Broadcasting live from warm, sunny Colorado—always warm, always sunny, sometimes Colorado. Today is February 12th, 2024. It's hard to believe that we're already a month down, halfway through the next one for 2024. It has been a long and interesting year, and we're just getting started.
I want to make a video to talk a little bit about where the industry as a whole is going and some of the existential concerns that I don't think rank-and-file mainstream cryptocurrency people fully appreciate or understand. It's really a turning point in the industry, so it's a very important video from that perspective.
Recently, I was on several different podcasts, and I made the point that algorithmic stablecoins are essential for us as an industry to look into, while asset-backed stablecoins are a little problematic. I have an interesting graph for you guys; let me show you something here.
Okay, so this comes from a PowerPoint that’s produced internally, but I wanted to share it because I really like this data from Coin Metrics and Alum. Stables represent about 10% by value of the crypto market cap, of which USDT and USDC are the overwhelming majority. They dominate the on-chain transaction volume—about 70% of all transaction volume. From a crypto perspective, ETH and Bitcoin take a backseat to USDC and USDT. These are, by volume, the value transfer mechanisms of our industry. They represent the huge majority of on-chain traffic and value transfer.
Now, there’s something about these two—USDT and USDC. They are asset-backed, which is a very important term. This means that there are two properties you can't get away from. One property is that there’s a central issuer—a company that is regulated in a jurisdiction, subject to that jurisdiction's rules and regulations. Whatever that jurisdiction wants to impose on that company, permissive or otherwise, they are subject to it. They are a business, like a bank or anything else, responding to that regulation. I’m not diminishing or saying they’re bad actors; I’m just saying they exist within a jurisdiction and are subject to regulation.
Crypto does not have that. Crypto is a global asset. The people who hold it are subject to their local regulations. If you’re in Estonia, you’re subject to that. If you are in South America, in Argentina, you’re subject to whatever it is there. And of course, in the United States, you’re subject to that. If you do business with a U.S. person, then suddenly you’re now under U.S. jurisdiction. But Bitcoin has a protocol that doesn’t wake up in the morning and say, “I follow U.S. law.” An asset-backed stablecoin does. There’s no way to get around that. The top two basically have to follow, for the most part, what the U.S. government says. Even if they’re running away from it a little bit, like Tether, they still, at the end of the day, can’t violate or push too far in one direction.
That’s the first set of problems with asset-backed stablecoins. The second set is that they can’t go fractional. That’s a good thing, but with a hard fork—let’s say there’s a Bitcoin split and there’s Bitcoin A or Bitcoin B, or more pertinent to this example, Ethereum splitting into Ethereum A and Ethereum B—you can’t have a situation where the stablecoin issuer says, “You know what? I’m going to let my stablecoin be on both sides, and we’ll just let it ride.” Why? Because doubling the supply means that they’re only backed by 50 cents to the dollar. They have to pick a winner; they either pick A or they pick B, but not both.
If 70% of all your transactions, all your value transfer, is occurring at that stablecoin level, and your entire DeFi economy relies on that, you can’t be the chain that suddenly loses USDC or Tether. You have to be the other chain. So what if they split, and one says, “We’re going to put KYC into the whole system,” and the stablecoins support that split? The other side loses your stablecoin, meaning they lost all their liquidity; they lost all their DeFi backbone. What do you do? That property forces them to pick a winner. You have now implicitly given the stablecoin issuer, the asset-backed stablecoin issuer, that power—a small group of people you’ve never met, you have no relationship with, you didn’t elect them, and they have nothing to do with your underlying asset. They have that power and authority now, and that’s incumbent in the design.
Now, the only coins that are not subject to these issues are algorithmic stablecoins because they take a crypto asset and make another crypto asset, and the algorithms, the custody—all these things are moderated on-chain. This is why I say again and again that the only thing that’s value-compatible with cryptocurrency is algorithmic stablecoins, not asset-backed ones, unless you have crypto assets backing other things and your blockchain is the custodian.
Only an algorithmic coin has that property. Now you have some notion of ownership, and of course, the users can vote for chain A or chain B for that honoring. But an individual doesn’t get or a corporation doesn’t get carte blanche to decide which side of the equation to be on.
