The Pomp Podcast - #1286 Qiao Wang | Crypto Analyst Reveals His Big Bets for 2024

Episode Date: December 20, 2023

Qiao Wang is the Founding Member of Alliance DAO & Messari. In this conversation, we talk about speculation with VC's vs crypto users, degens & early adopters, the decentralized utopia, Coinbase's brand new blockchain, stablecoins vs bitcoin in Friedrich Hayek's vision, artificial intelligence, and more. ======================= Auradine, a leader in web infrastructure solutions including blockchain, AI, and privacy, has unveiled the world's first 4nm Bitcoin mining systems, featuring breakthrough EnergyTune™ technology, setting new standards in performance and energy efficiency. The Teraflux™ product line from Auradine offers best-in-class performance, efficiency, and total cost of ownership (TCO), positioning it as the optimal choice for Bitcoin mining needs. With EnergyTune™, a patent-pending technology, Auradine's Teraflux™ systems enable rapid demand response and optimal energy usage, fostering a symbiotic relationship with electrical grids, and contributing to sustainable energy practices. Designed and manufactured in the US, Auradine's Teraflux™ product line not only ensures cutting-edge technology but also mitigates supply chain risks and provides increased supply chain resiliency. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.auradine.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ for more information the Teraflux bitcoin mining systems. ======================= Cal.com is leading the charge of scheduling platforms in the open-source sphere, offering you the chance to harness the efficiency previously reserved for elite corporations and tech gurus. That's right, Cal.com is transforming sophisticated calendar management into an accessible tool for all via a user-friendly interface. Discover how countless users are optimizing their time in unprecedented ways. Use code “POMP” for $500 off when you set your team up with Cal.com. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Chao Wang is the founding member of AllianceDAO and also a founding member of Masari. He is constantly one of the most interesting voices and has some of the most thought-provoking comments on Twitter. And so I'm really excited for

you all to listen to this conversation. In it, we talk about speculation as the most contrarian idea among crypto VCs get the most consensus idea among crypto users. Degens, how they are synonymous with early adopters, the decentralized utopia, the base Coinbase's brand new blockchain that is becoming the default chain for regulated DeFi. Then we even go as far as to start talking about Frederick Hayek, the Austrian economic, and how stablecoins come much closer to his vision than Bitcoin maybe. Stablecoins also are exploding in popularity across Africa. Then we also cover artificial intelligence and crypto. Chow has plenty of thoughts that will make you think more critically about the space, and also where you may potentially deploy dollars.

Very excited to get feedback on this episode. So here's my conversation with Chao Wang. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. This episode is brought to you by Aridon. They are a brand new startup led by a number of Silicon Valley legends who just raised $81 million to build the future of internet infrastructure. You're probably wondering what that means. Let

me explain. There are numerous new disruptive technologies that are being adopted simultaneously from blockchain to artificial intelligence to zero-knowledge technologies. In order to ensure that these technologies thrive in this new world, we need new infrastructure, and that is where Ardine comes in. They just launched their first product line called Teraflux, which is a Bitcoin miner powered by the world's first 4-nanometer silicon chip technology. These air-cooled, single-phase and dual-phase immersion cooling miners have unrivaled speed and efficiency.

They have superior uptime, and they leverage a brand new innovation called EnergyTune that allows miners to dynamically adjust the energy consumption and Bitcoin hash rate based on demand response needs of the electrical grids. Auradine is an ambitious company working on hard problems. I'm really impressed with them. And if you want to check out more, you can go to Auradine.com. That's A-U-R-A-D-I-N-E dot com. Go check them out at Auradine.com today. this episode is brought to you by cal.com what do i have in common with chad hurley from youtube toby from shopify and alexis from 776 and the co-founder of reddit we all use cal.com instead

of calendly and we are all early investors as well cal.com is leading the charge of scheduling platforms in the open source sphere offering you the chance to harness the efficiency previously reserved for elite corporations and tech gurus. If you like to have your calendar organized and be able to have an efficient exchange when scheduling, but you love all of the benefits of open source technology, then Cal.com is for you. They are transforming sophisticated calendar management into an accessible tool for all via a user-friendly interface. You can customize it and you can make your calendar work for you. Use code POMP for $500 off when you set up your team with Cal.com today. Again, go to Cal.com, C-A-L.com, and use code POMP to get $500

