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Off Chain 5-18-21: Steady Lads… Tether is Deploying More Capital
292 Plays1 year ago
In this week's episode of the podcast, we cover the following stories:
- Tether Says It Will Buy Bitcoin for Stablecoin Reserves
- Has Ledger just destroyed its reputation?
- Axie Infinity: Origins app is launching on the App Store
Recommended![CBDCs: The [Dark] Future of Money (Part 2 of 2) image](https://media.zencastr.com/cdn-cgi/image/width=112,quality=85/image-files/61fc0461fb20e00040aeb09e/5b9f1396-2a8e-418d-82a0-30fd00969266.jpg)
Transcript
Introduction and Casual Banter
00:00:12
Speaker
Hello and welcome to the Decrypting Crypto Podcast. It's May 18th, and this is Off Chain, your weekly recap of the biggest stories in Web3. I'm Matthew Housebarbie, and as always, I'm here with Austin Knight. How you doing, Austin? I'm doing good, Matt. I'm still in Brazil. I will admit I'm a bit fatter slash heavier than I was last time we spoke. That's good. That's a good thing, I imagine. It means you're having a nice time, which is great.
00:00:40
Speaker
Yes, yes. The bill will come due when I go back home. Well, godspeed sir. Hopefully you can pay that bill. May take a few months. Yeah, exactly.
00:00:55
Speaker
Yeah, we got some beautiful Brazilian sunshine over in London.
Episode Overview: Key Topics
00:01:00
Speaker
It's been a beautiful weather. So yeah, it's feeling very Mediterranean actually over here for probably today. It's going to probably start raining midway through this recording now.
00:01:13
Speaker
We've got a lot to dig into today. We're going to do a bit of a quick fire episode. We're going to talk about ledger hardware wallets. If you own one, close your eyes, cover your ears maybe. But we are, we're going to be digging into some drama surrounding them. Our favorite stablecoin issuer, Teva, is up to some interesting tactics. Taking a leaf out of the Terra playbook, it would seem.
00:01:39
Speaker
And then we're going to be talking about some pretty exciting news, I think, for Web3 gaming in general, which we haven't talked about for quite some time. So let's dive into our first story of the day. The big
Ledger Recover Controversy
00:02:00
Speaker
question here is, has Ledger, the hardware wallet manufacturer, just kind of blew up its reputation?
00:02:08
Speaker
This is a real tricky one. I keep going back and forth on this and I'll caveat before we even dig into this story that I am a big Ledger user. I literally own six Ledger hardware wallets.
00:02:27
Speaker
So, you know, it's a little bit sensitive. I also do, maybe I go a little bit over the top with my security here, but yeah, I have a lot of wallets. But yeah, so this is not the news I wanted to hear. I've still got my pre-order of the new Ledger Stacks on this one as well, so we can just do that with Evan at this point. So,
00:02:51
Speaker
What it is ultimately, the leading hardware wallet company, Ledger, announced on Tuesday, they'll be rolling out a new service called Ledger Recover.
00:03:01
Speaker
Good news, great, sure. Tell me more about it, Ledger. Well, this service, which I'll call out is opt-in, it enables users to have their seed phrase broken into three encrypted shards and Ledger sends those to external secure storage companies and they're all encrypted, right? No part of your seed phrase is exposed during all this. And the idea here is that you will have a recovery option in the event of losing
00:03:31
Speaker
your seed phrase. I also kind of like this as an idea, like an abstract point of view, as an idea for, you know, the whole classic issue of like what happens if you get hit by a bus tomorrow and who's going to actually be able to figure out how the hell they get to your crypto. I was thinking, okay, that's kind of nice, but better than like a multi-sig type setup. But this is all part of Ledger's plan to onboard non-crypto natives, bring the masses to crypto. And I think it's
00:04:02
Speaker
Really, the kind of crux of this is like, it's going to give individuals added peace of mind. For those of us that have been in the crypto space for a long time now, self custody is the heart of everything we do. Self custody scares the hell out of most people. I mean, it still scares the hell out of me. And I think this has very much backfired with that existing user base of ledgers. And so
00:04:32
Speaker
We'll kind of get into why. I will say the Ledger team has not been doing themselves any favors. I'm not sure if you've seen, like, listened in on any of the Twitter spaces, but so the Ledger team in particular, their CEO, along with the CTO, but CEO, wow, he
Security Concerns and Ledger CEO's Response
00:04:50
Speaker
has been on the defensive. He was in a Twitter spaces on Tuesday evening. I tuned into this, right?
