Citizen Journalism, Traditional Media, And The Rise Of On-Chain Analysis - Andrew Thurman

buddy my name's Andrew I'm from Johnson thanks for sticking through us with us for the technical difficulties I'm gonna be talking to you guys today a little bit about uh citizen journalism and the sudden rise in the sophistication of on-chain analytics that I've seen in the past two years both from the traditional media and their willingness to use on-chain data in their reporting but also um with retail Traders uh and and you know the the sudden awareness that in order to survive and thrive in these markets you really do need to be using analytical tools uh this was best seen during the collapse of FTX and Alameda and the rise of a very unique citizen journalism movement on Twitter and elsewhere um one place that best exemplifies uh the shift that I've seen in over time really in the past two years with people getting a lot better with on-chain analytics I think you can tell that story through one ethereum address in particular uh this is zero x0fa I think Veterans of the on-chain trenches will recognize this address just by sight this was at one point a very famous Alameda wallet um while it was never their largest wallet Alameda routinely had multiple wallets with a billion or more in assets this was one of their most active and their most successful um this had thousands and thousands hundreds of thousands of transactions over the course of its life um by uh our research at nonsense we found that this is the single most profitable address on the ethereum blockchain as measured uh by profit and lost in decentralized exchange trades uh this address was highly involved in a lot of Arbitrage trades they were involved in a lot of liquidity provision uh the early days of sushi swap in particular but in addition to these kind of programmatic and um uh sort of Market makery kind of stuff they were probably doing some Mev stuff on this address as well they were also engaged in a lot of Swing trading so uh Traders like me in 2021 2020 uh you could copy trade this wallet with a high degree of success they did a lot of Trades with sort of mid cap in terms of market cap tokens with high volatility uh they made a ton of money on chain link they made a ton of money on Sushi swap early in its life they had a non-negligible percentage of the total circulating Sushi Supply and um a lot of stuff with Lido as well um I had a chance though to talk with Alameda research CEO Sam Trabuco about this exact wallet however and um it gave me a lot of insight into I think how funds were thinking about analytics um even just two years ago I was working as a journalist at the time I was down in Miami for Bitcoin Miami interviewing SBF um I love this Photograph the universe was trying to tell us even back then there he is standing in front of Darth Vader and Stormtroopers we just we weren't listening we didn't get it um but after our interview he introduced me to Sam Trabuco um I told him that I was thinking about starting a blog or a newsletter or something where I'd track certain large funds and their Wallets on chain at the time on-chain analytics was still this kind of Niche industry it was still considered very crunchy it was only something that nerds did um and after I told Sam this and discussed a few wallets I might track with him uh he gave me one of those Classics Sam Trabuco Smiles you know the bad ones the Predator ones it's a smile you can feel in your spine it's not a good smile and uh he said um I can see why you'd think that would be useful I love that line uh uh I it revealed to me that there was this kind of blase arrogance and indifference that major funds like Alameda had um when they were thinking about on-chain analysis um you know this was June 2021 um just a few months beforehand Alameda very famously took 80 million dollars in a new projects token reef and after signing a angel uh investment agreement with them took those tokens sent them directly to binance and dumped them very very hard uh and this was the kind of stuff they were doing in tagged and known wallets but they felt confident enough doing it because there wasn't this broad wide community of people who were watching these kinds of transactions and calling out that sort of bad behavior they simply didn't care you funds were aware of the fact that people were tracking their wallets but they're they're there just wasn't enough the the there was enough complexity that they essentially had anonymity by virtue of that complexity nobody was willing to um look at these things and call them out in Mass you know Zach xpt didn't really exist yet that sort of thing um and in particular certain things uh uh like emptying out wallets once they had been identified um Sam told me they would just simply never bother with that it was too expensive nobody cared nobody cared that this stuff was public nobody cared that everybody could see it um a year later this is a profile from The Wall Street Journal um this was written by Alexander ospevich um I love it this is three months before the collapse of FTX and Alameda we're still doing like you know the the photos with him in the light instead of the photos with him in the