Thursday Mailbag: Is it cypherpunk to contribute crypto to bitcoin treasury companies?

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Q: Will you let Worldcoin scan your eyeballs?

Now that it’s finally available in the US, I will — enthusiastically. 

That might put me in the minority because Worldcoin has gotten a chilly reception in crypto circles, mostly because its eyeball-scanning orb looks like surveillance tech straight out of Minority Report.

But how else are you going to prove you’re human?

In the coming age of AI-generated fake news, deepfake videos, financial scams and fake job applicants, someone will need to store a proof that you’re human.

You will only have three options to choose from: a government, a corporation or a decentralized crypto protocol. 

Seems like an easy choice.

Vitalik has explained that “proof of personhood is valuable because it solves a lot of anti-spam and anti-concentration-of-power problems that many people have, in a way that avoids dependence on centralized authorities and reveals the minimal information possible.”

But even non-crypto people will likely agree that identity on the internet should be decentralized, sybil-resistant, provable and open source.

Last night, Sam Altman reassured us that Worldcoin’s technology was “a way to make sure humans remained central and special in a world where the internet had a lot of AI-driven content.”

Altman is admittedly proposing to solve a problem that he himself has created, but he’s right that proving unique humanness is about to become mission critical — and CAPTCHAs are not going to do it.

So far, Worldcoin is the only plausible solution for proof-of-personhood I’ve seen (or can even imagine, really) — and it proves that personhood in a most crypto-native way: by turning your iris scan into a hash and storing it on a decentralized blockchain.

It’s not even your full iris data that’s stored, just a mathematical representation of it that can be used to check for uniqueness.

Don’t we all want to be unique?

And anonymous?

Seems like something true crypto cypherpunks should embrace.

Q: Should stablecoins be allowed to pay interest?

I’d like to receive interest on mine, but paying interest turns stablecoins into narrow banks and there’s a reason why the Federal Reserve doesn’t give bank charters to narrow banks — the banking system is supposed to intermediate between savers and risk takers, not savers and the government. 

Narrow banks take money from savers and park it in risk-free T-bills and reverse repos, which is neither economically productive nor socially desirable. 

But banking has been getting more narrow ever since the introduction of money market funds in the 1970s (which Paul Volcker argued against as a dangerous kind of regulatory arbitrage).

And now, brokerages like Fidelity and Vanguard let you pay bills out of those high-yielding money market funds.

Seeing as that’s allowed, why not let stablecoins pay interest, too?

Seems intuitive enough, but Austin Campbell makes an even simpler case for why stablecoins should pay interest: “If you are banning interest payment on stablecoins, that interest doesn’t go away. It just goes into the pockets of corporate executives.”

The pockets at Tether HQ are particularly overflowing at the moment: Per their Q1 attestation released this morning, Tether’s owners paid themselves $2.347 billion last quarter.

That is quite the payday considering that Tether reportedly has as few as five owners — four top executives plus Cantor Fitzgerald who recently took a 5% stake (for reasons obviously unrelated to Tether’s non-existent need for capital).

The Cantor investment valued Tether at $12 billion, which means the owners just received a quarterly dividend of 19.5%. 

Tether’s operating profit for the quarter was just $1 billion, so the $2.3 billion dividend cuts into their “equity” buffer and they won’t be doing that every quarter. 

Still, though, 19.5%! 

You can see why Circle reportedly turned down an offer of $5 billion from Ripple this week.

Q: How is the president’s stablecoin doing?

Right. 

Another reason that Congress may prevent stablecoins from paying interest is that the president happens to own a stablecoin issuer.

On stage at Token 2049 today, it was announced that a $2 billion transaction between Binance and the state-backed Emirati investment firm MGX would be made in USD1, the Trump family stablecoin.

That represents about $80 million of annualized revenue going into the pockets of the issuer for as long as the money stays there.

“Virtually every detail of [the] announcement, made during a conference panel with Mr. Trump’s second-eldest son, contained a conflict of interest,” the New York Times reported. 

Ugh.

Q: What’s it mean when a SPAC trades at $50?

It means people are losing their minds again.

The SPAC mania of 2021 revealed what happens when price discovery is left to retail investors: Deals that would never have made it past the first IPO roadshow meeting were rapturously received as “SPACs.”

Special Purpose Acquisition Companies (SPACs) are publicly traded pools of capital created to acquire a private company and take it public — an alternative to the traditional IPO process.

SPAC shares are customarily issued at $10 per share and usually trade somewhere around that level while the managers of the SPAC go looking for a deal. 

After a deal is announced, SPAC shares will trade higher or lower depending on how the deal is perceived by investors. 

Roughly speaking, if a SPAC trades at $11 after announcing a deal, it means that investors expect their stake in that deal will instantly be worth 10% more than the money they’re contributing to it — a reasonable assumption to make.

In the 2021 mania, however, it became common for SPAC shares to trade at $20, $30 or more.

That wasn’t a reasonable assumption to make because it implied that the company the SPAC managers found to buy would be worth far more on the stock exchange than it was a private company.

They almost never were — few SPACs ended up justifying their $10 issue price, let alone the wildly inflated post-deal prices investors insisted on paying in 2021.

It’s hard for me to imagine that it will go any better for the investors currently paying $50 for the Cantor Equity Partners (CEP) SPAC.

Last week, CEP reached a deal with Tether and Softbank to form a new “bitcoin-native company,” Twenty One.

Like Strategy, Twenty One will basically just be a pile of bitcoin with Tether and Softbank’s ownership stake based on how much bitcoin they contribute to the pile.

Current holders of CEP will receive a 2.9% share of that pile in return for their $100 million pot of cash.

This makes the math very simple: Today’s $50 price of CEP implies that investors believe that $100 million of bitcoin is worth $500 million on the stock exchange.

That feels about as crazy as anything that happened in 2021 — which I never expected to see again.

Are we really letting Tether quintuple the value of its bitcoin like that?

Contributing our crypto to bitcoin treasury companies seems like approximately the least cypherpunk thing we could do.

But crypto people are just as excited about it as stock market people.

Number go up, I guess.

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