0:00

What’s up, everybody?

Are you tuning in to The Challenge USA?

On CBS well.

Tune in to me, Tyson Apostle, as I break down each and every episode with my co-host, a million rettenmaier.

I’m also a contestant on the show which gives you all The Insider scoop.

0:15

Amelia how stoked are you to do this Tyson?

I’m freaking excited.

I cannot wait to sit my butt down every single week to watch the show.

Then come here, and recap it with you on the ringer reality TV podcast.

Today we have the first in a two-part series on lessons from the crypto crash.

0:37

Crypto also known as web 3 also known as block chain based Technologies Remains the weirdest space I’ve ever reported on.

I’ve never learned so much about a topic where there were people, I trusted roughly equally, whose intelligence, I trusted.

0:55

Roughly equally coming to totally different positions about a single thing.

I know.

People I consider brilliant who think that crypto is the wave of the future.

I know others who are fairly positive that the bulk of this space is a giant Ponzi scheme.

I know people who think that the bulk of this face is worse than a giant Ponzi scheme tomorrow.

1:16

In part two you’re going to hear from packing McCormick a fun and popular web, three writer who spars with me about why crypto still after a mild Wipeout could be an important Tech platform.

But today we hear from a wise skeptic Oh Molly Wood is a financial journalist turned venture capitalist.

1:35

She also hosts the podcast this week in startups and today we talked about the case against crypto.

I would summarize Molly’s case in three main points.

Number one, it is a double enemy of the environment crypto is an energy-intensive speculation, that also pulls money and talent from climate technology.

1:58

Number two, it is an unregulated Bonanza of investor Shenanigans.

Molly explains why?

The very structure of crypto and crypto tokens in particular invites, a kind of Ponzi scheme Dynamic to this technology, which deserves our very close attention and number three, even if you have nice things to say about crypto and we do have nice things to say.

2:22

There’s a strong case to be made that the promises and the grandiosity is wildly out of line with the actual use cases.

So, this is our little two-part podcast trial of crypto today, the prosecution tomorrow, the defense I’m Derrick Thompson.

2:44

This is plain English.

3:08

Molly would welcome to the podcast.

Thanks so much for having me.

It’s nice to talk to you again.

I want to split our conversation into to first.

I want your impressions from the crypto Peak and the crypto crash.

I want to know what it was like to be in Silicon Valley when things were at their fra theist.

3:23

What it was like to be in Silicon Valley when things were crashing, what happened?

What mattered?

And then second, I want to talk a little bit about why this is important in the first place, is it simply as straightforward as, you know, a couple trillion dollars went poof or other deeper lessons to be learned here about the investment climate of Silicon Valley, and the future of tech and finance.

3:42

But first, I want you to cast your mind Back to Before the Matt Damon, add before the Larry David add before, the crash back to September 20 21 and from my perspective, Bitcoin is trading in 61 thousand dollars.

3:58

Sports stadiums are being renamed left and right.

You got crypto.com arena in Los Angeles.

You got FTX arena in Miami every morning.

A new celebrity is spending a couple million dollars to acquire, some eight or doodle your venture capitalist.

You were Oh, sure, the actual industry than I was, when things were at their zaniest, what was it?

4:17

Like at the peak?

What were you thinking as things were swirling around at their most insane?

So, this is, I should probably preface this by saying, this is not my first boom living here, in Silicon Valley.

I was, I moved here in 1999 for the original, you know.com, run up.

4:37

I was here.

Then, during the Uber, we work at, you can’t even say we work.

You almost want to say we crashed immediately.

I was you know here for that run up.

I have been in a million taxicabs with people saying I’m an app developer and they all have this kind of remarkably similar Cadence which is that even though you know perfectly well that it’s a boom and that there is going to be a bust you still have fomo.

5:04

You cannot resist the siren Call of the boom.

And so it’s it’s this kind of fascinating thing.

Just keeps happening over and over which is like you can tell that it’s a big deal because everyone is talking about it is the only thing other than housing prices that you talked about at every event and every dinner, and every meeting you’re starting.

5:26

I was still a journalist then.

So I would, you know, your every question that you’re having with your editors is, how should we be covering this?

What should we be saying?

What kind of explainer should we do?

And yet you also want to open that coinbase account because even though you know better you still feel like there could be something here and it’s just a it’s a wave that you can’t help but get carried on.

5:49

So tell me how this peak and the first inning of the crash felt different than the.com bubble in 2000 because immediately after prices started crashing, on cryptocurrencies, you had all these problems among the crypto Banks people were saying, oh, this is.com 2.0 Dot-com 2.0, what did it feel like to be in it.

6:10

So I think at first when it was clear that there was going to be some downturn, the big question, because the.com the original.com crash was very tightly correlated to the actual stock market.

