Why SAB-121 is Massive for Crypto | Round Up

Let me ask you the question. You're American, like you work in the industry. Like, is it not refreshing and a breath of fresh air to hear someone actually be supportive of the industry? Like, can you not empathize with people that have been feeling very stressed under the current administration? Say, you know what? Yeah, a single-issue voter. Does that make you a fool? I don't think so.

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Not much. You know, just coming back from New York, feeling very refreshed. Wishing I'd be there.

Give me the highlights and the lowlights of the trip.

There's too much going on to go into that, but we hosted a great meetup. A bunch of people showed up. That was really cool. And yeah, I met with a bunch of people on the Solana team, a bunch of teams. They have an office there in SoHo, and so I was there. Really got to see a lot of the teams building. It's just really energizing to be there and meet with a lot of these guys and teams. Yeah, really cool.

Nice, nice little pleaser. Now dinner Friday night.

Well, that too. That was also really nice. I can't believe I've never listened to the Wu-Tang album.

Leschner actually was the one who first called out the op-ed that kind of went viral over the weekend. He's like, look, he's like, what is this op-ed? And had like 3 likes. And I was like, oh, I'm— I don't— he was the first. I was like, oh, I don't know, probably nothing, whatever. And then woke up Saturday morning with about 70 DMs. So we'll talk about this op-ed. I want to talk about also Research Day, uh, New York, that DBA on. I want to talk about, um, this MEV. Like, DOJ took down a couple MEV guys. Um, what else are we talking about? GameStop came back. I'm curious if you think that's like sign of retail coming back. We can talk about that. There's like an ongoing thing as we are recording this about MarginFi and Pump.fun. It's very unclear of like what really happened because it just came out 5 minutes ago. But first, uh, let's talk Saab 121. Yeah.

Yeah, let's definitely do that.

Cool. Let me pull them. So we've got Casey Wagner from Blockworks joining. Casey's been on the show a bunch. So, Casey, welcome to— welcome back to Empire.

Hi, thanks for having me.

Thanks for coming on. I did ask Casey to come on about 4 minutes ago, so we've got ample prep time. But Casey, maybe if you could lay out— you've had some really good coverage of— I guess it's not— it's not a bill. It's— you were explaining to me it's a bulletin board or something or another. Can you, can you explain to us what SAB 121 is?

Okay. Yeah. So SAB 121 is, is kind of the background policy from the SEC, which inspired Joint Resolution 109. It's not a bill, it's a resolution, but the process to pass is very similar. And that is what passed in the House last week. And it passed in the Senate just a few minutes ago with actually a lot more bipartisan support than I think anyone was expecting.

So what was SAB 121? Why, why was it so important? What is the related to custody and banks? And can you just give us an outline of it?

People in the crypto industry were interested in SAB 121 because it basically says that anyone who custodies crypto assets has to hold a corresponding group of assets on their balance sheet and they have to list it as a liability. So it makes accounting a lot more difficult for custodians. That was really the main point that got the crypto industry's attention. The other kind of component of this is, like I said, because it was an accounting bulletin and not a formal rule, there was a lot of concern about over how the SEC decided to publish this guidance. It seemed a little sneaky to a lot of people, the fact that they didn't do it through a formal rulemaking process.

Hmm.

So, so this was Gensler's kind of rule or bill or bulletin or guideline. I'm not even sure the right word to describe this. That said, basically, unlike all other forms of custody, if you custody crypto assets, you have to hold them on your balance sheet as though you own them and therefore you have to hold capital against them as well. And so that is a completely insane thing to do. So it makes it so that the likes of maybe a BNY Mellon who's ready to turn on crypto custody, and has been ready for years, hasn't actually done it, which is therefore limiting to other folks who maybe want to enter the space and don't want Coinbase to custody their assets. They want maybe a qualified custodian to do it. What is the— there's a political element to this, right, Case? So there's Republicans wanted to repeal it. Tell me if I get this right. Republicans want to repeal it. And the big surprise was that 21 Democrats came out and joined the Republican effort, kind of breaking from the mold. Can you just explain this a little bit to us?

Yeah. So like I said, the SEC staff passed this bulletin in 2022, which is when the conversation kind of started in Washington. There was actually the, the Government Accountability Office did a review, um, and basically said that the SEC kind of overstepped and that this guidance was inappropriate to be issued in an accounting bulletin versus a rule. The office basically said the SEC didn't do things really correctly and it, it kind of was not necessarily by the book. So that's really when interest in Washington started to pick up. The joint resolution started in the House. It was a bipartisan effort. One Democrat senator, Cynthia— or Kirsten Gillibrand from New York, she signed on to that. At the time, she was the only Democratic senator to support it. But eventually the resolution worked its way through the House. It was voted on last week, and like you said, 21 Democrats actually supported it, which is more bipartisan support than they initially had as co-sponsors. And then, you know, if we remember the song of how bills become laws, once the House passed it, it went to the Senate, which is the vote that they had today. And I believe there were 12 Democrats that voted in favor. So in the Senate, we all know they only need a simple majority. We were expecting like maybe 3 to 5 Democratic Democrats to support it. So 12 is definitely a lot higher than anyone that I spoke to was expecting. They only needed 2. So it definitely shows that there's a lot more bipartisan support. The next step is it goes to the White House. Biden said last week that he would veto it should it pass the Senate, which now it has. The interesting point there, though, is if he still goes forward with the veto process and decides to kill the resolution, it would be the Congressional Review Act with the most bipartisan support ever that Biden has not also supported.

So it'd be very overtly Biden being very overtly anti-crypto.

Um, essentially, yeah, you could say it like that. It would be surprising. Um, for him to veto something with this much bipartisan support. And again, like I said yesterday when we were working on this story and talking to people on the Hill, they thought it was going to pass. They thought a few Democrats would get on board. But what we saw today is like way, way more than we were expecting.

How do you read into this? Like, obviously crypto has become very— has always been very political, but like in this election cycle, It feels like it's becoming more and more important. Trump, obviously we saw the clips from his, uh, speech in Mar-a-Lago. Uh, what about like the first, second order effects here on this particular bill? And like, play out the tape. Like, if it were to go to that and Biden would like exercise his veto, like, does that— what's going on in terms of the election strategy? Like, do you think that's even computing in his brain? Yeah, that's his team's brain because, you know, I guess.