I mentioned this, and now let’s go to the clapping idiot seals on cryptocurrency Reddit. Algorithmic stablecoins are most suitable for the crypto industry, they say. Charles Hoskinson, they say Luna says otherwise. I wish he kept his mouth shut, and I do hold ADA. Oh yeah, yeah, yeah, I hold ADA here, but Cardano is one of the worst blockchains in terms of stablecoins. “Look at how stupid he is; Jet is a failure. You’re all failures.”
So what’s this telling you? It’s telling you the zeitgeist of the thought process people have. Have they actually thought about the danger of algorithmic stablecoins versus asset-backed stablecoins in comparison to value-compatible algorithmic stablecoins? No, because the thing they care about—the only thing they care about—is this right here: the vast majority of people want the number to go up. And boy, the number has been going up. We’re up 18%, 16%. Look at the list; most of the top 10 are doing pretty well.
That’s the only thing that matters to the people here, so they don’t stop for a moment to understand the existential risk. By the way, it’s the exact same problem if you look at 10 billion AUM for Bitcoin ETFs among BlackRock and these other Bitcoin trusts. What does that translate to? 200,000 Bitcoin being in the hands of a small group of actors who are regulated. They have the exact same power as Circle now with Bitcoin.
And you have all the Team Orange running around saying, “No, they don’t; the miners are in control.” Okay, well, let’s go do the experiment. You fork, and you have Bitcoin chain A and Bitcoin chain B, and the ETF says, “You know, we support chain B.” So what do they do? They take whatever assets they have that have just been replicated in chain A and they sell all of it. What does that do to the price of chain A? It goes into freefall.
And you know what happens? The miners say, “Well, same hash power, but if I mine A, I get 25%, 50%, 60% less than if I mine B. I’m just going to move over to B.” Hash power falls on the dominant chain, and chain B, as more of these legacy actors come in, will acquire more and more of the supply. They already have a fifth of what Satoshi has.
Remember the panic scenario in Team B? Team Orange keeps saying, “What if Satoshi comes back and sells all of his coins?” Well, you have just invited in some of the richest, most powerful multinational globalist organizations to own 200,000 of your coins, and you’ve done it. Happy, happy, happy, joy, joy. Every day, you’re fired up about it. Why? Because the number goes up.
Then you look at the centralized exchanges; they get to decide list A, list B. You see the trend here? So hang on a second. How many big exchanges do we have in crypto? The top three control the vast majority of our transactions and trade by dollar value. A small group of ETF holders, a small group of central exchanges, and two big asset-backed stablecoins, which constitute 70% of the value transfers.
Sum that up: 10 legacy regulated institutions control the vast majority of your value flow and also get to decide the future of all of these projects. Why? Because if you go in a different direction, they won’t list you, they won’t give you a stablecoin, and they’ll dump your coin if you go in a different direction for a project that you love.
You tell me: is crypto eating legacy, or is legacy eating crypto? This is something cryptocurrency Reddit can’t understand because the only metric that matters is the number going up. Anything mentioning my name is bad, and Cardano is a scam. Lo and behold, we’re one of the few ecosystems that managed to stay a little bit out of the fray because we weren’t a VC Ponzi coin; we just organically grew. For the most part, most of Wall Street has ignored us, and we’ve had organic TVL and organic growth.
Now the community is starting to invite the vampires in. It’s not my job to say it’s a good thing or a bad thing; it’s my job to express my concerns and to let people know that when these people come in, they gain a lot of power and influence. They get to decide your level of transactional privacy, your custodial standards, what is a wallet, what your listing criteria are, and the governance therein. They decide what chains are legitimate, what chains are not, what consensus is legitimate, what consensus is not, who gets liquidity and who doesn’t, which jurisdictions, and dozens of other things. They get to decide all of that, and if they decide that you’re not worthy, like Monero getting delisted from most modern exchanges, you’re out of luck.
Is that the revolution we signed up for? To have 10 companies come in and completely take over cryptocurrencies and basically run them and control them? I didn’t sign up for that, and I don’t think a lot of people did. But if your only criteria is the number going up, that’s what you get. That’s the reality.