You know, these were big, huge IPOs, and so, there was a lot of contagion in some ways because these were public companies, that, that took down public markets, and it seemed given that Crypto was a decentralized asset That was supposed to be sort of a parallel Financial system that shouldn’t impact the stock market at all the initial feeling was like, okay, some of this stuff is going to start to drop the the scams or washing out.

6:53

There are going to be a lot of individual bag holders, which is terrible, but it is most likely not going to have a lot of contagion.

It’s not going to affect the broader market, and I think what’s so interesting is a very quickly.

It became clear.

That actually bitcoin price drops were moving in concert with the broader market and it almost exposed.

7:17

I think the fact that it was actually all the same investors that you know the people who are invested in BlackRock and and raw or Exxon sorry Freudian slip were also quite clearly.

There were also quite clearly a lot of institutional investors in the biggest crypto names, right?

7:37

So crypto.com certainly coinbase obviously was a massive hit for the Venture capitalists who invested early, but it was also a huge stock market darling.

And then a lot of institutional investors had pretty obviously piled into Bitcoin.

So I think for me the surprise was seeing that exact correlation that.

7:57

In fact, it was pretty centralized as you know less of a revolution and more of an asset class.

It is a venture capitalist.

What?

Think about the amount of money that was being sucked into these projects.

Like you’re working in climate Tech.

I wonder if you considered crypto to be a sideshow, a carnival, like a waste or did you think?

8:19

Oh, no, there’s a lot of money that’s sloshing around in VC.

This is an interesting side bet.

There’s obviously some bullshit, there’s obviously some pure fomo, but maybe there’s the kernel of an interesting substantive idea that could bloom into a product, that could be useful for some people, where did you And as a VC in a space, I mean as a climate Tech investor, I see all of this money in crypto as my enemy and I actually see crypto has almost literally my enemy, right?

8:49

You I it was hard for me and again this is because of this very specific lens of somebody who’s a climate Tech, investor watching people pour tons and tons and tons of money into something that is look.

My job is to invest in things that are speculative, but this is like To have that lights the world even more on fire and say a little bit more about that about why crypto and the and and the blockchain is bad for energy generation, right?

9:17

It’s a super energy intensive.

Exploit the process of creating coins and building the, you know, we already know that.

For example, data centers are super energy intensive, if you put a bunch of computers in a building and that’s what you need to process, lots and lots of information, it’s going to use a lot of energy.

9:36

And so big companies, These have already been spending the last several years and decades trying to figure out how to make data centers less energy-intensive.

Both for cost purposes and for emissions purposes.

Now you take that concept and you multiply it, you know, nearly by Infinity.

9:52

Because the process of creating, let’s just say a Bitcoin on the blockchain and there have been improvements in the technology, but let’s just start with creating a Bitcoin on the blockchain.

I first got interested in and became aware of And I don’t know, I’m going to say 2009 or 2010 and I had a friend Trent who was mining Bitcoin so he just had his home computer and he was creating Bitcoin and he was finding that he had to upgrade his computer more and more and more and more because he needed a faster processor.

10:26

Because the process of creating a Bitcoin is that you are basically validating that are millions and trillions of math problems and saying does this thing.

Add up and whoever can validate these math problems.

The fastest will be rewarded with the creation of a coin.

10:44

So it’s like, if you want to play Fortnight without your computer, skipping you need a fancy graphics card and you got out figured motherboard and then you’re going to want like a 4k monitor and and then Bitcoin is all of that.

And it just keeps getting more and more energy-intensive by Design.

11:01

Because the more coin there are The more coin that are created, the more transactions there are in the blockchain, so the more math problems you have to solve.

It’s like an exponentially increasing, it’s an arms race.

It’s an it’s an energy-intensive arms race.

We’re going to get into the responsibility.

11:18

The money being spent invested in just a second, but I think that it’s, you know, it when you talk to people that are let’s say more bullish on crypto than us.

They’ll say one of the wonderful things about this space is that it’s a beautiful petri dish for all sorts of experiments and there’s truth to this, it’s true that it’s a lovely petri dish for Pyramids but your point makes very clear, is that it’s not a free experiment, right?

11:39

It’s not a free experiment for the planet, it’s an experiment that is extremely costly and energy generation.

And therefore, it’s an experiment.

Whose costs are being born by the atmosphere, right by the oceans, by the biosphere.

There’s another aspect of this that I want to get your brain on because you’re a venture capitalist and the behavior of the Venture Capital Community in crypto is very controversial.

12:01

So there’s this old model But I think a lot of people are used to when it comes to investing, it starts with a new company, a new company comes along a VC, writes them, a check in exchange for equity in this new young company that company grows it succeeds.