off when you sign up. Cal.com, an open source tool that allows you to take back control of your calendar, be efficient when scheduling, and make sure that no one can steal your time. All right, guys. Bang, bang. I've got Chow here with me. Chow, I thought a great place for us to start is you recently wrote this excellent piece all about DGEMs and how they are the pioneers of crypto. And I pulled out three specific parts of what you said, and I just want you to expand on it. The first is speculation is the most contrarian idea among crypto VCs, yet the most consensus idea among crypto users. Explain that. I just noticed that, again, this is not all VCs, but many VCs are pretty disillusioned with the current state of crypto, which is obviously very

speculative. But at the same time, if you look at Twitter, if you look at people around you, Everyone uses crypto as a speculative tool. So it's the most consensus idea among the users, but most contrarian among the VCs. Why do you think it is that speculation is looked down upon, even though that is the thing that is bootstrapping some of these networks, right? And I say that from a perspective of,

I've gotten plenty of backlash when I talk about traditional finance. It's gambling, right? The stock market is a casino. Yes, some people are much better, right? you can be a professional poker player and go play in the casino, or you can be a drunk, you know, 21 year old idiot and go play in the casino. But either way, you're playing in a casino in Las Vegas. Same thing in the stock market. You can have uneducated people or highly sophisticated

people. It feels like that's the same thing that's happening in kind of Bitcoin and cryptocurrency as well. Yeah. I mean, I have some hypotheses, but I feel like in general, the reason why speculation is so looked down upon is because most people think it's a zero-sum game. Whereas in venture investing, people think of it as a positive-sum game, right? The average VC makes money, but the average DGN loses money. Or, well, loses money after transaction fees, right? So maybe that's why. But again, I think you have to take into account the fact that there's people around the world who are living paycheck by paycheck, and they spend their entire childhood hustling for every single way to make money. And I think I personally don't see anything wrong, any moral

issue with speculation, right? People have to make money. And in fact, crypto is the most open and transparent casino out there so i don't see that as a moral issue at all i actually would take a step further i mean people are speculating with their time when they go and work certain uh jobs they're definitely speculating with their money including they're speculating with their money when they buy bonds if they hold cash if they buy real estate um and so the interchangeability of the term speculation and investing i think is uh kind of one group of people saying hey we're sophisticated the other group of people saying you know and saying the other group you're not sophisticated uh but you know there are plenty of people who think buying a lottery ticket is

investing right i i don't know if i would agree with them um but but it's kind of maybe a little bit of nuance around words now a second thing that you said in this piece is that degens which is a uh a label or a name that is thrown around quite often uh usually in a pretty lovingly way uh in crypto but but degens um is synonymous with early adopters which changes the framework a little bit of how you think about these people explain this one well so think back on the first time you bought bitcoin i don't know when was the first time you bought bitcoin but the first one i did was i wired some money to a unknown bank in japan uh which holds bitcoin the mount gox cuts the bitcoin into custody right that was like 10 years ago that was degen as like you're literally wiring

wiring your your own hard hard hard earned money into an offshore bank that you have no idea about and i'm sure a lot of people did this in the early days so uh in my mind the early adopters of bitcoin were degens and then i'll give you three other examples uh one is uh those nfts right you know the the jpegs the penguins the the ducks the dogs right the meme coins um people think of or vcs actually think of nfts as a way to create new ips right to compete with pokemon to compete with hollywood etc um but if you look at penguin the the pudgy penguin for example um the jpegs have no utility yet except for um you know uh showing them on your on your twitter putting them in your in your twitter pfp and so the first people who buy the penguin jpegs

