[00:01:26] Preston Pysh: Yeah. And I love chatting with you, Allen. So this is great. Here’s where I want to start. So Saifedean and Saylor.

[00:01:34] Allen Farrington: In full disclosure, I haven’t seen it. I’ve only seen in case you want to probe or listen to it. I guess I’ve seen clips of it, which I think, you know, which I’m totally open to the idea that they have been taken out of context. But that’s life, that’s Bitcoin Twitter for you. That was the thing that day that everyone got mad about. So here we are.

[00:01:54] Preston Pysh: Well, where I want to go with it is it seems like Michael’s looking at it and saying, Hey, I think you can trust the big banks.

[00:02:01] And I think that, you know, if you want to use Bitcoin as what’s the word I’m looking for? Pristine collateral. You should be able to borrow against it and I never want to sell any of my Bitcoin and if, you know, these big banks want to go out there and make yield on it. I even saw Caitlin long had some comments about doing this in an appropriate and safe kind of way.

[00:02:24] If you’re going to do it, and it’s safe is just kind of, and maybe I’m taking his comments out of context here because I’ve only seen some of the clips as well. I haven’t watched the whole thing. But it seems like safe is like, no, this is just garbage. I think everything’s going to be a Celsius block fi kind of debacle.

[00:02:40] Anytime you do borrowing and lending on top of Bitcoin. I’m curious, how does Allen Farrington see this?

[00:02:47] Allen Farrington: So, okay. I, there’s a bunch of different threads I could pick up on seriously, like in attempting to actually discuss this. You know, not in the troll y way that I did on Twitter. I mean, if anyone’s confused by that though, then it’s their fault for following me in the first place.

[00:03:00] Like, I don’t ever say anything serious on Twitter. That was just a really, that was the thing that day. That’s what I mentioned before, right? Like, everyone was piling on, I just thought it was funny. I’ll throw out a couple of things, and then you can tell me which one you think is most interesting. So, The idea of borrowing against Bitcoin, like how that’s likely to develop, how you’ll be able to, how you get yield on it, I guess maybe the spiciest one, which hopefully isn’t relying on having taken sailors comments out of context, but I think it’s like pushing it a bit further.

[00:03:30] Or like probing a bit further, whether you want to do that at all. And if it’s maybe to what extent it’s defeating the purpose of why Bitcoin is good money and hence why it has any value in the first place and hence why anyone should care about it, including him and sort of how he’s ended up in this position of talking about it in this way.

[00:03:48] That’s maybe a bit more philosophical, I guess, but that is worth being clear on for sure. And then I guess steel manning safe’s position, which is now very theoretical about post hyper Bitcoin ization, like on a Bitcoin standard, will this exist? And then from what I could tell, I can’t, I’ve not listened to it.

[00:04:06] You just said you haven’t either. So this also may not even be accurate. This may be like out of context, even while trying to be charitable. But my impression of why they seem to disagree so vehemently was that safe was implicitly talking about 50 plus years away or whenever we’re at post hyperbitcoinization.

[00:04:24] And sailor was maybe more talking about how you play the process of monetization and like what to do in the meantime. They were maybe talking past each other a little bit, but steel manning safe. Well, it’s not even really steel manning. Cause I, I agree with it, but you know, making the case as strongly as possible as to even if sailors right there, there is a way to game this, to kind of arbitrage the monetization process, why that will eventually go away and why a lot of big owners reacting to it, including me sarcastically are just like completely.

[00:04:54] You don’t have this sort of repulsion almost to like the idea of risk free yield. So yeah, exploring that. So I don’t know which of those signs that the most fun.

[00:05:02] Yeah. Let’s talk about the second one there about just the idea of risk free yield because and for people that don’t say it without laughing, if people don’t fall out, people don’t fall out.

[00:05:15] His sense of humor is the top of Bitcoin, Twitter. In my humble opinion, I do I

[00:05:22] do pride myself on my posting. I will say there’s a lot of things that I’m, that’s the thing I’m best at basically. Like that’s, that’s where I think I genuinely do rank amongst the elite.

[00:05:31] Preston Pysh: Yes, yes, this is for sure. All right. Talk us through risk, quote unquote, Raoul Pal, risk free yield.

[00:05:38] Allen Farrington: Yeah, well, so safe point in either hyper Bitcoinized world on a Bitcoin standard, or just on a sound money standard. So kind of having stripped out fiat by whatever means you think, you know, whether it’s purely in theory or as we all hope is likely going to happen with Bitcoin, just who knows how long away.

[00:05:55] His point is that it’s almost more easily understood in the negative, I guess, because this is like a weird aberration of fiat, that this idea that you can even have a risk free rate at all, even as a concept, nevermind as something that’s like intermediated by a commercial bank, the idea of a risk free rate is kind of obviously Nonsense, because in order to get any kind of return, any kind of yield on an investment, you have to take risk.

[00:06:20] I mean, it almost seems so obvious that it’s like weird. You need to explain this, but you do in fiat because there is in fiat, such a thing as a risk free rate. And it can only exist because of basically money printing. I mean, we can go into a bit more detail, like what the exact mechanics of that are, but if anything, I’d probably rather not, other than alluding to the fact that it’s very technical and complicated, I think in large part to confuse people and to stop them probing too hard as to what’s happening. Like just calling it money printing is basically fine, right? The bulk, if not the entirety probably of the 5 percent in that example that Saylor wants to get from JP Morgan is ultimately coming from riskless money printing.

[00:07:00] And hence, that’s how it, you know, that’s how you arrive at it being risk free in the first place that to the people doing it, they’re just stealing purchasing power from all other savers and it’s not risky to them. Hence, they can pass it on and have it not be risky to the holder of the instrument receiving the yield in the first So you strip all of this away because it relies on Ultimately, central banks being able to print isn’t even the right, but create reserves.