12:17

And after a few years, if everything goes right, it goes public.

It IPOs.

And after that, everybody can buy equity in that company.

But only when the company files with the SEC and accepts, all this regulation, to protect investors with crypto and with tokens the Model has changed a little bit.

12:36

Walk me through how VC works here.

A project comes along and you make an investment in the job of a VC.

And I know everyone knows us, but I must say it again, is to make an investment in exchange for equity.

In a company that Equity is not liquid.

Sometimes it’s not liquid for a really long time, 10 years, maybe more because the company doesn’t have an exit, you don’t get your money back for a really long time.

13:00

If you’re, if you get 10 to 15 to 20 percent equity.

In a company that also issues a token and you’re one of the early investors, you’re going to get an early distribution of those tokens and those tokens are liquid so that even if their issue new out of lockup period like maybe you can’t tell your token for six months or a year or three years eventually you can sell your tokens and if your bet is that this company is going to become a really big deal and it does then even if you don’t get your 20% equity, T as liquid money for a decade.

13:36

You could get a lot of money from the fact that you might have been issued 30, or 40 percent of all the tokens in existence when this project launched and you can sell that.

So just as a purely like mercenary play of course you want to make that investment.

That’s so interesting because these tokens, they’re basically Securities like stocks in that way and so investors can acquire tokens list of tokens on exchanges where the public can buy them.

14:03

And in the public buys them.

But now the VC or the people in the company, the owners of these tokens are in a position, where maybe they can, you know, talk their book, boost the value of these tokens and then sell off in a year or so way before, the company is acquired, it goes public.

I mean, this is sort of a pump and dump.

14:19

And I’m not saying that this kind of pump and dump is the only thing happening in crypto, but let’s just say, it’s clearly something that can happen.

Before we get into the crash, I don’t want this episode to be purely you and I or someone crypto, Ethical, it’s not extremely crypto skeptical, and then we just talked about and share schadenfreude about the crypto crash.

14:38

I want to take a brief, you know, say something nice about crypto web 30.

What were the most interesting ideas that you found in this space that you still see in this space?

What use cases other than buying and selling crypto and paying Matt Damon to talk about your crypto exchange.

14:55

Do you think are the most important here?

What a world where Matt Damon is going to be forever?

The BET Noir met David, honestly, I really actually do profoundly believe that Bitcoin could be hugely transformative as a currency.

15:13

And why that because I because there’s so much money made in the middle of financial transactions that it ends up being massively gatekeeping.

So, if you think about the unbanked and the idea that without, you know, some Institution standing in the way, taking 30 percent of the money that you’re sending from one country to another, you could start to have a lot of economies that are born, just out of it being so easy to send money back and forth, like they usually give it the unbanked in America.

15:46

Are you talking about, the unbanked drill all over the world, okay?

All over the world.

Like I’m saying, if you’re in, if you’re in, I mean Africa, such an obvious example, but it’s also a really great example, because, like, a lot of devices and internet infrastructure have Skipped Africa.

16:01

And everybody went straight to mobile phones.

So you’ve got a country where everybody is on phones, but they’re largely unbanked and they want to participate in international Commerce, but try sending money.

Internationally is incredibly difficult and takes a long time to settle and, you know, somebody sits in between and skims money across off the top at every stop.

16:22

If you can get rid of all of that and just say I’ve got a wallet on my phone, and if you want to pay me for my goods, you just send it to me.

And It’s there instantly, its capital, I can immediately access and use and I can sell to anybody anywhere.

Without anybody getting in the way, then when you look at, like, you know, Jack dorsey’s weird tweet about how Bitcoin will bring about world, peace.

16:45

You start to imagine where he’s coming from there because all of a sudden anybody has the freedom to transact with no Gatekeepers.

That’s a genuine, that’s as powerful as the internet.

If you think about it, everybody can have access to information all of the world’s information anywhere in the world anytime they need it.

17:05

That was really powerful or 4G. 4G, internet access is why we have Uber, and why we probably have Netflix and why we have all of these things that rely on an always-on connection that didn’t exist with slower mobile speeds.

So you know I’m holding some Bitcoin because I believe I buy that.

17:25

Yeah it’s interesting I we had this other conversation with pakhi McCormick which we’re going to are in a separate episode, I think.

But you know I know people that work intermittence has very well.

I know people that work in money transfers in Africa very well and you know I don’t want to speak for them but what they seem to be building is something much more like an Apple pay than Mo for these countries then a crypto.com.

17:50

For these countries because fundamentally what you need is a currency that you can spend at your local market and Bitcoin is not a very good medium of exchange and it may never be a very good medium of exchange, but precisely because it’s scarce.

18:07

It is probably always going to be extremely volatile.

People are going to bet on it.

