AdLunam's Co-Founders Jason Fernandes and Lawrence Hutson get on the podcast to talk about the state of the market after the FTX debacle. What happens to Crypto Now turns a spotlight on what lead to the FTX debacle and its aftermath. Will crypto ever be the same? How could this be prevented? and Who is next? An episode not for the faint hearted. You have been warned.

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WHAT HAPPENS IN CRYPTO NOW - LAWRENCE HUTSON

Participants:

Jason Fernandes ( Host)

Lawrence Hutson ( Co-founder and CTO of AdLunam)

Jason

00:24

Okay, I think we'll get started. All right, so yeah, this is Diving Into Crypto. I'm your host Jason Fernandez. AdLunam is an NFT integrated Engaged to Earn ,seed crowdfunding and IDO launchpad with a Proof of Attention allocation model. So that's AdLunam. And this is our Diving into Crypto series. So the views of the guests are their own and this is not financial advice. So having said all that, let's get started. So our guest for today is Lawrence Hutson. Lawrence is a computer scientist, economist with expertise in blockchain, crypto, NFTs, DeFi, AMM, DEXs, smart contracts, decentralized applications, token getting, pretty much the entire crypto ecosystem. Tokenomics, DAOs and of course he is co-founder at AdLunam. So with that would like to welcome you to the show Lawrence, and would you like to say a couple of words? Absolutely.

Lawrence

01:42

Okay, great. Well, it's great to be here. I look forward to kind of an interactive discussion of this situation that we're in right now and optimistic outlooks for what's going to happen.

Jason

01:58

All righty, great. Yes, absolutely, yeah. Fantastic. I think you touched on this a bit. The topic for today is we're sort of going to discuss the whole FTX collapse, its knock on effects, what that means for the broader crypto ecosystem and sort of what your thoughts are outside of crypto assets. Are there any institutional exposure here for individuals that have never bought or sold or held cryptocurrency? Could they be impacted? So I'm just curious what your thoughts are in terms of the impact of this crisis we find ourselves in.

Lawrence

02:40

Okay. Well, okay. I think the first thing I'd like to say about this situation is that everybody, this was a massive con job from the beginning. And everybody, including myself, fell into the believing that this supposed crypto guy was out to help us and implement regulations in the space that benefited him, by the way, and then proceeded to use other people's money to invest in his own company. And the bottom fell out. But I think from a bigger perspective that everybody's missing is that the bottom line is crypto blockchain technology came along, okay, and everybody is trying to exploit it for their own purposes.

Lawrence

04:01

Lawrence

05:08

Lawrence

06:20

And there's people out there that we've got our prisons full of people like that here and that may be where he ends up. So, anyway, that's introduction to the situation, Jason.

Jason

06:36

Yeah, I think it actually behooves us to sort of set the stage for people that maybe don't know the whole situation as it is and where we are right now and sort of what causes. So I think maybe I'll just sort of briefly go over that for the benefit of anybody listening. So essentially we're talking about the collapse of FTX. And the seats for that were sort of laid when Sam Bankman Fried went on and essentially transferred about $10 billion worth of funds to Alameda, which was their sister concerns. Alameda and FTX have been sort of sister concerns. FTX is sort of born out of Alameda. Alameda is their trading firm and FTX is their actual exchange.

Jason

07:24

So Alameda, which is by the way, run by Caroline Ellison, I believe was his ex girlfriend, and I think maybe they were still dating at the time when Alameda when this happened. But apparently he transferred a significant amount of customer funds, essentially FTX user funds, about 10 billion worth to Alameda that was massively over leveraged themselves. And then ultimately there was a CoinDesk article that sort of brought to account this very cozy relationship between FTX and Alameda and that preceded CZ and Binance, who happened to own a lot of FTT tokens. Well, the reason they owned a lot of FTT tokens is because they were actually early investors in FTX. And when they saw their share, they took all their payment in FTT. And so they ended up holding on to quite a significant amount of FTT tokens.

Jason

08:30

And when CZ came across, well, ostensibly when the folks at Binance came across the CoinDesk article, they decided that now is the time to probably liquidate some of their holdings. And so CZ made announcement to that effect, which caused essentially a run on FTX with quite a few people basically withdrawing funds simultaneously. And normally these funds should be backed one to one, right? A bank run really shouldn't be a problem for an exchange. But in this case, since FTX had already been gambling with user funds and giving it to Alameda, this essentially caused the entire collapse of FTX. Now, this is sort of the official story. There's quite a few layers to this as well. So it's been coming out over the past day or two that FTX could have had a hand in the collapse of Three Arrows Capital.

