YouSaid · the spoken record

Scott Freeman

lines on the record: 58
first: 2022-11-24
most recent: 2022-11-24
sittings or episodes: 1
sources: podcast

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“And I think DeFi has held up very, very well, right? The DeFi exchanges, the DeFi lending pools, there have been no catastrophes there. There have been no hacks. There have been no, nothing's happened that was unexpected in DeFi. And I think there have been a lot of people talking about that and promoting that, right? So if you're complementing your assets, controlling your wallets, it's a great place to put positions on. It's a great place to lend, to borrow, to do things that you may have gone to a centralized exchange to do before. So we like that a lot. We like the fact that ETH merge went very well. We think there's a lot going on in the NFT space with artists' rights and people who own intellectual property being able to monetize that. We still think there's a lot of good coming out of this, but there's a lot of crap in front of it right now that we've got to get through. And once we get through it, I think people will say, wait a minute, there's a lot of cool things happening here. There's a lot of value being created in a lot of opportunities.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“There's so much uncertainty. There's so many things that are opaque in this ecosystem. Like, let me just get out of it until there's better visibility. Some of my Kathy Woods been in it long enough, I guess, and she maybe has enough connections there and her lawyers and credit folks have been through it. Maybe she's much more comfortable than maybe you or I or others would be. But I'm hopeful that there's no contagion there. I'm hopeful that everything works out and I have no reason to believe why it wouldn't.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Know it's hard to understand. Where this goes, right? I think it was at a 45 or 50% discount last I checked. I did see that Kathy Wood at Ark bought a bunch of it. I think for people who are in the long term, I think it's probably still not a bad place. If you want to go long Bitcoin, it's not a bad place to go long Bitcoin, right? I would really be shocked if they didn't literally have the Bitcoin to support the GBTC they issued. I think Coinbase came out and said, yeah, we're sitting on either all of it or some of it. So I think there are big liquidity issues there. And even if Genesis lending business goes down, I'm hoping and expecting it doesn't have any effect on the trust they set up to manage these assets. But who knows? Like to your earlier point, like I think that's why everyone's afraid of, like, listen, why take the risk? You know what I mean? At this point, people are like, I'm guessing like, listen.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“It's fine. Don't worry about it. They just Right, that's true. And these are the unknowns that will play out over the next days, maybe, or weeks as we get better visibility into the relationships there, right? It's unfortunate, right? It's unfortunate that, you know, someone's inappropriate slash criminal activity at FTX or group of peoples has such a knock-on effect to other people who are just trying to build a business. We know a lot of people at Genesis. We know they're very good. They're honorable, honest, hardworking folks, right? And they're going to get dragged into this stuff in a business that they've built up over four years. It has the potential to go down the tubes very, very quickly.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, there's a great thread on Twitter, someone who just writes a Genesis timeline of what Genesis said. So on November 8th, they said we have no material credit exposure to FTX. November 9th, they say, oh, by the way, we lost $7 million. November 10th, they said, okay, we do have a $175 million locked in FTX. November 16th, they said, sorry, no new withdrawal is new loans. November 17th, they said, okay, we need a billion dollars. And then November 21st, they said, we'll go bankrupt without the money. So quite a big move in terms of what is first released and then what is sort of like drip, drip, drip. And then today we're hearing, yeah, they have 2.8 billion outstanding loans on their balance sheets and they also made a loan to its parent company, DCG digital currency group. So you said that they were separated. And I think that's the idea. And one would have hoped that was the case. But unfortunately, you know, as was the case with FTX, there was a time, oh, you can't withdraw on FTX, but you can still withdraw on FTX. Don't worry about it.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“That surprised them and surprised all of us. And I'm guessing a lot of their issues where they also lent to people who had assets in FTX. And that's hard for them to really get their head around. You can see what your direct exposure is on it. Now maybe those assets have disappeared because all those hedge funds stuck their assets in FTX and can't pay me back.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so that's honestly a good question. I would think they were one of the biggest institutional players in this space borrowing and lending. That's just one piece of their business, though. They're also big on the trading and options side. So I think what they've tried to do is really make a clear distinction between those two businesses, saying, hey, this issue is in our lending unit has nothing to do with our trading and options unit, which is over here, which is still profitable, which is still liquid, which is still operating business as usual. So they were a big lender, I think I've seen their balance sheet or heard their balance sheet was two to three billion. I forget the size of it was. They were material. They would borrow and lend to folks like us. We didn't have a business relationship with them. We have no exposure to them. But they were very instrumental in providing liquidity and lending and providing collateralized and asset-back loans. They were a major player in this space. They were big institutional player. And unfortunately, they got sucked into the after.