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Speaker A: He's drinking coffee.
Speaker B: Look at his mug. Yeah, with his mug.
Speaker A: I like my coffee dark.
Speaker B: What is that?
Speaker A: What's on his mug? David, podcast listeners, he is drinking a mug of Joe Biden's bust 2024 with some glowing, deep red laser eyes.
Speaker B: Laser eyes.
Speaker A: Laser eyes.
Speaker B: Bitcoin laser eyes. Wow. Where did that commentary? Yeah, I don't think it's related.
Speaker A: I don't think it's related.
Speaker B: Unfortunately, David, even though there was some hope or speculation, I think this is a different meme from a different corner of the Internet that crossed into crypto for a brief moment here. It's like a dark Brandon meme. I think that his campaign is using.
Speaker A: Let's not.
Speaker B: It's nothing to do with bitcoin. All right, well, let's try to unpack this a little bit. Even though we don't know too many details. Is Huobi insolvent? That is a centralized exchange. I believe they're based in China and a fairly large one, at least, like, you know, at some point in time was top five. I'm not sure where they stood right now, but there's some questions around it. What do we know so far?
Speaker A: So some financial media organizations in Hong Kong have reported that several executives at Huawei have been taken away by police in China. A spokesperson for Huobi denied this. Huobi stablecoin exchange balances dipped by 33%, so they lost a third of stablecoins. So almost $50 million has been withdrawn from Huobi. I'm pretty sure I remember this story happening, like, two years ago. Exactly as written as with Huobi. With Huobi, yeah. Rumors of Huobi, insolvency, executives taken away by chinese government, and then nothing happened.
Speaker B: So what do you think is another.
Speaker A: I don't know. I don't know.
Speaker B: All right, well, don't keep your funds on centralized exchanges, kids. Another reminder. David, you'll never guess this headline. With AI booming, Gary Gensler wants to keep finance safe for humans. The head of the SEC is focused on the risk to markets and investors when AI is making trades and recommendations. David, this is Gary Gensler. He is pivoting from crypto to AI.
Speaker A: Great.
Speaker B: Yeah, focusing on AI.
Speaker A: Keep on focusing on AI. I think this just like, this is the emperor is wearing no clothes, and it proves it. It's just like Gary Gensler is just trend following as the influencer that he is. And now he's focused on AI because AI is totally going to disrupt securities markets like crypto. He actually has some, like some foundation to stand on because these are financial assets. What is going on in the AI market that needs Gary ganzlers?
Speaker B: So you think he's just fear chasing, just narrative chasing?
Speaker A: Yeah, he's being an influencer. Yeah.
Speaker B: So Gary is going to say, like, I can't.
Speaker A: Or next week he's going to rotate to semiconductors. It's going to be great.
Speaker B: I can't think of anybody who actually wants him to do this. Like, what is he, how is he going to keep finance safer? Humans?
Speaker A: In the world of AI, this is a rogue human.
Speaker B: Like, what practically does that even mean? Speaking of weird headlines, an FTX lobbyist tried to buy a Pacific island called Nauru in order to create a new super species. What?
Speaker A: A super species? Yeah.
Speaker B: The younger brother of Sam Bankman Fried. His name is Gabe Bankman Fried, and he tried to buy an island to create a new super species of human beings, genetically modified human beings. Is this even real? Like, what is going on here?
Speaker A: Okay, so this is called the transhumanist movement. It's not actually all that cringe, except when you pair it with SPF and all the effective altruism groups and also all the wealth that they have. Then it starts to get really weird. So he wanted to buy an island to create a fortified apocalypse bunker state in the event where 50 to 99.9% of people die for some sort of reason, to protect his philanthropic allies and create a genetically enhanced human species. This is the headline that we are reading to you.
Speaker B: Wow. Yeah. I don't know what to say. I'm sorry.
Speaker A: You don't have. You don't have to say anything. We can just let the headline stand on its own and move on. Please.
Speaker B: David, this was a really cool demo this week. I feel like this is a major unlock for wallets. Goldfinch, wallethood. This is their Unipig moment. Do you know what I'm talking about when I say unipig moment?
