Welcome back everyone. I am Caspian Sea and I'm here as
usual with my partner in crime. Mr. Bennett Tomlin how are you
today? I'm doing pretty well Cass.
How are you? I'm doing good.
We're jumping around a little bit today.
There's a lot going on, but I think we've decided that today
it would be best if we talk about Solana and the Wormhole,
bridge problem that happened this past week.
So why don't you introduce everyone?
E12 exactly what happened in case.
They weren't paying attention to the hundreds of millions of
dollars in aetherium that vanished.
Yeah, first crypto is an absurd industry in which hundreds of
millions of dollars can get hacked ranking is one of the
like largest thefts of all time and people are just like, huh?
Yeah, I guess that happened. Let's back up.
A tri Wormhole is a cross. Chain intermediary, that allows
people to move assets from one blockchain to another recently.
Someone discovered a bug on the Solana, side of this, that
allowed them to mint, 120,000 rapt ether.
So these are ether on the Solana blockchain, the attacker, was
that able to bridge 80,000 of those back to etherium, and
withdraw, from Wormhole, gaining access to a teeth?
Thousand etherium and using the other 40,000 to trade against
various things on Solana. Yeah.
So that's the heck that occurred shortly.
A few etching several hours after this occurred, people on
Twitter started to notice it happened.
And then Sirtis or Sarita is the company behind Wormhole use
their deployed. Post a message, telling the
hacker that if they gave back the hundreds of millions of
dollars worth of a theory, Them. Then they would give them ten
million dollars. And how did that work out?
Well, I don't think the hacker gave it back.
My understanding is that jump crypto one of the larger Venture
Capital firms in the crypto Arena which was spun off.
Recently from jump. The major Commodities trading
firm in Chicago decided instead to bail out certus and Wormhole
because they had acquired it last August and they Have pretty
incredible, exposure to the Solana, ecosystem as a whole.
And we previously talked about jump crypto, I think, in the
episode with David Kanellis, you can hear us talk about the
tether papers. And in the tether papers jump is
named as one of the major mentors of tethers.
Yeah. At the time, they were 99% of
all tethers on Solana or something like that, which it
wouldn't surprise me. If that was still true, I
haven't looked at how many tethers are on Solano these
days, but I don't think it's gone up much.
That report has come out and if it has jump would have the war
chest to be the ones getting that much to Lana.
That's a lot of money though. 360 million dollars in aetherium
is just so much, so much money. It's an absurd amount of money.
Yeah. And and so to make that decision
to bail them out, almost instantly, I mean that that
decision happened not within 24 hours, I think that happened
within 12 hours of this hack. Something like that, something?
Yeah, yeah, like with it. Half a day somehow jump had
gotten together 120,000 etherium from somewhere, maybe from their
own War chest. Maybe they're taking out major
loans from other like, institutional, deaths, and
over-the-counter trading desks and were able to replace the
stolen aetherium in the protocol and in doing so helped.
Prevent cascading liquidations across the salon and defy
ecosystem, which really gets into why.
They did it right because well, that's that was going to be my
next question, which is like, so it had to be worth it for them
to bail this out for such a massive amount of money.
So quickly. This is, I mean, even for a
major crypto currency, trading desk, 325 million dollars, worth
of etherium is hard to come up with, at that quickly, or if it
is easy to come up with, should still give you pause about
spending it, but it doesn't seem like gave them much posit also.
Why is this so important jump? Crypto is one of the largest
liquidity providers in the Solana, ecosystem, like across
serum, mango markets, their investors in pith networks.
They obviously own searches, the Wormhole Bridge onto Solana and
they have pretty incredible exposure to the Solana,
ecosystem as a whole. And so my understanding of what
likely occurred is that jump, crypto did the math and realized
that three hundred million dollars was Than what they would
lose letting the market react to all the rapt ether or that much
rapt ether on Solana. Now, being unbanked they
expected to get liquidated across the protocols or to lose
too much in other things, they were exposed to and so filled
the Gap and Protected Their investment and you bring up
wrapped etherium. This is also, there's wrapped
Bitcoin, there's wrapped. I mean, there's all kinds of
wrapped tokens out there. In case anyone is wondering,
Ying and they're unfamiliar with these Concepts, the ideas that
you would. Let's say if you have a bunch of
aetherium and you would prefer to trade, let's say you have one
Bitcoin as well, you'd prefer to trade that one Bitcoin on
aetherium, based markets as opposed to bitcoin against
whatever you want to treat it as a wrapped Bitcoin on aetherium
chain. What you would essentially do is
take that one Bitcoin and more or less like steak it writes
take it on this. Have to fear IAM protocol.