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Be severe. Let's share this in the market's flat today. Everyone, I think, is expecting Genesis to unfortunately declare bankruptcy. Or maybe they'll find a suitor at the end of the day. People were worried about GBTC, right? We haven't spoken about that at all. you know if there's some contagion to gbtc that would be really really ugly we don't expect that to happen everything we've read and people we've spoken to um but that's still out there as well so you know if this is orderly and there's no major surprises then i think the market just absorbs it and keeps on moving forward”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“There's no real reason for the Marcus to do much one way or other until we get into next year, until we get some more themes. Maybe the Fed, maybe start looking at macro environment, we need a better macro environment where people are comfortable. The Fed is slowing down, and that allows people to start taking some more risk. But there really is no positive news that we can hang our hat on, nor do we think there's a lot more energy for people looking to sell in this market who are sitting on assets. So listen, all that could be wrong. And maybe there's a pocket of assets that if Genesis goes bankrupt, people have to liquidate to manage their credit risk. That was surprises, but we've been surprised before.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Reverberations, unfortunately, but I guess our thesis is that things will be a little bit choppy through the rest of the year. We don't see a lot of reason for things to go down much. We don't see a lot of reason for things to go up much. We think volatility will continue to come down. We think liquidity will continue to come down. So there could be some gaps in pricing. We saw some of that today and some things you're watching. But we think”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Mining space the mining space's a mess right now, right? And there's been huge issues there. And that was two or three news cycles ago, right? So that's still out there and there's a lot of potential bankruptcies that may happen there in the mining space. So I guess my point is it's been a long year for many of us. And we just want to get through the rest of the year in a quiet manner. A lot of people like us are de-risking. We're pulling assets off. We're locking things down. We're doing very, very careful. And we're starting to look towards next year. So at some level, we think a lot of the bad news is priced in. We don't expect there are many more lenders sitting on collateral. They haven't liquidated yet. So I could be wrong with that. I mean, if Genesis goes bankrupt, that would be unfortunate. I don't know what that means. If they're sitting on collateral or people are sitting on their collateral, we don't expect that to have a material impact on just the overall market. We think there'll be”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Some of this is wishful thinking. Some of this is, you know, it's been a long year for many of us. It's been exhausting. There's been one crisis after the other. We haven't even spoken at all about what's happening in the...”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“We like them. We're doing more and more. We've been a big proponent of DEX for many, many years. We are a market maker on DEXs. We trade on DEXs. We do staking. We do farming. We're very careful about it. We do due diligence. And again, there's only so much you can do. There's been some technical issues on a lot of these DEXs. There have been technical issues across the DeFi ecosystem over the course of the last many years. There will continue to be technical issues on there, right? So there are just different risks there that don't exist with centralized exchanges. You don't really have credit risks. So you have some liquidation risk. So we think that DEXs and decentralized finance are the way for the future, but it doesn't remove all the risks, right? There's still some unique risks there that you need to be aware of and just be comfortable with.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“You are an advocate of cold storage. What about when people want to trade? There's centralized exchanges such as FDX, but also other ones that hopefully have better risk management. But then there's also decentralized exchanges, which I don't know a ton about. They're also called DEXs. What's your opinion there?”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“It's never perfect, right? It's just, you know, if people are going to lie and steal from you, it's a very difficult thing to predict in events. I'd encourage your users just to do your due diligence, ask the questions, understand who's there. If they're offering leverage, they're getting that leverage from somewhere, right? They're probably getting it from your assets, right? So you got to make sure you understand what their insurance fund looks like, what happens when people get liquidated. Do they allow people to borrow and take assets off the exchange? Just how those things work, but my advice is if you don't need to have your assets there, don't keep them there. There's no reason to. If you're just using it as a bank or as a custodian, find the solution. Like I know people who had literally US dollars on FTX for months and years. They viewed it as a bank.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Listen, I had a call with someone yesterday who had a few thousand dollars on a major exchange in the US, and he's going to take it off and put it on NATO. I'm like, if you don't need it there, why are you going to keep it there? And it was just like, yeah, if I don't need to keep an asset there, why am I keeping it there? You know, what we look at, we look at the management team, we look at why they regulate it. We look at their business model. We look at their reputation. We talk to people who have traded there.