finance
Crypto assets and blockchain technology are about to transform every trust-based interaction of our lives, from financial services to identity to the Internet of Things. In this podcast, host Laura Shin, an independent journalist covering all things crypto, talks with industry pioneers about how crypto assets and blockchains will change the way we earn, spend and invest our money. Tune in to find out how Web 3.0, the decentralized web, will revolutionize our world.
Paul, co-founder of FOMO, addressed criticisms of the platform's focus on meme coins, stating that their vision extends beyond what is seen on social media. He explained that FOMO aims to become the "social graph of all of finance" by simplifying on-chain trading and discovery, making it accessible to everyone.
One speaker attributed significant P&L improvements to trading activity influenced by news surrounding Hunter Biden's laptop. This strategy involved capitalizing on social hype to create or trade copycat coins.
Paul described FOMO as the "first truly cross-chain gasless trading application," highlighting its speed and ease of onboarding. He contrasted this with traditional financial onboarding, which he said can take days.
One speaker recounted spending a holiday weekend engaging in 'trenching' and learning 'expensive lessons' through trading. While not specifying the exact assets, the speaker indicated a net positive outcome of around 10% despite incurring losses.
Paul of FOMO characterized on-chain trading as a significant revolution in finance, comparing it to the computerization of trading in the 1970s. He highlighted its potential for global distribution and its function as the largest social network ever created.
AMC CEO Adam Aron has publicly denounced Robinhood's issuance of tokenized AMC shares, calling them 'contemptible, outrageous, disgusting, detestable, inexcusable, vile.' He stated that AMC has no affiliation with these tokens and does not endorse them. Robinhood's CEO, Vlad Tenev, questioned the concern, while AMC demanded a voluntary cease and desist.
A discussion clarified the nature of 'stock tokens' like those issued by Robinhood, explaining they represent debt securities that offer exposure to share price but not actual ownership or shareholder rights. These tokens are reportedly unregistered in the US and not offered to US persons.
In a curious turn of events, AMC stock saw a significant overnight jump of nearly 21%, reaching $3.07, coinciding with the public dispute between AMC CEO Adam Aron and Robinhood over the latter's tokenized AMC shares. This price movement occurred despite the negative tone of the dispute.
The dispute between AMC and Robinhood raises questions about the legality and broader market implications of stock tokens. While Robinhood claims to have done their homework, AMC's CEO argues that such tokens undermine capital formation principles. Experts suggest the SEC should provide clarity on the 'grey area' surrounding these financial instruments.
During the discussion, derivatives were characterized as tools for risk transfer rather than capital formation. While acknowledged for their historical role in managing uncertainty for producers like farmers, the conversation raised concerns about the current trend of 'derivatives for the sake of derivatives' potentially increasing systemic risk.
The conversation touched upon venture capitalists (VCs) and their tendency towards 'shiny object syndrome,' sometimes leading to investment in speculative use cases within the digital asset market that may not be addressing real-world problems. While acknowledging that some shiny objects can lead to powerful innovations, the speakers noted a concern when these are applied broadly to areas like derivatives without a clear principal use case.
The Ninth Circuit Court of Appeals ruled three-zero that Nevada can enforce its gambling laws against Kalshi's Sports Event Contracts, with Judge Ryan Nelson calling them a "quintessential form of gambling outside the CFTC's purview." This ruling directly conflicts with an April decision by the Third Circuit, which held that Kalshi is regulated by the CFTC, creating a circuit split that could lead to Supreme Court involvement.
The Gaming Association has declared the Ninth Circuit's ruling a significant victory for consumer protections and taxpayers, and a major loss for Kalshi and similar backdoor sports gambling operations. The association's CEO stated that the ruling clarifies that Kalshi's sports contracts are a form of gambling.
A CFTC spokesman, Zach Fulton, stated that a derivative contract structured as a swap is a swap regardless of its underlying subject matter, and that the Ninth Circuit erred in its ruling. The CFTC maintains that it has federal preemption over these markets and that derivatives on commodities are clearly regulated under the Commodities Exchange Act.
