In today's episode, the fellas discuss how onchain RWAs (real-world assets) will transform DeFi. We also cover Prime Trust's implosion, regulated DeFi, Azuki's controversial NFT mint, why Corporate VCs fail, the recent token delistings and more!
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Timestamps:
(00:00) Introduction
(0:56) Prime Trust Implodes
(15:36) Debating Onchain RWAs
(34:04) Azuki’s New Collection and NFT Business Models
(43:17) AI Sexting, GPUs and Corporate VCs
(50:37) Alts and Token Delistings
(58:02) RFK and BTC Politics
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Disclaimer: Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Mike, Jason, Michael, Vance and our guests may hold positions in the companies, funds, or projects discussed.

All right, everyone, welcome back to another episode of Bell Curve.

Before we jump in, quick disclaimer, the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with.

Nothing in the episode is construed or relied upon as financial, technical, tax, legal, or other advice, you know the deal.

All right, everyone, welcome back to another roundup edition of Bell Crib.

I just, you know, I drank so much coffee 1 time where I like really freak myself out.

Oh, it was in Venice, I forget when, but I remember just being at a restaurant being like I need to get out of here immediately I think I'm gonna have a freakout

How much coffee do you need to drink to freak yourself out off coffee?

I mean like 7 or 8 cups of like strong stuff that'll that'll do that to you

Yeah, I still drink a pretty disgusting amount of coffee.

I'll drink like I have a French press and I'll drink the whole thing myself.

Well, apparently we're not gonna be able to drink Diet Coke anymore.

Aspartame is rumored to be coming out next month as a potential carcinogen.

For 20 years, it's been like Diet Coke gives you cancer, but

I'm like leaking aspartame right now, as we speak.

let's get, why don't we get into the content as we, you guys want to start with Prime Trust?

I feel like we kind of got to start there.

All right, so Prime Trust is, I think we've talked about this before, but Prime Trust is basically an infrastructure provider for what I'd say are like earlier stage crypto companies.

So if you're a seed stage company, just, you just raise, let's say you're building a consumer app and you, let's say you're building a, like a block by style app.

They will give you the ability to have all the middleware and the backend and they take care of all of that.

So like all the KYC AML, that's actually really complicated to do.

All the onboarding, kind of like the separate accounts for your customers, that's actually pretty complex to set up.

And it might take 12 to 18 months to set up.

But Prime Trust is like a white labeled solution to be able to set up all that stuff and let's call it 30 to 60 days.

So you see a lot of seed in series a companies using prime trust.

And then once they get to like series B or series C, they start kind of chipping away at the backend and, and usually they get off of prime trust.

But the reason this is all relevant, Prime Trust basically just blew up in the last month.

And here's kind of the timeline that I know of.

So June 7th, it starts leaking that Prime.

So 22 days ago, starts to kind of leak that Prime Trust is in trouble and specifically got announced or maybe leaked that they were raising a $25 million emergency round.

A day later, it gets announced that BitGo is acquiring Prime Trust.

So BitGo is 1 of the longest standing, most reputable custodians.

They were going to acquire 100% of Prime Trust.

A couple of days later, June 13th, Bank BANQ, who's a Prime Trust subsidiary, filed for bankruptcy protection in Nevada.

And when they dug into their assets in the filing, it showed that they had 17 million of assets with liabilities of 5 and a half million.

So everyone's like, okay, that looks fine.

A week later, June 20th, Prime Trust halted deposits and withdrawals.

Sent out an email saying we're halting withdrawals, uh, halting deposits of both crypto and Fiat.

A day later, June 21st, this is a week ago now, the trust, Prime Trust sought receivership from Nevada after they got a cease and desist order.

So then everyone's like, oh, maybe this is actually pretty bad over there.

Day later, June 22nd, BitGo terminated their plans to buy Prime Trust.

They said they did a bunch of due diligence and came to the hard decision to terminate the acquisition.

And then June 27th, Nevada asked the court to impound the assets and all related property of Prime Trust, saying that they were short of being able to pay back their outstanding crypto-based obligations.

However, so that all basically just seems like kind of the unwind of PrimeTrust.

However, the kicker is, there's 2 kickers.

1 is, it sounds like and it looks like the FID alleged that Prime Trust lost access to their legacy wallets in 2021.

So if you're a Prime Trust, I talked to a couple of Prime Trust customers today and yesterday, they could actually see on chain the assets of Prime Trust and it looks like they had them, but it turns out, so it wasn't like they were like leaving the system, but it turns out you could still see them there because Prime Trust couldn't even access them themselves.

So then what they did, and this was back in 2021, So anyone who's onboarded onto Prime Trust, I know several companies who have since 2021, they've been insolvent basically since then.

So that's why I think this is going to be, whoever was running Prime Trust at the time should, that's a fraud.