00:04:54
Speaker
And he basically says, he invited all ledger customers to stop using ledger if they, I quote, do not like the service. It was like, yeah, it was a bit of like yikes, you know, like the PR team were probably dying inside when that one, when that line dropped. The crux of the concern from users is that
00:05:21
Speaker
Regardless of whether you opt-in, I mentioned this is an opt-in service, there is a really deep concern that this has allowed for a backdoor exploit to exist in the device. And it's worth noting here that the concern here is that this has always been there, despite claims consistently over the years that your seed phrase never leaves the ledger.
00:05:46
Speaker
I kind of chip the larger wall that's that's the big one right i mean that's the thing that really freaked me out when i was reading about this is like oh wow this is a huge violation of a large amount of trust that i put into this brand and its products right yeah because
00:06:06
Speaker
The important thing about all this, if they'd just launched a new wallet, and it was called the Ledger Recover Wallet or whatever, and it had this built into it, and you knew that was what it was, there would not be hysteria around this. The problem is, this new service, Ledger Recover, it's backwards compatible with
00:06:27
Speaker
So far, existing Ledger Nano X devices. Glad that's the majority of the ledgers that I own. All it takes is a simple firmware upgrade. So if this can be done with a firmware upgrade, it was always possible. That is almost the definition of what a honeypot or backdoor is. So the CTO.
00:06:57
Speaker
Charles, oh my goodness me, I'm not going to pronounce his name correctly, he's French, Gilles-May, I'm going to say, that's what we'll go for. So Charles Gilles-May said that, I quote, there is no back door for anyone, neither us, a provider or even a very gifted hacker to access it. This quote
00:07:19
Speaker
I feel is going to be a meme in the future state when the ledger devices are exploited at some point in time. And I saw this morning actually that the ledger support Twitter actually completely contradicted this. And I actually don't have the tweet on me anymore, but I'm sure you'd be able to kind of see it at some point.
00:07:46
Speaker
where they basically said like, look, this has always been a possibility. It's just we decided that we would not enable it. So it's just, you know, it's a bit of a dumpster fire there in terms of the comms team. And, you know, lots of people on crypto Twitter had suggested that ledger actually just create a new product that's exclusively used with ledger recover, but that
Balancing User Onboarding and Security
00:08:10
Speaker
they are uncompromising this uncompromising on it. So
00:08:14
Speaker
It's worth calling out on top of that that Ledger, not that long ago, raised a pretty big round of funding. I think it was a round about the $100 million mark and this is clearly about them going after the masses.
00:08:30
Speaker
The challenge that Ledger faces, along with, to be honest, any wallet and anyone in the business of crypto security, is they are trying to pursue their mission to onboard non-crypto natives, onboard the masses, without compromising their security. And the thing that kind of worries me here is when we zoom out a little bit, Austin, and we get away from just Ledger,
00:09:00
Speaker
these two things seems to be at odds with one another. And it's really, really challenging to solve some of this. My personal feeling after spending a bit of time thinking about this is I'm actually not that worried. I still think that this is more secure than many other options, right? It's like categorically more secure than
00:09:21
Speaker
just a hot wallet in your manner mask. Paper wallets, yes, but my goodness, they're a pain in the ass. I lived using exclusively paper wallets up until around about 2019. And it's just a giant pain in the ass. And there's downsides to how you create them in the first place, stuff like that with the wallet generators and stuff.
