July 22, 2022 • 18 mins
While there’s a perception that ideas like the blockchain are novel and groundbreaking, the reality is there’s lots of precedents for concepts like DAOs, or Initial Coin Offerings. This is particularly clear right now, as crypto experiences its own version of a “Bear Stearns moment”. Which all begs the question: Is DeFi just reinventing TradFi with more complexity and a sprinkling of blockchain? Or is there genuine novelty here? For more on these questions, Bloomberg Opinion Columnist Matt Levine and Bloomberg Reporter Muyao Shen join this episode.
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Speaker 1 (00:02):
I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
and this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.
It's Friday, July two. Something we say a lot here
on the Bloomberg Crypto team is everything old is new
in crypto. And what we mean by that is while
(00:23):
there's a perception that ideas like the blockchain or novel
and groundbreaking, the reality is there's lots of precedents for
other concepts in crypto. This is particularly clear right now
as crypto experiences its own version of a beer Stearns moment,
which all begs the question, our concepts like Defy or
(00:44):
decentralized finance just reinventing traditional finance with more complexity and
a sprinkling of the blockchain, or is their genuine novelty
Here for more on these questions, I'm joined by Bloomberg
opinion columnist Matt Levine and Bloomberg reporta muy Sen Matt,
(01:06):
we are this is a truly exciting moment in the
history of the pod. We have none other than Matt Levine, who,
if you're not reading him, for his takes on Elon
Musk you should be reading him for his takes on crypto,
like what is wrong with you? Get it together? Subscribe
to his newsletter. And Muyao, who has been you know
since joining Bloomberg, just absolutely on fire as it relates
to covering everything defy which all seems to be melting
(01:30):
down in one in one direction right now. So what
we're gonna do today with these two fantastic guests is
explore a little bit how what we're seeing into centralized
finance and centralized finance have echoes of what we've seen before.
And without revealing just how old Matt and I are,
I can say that we were both around in two
(01:51):
thousand and eight and we're aware of the financial crisis
of that time, and we're going to make a couple
of other historical references. Does that work for you both? Yeah? Alright,
let's get started. So we are what's defy defies, you know,
show forced decentralized finance. It is one of the narrative
(02:11):
or innovation crypto wants to uh sort of created to
replace the traditional finance, which you know, crypto people like
to say trifi and it's basically tokenalized in every financial
instrument on blockchain and matt as two of us who
have covered you know, trad fire or whatever heard referred
(02:32):
to even more disparagingly as old FI, which, wow, rude,
we are we are old five. Um what about DEFY
looks to you like old five? Well, you know, I
want to be careful. I think that like there is
a sort of like core element of DeFi that is
(02:54):
truly decentralized, and that is different and interesting. But what's
been interesting in the last like you weeks two months
has been that so many people who were in sort
of broadly speaking, the DEFISE space turned out to be
much more centralized than people thought, and to look a
lot like the financial system of sort of you know,
late two thousand seven, where it was a lot of
(03:16):
like very levered players lending to each other in opaque
ways where it was hard from the outside to know
who was going to blow up when someone else blew up.
So like you know, when like Lehman Brothers collapsed, that
was that was an investment bank. For those of you
who are you know, nineteen, when Lehman by this collapse,
(03:37):
there is a lot of like who has exposure to Lehman?