Jason

09:36

Certainly the founder, Three Arrows Capital has alleged that they were taking positions opposite them. In addition, that they could have had a hand in the collapse of Voyager as well. And essentially, the reason that they bailed out Voyager was because they realized that Voyager was still sitting on cash on hand, and Sam Bankman Fried, what, needed that cash on hand in order to shore up the losses in Alameda. So essentially, they bail out Voyager not because he was a good actor in crypto, but more because he realized that there were funds still on Voyager's balance sheet that could be transferred to FTX. And then they did proceed to transfer to FTX shortly thereafter. And then presumably it made its way to Alameda at some point, or maybe it was just used to shore up FTX's own reserves.

Jason

10:35

But essentially this is sort of the genesis of the situation we find ourselves in today. So I'm curious, Lawrence, because your view seems like you think that maybe he was more misguided than criminal. And I think I'm leaning more toward the criminal side. Did I characterize your view correctly, or do you also think that this is more criminal as opposed to just like wrong headedness lack of experience or things like that?

Lawrence

11:09

Oh, yeah, I would say criminal like the Bernie Madoff scheme, basically. I mean, maybe it didn't come about like a Ponzi scheme from the beginning. Like you said, it started off good. Here's why I think it's criminal. Because banking systems operate on fractional banking, meaning that they can loan out the money of their customers. They expect. If all of their customers came to get the money back from your bank, you went down there and said, I want $100,000. Everybody at one time, the bank is going to collapse because they don't have all the money. They've lended it out. They've lent it out. Okay? That's how a bank makes their money. They're under regulations. They have to abide by certain laws. There's FDI insurer in America. There's FDI insurance that insures, I think, up to $100,000 of your money.

Lawrence

12:15

So all of these things are regulated. An exchange is not a bank. So when I put my money, like, I use Kraken, not advertising Kraken, but I've always used Kraken because I've tried them all and I liked Kraken. I never used FTX because I didn't believe in it. But the point is, if I put $200,000 of my money onto Kraken so I can buy different cryptos, trade cryptos and things like that, they don't have the right to use my money and give it to Alameda Research. Right? They don't have that right. I expect my money to be there when it's there. So like you said, Jason, there's a one to one relationship between my money and me trying to get my money out.

Lawrence

13:09

So the funds are supposed to be there, and this is what all the exchanges so here's a little bit of a loophole. So Binance has come out with what they call Proof of Reserves, so to prove that they can back your money. And many others are trying to do the same thing right now, the problem with that is it's like, proof by who's standards. By whose standards? So there's no regulation. And I think this whole thing of no regulation, over a centralised institution, where your putting your money into, is not a good thing. And I think this whole thing of no regulation over a centralized institution where you're putting your money into is not a good thing. So what I would say, it's like, let's say the invention of electricity, okay? So electricity was invented.

Lawrence

14:02

All of a sudden, people can have lights in their home, but there's got to be regulations of how they put those lights in there, how they run electrical wires into the home, because if they do, it shoddy. The building burns down. So there's a good side to that. And we're on the frontier here, so we're going to see this kind of thing happen. And to finally answer your question, Jason, yes, I think it was definitely criminal. I mean, he can plead innocence. I don't know what I'm doing for a while, but I'm not sure how long that's going to last. So I do think it was criminal. Lean towards your thoughts, Jason.

Jason

14:45

Yeah, I think as far as I know, both his parents are compliance lawyers. There has to be a red line when you're touching customer funds and you're transferring it essentially to your trading arm, that's a red line. That had to have been a red line because it says so even in their terms of service that they don't consider those funds. But I think this could happen to other exchanges that are well meaning because you routinely transfer funds for operational purposes between exchanges for various different reasons. So, for example, you might have a liquidity partnership with another exchange where you're providing them USDT for local currency. So that might allow you to expand into a local country by creating a transposed market with the local currency and Bitcoin with USDT being the base. And maybe you're providing them that USDT on an ongoing basis.