they are they're they're degens they're literally buying jpegs that have zero utility and they're just buying jpegs they're just buying the jpegs for the speculation for the upside right so that's one example uh and then another example is helium right the decentralized um telecom network right the first time you buy helium um hotspot or hotspots uh it costs about a thousand dollars and in return what you earn is a very illiquid token uh that's the helium token who in their right mind would do this right again it's the degens um so and then people would argue look uh we still haven't seen a a true non-speculative use case of crypto yet but stable coins are actually taking the adoption of stable coin is taking place all around the world at a

mind-boggling pace and guess what even the first use case of stable coin was also very speculative people use stable point stable point to do cross-exchange arbitrage and to do lever trading So everything that I can think of that's happening in crypto, the first adopter of everything, of all these different verticals, are DGENs. When I see stablecoins being spoken about in terms of speculation, I don't think people think about it that way, but it is a tool in the toolkit of a speculator. It's basically the argument you're making, right?

And so you may not be speculating on the asset itself, but it is a tool that is used in the process of speculating. no different than the people who go west and try to dig for gold. They need a shovel, right? And so no one was speculating on shovels, but it is a crucial component of the process of speculating, which I think is a really interesting way of looking at this. The third thing that you said is the decentralized utopia needs the open-minded, risk-seeking, thrill-seeking pioneers. And I thought this was interesting because when most people hear risk, they run away. When they think of thrill in financial markets, they run away.

Are you making the argument that these people are running towards risk, they're running towards thrill, and actually that's an important part of being a pioneer is being able to go and do that? Yeah, and the analogy I draw here is the early internet days, right? So in the 1990s, the first users of internet

used the first email clients or those forums before the likes of SSL were developed. which is a security standard protocol. It just so happens that the internet is the information superhighway and crypto is the financial superhighway. So by definition, the first few adopters of crypto has to be those super risk-seeking early adopters,

pioneers, right? They seek risk, they seek thrill. And without those risk seekers, uh we actually wouldn't know how truly scalable and uh safe our our infrastructure is right because uh all these djans that got hacked or paying super high gas fees without them we wouldn't know how bad are you know the the layer ones or or the oracles or the bridges are and these djans are what are the people that that prompted our entire industry to focus on building better infrastructure now you've also written a piece that basically looked at uh hayek and you

made the argument that hayek's vision of an alternative currency may actually be more akin to stable coins than to bitcoin now uh i don't think you're saying bitcoin is bad actually you're saying the opposite which is like bitcoin is great and uh it definitely fulfills some version of his view of the world but explain a little bit the nuance here if we now have uh to some degree a a decentralized digital currency that is completely outside the system in Bitcoin. And then we have this almost like layered version of fiat currencies and stable coins. And both of them seem to be putting pressure on the legacy system, but doing it in different ways. And so how do you view maybe what Hayek was really saying is the potential solution

and then how both of those fit into that framework? Yeah, so that post that I wrote was six years ago. I don't even remember exactly what I wrote, but the analogy I draw there was the exact mechanism of Maker, that the die in the Maker DAO system resembles the Ducat, which is the currency that Hayek proposed decades ago. But Bitcoin and stablecoins play very different roles today, empirically, right? Bitcoin is a fiat debasement hedge. It's not an inflation hedge, but it's a debasement hedge.

Whereas stablecoin, we see people around the world, especially those in Latin America, Africa, Middle East, and Southeast Asia, extremely strong demand from them for the digitized dollar, which is stablecoin. And in many ways, stablecoin is better than Bitcoin. And there's pros and cons, of course. But the ways in which it's better than Bitcoin, obviously, one of them is that it's less volatile. right people want to hold a stable store value and so as a result they also use a stable coin to pay each other uh more often than using bitcoin or actually i don't know that for sure but but the trend is certainly um you know trending towards using more stable coin versus bitcoin so it yeah it's interesting um i do believe that uh stable coin settlement volumes is higher than bitcoin

settlement volumes they're both growing right which which i think is a net positive tailwind for the industry um but it does feel like uh stable coins for medium of exchange again what are they doing with it very unclear uh there are some questions about the metric itself in terms of when you're actually selling or buying is that getting caught up in some of the transactions put all that aside like it's definitely a popular use case it seems that product market fit to uc stable coins uh for medium of exchange now with that said a question that comes to mind is when hayek is talking about this he was talking about one currency maybe actually should we have two like you know if you talk to michael saylor michael saylor will say well i think that bitcoin