What commercial paper flunt, what you know, money market funder,
what investment bank or what commercial bank is going to
go down because they were lending money too, Lehman. And
there there are worries like that that are repeating and
propagating through the cryptosystem where you know, there were a
couple of very high profile failures in crypto. One was
(04:01):
the Terra Lunar ecosystem, which I think you'd probably called
DeFi um, and the other was it was a hedge
fund called Three Arrows Capital, which is like a hedge
fund that defied stuff some other crypto stuff. And both
of those, basically, like the fallout of that has been
interesting to trace, and it wasn't I think necessarily obvious
to everyone where that fallout would go until you know,
(04:22):
other platforms started declaring bankrupts. And you know, you mentioned
commercial paper, which I remember when none of us cared
about commercial people, and then we all have to care
about commercial people. And I feel like I'm there again
because that's also at the center of a lot of
speculation around stable coins. Or anytime you're caring about commercial paper,
it's a bad sign, right, Yeah, No, it's just it's
(04:43):
not good. So you know, I know you're not nineteen
And I know you know what Lehman Brothers is, but
what are you seeing, especially as it relates to some
of the folks from you know, TRADFI who are interested
in crypto or even disparaging of too. Where do you
find yourself saying yeah, actually that's how that's similar, but
(05:04):
this is how that's different. Yeah, for sure, I think, yes,
I'm not that old. Oh I'm not that young. But
I want to say, like, all of my knowledge from
finance is actually from what I learned in DeFi. You know,
there are a lot of cons of in DeFi that
was claimed to be innovations, but after I talk to
(05:25):
people who are you know, had a ull Street experience,
So tell me, oh, that's been long existing in in
traditional finance. However, I think a classic example recently would
be uh steak East own Lato, which is easier and
steaking platform. What it is is basically, if you stake
(05:45):
your East with this platform, light though that you get
a deridive token called steak East instead, and can use
the stakes to trade and or to use the as
a clatteral on different other defied platform for lending and
brawling and things like that, and often time I heard
from people who had a Trifi experience that it will
(06:06):
tell me that sounds like security back back loans. And
you know, Matt's as you have written about, I mean everything,
but as you've written about elements of these, including this
concept of shadow banking, which really came up in that
two thousand and eight context. Are there things where you're
sort of looking at this and you're like, really, really,
(06:27):
we're reinventing this again. Oh sure, I mean just like
just like the very simple core of like shadow banking.
I mean, Chad, you know, a bank is an entity
that borrows short term and lends long term. Classically, there's
a lot of you know, nuance around that, but basically,
a bank is something that takes deposits that people can take,
can withdraw on demand, and it makes like mortgage lens
(06:48):
where people don't have to pay them back for thirty
years and so that is profitable. That's like a you know,
in vary those terms, it's an arbitrage because the mortgages
pay more than the deposits and so you can collect
the interest difference. Um. But it's conceptually very risky business,
right like, uh, if there's a run on the bank
and you don't have any money in the vault, then
(07:09):
you know you're getting big trouble. And so banking is
a business that has existed for hundreds of years and
ran into a lot of problems around runs on the
bank and around various sorts of shenanigans and related party
loans and whatever, and so in modern America, banking is
like pretty regulated and so like that's that's banking, right, Like,
(07:29):
banking has a lot of rules, and those rules are
all sort of from from bad experience, right, Like those
rules exist because something went wrong and people like, oh,
we need a new rule. And in two thousand and
eight they were like two thousands, you know, five to
two thou seven, there were there were a lot of
there's a lot of talking about shadow banks, and a
shadow bank is basically something that does that business of
borrowing short to len long, but it's not a bank,
(07:51):
and so can do stuff that banks are not allowed
to do. One thing that sometimes shadow banks do is
is they are even more leveraged than a bank. Right
where a bank typically has you know, like in the
ballpark of three to ten percent equity, so like most
of its loans are funded by deposits, but some of
their funded by shareholder money, and so if some of
(08:12):
the loans go bad, the shareholders is money off the depositors.
Shadow banks can be you know, a hundred times lever
to you know, a money market mutual fund. Arguably, shadow
bank can be like sort of almost infinitely levered. In crypto,
you sort of look around and I don't think people
knew this until like platforms like Voyager and Celsius sort
(08:35):
of blowing up. But you look at like these crypto
platforms and their leverage ratios are are somewhere between very high,
like you know, like four or five percent equity two
practically infinite. And if you look at like if you
look at tethers balance sheet, they're like, oh, we're totally backed,
we are super solid. And then you like do the
(08:57):
math and it's like they have like zero point two
percent equity and you're like, well that's very low, right,
and like and you know, you look at their assets
and you know the question is how much equity do
you need for like the kind of assets you have?