Speaker A: I do. I bet you about 80% of bankless listeners does not.
Speaker B: Okay, what was Unipig?
Speaker A: Unipig was the demo between optimism and Uniswap, and it was the first iteration of an optimistic roll up deployed to Ethereum that was just meant to be a Uniswap application back before we knew about layer twos in the way that we know them now. It was the first implementation of layer two, SDHe, and it was like everyone was having this, like, breakthrough. Aha. Moment when, after being used to Uniswap on the ethereum, layer one, they used uni pig, which was a Uniswap fork on an optimistic roll up. Very early version of optimism as a layer two. And everyone realized that, oh, it's roll ups. Roll ups are where it's at.
Speaker B: It was a breakthrough demo, and we're still years from getting roll ups to Mainnet, but every.
Speaker A: This was 20.
Speaker B: Everyone who saw this. Yeah, we were like, oh, okay, this is how Ethereum is going to scale. So I saw something similar when I saw this demo. This is a wallet demo. You can access it at Defi for the world, and basically in about, like, 15 seconds, you can open up a wallet with no seed phrase, biometric signing as well. So it works on your phone, kind of face scan. It's self custody. Okay, so private key, accessible. There are some compromises on it, but it just felt so easy to use and set up. Oh, I should mention full account abstraction. So gasless transactions and deployed on base, deployed on layer two as well. Right. So this is the diagram of how it works. There's a, you know, web standard that's commonly used. It's called passcode that can, you know, use the secure enclave of your phone. Every phone has a secure enclave that is authenticated via, you know, pin number or biometric access, you know, id, face id. And then the private keys are actually stored inside of a third party called Turnkey. That's probably the point of weakness for me, but Turnkey has a really interesting component. Anyway, this, this other third party called Zerodev bundles this up and makes account abstraction work. And the whole experience is you get a wallet in about like 5 seconds and it feels very fintech, the most.
Speaker A: Bankless wallet possible inside of. Inside of 5 seconds.
Speaker B: I would say so, right? There's a few weak points maybe, but I would say so. And what's exciting to me and why this is comparable to the uni pig moment for me is like, okay, now I see the future. The big next step for crypto is we have to make wallet Ux easy. If we're going to get to a billion users and they're not going to use some centralized exchange or service. We have to make this whole process of setting up a wallet and holding your own private keys very easy. And this was a big step towards accomplishing that. So really cool, exciting demo.
Speaker A: Another paired announcement turnkey, which is what we were talking about, that powers this whole thing. It's out of private beta and is now available for people to play with. No widgets, no pre built generic Ux's, no limits on what you can create. There's a link in the show notes to get started with Turnkey if you so choose. Perhaps this is the cambrian explosion of wallets going into web two. Moving on to Zora. Zora has introduced protocol rewards on chain rewards for creators and devs possible by Zora's mint fee, which now automatically splits across creators and developers. All right, getting into raises of the week and we've made a decision in the template for the bankless weekly roll up. And so we're going to articulate what we are going to do with the raises section. We've had trouble in times deciding which raises to talk about and which raises to not talk about because we didn't really have a standard for making this concrete. So here's what we're going to do going forward. Any big raises that like reverberate throughout the crypto ecosystem, that is like news we will talk about and then we are also going to include anything that bankless ventures is investing in as a inception of the moment of a conflict of interest. Whenever bankless ventures, our VC company, our VC firm, invest in something, we will also include it in the raises. So big raises that become large enough to be news. And then also the moment of inception of a conflict of interest about when bankless ventures invested in something.
Speaker B: Yeah. So this week there were really no big raises that were on our radar. So normally we would skip this section, but there was a bankless ventures investment this week, Puffer Finance, they just raised a $5.5 million seed. Bankless Ventures was part of that. David, why do we invest in puffer?