Yeah, that's a really good question. I mean, I'm inclined to think that there was some reconsideration on the Democrat side in terms of this specific resolution. So Chuck Schumer, who controls the Senate, basically he pushed the bill vote. It was supposed to be a little bit earlier. He pushed it to today, which again, in my mind signals that they were trying to give it a little bit more time, get some more support. Um, from people that I've talked to, the Biden administration was pretty surprised at the response to them saying that they would veto. So they issued a statement right after the House passed it saying, if the Senate passes this, we're not on board. And the response was, was pretty negative and pretty widespread. And from what I understand, that was not what the administration was expecting. No one was expecting 12 Democrats to get on board today in the Senate. So that kind of adds, adds more to it. It's interesting. I mean, I think a year ago I didn't necessarily think that crypto would be a significant topic at all in the presidential election. I'm starting to think a little bit differently. I know crypto is definitely a really hot topic with some of the congressional races. Um, and it's interesting to see how it's starting to play out in the, in the presidential race as well.

Do you think— what, what else are you following here, Case, as you, as you speak with people in DC? Like, what are the— what, what are folks saying on the ground in DC right now?

Just about this specific bill or crypto?

Yeah, about just like this bill, and then like what I guess what happens next. Yeah.

Yeah, I mean, I'm really curious what the conversations with the White House are like. I talked to Rep. Nickel yesterday. He supported the bill in the House, and then yesterday morning, actually, he sent a letter to Gary Gensler asking Gensler to just get rid of SAB 121, and then that would kind of— it wouldn't matter if Biden vetoed this or not because Gensler has the power to kind of like end this. And that's what Rep. Nickel was asking him to do. And, you know, when I spoke with him yesterday afternoon, he said that he hasn't talked to the SEC, like they're not responding. Um, so it's, seems like there's definitely a lack of communication from what I understand, at least. Um, you know, I'm only hearing one side of it. Um, the SEC frequently declines to comment, but it seems like a lot of lawmakers are trying to go to the agencies directly. And that's not necessarily getting them anywhere, which is then why you see joint resolutions.

Case, anything else on this?

I don't think so. Well, we'll see. The official vote count should come out tonight or tomorrow, so keep an eye on that. And it's headed to the president's desk. We'll keep reporting on it.

Cool. Appreciate you coming on, Case.

Thank you.

Thank you, Casey. Bye.

Pretty interesting, man. I mean, we, we had this op-ed over the weekend. That actually I would love to talk about. We had this op-ed that Molly Jane published. So we have— so we— so Blockworks has like news and then we have the op-ed section, right? Op-eds, which we later learned a lot of people don't know what an op-ed is, is like their opinion pieces, right? So we published a— oh, I had just opened up our opinion section and I now see that there's a bright red thing that just says opinions, apparently, or not the views of Blockworks. Yeah. Yeah. So, so we published this article that said only a fool would vote on crypto alone. And the subtitle was called— was Americans should not prioritize their own selfish financial interests over broader societal and ethical concerns. And yeah, it was actually Leschner, actually both Hayden and Leschner at dinner. They like— he kind of showed me the phone. He's like, what is this tweet? I was like, oh, No, I— so I don't even see a story. Mike and I both don't see stories until they're on the Blockworks website because I'm in— I'm involved in sales and sponsorships. We have a pretty strong church and state here. And I was like, I'm not sure, I haven't seen that, but I'll read it after dinner. And then I woke up on Saturday morning with about 70 messages, just very, very angry messages, I would say. And then pulled up Twitter. It's like, oh boy, something's— something's happening. And yeah, sure enough, I mean, there's probably 300 or 400 quote tweets on that a lot. And I think the general consensus after reading all this—

myself included.

Yeah, yourself included— was the— I think actually the content of the piece, I think the general consensus as I could get it from after having really dozens of conversations with folks over the weekend on calls and getting feedback was the content of the piece people were not as upset about. It was more the tone and the The tone and the word fool and calling people fools and calling people and the tone of being like, I know better than you. This is what you should do. Yeah.

It's like kind of patronizing.

Yeah. I think a lot of people patronize. Yeah.

That was the tone of it.

I would love, yeah, I would actually love to hear your thoughts on it as someone who obviously likes Blockworks and we had dinner Friday night and stuff, but also tweeted about it. Like, would love to get your thoughts on it.

There's like opinion pieces, like there's like this really controversial, I think opinion writers sometimes fall into this dynamic of they need to create create and stir up drama. There's Janina— there's this opinion writer in the Financial Times, it constantly— it's like— and I've come to terms with like, no matter how much you want to reason with her, reach out to her, she does not engage in discussion because her role is to create controversy and piss people off. That's just like fundamentally what I think her— she assumes her role to be. Um, and I think there's a little bit of that here, uh, primarily on the title. And to your point, like, the— I don't know if consciously or what went into the decision to, uh, very explicitly attack people that I think it was just a stab at, you know, folks like Ryan Selkis and others that, you know, rallied behind Trump after he became— and he's become, um, really pro-crypto. Um, And so yeah, I mean, the question is like, we always talk about like journalism here. What is the role of journalists? I think it's like to report. I mean, this is an opinion piece, so I get it. Yeah, I think the way you guys handle it is, is I don't have any problem with that. Obviously there's opinion pieces. People don't know what opinion pieces are. They're not the views of Blockworks, they're not the views of you guys. Like, there's church and state. That's what makes a good media organization. So I respect that. I think that is really well managed. I'm just going into the substance of the piece itself, if that makes sense.

Yep. Yeah, it does make sense. Yeah. So I ended up talking to—

Crypto is very political and it is a single— like, if you've been in the industry after all you've gone through, I mean, the amount of hostility Like, is it unreasonable to rally behind a candidate that is pro-crypto? I don't think so. Are you a fool for doing that? I don't think so. Um, are you— I mean, obviously it does seem very patronizing to say you're wrong for voting Trump, essentially. You're an idiot, you're a fool. Uh, I understand that perspective. I don't agree with it. I think Trump is— and if you look at what his administration did, I don't think he's dumb at all. I don't vote. I'm not American. But if I were to vote, I would vote.

