All Podcasts Between2Chains B2C0030: Transparency Rules All in Digital Assets. ( w/ Jeff Dorman )

Episode Summary

Sep 27 2021 . 47 MIN

B2C0030: Transparency Rules All in Digital Assets. ( w/ Jeff Dorman )

In this week's episode of between 2 chains, Petre walks us through the inherent transparency of our digital asset system, and Jeff joins to discuss both the transparency and current asset group trends.

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Show Notes


In this week's episode of between 2 chains, Petre walks us through the inherent transparency of our digital asset system, and Jeff joins to discuss both the transparency and current asset group trends.

In this Episode

1. Jeff Dorman shares his perspective on the open sea software news from yesterday.

2. Peter Hans discusses how we're entering the second half of the year, and how this month in particular has been fascinating because we've got a pretty fast crash and sell-off and similarly a sharp comeback.

3. Jeff elaborates on the breakdown of digital asset correlations and the causes for the correlation to start decreasing.

4. Jeff expresses his thoughts on the possibility of Fallout coming to other platforms, as well as the upcoming debut of Shushi's trading platform.

5. Jeff discusses the significance of stable coins to the ecosystem as a whole, as well as the potential for future growth.

6. Peter concludes the show by stressing the importance of transparency and regulation is inevitable, so there's no need to be afraid of it.


Note* Following transcript is generated using AI. Minor errors might be present.


Welcome to The Real vision Podcast Network.



Hi, this is Peter Hans. And welcome to this week's episode of between 2 chains. For as long as I've been in financial markets, one of the biggest problems in the industry has been trust, a lack of trust of Wall Street, big banks. And one of the beautiful things about digital assets is the fact that transparency is inherent in the system. And you can't have trust without transparency, frankly, good or bad. As long as you have full transparency, it's impossible to not have trust whether you trust someone or not. It's there and you know what you're getting. Jeff and I in this episode, discuss some of the trends that are going on and transparency in the asset class, some of what you've seen in the evidence good or bad. It's a really interesting take and I hope you enjoy the episode please rate review, download, subscribe, unsubscribe, subscribe again. Thanks and I hope you enjoy the episode.



Before we get going, we want to remind you that Jeff Dorman is the co founder and chief investment officer of ARCA funds, and Peter Hans is ARCA funds Managing Director. The commentary and opinions expressed in this podcast are solely those of the podcast participants and do not necessarily reflect the opinions of ARCA funds or its affiliates and are subject to change for any reason without notice any discussion of investments or investment strategies within this podcast or for informational purposes only, and not be construed as a recommendation to buy or sell any particular investment security, digital asset or strategy. Investing in digital assets involves a high degree of risk and volatility, including the risk of the total loss of principal. And now enjoy the show with your host, Peter Hans.



All right, everyone. Welcome to between 2 chains. It is Thursday, September 16. Jeff, how you doing?



Great. How are you, sir?



Doing well, and are you headed out of town? Back to Cleveland.



I am. Like most people, I'm heading to Cleveland this weekend. So hopefully, throughout it.



I'm sure you'll be back.



Gotta go see you



Will you be devastated after Sunday?



It was a tough loss. But you get used to these losses as a Browns fan. So you know, it didn't didn't Hank, it didn't rank that highly on my list of devastating Browns losses.



Yeah, I wonder if part of our our connection is subconscious. Because you're a Browns fan. And I'm a Nicks fan.



There's definitely a kindred spirit between tortured franchises. So yeah.



Yeah, well, at least Things are looking up for for Cleveland. Not since Drew Carey has been this much optimism.



This is the best own one we've ever been.



Well, let's talk a little bit about is one of our favorite topics in in the market, which is transparency, there's, you know, obviously a lot of boards from an investment standpoint, with with transparency and, you know, kind of an asset class characterized by, by bad actors across the board, real or perceived. But there's been, you know, a few things lately that have really caught our attention. And one of them is open sea, which is obviously been, you know, big news about a private raise, you know, incredible fundamental performance and growth. But, you know, we saw yesterday's news come out there that, you know, execs might be front running a little bit. So, I'd love to hear your thoughts and first maybe share just kind of what happened for anyone,is it now?