[00:07:26] That’s what’s propping all of this up, no matter how complicated the mechanics are in between. And obviously you don’t have that on Bitcoin because nobody can print more Bitcoin. So you know, you mentioned before, it’s like you have a Celsius or a block fire or whatever, they go bust. There’s no central bank of Bitcoin to recapitalize them like they actually go bust.

[00:07:42] And the logic you would think is that. At least, maybe not. It’s kind of obviously disproven by those examples, but once this has been normalized, right? So again, post hyper recognization, people just don’t do this in the first place because one, it’s too risky to try it as a business, but there probably isn’t even an opportunity because every one of the like, there’s no marks anymore for this basically, because everyone’s aware of how stupid it is. So nobody indulges in it in the first place.

[00:08:10] Preston Pysh: And I think from Michael’s perspective, probably taking words out of his mouth based on the model that he provided showing these different prices in Nashville, he thinks that this is multi decade process that is underway. Which allows this opportunity to arbitrage this fiat debacle for many years.

[00:08:29] Yeah, I think that’s probably right. Yeah. And, and I think you were right in your, the way that you characterized it, that SAFE, I think is talking, we’re already hyper Bitcoinized and, you know, fiat doesn’t really even exist at this point. So like, what in the world are you talking about? Maybe they’re talking past each other.

[00:08:45] I’m not sure. But. Let’s assume that a person does want to borrow against their Bitcoin and we’re, you know, two years , from now, you know, we’re still in this thing that’s materializing, which is a hyper Bitcoinized world. The reason I have always, I’ll tell you my perspective and I’m kind of curious if you agree with this and if you are going to borrow against your Bitcoin, I think first of all, it has to be in some type of peer to peer kind of way that’s over collateralized.

[00:09:12] For it to reduce risk, there’s no way for it to be riskless, but to reduce risk, it needs to be peer to peer. It needs to be over collateralized. The other thing that I think is a really important highlight is the Kelly criterion.

[00:09:25] So when I’m looking at sizing and I’m saying, okay, Bitcoin, you know, let’s just say it’s returning 25, 50 percent annualized. And then I’m looking at like how much I could make by, let’s say I’m lending out my Bitcoin to get dollars and whatnot, but that yield that I’m collecting, let’s say it’s 10%. When you use the Kelly criterion and you’re saying, okay, I can get this, call it 50 percent return by just holding the Bitcoin, or I can make a 60 percent return by lending it out with this additional 10 percent kicker, and then obviously your net worth actually is a variable inside the Kelly criterion, and when you do this and you use really rough, rudimentary numbers, what you find is that your position size should be pretty small. It shouldn’t be big.

[00:10:09] Allen Farrington: Interesting. Okay. It should be. I gotta buy that. I need to doodle it to convince myself. Yeah. That makes sense.

[00:10:14] Preston Pysh: The math suggests that a person should not be taking their entire position size and putting it into this trade because of the enhanced risk and the minimal return kicker that’s added to it.

[00:10:26] So those are the two things that I’m looking at is if I’m going to do this, first of all, what is the least risky way to do it? And then, and we’re not even talking about stablecoins and like how you basically do this from an application standpoint and the risks that are associated with the whole stable coin and what protocols they’re operating on and all this other stuff.

[00:10:48] But then just the sheer sizing should be in my opinion, pretty small relative to your overall Bitcoin position. I’m curious what you think about that. Yeah. What else needs to be included in this framework? I think is the framework stupid?

[00:11:00] Allen Farrington: I thought only two or three things. I might just forget as we’re going through, but any of these are interesting.

[00:11:04] You want to go further on than just interrupt or, or let me know at the end when I’ve run out of ideas. I think the most important thing to be clear on is, how would I put this? Something like from whose perspective are we looking for yield in the first place? So the idea of an over collateralized Bitcoin back loan.

[00:11:19] Is it’s the provider that I guess the lender but the provider of fiat, who is assuming the essentially riskless position on the assumption and this is a separate point to come to actually, but on the assumption that Bitcoin is the best collateral for this loan, because it’s basically the most Liquid, even some qualifiers there, I guess, but it’s certainly one of the most liquid assets in the world.

[00:11:43] The most relevant way in which it’s liquid is that you can’t always liquidate it, right? So the market for it is never closed. There’s always a price. And it’s certainly liquid enough that for any You know, some hundred million dollar or whatever position you will be able to liquidate it right away and you’ll get the price that you want.

[00:11:58] And that’s relevant to the risk calculus there. Even that’s kind of interesting from, I don’t know if Saylor meant this or if they talked about it in a part of the conversation I didn’t hear, but that also can only work because you can print fiat. Like it’s ultimately just downstream of, of fiat being printed.

[00:12:15] Endlessly. And you’re, you really are just arbitraging bitcoins monetization there. But that’s from the fiat lender’s point of view. It’s not from the borrower’s point of view.

[00:12:24] And the borrower is necessarily the Bitcoin holder. And so the, the question there, if you’re assuming as a starting point that your opportunity cost is just holding Bitcoin, right.

[00:12:35] Or like your default investment position or whatever is just holding Bitcoin. What are you doing with this incremental fiat that beats that return? I don’t think there’s a single answer to that. Like that’s a good completely personal, in which case it doesn’t really come into a risk calculation. It’s just like you want to, you know, you don’t want to sell.

[00:12:54] You don’t want to sell. You want to avoid capital gains tax. Like this stuff doesn’t come into some like investment calculation necessarily. If it does, I mean, I guess you could do it. I’ve heard of this happening where You know, you do it in order to effectively leverage your own position, but where you’re far more comfortable with where the leverage is coming from.

[00:13:11] So as in you borrow against Bitcoin, then you buy more Bitcoin and you do that when you think the market’s at a bottom. And then when it goes up, you just round out your loan and that you end up with more, but it’s, it’s kind of, it’s only interesting in terms of the mechanics, like economically, you’re just levered long Bitcoin, which I don’t mind that.