I will vote.

Like, I would vote Trump. Because if you look at what he did in the last 4 years, it's one thing to hear him talk, and he has to play to his constituent base and what they want to hear. but what actually happens under the hood, I thought was real progress for the US during his administration. And we can talk about that, but people don't wanna talk about that. They don't wanna go into the details, but it was real progress. Like whether you agree with how he communicates and how, yeah, he's a polarizing character. That's fundamentally why he got elected. I think he's very anti, not doesn't represent a politician, so he's just gonna speak his mind. Why? Fine, whatever. So yeah, I don't know, like, that was not the nature of the discussion. People don't want to talk about it because, you know, we're in a very polarized political world, so that's fine. But I don't know, like, let me ask you the question. You're American, like, you work in the industry. Like, is it not refreshing and a breath of fresh air to hear someone actually be supportive of the industry? Like, can you not empathize with people that have been feeling very stressed under the current administration say, you know what, yeah, a single-issue voter. Does that make you a fool? I don't think so. Yeah.

Yeah. I'm not— I'm going to— I'm going to refrain from sharing my political thoughts too early because we're still— we still are 6 months out from this election, thankfully. But Yeah, no, Mike and I had many conversations over the weekend and this week and conversations with people at Blockworks. Like, there's a decision to be made here at Blockworks, right? Do you lean into this? Do you lean into politics? Because it is the conversation. It is the most important topic of the next 6 months. The election has a huge impact on crypto. So do you lean in and kind of try to be at the center of that conversation and really drive the conversation forward in a responsible way? Or do you say, look, hands off, like, we're not touching politics, like, that's just And I think we're going to lean in like I think we will. You know, I had a few conversations with Selkis over the weekend. He, you know, we'll probably have a— like, I think Selkis is going to publish an op-ed from the other side. We'll have op-eds from the middle. We'll have other op-eds from— it's not even left and right. It's like, that's not the right way to put it. It's just different views on politics because there are other conversations. I had a few calls with friends who are women in crypto who have been in crypto for several years and they're founders and investors. And like, you know, the way they put it to me is like, look, I'm having— I'm between a rock and a hard place right now. Like, I'm having to choose between voting for crypto or voting for like protection of my body with things around abortion and healthcare and things like that. So, I mean, it's just a— it's a tricky topic, but I will— I do think that Blockworks is going to try to lean into this and like try to drive the conversation about this forward in a responsible way because, like, what, you know, I like whatever happened this weekend, like it really— it did spark this good conversation. I think it's—

yeah, well, look, that's what media organizations should but somehow stop being— becoming is this like we should be openly talking about topics, but we're in a state where we've become more and more polarized. As a society. The people that have strong— like, are knowledgeable— are very afraid to speak freely because of cancel culture and because of, you know, just look at, you know, platforms like Twitter are great. Obviously a lot of the conversation happens there, but it can be a very hostile place. Yeah, look at comments on YouTube. Like, it's not— I empathize with people that are afraid to speak their mind, and unfortunately the people that should have the microphone, don't have it. So I think if you guys can somehow become and enable people to feel comfortable to drive the conversation, to have good discussion, then I think that would be progress no matter what the outcome is. Like, you know what I mean? Like, it's not gonna happen on Twitter. It can happen in a format like a podcast. It's not going to happen on national—

I think podcasts are a good medium. Like, I would love to on Empire have some of these folks on and you know, have some debates and have some conversations. Like, I was seeing the tweets. There's this one guy, it looks like he's a— I mean, his bio says dumb person, shit poster, trader, but he has 200,000 followers.

He's like, very smart.

This crypto news site just destroyed their business with one article. Send Blockworks to zero. Got like 2,500 likes and 350 retweets. And I'm just like, I mean, there's no having a conversation with whoever this person is. But I do think actually podcasts will be a good medium for that.

So, you know, I've— there was a time where I was— when I started becoming more vocal on Solana, there were some accounts that came out. And I think you sort of expect that to happen, whether you talk about, you know, what the sensitive hot topics are, whether it's politics or ETH versus Solana, whatever tribalism, whenever tribalism enters things, we take the other side of it. Yeah, but you know, it's gonna, it's gonna happen. So I actually, you go into that knowing it's gonna happen. And there was this account, uh, Fishy, who was very critical, um, and opinionated, but actually informed. Um, and he got a lot of responses, particularly from the Solana community, because he was sort of being critical of Solana and the fees and whatnot. And I actually got on the phone with him. And now when you reason with them and you know, you actually have a private conversation. I actually think he is very well informed. He obviously has bag bias, and that's okay, we all do. But he's, he's obviously— I, my perception was that he was a very smart, competent individual who'd been around the space for a long time. He actually brought up some very valid, excellent points that then I used to go and, you know, talk to people in Solana ecosystem and then think about Um, and I thank him for that, right? And I think, you know, um, look, there's always this phenomenon where there's a very vocal minority. It happens in crypto community Discord, it happens in politics, it happens in media organizations that are very, you know, skew in one direction, left or right. You just sort of have to accept that. There's a lot of hate online. That's fine. I mean, this is part of the, the nature of the game, um, but I don't think that should ever stop you from speaking your mind. Yeah, because if we are in a position where you're afraid to do it, or you feel like you— I don't know— for speaking your mind in a reason-informed way, you're going to be canceled, or you're gonna, you know, jeopardize a lot of things, then we've lost the plot. I mean, my, my comment to one person out there was like, freedom of speech is also allowing people within your organization to post things you do not agree with. You know, the worst thing would have been for you to not publish that article, in my opinion, that opinion piece, in my opinion, because then, then you're not allowing for both sides of the conversation to like post their own opinions, and then what's the point?

Yeah, yeah, I agree with that. I mean, we're going to keep— I mean, we'll probably publish op-eds that make the other group of folks very unhappy too, and we'll keep publishing. I mean, it's going to be— I think it'll be tricky, but I think it's a good— I think if anyone can do it, Blockworks. I've always prided us on being very non-tribal, I will say. So there are some media organizations in crypto that are very tribal, and I think we've always done a good job of trying to look past the tribalism. And I think I've built some pretty good credibility and reputation and trust by, by being able to do that and take the other side. And hopefully we can try to do this with this election, which is going to be a tricky topic.