Sure, so yeah, open sea is one of the fastest growing platforms for buying and selling NFT's you know, it's essentially eBay for NFT's just got a billion and a half dollar valuation from a big equity round led by a 16, just a month and a half ago. You know, as he said, the volumes of transactions, the revenues, everything is flying, you know, good company, most people feel really positively towards it. You know, actually, up until this week, I'd never heard a negative thing about Open sea. What's interesting is one of the head of product, apparently was front running things that were being listed on the open sea platform. So it wasn't like new issues or anything where they were they were getting inside look, what happens is, you know, like any online platform, if you're above the fold, or you're the top of the page, you know, you obviously are going to get more views and more interest. So open sea does have whether it's a manual or not algorithm, they do have some way of putting trending NFT's on the front page. And the head of product was essentially buying these before they got to the front page, basically anticipating the gold rush that was going to happen. Once these things started trending and didn't make a tremendous amount of money relative to you know what you hear about crypto scams, I believe it was like $70,000. But what was interesting about it is, as we always talk about the blockchain is a trend. transparent ledger, right? It takes a lot of time and energy and skill to be a forensic blockchain analyst. But there are plenty of them out there. Most of them are unpaid as volunteers, people who just enjoy this stuff and a pseudo anonymous Twitter account, uncovered these transactions, and basically, you know, blew the whistle on the head of product open sea for, you know, what could be deemed, you know, as insider trading or, you know, if nothing else front running, you know, obviously, these are not securities that doesn't fall under the purview of the SEC, but you know, for all intents and purposes, this is front running or insider trading. And the story blew up. And within 12 hours, open c issued a statement basically apologizing, they admitted to it, or they're, they're working on ways of rectifying it. You know, the Twitter community and crypto in general was was up in arms about this. You know, I'm not here to bash a bad actor or anything like that. I think people make mistakes. And I'm sure that, you know, this person feels terrible, and quite frankly, may not even know what they were doing was wrong. You know, there's obviously a lot of that we take for granted, having been in finance for 20 years of knowing what's right and wrong, I'm not even going to come to the conclusion that this person necessarily even knew they were doing something wrong. But regardless, it was a beautiful act of self policing. You know, and I think that's where I get so excited about blockchain is, you know, we come from this traditional finance world where we're used to just opaqueness and we have to wait every three months for a quarterly report. And even that is often six weeks delayed here relative to real news. You know, we talked in the past about how, you know, half of Wall Street's edge over the last 20-30 years was getting information or getting data faster than everyone else. Well, now we have the system built upon these public blockchains, where everything is transparent. If you know how to read these blockchain explorers like ether scan, you can find transactions, and it means that it's going to be a lot harder for bad actors to hide these things. And more importantly, you've just turned the entire passionate crypto user base into these unpaid blockchain detective. And it's, it's something that I love, you know, I love transparency in general. We talked about it 1000 times for a variety of reasons, which I'm sure we'll get into here. But I just I love the fact that this was, you know, case closed because of the court of public appeal in 12 hours, rather than relying on you know, cops on the beat as Gensler would say, or any other sort of regular regulatory body. This was just people in the community policing themselves.



Yeah, I mean, a it's, it's clearly taking advantage of of data and information that the market generally doesn't have. Part of it reminds me of Madam berbere this from a few years ago, but you know, when when DraftKings and FanDuel were coming up really big, I guess one of the employees at DraftKings won a big sweepstakes pot, I think was like seven figures, because they have access to all of the data of the, you know, players that are not owned. So if you know those happen to hit, you have a better chance of winning big because you're not splitting the pot with anybody. And then you know, ESPN crack that. And that's that's really when like the state agencies, came down hard on on on those platforms and started banning them. Obviously, we haven't, you know, seen anything like that. And this isn't of the magnitude. But it's, it's very much in the same spirit of basically, using access to data that that you have that no one else does, have



Yeah for sure. I think the differences is that everybody has it, right? I mean, that's what we're getting at here is this, there's no longer somebody has the data and somebody doesn't everybody now has the data, it's just a matter of who's skilled and trained to analyze it.



Well, that doesn't mean that necessarily I mean, if that if that product manager at at open sea has, which is this centralized platform has access to information of you know, what, in essence is going to be promoted before it's promoted, then they can deduce that it's going to be more popular.