I think is if it’s any kind of volatile currency like a tech stock or gold, and there’s not a lot of people that are, you know, buying onions with your bullion.

And so I think that, you know, I personally think and I know that I’m putting a position of trying to defend crypto and then saying you know I don’t agree with that particular defense ready.

18:28

I’m ready right?

I understand that I’m putting you know that very unfair position here but it just seems to me that this that the solutions for you know Senegal Uganda Ethiopia are not going to look like crypto.com.

They’re not going to look like coinbase.

They’re not going to look like a Bitcoin remittances program.

18:45

They’re going to look more like venmo Apple pay for the look.

Currency.

So you’re right that they’re going to skip over the generation of banking institutions potentially, but they’re going to go straight to local currencies on their phone and that that is going to be more useful than trying to bend a bit coin which is this weird, extremely volatile store of value into a medium of exchange into something that you can like buy your lattes and onions with.

19:17

I could not agree more that at this, This point Bitcoin has become such a valuable asset class that is going to ver.

It’s going to be really hard to make the transition to currency where I will do.

Pushback is on the idea that local currencies like we’re sitting here with the world’s Reserve currency.

19:34

The dollar is stable.

It’s now super-strong globally.

Most of the you know, of the world’s like of the made, the richest countries currencies are stable.

That is not the case all over the world.

And so Volatility.

19:50

I mean, honestly, the best thing that can happen for Bitcoin is that it can settle into a pretty low price and then we can start to talk about it as a currency or we can start to talk about the things that could enable it as a currency, it if we assume that Bitcoin will become less volatile because it will be less attractive as a pure asset class and we invest in the technologies that make it more usable.

20:14

Then I think you could sort of say It there’s more value in transferring.

This thing that is transparent.

That has a limited amount.

No fed can come in and just print more and more and more, you know, I mean I think downstairs, I have a, my son’s grandfather, gave him a Zimbabwe and Bill and billion dollar bill, like that’s never going to get printed in Bitcoin.

20:38

Maybe one day, it’ll be the equivalent of a billion dollar bill.

And then the next day it will only be worth twenty two thousand dollars.

But if you assume that it’s volatility is going to be Then the basket of global currencies.

I think there’s still something there in terms of using it as a payment method and also, the government can’t come in and mess with it.

20:57

Yeah, and I agree, there’s a lot of governments that are total assholes to be pretty unsophisticated about it.

And I can totally understand why especially people with lots of money that face Capital controls would want to have some of their money in a currency like Bitcoin, that could be transferred internationally without the kind of capital controls that exist with the local currency.

21:16

So, Especially when you get to sort of the upper income when you get to, sort of Richard people in more unstable countries, I can understand some of the case for crypto currencies, or for Bitcoin replacing local currencies.

But I want to move to the the crash that we’re seeing right now because it actually revisit some of these issues.

21:33

I want to talk about a couple of different aspects, the crypto crash.

And each of them have a vocabulary term that I’d love you to help us unpack.

So first was the first thing that happened is that in, this is just obvious a bunch of cryptocurrencies crashed.

Misty Bitcoin is down something like 70% since its November high and several stable coins have failed as well.

21:55

What is this table coin and why is their failure particularly significant?

So a stable coin is the thing that was supposed to solve the problem that we were just talking about.

Right.

The idea that Bitcoin is so volatile that you can’t count on its pricing.

22:12

And so this idea of stable coins was created and it would be cool.

Coin currency that whose value is pegged to some other currency and that other currency could be either.

An actual like an existing currency like the US dollar, it could be pegged to some kind of a commodity, or it could be pegged to another Financial instrument and as is the way of cryptocurrency, it was like not appealing to have it be pegged to the dollar or the Remini because that’s just, you know, more centralization and Banking.

22:48

And so stable coins were created that were pegged to other Cryptocurrencies and the, you know, there’s this idea of an algorithmic stable coin which is like all great, the stable coin in the most obviously famous recent example is Tara and Luna, we’re stable coin was created called Tara.

23:08

Its value is going to be pegged to this Luna coin.

And the value would always be held stable by the buying and selling the transacting of the lunar coin and as long as enough of that happened and also people believed that the lunar coin was a real thing.

Even though it had been created effectively out of thin air, like all of Pad then the whole thing would work out fine and Tara would stay stable.

23:29

I mean there’s something beautifully orwellian about the concept of a stable coin.

When one cryptocurrency is being 100% back by another cryptocurrency, you know, it’s like pricing your beanie babies in Dutch tulip bubbles, right?

Like it’s it’s it’s all a bubble, 100% back, and secure doesn’t mean anything.

23:46

If he backed by gold can be backed by real estate and me back by literal.

Beanie babies can be backed by Dutch tulip.