But two thoughts just parting here. One, I think if there's one area of improvement, it's just the headlines. Sometimes headlines are just scandalous to drive attention. I get it, it's a business. Um, had the word fool not— if the word fool, you strike that and use another word, I think you would have gotten like a fraction of the visceral reaction. Most people don't read the contents, they just read the headline, respond to it. So yeah, you know, everyone, you know, I don't know, more balanced, uh Choice of words probably would have been better, but maybe we wouldn't be talking about it though. The particular individual wouldn't have used the word fool. So maybe it's a good thing that they use fool.

I don't know. It's like the, it's like the YouTube thumbnails, you know, Joseph is always pushing us to do like the, you know, the ridiculous faces that like, you know, those kind of things.

And it's like, well, we're in a world where you want to game the algorithm or you want to play the algorithm.

Would you rather have 5,000 views and not do a ridiculous face? Or 20,000 views, do a ridiculous face. It's the same content, but one of them like makes you— you're, you play— yeah, you're falling victim to the game.

We, we purposefully don't, uh, there are crypto podcasts that have 10 times more views than ours because, you know, they, they, they give the audience what they want. They want price targets, want to talk about that, like it's fine. Um, I don't know. I'm not optimizing for views. I think the people that like this podcast are listening to it, and I hope we're balanced. I think hopefully we're balanced. We're driving the conversation forward. I don't care if we reach a million people or a thousand people, but I think in the long term, if we keep doing this and have, uh, we're known for being a space where we can talk freely about things and entertain multiple opinions. If we're wrong, we go on the record of, you know, saying we're wrong and we try to bring in the most competent people, then I think that's what I'm optimizing for. I'm not optimizing for, you know, being the most for like views, you know.

Yeah. Next topic, MEV, DOJ. Um, let me pull up this— I'm actually going to pull up the deal. I'm just going to read directly from this DOJ indictment. Uh, so, so summary, to not bury the lead, the MEV— there's an MEV boost exploit for about $25 million exploit from about a year ago. And the two folks who were behind that were just charged by the DOJ and face up to 20 years for the exploits. I'm going to read directly from the DOJ indictment. Anton Bueno and James Bueno took the following steps, among others, to plan and execute the exploit: A, establishing a series of Ethereum validators in a manner that concealed their identities through the use of shell companies intermediary crypto addresses, foreign exchanges, and a privacy layer network. B, deploying a series of test transactions or bait transactions designed to identify particular variables most likely to attract MEV bots that would become the victims of the exploit, collectively the, quote, victim traders. And C, identifying and exploiting a vulnerability in the MEV-Boost relay code that caused the relay to prematurely release the full content of a proposed block. D, reordering the proposed block to the defendant's advantage. And E, last but not least, publishing the reordered block to the Ethereum blockchain, which resulted in the theft of approximately $25 million in crypto from the victim traders.

It is—

it's pretty wild to see just that, like, I don't know. I don't know how you feel about this, but the DOJ, like, commenting on MEV boost and talking about relayers and I, and honestly, getting these— I don't know, I don't know how you feel about getting these people in trouble, but I have some, I've, I have some thoughts on it.

Like, so I follow this guy called Collins Belton, Collins_Belton on Twitter. He is usually one to, you know, have good takes. I think he's a lawyer. He is a lawyer. Um, and he The nuance here is he's parsing through a complaint. He has a good thread. I just sent you a link. It seems to be that the nuance here is the, they faked a signature. And then they, of course, like, were after doing this, you know, MEB baiting, they, you know, were Googling exchanges with limited KYC, how to wash crypto. So like that obviously is, you know, something that they point to as like the intent of what they were trying to do.

That right there, though, Santi, is crazy that they can Google, that they can use— I didn't even know you could do this. Right. So what they're actually saying here is they can— the prosecutors can use your Google searches for illegal—

like you Google discovery, right?

What they were doing was like Googling for legal advice. Right. And they can use that as evidence against you. I honestly didn't know that they could do that.

It's come up time and time again in these cases, not just in crypto, but, you know, they Google top crypto lawyers.

Like, that's, that's crazy that they can, that they can.

Yeah. So, so the expert is, for people that want to read the entire, I guess, document, point 26, it does, you know, just read the point. Exploited a vulnerability in the relayer's computer code by sending the relay a false signature. In lieu of a valid digital signature. Based on the research and planning prior to the exploit, the, you know, these folks, these traders, knew that the information contained in the false signature could not be verified for ultimate publication to the blockchain. Instead, this false signature was designed to and did trick the relay to prematurely release the full content of the proposed block to the defendants, including the private transaction information. Once in possession of the victim's traders order transactions, the defendant tampered with the proposed block in the following manner. So he— when I read that, Colin seems to point to this particular false signature as would make the distinction between like a general sandwich attack and other MEV activity. Meaning the false signature was key here. So it will actually be interesting how this, you know, the resolution of this case. I think that this idea of a false signature will be central and also lay a precedent into just general MEV and how it's conducted. Because again, I don't, you know, I think when people use and talk about MEV, it's just very blunt. Like blanket statement. I think there's nuance in MEV.

Well, the nuance here that I think that— so I think the DOJ, I was very impressed by how much the DOJ knew about like Ethereum and MEV and realized the only thing they missed is that they— so the, the stealing the $25 million by finding an exploit in the MEV bot, the, the MEV boost relay implementation is I think how, how this $25 million exploit worked. So what they really did, they weren't this wasn't MEV coming from like this wasn't an MEV bot front-running retail, right? This was MEV.

This was like creating a false signature and tampering a transaction.

Yeah, but this was— they baited the MEV bots into sending the money. So this wasn't— yeah, nothing to do with retail, right? It was like they like— no, it's like Jared from Subway.

Regardless of whether it's— I think the distinction of, yeah, you're baiting an MEV bot, I get it. But I think it said differently. I don't think it would have mattered if it's baiting an MEV bot or just—

Oh, I see. I see.