Correct. But the point is, once he makes a transaction and purchases, one of those NFT's that is, that is an on chain transaction that anybody has access to. And that's what happened. The The, the pseudo anonymous Twitter user who found this, that's all they were doing. They were going through blockchain explorers, they saw that there was a timestamp of when these products were being bought, versus when they were being shown on the homepage. And it was clear that these transactions were happening, you know, seconds and minutes before it was actually going up on the homepage. So and you know, it's funny, I remember watching a documentary recently talking about I remember the old McDonald's Monopoly game. And there was a there's a huge FBI investigation for like 10 years about somebody that was like one party that that won, like four out of five of the million dollar jackpots on the mega McDonald's Monopoly game, it was a totally insider rigged game. It took 10 years for the FBI to crack that and ultimately come down. Here we have in 12 hours, you know, Johnny crypto and who got you know, who knows where crack the case and the entire digital asset community came down and open sea was forced to admit it and issue an apology and Yeah, we'll see what sort of legal or other ramifications happen here. But I just think this is just a it's an incredibly strong step forward. For the industry, or we all know, more regulation and regulatory clarity is coming. And I think most people would agree that that is welcomed, if it's done correctly. But in the meantime, you know, we as investors, and customers and users and everything else, like we are the checks and balances system, within digital assets. And it's obviously much more than open sea, I've, you know, I can go through a lot of different examples here. But you know, it's, it's unpaid, volunteered passionate community members that uncovered data are basically the regulators in the space right now. And I just don't think I've ever seen that before. Mostly, because as you said earlier, most of the data in the world is private, to some extent, right, you have to have privy, you have to be privy or have access to it. You know, that's just not the case anymore, right? Everybody has access to the data. And if you know where to look, you can find it. And it also, you know, echoes things we talked about the past, like, you know, or at ARCA, we did a big campaign, we called it GSE, not ESG, right? Talking about environmental social governance is ESG. But why not flip it on its head and say, it's really governance, social, and then environment. And that's what digital assets really are. From a governance standpoint. You know, we've talked about dows, we've talked about voting rights, all these things that you can influence the process. But also, here's the society part of it, right? I mean, this is an equal society where there's no one person who gains an edge over anyone else, because everybody has a voice, even, you know, some random guy on Twitter, and everybody has access to the same data into the same token. So you know, again, I, I know, I'm not trying to gloss over the fact that there was clearly a, you know, quote, unquote, crime here, and there was a bad actor, but I think the outcomes of bad actions is what gets excited to meet right every single time, we see a misstep in this industry, it really just validates the power of blockchain technology to create further transparency. And as our ecosystem evolves and matures, you know, we can applaud the efforts of those who are helping make this industry stronger, which is, you know, again, it's not regulators, it's not CEOs of companies, it's regular people in the community who are finding these things and uncovering them and ultimately making positive change.



Yeah, well, I mean, you're never gonna prevent action, in any industry by by any kind of bad actor, you know, I mean, I find it hard to believe that the person didn't know, kind of, well, you know, what, what they were doing, and you said, they made a very, you know, modest amount of money, maybe 70, grand or so on these transactions, but maybe, you know, perhaps is only just because they were caught so quickly, right? You know, this in a more traditional environment, this might be something where they were doing this for years, and could have made many, many multiples of that. But the fact that it was uncovered so quickly, I guess, speaks to the ecosystem, that it's very tough to pull something nefarious off, when everything is so transparent, which is really, frankly, a big positive. I think the one thing that that one has to consider in the regulatory scope of this where it probably will have difficulty, you know, kind of holding water from a regulatory viewpoint is, is it's a yes, it's up to the community and the user base to kind of self police and regulate enforce, but they're going to enforce rules and regulations that they, as individuals, or as a collective feel are important, not necessarily what the you know, centralized government or regulators, or or in the US Congress thinks is important.



For sure and, you know, I think if I remember, transparency is obviously a buzzword, but something that I feel very strongly about, which is, you know, we run different private fund vehicles here, right? We aren't, we're under no legal obligation to be transparent about our holdings, or to be transparent about what we do. But we go over and above in terms of that transparency, because I think it's important. And I remember 10 years ago, there was a hedge fund, who I asked them, I said, this was before digital assets, is a traditional long short equity and credit hedge fund. And I said, Why aren't you you know, why aren't you doing more transparency? Why aren't you writing blogs or doing investor loads? And they said, The answer was, the problem with transparency is once you start, you can never go back. And I thought about that for a long time. And I was like, Well, I guess that's true, right? If you start to be transparent, then you pull back then everyone's gonna think there's red flags, but at the same time, it's such a terrible attitude. Like, why would why is that the idea that like, you don't want to be transparent, because then if you want to hide something, you can't. I've always been in the camp of put everything out there. Almost every investor every person can deal with bad news or a bad actor, but you can't deal with his lies and misdirection. And I think you're seeing it now in digital assets, not just an asset management. But you know, we don't have as you've always pointed out, there's no reg fd, there's no quarterly reporting requirements. There's no 10 Q's or 10 K's or 8Ks But we're seeing it anyway. voluntarily Wi Fi, you're in finance one of the robo advisors in DeFi, they put out quarterly basically 10 Q's on their own Ave, you know, we talked about they put out weekly transparency reports Nexus mutual real time dashboards xe infinity real time dashboards, you go down the list and we're going to be writing more detail about this soon. But there's a lot of really good projects and companies out there that are just voluntarily being incredibly transparent about what they're doing. And you start to think about is this a better world than where we came from, like, rather than a company having to, you know, put together these very detailed statements every quarter and, you know, have an earnings call that is basically a four month delayed from when the revenues actually took place. This is great, you know, real time blockchain transparency, real time data reports, I wonder if this is the way we would have built it from scratch, if you know, this kind of technology was available, you know, 100 years ago, when some of these traditional financial decisions on reporting were made. And I personally think it's a better world, right? Maybe it's on audited, maybe you questioned some of the data here and there, but for the most part, I always prefer real time, then hit waiting for months to see if my numbers match up.