And then the second thing is to try to make, I think Michael might know more about this than I do, but to try to make back the loss of customer funds or funds, they basically took the remaining customer funds and Yoloed it on like a couple of trades to try to make it back.

And you guys have seen how the market's been last several months.

It did not go well for them to say the least.

So today where we stand is crime trust lost access to some of their funds in 2021.

They use customer funds to try to make it back.

They today owe a million dollars of crypto to their customers and about 80 million dollars of fiat to their customers.

And of the crypto that they owe, 88% of their crypto assets today are in Audius token, audio token, which is Audius' token.

So it's not looking good for Prime Trust, I will say.

So they're very bullish on music NFTs, basically.

So I think there's another variable here too, which is interesting.

I don't actually know where the fiat came from for them to be able to go off and yellow this.

Prime Trust, almost exactly a year ago, at least the announcement went through, raised $100 million to be a custody solution that was going to expand into IRAs and said they were going to expand into crypto staking.

If all of this is true, and this is all put together in a complaint that was filed, I think in the last week, If all this is true, it looks like they took the investor capital and tried to be able to use that to YOLO back into these assets to be able to get them back.

The tough part is, and I don't exactly know how the technology was set up, you kind of touched on it.

If you're able to see the assets on chain and kind of my understanding of how this would work is they had basically the wallet addresses that were generated from the public key private key pair, but they had lost the private keys.

So when they were setting up the infrastructure, they...

It's sort of like you can send to that address, but that address doesn't have access to the private key to be able to send from that address.

You can receive emails, but you can't actually send them from that if you don't have the password.

I think that might be the case of what happened, which is crazy because from the outside looking in, I mean, every single custody solution says you have to have segregated accounts, you have to be able to track them on chain.

And if anybody hasn't sent from those accounts before, there's no way to know whether or not the private key is in access of the solution that they're trusting as the custodian here.

So I think ultimately, we're going to get to the bottom of this to see what happens.

The tough part is we have to get through another, what looks to be another fraudulent case of something.

The good news is, Audius, AudioToken, not 1 of the top tokens that people are tracking.

And I think also the size of this is fortunately relatively small compared to some of the other custodian platforms like Coinbase, Anchorage.

Obviously no comparison here to what they do and how they work, but the size of this is in the tens of millions, not the billions.

Trey Lockerbie, MPH Small crypto companies.

So a lot of companies would have their...

They just had the USD held at prime trust.

So they might have a, an ACH reserve account with, you know, half a million or a million of prime trust.

They might have like an instant settlement or an omnibus account with, you know, 500 K or a million or 2 50 at prime trust.

And there were a lot of these kinds of smaller companies.

And if you looked at their customer list, have you ever used like archive.org?

The way back machine, their customers used to be big folks like Kraken and like some of the big names and now it's a lot of like smaller, again like seed series A companies like, uh, you know, that, the, what's the Bitcoin company where you can buy and sell swan, like swans of the world.

of the early indicators back on June 7th.

There were reports of, you know, having trouble withdrawing from prime trust And they eventually, I think they transferred ownership of their assets to Bitco, some mix of Bitco and Fortress or something, but that even back

then Fortress Fortress is run by Scott Purcell, who is the old prime trust founder.

A company invested like, Hey, we got impacted by prime trust, but we're moving off.

And I was like, same, same person, different company.

So, uh, but, but it's interesting because actually they were like, there aren't other options for us to use right now.

Like we, it's, you know, the word, it's the worst of the options, but like there are no other options.

So, um, yeah, like wire shutdown, you guys remember wire went up for 10 months ago.

So I think wire would have been someone else that people could go use, but can't use wire anymore.

Uh, all the banks are, are like barely any banks that you can use anymore.

So pretty tough situation for new crypto companies getting started today.

So just to double click into that, specifically what you're talking about is being able to receive fiat and mint or create something on chain that represents that, correct?

The, the, after Silvergate and SEN and I can't even remember what the signature version of that was.

There's basically nothing that facilitates that anymore.

He said a lot of people reached out to him being like look man really like you um let me just save you the headache don't do this he's and he said he's still gonna do it I

mean this seems like a pretty good business mine it's the crime and uh forgetting where the assets are

like I mean he might be able to do it because he lives offshore.

Maybe they forgot the pin code to the ledger.

Maybe this is just a case of mistaken pin codes that are out.

this is Vance's recurring nightmare that he probably gets like once every 3 weeks.

The fact that the founder moved on and started the same business also very sketchy.

I feel like we need some investigative journalism with a capital J on this 1.

There's actually kind of a rich history of brokerages reappropriating quiet funds and trying to make it all back in 1 trade.

There was a guy, John Corzine, who was- Yeah.

It was a much larger brokerage and he I think the irony is he actually did it He actually placed a good trade that would have eventually paid out.