It's just the idea of the false signature and like tampering with the transaction. And I'm using this terminology, tampering with the transaction of Collins. I think that's the heart of the issue here. Now, I'm going to be very— I think we should pay a lot of attention to how this gets resolved. Just to think about generally, like MEV, right? I think the false signature tampering with transaction, I can understand why there would be, like, obviously, like, issues with that. General MEV, you know, not so much. Mm-hmm. If that makes sense. But we should link to this. People should go follow Colin Belton. He's always one to comment on these, and I personally get a lot of value in his interpretation.

Yeah, we can link it. Did you follow the Alexi thing as well?

What was that?

Tornado Cash?

Oh yeah, there was something came out 2 days ago, right?

Yeah. He was found guilty of laundering $1.2 billion in crypto. $1.2 billion and he was sentenced to 64 months in jail. Very sad. Yeah, I think it was the Netherlands that came down on him.

Yeah, it was. It was in the Netherlands. I think he was arrested in Amsterdam.

Yeah. And then there's the Roman Storms case in the Southern District of New York, I think, as well coming up.

The two co-founders of Tornado, right?

Yeah. But then I guess I was actually reading a Collins Belton thing as well. Like, the Netherlands is apparently extremely aggressive among EU members with regards to like KYC, AML. And basically they're just trying to make an example of Alexei. But I mean, it's quite, it's quite sad when you think about it. He's getting 5 years in prison for writing code.

Yeah. Yeah. We'll see how the Roman Storm case unfolds in the US.

This episode is brought to you by Sei. Sei's belief about the world, I think, is a good one. They believe that the EVM is here to stay. Agree with that. They believe that the EVM is going to look kind of like what JavaScript ended up looking like in the Web2 world. Agree with that. They also believe that the EVM in its current iteration lacks a lot of the performance and scalability that developers need. So what Sei has done with their V2 upgrade is they just introduced the first high-performance, parallelized EVM into the market today. They've got lightning-fast block times and finality of just 390 milliseconds. What this does is it unlocks an entirely new design space with 100x the throughput of even some of the fastest EVM L2s on the market today. Sei V2 is now live on public Devnet with Mainnet scheduled for Q2. You can stay up to date with Sei on X @SeiNetwork, S-E-I Network. Big thanks to Sei. This episode is brought to you by Aura. Online crime is growing at an alarming rate, and cyber criminals continue to find crypto investors like the Empire community lucrative targets. We've all heard of someone who's fallen victim to some sort of online attack. Aura helps prevent against that. For example, if your online accounts or your passwords were leaked online, or if someone tries to open a bank account in your name, you'll get notified in real time about that with 24/7 US-based support. Aurora's team will be there for you to resolve fraud issues, even if it means getting on a 3-way call with your bank at midnight. Not saying I had to do that, but I might have had to do that. So aura.com/blockworks, sign up for the 14-day free trial. Terms and conditions apply. See site for details. Aura is the new standard in digital safety. Check them out. aura.com/blockworks. Free 14-day trial. This episode is brought to you by Kinto. Kinto is a safety-first layer 2 that features user-owned KYC and native account abstraction. Direction to solve what are probably the two biggest problems in crypto. One, security, and two, user experience. I'm an investor in Kinto. I've known their founder Ramon for a long time. Ramon the other day sent me a message on Telegram and said, you got to try this onboarding. I'm super proud of it. Please just go ahead and try this out. Tell me what you think. It is the most magical, seamless onboarding experience onto an L2 that I've ever had. You can, you can try it out. It's engen.kinto.xyz. I would really recommend going through the whole onboarding flow just to see what the future of crypto can feel like and what it probably will look like in the future. Go onboard engen.kinto.xyz. Let me know what you think. And if you want to chat with their founder Ramon, happy to make the intro. Hey everyone, Jason Yanowitz here. I know you've been hearing a lot about the intersection of crypto and AI, and that's why I'm really excited to share our newest partner and sponsor at Empire Scale, a high-performance modular blockchain that's revolutionizing gaming and AI with zero fees and instant finality. Scale's unique architecture allows for massive scalability and has already saved users over $6 billion in gas fees. The 5 main takeaways that you need to know for Scale: 1, zero gas fees. 2, Scale has instant finality and lack of MEV. 3, the zero gas fee model of Scale is really important for blockchain gaming adoption as gamers don't have to pay transaction costs or have the SKL token. 4, SKALE is multi-chain. This design allows for nodes to be combined to create chains and for individual subnodes to actually be removed and relocated, which creates greater security and collusion resistance. And 5, SKALE has become a really good fit for AI dApps because they're fast, automated, zero-fee transactions. Big thank you to SKALE for sponsoring Empire. We're excited to partner with you guys. Bridge over to SKALE if you're listening to this at scale.space/ecosystem. Follow the journey along with SKALE on X @skale_network. That's @skale_network. Big thanks again to SKALE for sponsoring Empire. Got any more uplifting topics for us, Santi?

So, uh, I mean, there was a Pump.fund exploit that just happened earlier today. This is Thursday. Initially, of course, there's a lot of drama and confusion amongst, you know, in crypto Twitter. But it was the hackers also, as I understand, just like tweeting. Is this guy Stack Overflow?

Wait, Stack Overflow worked for Pump? He worked for Pump.fun?

I believe so, yes. Yeah. Yeah. Um, oh, here I have this. There's a lot of, uh, noise. Uh, MarginFi recently pushed out an update yesterday. Um, like, my crude understanding of it, and I'm processing through all of it, is this is, uh, they leverage MarginFi flash, like, use flash loans to exploit Pump.fund. It wasn't a MarginFi exploit.

Definitely not a MarginFi exploit. Can I read the summary from someone internal? Someone just sent this.

Go for it.

In Blockworks, they said an attacker is exploiting Pump.fund by buying up all the tokens. So Pump.fund, you can launch these new tokens, right, for anyone who hasn't used it. They're buying up all the tokens of every single new project within minutes, and that fills the bonding curve to 100%. And then they are using flash loans from MarginFi to get SOL. To keep buying up all the Pump.fund tokens without actually using their own SOL. And by quickly bonding out the token supplies to 100%, the attacker is preventing any tokens from getting listed on the Raydium DEX as a tendon. So then, so then the Raydium listings keep getting stuck. And then there are— what's coming out right now is that Pump.fund has been exploited for around $80 million via this kind of lending vulnerability. That has somehow been exploited because of what I just explained. I know this is— I think we're watching this unfold in real time, but I think that's the summary.