If you attack and criticize the people who have this message, you have to really ask yourself, “Who the hell are you? Why the hell are you here?” I’m getting real tired of being called a charlatan. I’m getting real tired of being called a con man and incompetent. I’m getting real tired every single day of carrying the weight of telling the truth about where we’re going as an industry, whether it be the centralization or the lack thereof, the consequences of the legacy financial industry coming in, and what they do, and the idiocy of Team Orange and how everything but them is a scam.
But then they hand their entire kingdom over to the very bankers that spawned Bitcoin from their malfeasance. We, as an industry, need to take a step back, take a deep breath, and really ask ourselves: why are we here? What’s the point of these things? Are we, as an industry, because of avarice, so prepared to hand away what makes the industry special, unique, and frankly sustainable to the very people that we were trying to get away from?
Because the number goes up. It’s important that we understand that every decision has consequences, positive and negative. Every single approach has trade-offs. Nothing is free in life, and every single thing we do, we have to ask ourselves: does this move us closer to a more egalitarian, a more fair and transparent world, or does this move us closer to the very people we started trying to run away from as an industry?
Every time you hand your custody decision, your voice, your hash power, your voting power to a centralized entity, you are restoring an order that we were trying to usurp. Every single time you create an actor who you have a dependency upon, you remove the promise of Web3. Whether it be OpenSea, or Infura, or Alchemy, or any of these services of convenience, whether it be being in an exchange to custody your coins and let them vote with it and stake with it, or embracing an asset-backed stablecoin over an algorithmic one, you’re making a decision that it’s okay to be centralized.
That’s a personal choice, and that might be because you don’t care about cryptocurrency philosophy. You have no desire at all about any of the values and principles that this entire industry was formed upon. Okay, that’s a fair point. You can’t be a libertarian and then judge people for having a difference of opinion. But do understand that the consequences are that these assets are now no different from the legacy assets we sought to replace. They’re just basically a different flavor.
You’ve replaced cane sugar with high fructose corn syrup; you’re going in the opposite direction. So do understand these things, and that’s why I speak out about it. I am, as I said, getting a little tired of it, especially where none of the other prominent leaders are coming forward and really expressing themselves. You notice little by little they start doing business with these same firms. Little by little, they start building relationships with these firms. Why? Because they’re made men, and they want to keep the fortunes that they’ve made.
That’s their decision and their prerogative. From time to time, I have to be the guy out on the island and tell people, “Well, I have some concerns.” I absolutely have concerns that 10 actors together get to decide right now the direction and fate of cryptocurrencies by how they upgrade, which ones are valuable, and which ones have liquidity.
I am deeply concerned that over the arc of time, the next five or ten years, we’re going to see stringent KYC and AML put on every wallet. We’re going to see a boatload of CBDCs entering our space and being treated like cryptocurrencies, and everything moving toward a permissioned, divested-only system. We’re going to see wholesale deplatforming of some of the most vulnerable people because they just happen to live in the wrong geographies or under the wrong governments.
It’s unethical and immoral to remove the economic identity and agency. It’s wrong; it’s always been wrong and always will be wrong. I, for one, am here for freedom of association, commerce, and expression. I believe you should be able to have the thoughts that are in your head without them being criminalized. You should love and be able to work with the people that you want to, and you should be able to participate in markets without fear of censorship and exclusion.
This is the bedrock of the revolution that is cryptocurrencies, and none of this means anything if we hand all those things to legacy actors. I have nothing against legacy actors; they have shareholders, they have businesses, and they have to behave in no other way. Their whole point is to maximize their value and enhance their competitiveness. If that means they enter our industry to do that, they’re going to do that the same way they enter any industry: embrace and extinguish, and use every advantage they have—regulatory arbitrage, domain expertise, the heavy hand of markets—all kinds of things to control what we tried to get away from.
2008 was a pretty terrible time for a lot of us, and so many people got hurt and victimized. The whole message of Satoshi is that we can do something a little different, and we can be different. I like to remind people that that’s not a guarantee. Just because somebody writes some code, the meta means more than the actual. The meta is the infrastructure, the owners. The meta is the technology that we embrace and how that technology works together. The closer we get back to the legacy, the more we start realizing we’ve lost control.
So just a cautionary tale—something for you guys to think about. Thanks for listening. Cheers.
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