And if tether was a thing that took deposits from
like stable creint investors and invested them in like accounts
at the fed then running at zero point equity would
(09:18):
be great, would be like you know, more than you need.
But like, in fact, they're list of assets is like
commercial paper, which no one knows what it is, and
everyone sort of assumes the worst about their commercial paper.
But it's also it's like crypto back loans, loans to
crypto headphones and and other platforms that some of whom
have gone bankrupt and tell it's like, oh, we got
out in time, it's fine. Um, And it's like cryptocurrencies,
(09:40):
which like maybe those are stable coins that are fine.
Maybe those are stable coins that are not fine. Maybe
those are bitcoin, which is super volatile. And so you
look at their asset and you think, you know, is
there enough volatility in this, like in the asset side
of the balance sheet that they should have more than
zero point two equity? And I don't know, man, I'm
just like a simple old five guy, but like that
seems like a really low amount of equity for like
(10:02):
the asset mix that they have. And I think, you know,
if you ask, you know, tell people they're like, no, no,
it's fine, it's totally great. Like nothing can ever lose money.
Our commercial paper is money. Good. We get out of
all of our bankrupt companies just before they go back there.
If it's great, it's no problem. We'll be right back
with more from Mual and Matt on how a lot
of the complex DeFi so called innovations have existed in
(10:23):
trad fy for a very long time. We all you
have reported on defy for a long time. You have
spoken to people who supported Tara and Luna. You've spoken
to people who lost money on Tara and Luna, either
because they were retail investors or because they were counterparties
(10:46):
of Is there anything about what Matt is describing to
you in the context of, you know, how we navigated
our way through two thousand and eight that you're seeing
folks now trying to do a better job of or
is this more like you're like, wow, two thousand eight,
see like we were in better shape than we are
right now. One thing I've been thinking about, Lady, most
(11:07):
majority of platforms or complaints we're talking about here, who
have felt in crypto they're all centralized entities versus truly defied.
Even Terra itself, which is quite complicated in consistent that
you know, it is a defied platform, as you know,
just everything runs on terror blockchain, but you do have
(11:29):
do Ka and Terra Phone Labs, all these entities and
individuals behind this this platform. Like you know, literally when
do k On tweet about something and people would believe
it and then people would you know, trust his kind
of intent in terms of how he's going to save
this project and whatsoever. And all other platforms such such
(11:49):
as you know Voyager, which bankrupt as a result of
the contention of Serio Arrows, Touch Fund. These are all
centralizentis that had a very little transparency in terms how
how healthy their business had had been. I think this
is the one thing that I would say potentially similar
what to what happened in the Great Financial Crisis, which
(12:11):
I don't have much experience with, but Defy itself because
it's transparency and also because you know, majority loans that
was made on Defy are overly are overcladaized, and you
we have not really see any D five projects has
collapsed or felt in the latest crypto crash. As my
last question to both of you, is there anything when
(12:34):
you're talking to folks and Defy that they are looking
to transfy and they're like, hmm, maybe we should do
that and Matt. Same for you. You know, have you
observed any like defy ifications That is a terrible phrase,
but have you observed any examples of traditional lenders or
more traditional Wall Street banks adopting any DFI practices that
seem useful. That's a really good question. I think in general,
(12:58):
something I am confused about when I Oftentine talked to
not just Defy people, for crypto people that you know,
Defy is supposed to completely replace the whole traditional finance,
But every time when we see kind of headlines within
the involvement of Goldman Sex or Morgan Stanley with crypto,
(13:20):
all the crypto people get excited. They're like, oh my god,
they're doing something in Defy. They're doing something in crypto.
