In today's episode, the fellas debate the SEC's attack on crypto, what's in store for Uniswap v4, if a protocol could vampire attack Lido, the US crypto exodus and more!
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Timestamps:
(00:00) Introduction
(02:28) SEC Sues Binance and Coinbase
(14:08) Uniswap v4, Compound vs Aave & LSTs
(23:09) L2 Momentum & Vampire Attacking Lido
(31:18) The Exodus to Asia
(38:38) Battling Apathy and Industry Sentiment
(42:54) Chainlink Swift Partnership
(48:13) Does DeFi Need Oracles?
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Resources:
DeFi Is Broken (Dan Elitzer)
https://twitter.com/delitzer/status/1661755779240841222
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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.

Welcome back to another roundup of bell curve.

Vance, I think we owe you a congratulations.

Yeah, we got the shout out from VCs congratulating themselves.

I mean, I bought 1 other book, and I thought it was a normal book, it's a fucking textbook.

It's like a thousand pages that just showed up with that.

Was it the Dalio, the New World Order book?

No, it's a hundred years of investment returns.

Maybe it's too much, but I'm gonna start digging into it at some point.

that every hedge fund, if you've given long enough time, eventually blows up?

That and being bullish is usually a winning strategy.

I think those are kind of the 2 lessons, especially if you read the long day it takes on finance, like the price of time or triumph of the optimist.

I think, even I've heard, even like Stan Druckenmiller, who I think he's that he makes his money in a bearish way, but most of the people, even like the famous macro bears out there made their money on longs, not shorts.

Yeah, I mean, I don't think I've known anybody in crypto who's made a career off of shorting.

I know a lot of people who've been completely destroyed by that.

So, you know, have anecdotes there as well.

you wanna get into the stories of the week here.

So obviously, I guess the caveat here would be that these have already been sort of talked to death.

So I want to spend a relatively limited amount of time on them.

But the SEC has come came after both Binance and Coinbase this week.

The TLDR is that the allegations against Binance were, I would say, much more serious than Coinbase.

So non-exhaustive list for Binance was that, so Binance, BAM Management, BAM Trading and CZ were all personally named as defendants in the suit.

The allegations are that Binance BAM trading sold unregistered securities, Binance co-mingled customer funds, I'll call back to SBF, Binance operated as an unregistered exchange, there was wash trading on Binance US, Binance and CZ solicited US customers, and a whole bunch of other things.

Coinbase is what's much more, I would say it's completely different actually.

And their allegation is that Coinbase operated as an unregistered broker.

There were securities, unregistered securities on that exchange.

The 1 that stood out there was Solana and Matic, but there were others listed like Cardano, Filecoin, Sand, and then they specifically targeted their staking program as well.

So There's a lot that's been said about this already, but curious just what sort of takeaways you guys had from the week.

Frankly, it's not a super differentiated perspective, but as it relates to both of these lawsuits, I think 1 of the things that we should keep in context is what's going on with whatever is happening with Ripple.

It's now June of 2023 and there isn't resolution on that.

There's been intermediate decisions and intermediate kind of things that have been admissible, things that have been dismissed.

But this is going to take years to play out for both of these situations.

And in the meantime, Coinbase came out and said, we're not shutting down our staking program.

We don't list registered security, unregistered securities.

All of this stuff is going to come up to a fight and it's either going to happen in the court or frankly, it's also going to happen potentially in Congress and there's going to be new laws, new rules created in the meantime.

So yeah, not a hugely differentiated approach.

I think on the Binance front, frankly, like everybody was wondering where Catherine Coley was.

part of all of this is that Coley's back.

Seems like Brooks and Coley have been sharing information.

And you would also kind of assume, with the level of the allegations that are happening in the Binance suit, I wouldn't be surprised if there's something from the DOJ at some point.

Just because it looks and feels a lot like the SBF, FTX, Alameda stuff.

Not saying that a suit means that they're guilty in any way, shape or form, all that stuff has to get adjudicated, but it just feels like that's the direction that things are moving for Binance.

Honestly, I don't really have that much to add there either, I think.

The market, there were 2 things that were interesting.

Gensler was out and the SEC, they were obviously trying to paint Binance as FTX 2.0, but If you look at the outflows of Binance, here I can pull the chart here, it was pretty just business as usual, like normal day, you know?