[00:13:27] Interesting, frankly, and I also don’t think that’s really what sailor means either. The final thing I want to touch on, which is, is relevant to both these points is actually being more specific about what you even mean by risk free because it’s not really risk free. It’s sort of the risk is reduced if you understand it, but there’s all like, this isn’t just for the, for the audience’s context, we were, we’re kind of assuming a lot of context here, but.

[00:13:52] There’s no way of doing this where it’s entirely, say, within a smart contract, whatever that even means. But just, like, people might have that image from, you know, Ethereum, for example, right? There’s no way of doing that in Bitcoin. You can rely on all kinds of interesting scripting, well, not even, basically just multisig, right?

[00:14:07] You can rely on multisig to reduce the centralization risk of this. But you can never do it in such a way that it is literally riskless in terms of, you know, who has custody of the Bitcoin. And so you’re always signing up to counterparty risk that the Bitcoin will be robbed, which is, as far as I can tell, unless we had something like, and just be clear, I don’t, I don’t want to opine on this.

[00:14:29] I’m just kind of throwing it out there that unless we had something like, you know, some zk rollup ecosystem with native stablecoins, and you’d also need like, They need to be somehow algorithmic, like they couldn’t just be issued, but they couldn’t be basically a bank, and I’m not sure if that’s even possible, I think it probably isn’t.

[00:14:46] In that environment, maybe you could construct this in such a way that you can actually fully audit the technical risk of the custody, but for now, no such thing exists. It probably won’t ever exist. And so you’re basically trusting, you know, it’s reduced from like, oh, you’re trusting JP Morgan and you’re trusting the US legal system or whatever, but you are still trusting something.

[00:15:08] And that’s completely unavoidable. This is the thing I think people really need to understand. That’s unavoidable because fiat itself can’t be trustless, right? There’s no such thing as self custodying fiat. And so if you want to enter into a trade where you’re reducing the counterparty’s risk by letting them, at least in terms of how the contract is structured, be able to liquidate your Bitcoin.

[00:15:31] and make whole, you have to give up custody. It’s just not possible not to do that. Or if you came up with such a way, no one would enter into the trade with you. So that’s another point worth thinking about here. Like basically in summary, this is all very nuanced and probably none of it’s that good an idea, at least for, at least for investment purposes.

[00:15:49] I think there’s lots of interesting ways you can drive this for like, you know, we mentioned personal circumstances, I’d say business circumstances as well. I think that will become more of a thing. Maybe we can go into that if you’re interested, but not purely for the sake of like maximizing risk adjusted returns.

[00:16:04] Preston Pysh: Yes. I think that last point is vital. Explain in more detail what you mean by this, because I totally agree with you, Allen.

[00:16:11] Allen Farrington: Well, I think it goes back to the point I made a few minutes ago about how if you do put this in a solely in an investment context, right? You assume there’s no personal considerations, no broader commercial considerations.

[00:16:23] It’s just like, How do I grow my stack? Basically, this is just a convoluted way of going levered long Bitcoin, which, you know, may or may not be a good, I mean, it’s a good idea if it works and it’s a bad idea if it doesn’t work, but all, even that just reduces to like, can you time the market? Right. Maybe some people can, I can, I, well, not only I can’t because I don’t believe anybody can, so I don’t really have much more to say on that is.

[00:16:47] I think it’s just gambling, right? It’s like if you, if you win at gambling, obviously you feel really smart, but then you lose and you feel really stupid. And this is kind of for me, removed from any worthwhile investment or business analysis. But the more interesting angle, I think is, you know, you as a, I’ll maybe say it in the business context, because I think it’s more interesting.

[00:17:05] And I think it’s, It’s going to become significantly more common as well that businesses reorient their corporate goal, I guess, to being over the longterm acquire as much Bitcoin as possible, but they could still end up in a situation where because they have a whole bunch of Bitcoin, but they also have shorter term, like significantly shorter term dollar costs or liabilities, however, this, you know, need for capital might arise.

[00:17:30] And they may think that the lowest cost of capital way of meeting this is borrowing against their Bitcoin as opposed to say, selling their Bitcoin so they immediately have less or selling some other asset that they own but that impairs their ability to generate a return so as to then buy Bitcoin like this, I basically I think that this will become a corporate finance tool provided it.

[00:17:54] The business in question is, well, two things, I suppose, provided they have a lot of Bitcoin, that’s obvious because you need that to do it. But probably the philosophy behind that is more important that they actually conceive of their primary responsibility being to accumulate Bitcoin. And they’re, they’re obviously related, right?

[00:18:10] Because why would you, And not with so much Bitcoin in the first place. If you didn’t think roughly that you probably would just sell it or distribute it or whatever. But that I think is more interesting thing that I can see this becoming more and more common as something that businesses or management teams say actually articulate as the purpose of how they’re or purposes in quite the right word.

[00:18:29] Yeah. Philosophy, I guess. The philosophy of how they are running the business in the interest of shareholders and therefore borrowing against the stack to cover whatever pops up as a corporate finance tool. I think that’ll become a lot more common too.

[00:18:41] Preston Pysh: Yeah. Like working capital concerns. So if you have an expense you weren’t expecting and you know, you can pay that off in one or two months, then you’re going to borrow against it because of the ease and how quickly you can come up with the and then Once you make the cash flow back in the coming quarter, you just pay back the loan as quickly as you can.

[00:19:01] It’s basically because you don’t have to go deal with bankers or anything. You can basically get access to the cash immediately because it’s over collateralized using Bitcoin. Okay. When we look at micro strategy. And we look at how much Bitcoin they’re sitting on and you’re looking and you’re hearing Michael say these things.