shadows you know you can tell you can sort of track the uh whole Fiasco through those um but Alexander ospovic reached out to our firm nonsin to uh gather some data on this this was the first time really I had seen this um one of the really really big and well-respected financial Outlets was really getting serious about on-chain data so I told them about 0x0f um I said this is the single most profitable address on ethereum I think it's really interesting and it's an insight into how complex these guys are how wildly successful they are and um if you really dig deep here I bet you're going to find some interesting stuff four days later um that address was shut down in a series of 200 transactions across three blockchains um the single most profitable address ever on ethereum they emptied it out now this could be a coincidence I don't think so uh uh my thought is that the idea of the Wall Street Journal looking into somebody's a major funds blockchain address really put the fear of God in them and they cleared out that is a major shift from again that that sort of ambivalence and arrogance that the fund displayed even just a year before and I think there's going to be a whole lot more of that I think um you know you looked last week uh Forbes despite the fact that binance bought a huge stake in Forbes Forbes cut them in half with this wonderful report on how uh binance smart chains synthetic B tokens were not adequately backed throughout the entirety of its life this was sophisticated on-chain analytical work from a major mainstream Financial Outlet I really can't overstate how big of a change that is you know um aside from the Wall Street Journal like usually when people look to us for a quote I have to spend an hour explaining the difference between a centralized and a decentralized exchange I have to explain what a smart contract is I have to explain the principles of custody versus you know non-custodial wallets um and now for these major Outlets you know this this B token report it was really remarkable and a lot of it came from the analytics firm elliptic um but a lot of it came from in-house research and we're seeing this with other outlets as well Bloomberg now has a dedicated crypto team they poached a lot of my former colleagues at coindesk they're really Staffing they're spending the money on it um Jeff John Roberts who worked at Fortune was fired because he was too interested in crypto went over to work at decrypt and now fortune has hired him back and he's being allowed to build out a full staff these these Outlets are realizing that you need to spend the resources and you need to um get the access and you need to get the expertise in order to really cover this industry um I it's again I really cannot overstate how dramatic that shift has been in merely 18 months um mainstream media isn't the only place where I'm seeing this increase in sophistication however uh during the collapse of FTX and Alameda um we had this big we called it citizen journalism you know everybody probably knows FBI Fanboy every part of he probably knows autism Capital who are sort of taking in all of these rumors and spitting them back out that's not the stuff that interests me um what I saw instead were a lot of amateur uh blockchain sleuths of varying degrees of skill finding and amplifying key blockchain information that other people would then pick up on and iterate on and um this this consistently led the story much faster than mainstream or even crypto native Outlets uh in one example here um two days this was November 6th so two days before FTX halted withdrawals um spreak who's a great follow uh was tracking how many stable coins FTX actually had left on The Exchange we were watching things like Alameda withdraw coins from farming protocols and depositing on FTX just to be able to honor withdrawals this obviously added to the Panic it accelerated the um uh the bank run and this kind of information was really crucial to some people getting ahead and managing to stay alive during all those blow-ups um there was a lot of this I'm going to point out one of mine though because I'm vain as well similarly a few days later after the withdrawals had been halted um I called attention to um bahaman residents um being able to process withdrawals and now I imagine that uh the clawbacks from those withdrawals in that period um are going to be uh pretty significant for um the bankruptcy proceedings um again I I I think this is a significant change in how on-chain analytics used to be perceived uh there was a time when it was for the Nerds it was very crunchy it was perceived to be difficult and now even you know nft dgns they know how to navigate etherscan most people have a subscription to one or more analytical services like nonsense and this has significant impact I think for the way institutions and influencers and anybody with any significant amount of money on chain is going to begin to conduct themselves um when retail you know it's it's become a sub-genre of content hasn't it sleuthing Zac xpt does great work but there are many shades and shadows and half versions of him who get hundreds of thousands of followers doing um just little investigative things on chain um