Say like, Okay, so this one Bitcoin that I have is now
substituted on this wrapped protocol.
Is that right? Yeah, largely Bitcoins a little
bit different. Any of these cross chain things
get a little bit different because each chain is different.
So wrapped Bitcoin you deposit to a certain Bitcoin address and
then get to a certain etherium address your wrapped Bitcoin
right? For this one, you deposit, your
etherium in searches one Bridge, you get the rap.
D through which can then go over to Solana.
And so you're depositing your token in these smart contracts
and that's really what the bug that happened here was is there
was a smart contract bug on the salon aside that enabled
additional minting of The rapt. Ether token that results from
that bridge and what you're suggesting is that there's all
these trades happening with these wrapped tokens and that
the well and not just traits. Okay.
More importantly it Abused his collateral, right?
In all these different lending. Protocols are the various defy
protocols like think about like maker that right?
Foundationally, it's a lending protocol, you're putting up
collateral and getting a loan denominated in die, right?
And this idea expands much Beyond maker in the defy
ecosystem, Abracadabra. The one we talked about that
involved. Sifu and petrine is same, basic
idea as maker do but instead the collateral was, why aren't you
sdt rather? Than ether.
And so there's a whole bunch of protocols over on Solana that
were using rapt ether as collateral.
And that the value of that rapt ether suddenly effectively
plummeted because it was no longer backed by the expected
amount of ether, on the etherium side of the contract.
And so, it was, it's kind of like a stable quindi Peg.
When one of these wrapped assets gets hacked like this, the
market didn't really react that way, though.
If I'm recalling correctly, like, people were a little bit
concerned that this That there might be some issues with these
wrapped etherium, but then it's almost like the market knew that
jump was going to come in and just fully back this thing.
Yes, this, this was strange watching from the sidelines for
this and maybe there was more stuff for people deep in the
Solana, ecosystem, that I missed just because where I was sitting
on Twitter, but from what I could tell, it took several
hours for people to even realize the hack occurred.
Then afterwards, you're right rap, either only traded at a
very slight discount. And so my assumption there is
even if the market did not necessarily expect jump crypto
to step in that jump itself had decided it was worthwhile to
maintain the value of rapt ether until a decision was made or
whatever. And so if they're the major
liquidity provider, there's major major Market maker with
tons of cash on hand for them. Providing the liquidity at the
certain price point can be maintained for period while they
decide what they want to do. And so that's what I think was
happening. Opening in those hours.
Immediately after the heck, jump kept trading, rapt ether has if
it was fully backed and meanwhile, they were in
Communications internally and with their company certus, one
to decide, what was the best course of action?
This brings us to another interesting point which is that
aetherium, I guess co-founder vitalik butyrin recently did a
post like a week before this all happened where he was suggesting
that cross chain stuff Bridges. These bridges for moving.
Buying assets between cryptocurrencies, is not the
future and that this would open the ecosystem up to issues these
Bridges would present. So many new problems that
there's no way they could be reliably secure.
So weird timing, not, not suggesting not suggesting
anything nefarious. I think everyone's just kind of
like, wow, that is intense. And there is a big, obviously, a
big swath of the community whether it's jump.
Or other, you know, big names in cryptocurrency that believe
cross chain is the future of cryptocurrency of decentralized
Finance. Can we talk about?
Why people think it is the future?
But also why there are all these new security issues that just
present so many problems. Sure it was quite interesting
timing from metallic. What's interesting about this
though is that this was not a bridge specific hack, right?
Like this was a smart contract, but Buck and it's the type of
smart contract bug that a variety of smart contract could
have. And so this specific example,
really speaks more to the difficulties in producing.
Immutable censorship resistant coat, right.