is going to be this amazing store of value and it's going to be surge um serve as digital gold and the enemy is gold like you know drop your gold buy bitcoin um and at the same time that bitcoin is growing in popularity and adoption and price the dollar is going to continue to strengthen and And so gold loses and weak fiat currencies of non-US nations, they lose. Maybe stable coins actually are what he's talking about there in terms of US dollars. It's just in a digital form, right? It's the same dollar, same monetary policy, but it's Bitcoin and its dollars that end up strengthening. Is that kind of your view?

And then in terms of solving for Hayek's kind of utopia vision, we actually end up with two currencies rather than one? Possibly, because by definition, the problem that stablecoins still have is fiat debasement, right? Yes. US dollar just keep getting debased again and again over a long period of time. And so you're going to need a hedge against that, and that is Bitcoin. So it's very possible that both will exist. And obviously, all fiat reserve currencies come to an end.

So maybe in two to three, four decades from now, stablecoins, US dollar stablecoins can come to an end in terms of dominance, but that'll take a long time. Yeah. It's fascinating to think about. You've tweeted recently about African startups using stablecoins and the popularity there. I was shocked at maybe the responses that people had. I think they were surprised. Some of them didn't believe it.

pretty much any company that I talk to anywhere in the world, from Argentina and Venezuela, where inflation is ravaging these economies, all the way to companies even in the United States, where, sure, we've had some high inflation, but for the most part, people still have access to dollars. Stablecoins' efficiency, speed, low-cost transactions seem to be very attractive. How do you see stablecoin adoption right now? We took a snapshot of the static environment. this something where it's just these degens and kind of crypto forward or tech forward or do you actually see it seeping into what i'll call kind of the mainstream economies uh maybe outside the united states yeah so i'll throw some numbers um uh last year and this is according to a report by

bh digital uh 14 trillion dollars worth of stablecoin settled on chain and that number surpassed the amount the dollar amount that paypal handled last year it's mind-boggling Now, probably, we don't know this for sure, but probably most of that volume is related to trading, because people need to move stablecoin across exchanges and then trade in those exchanges. But the percentage of non-speculative usage of stablecoin is probably growing in the emerging economies. So in this recent chain analysis report, which analyzed the adoption of crypto in Africa, Nigeria, South Africa are probably the top two.

I forget the number three, but Nigeria, South Africa are the top two. And coincidentally, most of the African startups that I've spoken with that I mentioned in and that tweet are also from these two countries. So my empirical experience matches what the data shows. That's in Africa. People use, there's a massive shortage of dollar right now in Nigeria, for example. And that's one reason why people want the digital dollar.

But another reason is, you know, there's still a lot of migration happening in Africa. Africa is extremely fragmented with a lot of countries. There's a lot of migration between them. There's a lot of migration between Africa and Europe, for example. So one of the startups that I talked to recently is they help Nigerians who are studying in Turkey to do cross-border payment. So because of the migration, there is a lot of demand for remittance products, cross-border payment. And by the way, Turkey is also another really interesting country where crypto is happening.

um some of you might have gone to um dev connect recently but uh the startup that i talked to they're not based in istanbul they're based in a smaller city in turkey and they told me that in that city there's more crypto physical shops than bank atms it's crazy so that's turkey and And then Latin America, mostly Argentina, Venezuela, and Colombia. Brazil, less so because Brazil currency is relatively more stable than Argentina, for example. And yeah, those are the regions I'm mostly excited about. It feels like, you know, for a long time when people talked about Bitcoin or cryptocurrencies as a broader industry, it was kind of like, I think Alex Gladstein from the Human Rights Foundation calls it financial privilege.

we go to the atm money comes out right the dollar yeah it gets debased but not nearly as fast as elsewhere um and so it's hard to see some of the value proposition but if you go to turkey lebanon argentina etc it becomes very obvious and it's not just what i'll call like the economic view of let me get a bunch of data and see how high is the inflation rate or let me see what you know some of the interest rate decisions are. It's also simple things like, hey, I need to go to a physical store. I've got a friend who, he worked at Uber for a while. And one of the things that he was tasked with was fraud prevention, specifically in Southeast Asia. And so one of the problems that makes it so difficult is that there's a lot of cash payments, physical cash payments.