Jason

15:49

So it makes sense that people would be moving funds around. And then, of course, things like farming. We see one of the biggest lenders overnight has halted withdrawals, right? Genesis. I believe a lot of people actually use Genesis as sort of system for their yield. So the potential contagion for Genesis itself is also pretty significant, I think. But speaking of contagion, what do you think about the risk of contagion toward general people that are not into crypto? Do you think that the contagion that comes from the FTX collapse will be limited to the crypto industry specifically, or do you think it might bleed into other industries?

Lawrence

16:48

Lawrence

18:00

Everybody's sitting here, oh my God, what's going to happen? FTX went under and all that stuff. But it doesn't change the overall promise of crypto and what crypto was about. I think it's a cleansing mechanism for me, not being sure how much regulation or how that works. I mean, you know, SBF had, he was in with political people and he was trying to implement his own regulations. In my opinion, Jason, I don't think there's going to be major fallout in the financial and institutional world. There's some effect, of course, because they had taken up positions and it also one more second on this, it might be where we have a lapse institutional institutions wanting to invest in crypto. But from my opinion, I never knew or never thought of that as actually being necessarily a good thing that J. P. Morgan is taking up positions in crypto.

Lawrence

19:12

Lawrence

20:15

So I just want to give an optimistic overall view of the whole situation then. I guess one more thought I will say is that these kind of guys come along all the time. He pulled himself off as a crypto bro with the big hair and it was just a unique situation where he was able to just con everybody. And like Jason said, I didn't even know his parents were in that. Lawyers in the regulation business, it hurts. It's going to hurt a lot of people. All the people that had money on the exchange, they lost their money. But again, back to the advice that everybody gives, it's not your keys, it's not your coins.

Lawrence

21:10

So at some point it's great to use exchanges, move some money on there, make your trade and put the crypto back into your wallet and learn to deal with it that way. Okay Jason, that's all I have for that.

Jason

21:27

No, for sure. Just to add to the point about his parents being compliance lawyers, basically they're academics at Harvard and his will's mother runs a few political action committees and is very well connected politically. But his father certainly is in compliance. Incidentally, his girlfriend's father used to be the boss of Gary Gensler who's currently the head of the SEC. How about that?

Lawrence

22:00

Wow.

Jason

22:07

If people are wondering why the SEC seems to be going a little slow, I mean, you know, like people have postulated that could be a particular theory, possible theory. But you know, I mean, speaking and you know, that of course brings up obvious discussion of regulation. So crypto is unregulated by design. So what do you think this means for the future of crypto? One of the things I'd like to just say before I pass it on to you is that people talk a lot about regulation. Regulation would fix this. But the stuff that he's done is already criminal, right? I mean, misappropriation of customer funds, fraud, this stuff is already criminal. I'm not sure if this necessarily makes the case for regulation per se, but I'm just curious what your thoughts are.

Lawrence

22:56

Lawrence

24:09

That's the best one I ever heard. It's like if you just invent this thing and it's electricity it flows into your house, it's energy. You want the implementation of that to be regulated. But then there's another issue on top of this because it's global, right? So the laws in Bali and the laws india and the laws in Kosovo are different. That's why CZ with Binance's. Supposedly he's getting at headquarters, but he always maintained, I have no headquarters. Right. So it's kind of, this is a new problem and I don't think regulation is bad, but it has to be done with some kind of responsibility if they're going to step in and say Ethereum, ETH, is a security by United States standards and that's United States.

Lawrence

25:09

Right, but the problem is everything kind of disseminates from the United States in a sense in the financial world. So yeah, that's kind of how my opinion on that, Jason, everybody.

Jason

25:26

The one thing about regulation is that you mentioned institutional money earlier and you were saying kind of that you did really feel like that there was a place for institutional money, perhaps in crypto. And I mean, my thought has always been that institutional money tends to be more stable. So for example, pension funds, not that pension funds are able to really invest in crypto, but a lot of these funds, they tend to not take out funds as quickly as retail investors. Retail investors are quickly spooked. See a news article and they're out. But I feel like institutional investors tend to keep their money there for longer. And my view had been that institutional investors might help stave off some of that volatility.

Jason

26:14

That said, I've been looking at the volatility numbers just over the past couple of days, like just yesterday, for example, and it's like we haven't seen this kind of level of volatility since the last crypto with the crypto bull run, basically. And it's surprising because you'd imagine with all the institutional money that was supposedly in companies deciding to hold their treasury in Bitcoin, things like that, you'd imagine that you wouldn't see this kind of level of material. But we're seeing it.