00:09:48
Speaker
It just seems like there's no great options. I guess we're just going to have to store them on centralized exchanges. Is that the answer? Well, I don't think that's the answer, but yeah, to your point, Matt, I can empathize with the Ledger team to an extent here, at least to the extent of the challenge that they're up against and how legitimate that challenge really is and how much it's something that is not really just theirs to bear, which is to say that if we want this to become
00:10:17
Speaker
a legitimately adopted, broadly adopted and used piece of technology. We're talking about, you know, cryptocurrency in this case. It does have to be accessible. And the reality is that this isn't unique to crypto. Any form of technology is going to exist on a gradient of security plus inaccessibility versus
00:10:43
Speaker
you know, risk plus accessibility, right? Or convenience or however you want to put it. And the question is, where do you feel that you want to sit on that gradient? And where does someone else feel that they need to sit on that gradient? Depending on your, you know, tech, tech savviness or ability, you may be more to the side of, I want higher security at the expense of lower accessibility because I'm more comfortable with figuring out
00:11:12
Speaker
how to access something and manage something entirely on my own. And let's be real here, also take on the very real risk that I screw that up, right? There is risk on that sort of more air quotes, secure side of the gradient, which you could argue is like maybe even more substantial risk than some type of external attack.
00:11:32
Speaker
I know that's not a very popular thing to say, but I agree with you. I actually do agree with you. And yeah, like some people will say that's a hot take, but I do agree with you there. I don't trust myself anywhere near as much as I trust maybe some other companies to kind of manage this. I like make routine mistakes in general security all the time. And yeah, I think that's kind of the trade off. I think the problem in all of this is actually
00:12:02
Speaker
not really even the recover product. I actually think the recover product is a great idea. I think it's a great idea. I think the problem is this has been baked into all of the existing products. And as Ledger customer, like for myself, I feel lied to and it's just damaged a lot of their good will. I think a lot of people have been touting kind of moving to Tresor
00:12:30
Speaker
My initial worry was like, well, if Ledger are doing this, maybe a lot of others are doing it. Trezor are open source. So if you are looking for alternatives, Trezor are open source. The pro argument there is, well, because they're open source, unlike Ledger being a black box, you would be able to see. And we would be able to understand and see, which I'm sure people are sleuthing through the code right now, whether they have something like this built into it.
00:13:00
Speaker
Yeah, it's still, it's still not perfect. I think this is going to be an ongoing saga and it's, I don't know how well they're going to recover from this. I guess they're totally right that they're going to go after new customers. Yeah, exactly. That's what they're trying to do here. I think that you're totally right though, that this is a huge product strategy blunder. Um, whoever is the PM or group of PMs that, that came up with a backwards compatibility idea. I really think that.
00:13:30
Speaker
they're probably going to be under the microscope right now because fundamentally, at least from my point of view, if you're going after non-crypto natives, I don't see why
00:13:42
Speaker
backwards compatibility would play into that strategy at all. And in fact, I would view ledger recover as not only something that you could offer and a new product to go after non crypto natives, but actually maybe as a selling point for an entire new product or product line that would be marketed more to the masses while at the same time not putting at risk the contract
00:14:09
Speaker
That you have, you know, from my point of view, it's like, it's this implied contract or in some ways explicit contract. I was going to say, it's not even implied, right? This is, this is explicit in, in many respects, um, this contract of trust that you have with your existing, you know, ledger nano X users. Um, that's, that's something that I really think is paramount here. And also, I mean, let's be real. The, even though, um,
00:14:37
Speaker
your sort of crypto natives and your early adopters may not represent the largest market share in the grand scheme of things. If you were to go after non crypto natives, they do represent tastemakers. And a lot of the time the broad adoption will follow from sort of recommendations or points of view.
00:14:56
Speaker
that you're more tech savvy users have. And so far, Ledger has really, really done a good job of earning that critical group's trust. And that is where I think the problem lies for them here is that by kind of deprioritizing that group in search of a much larger market share, I think they've really taken a huge hit to their brand. I don't know how long it'll stick. That's going to be the interesting thing to watch. I agree.