and similarly we we see the same thing in the media these large professionalized teams and a willingness to single out entities and explicitly tie blockchain addresses to individuals or institutions there's no precedent for that and even for five years ago the first time ethereum was mentioned in the New York Times it was misspelled there was an eye instead of the Third ethereum think about now Bloomberg has a full crypto team and that happened in five years that is extraordinary to me this also means however that the work of on-chain analysis is going to get infinitely harder um there are a few exceptions I think you know you think about golden tree a few weeks I think a month at this point back they announced the big investment in sushi and they sort of tagged their own wallet to demonstrate that they had those Holdings on chain it was an Institutional show of confidence in the asset and it succeeded in pumping the price of that asset so there are individuals and I think it's going to be the same trend for nft influencers people are going to want to show their histories and show that they're proficient in flipping these assets but unless you're you know very purposely doxing yourself if you you know want to display Cloud unless you want to uh Psy off some people there's no reason for you to be public um and as a result I think we're going to see more and more addresses high profile addresses clear out clean out uh like the Alameda 0x0f wallet did um and it's going to be very easy for a few people to do this too centralized exchanges effectively work as um mixers it's you know very similar to how tornado cash works when you're actually looking at it on chain you send assets to a big pool hi Danny and um you wind up uh pulling those assets out of that pool later that's what it looks like uh when you deposit into a centralized exchange from an analytics perspective um and so washing and anonymizing is extraordinarily easy and what this ultimately means is that the overall amount of funds from institutions and influencers is going to trend down and I don't see any reason why that would stop or change the work of analytics is going to fundamentally get harder and it is going to be a lesson exercise of attempting to tie addresses to individuals and institutions and instead work centered on um trying to find uh the absolute highest value um addresses despite not necessarily knowing who they are I want to give you two examples of this um I have heavy LSD bags I'm a big Lido bag holder and so I'm using our platform to check on Lido a lot um here we have uh fresh wallets for token these are wallets that have been started in the last 15 days they have no prior history on ethereum and they have significant inflows so the first one I'm looking at is this fresh wallet that has inflows of 44 million dollars and has a token balance of 34 million dollars as a bag holder I want to know who that person is that's very important to me in my position are they going to dump on me um but looking at the wallet it takes two clicks you can see a transfer from you can see a transfer from dragonfly Capital um well-known VC outfit uh they're transferring the 14 million tokens we know that this is dragonfly they're just moving it to a new dress for whatever reason this is what analytics used to look like you click three buttons and you you know with a reasonable degree of certainty who somebody is and what they're doing with their funds and why that's going to get much much harder um let's look at that second address that's six million 6.4 million inflow I want to know everything about this guy this this address was started February 24th he's uh got 130 million dollars on chain massive address massive wallet uh sent a millionaire and he's holding multiple uh assets that I care about in addition to Lido he has Frack shares and other LSD play um he has 81 million dollars in usdc I want to know uh uh if this guy is going to dump his Lido and his fractures because uh you know those are not high liquidity assets and if you dump in an inefficient or very fast manner like I'm gonna be seeing a lot of red candles and I'll be upset with you um but I also want to know if you're buying things if you have 81 million dollars in dry powder I like I really want to know this person I I want to take him out to dinner I want to learn their hopes and dreams I want to be in this person's head uh this is an important wallet to me and my Holdings um I'm also just interested who's who spins up a wallet a week ago and then puts 130 million in assets on it that's insane to me um we look at their counterparties there's not a lot of Clues with the last wallet that um 44 million dollar inflow two clicks we could see a connection to dragonfly we knew it was dragonfly here the only counterparties we see are primarily centralized exchanges whether conscious conscious consciously or not this guy used centralized exchanges as a mixer and now he has a massive wallet from you know multiple different exchanges holding a bunch of assets and nobody has any idea who he is however uh you can still if you get a little nitty-gritty dig down a little bit deeper and find out who this guy is so um for his Frack shares he