Bubbles that are preserved in Amber, right?

I mean, And you can call anything.

A stable coin, save a coin is an aspirational term.

It means we hope that this crypto currency has a stable value but as we’ve learned in the last six months it hasn’t necessarily had a stable value.

24:07

Why is that been particularly disruptive to the general ecosystem of crypto that some of these stable coins it started to become a little bit volatile.

Yes and again we should make the distinction between like a Fiat.

Based a Fiat collateralized table coin.

24:23

Something that’s based in a dollar or a basket of global currencies.

That is no be like, you SEC.

That’s like USD.

See which I think also became on pegged for various reasons but it’s not.

We’re going to go to you as you see in a second.

Yeah, we’re gonna get there in a minute and then these idea of sort of algorithmic stable coins, which rely on Smart contracts and other crypto and that and that is, and I’m not trying to be ungenerous here.

24:47

A fiction based on a fiction.

So, This is where I should point out.

And my my inner Chi result would say that even the u.s. dollar is itself a fiction, right?

It is based on the our trust, in the dollar is based on the concept of Full Faith and Credit of the United States of America and that credit has been hard-earned but it could go away at any time in theory.

25:14

So cryptocurrency, fundamentally in the people who are involved in crypto, currency will tell you that what this really is.

And it sounds kind of fuzzy.

And ridiculous is a community, right?

And it is they’re building the full faith and credit of the cryptocurrency universe.

25:31

All money is intersubjective.

It is only a dollars only worth something.

If you believe that it’s worth something and I believe it, and I believe that, you believe it, right?

If we’re paying each other, right?

It is intersubjective in that sense.

25:46

So, yeah, this is all being held under a much more.

Philosophical and pot a dull conversation about the fact that the nature of money is somewhat magical, and inner subjective.

And it is all a kind of shared fiction, a useful Collective hallucination, stipulated even.

26:05

So we are dealing with extraordinary fiction is based on fictions in some of these cases.

I want to ask about USD see specifically because us DC, as you said is not one of these cryptocurrencies that’s based on other cryptocurrency base to another cryptocurrency.

It’s not one of these sort of Grass.

26:21

It is based on backed by theoretically a reserve of significant amount of US Dollars the journalist.

Matt Taibbi recently looked into the company that owns.

26:37

U.s.

DC is owns the right term here, the relationship between Circle and U STC.

Maybe just tell me a little bit about what this company is, What U STC is, and what Matt Taibbi.

Get out.

So circle is the payments company that created this us DC, stable coin.

26:59

That is a dollar pegged token and crypto.

Sorry Circle also is like a lender, you know, because it’s a payments company.

So it’s a holder.

It’s A lender it acts a little bit like a bank where a lot of this, you know, this is a minor tangent but not really where a lot of this.

27:20

Fallen apart.

And this is a lot of what Matt Taibbi pointed out in this article about Circle and u.s.

DC.

So, on the one hand, there’s this token that according to circle is backed by the US dollar and collateralized by a bunch of Holdings that are entirely secure.

So you have that, then you have in the case of circle and many other companies in this Arena, the desire to do more with the money that they’ve created landed out or in.

27:50

Some interest on it, you know, borrow against it in order to do other things.

And what happens is you get this sort of snowball of these companies acting like Banks but without any of the oversight regulation and transparency of banks.

28:06

So Matt Taibbi does is big deep dive into Circle.

And this is partly as a result of a recent set of stories that came out about coinbase where it where it was suggested that in the event of coinbase.

Going bankrupt.

People have who had put their money in coinbase.

28:25

Wouldn’t be able to get it out.

Like, what happens if it goes bankrupt?

Who are in fact, the what is your protection if your account is wiped out?

So Savings in traditional Banks, commercial and Savings Banks are protected by the Federal Deposit Insurance Corporation, which means that like a hundred thousand or even hundreds of thousands of dollars in deposits.

28:45

In these member banks are backed up by federal guarantee even if the bank fails but crypto Or decentralized Finance, as a part of crypto sometimes called is, like, at least partly about rejecting that very centralization of power and everything in life has trade-offs, right?

29:02

Centralization has downsides, but if you reject centralization, right?

You if you try to create a banking system outside, the FDIC you’re in this gray Zone when it comes to protected deposits.

And so this is what Taibbi wanted to know, right?

Do you SDC holders?

29:18

Bear?

Bankruptcy, risks or not, but will the Deserves to be protected or not and people think they’re protected.

And I think that fundamentally is the key because a lot of these institutions look like a bank, walk like a bank and Quack, Like A bank and do not have any of the protections of a bank.

29:34

So, Matt, Taibbi, compared this to what happened in the run-up to the 2008 financial collapse, where you know, banking institutions some rest.