It's not small amounts. 80 million.

Yeah.

Noticeably, this is— has been like an attack on Solana in a long time that I can just constantly— DeFi exploits happening. But this, in my— as far as I could tell, is large, but also been fairly quiet in the Solana camp in terms of exploits. But this seems like large and also something that doesn't happen regularly.

Yeah. Okay. So Sisyphus— okay, it kind of seems like he's just flash loaning to buy a bunch of newly launched meme coins and that's it. Like all he has are the coins, but now he actually needs to sell the valueless tokens to someone to make money. Then Sisyphus responds, everyone who is deploying coins is getting drained. Coin launches with initial dollars, flash loan happens, coin goes to bonding with zero LP, loan is repaid. He's not actually making money, but I think the user money from initial deployment gets incinerated every time it happens. Got it.

Okay, that makes more sense.

Yeah.

Huh. Huh.

Yeah.

Then the, then the exploiters like launching an airdrop with these like funds that he's been able to get away with. Anyways, it's, uh, we're clearly not reporting here, we're just interpreting, but it's all happening in real time. So, uh, there's a lot of thought that Marginfly was exploited. As far as I know, the flash loan does not process, does not go through, unless you can— like, if bad debt gets created, the flash loan would not go through. So Marginfly is not like— there's no— that $80 million is not like MarginFi's on the hook, as far as I could tell. Just an important distinction here because there's a— most people, they're quick to just like, you know, post stuff but and create FUD. But anyways, uh, safe to say, uh, maybe, uh, stop using Pumped Up Fund. If you have any concerns about MarginFi, you know, get in touch with the team, go on Discord. But yeah, maybe not, not use Pumped Up Fund right now.

All right. I'm coming in with some— an uplifting segment, new segment to the roundup, the YouTube comments. Every week we publish the roundup and every week I wake up and Santi and I just get shredded in the YouTube comments. So I want to read you guys some of these comments.

Oh, wait, just one sec. I'm going through a tweet here. MarginFi posted 52 minutes ago. So from MarginFi, MarginFi is ready to help the Pump.fund team with their exploit. Reminder, operations on MarginFi aren't normal. Be wary of disinformation. We're able to help the Pump team to remedy their situation.

Yeah, it's definitely not a MarginFi hack. It's a—

yeah, yeah.

Okay, moving on, moving on. YouTube comments, baby. This is, this is from the episode I did with, with Arthur and Sean that you weren't able to make. Someone comments, so talking about me, says, I thought the guy interviewing folks was an intern. Had no idea he's a founder. Gives us all hope that anybody can start a successful company. Thanks for the inspiration.

Oh man, we lended credence and like really took it to heart.

Yano's eyes keep moving closer together. He'll be a cyclops by the end of the bull run.

Oh my God, we gotta go on this. I will be like— I mean, I always reference YouTube comments because I find them hilarious.

It's great. So someone says, it's great that Sean Lapel was able to join the podcast from 1998. He must be baffled by our technological advancements. Jesus.

Let's see, uh, I'm gonna, I'm gonna pull the—

oh, these are so good—

our weekly roundup. The weekly roundup we did last week. Uh, let's see the comments on this one. Where do I see comments? Huh. Uh, oh, this was actually good, but I won't read it because, um, these are surprising.

2 whole minutes of ads at the beginning. How much are you strapped for cash?

Seriously though, guys, this guy posts the same comment on every, every, uh, every pot.

Uh, Santi sounds so arrogant. A lot of people always say you sound arrogant.

Do I? I don't know. Oh yeah, Santi sounds so arrogant when he says that Solana should be at parity with ETH. With his logic, Dogecoin would have overtaken Bitcoin long ago, or EOS to Ethereum, or BNB. Like, come on, man, we know you're smarter than this.

Fine. Oh, just getting roasted out here. Just getting—

that's great.

Uh, what else happened this week, dude? What about, what about GameStop? GameStop came back in. Is this going to be the, the— is this the catalyst for retail coming back in? Um, what do you think of this?

What is it? Uh, GME, like the stock is up like 3x. Uh, it's coming down a bit, but 3x since Roaring Kitty came back. And I think, uh, what was interesting is Roaring Kitty had like an NDA, like a silence period after the movie came out or something like that. Like, he was finally able to like be public after— was it the Netflix, uh, produced movie? Yeah. Anyways, that expired, so he came back. Uh, really weird content on his Twitter account, like just these videos and cryptic stuff. And anyways, um, there's also of course a Solana version of a meme coin of GameStop. Which has ripped like orders of magnitude more than GME.

And Roaring Kitty went up 15,000%.

Oh, is that another meme coin?

Yeah, because his name is Roaring Kitty, right?

Yeah, yeah, no, no, I know that. Yeah, so the meme coins, uh, you know, have been in this choppy, like, down-only trend for the last couple of months, I'd say. Yeah, it's been off their highs for quite a substantial amount, like down 40, 50, 60%, even more for others. Um, and they, they, they picked up— they caught a bid, um, in line with, you know, GME and, um, what was the other one, the cinema company? Yeah, uh, EMC?

No, AMC.

AMC. Yeah. Um, yeah, and it's so fun to watch like Bloomberg and all them trying to interpret what's going on and who's buying and Granted, this is not too dissimilar from crypto. Like, if we look at GameStop, it's down from its high quite a, quite a lot. I mean, it's like down 90%, I believe, or at one point was down similar to, you know, your typical crypto coin from all-time high and last cycle. And so You know, it was the same commentary that you hear from crypto folks, like you were hearing it on Bloomberg, like, oh yeah, you know, you have all these people that bought the high and then you're dumping, you know, once they're, you know, this, this, this has caught a bit, but they're still heavily underwater. Like, just a reminder that very so often, because a particular token is down only, people are quick to call it a, you know, it's a scam, it's a worthless thing. You know, this is not only happening in crypto, like it happens in traditional markets too. Like, I think it's important to just objectively make the distinction, be a little bit more sophisticated in your thought process. Sorry if I sound arrogant, uh, but it's just like, because something goes down 90%, that does not necessarily make it a scam or a worthless token. It's just maybe it shouldn't have been worth— you know what I mean? Like, it's just important to— if you truly want to find gems, you have to maybe put aside that and go deep into particular projects that you like. And if the token's down 90% and it's trading at like distress value— some tokens are trading at below what like the treasury holdings are— like, there's just a lot of irrationality. But people are just, uh, they block themselves out when they see something that is down a ton. Um, now I'm not suggesting GameStop is, uh, fundamentally like a good company. No, it's important to do the work. I'm not going to do that for you. Sorry, go listen to someone else. I don't, I don't, I don't do this to feed you alpha. I do this personally.