Lawrence

26:50

Yeah, no, I think it's good that all the institutional monies from pension funds to the Catholic Church, which is huge, all of these institutional funds have a little slice of their money that goes before crypto that went to VCs for high risk investments. Right. It's a small piece and they're betting one in ten, right, to have a Google one in ten or Uber one in ten. They know nine of the deals are not going to pan out, they're going to fail or they're just going to be marginal deals. So yeah, there's a little slice of that institutional money and I think that should be played. I was hoping more to see the reserve currency of the world become Bitcoin, where they're actually dealing in Bitcoin. I still believe that's going to happen because just a quick fact here the foreign exchange market.

Lawrence

27:58

So if I have a car company here in the United States, in France, and I want to buy well, no, reverse it. Sorry. I'm a car company here in the United States, like Ford or GM or one of these, and I want to buy tires from Michelin and France. They don't want dollars. They want to be paid in euros. So I have to buy those euros. So that particular market is the largest market in the world. It's about probably somewhere now around $800 million a second. So it's the largest market by far. And Bitcoin makes all that go away. Okay, it does that. But we're just not there yet. So I don't discourage institutional money. Everybody gets excited about it. I was excited when institutional money started taking positions in crypto. I was super excited.

Lawrence

29:01

But the problem is I don't want to see crypto follow the normal investment market, right? So I don't want to see Bitcoin go up when the stock market goes up. I want to see Bitcoin hold its own, maybe rather like gold, like our launchpad is the same thing. We're giving people the opportunity that would have never had the opportunity to invest in projects, be involved in projects that they're never going to get outside of crypto. They won't ever get that opportunity. So that's my hope, Jason.

Jason

29:46

Jason

30:53

Jason

31:54

Anybody here should definitely check it out. But that is not unfortunately, it's not available to crypto. Right? I mean, wouldn't that be nice? Wouldn't it be possible? The interesting thing, though, is, you see, the US dollar is a iationary asset, right? Well, Bitcoin is deflationary. Well, it's not deflationary so much as the supply increases at a lower rate. Right. But what that means is that we can't massively decrease the supply of Bitcoin and then cause the price of Bitcoin, therefore, to go up, because it's not a managed currency. It's it's done fully on the market. Like, there's nobody that controls Bitcoin other than the algorithm. Right.

Jason

32:42

So as a central currency, I think there might be some issues, because do we need I mean, I'm still wondering to what extent the role of the Federal Reserve is a good one and maybe something like that could actually beneficial. And what would that look like for crypto if something like that had to happen? The only thing I could think of it would have to involve taking off massive amounts of Bitcoin from the market. One could do that with Ethereum, I assume. So one could fork Ethereum and then say that it was a managed currency to where, if there was some sort of crisis, that you could massively decrease the supply or something. What do you think about something like that?

Lawrence

33:26

Well, you got to remember, when you say the first thing is when you say reserve currency of the world, that's not by any regulation or any law. It's simply the fact that if Argentina borrows money from the United States, we have no interest. Or Europe. Let's say they borrow money from Europe, some country in Europe. That country has no interest in being paid back in Argentina dollars. Apologize to everybody from Argentina here, but I don't know what the inflation rate is. But it's any other country. It's not just Argentina. They want to be paid back in some stable currency, something stable. And you're exactly right. I agree that the stability of Bitcoin right now, I think, is kind of the issue with that. Right. Jason because of volatility.

Lawrence

34:28

But that's just a hope that all of that wasted money that goes between buying foreign currencies to pay for things, we go back into Bitcoin and that it's going to eventually level out because it's deflationary, it's inflationary. It's at some point totally scarce with no more being produced. Right. Think about it. No matter how many Bitcoins are allocated every ten minutes for mining, how many people lose their private keys and lose ten times more Bitcoin than that, but at the end of the day its a 100,000,000th, it's you can buy a 100,000,000th of a penny of a Bitcoin. Okay. So I think there's some room to be had there, but yeah, what speculation. But that's the dream. That's the hope on my part, anyway.

Jason

35:35

Going back a bit to the whole FTX situation. What's really shocking is they were able to raise so much money, they didn't have any investors on the board. None of the investors really were on the board, had very little control over this company. What do you think an investor should look at when they're looking at companies like this? I've done a lot of sort of evaluating of these companies and things like that, and a company like FTX would probably have slipped to the cracks. What do you think that investors should keep in mind going forward when evaluating companies like this? Even retail investors investing in the FTT token when evaluating something like this in light of the whole FTT collapse?