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I mean, how can investors protect themselves if other than not going on to a centralized exchange at all, which of course is definitely an option? I mean, are there any red flags that you think, oh, hmm, in what way can people do due diligence about the exchanges where they're storing their assets with? Or if there is no way at all, I mean, should we ever just go to a cold storage and decentralized exchange?”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“These are things that if people are going to steal, if they're going to lie, it's a very difficult thing to protect yourselves against.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“There's nothing you or we can do to prevent that from happening. We can reach out to every exchange we trade on and they all can say we don't lend out client assets when they're doing it out the back door and it's very, very difficult to police that. At the end of the day, you hope auditors can figure that out. You hope regulators can figure that out for exchanges that are regulated. But a lot of those things are very difficult to catch, right? And even if I worked at a regulator, I worked at one of the best in the world, the Federal Reserve, right? There were still banks that we regulated that did illegal things. They did stupid things. They broke the law. They broke regulation. So having a regulator is not a cure-all for anything, right? It makes a lot much harder and it makes it more likely it will get caught more quickly if there are nefarious things happening. It makes it more likely that they have risk controls in place so that people with infirms will catch things before anyone else lets it get too far.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“All listen, at a basic level, they lent out client funds. If they actually did that, to me, that's illegal, right? The documents that we and others signed to trade on FDX specifically mention that these are our assets. And yes, we had the ability, people had the ability to lend assets in FTX so they could lend to others and people had the ability to borrow assets on FTX with collateral. But if they literally took client assets and lend them to Alameda and others, that is illegal. And unfortunately, you know.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“So you said that Celsius exposed sort of the credit risk that was inherent in these centralized exchanges. And if it's a bad actor, that credit risk can be material and you could lose a lot of money. To what degree did FTX also show that credit risk? And then what did FTX sort of do wrong that you think investors who want to sort of do due diligence on their exchanges if they are to keep money on their centralized exchanges? What are sort of no-nos that FTX did? I mean, we could talk 20 no-nos, but also.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“To lose more and more money? You know, I've heard both sides of that coin. I've heard someone tell me that I'll made a lost money market making and made it up doing options and derivatives. And I've heard they lost a lot of money and options derivatives made up market making. So I don't know which of those is right or if neither one of them is right. Like I can't imagine anyone's going to be in a business where they where they're losing money, right? It just makes no sense to me. So I don't know what the right story is if I had a guess it's probably somewhere in the middle that Alameda was good at what they did, but they ran it as a business, right? If they had assets on a place, they wanted to make money on those assets. So how to be a reason they're not just going to lose money for the sake of losing money.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“It was widely rumored that Alameda was a large, perhaps the largest market maker on FTX. I don't think that was official because it wasn't on the number one leaderboard. You don't have to comment on that, but let's just assume that it was. On the face of it, it seems like the conflict of interest is, oh, Alameda is going to have this huge edge because it is a prioritized trader. But I also know that FTX liked by many traders because it had such narrow spreads. And my question is, did traders go to FTX because they were trading against Alameda and Alameda was such a bad trader that They just traded that, and the Alameda continued to lose more and more money.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“I said, at that point, you start selling that point. Honestly, we have no exposure to Alameda. We don't like we know the folks there. We never lend to them. We don't borrow from them. Like they were just another competitor as far as we were aware. But as soon as someone starts a pure quant shop says they're getting out of their comfort zone and they're doing things and they think they're better than other people doing it. And to me, that's a purest signal that they've had model creep and trade creep and it's a signal that there's no one in the world that can predict where Doge is going unless you know someone, unless you're front running someone's trade. Listen, maybe they were. Maybe they knew the wallet. Maybe they knew the people who were selling or buying and they knew what their schedules for selling and buying were. But absent that, and that volatile of an asset that a liquid, I just, I would take it all the grain of salt.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“So we're actually taking market risk, and it's kind of our superpower. And Scott, this is not bullshit. This is not bullshit. You can go back to Twitter. He posted an emoji of Superman. He was saying they were Superman by taking all the market risk.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Wow. Yeah, going back to the parallels between traditional finance and crypto, a huge parallel that comes out to me is when people say it's a risk-free trade and it's arbitrage, you can make money with arbitrage if you have a huge amount of capital and it truly is a risk-free trade, but maybe you're making 20 basis points. You're not making 20% a day. I mean, you said that it was a juicy trade, but at some point, the spread closes and then to make the same amount of returns, you have to take risks. And that is exactly what Alameda did. The old CEO of Alameda Research, again, the hedge fund that is majorly owned by Sand Baker, who founded FDX, and Sam Bakeman Fried founded Alameda first, just for the audience. He in this year, I think, or actually maybe the prior year, he was posting, yeah, this whole Delta neutral thing, not taking market risk. That's kind of overrated. We've actually, our models, we've developed these models that identify when to buy and sell Doge.