Well, how does Uber make sure that the driver actually got paid? How does Uber get their cut? right? And all these kind of nuances to it. And it feels like that's really what's happening is we're almost like modernizing the infrastructure to some degree of some of these locations and these geographies that is as simple as moving from a physical, we're skipping over electronic and we're going right to digital. And so that disruption ends up actually helping them leapfrog. And we've seen this where, you know, I don't know, in Nigeria, for example, there's a very young population very kind of uh high penetration of mobile phones and internet access they never got to kind of 2.0 of the internet they went from basically 1.0 to now they're jumping into 3.0

and that 2.0 you know part where they were behind in some cases they may actually be ahead of the u.s it seems like yeah uh this uh leapfrogging phenomenon uh is very interesting because Because basically you're saying the 2.0 is not 10x better than the 1.0, but the 3.0 is, and therefore people just go straight from 1.0 to 3.0. There's also a phenomenon like this outside of crypto. So for example, in China, two to three decades ago, people used physical cash for day-to-day payment. And then at some point when mobile internet happened, people started using WeChat and

WeChat to pay, leapfrogging credit card. Credit card is not a thing in China, but credit card is extremely widespread in the US. But not that many people use Apple Pay. So Apple Pay is like the next level, the 3.0, so to speak. Not that many people use Apple Pay because Apple Pay is maybe not 10x better than using a credit card for a lot of people. Whereas in China, people just went straight from physical cash to a mobile payment when you see that is it the technology or is it the user experience and obviously they're intertwined but one of the things that's interesting to me is um i don't know i'm probably like habitually trained at this point bill comes i reach for my wallet i don't reach for my phone right and like as stupid as that is it's almost

like a user behavior the thing that you have to change more so than oh there's no technology or better yeah like like obviously the technology is better but there is friction or there's a hurdle to get me to reach for my phone versus reach for my wallet when the bill comes or when i go to pay for something and it feels like that's really where uh the opportunity is yeah yeah the the ux needs to be 10x better and obviously it's the technology that enables that um i'll give you a related example of in crypto, actually. So MetaMask, yesterday

Rainbow launched sort of a vampire attack on MetaMask. Basically, they tried to airdrop points to MetaMask users in order to entice them to use Rainbow instead. I've always used

MetaMask in my entire life, for the last five years, despite all the UX pain I've gone through, like hundreds of failed transactions, et cetera, et cetera. It's really, really painful, but I continue to use it. And the reason why is I've never lost money on MetaMask. I've never been hacked on MetaMask. So I trust the security. So basically the UX of MetaMask is bad, but the alternatives are not 10x better for me to switch. And so that goes back to your point about whether or not mobile phone connects better enough than credit cards to entice you to use it. Let's talk about a recent development. I, through one of the funds

that I raised early on, have been an investor in Coinbase for a number of years. It went public. I think that people looked at it very much as the leading US-based regulated exchange. Obviously, there's been some appetite for that from public markets but it was essentially looked almost as like you know the new york stock exchange or the nasdaq for crypto uh over the last couple of years uh maybe even last 18 months i think you and others have called out they've done a fantastic job of morphing themselves while still keeping that business still you know kind of being a dominant us-based regulated exchange they've become much more crypto native uh they've got the wallet they've got the l2 all this kind of stuff let's talk about base for a little bit

maybe you can kind of talk through like what is base and why do they seem to one being successful with it but also two it feels like you know if i talk to will clemente from uh reflexivity research he'll say wall street is going to be completely blindsided by what is happening in uh coinbase's crypto native side because they're only evaluating trading fees and kind of the the you know web 2 type uh business yeah so base is uh an optimistic roll up on top of ethereum and coinbase is behind it now i don't know exactly what the relationship is structured between coinbase and base um but i do think that base will be a top three contender for the most important roll-up in the coming cycle and unfortunately i don't think they will launch a token um so i don't know what's the