Lawrence

36:30

Yeah, I was involved in the venture world before crypto. The venture capitalists, they had a formula, right? The formula was you got ten partners, they all put into the fund 2% of their own money, or 3%, or 5%, or whatever it is. The rest comes from some institutional money, a pension fund or whatever, whoever they can get it from. And so now they've got, let's say, a 500 million dollar fund. They're going to go out, invest in the venture is high risk. Right. But they had a formula. The formula worked. And of course, I never saw one deal where if you put a significant amount of money into something and depending on the size of the deal, that you weren't represented on the board, much less them taking control of the company, where they had this deciding vote for the board.

Lawrence

37:44

Mark Zuckerberg is a good example of how to avoid all that because it's built in. He can't-. I think all of that like these guys rushing in and like you said, Jason, and not even having a place on the board to oversee the board, is that the responsibility of the board is to look out for the shareholders. Right. Your particular shareholders that you're representing. But it's like this panic rush thing where it's like the Tulip market back in wherever holland, whenever that was, right. Everybody's rushing to get in. All of these VC companies turn themselves into crypto VC companies. I'm sure Pantera, who's probably in my opinion, is the top of the top VC company, wouldn't have done that. Now. Maybe they did, Jason.

Lawrence

38:52

I don't know everybody, but the point is there's some kind of rules and things that you go by that when everybody loses their head and starts rushing into this hyped up situation where they're making 100x, okay, and then they somehow throw out the rules. So I think we need to go back and hopefully get back to the point where the rules aren't thrown out. One of the things, and I think this leads into one of the other questions, talking about what projects are good, what projects are bad to invest in, and maybe they have representation on the board or they. Don't, but from a crowdfunding perspective, okay. To me, the kind of companies that we're going to invest in or projects, I would say, with AdLunam is take a good look. Everything's transparent. Take a good look at the team.

Lawrence

39:52

When I call somebody up, a venture capitalist or an investor, and I tell them about a project, the first question that always is asked, who's doing it? Who's the team? So it's funny, that's just what all comes up. So looking at those things, yeah, that's kind of my opinion of it wasn't wise for these companies to invest in FTX, put up all and they've done it for many other companies too. The problem is that see here, FTX is propping up Solana. They're propping up one of their competitors in the Near protocol. They're putting money into this and then FTX collapses, everybody else collapses. So it's kind of like, well, to me this is a reckoning, like it's a cleansing. These things need to be talked about that we're discussing today.

Lawrence

41:00

You'd think these really smart people would know better than to invest in a company and not take a seat on the board or something like that. But when people get greedy and they're looking for that 100x return, they get a little bit not following the rules anymore, Jason.

Jason

41:17

Yeah, I mean, I think it could also have something to do with although I've not really looked into this very much, but it could have something to do with whether they raise funds via equity or via tokens. And also even when it comes to equity, I think Sam, from what I hear, would essentially threaten to freeze the out of future rounds. And I've seen entrepreneurs treat their investors that way and it's really dangerous both from the investor perspective in terms of because oftentimes the investor capitulates, especially if it's a company like FTX, but also from the entrepreneur because then he's sort of drunk on power and puts him probably in a better negotiation position going forward. But now that we're on the subject, I'm curious and you mentioned FTX and Contagion. What are your thoughts on Genesis? Just to set the stage for everybody.

Jason

42:22

Again, that's listening. Genesis Global Trading is one of crypto's largest lenders institution. They announced yesterday that they would temporarily suspend redemptions and new loan originations in the lending business. This is despite reporting $20.7 billion in notional value and derivatives trading last year in quarter four. And apparently they received like $140,000,000 in equity infusion from the digital currency group. But I hear that they were like I read somewhere that they would short $170. So that's still a $30 million shortfall. Apparently it comes down to their access to liquidity right now and that their withdrawal requests have exceeded their current liquidity. So I'm curious, do you think by the way, Genesis is the weaker Wasser's trading firm, if I'm not mistaken. But yeah, I'm curious, what are your thoughts on this and do you think that this is just temporary?

Jason

43:29

You think these guys are going to pull through? Or is this the next FTX we're seeing?