Designing software. It is very common for there to
be bucks, but in defy, and in crypto, as a whole, the cost for
any bug, whatsoever, is extraordinarily High.
I think metallic was getting at, that does apply here.
Is that any time? You're trying to Trucked across
different chains with different security assumptions, different
differences at all. You are vastly increasing the
complexity of your application, no matter how simple, the thing
you're trying to do a cross chain, is doing it on two
chains, instead of one is likely to make your code in order of
magnitude more complex. And so, well, this was a smart
contract bug, which could have occurred in non Bridge things.
It's also true that the very process of Designing a bridge is
a process that like, designing, any Any complex piece of
software. It is extraordinarily difficult
to do without bugs. Now, you asked another question
that which is why or some of these people in crypto.
So interested in this multi chain cross in this cross chain
future, right? And I'm not sure why.
Because my initial instinct is that one of the we talked about
this a little bit with Oliver when he was on here.
One of the driving things for cryptocurrency adoption is the
network effect. You get more liquidity and one
chain. More activity on one chain and
it helps bring more liquidity and activity out of that chain
fracturing, that cross chain, seems less advantageous.
However, there are differences between the chains, right?
It's a lot cheaper to transact on Solana than aetherium and so
it might just be that there's search and trading activities
which are easier to do on the decentralized exchange is like
serum or mango markets instead. Of something like Yuna Swap.
And so by wrapping and bridging it over, these firms are able to
better execute their tactics or it could just be in.
This would be the more VC like claim that not every application
requires the same set of security assumptions.
And so for certain applications that do not require a certain
level of decentralization censorship resistance or
security, it may be cheaper to bridge the valuable asset from
that chain over to another chain and do the Reactions with it, in
the less secure, but cheaper place, I find most of the Cross
chain arguments, pretty unconvincing, but I'm pretty
skeptical. Just in general.
It does seem like a lot of it is Venture capitalists and hedge
funds that are very keen on this, that usually means that
there's a cost basis for their interest.
Clearly the cost basis for jump crypto is far greater than 325
million dollars. To support this cross Chain
Bridge. It's also so funny to me because
we had Daniel Goldman on who works on arbitrary mm-uh is a
layer 2 solution for transactions on etherium.
I have my own skeptical issues with layer choose in general,
which is that your there's so many steps involved already.
Once you've gotten to layer to that, hoping most people will be
able to understand it at all is a Big ask, but I'm sure people
said that about the internet to, right?
I'm sure there's comparisons. People could make that would be
apt and fair, but it's so funny that there's these cross Chain
Solutions that are being sponsored essentially by giant
trading firms and Venture capitalists, and then there's
arbitrament and, and lightning, which are also supported by VC
funds and stuff, but don't seem to get the same kind of
attention. One or traction.
It doesn't. I don't know if it's just like
the ability to monetize them or I don't know why, I don't know
why these are less focused on or if if they've failed.
Like I think lightning is generally considered a failure
of a network at this point, but I guess that'll be up for
debate. And people will probably tell me
how wrong I am. I guess it's being used in El
Salvador, right? I don't know.
I can tell you why, because VCS got into Solana early at a
really cheap price, and To benefit from the price
appreciation of Salon itself. Arbitrament has Daniel made
clear? When yours on our podcast does
not have a token and so yeah peace he's invested in the
company behind it and have Equity stakes in that company.
But that's somewhat harder to get exit liquidity on and it is
less clear that value Arbitron as a protocol derives will
accumulate to that company. And so in this speaks to One of
the troubling things for me about Solana is that so much of
the ecosystem. Seems deeply centralized.
And we've seen this, when the validators have had issues, and
we've had to watch them coordinate to try to figure out
how to reboot the network. We've seen this with the huge
amounts of VC money, which got funneled into Solana and how
much they control. We see evidence in it in the
fact that jump crypto is willing to blow.
Your million dollars to help protect the value of it because
they get nervous. And we saw it when the tether
papers came out and we saw that jump was responsible for
basically all the tether on Solana.
There is still a lot of protocols in crypto and defy
that claim decentralization. But have these huge vectors of
centralization inherent in them, which we've discussed this.