Speaker A: Yeah, so Puffer is a LSD protocol in joining the ranks of like Lido, rocket pool, Stator diva Swell. And so it is going to have a LSD. It is different from all of these. It's got this one unique differentiator that I think really sealed the deal for me personally, which is inclusion of trusted execution environments inside of the LSD ecosystem. And so trusted execution environments, it's this primitive that are a part of just chips and hardware that puffer is incorporating into their LSD. And so things like scroll and Eigen layer that need trusted execution services can have those services specifically enabled by puffer and allows for the puffer LSD to get extra yield by providing tee to the Ethereum ecosystem. Sriram from Eigen Lair is an angel investor as well as a member of Obel, which is also perhaps a user of tee. And so that competitive advantage of tee as a service is what attracted me and bankless ventures to this deal.
Speaker B: Yeah, congrats to puffer on that raise. We got a lot more coming up next, including some questions from the nation. ETH versus layer two token value capture. We're talking about that again in some hot takes from crypto Twitter, including why the bitcoin ETF is a bigger deal than you might think. As always, make sure you like and subscribe if you appreciate the content. We'll be right back. Questions from the nation this week. This one from Cyogi Eth. Is there a reason to think that implementation of massively lower cost l two s won't tank the demand for the use of ether, which is one of its pricing factors? What do you think about that? We get all this cheap block space on layer two. Does that tank the price of ether?
Speaker A: Yeah. So this is the conversation of our layer twos. Our ethereum layer two is parasitic to ether, and the answer is yes and no. But I would definitely say mostly no. And I think we saw this in the episode when we talk about Ute's migrating from Solana to polygon to the ethereum layer one. While polygon does pull TVL from the Ethereum layer one to polygon, or any layer two, does. This. Also, Ethereum itself is its own gravitational pull for liquidity. So it's a yes and conversation. Ethereum layer one is going to have the most central liquidity in all of its own landscape. And so the massively lower cost of layer two s are going to actually induce new transaction types, new types of economies that require low transaction fees, whereas the Ethereum layer one is going to be the epicenter of liquidity and high value transactions. And so I always have said that layer twos will actually induce net new economic activity, rather than being more parasitic to the ethereum layer one. But then also ETH will become money inside of all of these networks. And so the way that layer two economics works is that ether, it sacrifices the value of the transaction economy, the value of transactions, you know, gas fees, to the layer two tokens inside of each respective layer two. But it wins a pluralist network economy, that all these networks use ether as its reserve currency. So in order to give room for these layer twos to exist, it gives up the transaction economy, the gas fee economy, to the layer two tokens. But it wins another network that uses ether as money. And to follow through on this, on this thread, I put out a tweet this week. Last bull market ether was money only for ethereum. This bull market ether will be the money for the majority of chains, for polygon, for arbitrum, for optimism, for base. And then I finished with saying, this cycle eth becomes money for the Internet is my bold take of the week.
Speaker B: Yeah, I think that's right. I would add this take from Sudo L. Two business models are actually really simple. Layer two fees minus layer one, settlement cost plus verification equals profit. Layer twos are really value added resellers of layer one block space. I don't think they're any more competitive than states are competitive with the federal government in this world. Of course, there's always that one state who could get really, really, really big and then threaten to secede from the federal government. But I don't think we're there yet. And as always, the US dollar and the United States becomes the currency of all of its respective states in the union. So that's how I expect that'll play out. Hey, we got some takes of the week. This is the, the first one from David Bailey it's not just the insane flows. The ETF is truly the definitive integration into our financial system. You can own ETF shares tax free in your ira. Your bank will recognize ETF shares when you apply for a mortgage. You can borrow against ETF shares. You can margin ETF shares. You can lend out your shares and gain yield. If 100 billion flows into the ETF next cycle and the price of bitcoin is ten x $1 trillion of ETF wealth will cause trillions of new credit within the financial system. Tens of millions of Americans will see their assets balloon in value. This is really the bull case, I think, for the ETF, which is the bitcoin ETF, which I still am holding. I think it happens this year or shortly after, but I'll say this year, as a shortcut, we will get a bitcoin spot ETF that represents. After how long has bitcoin been in existence? Twelve years.
Speaker A: 13 years.
Speaker B: Okay, that represents 1314 1413. Okay. So close to that, that represents financial integration into the traditional system, which is absolutely crazy that we've come here, like, gotten this far in just over a decade. The ETF will be an absolutely massive win, and I think we're on the cusp of it.