I think it's nice that you got this out of the way also.

You had the well-known as hanging over Coinbase for like 6 months.

You know, I remember Tether in the last bear market that like kind of resolving was 1 of the points where things got a little bit more optimistic.

But you know, there's no alpha in my opinion, like worrying about this regulatory stuff.

Like it's either, you know, like a full cycle away.

So like the next bear market is like when this might resolve.

But ahead of that, to Michael's point, there's like legislation, there's court cases, there's so many different things that could supersede this that, you know, who really cares in my opinion about this.

Probably just like traditional media news outlets that are trying to make a narrative out of it.

I actually think there was a bit of a market signal which was, you know, it's not like prices really reacted super negatively to this, especially post the Coinbase news.

And generally I view it as a positive sign when there's really bad news, but prices don't put in a new low.

So I thought that was actually kind of a silver lining.

Yeah, I mean, for all of the media consternation from the mainstream, ETH is up just about as much as NVIDIA this year.

And NVIDIA is the best performing asset in the S&P.

So like, there's kind of, I get this feeling that like, perception is like more, it's just like a bit more doomer than reality at the moment.

It's good to kind of just like take a step back and look at the prices and just see that it hasn't moved.

It's kind of like, you know, in scary movies, when you have the whole like 2 thirds of the movie where you're chasing around and you're trying to figure out what the monster is and the monster's coming to get you, but then you finally see the monster and you're like, oh, that's just animatronics.

It is interesting if you think about how risk-averse Coinbase used to be.

I forget if back in the day we were waiting for them to list ETH, because it was just like Bitcoin and Litecoin for a while.

And now it's the total different way and they're not really as scared seemingly of the SEC anymore.

Yeah I think that was sort of an internal fight between Balaji was at Coinbase at the time He was their CTO and there was someone else who had more of a trad5 background.

Yeah, I don't remember that being a regulatory reason for them.

I think that was just like, are we trading Bitcoin only or adding stuff?

It was May of 2017, no it was 2016 that they added ETH.

Or they rebranded Coinbase Exchange to the global digital asset exchange GDAX.

Well, I think they had, their UI was basically like a basic swap and then they added GDAX for professional traders because that was a, I believe that was sort of like a Fred or some desired goal.

Cause he wanted it to be for more like a trading experience.

They're coming out, like all the C5 exchanges are getting attacked right now.

It makes you think about like just the role.

Okay, so basically like there are 3 groups in traditional markets that perform different actions, right?

You have the exchange, which is like, brings together the buyers and the sellers and like, is the marketplace for the buyers and sellers.

Then you have the broker dealers who represent the customer and like bring the trades from the customer to the exchange.

And then you have the clearing house, which settles the trades and sometimes the custodian as well.

In DeFi, this would be in like CFi right now, there's like this kind of weird co-mingling of like, there's no broker dealer because like the user has their assets on Coinbase, then like the settlement is like sometimes with Coinbase, but sometimes just on the L1, like on ETH.

It just makes me think about like, what is the role of CeFi in the next market?

Is this just a stopping point on the way to the inevitable?

Like, let's translate that to DeFi, exchange, Uniswap, broker, Metamask, clearing agency, Ethereum.

And it just makes me think of like, what is the role of CeFi, not in like the next year or 2, but in like 5 to 10 years from now?

There's a bunch of interesting stuff that's being, A bunch of startups that have recently gotten funded that are probably going to be in market in 6 or 12 months.

The things that we see that are going to take advantage of this change in market structure are bilateral trading desks that are based in New York to replace the Genesis's of the world that no longer exists.

Places like Biduta, places that have access to the CME.

And recently the CME has been seeing a ton of new volume.

So there is interest from the traditional institutions and they're starting to trade there a bit more in size.

And then there's things like payment for order flow, which frankly work at an abstraction level closer to retail.

Those aren't really institutional funds trading.

That's more so just servicing the order flow from those wallets, but those are coming, kind of just different participants, lit markets, people with different structures as with relating to things like custody and how you trade out of a separated custody account.

There's like a lot of really interesting things that are being shipped right now.

And on the other side, you have probably a lot of market makers that are also getting bootstrapped.

And those are going to start replacing like the Jane Streets and the jumps of the world as they pull back.