Also, I feel like we've discussed the idea that like,
you know, for some solutions centralization, just Makes sense
and that's not an issue. But then why bother having a
blockchain with seven validators or what like why bother why
bother pretend playing pretend anymore at that point?
It just seems like so so strange to me and I guess that goes to
the idea that these there's these buzzwords, there's
decentralization and blockchain, cryptocurrency token.
There's rich people who profit when the price goes up.
Yeah. But but getting It's getting
those rich people involved in your project to begin with
requires you to utilize these Buzz words in general, right?
Like we see that with when we talked about bit Cloud which is
now D, so decentralized, social media, so stupid but we have
seen this time and time again where they Fain decentralization
and Fain. All these hip crypto words.
When in reality it's just a giant cash.
Grab, I know you and I have friends who are like, very
bullish on Solana still, I think.
Think I wouldn't doubt that the VCS could fund that thing to the
Moon. They probably can.
I it's not it's not our project. So I just I can see I could see
them just going as hard as they have to to make it work.
And that that's fine. It just it just sucks.
That that money doesn't go to maybe some more interesting
projects that could benefit more people which I think may exist
in the space somewhere. I certainly think there's more
interesting projects out there perhaps the more Troubling
implication to me is that if these major firms like jump, who
have such massive exposure to Solana that they will,
immediately deploy, a third of a billion dollars to protect it.
That's potentially pretty massive war chest for lobbying,
for political donations. And for efforts to ensure that
these firms that have benefited from the growth of these, Calls
can continue to benefit. I don't think anyone's doubting
that there's a giant push right now from the cryptocurrency
industry to Lobby the hell out of US.
Congress and proposed the idea that if we don't just let all
this stuff happen we're going to get left behind which fine but
oil industry also does that and a lot of horrible Industries do
equally terrible things and get Congress to back them so that's
fine. You know whatever we've talked
about a lot of Things that I don't have any issue with when
it comes to crypto. It doesn't bother me that it's
gambling. It doesn't bother me that.
It's speculation. It doesn't a lot of this.
I don't take issue with it all. And I really don't take issue
with people wanting to gamble and wanting to speculate all of
that's fine. It Harkens back to that episode.
We did with David the tether papers where even if you feel
like the information gleaned from the tether papers is just
so basic or something. I think the important takeaway
becomes like look at whose trade.
Young against you and they are trading against you.
This is Jump backing this protocol at this rate because
they think it's more. It's going to save them more
money to do that than, if they let the market actually react
normally to it. And that means they're trading
against against retail, their trading against retail.
That's who they're trading against.
That's who all of these people are trading against their in it.
So you lose and if you know that going in, if you know that
you're you're playing against the casino and you're probably
going to lose. I think it's a much safer bet
for everybody involved. Yeah, exactly.
These firms are not your friend. The goal of all of these firms
Cumberland Alameda, three arrows Capital, jump, they exist to
make money. And the way they make money in
zero-sum environments is by someone else losing it and they
hope your that someone not you in particular but you is like a
category. Yeah, not them.
Hopefully that explains this to the best degree that we can.
I think everyone should just be aware, you know that these guys
have very, very obvious intentions and helping you is
not one of them. We're going to see how this
plays out. We're going to see what happens
with Wormhole. This isn't going to be decided
this week or next week or in a month, even probably like, this
is something that will play out over, who knows even years.
And maybe maybe these people who believe in Cross chain Bridges
or Maybe they are right, you never know.
But I'll tell you the the past few weeks with this magic
internet money stuff. And this Wormhole thing it feels
like for the first time in a while it's not even Regulators
or congress coming after the cryptocurrency space, it's just
the cryptocurrency space. It's like that Meme where the
guy is riding the bicycle and then he takes a stick and just
shoves it in his front wheel. That's what I think is happening
in decentralized finance and See right now, and then they're
like, falling on the floor bleeding in there, like damn you
government. And you're like, man, yeah, the
government is the one who introduced you to invest in the
protocol called Magic internet money.
Yeah. But yeah, so that's gonna do it
for us this week. We have some really fun news
coming out next week and I'm, I'm getting amped and excited.
I can't, I can't share more than that, but I know for a fact that
next week, we have some big news coming out and I'm very, very
excited for it. And I look forward to sharing it
with you guys soon. Stay tuned.
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