Speaker A: I think to put this into language that I think bankless listeners will be familiar with, the ETF is a money lego that is very important for getting bitcoin into tradfi, so that it can go in margin accounts and it can go in yield accounts, and it can just be expressed in tradfi. And so it creates. Induces a ton of reservation demand for bitcoin is the building block that we need for bitcoin to be incorporated in tradfi.
Speaker B: Yeah, this is a take from Dankrad Psa. If it doesn't use Ethereum for data availability, it's not an Ethereum roll up, and therefore is not an Ethereum layer two.
Speaker A: Wow, that's a spicy Dinkrad the hardliner. All right.
Speaker B: There was some back and forth, a lot of commentary, sort of debating that. Right? And this goes to, what's the definition of a layer two, and what's the definition of a roll up? And I think we're playing kind of like games of words and games of definition, which, by the way, is not a bad game to play. I think we need to be precise in our language and in our definition. So I think Dankrat is making the case that it can only be called a layer two and or an ethereum roll up if it does two things. One, consensus on Ethereum, which is of course base, but also data availability layer on Ethereum. Okay, so that would cut out a class of what some people would call rollups called validiums, which they park their consensus data on Ethereum. But data availability, it could be somewhere else. Arbitrum Nova is an example of this. You know, immutable has lots of versions of this. There's all sorts of, you know, the polygon proof of stake system is moving more towards a validium type of architecture. So it's really a question of what gets it to call itself a layer two or an Ethereum roadmap. And Dankrat here is saying, unless the data availability is on Ethereum, it's not a roll up, at least according to him. What's your take on this?
Speaker A: I think that's right. Yeah. So we have Ethereum rollups and then we have rollups and both can hook into the Ethereum layer one. But Dankra is saying in order to be a roll up, that is an Ethereum roll up, you must use Ethereum data availability. So he's presenting the hardliner argument for how you legitimately call yourself an Ethereum roll up. But then it's leaving room for non Ethereum roll ups. To still settle to the Ethereum layer one, you just use a different data availability solution, like Eigen layer data availability. Or does it even matter? Availability. It does matters, yeah. Because EIP 4844 is use, is allowing Ethereum block space, which is the most pristine world War three resistant block space in existence, to be allowed for layer twos. And so if they want to use, it's supposed to say like, hey, you can use this and have the best insurances, it's still going to be the most expensive version of data availability, even if it's 100 times cheaper than it already is today, because you can also just use a self run database and that'll be even cheaper for you. So there's going to be different ways to use data. And Dankrad is saying, well, if you want to be the gold standard, which is Ethereum, you need to use EIP 4844, you need to use Ethereum. And if you don't use the gold standard, then you don't get to use the Ethereum brand as your roll up.
Speaker B: Name, which is not out yet, by the way. EIP 4844 is nothing, is not available yet, but will be soon. Yeah, I could see that. I think for myself until this is sort of the dust settles with what the, you know, the community decides is, you know, kind of how we're going to name these things. I'm going to start being a bit more deliberate and talking about an Ethereum roll up versus a validium, right? Yes. David, you got a take here. I'll read it out. The chapter of 2021 to 2022 scammers is coming to a close. But our 2024 to 2025 chapter of scammers is about to begin. Oh, that doesn't sound good. David. Those who would harm this industry walk among us today. Let's not repeat 2022. Let's stay vigilant. The SEC and mainstream media aren't going to help us. It's up to us. Uncle Sam picture pointing at us. David, are you charging us with some responsibility during the next bull market?
Speaker A: Almost always. Am I charging people with responsibility? So this is just a continuation of my take from last week about do Kwan, Alex Busczynski, SPF three Capital, Richard Heart all going to jail or being find in some respective way. So we get to celebrate about that. But also reminder, bull markets attract grifters. And so if we are going to enjoy a bull market, we need to also be aware that it is going to attract grifters and is going to bring us a new cohort of scammers. And so we should be cognizant about how that is also going to happen and take our lessons of 2021 and 2022 forward so that we can be better in the future.
Speaker B: That's a good take. What are you bullish on this week, man?