I think that's that's to me, it's just fascinating because
I cannot imagine any of these investment banks would take
advantage of whatever Defy is trying to create in terms
as like better than Trify for example, the transparency. But
(13:43):
I think, just based on what my experience talking to
all all the people in Trify and Defy, there's this
kind of this is just like a very contradictory sort
of phenomenon that they wanted Wall Street to do more
in defy, but in reality is that like that's should
not be the direction they are going. If they truly
believe in defy, they should think more that like we
(14:06):
are going to like beat them up and we're going
to replace them instead of oh, we're going to embrace
all these investment thanks going or other or Street giants
going to defy. Yeah. I mean what I'd say is, um,
defy is is cool, Like like if you're a person
with a certain mindset, if you're like a technologist or
like market structure person, like DeFi is like we have
(14:30):
built all new market structures for you to play with.
Isn't that fun? Right? And so there are efficiency reasons
why you might find like some aspects of you know,
smart contracting or whatever compose ability of functions, you might
find those things appealing, But there's also just like it's
intellectually appealing to someone who sort of works in like
the minds of the financial markets all day to like
(14:52):
they kind of like go over into this like holy
new territory. And so you certainly see people at banks
get excited a at like defy buzz words. I mean
like like this is sort of old news by now,
like in like two seventeen, like you couldn't go a
day without a bank announcing a blockchain project, right, Like
no one knew what it meant, but it was just
like banks like, oh my gosh, a blockchain and like
(15:14):
that's like, you know, that's like a sort of DEFY
is concept of like we're going to like have this
sort of shared ledger of our transactions where like there'll
be some sort of like you know, decentralization and like
open ledger of the transactions rather than like us faxing
you know, our lawyers, like the confirms or whatever. Right,
Like it just seems so shiny and efficient. Um. But
(15:34):
the other thing I'll say is that like a lot
of people in trad FI feel that way, but rather
than implementing a DeFi project at their bank, they quit
and become you know, like crypto hedgeman managers. Right, So,
like you mentioned Sam Bankman Freed, like he's a guy
who's like a market structured guy at a you know,
traditional market maker. And then it was like crypto crypto
(15:54):
seems really fun, but also I can make so much
money there, Like I said, like DeFi is like cool
and possibly more efficient in some ways. But also just
like the spreads, are you insane? And so you can
make a lot of money, and so like a lot
of people are trying to find ways for their banks
to make more money, but like these are regulated entities,
and like custody and crypto is challenging, and you know,
(16:18):
regular like supervisors don't necessarily like it and all this stuff.
But if you quit and just start your own crypto
hedge fund, there's like so much money to be made.
And so I think that's a lot of what's happening
in traditional finances. Everyone's scorting to do crypto, or they
were before cryptocrash, right, And on that note, thank you both,
thank you, thank you. You can find more of Muya
Shan's reporting on the Bloomberg Terminal on Bloomberg dot com
(16:40):
and on Twitter. She's at Muya Shen That's m u
y a O s h e N. You can also
find more of Matt Levin's columns on the Bloomberg Terminal
on Bloomberg dot com or follow him on Twitter. He's
at Matt underscore Levine. On the next episode of bloom Crypto,
(17:00):
Mary Catherine later has a story to tell. She was
a rising star at Black Rock when she left Wall
Street and traditional finance for crypto and decentralized finance. She's
now Chief operating Officer at unit Swap Labs, which is
the creator of the world's biggest decentralized exchange protocol. She'll
join my colleague Bloomberg Reports a Lga Karif to talk
about her belief in blockchain, what comes after the terror collapse,
(17:24):
and how she sees decentralized folence shaping the future. I'm
Stacy Marie Ishmael and this is Bloomberg Crypto, a daily
podcast from Bloomberg and I Heart Radio. For more shows
from I Heart Radio, visit the I Heart Radio app,
Apple Podcasts, or wherever you get your podcasts. Email your questions, comments,
(17:44):
or suggestions for the show to Crypto at Bloomberg dot
net and you'll find us on Twitter at Crypto. The
supervising producer of Bloomberg Crypto is Vicky ver Galina. Our
senior producer is Janet Babin. Our producer is Mohammed Perup.