Kalshi is "disappointed" by the Ninth Circuit's ruling, stating they did not expect it. The company argues that prediction markets are fundamentally different from sports books, operating like commodities exchanges with fair and competitive pricing rather than a book generating prices against the user. They highlight that their platform promotes healthy price discovery and allows users to profit, which improves the aggregate quality of market predictions.
Kalshi contrasts its platform with sports books, stating that if a user makes money on Kalshi, they can continue to trade, thereby improving the market's predictive quality. In contrast, sports books may ban successful bettors. Kalshi asserts that users enjoy their platform for price discovery and value, and winners do not perceive it as gambling but as trading derivative contracts.
Despite the conflicting court rulings, Kalshi reports that its volume continues to grow week over week and month over month, with millions of users actively using the app. The company emphasizes that this growth is driven by user enjoyment of price discovery and perceived value, not by any form of coercion. Kalshi has expanded its market offerings significantly, from 4,000 markets seven months ago to 10,000 markets currently.
Chris Perkins suggests the CFTC strongly believes it has federal preemption over event contracts, considering them within its jurisdiction as derivatives on commodities. He notes that the Commodities Exchange Act clearly regulates such derivatives, and the CFTC has significant discretion over the underlying markets they regulate, a view Chairman Sielig has publicly supported.
Kalshi's CEO described how various individual enterprises, from ice cream shops hedging rent against weather to kayak renters and boat charters hedging against wind or hurricanes, use their platform to hedge business risks. This capability, previously available only to large corporations, now de-risks businesses across the US, fostering growth and investment.
A recent calibration study by Kalshi analyzed 2.2 million data points and found that their markets are highly calibrated to actual event outcomes, even a week in advance and with as little as $50,000 to $60,000 traded. This indicates that institutional-sized volume is not required for a well-calibrated market, allowing smaller enterprises to effectively hedge their risks.
1inch has introduced Aqua, a new shared liquidity platform designed to address the issue of concentrated liquidity sitting idle in DeFi. Aqua allows liquidity providers (LPs) to back multiple positions with the same token balance, enabling them to keep tokens in their wallet for swapping. This innovation aims to increase activity and liquidity depth across various market conditions and pairs.
The price of Bitcoin has surged past $80,000, driven by a significant increase in ETF inflows and macroeconomic factors. Secretary Basset's actions to manage the long end of the bond curve are seen as stimulative to risk assets, reviving the "debasement trade" narrative. This rally has reignited interest in the broader crypto thesis.
President Trump's mention of "Hyper liquid" at a White House crypto summit appears to have catalyzed a significant price increase for the asset. Trump stated that CFTC Chairman Cleg is working to bring Hyper liquid into the US in a compliant manner, leading to a rally above $80.
Discussions around Hyper liquid's potential entry into the US market highlight the tension between regulatory compliance and user experience. While many desire frictionless access, the reality is likely to involve KYC and market surveillance, akin to Liyer's approach in Europe.
The King of Bhutan has expressed significant enthusiasm for AI and has been exploring technologies like Kimmy D3. Notably, he also has a history with Bitcoin mining, having mined it when the price was as low as $4, showcasing an early adoption and visionary approach.
The Clarity bill's chances of passing this year appear slim, with current market odds around 15%. Projections suggest a 50/50 chance of it passing before the end of 2028. The bill's progression is a point of interest following discussions at a recent White House crypto summit.
A speaker observes that while the US market has an 'off relationship' with tokens, often oscillating between love and hate, Asia maintains a consistent enthusiasm for new tokens. This persistent interest in Asia is seen as a contributing factor to the current market energy.
A Bitcoin soft fork, specifically a reduced data temporary soft fork, has been implemented to limit OP_RETURN outputs to 83 bytes and taproot witness pushes for one year. The goal is to mitigate Ordinals and ERC20 spam on the network. The change was proposed by an anonymous developer and championed by Luke Dashjr.
The speaker criticizes the perceived hypocrisy of some 'OG Bitcoiners' who, while historically advocating for anti-censorship, are now pushing for measures that equate to censorship. This shift is seen in their support for actions that restrict certain uses of the Bitcoin network, such as ordinals and token spam.
A proposal, identified as BIP 8361, suggests significantly reducing Ethereum's staking rewards, potentially to zero. The mechanism involves burning a rising share of validator rewards as the staking ratio increases, reaching a 100% burn rate at 60.25 million ETH staked, or roughly half of the total supply. This phased approach, intended to be implemented over 18 months, would burn newly issued ETH, not transaction fees or tips.