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Believe that. I don't know if they were making money at it, but that was a business they were in. Do I believe they were farming and doing yield earning opportunities? Sure. But other than that, did I believe they're the smartest guys in the room that were doing really crazy quantitative trades? No, it's just, you know, I think I've been doing this long enough. I know there are some people in the world who can do that and they tend to be the big boys who have technology teams of several hundred who are co-located in every jurisdiction around the globe. And they have the engineering skills and the technology to do things like that. A 10 to 20 person shop at Alameda doesn't have the ability to do things like that.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Now listen, like, you know, I've been in finance for a long time. I ran a hedge fund for eight years with three really, really smart people, right? Who were much smarter than I was and taught me a lot about quantitative finance. I work with really smart people at banks. I work with really smart people in my company now. And you learn to be skeptical. You learn like no one's infallible. No one's the smartest. People make mistakes, but people also believe their own nonsense. And listen, did I believe that they started their company buying Bitcoin here and selling in China? Absolutely. Everyone was doing that. It was a great trade. It was a great trade. You made three to five percent all day. It was crazy. It was a crazy trade, right? Do I believe they made millions and tens of millions of dollars, maybe hundreds doing that? Absolutely. Do I believe that Alameda was a market maker where they were actively making too many markets in coins?”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“I'm also very eager to find out those details. I've actually interviewed a person on this podcast who actually said that they publicly said it on my podcast that they lent to Alameda on an uncollateralized basis. And at the time over the summer, the argument was, oh, lending to basically broke entities on a collateralized basis is actually bad, especially if the collateral is of poor value. But on an uncollateralized basis to a blue chip party like Alameda. Now that is a good, yeah, you laugh. I mean, I believed and I'm kind of embarrassed that I believe it. But I think a lot of people believed it as well. And there was this myth, Scott, of Alameda, they're the smartest people in the room. They take risks, Scott, that you and I wouldn't be able to take because we're not as smart as they are. And I think, I mean, how much did you sort of believe that myth, there's the whole narrative of, oh, there's the spread between you buy Bitcoin.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“We know people who lend to them, right, based on the collateral, and they thought they were over collateral as they had for every million dollars they lent out they had a million and a half or two million of collateral. Great. It looks good on paper until it does it, right? Until you understand what all the other liabilities were, what their other assets were. And we don't know what other information Alameda gave to those counterparties to get the loan approved that we don't know. We know what we have to do sometimes when we borrow what information we give up. We're very careful about what we give and how we give and what we represent. So I think a lot of those things will still come out in the future. And we're very eager to just, you know, for this bankruptcy process to play out and learn a lot more about what happened.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, both. I was completely shocked and we didn't know it was bad. We know the folks at FTX very well. Like we've known them for a long time. We grew up in industry. A lot of those folks. And it was shocking how bad it was there. And it was shocking how they were valuing the assets, all the points you bring up. And I'd love to see the audit report. How are they valued at the end of the year? Did the auditor actually approve that valuation? There's no way any auditor worth their weight would approve that valuation for an asset. It makes no sense to me whatsoever. And I'm sure the bankruptcy council and their consultants will dig into that. And if things were done inappropriately, they'll do their best to recover some assets. But it was shocking to me, the extent of the interaction between the two companies, how much they lend, what it was collateralized by. But at the end of the day, as well, like we.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“For sure, I think that actually what Enron did where it borrowed money from off balance sheet entity that was collateralized by its own stock, that is actually perfect example of very akin to what FTX did with the FTT token as well as the SRM token. Right.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“So Enron. There are lots of instances for good and bad companies where people borrow against stock of the company, whether private or public, and they end up in a credit situation. So it kind of gets back to my earlier point that we see these issues in crypto right now, but these issues in crypto where you bar against an asset and all of a sudden that asset dries up, all of a sudden that asset gaps in price and all of a sudden you have a big credit exposure are not unique to crypto, right? These are issues that judicial finance has dealt with over the years and continues to deal with and will continue to deal with.