Yeah, that's it. It's definitely interesting. It's definitely faster. Right. And it's more accurate, just at the sense that it's going to reflect the inputs now, whether the inputs or not are entered correctly, is, I guess, always can be can be questioned. And then, you know, Mike, my question would be how interpretable? Do you think the data is right? You know, if you're talking about, I mean, obviously, there's developers and those who can can look into it. And you know, probably run scripts don't have to pull that information, but you're at, you know, your everyday investor. It's not like they can deduce much from looking at blockchain based data.



Yes or no. Right. So I mean, first of all, the the the analogy there would be, well, how many people do you think are actually that skilled at reading a 10Q or a 10k? At this point, right, given how incredibly complicated the accounting rules are. But that being said, there's two things there, right. One is, I'm impressed every day with how many people I run across that have absolutely no software development skills or coding skills and are able to read a blockchain Explorer, they just know how to track the transactions, right? It is, it is something that people are choosing to learn on their own, because it's interesting, and because it is potentially profitable to track people's wallets and track transactions and see how this goes. Secondly, in terms of pulling all that together and making it digestible, there is no question that that is a difficult task. But what we find all the time is that it's members of the community that are putting these things together, right, you don't have to rely on the company to put together a report. The next is mutual. For example, there's something called Nexus tracker, which I think is a beautiful, the beautifully done dashboard. That was done by a community member who just happens don't XM tokens and wanted to make the debt data more digestible for everyone. Right? nobody paid him to do it. It was free. It was just a way to track everything was happening on Nexus, you know, similarly do an analytics thing do Netflix just did a big a big series, I believe, doing analytics is a dashboard that anybody can create your own dashboard on and make it public. So you see, you know, most of the stuff that we say all the time, when we're putting out, you know, investor letters and blog posts, you know, we're putting a graph or a chart from doing analytics, that's community driven, that's just somebody who decided to make a dashboard that other people could see. So, you know, in some ways, that's not unique to the blockchain, right? Anybody could do the same thing, right? They could go through the, you know, Apple's tend to and create a public dashboard if people want. It just so happens that the people in the digital asset community sort of live and breathe this idea of public sharing and transparency, right, it's video from from Reddit to Twitter. This is just an industry that was built on openness and transparency. And you know, you look at GitHub, right, GitHub is open source code, right. The entire industry was started with public transparent information, and now you have community members that are just amplifying that by making public goods for the entire community to to participate it. So yeah, I mean, I think you will, in life, you will always be more advantages, if you have the skills to read a 10k, or 10Q, or if you have the skills to you know, plug into an API and pull data or you have the skills to build, build the things yourself, but you don't have to know how to do that to get the information information is out there and are oftentimes, you know, in beautifully designed and easy to interpret was.



Yeah, that's a good point. And at the end of the day, I guess it really comes down to intent and, and kind of the culture that we're building. Right and, and one in the past, it's always been a culture of, you know, what do we disclose and where do you draw the line and how do you frame this and with kind of a blockchain oriented culture at the Foundation, it's all about, you know, everything is available. Right. And it's about aligning incentives. So, yeah, it's really fascinating. It's gonna be very interesting to see how all of this develops, you know, over time how long it takes these these cultures to kind of overturn. But, you know, it is it is inevitable. I do agree it is inevitable. So, you know, on the on the open sea front, I mean, obviously, you know, NFT's have been, you know, increasingly growing in in popularity and volume. Is it too early to see any fallout? Do you think there'll be any fallout to other platforms, and, you know, sushi is launching a new platform, and that name has been quite strong. And I know, it's something that you know, you have a strong opinion on as well. What do you think about potential Fallout here?



Sure. What's interesting is open sea was rumored to have been going to issue a token at some point to anybody who is a customer or user on the open sea platform. I don't know if this derails that or not. But certainly, you know, when you have a little bit of a community backlash, like you have right now, because of what the head of product did, it'll be interesting to see if they go away from that token sale, or if they try to use the token sale to kind of reunite their customers. But at the same time, sushi swap, which, as you mentioned, has the sushi token, and has been a project that we love and investment that we've made at ARCA, you know that they're they're turning into the SPX of digital assets, right like uniswap, and Coinbase are similar to single product uniswap allows spot trading coin based on spot trading. Well, FDI is one of the biggest growth stories and all digital assets. They've been very innovative on the product product front front, they had a prediction markets around the election, they had tokenized stock, they've done various perpetual index futures, they adult kinds of things coming on their platform, well, sushis also doing the same thing. Sushi swap has spot trading in a decentralized way they have lending and borrowing. They have one Nisa, which is an ideal platform to issue new tokens. Well, the other thing that they've been working on, which happens to be being released in the next few weeks is show you which is going to be their NFT platform. So the timing couldn't have been more perfect for them, launching a new competitor to open sea, at the same time that there's some PR backlash on open sea itself. So we'll see what happens with the launch here. But I definitely, you know, as a believer in both fundamentals and catalysts and news, I think there's no question that the reason sushi swap has outperformed both uniswap as well as the overall DeFi market over the last few months, and then specifically over the last two days is performed so strongly is directly related to the excitement on the show you launch combined with the potentially negative fallout of what open seeded?



