free and not getting paid by a media company and we still crypto critics corner is free right this this this whole thing is totally free and we're doing it with our own time donating our own time our own energy to try to do some due diligence on this stuff and I I find it truly astounding that it seems like these firms don't have any on-chain analysis going on it seems like they don't have anyone looking through these pitch decks and going uh this is really weird and we need to dig into it it's that it's the when we had um Elizabeth lopato on to talk about Elizabeth Holmes um and theranos you had the same thing happening where instead you have teams that you're supposed to be utilizing to do the due diligence but if you feel the fomo if you feel that fear of missing out well everyone else is jumping in those people know how to do do due diligence like if they know how to do it then I don't need to even worry about putting my due diligence team on this I'm gonna jump in and it's it's the worst kind of behavior it's like you're you you your whole thing is you have to make more Capital but if you're not doing any due diligence you've just risked all your Capital you've just done no risk assessment and you have no idea what your risk profile is it's shocking to me it has become very common for cryptocurrency companies where raising Venture Capital rounds to try to open and then close the round in the same day and so if you want to be invest if you want to like be in this you gotta like get in or it's like pulled from Venture capitalists and so they are incentivized to do very little due diligence because if they delay to look into something just like Elizabeth Holmes threatened to do to investors they may lose their place in the round and in many of these cases where growth is seen sorry where growth seems so extraordinary because of these bubbles that seem to keep reoccurring when these valuations are blowing up like this you see like this absolute Rush where due diligence is counter incentivized because to do it would mean you would lose money or at least feel like you're losing many and this is the other trick that crypto VCS pull and why they love tokens is because they can actually get to liquidity soon enough that they don't lose money that they get like a 90 discount and they dump it as soon as it goes on sale or if your Alameda research you lie to the New York Times and tell them you have 11 billion dollars in Venture losses uh also the idea I think there was a almost a mythology around this that like oh you can get out you can get your Equity out so fast you you just token hasn't stopped taking it out because this is the serum thing with with FTX and Alameda where they have I think uh maybe I'm getting this wrong but I think they have 2.2 billion dollars worth of serum um if if serum were able to maintain its current price but of course if you try to sell any of that you dump the market but then and tell me if I'm wrong about this too the serum the serum team then forked serum so that now Alameda doesn't have doesn't have access to that anymore which also seems wildly insane to me

Serum is among the assets that element of research was valuing at more than their market cap this is why when Sam made his post saying that they had that Alameda had more assets than liabilities I called him a [ __ ] liar because he was [ __ ] lying that is not a reasonable way to Mark those assets that is an absolutely unreasonable way to Mark the value of serum when you control that much of the fully diluted value it is a [ __ ] [ __ ] technique to blow up your numbers and that's exactly what they try to do with it and I am not sure about the details of the serum Fork but yeah I imagine that there's a decent chance they're going to win a fork away from Alameda because Alameda has just an absurd portion of the total Supply how did they get there how did they get there though because Sam and Gary the co-founders of FTX co-founded serum I I mean I know how they got there but I'm just saying this is there's no I feel like there's no meaningful um reflection like I we're here we are now we're heralding suzu and we're bringing back Kyle Davies and you know what [ __ ] it let's let's find out what do Quan wants to say about this situation because he knows about total collapses and fraud so let's get him on to talk about it and see what he think what are we doing what are we doing stop floundering floundering flailing flailing embarrassing so so embarrassing I just don't get it and I like it's people keep talking about like getting the grown-up in the room what [ __ ] grown-up what [ __ ] grown-up show me a [ __ ] grown-up I like they're not here we're not even grown up compared to the [ __ ] that that like there should be professionals Sam is still Tweeting Sam is still Tweeting this dude I I I just parents are [ __ ] lawyers exactly I'm not does he not know to shut up I don't need to be the one to tell him to shut his [ __ ] mouth he's not gonna listen to me he's not gonna apparently he's not gonna listen to his parents he's not going to listen to John Ray one of the great bankruptcy and fraud lawyers in history who's he who's he going to listen to and I I think the answer is only himself only himself he's not he does not everyone thinks like oh boy genius has all these lawyers he's going to get out of this he's smart enough to know that he can get out of it and that's why he's behaving this way no no boy Genius is a sociopath and won't listen to anybody boy Genius is going to go to jail boy Genius is in big [ __ ] trouble and maybe he doesn't fully comprehend it yet maybe I don't know but like that what did they say they're the the the the New York Times article where he was like I don't even know what I'm I haven't even I haven't even thought about what I'm doing it's going to be multiple words don't tweet dumbass I like stop tweeting stop and then he talks to the New York Times I just I can't I can't fathom but I can't fathom his parents are [ __ ] themselves and so pissed right now they have to be they have to be if you're a lawyer you're watching this and especially if you're going to be working helped with FTX his dad was like they and they worked in the they worked in the charity arm you know his mom I like whatever dude whatever they they have to be pissed every attorney unless you know you're going to be bringing in you know lawsuits against them those people are licking their lips right now those attorneys are licking their keep tweeting keep tweeting brother those guys are stoked about it I think any lawyer that would want to defend SPF has to be just beating their head and pulling their hair out just begging him to stop begging but he's not going to so we we can all shout about him begging him to stop employees were there was a I think autism capital on on Twitter posted like an employee uh chat from the slack where employees specifically were like why are you why are you trolling on Twitter like isn't that what got us into this mess and he's like hmm maybe I'm doing it wrong I'll consider that I just thought it would stop the troll like the mob Army that's coming after me you think trolling on Twitter will calm people down like no dude I'm sorry this guy is not a gene like he's genius in he in very very specific ways he went out he went to Stanford so he he's clearly got some IQ but who cares like he has no he he's not a genius as far as I'm concerned in every in every important aspect of his life didn't they go to MIT whatever his parents are Stanford educated lawyers for Stanford he went to MIT he's boy Genius Boy Wonder no he isn't no he isn't it's this is nonsense he's a narcissist and a sociopath it's it's sir that he's still Tweeting it is absurd that he thinks the way Alameda was valuing serum and maps and feet and oxy and FTX token was at all acceptable and it's absurd that he thinks that he can explain away stealing 10 or 11 billion dollars in customer deposits by like saying I my impression was there's more assets than my abilities and and also also also [ __ ] Sam if FTX us had enough to pay back every customer why are withdrawals not open why is it declaring bankruptcy