He got stopped regulators He got stopped out by the regulators, but it would

yeah Well, let's make it all back trade like some of these trade he'd bought he'd bought I think it was like like euro bonds or

And they like blew out and like he lost kind of like most of the money.

And then he got found out and stopped out.

But like if he had just held him, he would have made a lot of money for both himself and his clients.

Crime doesn't pay sort of if you get caught unless it does.

I mean it's not obviously the same thing as like holding your client's net worth in FTT maps and oxygen tokens, but all of these stories are so similar at this point.

Like even the prime trust, like We have no exposure.

Okay, the deal's over and we're insolvent.

We just need to actually figure out that thing.

You need, it makes me think you really do need some regulations and some like forced audits at the custodian level.

is why as a regulated investment advisor, registered investment advisor, you have to keep all of your assets at a qualified custodian.

I mean, there are rules in place for this.

You know, if you get to a certain size, obviously, this and most of the clients weren't able to have that designation or didn't have that requirement, because they don't, they're not fund managers, they don't have enough assets, all of the above.

But this is why you just got to go with big guys.

I think the other element here, which is interesting is, is there a point that DeFi could have solved this?

And if they truly had segregated accounts and they truly had the loss of keys at creation, I don't know exactly the details, that'll probably come out in the next couple of weeks, but there is an element of where you can have control of these assets in a DeFi ecosystem that has a wrapper around it, that has all of the stipulations and requirements of a qualified custodian to basically have the best of both worlds.

Where you have the segregation, you have the decentralization of these assets that are being held by somebody else and controlled by somebody else, but you still have the KYC, you have the AML checks, and you have all the safeguards that a qualified custodian would have to have if they were doing this themselves.

So I think there is actually room for improvement.

A lot of that would probably have to come with legislation changes and maybe that, you know, something that's on the horizon, hopefully, Akron would.

But I think, you know, eventually we'll ultimately get there because there's a better advantage to doing that.

Yeah, maybe that's a good lead in, unless you guys have anything else to say about Prime Trust, to Rob Leshner's new venture.

So Rob Leshner has a new venture called Superstate.

And I think maybe even before we get into the weeds and details of what Rob is doing, it's sort of a real world asset play, but I think that has the connotation many people think about putting commercial real estate on the blockchain, and that's not necessarily what real world assets look like today.

So Michael or Vance, can 1 of you guys kind of give an overview about how you think about real world assets and maybe sort of the quality of some of the entrepreneurs that you see coming in and then we can kind of get into what Rob's actually doing.

I mean, I think real old assets comes with so many different flavors.

Like to your point, it could be, historically it's let's put apartment buildings on the blockchain.

I think it can span from let's, and there's a number of providers now doing this, like let's have representation of treasury bills on chain so that people on chain can get access to the yield that's being generated by T-bills.

I think the other aspect on the other end of the spectrum is let's do something that's native to the DeFi ecosystem.

Let's say it's ETH staking or a leveraged ETH staking even, but it's going to be a 506B fund that is regulated with the same controls that you would have if you were doing this with a subscription agreement and paperwork.

It's going to have the same type of stuff, but it's all going to be represented on chain and therefore sort of in this permission to ecosystem.

So I think you can kind of have both and call them real world assets on chain.

I'd be really, really curious to see where Rob thinks about product offerings that he's going to be giving with Superstate, Superstate, whatever it's called.

I think that you can think of the blending of, okay, we bring something on chain that is represented off chain and historically by legal agreements, or we create something new and novel that's a product that really should just be like an LP pool, but because we need to go through the same safeguards and attract new potential investors that have to go through the same regulated offerings, it's going to be something that looks like an LP pool, but with the same controls that you would have if you were just subscribing to a fund.

of the details of Superstate, I'm just reading from the release here.

Rob Leshner, the CEO of Decentralized Lender Compound, submitted filings to U.S.

Securities regulators for Superstate, a new company that will create a short-term government bond fund using the Ethereum blockchain as a secondary record-keeping tool.

So basically the idea is to bring, we've talked about people in crypto seeking yields that are offered in tradfi now, Fed funds is higher than it's been in quite a long time.

And it was only a matter of time, I think, before crypto tried to harvest some of those yields.

I think 1 of the key things to understand here is that the fund is going to rely on a traditional Wall Street transfer agent to keep ownership records.

And Ethereum will kind of act as an alternative or a secondary record keeping service.

So before we get into the details, because I actually think it's a great idea and we need to bring more collateral in, I think there's the rub a little bit.

So question to you guys, I would assume that this is an issue for all real world asset type things, but what happens in the event that the Wall Street transfer agent and the Ethereum sort of record keeping service, they don't necessarily agree?

I mean, that's depending on who you ask, that's either a benefit or something that makes this not permissionless, not acceptable as crypto collateral, et cetera.