It’s like when it comes to figuring out how to make money, the water finds a way and they always find the way to the lowest grounds.

29:50

So, some regulations may have been input into place, but around, you know, in the run-up to 2008 Banks had figured out, various increasingly more complex ways to make money.

Including let’s say, you know, packaging up high-risk mortgages and selling them as collateralized debt.

30:09

Something similar has been happening.

In the case of these big crypto Banks, they’re doing all of these financialization tools that get increasingly complex.

And make them a lot of money and it’s not clear what these moves are backed by.

30:27

So some of them have been accused Celsius was accused of this thing called rehypothecation, which I am now obsessed with and it’s just take a brief be here.

So, Celsius is another crypto Bank.

This was a institution that lived and died on trading crypto assets.

30:43

Essentially, if I’m a crypto Trader, I could store my money with Celsius, they would guarantee rate of return.

And then on the back end, they’re making a bunch of extremely risky bets to create a higher rate of return for that bank so that they can guarantee me my high rate of return in response Celsius, makes these trades.

31:03

It’s rolling along but then all of a sudden, the price of all these cryptocurrencies crashes, there’s only so much Financial gaming that you can do to get out of the fact that, oh my God, everything that you’re invested in is going to 0 or at least, is going down by 70 percent.

They on June 12th, halt withdraw.

31:20

All’s withdrawals.

How do you pronounce that word with withdrawals?

Yeah.

Whether it drawls not the drawl I print.

I pronounce it like I like a southern gentleman from 1940 or something.

So on June 12.

Yes stop being able to take your money out of the bank.

31:37

Let’s put it that way.

And then a couple weeks later declares bankruptcy that’s Celsius.

And Celsius has been just a really critical linchpin in this overall story of the crypto crash.

So sorry that was me taking a beat on Celsius and explain why Why this story matters to you in the general picture of what’s going on in crypto.

31:55

Yes, it’s and and how it relates to Circle, because because Celsius, which will explain a little bit more in a minute, is one of the reasons Celsius plus Tara and Luna are part of the reason that Matt Taibbi started asking these fundamental questions of circle, which is how is what is the backing right?

32:12

How are your loans, backed how is your stable coin backed what happens to people in the event of Bankruptcy, can they get their money back?

Super basic questions, that have been born out of recent, very high-profile, very real incidents.

32:31

And the answers that he got were pretty vague.

Nuanced is what he calls them throughout and he came out.

His conclusion coming away from this story was like, God help anybody who’s invested in this.

I think it was an actual quote from that story.

Now, it is important to note that since we talked about that story on this week in startups as of Hi 15th Circle did Issue a big very public report in which it detailed all of its Holdings and collateral all of the because the big knock has been that it’s non-transparent.

33:06

These institutions are non-transparent.

We have no idea if the collateral for their coins is, you know, Pokemon cards or Solana or dollars.

And how different is that?

From a Traditional Bank?

I mean, how easy they have to tell you have a Traditional Bank, the bank go ahead.

33:25

Yeah, yeah.

A traditional bank has to tell you what their Holdings is are how your how your money is backed that.

I don’t know that they always have to be totally honest about it but that’s the goal.

I do feel like this is actually really important because Circle has been held up as when you SDC have been held up as as pretty good actors in This Arena and circle is so far.

33:48

I think one of Of the only institutions of its size that we know that has in fact, put out a report detailing all of its Holdings.

So it’s report shows it no longer holds commercial paper at some point.

It had nine percent of its reserves and Commercial paper which is like just a short-term unsecured debt kind of thing has now moved.

34:09

Almost completely to cash and US.

Treasuries detailed the amount of each of those things. 42 billion dollars in US Treasury bonds which Again full faith and credit.

United States, right?

That is actually very reassuring.

Thirteen point, six billion dollars.

The remainder of its reserves are in cash and then it listed the bank’s where that cash lips.

34:29

So right now, there are 55 billion USD see tokens in circulation and circle has fifty five point seven billion dollars in reserves that are held in us.

Treasuries, and cash.

So like that’s the answer.

They probably should have given Matt Taibbi, right?

34:47

Yeah, they might have hired.

Out their engineering team a lot fashion.

They hired after Communications team because there was look, let’s face it in 2020 and 2021 a lot of demand for these products and not a lot of people were asking the hard questions and now suddenly here’s the crash and here come the hard questions and so you know they’re not exactly sophisticated on the investigative journalist response team.

35:08

I understand that.

And I to be honest, you know I think that you know your your podcast partner Jason calacanis who’s been on this show.

I think that there’s a way in which, you know, he might be right about USD.

Encircle the fact that there is fraud somewhere in the crypto community and I would say there’s fraud, you know, in more than just somewhere or at least pure greed, and more than just some place in the cryptic nudity.