best way to to gain exposure to to base um is it just by coinbase is it just by coinbase stock the thing with coinbase is uh i mean it has a lot of other things right yeah so it's not the purest uh form of uh bet on base itself i mean i have an idea but uh it's it's uh almost embarrassing to say but the my idea is to to buy the the most lindy meme coin on base and uh it's toshi it's it's it's a cat meme coin uh on push there's not a dog coin yet um but there is a cat so uh explain that explain that a little bit more in terms of why because i think people are fascinated again we kind of get into the dgen speculative you know uh uh ground here buying a meme coin on top of base you think is the best way to play base potentially being

successful why yes on our on ironically um and i say this both from a theoretical and empirical uh point of view theoretically um meme coin i consider meme coins as a um crypto is is essentially tokenized mindshare tokenized attention right you have all these different different coins that that in theory have zero utility but why are they commanding like 10 billions of dollars of of valuation right it's it's because of the attention behind them and memes like doge shiba these things bunk on solana these things they capture a lot of attention and that's why they're able to command an extremely high evaluation and so if base the l2 that the rollup doesn't launch their own token um the the most uh uh

uh the the bet that will capture the most value that will capture the growth of coinbase i think is is a meme coin uh for better or worse i mean so far that has been uh a huge part of crypto in general and and you know i would even argue uh i've had multiple people that are well known on wall street like roll over and you know basically i want to kick me out of their office i've been like well bitcoin has been the most successful meme coin right in the sense of that there is this culture there is this kind of memetic aspect to it um but uh yeah toshi is obviously very different and an interesting idea talk a little bit more about base itself in terms of just like becoming this like de facto chain for i i think you view it as like a regulated defy chain what

exactly does that mean that that's part of it i'll explain but base is um probably the most interesting layer too because of the fact that it's the coin basis behind it and the result of that is number one coinbase has over 100 million kyc user and it would be a lot easier for them to put that identity that kyc identity on chain onto their own chain than all the other chains right the other chains they don't have this identity layer so the moment you have kyc on chain you can do some really interesting things that other chains cannot do for example uh rwas So real estate, real world assets, for example, tokenized U.S. treasury, tokenized U.S. stocks, tokenized properties, that kind of stuff. Because these things typically require KYC.

Some of them require accreditation. And in order for their users to be able to access these instruments on chain. Right. And it's not easy for other chains to do it. And therefore, it's not easy for other chains to launch RWAs. Like this kind of products, RW product startups, they have extremely high startup costs due to compliance, due to legal, etc. And Coinbase solves some of that. So that's why I find Coinbase really interesting.

So the first reason is the identity layer. And the second reason is even more obvious, which is the fact that Coinbase has a huge distribution. They can quite easily direct their existing centralized exchange users onto their own chain via Coinbase wallet, for example. So the distribution and the brand matters a lot. Now, do you think that this is when we talk about real world assets, are we talking about them literally, you know, putting real estate, putting stocks, things like that? or they're almost like crypto-native real-world assets. It's something different. No, it's literally tokenized stocks,

real estate properties, not crypto-native. And what is the, we talked about user experience in terms of when the bill comes, I got to grab my wallet versus my phone. What will it take to convince Wall Street or traditional finance folks to buy the tokenized version when it's on base or elsewhere? They're not going to be convinced.

By the way, I've been skeptical of real-world assets for many years until maybe three months ago. And I had an epiphany, which is that the first source of demand for RWAs is actually crypto natives. And the reason for that is, if you look at the total market cap of crypto today, it's like $1.5 to $2 trillion. So there's $2 trillion worth of on-chain wealth. and at the same time it's likely that this will be the last cycle the last 10x cycle right so

bitcoin ethereum have maybe 10x more to go before they reach more of a steady state so at some point the crypto natives all these two trillion dollars worth of on-chain wealth crypto natives they need new ways to diversify. They need to diversify their wealth outside of crypto-native assets. And RWAs are a pretty obvious way to do that, to enable diversification for the crypto-natives. So basically, RWAs solve the problem of diversification for on-chain degens or people living in emerging markets needing new assets. And by the way, Like RWAs might still sound controversial to a lot of people, but if you really think about it, stable coins are a form of RWAs. It's tokenized U.S. dollar.