So in a world where you have a white listed access to this asset and the custodian of the actual T-bills or real world assets determine who actually owns it, the only person that can hack you is yourself, you know, or the people who are issuing this asset.

The other side of that coin is like, let's just say that I put a T-bill real world asset in a Uniswap liquidity pool and it gets hacked, all of a sudden you can just say, you know what?

It upsets a lot of the natural balance that you kind of come to expect with permissionless assets, but these aren't permissionless assets.

These are actually, in most cases, shares of a fund, an LP fund, not an LT Unithwap pool, but an actual registered fund either in the Cayman Islands or the US.

And so it kind of upsets a little bit of that.

And that's like 1 of the less understood parts of this is that if you are not whitelisted, which means you are not KYC'd, you are not signed up for the fund, you can't actually hold these assets.

Imagine framework going and selling stakes of our fund to people that we didn't know, didn't KYC, didn't file any documents with us.

There is some interesting middle ground there where you can put all these T-bills on chain.

You can put all of them on chain, you can build a lot of them, and then you can have a stable coin protocol.

And there's a couple of these going around, Ondo's building 1 of them, where you can issue a stable coin against the T-bill.

And is that stable coin part of that fund?

Can that stable coin go to other people that are not KYC'd?

A lot of the current, if you look at USDC or USDT, would suggest that that actually could.

And so the real world asset push is twofold.

Number 1 is bringing all the collateral on chain.

But we need to get the collateral moving around being used on chain.

The on chain can't just be like the receipt of what's going on off chain.

And I think the stable coins are going to be a big part of this.

And as I'm looking at this, I'm just also looking at USDC kind of continuing to bleed out.

Like I would be very surprised if this wasn't part of their new strategy, but maybe not.

to hammer that home or double click into it.

In this example of the T-bills or framework LP tokens living on chain, you kind of have 2 options.

You either make them non-transferable and only the transfer agent like contract on chain can touch the contracts that represent the tokens on chain, or you have them live in a permissioned ecosystem where it kind of goes back to what we were talking about with USDC, like wherever the native minting happens, that's where the canonical example of USDC is.

If you're using a bridge to get there, it's just not the same experience, not the same representation.

If every single transaction has to go through the transfer agent, let's say you're in a permission walled garden experience of permission defy, you've been KYC, you've got, I don't know, framework tokens, you've got T-bill tokens, you've got like Apple tokens, and they all live in this ecosystem.

But every single time you want to make a transaction, it has to go through an intermediary contract that is represented by the transfer agent.

That's not necessarily DeFi, but that's kind of like the other option, the other available option right now.

And so we still have to figure out how to do that.

It's almost like how you can have something live natively on chain and a transaction on chain has the same stature and status as something that is regulated and adjudicated by the transfer agent, we're not there yet.

And I think, frankly, rules will have to change for that to be the case.

Just in the same way that when you used to sign something online, There was a law that was passed for digital signatures to be represented in the same legal stature as physical signatures, which is why DocuSign and HelloSign and all those things actually started to exist.

We need the same type of designation here for blockchain transactions that have the same effect as financial transactions.

Just to expand on that even more so, if you think about USDC in your retail, how are you getting NASPs?

So you're usually on Coinbase, you're taking USD, you're converting it to USDC, and then you're putting it on-chain.

And the big thing there is that you have distribution from Coinbase.

And that's what allowed USDC and USDT to go to 100, 120 billion plus of stablecoin market cap.

What you need in this sales process is you need Robert Leshner in a suit going to these Wall Street institutions saying, hey, put some of your cash management on chain and we'll give you additional yields.

But you're going to have people selling to Wall Street institutions, trying to get them to LP or put their LP tokens on chain.

And if you think about what Leshner won't have, is he won't have Coinbase being able to mint these T-bills to retail.

So you're not going to have that natural distribution advantage, but you're still going to be able to run an asset manager at a far lower cost, at least we think, than the traditional asset managers in the space, just because all of your clearing, your settlement, your compliance, your tracking, that's going to be on chain.

The other side of that coin is we talk to a lot of these real world asset managers and there's probably like 10 of them.

The entrepreneurs in these things are super talented.

He can get in the door with any Wall Street institution he wants.

We think there's probably in the next couple of years, at least 10 billion of pipeline, maybe 100 billion on the table.

And if you look at all the real world assets on chain today, it's only a quarter billion.

And so there's a lot of growth that you can get.

But the business model and what it ends up looking like, it's probably somewhere between what Bitwise is today and what Circle is today.

You know, it's not quite as dynamic on the distribution side as Circle.

You're not going to get that natural flywheel of retail being able to mint this stuff.

But it's not quite as slow and cumbersome as like, you know, a traditional fund and running that.

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Are You Bullish or Bearish Onchain RWAs? | Roundup