Lawrence

43:35

Yeah, so that question, Jason, in my opinion, is how deep is the rabbit hole? Is it 30, is it 40? I mean, the same thing that happened to FTX. It's like all of a sudden it's a $1 billion hole. Then the next day we find out it's $3 billion hole. Then, I mean, what are we up to now? 9 billion? So how deep is that rabbit hole? But I think the more important concept to be on a positive side and not just saying, I mean, they may go down, but okay, here's why. DeFi is different than CeFi, right? All of these companies that are in danger, that are going under are CeFi companies, right? They're centralized finance. And the only reason that Sam Bankman Fried could get money out and put it into his own other company was because it was centralized.

Lawrence

44:34

Lawrence

45:36

So it makes for a good topic, but it's not going to stop what we're doing. It's not going to stop crypto. It's still a valid invention. That probably one of the well, it's the first time in human history where engineering has met monetary policy. Okay. It's that kind of invention. It's all good. Back to the original question was that yeah, how deep is the rabbit hole that these guys got themselves into?

Jason

46:15

The interesting thing is talk about irony. Apparently Genesis and CoinDesk are owned by the same parent company. So CoinDesk broke the article that started the FTX issue and turns out that it's come full circle. And now it's funny because I'm looking right now at an article that they've read about the Genesis debacle, which is just hilarious. It's hilarious in an extremely scary way.

Lawrence

46:53

But another thing, Jason, is I'm not totally sure of this, but thing is a lot of people were. This all came from the collapse of LUNA, right? So FTX had huge exposures to Luna. So it's like a cascading, an avalanche. And all these people affected, whether it's crypto.com or whoever it is, affected. It's like they got tentacles into one another. So, yeah, Luna.com, the LUNA debacle was based on an algorithmic stablecoin, which nobody's come up everybody invested in it, but nobody's come up with a real that I know of. We're still experimenting with that whole thing, but everyone is buying into it.

Jason

48:03

Yeah, I mean, nobody has come up with an algorithmic stablecoin that works. I mean, interestingly. I think Justin son and tron released one. I'm not sure how that's doing. Probably not good, if I'm guessing. I haven't really been tracking it.

Lawrence

48:21

It would be cool if it worked and everybody believed in it, right? I mean, when I say everybody, you know, the majority, obviously they did, so they were buying it. But at the end of the day, does it really work? We know a stable coin matched one to one with assets works. We know that hopefully USDT is not I don't know how much USDT I think FTX didn't they have the majority of the USDT, some huge percentage of USDT on their exchange.

Jason

49:00

So I'm not aware of that. As far as I know, USDT is over collateralized. But you're bringing up an excellent point. It's just like, not your keys, not your crypto. Well, you don't own the crypto either, right? I mean, you did USDT. You're not USDC. So it's always like, okay, cool. You take this money out from an exchange, you put it in your wallet, but it's still in USDT, right? And then it's like, is USDT 100% back? Is it collateralized? There was a point when I don't believe it was collateralized, 100% collateralized. I think they even came out and said that it was not 100% collateralized. It was somewhat partially collateralized, which obviously starts getting into some almost fractional reserve banking areas. But the last time, I think a couple of months ago, they released their balance sheets.

Jason

49:56

And the CEO of xray company I used to work at, Wayne, is just a brilliant CEO, and he actually researched and really dug into the financials of USDT because he's one of those really detail oriented guys. And he came out saying that essentially that they were over collateralized. And I'll tell you, if he says it's probably true. After that, I felt a little bit better about USDT, but it's still up in the air about whether do I keep it in USDC, do I keep in USDT? You can't keep it in UST, because that's right. We all saw how that turned out. So, I mean, even when it comes to stable coins, it's like, do you use a centralized stable coin like tether, which is fairly centralized, or do you use an algorithmic stable coin, which in theory shouldn't collapse.

Jason

50:52

But by the way, the exact same reason LUNA collapsed was the reason that pretty much every other algorithmic stable coin has failed too. So that's like a fatal flaw that they've really never figured out how to do, as in when the situation comes to lopside. The suggestion is when you're close enough to a situation where they are both worth about the same, where you have one token and then it swaps out for a stable coin, like one token that works as a pair, that works until you're too far away, and then after that, it's like the motivations are literally flipped. And this has always been an issue with stable coins, algorithmic stable coins, but nobody's quite figured it out. The flip side of using an algorithmic stable coin is then using a centralized stable coin.