Mike Silagadze has voiced concerns regarding the speed of a proposed monetary policy change for Ethereum, suggesting it could lead to an exodus from the top 10 protocols and a dramatic loss of confidence. Stanny from Ave described the proposal as one of the most resisted in Ethereum's history, criticizing the Ethereum Foundation's 'ivory tower academic approach' as disconnected from developers.
Seth expressed initial surprise at the Ethereum staking yield proposal, leaning towards the view that it might be an academic exercise rather than addressing a pressing issue. He highlighted the need for broad community discussion for such fundamental changes and stated that the proposal seemed like a 'solution looking for a problem' at this time.
Chris views the Ethereum proposal positively, suggesting it means the Ethereum Foundation (EF) will 'eat its own cooking' by not controlling the network's direction. He believes the proposal will fail because the community and value-accruing applications do not grant the EF that control. Chris also emphasized the importance of yield rates in blockchain economies and the need for transparent, community-driven rate adjustments.
Seth believes that staking saturation poses an existential problem for Ethereum, explaining that too much staking can incentivize stakers to attack the network, while too little compromises security. He sees the proposal to reduce yields as an attempt to find an equilibrium point and considers the discussion and potential passing of this proposal to be 'incredibly bullish' for Ethereum's maturity.
A significant vulnerability in the Coldcard hardware wallet, stemming from flawed entropy (randomness) generation, has been discovered. This issue dates back to 2021 and has potentially compromised private keys for users over the past five years, leading to ongoing fund drains.
The Coldcard hardware wallet hack has resulted in over $100 million worth of Bitcoin being stolen, amounting to approximately 1,600 to 1,800 Bitcoin. The attackers are reportedly mining five years' worth of compromised private keys.
The non-custodial nature of Coldcard wallets makes it difficult for the company to warn users about the seed phrase generation vulnerability. This is because Coldcard does not hold user data, preventing them from proactively alerting customers to move their funds.
Analysis of the Coldcard hack reveals at least four distinct 'waves' of activity, suggesting the possibility of multiple threat actors. Each wave is believed to represent a separate cluster of malicious actions, though the exact number of attackers remains unconfirmed.
Reports suggest the Coldcard development team may have antagonized security researchers and engineers, potentially hindering early detection and resolution of the entropy generation flaw. Some researchers claim they attempted to engage with Coldcard about code base issues but were met with uncooperative responses.
While there is speculation about AI's role in discovering the Coldcard vulnerability, it is acknowledged that exploiting it requires significant computational power for mining compromised private keys. The attackers are effectively 'mining' for these keys rather than a direct exploit.
The hardware wallet manufacturer Coldcard has experienced a significant security breach, with approximately $100 million in Bitcoin being drained from user wallets. A vulnerability in the device's random number generation (RNG) system, introduced five years ago, allowed for the creation of weak private keys that were easily crackable.
Artificial intelligence tools were instrumental in discovering a critical vulnerability in the Coldcard wallet's code. One AI model reportedly found the bug in just eight minutes, while another, without internet access, identified it in 20 minutes at a cost of approximately $2.
The recent Coldcard wallet exploit has led to discussions about the future of self-custody in the crypto space, with some suggesting it's a 'death of self-custody' moment. Others have commented that it might signal the end of Bitcoin maximalism, though the immediate impact is likely on Coldcard's reputation and business.
Tom suggests that the Bitcoin maximalist developer community may not prioritize rigorous security practices like regular audits, drawing a parallel to their skepticism towards certain dietary advice. He points to historical exchange hacks stemming from poor entropy generation as evidence of this trend.
A speaker argues that the resistance to Bitcoin upgrades and changes, particularly from miners and large holders, may have contributed to the ecosystem's security issues. The sentiment of 'rough is forever' has allegedly stifled necessary development, even affecting user wallets.
A systemic flaw related to entropy and key generation in Coldcard Mark 3, 4, and 5 hardware wallets has led to a significant drain of Bitcoin from over a thousand wallets. The exploit is believed to stem from a miswired random number generator in a firmware update from March 17th, 2021, which failed silently and led to the use of a weaker entropy source for key generation.