All right. I got info on the, on the exploit. Not really. It looks like it's not really an exploit. It looks like in the $80 million, I think Hasaka, Hasaka said this. This is an $80 million exploit in the same way that Alameda's internal balance sheet marked their maps and oxy bags in the billions. Like, That's what it's, I guess, because of the bonding curve.

You're valuing these tokens at a certain amount and like it's really—

yeah, I think this will come out as being like, just don't use Pump for a little bit, but not like a big hacker exploit. That's what it seems like.

Did you just say— how did you pronounce that? Hacker? No, Hisoka.

How do you pronounce it?

I think it's a silent H, dude. Or no, silent like Saka. No. It's not Asaka.

I don't know. Well, Daka, if you're listening to this, please enlighten us. Most Empire episodes, he told me, so he will—

Oh, he should come on then.

I asked him, he said no thank you. He said, I don't do pods, will continue serving my role as a regular listener of Empire.

I was like, well, we appreciate your—

Asaka. Asaka.

Please enlighten us in the comments. I think it's Saka, not Saka.

DBA Research Day was yesterday. Research Day, one of the best days of the year. DBA, John Charbon, Michael Jordan put on a great day. Big shout out to them. There's great talks from— we had Li Yang from MegaETH give a talk on— it was called Why Ethereum Sync Sucks. The CTO of Jito gave a great talk on, on just improving Solana and like potential ideas for, for different, like a couple of different like Solana infrastructure ideas. Stefan from Frontier gave a great talk on, on Cake, the Cake protocol. Chris Goz gave a great talk on like why we shouldn't call things like Xs money, like ETH is money and talked about breaking the crypto wheel. So just a really good research day. It was like the event I look forward to where you just get to sit in a chair and listen to great talks and nerd out all day. And there's not really networking, there's not— no one's drinking. Like, it's just a great day.

Yeah, that's good. Yeah, I was gonna go to that, uh, I just had to come back and, uh, I wish I was there. I mean, I think, uh, I was with John actually in the Solana event. It was just him and him and I, uh, just having like an open conversation, just like with a lot of the teams that are in New York, like with getting mentorship and guidance. And so it was just a real treat.

Yeah.

Uh, I met Lily also from Solana Foundation at dinner, just was chatting with her and, um, Akshay, who runs Solana or led Solana Growth International, especially in Asia. Um, and so yeah, it's really Really exciting. What I found to be most interesting, or one of the things that I find most interesting generally about the Solana community is that they're very open to listening to feedback. And I think it starts from the very top. Like, Toly is someone that, you know, is very open to hearing criticism. And they've even optimized Feed Markets based on criticism from a lot of the Ethereum folks. I think that's one of their edges, just always being open and open to criticism and very interested in, you know, especially maybe as someone like me who is not like there, you know, has become more interested in Solana over time. But I look at other stuff. So yeah, it's always really nice to interact with people within the Solana community and team. Speaking of Solana, there was an interesting stat on May 12th, so 4 days ago, Solana generated more what is called total economic value.

Blockwork term, baby. We're pushing that term through.

How did you steal my thunder? I was going to say, is it Block— I mean, literally, Dan Smith, you know, Blockworks Research. Thank you, Dan. I retweeted this and yeah, it's quite interesting. I think this goes back to— and for context, the total economic value that you're linking it here, people that are not watching, is defined as transaction fees plus MEV. And people should go listen to the episode that we recorded with Kyle to talk about this point. But I think this is something— this chart is probably one of the most important to watch going forward. And yeah, a big part of my Solana thesis.

Yeah, it's interesting. Total economic value. We are spending a lot of time thinking about how to value these L1s and L2s and protocols and total economic value. While it's not maybe the cleanest term, it's— we're trying to think of different ways to value.

It's very straightforward.

I mean, it's easy to understand.

Yeah.

We announced some new—

I was just recording a podcast and I was just recording— sorry, I was just recording a podcast in Spanish. And we like, people are catching on to this idea that like, what I said, flex on people. Oh, people. Yeah, people are, um, um, it's Hernán Jaramillo. It's just like these guys that have been encrypted for a long time. I think they're the most, they're one of the most popular in Latin America. Anyways, this guy, they, they're, this concept that like the two revenue streams of block, of base blockchains are not only transaction fees but MAB is catching on and And I think it's just interesting that the market or, you know, market participants are in the community in general, it's like understanding that.

So the biggest pushback that we got to this post was that Dan's post, which went pretty viral, was that, that we didn't include L2s. Fair. And I'm curious what you think of this. Should we include L2s in this or not?

I can think of reasons why you should and why you shouldn't. So I don't know, because, okay, it depends, right? And again, I'm thinking of the episode that we had with, um, um, what's his name, Steven? Yeah, from Arbitrum. We were talking about like, it's always been the L2s are parasitic to the L1, like they're posting to the L1, so some value doesn't crude of the L1, but like in the proportion how much value is captured, are you not double counting? If you're using the L2, if you're, if you're including the L2 as part of the L1, two separate assets, right? They all have their native token, R, OP, except Base. But the sequencer is capturing a lot of that value, right? Like when you think about the value that's been created in L2, the sequencer is creating a lot of that, like, a lot of that's like MEV, but that's not being distributed back to the L1. So if you're an ETH holder, you're not directly benefiting from that. The only thing that you're benefiting from is the L2 posting to the L1, and that would show up, that would already show up in this, in this measure, right, in this, in this metric through transaction fees. No, or even marginally maybe, but mostly transaction fees. I'm, I'm thinking like if you include L2s, aren't you like in some way—

here, Dan did the work. Dan did it. There was a lot of pushback that this chart doesn't include ETH L2s. I do not think it should and have my reasoning in the tweet below. If you count the $340K of L2 transaction fees on May 12th anyways, it edges Ethereum ahead but shows just how close the two truly are.