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“You know, maybe what's more illustrative of what's going on with FTX these days and Alameda and what I'm reading, what I'm hearing about is they borrow lots of dollars or collateralized by FTT, right? Which the size of their collateral is huge relative to the liquid liquidity in the market, right? So you have things like that where people lend assets against dollars and the people who are lending the dollars think they're protected because they think they can just liquidate the collateral. But when push comes to shove, collateral dries up, the value of the collateral nose dies very, very quickly, and all of a sudden where you didn't think you have credit exposure, now you have lots of credit exposure. We should highlight as well, and you and I spoke about this in the past, that these issues with borrowing against a token or borrowing against your own asset have happened in traditional finance and continue to happen in traditional finance, right? Years ago, Elon Musk was borrowing as Tesla.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“The thing about securities lending is there is a collateral there. So, you know, if you lend me money and I lend you my Apple shares, you can just sell my Apple if you're worried about me. So in principle, there is that buffer. So when there's credit risk, and Celsius encountered credit risk, notably with a firm called Three Arrows Capital, where was the credit risk? Were they not able to liquidate the collateral because it just gapped down or was the collateral not worth as much as they thought?”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“And all these things surprise you because we don't work in these companies, so you never know what happens in any of these companies. Unfortunately, Celsius happened. They're bankrupt now, and hopefully their clients get some money back out of that. It's very unfortunate. That's a very tough business model. Look what Blockfi is going through now, right? Blockfi, I don't think they've officially announced they're going bankrupt, but everyone expects it to have. Expects it to happen. Look what Genesis is going through now. So I think that business where you soak in assets from whether institutional retail clients and then attempt to lend them out to other people, it's a risky business, right? And I think what's happened over the past year, year and a half validates that it's a risky business. It's very tough as a standalone business, right? It's a credit business at the end of the day. And you're extending credit and taking credit against an asset that's very, very volatile and can get very illiquid.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Thanks. And so that happens on DeFi. It also happens on CFI centralized finance. And an example of one of those firms that notably did securities lending was Celsius. I'm sure heard of Celsius before it went down. Did its collapse surprise you? And did you feel like you sort of, there were some lessons there that there was new information you didn't have before? Or were you like, oh, I knew Celsius was, you know, I knew that was going to happen.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“In addition to that, on places like, you know, there are places you can buy and swap crypto in DeFi where you can also stake assets there or farm assets there and you earn a portion of the brokers that they earn. So the fees they earn basing your assets, some of that comes back to you as well. So some of that supports leverage, some of that just supports people wanting to be long or short. But the interesting thing is that you can get paid for allowing the protocol to use your assets to support trading or lending activity.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Well, so a few questions there. So, the yield would come from in the DeFi world, right? There are places you can stake or farm your ETH and you earn fees. Those fees are a reflection of either people borrowing your coin to either lever themselves up and buy more or buy another asset or to short the coin. And you get paid a percentage of the fee that that protocol charges for someone to borrow it.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Retail clients, and that's how brokers make all their money today, right? They make about lending out your assets to people that you don't make anything on. So the crypto market came up with that innovation where Asunchi said, listen, you can own an asset. And not only that, but you can get paid to hold that asset, which I think is really, really interesting and is one of the neat innovations that have come out of crypto.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Every hour, actually, or on FTX, it was rolled every hour on other exchanges, rolled every eight hours. I think BitMex was one of the first to come up with it. They had an eight-hour perp that was one of the first to deal with. And BitMex, as you probably aware, had its issues over the years, but it was really, they did a great job early on innovating, right? The whole idea of a perp and paying interest every eight hours and rolling it not even get at our futures position. It was a Bitcoin contract, so it was a little bit different, but it was just a very interesting approach. And I thought it was very innovative. And it was also pretty cool that you can earn a return on your asset, right? So, and I think that's a really neat innovation that's been overlooked a lot in crypto. Imagine if you own stocks of Apple and you can get paid to lend that out to someone on an exchange or through a broker. It really doesn't exist.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, more for futures and perps, things like that. Yeah, yeah. And a lot of the exchanges will post that. And there are some websites that aggregate that as well where you can kind of look at how they summarize it or quantify it across all the ecosystem.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Very interesting, put it that way. Leverages definitely come out of the market. We expect this will persist for a long time. We think a lot of leverage was in the market as a result of folks like Celsius and the guys like that who had all these assets and needed somewhere to put them. We think over time it will build back up nowhere near where it was used to be. And the question is how long will it take for people to get comfortable again before they start deploying leverage or even using leverage in any capacity whatsoever.