Alex Thorne, an expert in on-chain forensic tracing, has identified at least three distinct waves of the Coldcard hack, with a potential fourth wave emerging. Thorne detailed that Wave 1 and 2 involved bulk transfers to collector addresses, while Wave 3 used a different topography with one victim per vault. The difficulty in tracing lies in the thousands of previously unconnected Coldcard addresses.
The Coldcard hack is characterized as a core cryptography exploit, not a Bitcoin-specific issue. Alex Thorne explained that a poorly generated pseudo-random function for seed creation could impact any system using that cryptography, including email providers or other blockchains like Ether or Solana. The failure was due to software and firmware not properly routing key chains through the random number generator.
The software development failure leading to the Coldcard hack, which remained unfound for approximately five years, is attributed to insufficient eyes on the codebase and a lack of proper review. The codebase was not fully open source, and commits lacked comments. It's suggested that AI may have assisted in uncovering this vulnerability, though it wasn't necessary for its initial discovery.
The Coldcard hack, where high levels of compute allowed attackers to derive seed phrases, is seen by some as a potential precursor to quantum computing threats. While quantum threats are different, the ability to derive seeds across a vast space is a shared fear. This exploit might serve as a wake-up call for the community to focus on high compute threats, potentially impacting not just Bitcoin but all financial services.
Alex Thorne strongly advises any Coldcard user with funds in single-signature or multi-sig addresses to move them immediately. The ongoing exploit, which began early Thursday UTC, has seen significant Bitcoin drains. Thorne is actively tracing funds and working with law enforcement and crypto intelligence firms to flag addresses and potentially aid in recovery.
Carlos Domingo, founder and CEO of Securitize, explains the company's decision to go public, contrasting it with the trend of startups staying private longer. He cites the opening of the IPO market for crypto companies and the inspiration from Circle's public listing as key factors.
Securitize tokenized over $265 million of its own stock through a SPAC with Cantor Equity Partners, while also pursuing a traditional listing. CEO Carlos Domingo believes the tokenized equity market is not yet ready to operate solely on-chain due to liquidity concerns.
Carlos Domingo refutes the idea that tokenized equity cannot be traded on-chain within the US due to regulatory hurdles. He asserts that companies claiming this are often engaging in regulatory arbitrage and prefer to operate offshore to avoid US regulations and licensing processes.
Carlos Domingo criticizes crypto companies that operate offshore to avoid US regulations, comparing them to failed 'shadow banks' from 2021. He believes this approach is unsustainable and that regulators will eventually catch up to illegal activities.
Carlos Domingo compares the nascent market for tokenized IPOs to the early days of retail access to traditional IPOs, pioneered by Robinhood. He predicts that tokenized IPOs will grow from small beginnings to become a standard practice for companies.
Carlos Domingo describes the traditional IPO process as a 'huge regulatory burden' and a long, expensive procedure. He expresses hope that regulators will simplify disclosures and the IPO process to encourage more companies to go public earlier.
Meta's stock fell 10% following its earnings call, attributed to an increase in capital expenditure (capex) and a Q3 revenue forecast slightly below the midpoint. The company provided qualitative explanations but lacked clear proof of revenue growth or a timeline for return on investment.
Microsoft's earnings call showcased robust Azure growth, reassuring investors after Meta's stock decline. Management's confident tone and maintained capex guidance, contrasting with Meta's increased spending, were highlighted as key positive signals.
A notable shift has occurred in big tech, where companies like Meta and Google, previously known for immense profitability and low capex, are now increasingly leveraging the debt market for tens of billions of dollars. This trend is underscored by Oracle's recent downgrade to near junk status, highlighting a new focus on free cash flow.
Assessing a company's health requires looking beyond income statement manipulations like expense reductions or stock buybacks, and focusing on the statement of cash flows. This is particularly crucial for growth and value investors, especially when major companies are heavily investing their capital.
The widespread adoption and tangible use cases of AI across various industries suggest the AI revolution is in its early stages, comparable to the second inning of a baseball game. While companies are demonstrating improvements in efficiency and productivity, the significant capex and potential for a 'domino effect' if the trend falters present considerable risks.