Well, that's right. But it's only transaction fees where I'm saying they're marginal, right?

Oh yeah.

That's like, that's the whole point of like more and more, especially with like the modular movement, like more and more you have more L2s, you have a lot of economic activity, but like the amount of fees that are flowing back to the L1 are very, very small as a percentage of the total economic value created in L2. Trickles down to an L1, it's a fraction of that. So yeah, I think you should count it like that, but it's a small number is what I'm trying to say, right?

Yeah. I mean, the argument— again, there's another argument against counting it, which is what we talked about with Steven too, which is like, look, a lot of these things like Optimism doesn't have fraud proofs and is governed by multisig. Like they don't inherit any of the security from Ethereum at all is my understanding. And someone should correct me if I'm wrong there. Because I feel like I sometimes talk out of my ass with this stuff. But like, if you, if you don't have a decentralized sequencer, you don't have the bridge, an immutable bridge contract. And it was actually— shout out Westy at Blockworks Research was talking about this too— like immutable bridge contract, decentralized sequencer, and a permissionless proof system. Like, like, like, why would you include them?

Yeah, it— however you're counting— my point is, however you're counting transaction fees in MEV and L1, should encompass all the activity that it's flowing into the old one. That should by default include whatever's happening in the L2 and is posting and accruing value to the old one. But it's just counting economic activity in the L2? No, I don't think so. Because it doesn't, uh, the analogy would be Salesforce. So think about Salesforce, Salesforce CRM, like you're an equity holder in Salesforce. Salesforce. It has an ecosystem of apps that benefit from the, you know, the ecosystem of Salesforce, all the clientele that may tap into the App Store. But like, you have all these companies independent of Salesforce that are creating businesses in and of themselves.

Yeah.

Now Salesforce, like Apple, might take a cut from that, but that's going to show up in their P&L, that's going to show up in their like commission fees or whatever, or they take some cut of of the App Store revenue. In the same way here, you should be including that like marginal $310K or whatever that Westy didn't include originally, but it— you should include it because it is, it is like, it's a stream of income to the Ethereum. If you were to do a P&L on Ethereum, you would include it as like L2 posting fees, include that. But it's really small. The vast majority of the value is created in these base layers like Solana, Ethereum is MEV, right?

Yeah.

Which is like one of the more— like, you remember, like, in the state where, like, there was a very contentious and probably still is some debate around, you know, L2s. And yeah, of course, they bring a lot of scalability to Ethereum. But there was some discussion on are they actually parasitic? Are they not? How much value is actually going to flow down to ETH? And if you're an ETH holder, right, if you think about you know, EIP-1559 and the burn, you know, if, if a lot of that value is created in L2 and L3 and L10, but not accruing down to the L1, then it makes again the argument of, well, shouldn't you be perhaps thinking of maybe I should be owning an L2 token, not an L1? Because it's like in the state where like with Arbitrum Silas, for instance, and again, the The podcast with Steven is really, really instructive. I think he's one of the smartest people out there, and he, I think, lays it out very clearly. There might— when we talk about OP3s, you know, um, if people are using Arbitrum Stylus and like are using the gen or OP, right, like they had, you know, Base is using OP and they gave them, uh, you know, there's like some, there's some like, uh, fee that the Arbitrum ecosystem is accruing if you have more apps there, if you have people that are using that stack to build on top of Arbitrum, um, that makes you bullish. Like, Arbitrum is an ecosystem, marginally Ethereum, more so Arbitrum, if you know what I mean.

Yep.

Does that make sense?

Yeah, it does make sense. Yeah. Yeah. Okay.

Yeah.

Sweet. I have a call in 5 minutes I need to—

yeah. This is good. Well, um, stay safe out there, everyone. Um, important to— when you see this, when there's smoke, there's fire. Um, so if you have any doubts, you know, just, uh, play it safe. Uh, and it seems like MarginFi is okay. Pump— just give it a break, you know, just pump the brakes and pump that fund. Yeah, well, uh, and you know, I say that as an investor who pumped that fund, so hopefully everyone is okay and disclosure what, uh, Saka— Saka is, uh, saying. So anyways, uh, we'll be reporting that next week and just, uh, hopefully more clarity there.

Yeah, we got some new permissionless speakers too. We got, um, Devin Finzer, CEO of OpenSea, Spencer Bogart, GP of Blockchain Cap, Tushar from Multicoin, Harry, the CTO of Arbitrum, uh, Uma, um, Heart, Lambert, uh, Uma Roy, uh, from Systinct, Labs. Oh, I was with Heart actually yesterday. Um, nice. Uh, Eva, uh, from Graph Foundation. Jake Travinsky. Um, Bayek from Hashed.

Oh yeah, um, that's great.

Oh man, Nick Dodson, uh, CEO of Fuel. Uh, Frederic, the co-founder of Gnosis. So good people, go register.

Amazing. Good fun. So speaking of, I'm actually like, uh, I'm going to, I'll make a quick trip. There's a part of what I did with Solana. I'm going to do now with another ecosystem. It's actually an L2. I'm really excited. They're in Berlin. So yeah, this reminds me of like early, early Ethereum days. Like Berlin used to be this like very Web3.

We're cooking something for Berlin. Oh really?

Yeah. Yeah.

I can't share it yet. You're coming in closer here. That's great. Yeah. Yeah. More Europe stuff. So that's a good place to end before I share too much. Thanks for listening, folks. We'll see you Tuesday.

Awesome, folks. Don't forget to post on YouTube, please.

All right, you heard about Sei a couple of times. Just want to give them one last shout out. Big thanks to Sei for sponsoring this episode of Empire. There are a ton of reasons to build on Sei. If you want to get in touch with them, you can reach out to me. I'll put you in touch directly with the team. You can also get in touch with them on Twitter @SeiNetwork. You can follow the journey @SeiNetwork. They are currently live. They've got Sei V2 on public DevNet today. Mainnet goes live later in Q2. Really excited to have Sei sponsoring and partnering with us on this episode of Empire.