35:30

It doesn’t mean that every single product to be painted with the same brush.

You know, a lot of different people that tens of thousands of people are trying to build stuff in this space and you’re probably going to have a diversity of Ethics, diversity of success and a diversity of essentially, well protected.

35:48

And, and well-balanced financing.

I want to move to the Future and what this crash says about the future.

How do you think the crypto crashes change Silicon Valley already?

If at all?

36:05

Well, with the last two crashes, in my rearview, I’m going to suggest not at all.

I mean, among other things, we’ve seen, I think a 16-0 raised like another four billion dollars 4.5 billion.

36:24

That billion dollars for crypto fund there, does not seem to be a huge diminishment in appetite for these projects right away.

And why is that?

I mean, as someone who has been a bit of a skeptic and definitely felt a little bit of fomo, certainly in 2020 and 2021.

36:41

Why do you think the appetite for crypto investment hasn’t diminished, given the Wipeout to some of these products?

And to some of these just sort of entire asset classes.

Well because Was even the Wipeout has still left Bitcoin alone.

36:58

Bitcoin alone remains a trillion, dollar asset class, it just recovered that status this week.

I mean, we’re still talking about a coin, so, you know, back in 2012 or 2011 or something like that.

I bought 300 Bitcoin at one dollar each and they were all wiped out in the, you know, this hack of the exchange that I had used And we’re talking about a coin that at one time was worth a dollar.

37:25

Somebody tipped me, 112 tipped me, 30 Bitcoin that was at that time worth 18 sense that I didn’t even bother to redeem because I’m apparently too stupid to be rich because it went from, let’s say 18 cents for 32 at its peak 68, thousand dollars each and it’s Crash is still nineteen thousand dollars.

37:47

Each name me another asset in the world that’s worth.

Nineteen thousand dollars each.

That is Like a Birkin bag.

So there’s that that at a minimum, there’s that.

And then there is the real, there is the reality that this is a new infrastructure and it’s not going anywhere.

There’s a new technology infrastructure and it is often compared to the birth of the internet.

38:08

Time will tell whether that’s going to be true.

But let’s say it’s something that’s akin to the birth of a new banking system.

Long term.

That’s still a massively valuable investment.

No matter how you look at it because it isn’t going to go to zero.

It’s never going to go all the way to 0 if there’s a trillion dollars invested in it.

38:27

And if you look at the internet as a corollary, there are still, I still know people.

You know, mostly Boomers who like won’t put their credit card into a website because you can’t shop on the Internet.

It’s all scams.

Like not only did I live through the 2001, you know.

38:44

Boom.

And bust.

I’m old enough to remember a time when the internet was first suckers, if you went on the internet, you were getting ripped off.

You were going to lose it all, but it did not go to 0 it developed into a huge economic infrastructure that has created trillions and trillions of dollars of value.

39:00

And so, the bet that these species are making and they’re probably going to end for an I should remind everybody.

The job of a VC is risky Capital.

That’s your whole job.

I think you’re totally right.

That.

There’s a lot.

People in the crypto Community who think they’re akin to the founding of the modern banking system in the mid-1800s.

39:17

Like these are just a bunch of jpmorgan’s fighting their way through the Railroad crash and they’re not wrong about history.

They’re just wrong in how they’re using history.

Yes, there was a lot of fraud in Rail and a lot of other building and a lot of financial crises but like modern banking, that was a thing railroads.

39:35

Turn out to be useful but I sometimes feel like these sort of historical The fours like early Banks had a bust and then succeeded or web to had a bus and then succeeded.

They’re very alluring but they’re very unpro sway Civ when you dig down because they proved too much.

39:52

They say since other things have failed and then succeeded.

This failure is actually proof of later success but there is no discipline to that argument.

You can make that argument about literally anything in the world that doesn’t work.

40:08

If I tape my Dogs schooi toy to a straw.

And I say this device can discover alien life or something like that.

And you say, no, I won’t.

It’s a dog toy taped, to a straw, dude.

It’s totally useless.

40:24

Like, I can say things like, well, email used to be useless.

Now, look at it.

The internet used to seem useless.

Now look at it.

But like yes, something succeed after they fail, that doesn’t mean that every failure is a portent of future success.

Sometimes things fail.

40:40

Because they just don’t work.

So sorry that ran has been on my chest for a while, obviously, but I just think this history metaphor stuff is just way over played.

I, I can’t, I can’t believe you’re tricking me into being the crypto defender on your show but here I would say the counter argument to that is that there is a difference between a product and a category.

41:05

And so if you look at what has succeeded over time, even in metaphor, That a product could come and go that Bitcoin alone could come and go at digital token that you use to, you know, exchange things back and forth that lives on a ledger that could go away.