Our associated producers Osanam Sidiki and Moses and um dast
to wonder At is our engineer. Original music by Leo
(18:06):
sidron h
I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
and this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.
It's Friday, July two. Something we say a lot here
on the Bloomberg Crypto team is everything old is new
in crypto. And what we mean by that is while
(00:23):
there's a perception that ideas like the blockchain or novel
and groundbreaking, the reality is there's lots of precedents for
other concepts in crypto. This is particularly clear right now
as crypto experiences its own version of a beer Stearns moment,
which all begs the question, our concepts like Defy or
(00:44):
decentralized finance just reinventing traditional finance with more complexity and
a sprinkling of the blockchain, or is their genuine novelty
Here for more on these questions, I'm joined by Bloomberg
opinion columnist Matt Levine and Bloomberg reporta muy Sen Matt,
(01:06):
we are this is a truly exciting moment in the
history of the pod. We have none other than Matt Levine, who,
if you're not reading him, for his takes on Elon
Musk you should be reading him for his takes on crypto,
like what is wrong with you? Get it together? Subscribe
to his newsletter. And Muyao, who has been you know
since joining Bloomberg, just absolutely on fire as it relates
to covering everything defy which all seems to be melting
(01:30):
down in one in one direction right now. So what
we're gonna do today with these two fantastic guests is
explore a little bit how what we're seeing into centralized
finance and centralized finance have echoes of what we've seen before.
And without revealing just how old Matt and I are,
I can say that we were both around in two
(01:51):
thousand and eight and we're aware of the financial crisis
of that time, and we're going to make a couple
of other historical references. Does that work for you both? Yeah? Alright,
let's get started. So we are what's defy defies, you know,
show forced decentralized finance. It is one of the narrative
(02:11):
or innovation crypto wants to uh sort of created to
replace the traditional finance, which you know, crypto people like
to say trifi and it's basically tokenalized in every financial
instrument on blockchain and matt as two of us who
have covered you know, trad fire or whatever heard referred
(02:32):
to even more disparagingly as old FI, which, wow, rude,
we are we are old five. Um what about DEFY
looks to you like old five? Well, you know, I
want to be careful. I think that like there is
a sort of like core element of DeFi that is
(02:54):
truly decentralized, and that is different and interesting. But what's
been interesting in the last like you weeks two months
has been that so many people who were in sort
of broadly speaking, the DEFISE space turned out to be
much more centralized than people thought, and to look a
lot like the financial system of sort of you know,
late two thousand seven, where it was a lot of
(03:16):
like very levered players lending to each other in opaque
ways where it was hard from the outside to know
who was going to blow up when someone else blew up.
So like you know, when like Lehman Brothers collapsed, that
was that was an investment bank. For those of you
who are you know, nineteen, when Lehman by this collapse,
(03:37):
there is a lot of like who has exposure to Lehman?