Speaker A: Bullish on the op stack, man. I've been bullish on the op stack for a while. I made the op Stack video about what the op stack is and why I think it's exciting in November of 2022, and this was after I wrote my EVM equivalence article. This is my second victory lap of the week of the episode.
Speaker B: We only get two per week.
Speaker A: First, I just like am so proud of the optimism team for having the conviction and the vision that they had from day one. One of the original things that they wanted to do is connect transaction ordering to public goods, sequencer fees to funding public goods, raw degeneracy and Moloch turning into Ethereum's Phoenix and funding sustainable open source projects that can scale out to the world. And they've had this same convicted thesis from the get go. And now Coinbase, a public company in crypto launching a layer two using the op stack, which is meant to be forked and meant to be iterated on and meant to be spawning 10,000 chains. All of a sudden they're creating the op collective which is going to have weight and bargaining power for public goods and it's going to be financed by the OP people forking the op stack and wanting to join that collective. It took such strong vision and execution back in 2018 2019 when the optimism team came together out of the plasma group and they've just followed through on it and I think fantastic sense and I just, it's beautiful when you see a plan come together and also a plan that I think just goes so deep to the values of Ethereum and scaling Ethereum values. It's just nice to see. It's just nice to see what I consider to be the good guys. Take a huge dub and so just big clap to the optimism team.
Speaker B: It all started with Unipig, didn't it? Yeah, very cool. I think the thing I'm bullish on is similar but also broader, which is this, I'm bullish on all layer twos in particular, this really crafty approach I feel like Ethereum, the Ethereum community and the Ethereum foundation had with respect to layer twos. This is an episode that's not out yet, but I got pre listened access from our pod squad team and thank you for recording it.
Speaker A: David, what episode are you talking about?
Speaker B: The Sci-fi roadmap for Ethereum with Justin Drake and Tim Baco. By the way, I haven't finished it yet, but I can't wait to go back to it. It's not an RSS feed. I gotta do this weird Google Drive anyway, so I'm listening to it and then Justin Drake is describing basically layer twos. And what's incredible to me is when he talks about how layered shoes are basically funded, massively funded, by investor dollars, by vc dollars, and this is the private market taking the execution layer for Ethereum and launching like 50 different incredible experiments on it and then accelerating those experiments so fast because they have all of these disparate teams and all of this capital going and attacking the problem at once. And it just struck me as he was talking about how genius a strategy this was for this particular layer of the stack. You focus on consensus for Ethereum and then you launch like 100 private company type of experiments on top, and some of these might be able to turn into public goods as well. And then what Ethereum plans to do is take the best designs and the best experiments and enshrine them in an enshrined roll up inside of Ethereum. And so make the best projects like private company projects kind of public infrastructure again. Anyway, it didn't have to be the case, this was not the original strategy for Ethereum. Ethereum originally was going to develop everything, and this strategy, this play worked out very well. And, yeah, I'm very bullish on everything that's going on in kind of the layer two ecosystem as a result.
Speaker A: Yeah, that episode comes out next week.
Speaker B: There we go. David, we got a meme of the week. What are we looking at right here?
Speaker A: Meme of the week. This is coming on from David Phelps. He goes every crypto company's pitch deck right now, and he's got a two by two grid here. And one has been one. One spectrum is, has not been hacked and has been hacked and also is in jail or is not in jail. And all of our companies competitors have either been hacked or are in jail. But this company, the one you're getting pitched. Bankless listener. Our company is both not in jail and has not been hacked.
Speaker B: That's all you need. Where do I send my money? You're still standing.
Speaker A: Oh, God. Our standards are on the floor.
Speaker B: Yeah, that is the game, though. You just got to survive for sure. Gonna end with our standard risks and disclaimers in a minute. But first, we disclose on the show today we mentioned a few projects that David and I are advisors for, including some of the layer twos like optimism and Polygon and Zksync. I am also an investor in Zora small angel check. And both David and I, as always, we hold a whole bunch of ETH. We are long term investors, not journalists. We don't do paid content, and there's a link to bank list disclosures in the show notes. And of course, gotta let you know, none of this has been financial advice. Crypto is risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.