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Leverage has definitely come out of the market in the past year, appreciably. I can't point to anyone metric. I know our traders can, but essentially you can look at open positions on lots of different exchanges. Again, there's no one central in order book. But going back to levered positions on FTX, the purpose of swap market there, there are other competitors as well that have similar markets, and they've all publish open positions and things like that. I know there's exchanges in the US that do the same thing. So you can keep track, and I think that's a good barometer, open positions. You can also look at the DeFi market and look at the total value locked in some of these protocols and just kind of see how much value is locked in different places, what are people earning, what are people willing to, what do they need to earn to lock up an asset, right? So that informs you a little bit about what their expected return, what they're expected returns are on that asset. So it's been.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“I think generally it happens after, right? You see a big gap in the market and then people just pull back, right? So unfortunately there's no one barometer you can point to to say, oh, liquidity is drying up, the market's going to crash 20%, right? What ends up happening is that for some reason these things always happen on weekends, but on a Friday night or Saturday morning, you wake up and our folks in Singapore are sending us messages or giving us an example of what happened in the market overnight. You realize the market is off 15% and now liquidity is dried up and now it's harder to manage your risk and maybe liquidity has moved from one exchange to another or there's a problem in a DeFi platform that you can't access a DeFi platform. So crypto has lots of unique”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“To figure out where to best trade how to best trade. So all those things are things that we tend to look at on a day-by-day, even hour-by-hour basis as we're trading. And one of the challenges of crypto as well, there's no centralized order book, right? So you may see anomalies on an exchange, but you may just not have enough assets there to take advantage of the anomaly, right? And then you have to figure out, does it make sense for me to move assets there? Will the anomaly still persist? You have to go through all those things, all those. Calculations in your head to see if it even makes sense.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so we will look at a variety of factors. It could be just order book depth. What's the top of the book look like? What is the depth of the book look like? How wide is the top of the book? Look at volume traded. Look at volume trading across different exchanges. Has that changed? You know, looking at, obviously it's changed a lot since FTX, right? But we've also seen now that FTX has gone under, there's been a market shift in where things are traded, right? We look at now you look at DeFi more. Maybe you get a better understanding about what the markets are like. But behind that, you also need to understand some of the unique anomalies those places. If you're trading perps or futures on those exchanges, you need to understand funding rates. how the funding rates work on all those things you need to understand how you get paid you get paid in a native coin to get paid in dollars so there's a lot of variables here that you need to think about when you try”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Thanks for explaining that. I'm actually really glad you said that. Okay, so we've got liquidity, leverage, and volatility. Volatility mathematically is very complex, and I definitely don't understand it, but I think all the information is there. But I think leverage and liquidity is really hard to measure even in traditional finance, let alone a nation asset class like crypto. Let's start with liquidity. The sort of textbook definition is the ease with which market participants can enter or exit a position. So, you know, if I want to buy 100,000 shares of Apple, even a liquid market, it's easy in an illiquid market, it might be a little bit more difficult. And Apple is a very liquid stock. But how do you measure that on a quantitative basis? Are you sort of looking at bid to ask offer spreads? Are you looking at just the volume of stuff that it is traded, everything? And then also, was there a point, what was sort of peak liquidity in crypto? Did it occur last year or this year?”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“We tend to focus more on liquidity and leverage in the market and volatility, right? So we tend not to focus on a particular coin moving more or less than another coin or even the absolute movement of a coin. We tend to focus on more macro liquidity type issues. But they just help us inform how we're going to trade more than whether we're going to trade. So it's, you know, if I need to sell a few million dollars of Bitcoin, I need to understand where I can do it, how I can do it, how long it would take me, what are the liquidity, what exchanges can I do in DeFi, CVI? So it more informs how we're going to trade often as opposed to when and if we're going to trade. Does that make sense?”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT
“Problem each anomaly in the market is unique, right? And when you're living in the current one, it's always the worst one, right? Because you just don't know how it's going to end, right? So this is by far the worst one in a month or two will still be the worst one. I don't know, right? The final chapter has not been written here. But every problem we've been through has been a unique problem within crypto, but again, there have been similar types of issues in normal markets as well. But it's really hard to, these things are very, very hard to predict. You do see signs in the market that get us worried. And we tend to de-risk when we see those things.”
2022-11-24 · Forward Guidance · Liquidity In Crypto Is Declining | Scott Freeman · IDENTIFIED FROM THE TRANSCRIPT