So it does feel like there is this healthy rotating of the guard, but also like new technology stepping in to fill the market structure gaps, and then you also have just like DeFi running alongside that and getting a different part of the market.

I think the things that could change are, if there's legislation and that literally changes the market structure, that creates a lot of very interesting new firms, that makes ETFs possible.

Places like Bitwise probably get share from that.

So there's a lot of just different tailwinds that this space is riding at the moment.

I feel like we're pretty positive on it, Michael.

I mean, I was going to jump in on the last point there and say the same thing, which is, I think actually, you know, in the eyes of what has been happening in D.C.

Or New York, wherever these lawsuits are, these suits are being founded.

The biggest thing that happened this week was the market structure proposal.

And I think the quick TLDR is it provides a lot of black and white playbook for how things like stable coins should work, for how registration should work for token projects, how something goes from a security to a sufficiently decentralized commodity.

And that market structure will fundamentally change the way that DeFi interacts in the current status, where If you're an insider, a founder or an investor in a protocol versus a user, you're going to have different designation of the tokens for the first 12 months.

You're not going to be able to sell them if you're an insider, you have to disclose all of the holdings.

It'll eventually transition to something that's sufficiently decentralized.

That will move from trading those assets from an ATS to a CFTC registered and compliant exchange.

Like the market structure is going to get a lot more complicated as regulation starts to come to the forefront.

But I do think it's going to look and feel a lot similar for end users.

It's just going to be the venues of where things trade when is going to change pretty fundamentally.

It's not really just going to be like the exchange is Uniswap.

It's going to be, yeah, sure, maybe eventually Uniswap can be an exchange, but for the first 12 months, it's going to be 1 exchange.

And then after that, it's going to be a different 1.

And if you're based in the US, it's going to be something else.

So maybe it's the wallets and the broker dealer designation here that has to figure that part out and route accordingly and manage the customer relationship accordingly and be registered accordingly.

But there's a lot of movement in a very positive direction that we think about.

I'm also curious, what do people think, there was a Uniswap P4 teaser this week, or maybe like Easter egg, What do people think they ship?

There's a budding debate in the MEV world between sort of application specific order flow auctions versus more generalized order flow auctions like a suave.

And I think Uniswap probably takes some kind of step at that.

What do you think, what do you think, Vance?

I think like the AMM market is probably good enough.

I don't see another innovation in that space really getting them from 0 to 1 in terms of just more market share or just growing the pie overall.

I think their problem historically is they've been hamstrung by having to vote through these deployments on these different chains.

And it probably works if you can have something that is functional at a level of abstraction over everything.

So you can kind of service order flow on any chain on any type of block space that exists.

So that would definitely be a departure in terms of, you know, Uniswap is so simple and that's kind of like where its beauty comes from and why it has a lot of usership, but maybe they kind of take a step in a more aggressive direction with something that's a bit further out there and plays at a different level of abstraction.

think there are sort of 2 trends in AMM design that are diverging around maybe Uniswap versus something like Curve, I think is interesting.

And it kind of has to do with their assumptions around supply side and liquidity.

Like Uni, like the, the jump from V2 to V3 was kind of based on the assumption that you would have more sophisticated market makers.

Like it's much harder to be an LP on V3 than it was on V2.

And we've talked about this on previous shows.

I don't have great evidence around this, but from what I've kind of heard, it's, it's very concentrated in terms of who provides liquidity on V3.

So I would bet you that their design sort of capitalizes on that, uh, in V4.

And there's some sort of OFA like order flow auction type thing so that you can give a better experience for users.

The Curve is almost taking the opposite approach.

They're sort of banking, they've made it easier for retail to be LPs on the new design of their exchange.

And they're sort of lowering their fees and they're trying to subsidize that with fees from their stable coin.

So it's kind of 2 very different designs.

I'm interested to see how it plays out, frankly.

Yeah, that last playbook you described is only possible in Switzerland.

U-Swap's not issuing a stable coin that they can do different things with the fees with.

Their design space is a lot more concentrated.

I think the benefits of having a bit more expanse of a playbook where you can do different things with the fees, you can make it more reflexive have blown people up.

And so there's drawbacks to that that aren't immediately apparent.

But I think if you asked Hayden would he like a bit more design space to work with, he would probably say yes.

It's just a matter of like, do you take that and then light yourself on fire?