Jason

51:43

And then you start wondering about, well, hey, what's the point of talking about Bitcoin being decentralized when the number one pair on exchanges worldwide is USDT-BTC right. Without the USDT pair, you would literally see a collapse in crypto markets worldwide just because of the pair missing. Right. In terms of volumes. So it's like you have a highly centralized digital currency which behaves as a stable coin, which flips back and forth into Bitcoin, which again is just sort of mind blowing. And then of course, some of the people have done some research about how when there's increased stable coin, when there's increased USDT in the system, Bitcoin's price goes up to soak that up, it'll make your head spin, really, if you start going down the rabbit hole of stable coins. And what is exactly stable and how do you keep everything safe?

Jason

52:44

I use Coinmetro. Again, it's up to people to choose their own exchanges. But I happen to have worked very closely with Kevin Merkel for a TV show, for a crypto show. And so, yeah, I feel comfortable with at least some of my crypto there. But I think for the most part it doesn't work. That not your keys, not your crypto thing doesn't work if you're actively trading those funds, right, because you need to have it on exchange to trade. But I think from what I've seen, I've been looking at the numbers recently that there's been massive exchange outflows, as in just people taking money off exchanges. In fact, the total number of coins transferred over the last 24 hours have increased by 15%. Just pretty large and active addresses, the active Bitcoin addresses over the last 24 hours has increased by 150%.

Lawrence

53:40

Wow.

Jason

53:40

So that's food for thought, right? I mean, people are moving this around all over the place. And it's funny because I was looking at sort of exchange reserves, and exchange reserves are actually down 5.78%, which indicates normally when exchange reserves are down, normally the reason they're down is because people are taking their funds off exchanges, which means that there's a potential for Bitcoin to pop up. But in this case, if you look at the exchange net flow, total net deposits on exchanges are all high. So it makes you wonder how it is that net deposits on exchanges are high, but the exchange reserves continue to fall. I'm still trying to figure that out. Where is all this Bitcoin going then? Other than it's maybe being moved off chain or something? That's the only thing I can think of. It's just weird.

Jason

54:35

I'm just looking at some numbers, some statistics for Bitcoin right now. But anyways, since we're getting close to the end, last couple of minutes, why don't you sum up any of your thoughts and then we'll put a finer point to it.

Lawrence

54:56

My summation for everybody is that this looks like a big deal, and it is a big deal, and a lot of people lost a lot of money. They lost it with LUNA, they lost it with now with FTX, but it doesn't take away from the promise of this invention, cryptocurrency or blockchain or however you want to call it that, it's still going to move forward. So we just need to learn our lessons. And thank God I didn't have any money on FTX, but a lot of people did, learn our lessons. And regulation is not necessarily bad over regulation is it's going to evolve, but they can't, in my opinion.

Lawrence

55:53

When I first learned about blockchain and crypto, except for thinking that Bitcoin was a Ponzi scheme, I told all my friends who were investing in it, and then I looked at the technology and I'm like, this is a real invention. This is something that they can't reverse. The whole thing was government regulation could potentially could hurt it, and we see that in China, but it still doesn't stop it. So the overall thing is it's such an efficient system, decentralization is so important, which would have never happened ,FTX, all these companies would have never happened, LUNA would have. But decentralized exchanges to know that when you put your money in one of these exchanges, some person has control of your money and that person might not be regulated. So I think that's the thing, but it's not going to stop what we're doing.

Lawrence

56:59

The whole ability to crowdfund good projects and have a new way like AdLunam has to have a Proof of Attention, Proof of Involvement in the project is just going to grow. So that's my kind of summation. Jason, thank you for that.

Jason

57:16

Lawrence. Yeah, I mean, I agree with you. I think that the crypto industry is resilient. It's rude, incredibly resilient, stake in massive hits, and we're still at 17 five right now, 16 five. And I think that we're fairly resilient, even though it's a nascent industry. And I think that crypto and these launch pads in particular still have a place. But, yeah, I'm optimistic to see kind of let's hope that contagion is contained, the best of ability. Thank you so much, everybody, for joining us. Thank you so much, Lawrence, for your thoughts and, yeah, that's one more exciting episode of crypto now. Okay, well, thank you so much, everybody, for listening and tune in. Same time, same bad channel next time and look forward to having you again on Diving Into Crypto.

Lawrence

58:19

Okay. Thank you, Jason.