[00:19:16] Do you think that they’re going to start doing crafty things with their Bitcoin? Or do you think they’re just going to continue to?

[00:19:22] Allen Farrington: Maybe. I like, honestly, I don’t know, frankly, even that much about my Chris strategy. I mean, to the extent that like everybody on Bitcoin Twitter can’t help, but know something about it.

[00:19:32] My impression of, of what he’s done is. Basically, this isn’t original in any way. I think it’s just like a clean way of looking at it is he’s arbitraging the preferential access to like bullshit fiat finance that micro strategy gets By virtue of being listed in the u. s Public needs the first and probably so far the only at least at any meaningful scale CEO and therefore company to have really exploited this.

[00:20:02] That also I think will become super common. I think if anything, I’d be interested in your take on this too, that I’m surprised he’s still the only one because they started doing this feels like a long time ago now. Like I want to say four years ago, maybe more. No one’s really copied them at massive scale.

[00:20:15] You mean we have these, what you have, what was like meta planet and then similar scientific, I think, but these are like tiny, tiny companies. It’s, it’ll be interesting when people do finally start to follow this. Yeah. It’s kind of disappointing. It hasn’t happened. Yeah, but I don’t know what do you, what do you make of that?

[00:20:29] Preston Pysh: I think it speaks more to like how there’s just no governance where any founder still has control of the company. And I think it speaks to how the too big to fail banks are basically the ones with all the voting rights for all public equity in the world. Maybe. Yeah.

[00:20:45] Allen Farrington: Right. I mean, it’s all pretty much that. Let’s start to think about it more positively. Then who would be the next to do it? Like, what’s your prediction?

[00:20:54] Preston Pysh: I mean, it, a couple of things have to line up. You have to have a founder that has a controlling share or a very close to controlling share the voting rights and has a lot of influence on the board because they have so many voting rights.

[00:21:07] And And two, they have to be, well, I think one of the challenges you get with some of the large tech companies and why they’re not at least putting some of it on their bAllence sheet is just because they’re in growth mode, right? Like MicroStrategy was very stagnant. Their revenue isn’t changing. He was kind of desperate to find something to preserve or help him grow despite not being able to do it operationally.

[00:21:32] And so that was a fit. And then you just have to have somebody who is over the top, smart to like dig into all the nuance and understand Bitcoin. In addition to running their operational business, that’s at the helm and can make these decisions. And so I think when we look at like all these things that kind of lined up with micro strategy, it’s really obvious that he’s doing it, but it’s also a little obvious as to why it’s so hard for everybody else to do it.

[00:21:58] And they don’t have all these things. I think if we could peer into private markets and see like smaller companies. Where you have founders that are still controlling their equity. I bet you, you would see this being put on with a lot more vigor than what you do in the public markets.

[00:22:14] Allen Farrington: What’s funny about that though, is that everyone who is doing it is very strongly incentivized to hide the fact that they’re doing that too. It’s only because MicroStrategy is public. Well, I don’t know. Saylor seems to enjoy, but like, regardless of his, Individual motivations microsoft actually has to admit they’re doing this but private companies don’t, and it’s, yeah, they, they, it’s better for that. Not that any individual private company is like going to move the price with this news, but obviously at the margin, it’s just always in their interest to stack stats at the lowest possible price.

[00:22:46] So like, why would they ever tell anyone?

[00:22:48] Preston Pysh: Yeah, I think what we’re going to see as this rolls into this next four years, I think what we’re going to see is way more companies that are going to do it not as demonstratively as microstrategy. I mean, that’s, it’s over the top what he’s doing. I think what you’re going to see is companies are like, yeah, we’re going to take a 5 percent Bitcoin position instead of these other marketable securities that we put on our balance sheet. And we’re going to do it through IBIT. In fact, you saw Goldman do this.

[00:23:13] Allen Farrington: Okay, this is super interesting though, right? So if they do it through IBIT, they can’t do what we talked about. a few minutes ago. They can’t borrow against it. They can’t do any kind of funky corporate finance, which you would think they would.

[00:23:22] I mean, maybe they haven’t, they just don’t know about that yet. Like they haven’t thought it through that much yet. That’s also in my opinion, actually, that’s a good reason to be bearish on the ETFs and like the super, super long run that, you know, once it becomes normalized enough, people are like, wait a minute, I don’t want an I owe you.

[00:23:40] Preston Pysh: Allen, don’t you think that they could take their IBIT shares and post them as collateral and borrow against that?

[00:23:45] Allen Farrington: It wouldn’t, it wouldn’t be as efficient though. I don’t think. Yeah. Cause I see, this is just, sorry, we’re jumping around quite a bit here, but the reason I was so excited about the topic we were on previously is that.

[00:23:55] I’m very bullish on that becoming a legitimately massive market, like that, that’ll become something that’s just globally liquid. I mean, you even alluded to this yourself, right? That it’s the way the logic would work at a certain point of this market having grown and it being sufficiently deep and liquid and so on, is that part of the rationale for choosing to do it as a tool of corporate finance is how easy it is, right?

[00:24:15] It’s like you can just do it directly. You don’t even need to go to a bank, whereas I think maybe that’s an interesting like milestone to keep in mind. At what point is it? Just demonstrably cheaper to borrow against Bitcoin to do this trade basically, right? To execute this over collateralized, you know, working capital relief or however it ends up being characterized with actual Bitcoin versus having an ETF on your bAllence sheet.

[00:24:41] That’s 10, 20 years away before anyone thinks about this, but it’s fun.

[00:24:45] Preston Pysh: Yeah. So a huge part of all of this is just stablecoins at large. In general, I’m not going to say anything more about stablecoins. I just want to hear if you had to sit down in a room and people are like, Allen, teach us about stablecoins, like stablecoins, one on one, what are your opinions on the proliferation?