Have you heard of any, even at the anecdotal fall out an open sea front from weather, whether it's volumes or not? I mean, I think the way they handled it was was quite impressive. You know, cuz that to your point, you know, there are mistakes, may they're bad actors all the time, but it's really how you how you respond to them and how you move forward. That's important.



Yeah, I mean, I think I think from open seas standpoint, I think they handled it perfectly, which is a statement right away, right? You want to get out there and get in front of it. You know, look, I get everybody loves open sea, I have never heard of anybody have a negative opinion of open sea up until two days ago, I think, you know, it's unfortunate, perhaps for this, this one individual who made the mistake, and obviously whatever might happen to to him. But I think in general, I find it hard to believe that this has real long lasting effects on the platform. What's perhaps interesting to me is that A16 has been quiet on this. You know, for those who are new what we did with sushi swap at ARCA a few months ago, by being very public about, you know, helping to shut down what we thought was a bad capital raise that they were trying to do, and also being very public about our voting decisions. We actually saw a lot of venture capital firms on the heels of that starting to be a little bit rethink the way they're operating as well, in terms of transparency in terms of being more open about why they're investing in what they're doing. We actually saw there was a big uniswap vote. Recently, that was contentious. And a couple of venture firms came out there and publicly said, this is why we're voting against it. And that was very different than the way venture firms have traditionally operated. And we think that was directly related to some of the things we did with sushi as well. So I'm a little surprised A16 has been quiet on this front, I would like to see as someone with the resources that they have in the team that they have and the strength that they have in this industry. And, you know, I guess I wouldn't be shocked to see a statement come from them at some point in terms of what they're thinking about how to help. You know, open sea police is better because again, I don't work for open sea. I don't know that much about how open sea operates. I know they've you know, they've grown so fast that I'm sure they're having growing pains, like any small startup and maybe this was just an oversight of internal compliance. That's the kind of thing that someone like A16 would probably be able to help them So, you know, I'd like to see some more positive externalities come out of the negative event, which is, you know, as we said earlier, that's that's kind of what this entire industry has been built upon.



Yeah, I'd be surprised if they said anything. I mean, one, they're massive, you know, and open sea is a, even though it was a big investment, and it's popular, it's probably imagine relatively small in the grand scheme of things, even for their for their funds, but like, what are they gonna say, you know, they, they, I just don't know what the how the how they would, how they would frame that, then they're very conscientious of kind of their, their voice, and have been very conscientious of their brand. It's always been kind of a, I think it's a big way in which they've, they've been so successful and grown.



Yeah, I don't, I don't mean to put them on the hot seat here. I don't think they've done anything wrong, nor do I think they are obligated to do anything, I just think that I really believe this is where we're headed, I believe we're headed to a point where the investors really become the checks and balances system, and they're, you know, adjust as much just as important in helping to kind of shape some of these decisions with the companies that they invest in. You know, so again, I may be surprises, right word, I'm not necessarily surprised that it's anything that I think I do think we're headed to an environment where bigger investors do work side by side with their companies in terms of being transparent, being open talking about things that have gone wrong, and things that we can do better. So we'll see. But I think, you know, in general, like most things, you know, in a few weeks, we probably won't be talking about the open sea, or the or this mistake that this one person made. But I think we will have long lasting positive ramifications that come out of this.



Yeah, no, I think you're right, it's probably the type of thing that'll that'll blow over pretty quickly. I mean, there's always there always seems to be something, you know, Arise relatively quickly, and then fade away. What, um, you know, so as we as we enter kind of the back half of the year, and this month, in particular has been, has been an interesting one, because we had, you know, obviously a very sharp crash and sell off and a somewhat equally sharp rebound. And, you know, it almost seems like September, we're just kind of sitting in, in no man's land a little bit fluctuating outside of maybe one or two distinct names that are performing quite well, what we what do you make of an environment like this? And, you know, to me, it seems healthy? And I'm just kind of curious what your what your take is?



Yeah, I think I think the market feels really healthy. In my opinion. You know, first and foremost, the correlations have been breaking down. Really, you know, we've done with free for over a year, the correlations been breaking down. But But this month, particularly, I was just looking at the data this morning, month to date of digital assets that have greater than 15 million in market cap 89 are up more than 10% month to date, and 103 are down more than 10% month to date. So while the magnitude of those moves might still be gut wrenching for some people who prefer a lower volatility, the fact that basically 50% of the market is up at 50% of the market is down on the heels of what was again, a pretty correlated sell off on that on Tuesday, September 7, or whatever that date was, you know, we had a very highly correlated, very quick leveraged sell off a week and a half ago. But there was, you know, shortlived the overall, if you look at the month in general, we've had big winners across layer ones, especially in the salon ecosystem. We've had some under performers in you know, Bitcoin and eath, based DeFi, you know, it's healthy, that's what you want to see, you want to see different pockets of strength and weakness for different reasons. And, you know, ultimately, this is what gets us so excited all the time about investing in this space is when you have uncorrelated differentiated alpha driven returns on the way up, but correlated, you know, spikes on the way down, it lends itself really well to an actively managed strategy. And more importantly, it just, it allows you to create value over time, through real fundamental research, which is what we live for, and what we're excited for. And you're seeing in real time, every single day here, you're seeing different sectors, different token types, different projects, you know, go up and down based on the strength or weaknesses of what they're doing on an everyday basis.