Kristen Smith of the Solana Policy Institute discusses the challenges facing the Clarity Act, which requires 60 votes to pass the Senate and needs to navigate a tight legislative schedule before the August recess. The bill's passage is further complicated by potential disagreements on ethics language and the scope of other related legislation.
The Biden administration has proposed legislation to delineate regulatory authority between the CFTC and SEC for digital assets. The proposal suggests the CFTC would oversee digital assets deemed commodities, while the SEC would regulate those classified as securities, using a test based on the economics of the transaction.
Sergey Nazarov, co-founder of One Inch, announced the launch of Aqua, a new shared liquidity VIO for DeFi. Aqua aims to offer an alternative to traditional pool-based liquidity provision by allowing users to define their own strategies and provide liquidity across 13 networks.
Sergey Nazarov highlighted several problems with existing DeFi liquidity pools, including being 'sandwiched' by bots and liquidity becoming fragmented. Aqua aims to solve these by allowing users to define their own strategies and keep assets in their wallets.
Sergey Nazarov cited research indicating that 85% of liquidity in DeFi protocols is idle, meaning it's not actively facilitating trades. He explained that Aqua's intent-based approach aims to increase liquidity utilization by allowing providers to set specific trading parameters.
Sergey Nazarov discussed how Aqua can be combined with leveraged looping strategies on platforms like Aave to potentially increase fees earned by liquidity providers. He suggested that by depositing assets into Aave, borrowing against them, and then using Aqua for liquidity provision, users could amplify their returns.
The Biv US index, which tracks options on iBit (Bitcoin ETFs), shows a slight premium compared to the global Biv index. This difference is attributed to the transparency and clearing house structure of US equity options exchanges. Both markets are substantial, with regulated ETF options and offshore markets each valued at around $25 billion.
While many crypto assets have something at stake with the Clarity Act negotiations, Bitcoin is argued to have the least to gain due to its established status as a commodity with limited on-chain activity beyond transactions. In contrast, Ethereum and Solana, along with DeFi and other applications built on them, stand to benefit significantly from increased regulatory clarity.
The Clarity Act is expected to bring much-needed transparency and definition to the regulation of digital assets, particularly regarding what constitutes a security or a broker. This clarity is anticipated to benefit the Ethereum and Solana ecosystems, as well as platforms like Hyperliquid, more than Bitcoin.
Analysis of the Biv index's term structure does not indicate an immediate spike in volatility related to the Clarity Act in the coming weeks. While no unusual patterns are currently observed, the speaker anticipates that the broader crypto market could look significantly different by the end of the year.
There is a significant institutional appetite for organized blockchain infrastructure and stablecoins, which could translate into increased liquidity for major cryptocurrencies like Solana, Ethereum, and Bitcoin by year-end. The current market is described as institutional-focused, with many pilots underway.
The UK's Financial Conduct Authority (FCA) published a significant package of final policy statements and guidance for the crypto industry on June 30th. This comprehensive rulebook, considered the final piece of the UK's crypto roadmap, covers stablecoin issuance, market abuse, prudential capital requirements, and disclosures, and may extend to certain DeFi protocols in the future. The new regime, which treats crypto assets similarly to traditional finance instruments, will take effect in the fall of 2027.
Jessie noted that the new UK crypto regulations are significant and largely positive, reflecting successful industry input on certain aspects, while also flagging some concerning points. V believes the UK is leaning into becoming a crypto hub with these rules, contrasting it with the EU's MiCA regulations and the ongoing regulatory uncertainty in the US. The framework applies traditional finance regulations to crypto, which V suggests may be challenging for smaller firms.
As part of its new crypto rulebook, the UK's FCA has adjusted capital requirements for stablecoin issuers in response to industry feedback. KK Catherine highlighted this as good news within the broader framework, which generally treats crypto like traditional finance. The new regime is set to take effect in the fall of 2027, providing firms with ample time to prepare.
Beyond the recently published comprehensive rulebook, the UK's FCA is also considering future regulatory approaches for market making and decentralized finance (DeFi). Jessie expressed optimism about the FCA's theoretical openness to DeFi, and the progress made in incorporating industry feedback on capital requirements. The specific consultation papers on these topics are still pending.
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