[00:25:03] Like, where’s this all going?

[00:25:05] Allen Farrington: Sure. Yeah. I mean, I’m certainly not an expert on this. I’m not going to put myself forward as like, Oh, everyone should come and listen to my stable coin thesis. There are other people I would go to, like, if I wanted to learn more about this. And actually I’m pretty sure this feels like it was very recent that Nick and Castle Island pretty mad.

[00:25:23] It’s one of these things where like, I have the PDF. I haven’t read it. Haven’t, I haven’t had time to read it. This is ’cause it’s so long. So maybe point people to that is they do want a, a more in-depth review. And I’m pretty sure if I remember correctly, I think had a hand in writing that.

[00:25:35] Preston Pysh: I reached out to Nick. He didn’t respond. I, I would love to cover it. I would love to have him on show.

[00:25:40] Allen Farrington: Oh, I’ll pester him for you. I’ll be like, yeah, please talk, press stablecoins . So my, yeah. So with all that said, my take is probably more, I mean this is very in keeping with my like personality anyway, but. It’s far more philosophical.

[00:25:52] It’s a bit like, I don’t really know what’s actually happening, but I can opine on it anyway. So I’ll start off with like the meanest, probably also funniest thing that I have thought historically about stablecoins, which is that on the one hand, they’re clearly basically the only real product market fit in crypto outside of Bitcoin.

[00:26:12] in the sense of there’s real world usage that I think that’s actually necessary for like market fit as opposed to just prices bouncing all over the place and you know quasi bankers and hedge funds taking a cut of the flow but it’s just all going in a Circle and ultimately you know retail users are being scammed I think like that thesis is certainly well understood now it doesn’t need you know you and I and whoever else on bitcoin twitter harping on about it but stablecoins have worked right there’s like off the top of my head I don’t know I think over a hundred billion dollars worth of issued stablecoins and that, and I did hear this, I maybe heard it because of Nick’s report, but I, I’m pretty sure that Tether on Tron just obviously isn’t even all of Tether, but Tether on Tron does more volume in like a dollar denominated, not, you know, individual transactions, does more volume than Visa.

[00:26:59] I’m pretty sure that that’s true. Sorry if that’s just fake, but I’m pretty sure that’s true. So like, obviously people use this and it kind of works. So that part mean snide bit part one is this is the only good thing to have actually come out of crypto but then even meaner and more snide is that when you think through the mechanics of it, It doesn’t need a blockchain.

[00:27:19] Like this is where I get really confused. Yeah, it’s worked with quote unquote blockchains Because, I guess, basically, like, regulators are just confused by all the buzzwords and all the hype, and they could just shut it all down tomorrow, but they don’t, I think, for that reason. I’m not entirely sure. But that’s why, for me, it’s so funny that, like, Like how overrepresented Tron is with this and seemingly not in any other, you know, thing within crypto that people seem to care about is far more Ethereum and Solana centric because Tron is like not really pretending not to be a database.

[00:28:00] It’s basically, it’s just a database in a way that Solana is like, they kind of pretend, but it’s a bit more obvious. And then the Ethereum people are like really religious about, no, this is the future of decentralized computation. Whereas Tron is just like, nah, we’re just, we’re basically just database.

[00:28:14] But that’s, that’s kind of the crux of it that you don’t like what you need for this as a database, you can do this even more cheaply than on, you know, on and higher.

[00:28:23] Preston Pysh: Yeah, this is an important point because the technical people that I talk to. Tell me, cause my question is, is, okay, you got billions and billions of dollars that are issued on top of this protocol, call it Solana or Tron, what happens if say Tether or Circle has to, for whatever reason, port these coins over to another protocol or their own protocol or whatever, is there any type of concerns with their ability to do this, if say, Solana just blew up or whatever, right, technically blew up?

[00:28:56] And the answer I get, no, that’s the answer I get back, which kind of blows.

[00:29:01] Allen Farrington: There is no digging into this is the interesting part, right? That Solana or Toronto, whatever it is, is basically just like rails for the actual value of the asset that you allegedly own is Tether. Good will. Basically it’s like the full faith and credit of Tether.

[00:29:22] And so, I mean, Tether’s a bit, I’m not saying this to not Tether, like, Tether’s clearly an amazing business model, but It’s basically just a, it’s like a full reserve bank. It’s actually, you mentioned before you mentioned Kayla long before be interested in what, like really probing her in this and kind of winding her up.

[00:29:35] Cause I’m sure she’s furious about this in private. It’s just, it’s custodial, but like offshore, it’s like a Euro.

[00:29:41] Preston Pysh: Yes. So it’s fascinating. I had this mastermind discussion with Joe Carlasare, American HODL and Jeff Ross, and this is exactly what we were talking about is it’s interesting that Caitlin is playing by the rules.

[00:29:55] She just went and knocked right on the front door of the federal reserve and said, here’s all of the paperwork. Here’s everything. And they’re basically like, no out here. You have Circle and Tether doing exactly what she’s trying to do, which is a fully reserved bank. And it’s fascinating to me that they’re kind of not, I hate to say this, that not playing by the rules.

[00:30:16] I think they’re playing by whatever rules don’t exist. Maybe the best way to describe it.

[00:30:22] Allen Farrington: I mean, I don’t think it’s, this is one of the things about, you know, dealing with these kinds of people. It’s to be clear, I don’t have any experience of this. So this is basically just me like living vicariously through whatever Caitlin puts on here on Twitter or whatever.

[00:30:34] Right. It seems very Africa esque in the sense that it’s not. A conspiracy, it’s just like bewildering nightmarish incompetence, right? There’s no like, every memo that’s gone out being like, At all costs, stop Caitlin Long. It’s just like, no one within this system can actually do anything useful, so. You know, here we are, Tether’s a hundred billion dollars and custodians, whatever they are now.