00:15:27
Speaker
You know, the equivalent that I would compare this to is I look at Ledger and I think, you know, these are the apple of the kind of crypto hardware space and they're pivoting to becoming the meta, right? And, you know, it's like they're two different crowds and different brands in many different ways, but we'll have to see how they kind of rebound from this.
00:15:53
Speaker
I don't see them pulling back on the product anytime soon. And I think it's way past that at this point. They basically have to double down now. So we'll see. Well, from that bombshell to another, let's jump into our second story of the day.
Tether's Bitcoin Strategy
00:16:10
Speaker
Tether is saying that it will buy Bitcoin for its stablecoin reserves. That's right. Steady lads. Steady lads.
00:16:20
Speaker
Yes, you'll love to see it. So yeah, starting this month, Tether is going to begin regularly buying Bitcoin for its stablecoin reserves. They're saying that they plan to allocate 15% of their realized profits from their investments to this. This excludes any unrealized price appreciation on reserve assets, but they will add the Bitcoin tokens to the reserve surplus that they have, and they will actually be custody-ing
00:16:48
Speaker
this Bitcoin on their own without using any third-party custodians. Why is this a big deal? Well, Tether is currently the largest stablecoin. They've issued $82 billion in USDT. They hold $1.5 billion of Bitcoin already in reserves, and $3.4 billion of gold in reserves, huge reserves. I didn't know that. Yeah, yeah. Well, that actually just came to light very recently, sort of as part of this
00:17:19
Speaker
same announcement, and 85% of their reserves are held in cash and cash-like assets such as U.S. Treasury bonds. So this growth of investment in BTC and using it for reserves is obviously a big move for them. USDT's circulation has grown 24% this year amid the crisis with Circle's USDC and the banking collapses and everything like that.
00:17:48
Speaker
A lot of that sort of money has flooded over to Tether. And yeah, what they're trying to do here, according to them, is strengthen and diversify their stablecoin reserves while capitalizing on the price appreciation from their investments here. What do you think of this, Matt?
00:18:07
Speaker
Well, I have a couple of views here, so I'll start with the good parts of this. I think the good piece is that their plan is to allocate kind of 50% of their realized profits, right, from investments. So they're excluding any unrealized kind of like appreciation. So we're not saying, okay, 15% of all of the reserves backing Tether are Bitcoin. That's really bad. That's actually what
00:18:37
Speaker
Terror did right and you know then you've got huge market risk exposure and where you can kind of create downward cycles and one ever doesn't equal one dollar at that point and what I what I appreciate as well is you know it's really really hard to hold
00:18:58
Speaker
enough backing in cash and cash assets to the tone of $82 billion. Sometimes it baffles me when people just don't realize, you can't actually hold $82 billion in cash. There's another thing. You can barely hold a billion. These largely are short duration treasury bills.
00:19:26
Speaker
Even like max probably 30 day treasury bills. You can't even be doing a lot of like long duration stuff. Otherwise you end up getting into, you know, like an SVP situation. Now,
00:19:40
Speaker
So here's the thing I don't like. Let's just cut to the chase. This is not about strengthening and diversifying the stablecoin reserves. This is a pure profit making activity. And what do I not want from the foundation and bedrock of
00:19:59
Speaker
crypto, which like it or not is Tether, right? Tether goes down. Whoa, that is a really, really bad, bad day. It would be the most catastrophic event that we had ever seen in crypto. I'm not saying that that is going to happen just to be very, very clear. But
00:20:18
Speaker
What I am saying is I just would rather that company not be so focused on operating like an investment fund and much more just like a stable bank. So I think there's like a few pieces in there. I don't love this. I don't hate it. If they pump my Bitcoin bags, I will like it periodically. But you know, it's I don't know. I just
00:20:48
Speaker
I guess I have a healthy skepticism that what I'm being told is not what's actually truly happening. Um, and I just want to make sure that whatever is kind of happened here with that, there should just be a lot more oversight. And with Trevor, it is a bit of a black box. So I'm just more than anything nervous, not necessarily about the facts that they're telling us, but whether those are truly the facts. Yeah. It's I totally agree. This is one to, to definitely keep an eye on.