because the money's there the money's there and it's ready to be given back that's why um ah what's next Bennett what's next what are we what are we what are we waiting for what shoes are gonna drop do we think there's any more shoes to drop or are we we near the end of this contagion now I remember us talking about contagion a while ago and I said are we just getting it or or is it finally moving out of our system uh we know the answer to it back then which was we were just getting it but now now how do you feel it it is not over I my details are a little fuzzy on this but I think after Lehman Brothers collapsed it took like another like two or three months for the full extent of the contagion to be felt as it gradually like moved through the financial system and I think that there are counterparties with exposure to Alameda and FTX who have not been fully upfront about their exposure yet I think we are going to continue to hear about entities with exposure and I think that that is going to have ramifications across the industry besides speaking more directly this has brought the attention of whatever regulatory apparatus remains in Washington DC and the law enforcement apparatus as well are now going to be even more interested in cryptocurrency we mentioned after the collapse of lunantera that they were starting to become more interested and since then we have seen more enforcement action and now you just gave them a really good excuse you had your name on umpires you had your name and stadiums you've been all over the airwaves everyone you wanted everyone to know your name now they do

uh it's just um yeah it's unrelenting um it's really unrelenting and and uh every time I think it can't possibly get weirder or worse it gets weirder and it gets worse um I presume Bennett's on the same page with me where it's just uh it's almost hard it's it's it's almost hard to

fully take in everything as it's transpiring because everything is happening so fast like not not the actual collapse and contagion which is like slowly playing out but we're getting constant like okay [ __ ] SPF is still Tweeting so everyone's talking about that oh we have all these other exchange Executives tweeting all the time so we have questions about that we have the banks being extra quiet and not super confirming anything so we have questions about that stablecoin guys are like we're seeing withdrawals but everything's fine so we have questions about that there's there's a million questions going around but all that we're getting in return are just like half answers not dodgy dodgy answers to the question that don't actually answer any of the questions and that means unrivaled transparency I've been told that this is what passes for unrivaled transparency is this not unrivaled transparency I think blockchains make everything transparent right that's why we didn't realize ft that's why we didn't realize FTX didn't have a cold wallet until like three days before this declared bankruptcy exactly it's such a good it's such a good point too where it's like everyone says like well the blockchain brings all this transparency to it and there's truth to that there's truth to like I you know those transactions can be publicly viewed you can use um ether scan or um any number of different you know blockchain or whatever like you breadcrumbs you can use any any kind of tool that you want to try to like track these things but there's still ways to obfuscate and lo and behold when it comes to liabilities and actual cash in your bank accounts if you're a company uh if you can't prove those things everything else kind of becomes meaningless um and and like if that isn't what FTX tells you and Alameda tells you I don't know what lesson you're taking away here if you think proof of funds or something or like any level of if if everyone was paying attention to it and didn't believe a word they were saying you couldn't prove that it was necessarily a fraud immediately on chain I I know that that's true I know it

I just the proof of reserves it it needs this is why the large transfers between exchanges like crypto.com sending it to gate trouble me somewhat because it's the same kind of pattern we saw with bitfinex helping tether manipulate their attestations which were assets that were there for a very brief snapshot in time and then were sent back immediately after that that were being used specifically to manipulate attestations I very much hope that none of the exchanges currently promoting their proof of reserves are participating in anything like that yep um anything else Bennett are there any other updates that we haven't touched on I'm sure there is right like I'm sure there's been more well we've been chatting this has been absurd um yeah it's it's wild um I just want to remind everyone like if you're actually like in a mentally troubledly troubled place right now if you're really genuinely not feeling good about this I mean I'm I'm personally exhausted and a little beaten down but if you're in a worse place than that and you're feeling um desperate I guess is the right way to put it call Professional call seek professional help please please seek professional help uh or at least reach out to some friends and try to talk your way through this uh never ever ever do anything silly that you can't take back is the way I'm going to put it there are a lot of people out there who care about you and want what's best for you um money is not everything in this world I know it often can feel that way especially when we talk about it and cryptocurrency revolves around it and it can suddenly feel really bad if you don't have it um so I don't know just stay sane stay uh and and just try to stay present and okay and uh I don't know I hope everybody's okay I hope everybody's okay and we'll see what happens we're gonna keep you guys updated yeah stay stay safe out there and there's more important things