You know, it is interesting, like you could probably draw that analogy across a couple of different examples in crypto.

So in the CeFi space, there's like the Binance versus the Coinbase approach.

Then there's kind of like Aave versus Compound and then maybe Curve versus Uniswap.

I think it's sort of like, we'll see which 1 of those strategies ultimately ends up.

I actually think the Aave versus Compound is pretty interesting.

I think a lot of people have sort of slept on the new upgrade to Compound.

In general, I know people really like Aave is great.

They ship a lot of stuff, but they have very different strategies.

And it seems like compounds is more like people want to borrow and lend stable coins.

So let's make it as capital efficient as possible to borrow and lend stables.

Whereas Aave is like, you should be able to supply collateral and borrow lend with anything that you want.

And so far that's been the winning strategy, but I'm not sure it's gonna be into the future.

I would also say, I don't think, you can't necessarily say that everything is apples to apples in the sense that, there are different markets between swapping spot assets, borrowing spot assets and exchanging and doing derivatives and all that.

These are companies and it was just announced today, but like Lens is something that they're working on an Aave.

It's sort of like, you know, there's just a bunch of things that are going on inside of all of that, that dictate a lot of the direction of where those things go.

So it's not like we're going to take this strategy and we're going to go full bore into this direction versus, you know, that strategy in that direction.

I'm stoked for all these stable points to get to escape velocity though.

I saw this position on D5moon, the Twitter account, retweeted it where someone had taken I think it was like 7 steeth and looped it with Curve until they had 35 steeth.

This is where, in my mind, this is where some of the credit is gonna come from for the next run.

We still haven't seen any recovery of the dollar lending markets in crypto, but these seem to be the next best thing.

I think like 1 of the, like we've talked about it on this show, but 1 thing that at least I didn't understand in the last bull market was where leverage was getting introduced, which was via Grayscale.

Just didn't get that sort of loop between the arbitrage that was being run.

And probably there's some sort of combination of like an eigenlayer re-hypothecation plus like the, you know, liquid staking tokens reaching escape velocity, which is probably good.

That probably injects a little healthy leverage.

I mean, you can kind of already start to see it.

People leaping these things, chasing yields.

There's broad market fit for that, for better or for worse.

I'm just trying to find this chart on the growth of some of this stuff.

This is 1 of the more interesting charts that I saw over the past couple of days.

I think this is definitely Blockworks, analyst sourced, your army of interns.

This is a chart of wrapped ETH versus LSTs.

And I didn't know that wrapped ETH was this prevalent, but at 1 point, almost 7% of the supply of ETH was in wrapped ETH.

And you just see like, you know, like that kink from 7% down to 3% contrasted with the kink up on the LSTs.

more of ETH just sitting on chain that will probably stake at some point.

The key point here is that Weath wrapped ETH is what was technically used for most of DeFi.

Because you had to wrap it to be able to put it into smart contracts to be able to, you know, use this collateral or whenever it may be.

So it's basically like defy 1.0 versus what you can probably say is defy

All right, say that again, Michael, say that last sentence again.

Defy 1.0 would be wrapped ETH on this chart.

I mean, it seems pretty obvious at this point, LSDs are just gonna continue to grow as a replacement to ETH and WETH.

Sort of like, okay, here's an asset that you can use as collateral.

I feel like we've already talked about this a little bit, but I'm curious if you both, do you think we'll see, I mean, we talked about this last time a little bit, will we see a hard cap or like some sort of tax proposed on Lido's market share?

There's no taxes or hard caps or gates in the protocol right now.

I think that would require, Like, you also risk splitting the community, frankly.

Like, if 1 of the LSTs has 20 million ETH and people are like, all right, we're gonna hard cap it, like, does that community just take it lying down?

You know, It kind of reminds me of the Bitcoin chain wars back in the day.

Like it's an argument over basically the same thing, which is like the economics of the protocol.

It's gonna be a pretty interesting Q3, Q4 for ETH.

You have, what's the next upgrade called?

Cancun you have a, you have P4A4F4, ProtoDank, Sharding, reducing L2 fees by a lot.

You have like Steeth, Flippening, Wheath.

I think you're going to see a lot of that.

I mean the short term, the 4A4F4, like I think it's very exciting.

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SEC vs Crypto, Uniswap v4 Predictions & Lido Vampire Attacks | Roundup