[00:31:00] Preston Pysh: Do you think that the big banks are looking at Tether and saying, that’s the game we want to play in. We have to be able to start participate in this. And is this why the SAP 121 thing has become such a big deal for the banks?

[00:31:12] Allen Farrington: I really don’t know because I mean I don’t have any experience like within the politics of running a bank or even working within a big like I’ve never done that I’m just again my my insights on this are just derived primarily from posting on Twitter.

[00:31:29] I can certainly imagine them being envious of the basically the business model that Tether has kind of wriggled itself into which is Basically just because it’s an interesting trade off right between the big banks are not fully reserved, right? The gigantically fractionally reserved and they can’t ever go bust anyway, so it doesn’t really matter So like they have their own weird arbitrage of fiat.

[00:31:51] That’s kind of the almost the essence of fiat, right? It’s how they it’s how they work But in particular in a high rate environment, which is high, okay, high relative to what, but like relative to the past 10 years, I say the past maybe two years has seemed high rate. Tether suddenly looks genius because they’re pretty much just printing money to the extent, but this is where it gets kind of weird again, to the extent the U.S. government lets them and enables this to continue.

[00:32:20] Preston Pysh: So it’s all, let’s go down that path because To me, it kind of seems like the U.S. Government is, man, we really don’t like what they’re doing, but we kind of need them to do what they’re doing. And it’s almost like they have this recognition that when we look at the trend of buyer for treasuries, like they’re the rocket ship.

[00:32:39] Allen Farrington: That’s pretty easy to glean. And that the role, it seems obvious to me, at least why Heather is tolerated, which is that It’s, I don’t think it makes the most sense to see Tether even as like, to me, Tether is an intermediary basically, right? Tether is like, effectively an outsource, like an unofficial broker of treasuries that is sucking up dollar demand that wouldn’t otherwise exist at all, because it’s basically just dollarizing emerging markets on behalf of the treasury.

[00:33:10] And so it’s, yeah, even that is like, it gets, the more you think about this, the more weird and incestuous I think just to come back full circle, like quite uncomfortable in terms of how much exposure to this you want, because basically the more you think about it, the more you realize it’s completely political.

[00:33:24] Like there’s very little economic or technical rationale here. So like economically, does anything we’ve just said really make, I mean the dollarization component, maybe, yeah. Like you can see why this stuff is popular, but even that, like it’s so wrapped up in politics that I would say the politics takes precedence.

[00:33:43] And then technically it’s just a joke because like we covered that already may as well just be a database. So I don’t know.

[00:33:48] Preston Pysh: I think that’s the wildest part is like you get caught up in so much technical jargon and terminology.

[00:33:56] Allen Farrington: Just one thing there like I do want to mention this before before moving on because I don’t want to be quoted out of context on this that even though I’m claiming this is stupid and pointless it’s still better than real fiat.

[00:34:08] That’s what I think ties it all together. So there is some technical merit, if you want to think of it that way. But this is, I think is the gist of the product market fit, right? When I’m saying it’s like dollarizing emerging markets for literally all of those people for like, again, it’s kind of political, but it’s sort of for technical reasons as well.

[00:34:26] They can access, I mean, they can access cash, right? But that’s like not super useful if you’re not in the U S so. It’s basically for technical reasons and even in like a fiat context, it’s weird what that even means, but these are technically superior dollars for almost everyone who uses them than dollars in a bank account with a regulated U. S. bank. So it does have that going for it, but all that really tells you is that The ad itself is even dumber than this, not that this is all that smart.

[00:34:57] Preston Pysh: And the reason you’re saying that it’s better, because I think that you’d have people argue that the reason you’re saying it’s better is because number one, it’s saleable.

[00:35:04] Number two, it’s most likely fully backed. Whereas if you put your money in a bank account, let’s say you put 500, 000 in a bank account, you might only get half of that back if the bank would go bankrupt. Exactly. They don’t bail them out.

[00:35:15] Allen Farrington: I think the only way you could like honestly at all possibly disagree with that assessment is if you’re basically like conspiratorial on Tether.

[00:35:24] Like I can see there being a kind of unknowable risk trade off. Or unknowable from the outside, let’s say, and the person making this criticism has some inside knowledge of this, but from the outside, unknowable risk trade off of, oh, well, how, you know, they say they’re backed. It doesn’t even need to be as much as like, oh, Tether’s lying about the reserves or whatever.

[00:35:45] It’s like, It can be even more conspiratorial in a way. It’s like, no, they have the reserve, but they’re just going to be turned off. Like they’re going to be shut down tomorrow and you’re going to get nothing versus, you know, being more confident in like the US, like the FDIC, basically like what you’ll end up getting back from them.

[00:35:59] I think that’s the only dimension on which you, not even that I would, but that one could prefer dollars in a US bank account, like that form of having dollars in basically any other way, but actually want to use dollars. Tether on Tron, even for the life of sake of argument, Tether on Tron is superior.

[00:36:18] It’s far, as you say, it’s far more saleable, it’s far easier to send it, which is basically the only thing you either, you either send money or you don’t send it, right? So if you’re, and actually that’s a really good way of framing it, right? If you’re going to not send it, then you want Tether because it’s fully backpacked.

[00:36:34] If you’re going to send it, you want Tron because you just do it right away. Like you don’t need to deal with, you know, US banking rail, so on both, both the properties of money that you would want the most. I can’t believe we spent so long with me just shilling crypto and stablecoins, but at this point I think it’s worthwhile because if you want to be, this is something I’ve seen, I’ve spent years actually seeing Bitcoiners kind of tie themselves in knots trying to explain this away, like as if this isn’t real.

[00:37:03] And unfortunately it is real, but I think the way that I like my personal brand of cope is that it’s not a reflection of like Bitcoin having failed or fail, even fail to achieve something yet. It’s just a completely different use case that is frankly better than fiat because legacy fiat sucks so much that this can’t help, but be better. So yeah, we do have to acknowledge that.