Do you think that differentiation and correlation across you know the those names is due to fundamentals and either name or sector specific news flow? Or do you think a lot of it is due to kind of, I mean, obviously, this is a very momentum retail driven market where there's, you know, sector rotation, but for no real rhyme or reason other than momentum, what do you what do you what do you think, from that side?



I think there's two reasons why the correlation is starting to go down. First is on the education front. There is just a lot more investors out there who are starting to recognize the differences in these different digital assets, right? I mean, even though we joke all the time, about You know how stale something like the Bloomberg cr wipey pages where it's still, you know, who's who of 2017 digital assets. You know, rather than anything updated with what's real currently going on the majority of the space like coin Gecko and coin market cap and masari, you know, they're starting to segregate this asset class, by sector, by token types, you're starting to see, you know, rather than just talk about sector rotation, you can actually see it now you can immediately when you see one token go up, you can say, oh, what else is in that sector, and maybe there's a relative value catch up. So I think the education front from both retail and professional industries in terms of what these assets are, and how they're related to each other, has been improved greatly over the last couple of years. And secondly, and probably more importantly, is just the distribution of investors. The part of the reason this asset class has been so highly correlated is that it is such a segregated Island, right, like everybody puts their assets into digital assets, it's completely separate from their bank accounts from their brokerage accounts, right, it is like this is this one area. Not to mention, most people trade on exchanges, and they use their collateral on the exchanges to trade futures and other leveraged products. So as a result, because you have the exact same investors trading the exact same products, things that otherwise wouldn't be correlated, become correlated, right, and we've used this, we've spoken about this before. But what I like to point out is back when rk goes capital, right, the large $10 billion family office that owned all kinds of different stocks from Viacom to, you know, Baidu, the things that inherently have no correlation to each other, all of those stocks became incredibly heavily correlated when one person at Argos was selling them all at the same time. So when you have this homogenous group of investors that are investing in the same things every day, inherently, they're going to be highly correlated. But now that we're starting to expand, and you're seeing corporate treasurers get involved, just think insurance companies getting involved, macro funds, getting involved mutual funds, getting involved retail investors, emerging market, people, hedge funds, like you have so many different types of investor groups and consumers now touching these assets, that by definition, they have to become less correlated, because the investor group is less correlated.



Yeah, no, I think that's I think that's 100%. Right. I also think that, you know, one thing I've noticed, and just kind of talking to different investors and market participants that mostly allocators, as opposed to kind of active active traders is, you know, like a real acknowledgement of the differentiation between an asset like Bitcoin and the overall market. And you know, why you don't get the questions about, you know, how one performs against Bitcoin or anything, because it's just kind of irrelevant to the overall investment philosophy or strategy. But it also seems like, you know, the various assets are not necessarily moving with or without Bitcoin, you know, as you look at correlations across different themes or sectors that you're invested in. How has that changed versus, versus Bitcoin in your mind? And then maybe, how has it changed versus just kind of, you know, overall, called the S&P or so?



Well, first of all, first, its structural, you know, stable coin, the introduction of stable coins made a huge difference in terms of that correlation. So stable coins went from negligible to over 100 billion of stable coins across, you know, tether, and USDC and others. were two or three years ago, when you traded on an exchange, you had to use Bitcoin as your trading pair. And as your honor. As a result, you're naturally more correlated to Bitcoin, because it was basically being used as the working capital. Now, Bitcoin is almost never used as the working capital stable coins are being used as working capital and even ethereum, you know, especially across DeFi is being used more as working capital than Bitcoin is. So that inherently takes that correlation way down, at least related to Bitcoin. Secondly, as you already touched on, I mean, again, it's just it's just that education, right? I mean, you know, gold is a Trump has been a tremendous asset. Bitcoin has been a tremendous asset. But you know, I can go 364 days a year without ever talking about gold and Neo, I can go 364 days a year without ever talking about Bitcoin doesn't mean it's a bad asset. It just means it's not terribly interesting or topical, in everyday life. You know, I look on I use Twitter, I use third party research, I use all these different ways to gather information. I'm constantly learning about the salona ecosystem, the theory and all the ethereum of daps NFT's you know, all these Terra Lunas ecosystem with their ust stable coin, you know, things that are being built on avalanche or algoryn etc. Like it is just constant information flow that we're getting. When I read about Bitcoin it's wells are accumulating, you know, it's like, you know, people are buying it, Okay, I get it, like I've been around Bitcoin now for you know, over five years, I get it, you know, there's certain times when it's a better buy than other times, there's, you know, it's digital gold. You know, we've had a couple of watershed moments. We had the first you know, hedge fund Paul Tudor Jones get involved a year and a half ago, we had the first corporate Treasurer MicroStrategy get involved. You know, a year ago, we had the first Country get involved recently El Salvador, these are all huge, huge, huge milestones. But it's like four times a year when there's anything interesting to talk about with Bitcoin. Meanwhile, the rest of the space, there's just way more information coming. So again, as that education flows, it doesn't mean other things are going to outperform Bitcoin forever, like they are this year, it just means that there's just a lot more differentiation of knowledge, differentiation of excitement amongst these different digital assets that just seemingly have nothing to do with each other.