What commercial paper flunt, what you know, money market funder,
what investment bank or what commercial bank is going to
go down because they were lending money too, Lehman. And
there there are worries like that that are repeating and
propagating through the cryptosystem where you know, there were a
couple of very high profile failures in crypto. One was
(04:01):
the Terra Lunar ecosystem, which I think you'd probably called
DeFi um, and the other was it was a hedge
fund called Three Arrows Capital, which is like a hedge
fund that defied stuff some other crypto stuff. And both
of those, basically, like the fallout of that has been
interesting to trace, and it wasn't I think necessarily obvious
to everyone where that fallout would go until you know,
(04:22):
other platforms started declaring bankrupts. And you know, you mentioned
commercial paper, which I remember when none of us cared
about commercial people, and then we all have to care
about commercial people. And I feel like I'm there again
because that's also at the center of a lot of
speculation around stable coins. Or anytime you're caring about commercial paper,
it's a bad sign, right, Yeah, No, it's just it's
(04:43):
not good. So you know, I know you're not nineteen
And I know you know what Lehman Brothers is, but
what are you seeing, especially as it relates to some
of the folks from you know, TRADFI who are interested
in crypto or even disparaging of too. Where do you
find yourself saying yeah, actually that's how that's similar, but
(05:04):
this is how that's different. Yeah, for sure, I think, yes,
I'm not that old. Oh I'm not that young. But
I want to say, like, all of my knowledge from
finance is actually from what I learned in DeFi. You know,
there are a lot of cons of in DeFi that
was claimed to be innovations, but after I talk to
(05:25):
people who are you know, had a ull Street experience,
So tell me, oh, that's been long existing in in
traditional finance. However, I think a classic example recently would
be uh steak East own Lato, which is easier and
steaking platform. What it is is basically, if you stake
(05:45):
your East with this platform, light though that you get
a deridive token called steak East instead, and can use
the stakes to trade and or to use the as
a clatteral on different other defied platform for lending and
brawling and things like that, and often time I heard
from people who had a Trifi experience that it will
(06:06):
tell me that sounds like security back back loans. And
you know, Matt's as you have written about, I mean everything,
but as you've written about elements of these, including this
concept of shadow banking, which really came up in that
two thousand and eight context. Are there things where you're
sort of looking at this and you're like, really, really,
(06:27):
we're reinventing this again. Oh sure, I mean just like
just like the very simple core of like shadow banking.
I mean, Chad, you know, a bank is an entity
that borrows short term and lends long term. Classically, there's
a lot of you know, nuance around that, but basically,
a bank is something that takes deposits that people can take,
can withdraw on demand, and it makes like mortgage lens
(06:48):
where people don't have to pay them back for thirty
years and so that is profitable. That's like a you know,
in vary those terms, it's an arbitrage because the mortgages
pay more than the deposits and so you can collect
the interest difference. Um. But it's conceptually very risky business,
right like, uh, if there's a run on the bank
and you don't have any money in the vault, then
(07:09):
you know you're getting big trouble. And so banking is
a business that has existed for hundreds of years and
ran into a lot of problems around runs on the
bank and around various sorts of shenanigans and related party
loans and whatever, and so in modern America, banking is
like pretty regulated and so like that's that's banking, right, Like,
(07:29):
banking has a lot of rules, and those rules are
all sort of from from bad experience, right, Like those
rules exist because something went wrong and people like, oh,
we need a new rule. And in two thousand and
eight they were like two thousands, you know, five to
two thou seven, there were there were a lot of
there's a lot of talking about shadow banks, and a
shadow bank is basically something that does that business of
borrowing short to len long, but it's not a bank,
(07:51):
and so can do stuff that banks are not allowed
to do. One thing that sometimes shadow banks do is
is they are even more leveraged than a bank. Right
where a bank typically has you know, like in the
ballpark of three to ten percent equity, so like most
of its loans are funded by deposits, but some of
their funded by shareholder money, and so if some of
(08:12):
the loans go bad, the shareholders is money off the depositors.
Shadow banks can be you know, a hundred times lever
to you know, a money market mutual fund. Arguably, shadow
bank can be like sort of almost infinitely levered. In crypto,
you sort of look around and I don't think people
knew this until like platforms like Voyager and Celsius sort
(08:35):
of blowing up. But you look at like these crypto
platforms and their leverage ratios are are somewhere between very high,
like you know, like four or five percent equity two
practically infinite. And if you look at like if you
look at tethers balance sheet, they're like, oh, we're totally backed,
we are super solid. And then you like do the
(08:57):
math and it's like they have like zero point two
percent equity and you're like, well that's very low, right,
and like and you know, you look at their assets
and you know the question is how much equity do
you need for like the kind of assets you have?
And if tether was a thing that took deposits from
like stable creint investors and invested them in like accounts
at the fed then running at zero point equity would
(09:18):
be great, would be like you know, more than you need.