[00:37:26] Preston Pysh: I would even go a step further and saying that this is a necessity for bitcoin to become what it’s going to become and here’s why I say that. So when we look at let’s just say there’s a million monetary units in the world and we need it to be 10 million against bitcoin that is fixed and never to be changed at 21 million people are saying well how in the world does bitcoin get to a price of a million or 5 million or these crazy numbers that everybody keeps throwing and i’m using crazy here in air quotes.

[00:37:53] Transcribed These crazy numbers that people keep talking about. Well, you have to expand aggressively, expand the number of fiat monetary units in the system. How are you going to do that? How are you going to push dollars and euros and every other fiat into the nooks and crannies of society in order to expand the monetary units at this pace that we all think that they need to in, and it’s all caught up in the amount of debt that they’re, that they keep.

[00:38:18] How do they monetize all that? I personally think that all these stablecoins are a function of how the governments are just trying to get more and more dollars into the system. And it’s the mechanics of it. So, you know, you have these people saying, Oh my God, Tether’s getting so big. There’s no need for Bitcoin.

[00:38:35] And I’m saying, no, this thing’s going to smother it. The fiat system is going to smother itself. Through indulgence of expansion at levels that we can’t even comprehend. Well, how in the world do you think that’s going to happen? I think it’s going to happen a significant amount of it’s going to happen through stablecoins.

[00:38:53] Allen Farrington: Yeah, I think you’re probably right. I think I guess so far I don’t have any of the relevant numbers off top of my head, but probably to date the impact probably been negligible, but that it’s clearly growing exponentially. And we sort of covered this already, right? That for the purposes of making this point, the easiest way to think of Tether is as an unofficial broker of treasuries funneling demands to the treasury that wouldn’t otherwise exist.

[00:39:16] Like that can’t help, but make. Inflation, at least of the dollar worse, which is good for Bitcoin. So I’m sure I’m on board with that.

[00:39:25] Preston Pysh: I want to talk about other supporting technologies, freedom technologies specifically, no that was good. See, he is the funniest guy on Twitter. I promise you. No, I’m talking more about Nostr and yeah, I’m kind of curious to get your opinion because you’re just so thoughtful on all things tech and kind of the direction everything’s going.

[00:39:48] Do you see Nostr and maybe you’re seeing some other things that you think are important being reinforcing and additive to Bitcoin’s reach in the coming 10 years? Or do you think that this is something that’s kind of off on its own?

[00:40:01] Allen Farrington: That’s it. Yeah, that’s a really interesting way of putting that. I don’t have a super strong view on the basis that I don’t want to get too excited too early.

[00:40:10] Like the main thing I tend to think about Noster is just appreciating how early it still is really. And I guess pushing that a bit further, I’m not sure we really know what Noster is for yet. Like there’s a lot of, this may be past now, there’s I’d say a year ago or so, there was a lot of back and forth about basically Noster being like better than Twitter and clearly not in some ways, but potentially yes, in other ways.

[00:40:39] And that sets up a really kind of straightforward, almost binary debate about whether you prefer Noster or Twitter. And it’s an easy stick to beat Noster with because there’s clearly ways in which it sucks compared to Twitter or compared to any kind of social media. I think that was probably, I don’t know.

[00:40:53] I’m not trying to come across as like judgmental of the way people had the conversation or anything. I think it probably was helpful in terms of generating interest and like sucking a lot of people in. I think the first way that almost everyone, at least so far, has used Noster is trialing it as a Twitter alternative, and Then, you know, realizing some of the ways that it is cool and it is potentially better than Twitter in the long run.

[00:41:14] I’m just honestly not sure that that’s even that interesting a use case for it. I kind of feel like it’ll end up becoming one of many. I think the far bigger picture view of like, what is the primitive that we get here? That’s a lot more interesting than like, Oh, you know, Twitter’s just censoring all my friends, or whatever.

[00:41:39] The relationship to, and I should just finish that point, I think that primitive is probably best thought of as something like standalone identities. So like identities that aren’t attached to any given service, but that you can port into Any like app say, I don’t know, maybe the best way of putting app platform, whatever that decides to turn on.

[00:42:00] Oh yeah. We’ll accept people using their nostril profile with us. And then we don’t, I think that’s the, maybe not even that long term, but like medium term vision for accelerated adoption is. Various, you know, consumer facing apps, platforms, whatever, realizing it’s actually cheaper for us if we don’t need to support, you know, you don’t need to have an infrastructure for like managing user accounts because we just outsource that.

[00:42:31] That’s probably a long way away from that being any way normalized, but that would be a very, very good sign. The link to Bitcoin, I think is pretty tenuous, to be honest. I’m totally open to like a bull case here, but I think it goes far more in the other direction. I think it’s that Bitcoin is significantly more important to Nostra, let’s say than Nostra is to Bitcoin.

[00:42:51] I mean, even that’s probably pretty, I don’t think that’s controversial. That’s obvious on the face of it. But yeah. I maybe just push a bit further just on the Nostr side in that I basically don’t think Nostr is possible without Bitcoin, at least not in the long run. I think it’s because of the micropaymentage is close.

[00:43:08] Preston Pysh: Because of the micropayments?

[00:43:10] Allen Farrington: Not even really micropayments. No, it’s more, let me just finish that point and then I’ll go straight into answering this. So I think that it’s not just that, you know, it was invented by Bitcoiners. And not even just that a lot of the use so far is kind of co mingled with Bitcoin use cases and that back to the point about we don’t even really know what it’s for necessarily, a lot of the emerging non social media use cases are finding ways to plug it into making various ways of using Bitcoin better, so there is all of that, but I think that’s kind of coincidental to the real point, or my real point at least, about the very long term for Noster, which is that In order to live up to any of these hopes, didn’t matter how you want to categorize it, but if you want to be like as bullish as possible, probably something like.