So many people either were not around or have forgotten, but back in 2017 and 2018, I would talk quite a bit about tokenize the world, right? And this idea was basically every single asset is going to get tokenized and brought on chain. um i came to two conclusions during that time period one was we this is so far away that i should just shut up and like you know i'm gonna be saying the same thing for literally a decade before this happens um and so like it's always easier to see where the world is going but it still takes time to get there um but two was uh i thought that we were gonna have to uh see the current generation of decision makers at the wall street firms leave and have the young people assume their positions of decision-making and capital allocation. And then it would happen.

It's an interesting nuance. And actually, uh, I could be convinced that you're more right in the sense of, no, it's not even the wall street firms. It's actually just the crypto natives end up actually being that first, you know, group of early adopters. Um, and then to some degree against the degens yeah wall street has to follow uh the degens but the degens are the pioneers yep yeah it's super fascinating um the last thing i want to talk to you about is uh artificial intelligence and crypto um i have for a long time said that bitcoin is an automated central bank i don't think that means that it's artificial intelligence i don't think that there's machine learning or anything like that but to a degree it is this uh uh fits in very nicely into our

worldview of what I'll just call like automation in general, right? And so artificial intelligence is a piece of that machine learning, but also crypto assets as well. How do you see artificial intelligence and crypto kind of intersecting or where do you think the areas of opportunity are? Yeah. Okay. So first of all, I have no idea where AI will be going because ai is is just happening as fast as crypto and i spend all my time in crypto and so there is no way for me to truly understand deeply understand ai but i do have some hypotheses um one idea is uh right now there is a massive shortage of gpus uh because everyone needs gpus to train models And so where crypto might come into play is to create decentralized marketplaces of GPUs where, you know, consumers like you and I, we have idle GPUs on our laptop.

If I'm not using my laptop, maybe I can contribute my GPUs to this network to help others to train their models and earn some tokens and money in return. But it doesn't have to be consumers, it could be some idle GPU sitting in a big data center as well, right? So that's one idea. Obviously, there have been a few startups that got tens of millions of funding pre-product actually. So I think a lot of people actually see this already as a big opportunity. Another way where crypto and AI could intersect is some time ago, there was a pretty big hype

cycle around AI agents. And the way we can define that is AI agents that run autonomously rather than like a SaaS product or something, right? And so if AI agents, by the way, I haven't seen any truly useful AI agents yet by that definition, but if AI agents will happen, then at some point they need to make payments, they need to make financial transactions. And guess what? Crypto is the most compatible form of payment and custody for AI because crypto is permissionless

and it's programmable. And so is AI. um it's um it's almost like what you're saying is um whether it's bitcoin stable coins maybe even something else uh it's money for machines yes 100 yeah and you need the automated transactions like for a long time i've always said um there is this uh belief that everything will become more and more automated and you will trust the algorithms obviously you know you trust google to tell you where to go you trust spotify to tell you what music to listen to whatever um but you can't use two-day settlement times of fiat, right?

And so really you're saying we need a different asset with a different settlement time to be able to unlock automation. Settlement time matters and programmability also matters. So imagine you have a personal AI assistant that runs autonomously and you ask the agent to hire more specialized agents to do specialized work for you

to, I don't know, schedule meetings, that kind of stuff, right? And then your personal agent will need to pay the specialized agent. And guess what kind of money they're going to use to make that payment. It's going to be crypto because it's programmable. Yeah, it's super interesting. When you almost think about, you know, I for a long time have, I think I've been written pieces years ago about this like money for machines idea. But if you almost put together, how do I want to invest in artificial intelligence?