Right, yeah, no, I think that's exactly right. I mean, it would be like, it would be like saying that, you know, using gold as a proxy for the s&p, it just doesn't, it doesn't really make any sense. But yeah, your point about the introduction of stable coins is, is spot on. And, and really interesting, and it's incredible how, how quickly that area has grown. You know, maybe one of the last things to touch upon it from a current event standpoint is I've noticed, you know, quite a few people on Twitter talking about, you know, gang slurs in the news all the time now and and, and, you know, a lot of his criticism over the over the asset class, or, or I guess, really just need to regulate, which I think, you know, like any politician is very politically driven, based on his political aspirations. But there's a lot made of his, his changing rhetoric from going, you know, them. And I don't know that he ever did call them stablecoins. Frankly, I never heard him say that word publicly, but now calling them like stable value coins, and people trying to read into that, implying that this is his way of saying that the SEC has jurisdiction over them, because he's calling them stable value coins instead of stable coins, which I just think that's kind of kind of a stretch. But um, yeah, I mean, we have a two part question. So one, and I don't think this is remotely likely or even even possible, but their importance to the overall ecosystem? And what would happen if if, you know, because we talked about it enough tether went away or broken? Bach great, there are alternatives. But how important are stable coins to the to the overall ecosystem and its and its expansion? And then, you know, I'd love to hear your thoughts on on the US, and CBDC potential and things like that?



Sure, I don't I think the people who are making a big deal out of stable value ones are probably right. I mean, I don't think Gensler does anything by accident. I think it was a very calculated, I think it was very calculated that he purposely use that, that that word stable value to try to, you know, compare him to a traditional money market type funds that they do have jurisdiction over this finding. That being said, stable coins are incredibly important. I don't think any one individual stable coin is that important, though, and that's what I meant by saying, you know, there's, there's just everything in this industry has substance has perfect substitutes. And I was I was an economics major, you know, I certainly learned a lot of what I know from investing from my economics days. But you know, when you have perfect substitutes, there should be very little impact. And that's what we have in everything, right? There's perfect substitutes to every exchange, there's perfect substitutes to every dealer to every stable coin. There might be hiccups along the way, if one goes out of favor, but it's it ultimately, it is easily replaceable. And I think that is unique to this industry, because it's 24 X 7 and global. And so few barriers to entry. For a lot of these different big players, right, we saw bitmex used to be I think, 40% or 50% of the overall derivatives market. Then bit Mex started getting in trouble to DOJ and all these other issues that next is now 4% of the digital asset derivatives market. Okay, nobody cares. I mean, you know, there was a few weeks when didn't x related headlines made up drip driven prices. But all of that next is business just went to FTS and who will be in finance and Coinbase. The same thing would happen if there's ever an issue with any one of the stable coins, there's going to be a pretty mess, pretty big mess for a couple weeks or a month is we try to sort through all the different things that are paired to these different stable coins, but there's perfect stable coins and they're gonna, you'll just move to something else. I think it's incredibly important in the ecosystem to have these stable coins. And I think is easily better a almost irrefutably better than like sending a wire or using you know, traditional ways of sending money across the banking system. Whether we end up with a CBDC or not or whether any of those get traction. You know, my feeling on that is ultimately just means more people are getting into the pool. It doesn't matter at this point what your on ramp is if you're on to your on ramp traditionally used to be Bitcoin, now you're on ramp might be you know, NBA top shot and might be buying an NFT it might be playing xe infinity, it might be you know, getting somebody sending you $1 stable coin, it might end up being the China's CBDC or the US CBDC, but once you once you touch a digital asset for the first time, you're not going back. So I think inevitably these CBDC's will be a long term positive, even if again, they perhaps they make it difficult for a single existing stable coin, ultimately just growing the entire ecosystem.