[00:43:56] You know, uncensorable free speech on the internet, whatever, in order for that to be viable in the long run in order for basically just kind of like mimicking the sort of discussions that we were all used to having had about Bitcoin, like in the worst possible case of everybody trying to shut this down and being violent and so on, like, how does it hold up?

[00:44:14] I think for Noster, wherever to get to that point, you need the payments to be as censorship resistant as the speech that the infrastructure is supporting and trying to also make censorship resistant. I think basically untangle that a little bit. If you had everything, basically here’s a good, right? If you had Noster, but you didn’t have Bitcoin eventually, if it really succeeds, it obviously pisses people off because People want to censor things, right?

[00:44:43] They don’t want this like unsensible free speech, whatever, blah, blah, blah. It’s very, it’s probably, I think, very easy to stifle its use on the basis that all of the infrastructure still has a cost to run. And if you can choke off the fiat payments that support that, then you can choke off all of the tech infrastructure that’s built on top of them.

[00:45:03] So. It’s not, this isn’t even really a technical point. It’s not like, oh, I expect the protocols to become internet. Like, I don’t even know what that means, but I’m sure some people have said that at some point. Like a tighter technical integration between the protocols. That, I’m not the right person to speak on whether that even makes any sense or whether there’s anything to expect there.

[00:45:21] What I do think is super relevant is more, I guess you could say it’s political. It’s almost, I think it’s kind of deeper than that. It’s like, As paranoid as you can possibly be, how, how resistant is this to physical violence? Right. Which is like, everyone’s used to having gone through that thought process with Bitcoin.

[00:45:39] I think it’s as essential here, but it relies on Bitcoin in a way that Bitcoin doesn’t really rely on anything else because itself is money. Hopefully that made some sense.

[00:45:48] Preston Pysh: Now, I think that that’s a really incredible point with respect at all. Okay. Last question that I have for you. We’re going to choose your own adventure. Would you like to talk about the 50 percent cut or the 50 basis point cut that just recently was announced and what that means for global liquidity? Or would you like to talk about BNY Mellon getting approved by the SEC and also for custodial services and also for that second question, that plus the derivatives that just got approved for IBIT.

[00:46:18] Which of those would you rather talk about?

[00:46:19] Allen Farrington: I think probably the second one on the basis that the first one, I kind of don’t care about. Like the extent to which I have indulged thinking about this was seeing it and then tweeting breaking new price of everything just dropped and then just moving on with my day.

[00:46:36] So I really don’t think I have anything to say beyond that. The second one, I actually didn’t know most of what you said in the second point. So if you first explain it to me as well as the audience, I would be interested in diving into that.

[00:46:46] Preston Pysh: Yeah. So the SEC has green lighted BNY Mellon to now provide custodial services for You know, if you want to put Bitcoin on deposit.

[00:46:55] So now it’s not just Coinbase that’s in the game. Now you’ve got a traditional bank that’s in the game. And then you also had the SEC approve derivatives on top of IBIT. So if you want to do, if you want to trade options now on top of IBIT.

[00:47:06] Allen Farrington: Sorry, what exactly does on top of IBIT mean?

[00:47:09] Preston Pysh: Well, I mean, to date, all you can do with IBIT is you can buy it and hold it, but now I guess you can do options on top of it. If you want to buy a call on IBIT, you can, if this has an officially launched.

[00:47:20] Allen Farrington: But it is specifically a call on the ETF.

[00:47:22] Preston Pysh: On the ETF. Yes, sir. I like how you, you didn’t even know the question, but that was the one you preferred over the 50, it tells me how much you disliked the 50 basis.

[00:47:31] Allen Farrington: Well, I think because it’s actually news, like this is interesting new information to me, whereas, Oh, the FED did a thing that’s great.

[00:47:42] Preston Pysh: This is why I love you, Allen. Oh my, any thoughts on it? And if not, that’s really cool.

[00:47:47] Allen Farrington: I think I probably need a bit more time to think about the derivatives point. It’s not immediately obvious to me what the implications of that are.

[00:47:55] BNY Mellon, I think is huge. I’m surprised I haven’t heard that. Maybe I just haven’t paid enough attention on Twitter lately. It’s huge on the basis that, again, I don’t, Like, I’m not, you know, within the halls of power, I guess, that would give me direct access to the people who are having these thoughts.

[00:48:10] So it’s more like, again, I can imagine this being true, that this relieves a lot of anxiety around needing to associate with Coinbase. I think that’s probably the best thing that will come from this.

[00:48:23] Preston Pysh: Yeah, I agree. Now what they’ll probably end up doing is outsourcing the custody to Coinbase.

[00:48:32] Allen Farrington: Yeah, they’re just white labeling Coinbase.

[00:48:35] Preston Pysh: Oh boy, Allen, it is always a pleasure. If people want to learn more about you, give them a handoff where they can learn more.

[00:48:42] Allen Farrington: I just swear everything is fine. A L L E N F 3 2. I’m trying to think if anything else is even, not because I put everything there anyway.

[00:48:49] So that’s, that’s a good start. We’ll have a link. Do you want me to read my end pub as well?

[00:48:53] Preston Pysh: No, we will have his Nostr link there on Primal.

[00:48:57] Allen Farrington: I should, I should memorize it one of these days.

[00:49:01] Preston Pysh: You would do something like that.

[00:49:03] Allen Farrington: Or I tattoo it here and I can just like hold it up to the camera.

[00:49:07] Preston Pysh: And we’ll have his Twitter in the show notes. So, folks, check that out. The very thoughtful Allen Farrington. Thank you so much for joining us on the show today.

[00:49:15] Allen Farrington: Yeah, thank you.

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