received a half million dollars uh sorry a half million tokens from copper which is an institutionalized trading platform and 318 000 tokens from binance 14. copper is the interesting one in particular copper is not heavily used it tends to be only used by certain hedge funds we can use that in the second picture I'm looking at the top transactions for the past two weeks where people are sending fxs fract shares to copper and indeed um this wallet that I want to learn more about they withdrew a half million tokens on February 28th and here we can see that another address deposited a half million tokens to Copper on February 27th looking at that address um once again at the bottom we look at their counterparties and we do find a dragonfly Capital address we now have within reasonable certainty um a pretty good idea that uh uh the the holder of that 130 million dollar wallet is dragonfly capital excites me I love knowing that kind of stuff I'm I'm you know the only person me and my 40 or so closest friends here no um one of the largest Holdings of some pretty significant assets on chain um that's because I was willing to do the legwork this is not uh uh one thing I'd note is that this is not an identification this is one I did personally that's not nonsense labeling and I'm not sure if our attributions team would accept it there's too much Reasonable Doubt there you know we could look at the other exchange deposits and maybe put together a more compelling case but it's really inference there is an outside chance that on February 27th somebody deposited at half Milling tokens and on February 28th somebody different withdrew a half million tokens um so they might not accept it I I know within a reasonable degree of certainty who it is though um and that's good that means that you know I can look at what they're saying in the Dow forms I can watch what they're saying on Twitter and I can match that up with their on-chain activity that is the definition of alpha that is hugely important information for me and my Holdings um and I think this is an example of how the institutional security and privacy posture is going to improve but you just need to do a little bit of extra legwork to stay ahead of these folks I think funds have much more important things to do like making money than uh to make sure that every on-chain analyst in the world isn't following their every move um so they'll do they'll take token steps like using centralized exchanges as mixers to try and cover their tracks but you can use more complex Tools in turn to stay ahead of it this ultimately means that Alpha is going to become a little bit harder to find because they're making it they're they're not going to make it easy for you anymore to identify them but if you're willing to do that work arguably the alpha becomes even more potent more tradable more actionable um this still means that labels are important you know it's going to be less you label oh every label we see is dragonfly Capital um but labels are still going to have a place they're just going to become Behavior based and time-based uh for instance we recently expanded our coverage of the arbitrum chain uh will not surprise you to learn anybody here who's interested in civil attacks that the majority of the new Wallets on arbitrum um they have a very short life they're not connected to a known entity on ethereum um only very rarely in the case of again certain nft Traders can you tie those addresses to particular entities um but you can tag them based on behavior for instance uh participants in the Trident Dow public sale this guy bought a hundred thousand dollars worth of these tokens and they quadrupled a few days later um either this is somebody who knew something or they're a degenerate that walks in the light of God herself and either way I want to know who they are and what that wallet's up to from now on so even though we don't know who specifically this person is we know that they are someone or we know that they are very good and we want to keep following them so having these types of labels behavior-based labels remain important in a world where you have less named and institutional labels um so to sum up though I think retail and media are now thoroughly on chain literate this means that investor Behavior at the institutional level and at the large scale level um influencers who have significant funds for instance they're going to be covering their tracks significantly better um for those who are willing to do the work though to really go deep on platforms like nonsense and use the more exotic tools you're still going to be able to keep up with them and you're still going to be able to find them uh and that's going to make all the money you can make doing so all the better um and ultimately I think a lot of sort of labeling and analytics companies that are focused on this notion of unmasking or uncovering what each address is tied to they're going down the wrong route we need more um time and behavior-based labels and potentially even using tools like AI to connect wallets that have similar behaviors but no clear links between them uh that's all I got and I understand we're running a little over so thank you very much