But like, in fact, they're list of assets is like
commercial paper, which no one knows what it is, and
everyone sort of assumes the worst about their commercial paper.
But it's also it's like crypto back loans, loans to
crypto headphones and and other platforms that some of whom
have gone bankrupt and tell it's like, oh, we got
out in time, it's fine. Um, And it's like cryptocurrencies,
(09:40):
which like maybe those are stable coins that are fine.
Maybe those are stable coins that are not fine. Maybe
those are bitcoin, which is super volatile. And so you
look at their asset and you think, you know, is
there enough volatility in this, like in the asset side
of the balance sheet that they should have more than
zero point two equity? And I don't know, man, I'm
just like a simple old five guy, but like that
seems like a really low amount of equity for like
(10:02):
the asset mix that they have. And I think, you know,
if you ask, you know, tell people they're like, no, no,
it's fine, it's totally great. Like nothing can ever lose money.
Our commercial paper is money. Good. We get out of
all of our bankrupt companies just before they go back there.
If it's great, it's no problem. We'll be right back
with more from Mual and Matt on how a lot
of the complex DeFi so called innovations have existed in
(10:23):
trad fy for a very long time. We all you
have reported on defy for a long time. You have
spoken to people who supported Tara and Luna. You've spoken
to people who lost money on Tara and Luna, either
because they were retail investors or because they were counterparties
(10:46):
of Is there anything about what Matt is describing to
you in the context of, you know, how we navigated
our way through two thousand and eight that you're seeing
folks now trying to do a better job of or
is this more like you're like, wow, two thousand eight,
see like we were in better shape than we are
right now. One thing I've been thinking about, Lady, most
(11:07):
majority of platforms or complaints we're talking about here, who
have felt in crypto they're all centralized entities versus truly defied.
Even Terra itself, which is quite complicated in consistent that
you know, it is a defied platform, as you know,
just everything runs on terror blockchain, but you do have
(11:29):
do Ka and Terra Phone Labs, all these entities and
individuals behind this this platform. Like you know, literally when
do k On tweet about something and people would believe
it and then people would you know, trust his kind
of intent in terms of how he's going to save
this project and whatsoever. And all other platforms such such
(11:49):
as you know Voyager, which bankrupt as a result of
the contention of Serio Arrows, Touch Fund. These are all
centralizentis that had a very little transparency in terms how
how healthy their business had had been. I think this
is the one thing that I would say potentially similar
what to what happened in the Great Financial Crisis, which
(12:11):
I don't have much experience with, but Defy itself because
it's transparency and also because you know, majority loans that
was made on Defy are overly are overcladaized, and you
we have not really see any D five projects has
collapsed or felt in the latest crypto crash. As my
last question to both of you, is there anything when
(12:34):
you're talking to folks and Defy that they are looking
to transfy and they're like, hmm, maybe we should do
that and Matt. Same for you. You know, have you
observed any like defy ifications That is a terrible phrase,
but have you observed any examples of traditional lenders or
more traditional Wall Street banks adopting any DFI practices that
seem useful. That's a really good question. I think in general,
(12:58):
something I am confused about when I Oftentine talked to
not just Defy people, for crypto people that you know,
Defy is supposed to completely replace the whole traditional finance,
But every time when we see kind of headlines within
the involvement of Goldman Sex or Morgan Stanley with crypto,
(13:20):
all the crypto people get excited. They're like, oh my god,
they're doing something in Defy. They're doing something in crypto.