And I think I think that's exactly right. I think it's inevitable. And yeah, I agree. I mean, I don't think it was unintentional. You know, Gensler, I think you're exactly right. He's very smart, he's very calculated. He knows what he's doing and why he chooses the word he chooses. What I do disagree with is that there's like an intent to destroy stable coins. You know, I think regulation and destruction are, are very different, despite, you know, what, what, what some might might think, who do don't want government involvement, but that's, that's just frankly, not not reality, and not the direction our country nor the rest of the world is, is going. But, you know, against those, obviously looking for regulation over the asset class, he is a regulator. And there's a lot of truth to the fact that stable coins do look like money market funds, right, they're not dollar for dollar, they are investing in, you know, short duration, commercial paper and other instruments, which is what money market fund does, and money market funds are regulated, stable coins are not. And, you know, I don't think that's unfair. And I also think that the US has a tremendous incentive to either issue a CBDC, or somehow back dollar for dollar, a stable coin, in the sense that it's not a digital money market fund, but a true digital dollar, whether that's, you know, private issued, backed by dollars or not, because ultimately, what the US cares about is the global reserve currency being the dollar. And that's one way to ensure it against this, this technology.



Yeah you know, I would just, the only thing I would add to that would be is I've been involved trading and asset management now, for over two decades, the one thing I've learned is that you're never eliminating risk, all you're ever doing is transferring risk, right? So, you know, when you had issues with Lehman and Bear Stearns, or you had issues with, you know, a money market breaking the buck, like, you know, even these stable coins, it's like, you know, we say, oh, tether, and USDC came out with their audits, and they own a lot of commercial paper, therefore, they're risky. Well, the alternative is you own dollars in the bank, and all you're doing is transferring that risk from the commercial paper issue, or to now the local bank, which if the local bank is FDIC insured, then you're transferring it to the government. And, you know, if you truly, truly believe in risk free rate, then yeah, once you get to the government, that should be you know, the buck stops here, and everything's fine. But you know, governments around the world other than the United States have proven that that's not even risk free. Right? You know, just 10 years ago, we were trading Greek government bonds at 10 cents on the dollar. So, you know, not to mention, you know, all of the things I've done in Puerto Rico or you know, other areas where you've had to fault. So you're never eliminating risk, you're just transferring risk. So we can be all up in arms about any, you know, audit, or any report or any holding, but ultimately, it doesn't matter, no matter what, you are taking risks somewhere. And you know, it to me, I think, with the stable coins I've done with their transparency reports, and ultimately, with the diversification of how they're investing in like, you know, that to me, that's no more or less safe than the alternatives, right? There's going to be risks, there's inevitably going to be a hiccup or, you know, at some point, but you know, they are transparent about what they own. And to me, that's is, you know, it's close to what you'd want for something that is meant to, you know, trade in and around $1 all the time. And for the most part they do



Sure, yeah, I mean, looking and, and I think the transparency is great. It's certainly better than a lack of transparency. But there's a difference between transparency and set regulations that one has to follow, right? Because you can be transparent, but what percentage of people who deal in stable coins? Does this transparency mean, anything to write it so that like, it's not like they can have like anyone sitting there and combing through and evaluating? Like, what actually is the CP that they own? And even if they did have access to the head, you know, and then this is your so there's a difference is all my point is and should these be regulated yet? Probably, you know, they they probably should I mean, this is too big of a, of a system right now. And there is, you know, I don't know how systemic the risk is. But if we want this to be this industry to continue to grow, you need regulation. back the matter is that that's what that's what gives the green light for issuers, and it gives us the green light for investors, which I think is, you know, very aligned with, you know, sentiments that the CFTC has overtly echoed and that, you know, Gensler is, is is hinting at, you know, whether overt or not,



and I think I think that's, you know, potentially where we differ here, darker than maybe others that we are pro regulation, we just want to see it done in the right way. But I think But what's most interesting about everything you just said about stable coins as well, as you know, going back to the top of the hour, and we're talking about open sea, is, you know, we're in this new world now, where there's a new way to regulate, right? It's not just from the government bodies, but also from within the community itself. So now we can work with the regulators to come up with a new set of rules that include community self regulation, which in my opinion, will lead to better fair and safer financial ecosystem overall, overall. So as most things you know, there's no reason to be completely binary, there's no such thing as completely centralized versus completely decentralized. There's no such thing as, you know, completely regulated or unregulated, like, you know, there's a spectrum here and I think we're gonna find that appropriate place on the spectrum.



Yeah, I think it's a great point. Yeah, covered a lot of ground. A lot of interesting conversation here today. So, you know, in a wrap up, transparency is important. And regulation is inevitable, and it's not something to be feared. So you know, what is to be feared is, is your state of mind if the Cleveland Browns lose on Sunday, so, best of luck, stay safe, enjoy the game.



I appreciate it. And to everyone else out there cheering for their NFL team. I look forward to potentially seeing your team in the Superbowl.



Well, Jeff gets good talking to you as always, and have a great weekend.



Thanks. Me too. Take care.



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