41:22

What we now, have is infrastructure.

The technology infrastructure for the continued creation of these types of Technologies, we have a category that again, remind you as a whole is worth over 1.5 trillion dollars.

41:40

Really intolerant with the tea.

Yes, right.

So it’s not the George Foreman grill, you’re here.

It’s and that product that when you sort of think, in terms of systems, which is I think how Venture capitals try Badger capitalist, try to think about these type of types of things like I’m not interested in one consumer product.

42:02

I’m interested in a consumer product of that somehow becomes or changes a system and becomes a free and ideally becomes like, A household name and apartments.

And that and that can be almost infinitely built upon.

42:23

And so there’s no Universal which cryptocurrency Heaven Help.

Me does not check all those boxes.

Now I have to go right.

Somebody a damn check.

Exactly.

I’m actually, I’ve actually been sent here by invitation Horowitz to convince you.

The crypto has a future so that you began investing in it.

If my very last question for you actually is is about this somewhat more sanguine vision of the future, give me one discrete case for optimism.

42:48

If this isn’t just a bunch of dog chewy toys to take two straws and Way I don’t think it’s 100% that either tell me how this space might evolve other than maybe investors getting a little bit savvier about distinguishing pure bullshit from the more promising long shots, you might also see less investment in these kind of financial institution, middlemen, like the coin basis and the Celsius and the three arrows Capital because those are basically Banks and hedge funds.

43:18

And so, if you’re going to invest in that, first of all, if you’re really a true believer that sort of counter To the spirit.

You know, you, you saw open see God in all that trouble because it stopped selling certain kinds of entities.

That’s not supposed to happen in crypto.

It’s supposed to be decentralized with no middlemen, so I suspect you’ll see less emphasis on the middleman or you will see a push for more and more regulatory certainty.

43:43

Because if these middlemen have the same regulations as Banks, because that’s what they are or hedge funds, then there are safer investment because, you know, that they’re not going to go to 0, because Going to have to tell you upfront, how their reserves are held in what happens to your money if they go under.

It is interesting because there’s a future in which you can imagine these crypto exchanges or the marketplaces for NF.

44:03

T is like Open Sea.

They become more regulated.

They become a little bit less risky.

They essentially become very similar versions of that, which they were meant to replace.

I mean, this isn’t purely like, you know, the pigs, the pigs and Animal Farm starting to walk on two legs and like, becoming that which they were trying to, To overturn.

44:25

But like it’s a little bit like that, right?

It’s you can you can imagine ways in which they’re just the new establishment of Finance the same way that you’re sure I’ve ever like whatever dick. 20 years ago or babe has been 15 years ago.

People were talking about, you know, like, you know, Mark Zuckerberg and all these sort of tech Titans are going to totally change the way that companies are run.

44:44

And we’re going to look at Silicon Valley as a totally new model for you know, bringing on new workers and allowing that you’ll for people to come to work and now you Think about these Tech Giants and a very similar way that we think to a lot of other Legacy companies, they’re just all big companies with highly paid employees, that do some good work and some disastrous work and they’re all a part of this bundle.

45:06

That’s Corporate America.

And so I just wonder if maybe the ironic future of the upstarts is to become the establishment.

They seek to overturn.

Oh yeah, I mean they already have snouts and curly tails.

Yeah.

Like the best way to make money in the history of A of all time has been Banking and Financial Services.

45:28

Like there’s no Universe in which this new money.

Does not evolve into more and more and more Banking and Financial Services and there will probably be Puris and holdouts, just like there are people who are still using Linux and insisting on Direct TCP IP connections between computers without, you know, DNS intermediaries.

45:46

But the truth is that the world wide web made the internet work.

Yeah.

Well, when a bunch of companies came along and made it, you know, prettier and easy.

Yes.

Yeah.

When the web three Giants become just like the web to Giants.

I hope that you and I can get together and start a fund to get in on web for because that’s that’s the craze that I really think is going to rise and Rise without a pecan fall.

46:07

I am all-in on actually and I hope you join me.

Apparently it’s called Web five.

Now that our excuse me oh my God skipping web for yeah I got a guy for you.

Yeah.

The guy who runs all of the crypto stuff at block formerly Square recently, coined the term web 5 It’s all the candy about identity.

46:24

I can’t got a pitch.

I’m not going to.

I’m not going to the 7-minute, ABS thing.

We’re not going to go all the way to ten.

We’ll end it there.

Molly would thank you so, so much for breaking this down with us.

I really appreciate it.

There it is.

My absolute pleasure.

Thank you very much for listening.

Plain English is produced by Devon man.

46:39

See, if you have a comment, a concern, a question, an idea for a future show.

Please email us at plain English, at Spotify.com, that’s plain, no space English.

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