00:21:18
Speaker
Anyway, from the world of stablecoins over to the world of Web3 games, let's talk about Axie Infinity up next.
Apple Embraces Web3 Gaming?
00:21:30
Speaker
So we talked quite a lot about Web3 Gaming over the past year, but it's been quite a while. It's been a tough time to be in the Web3 Gaming space. I knew that myself and my time spent in there. And one of the big challenges, and we talked about this in the broader NFT situation, is the App Store.
00:21:50
Speaker
We saw this with Coinbase's app getting kind of like rejected inside the app store, them not being able to do like facilitating NFT trades and Apple just not budging on this well.
00:22:05
Speaker
Apple, in all honesty, a very surprising move. A couple of days ago, accepted Axie Infinity, who are definitely the largest native Web3 game. Their new Origins game, which is kind of like a trading card style game, which uses NFTs within the game, and they have allowed it to come in onto the App Store. It's going to initially launch in what is actually Axie's key markets, a few different regions in LATAM and Asia.
00:22:35
Speaker
I think this, personally, is a big step forward for Web3 Gaming. I tweeted about this yesterday or the day before, and everyone was very excited. But largely, Web3 Games have been blocked from entering the App Store.
00:22:54
Speaker
transaction-focused apps completely blocked from the App Store. And I think this could point to a slow shift in approach from Apple around crypto as a whole. And I think if Axi manages to drive some wider adoption via their app, which I would envision they would, it could turn out to honestly be one of the best crypto comeback stories we've had to date, considering
00:23:21
Speaker
It was actually only last year that they suffered that $625 million exploit of the bridge on their Ronin blockchain, which I remember we were doing the episode and we were like, well, Axie's dead. That's it. It was monumental and in the midst of existing chaos as well.
00:23:45
Speaker
I'm excited. I think it's going to be really exciting to see if this creates some hype around Web3 gaming in the short term. I would love to see that. I know personally so many great teams building and have continued to build exciting experiences that I really do see as being the
00:24:04
Speaker
kind of gateway drug into into web three, in the positive sense, for many people, and gives people a reason to start kind of playing around without just needing to focus on financial derivatives, etc, etc. So I feel positive about this, it feels like a step in the right direction. We'll see if Apple brings back brings down the hammer though, right?
00:24:28
Speaker
Yeah, yeah, I totally agree, though.
Apple's Vetting Process for Web3 Games
00:24:30
Speaker
I mean, I think that this is a really positive sign, especially for it to be happening outside of a hype cycle indicates that Apple is thinking about this in a sober minded way, which, of course, they're very good at doing very, very, very conservative company. Right. So to to get their blessing to be in the app store, I have to imagine that Apple has spent quite a lot of time sort of combing through the app.
00:24:58
Speaker
working with the team directly, right? Something big like this. It's not something that sort of just goes through automated processes with, you know, a few like QA and compliance checkers and things like that. This is, yeah, I would surmise that this is going actually up to executive level approvals, right? Because it's such a big deal. So
00:25:19
Speaker
That's a positive sign. And if we're able to see more of this, more Web3 games and related apps making their way into the App Store, obviously, that's going to increase mainstream adoption. But it also might put some positive incentive loops into place to be a good actor in the space and also for traditional tech to find itself more involved, et cetera, et cetera.
00:25:48
Speaker
Completely agree. I think we'll, I'm going to start kind of pulse checking the sentiment around the Web3 gaming space and see if people are going to start shifting their approach to going a bit more towards the app store. And we'll see if we can get some guests on to talk a little bit about it in the coming weeks. But until then, Austin, I will see you next week for another wonderful episode of Decrypt Encrypted. See you then, Matt. Talk to you then, Matt.
00:26:33
Speaker
The contents of the Decrypting Crypto podcast should not be used and are not intended as investment advice. Please do your own due diligence before making any investment, cryptocurrency or otherwise.