I think that's that's to me, it's just fascinating because
I cannot imagine any of these investment banks would take
advantage of whatever Defy is trying to create in terms
as like better than Trify for example, the transparency. But
(13:43):
I think, just based on what my experience talking to
all all the people in Trify and Defy, there's this
kind of this is just like a very contradictory sort
of phenomenon that they wanted Wall Street to do more
in defy, but in reality is that like that's should
not be the direction they are going. If they truly
believe in defy, they should think more that like we
(14:06):
are going to like beat them up and we're going
to replace them instead of oh, we're going to embrace
all these investment thanks going or other or Street giants
going to defy. Yeah. I mean what I'd say is, um,
defy is is cool, Like like if you're a person
with a certain mindset, if you're like a technologist or
like market structure person, like DeFi is like we have
(14:30):
built all new market structures for you to play with.
Isn't that fun? Right? And so there are efficiency reasons
why you might find like some aspects of you know,
smart contracting or whatever compose ability of functions, you might
find those things appealing, But there's also just like it's
intellectually appealing to someone who sort of works in like
the minds of the financial markets all day to like
(14:52):
they kind of like go over into this like holy
new territory. And so you certainly see people at banks
get excited a at like defy buzz words. I mean
like like this is sort of old news by now,
like in like two seventeen, like you couldn't go a
day without a bank announcing a blockchain project, right, Like
no one knew what it meant, but it was just
like banks like, oh my gosh, a blockchain and like
(15:14):
that's like, you know, that's like a sort of DEFY
is concept of like we're going to like have this
sort of shared ledger of our transactions where like there'll
be some sort of like you know, decentralization and like
open ledger of the transactions rather than like us faxing
you know, our lawyers, like the confirms or whatever. Right,
Like it just seems so shiny and efficient. Um. But
(15:34):
the other thing I'll say is that like a lot
of people in trad FI feel that way, but rather
than implementing a DeFi project at their bank, they quit
and become you know, like crypto hedgeman managers. Right, So,
like you mentioned Sam Bankman Freed, like he's a guy
who's like a market structured guy at a you know,
traditional market maker. And then it was like crypto crypto
(15:54):
seems really fun, but also I can make so much
money there, Like I said, like DeFi is like cool
and possibly more efficient in some ways. But also just
like the spreads, are you insane? And so you can
make a lot of money, and so like a lot
of people are trying to find ways for their banks
to make more money, but like these are regulated entities,
and like custody and crypto is challenging, and you know,
(16:18):
regular like supervisors don't necessarily like it and all this stuff.
But if you quit and just start your own crypto
hedge fund, there's like so much money to be made.
And so I think that's a lot of what's happening
in traditional finances. Everyone's scorting to do crypto, or they
were before cryptocrash, right, And on that note, thank you both,
thank you, thank you. You can find more of Muya
Shan's reporting on the Bloomberg Terminal on Bloomberg dot com
(16:40):
and on Twitter. She's at Muya Shen That's m u
y a O s h e N. You can also
find more of Matt Levin's columns on the Bloomberg Terminal
on Bloomberg dot com or follow him on Twitter. He's
at Matt underscore Levine. On the next episode of bloom Crypto,
(17:00):
Mary Catherine later has a story to tell. She was
a rising star at Black Rock when she left Wall
Street and traditional finance for crypto and decentralized finance. She's
now Chief operating Officer at unit Swap Labs, which is
the creator of the world's biggest decentralized exchange protocol. She'll
join my colleague Bloomberg Reports a Lga Karif to talk
about her belief in blockchain, what comes after the terror collapse,
(17:24):
and how she sees decentralized folence shaping the future. I'm
Stacy Marie Ishmael and this is Bloomberg Crypto, a daily
podcast from Bloomberg and I Heart Radio. For more shows
from I Heart Radio, visit the I Heart Radio app,
Apple Podcasts, or wherever you get your podcasts. Email your questions, comments,
(17:44):
or suggestions for the show to Crypto at Bloomberg dot
net and you'll find us on Twitter at Crypto. The
supervising producer of Bloomberg Crypto is Vicky ver Galina. Our
senior producer is Janet Babin. Our producer is Mohammed Perup.
Our associated producers Osanam Sidiki and Moses and um dast
to wonder At is our engineer. Original music by Leo
(18:06):
sidron h
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