You can go invest in, you know, large language models and, you know, things like open AI, whatever. Then there are, you know, maybe like products and services that are built using AI and kind of like end consumer opportunities. But maybe there is an even bigger opportunity. If you really want to own the payment rails of artificial intelligence, then you need to be investing in crypto. And if you were to put these investment opportunities next to each other, which one is more asymmetric, right? Is there more kind of value to be captured by investing in what right now is being categorized as AI, or is it actually to be allocating to, you know, kind of crypto and that's where the value gets captured?

By the way, you'll be surprised how many stocks are, they're actually AI stocks, but people don't think of them as AI stocks yet. Because I spent a lot of time looking at AI stocks as well, especially semiconductors. There are quite a few of them that are, to me, really undervalued. And like everyone is talking about NVIDIA, NVDA. By the way, NVIDIA is the purest form of AI, but there's many others that are doing AI-related stuff, both on the semi-hardware side as well as application side.

Talk us through maybe a couple that you're like, hey, these are AI companies, but no one has realized it yet. Snowflake is one that's more on the infrastructure side. So they provide database infrastructure. and at some point people are going to realize a company like this is obviously an ai play um and uh there's a couple of uh semiconductor companies that are doing more and more stuff in they're more they're they're currently a generalized uh semiconductor but obviously the ai force is so strong that it's going to convert them into doing more and more ai so asml

uh acls uh these are the the semiconductor companies that don't produce or don't fabricate the the chips themselves but produce the the tools the equipment for other uh fabs to create uh chips so the supply chain goes like this you have asml acls and others they produce the manufacturing equipment, and they sell the equipment to the likes of TSM, so Taiwan Semiconductor Company, and Intel. And then these two, they have fabs, so they have like physical places where the chips are manufactured, and they manufacture the chips for NVIDIA. NVIDIA is fabulous.

So NVIDIA designs the chips for OpenAI, for example. So that's how the supply chain goes. And the most surprising thing about the hardware AI companies is that their profit margin is so incredibly high. It's like 30%, 40% or even more. And what that tells me is that their tech has extremely strong moat. They're probably five to 10 years ahead of their competitors. It's very hard for competitors to out-compete them. That's why these hardware companies are so interesting to me. they're both undervalued and have extremely high uh profit margin now are there companies that um i think core weave was a big one in crypto that uh they had a bunch of infrastructure mining

equipment etc they pivoted very nicely um are there other companies that maybe are getting categorized right now as crypto companies that you actually think are ai companies there are a lot of crypto protocols that are doing AI related stuff. But to the best of my knowledge, there is none that is production ready. And that is simply because AI is already hard enough. And now you're slapping decentralization on top of it. You have two really hard problems to solve at the same time. So it'll take them quite some time to get ready. when you see um capital flows to me it feels like there are tons of capital that poured into crypto right more broadly uh 2020 2021 massive bull market it's almost like the world it's like

that meme you know the guy turned his head and all of a sudden ai took a lot of the capital flows and crypto kind of fell out of favor um in the future is it just capital will flow into kind of know um pioneering tech and crypto and ai will be side by side or do you think we'll still kind of get this oscillating back and forth between two industries that maybe are you know tangentially related but people will still keep them in separate buckets and and kind of go risk on crypto and then pull back and go risk on ai i i have no idea but empirically this year uh coinbase coined the stock outperform nvidia and by the way nvidia is the number one best performance stock in all of S&P 500. It's up like 250% or something. And Coinbase is up like 300.

So both went up. There's no capital flow that went from crypto to AI or vice versa. And so whether or not this holds in the future, I have no idea. But I do think that in general, the money will flow into high, you know, frontier technology sectors. And by the way, here's another thing I realized recently, which is, I wish I realized this earlier. You have all these macro LARPs that talk about how, you know, only five stocks in the S&P 500 drive all the returns in the S&P 500, right? And the remaining of the 495 stocks haven't moved this year.

but it turns out that maybe public stocks also also follow venture returns profile right you have 500 stocks but maybe only a few of them drive all the returns just like in venture and this certainly was not the case like 50 years ago but today it could very well be that that's the case because we're literally nearing the the singularity like you have a bunch of technology sectors um that are just evolving extremely fast um and um all the top five or seven stocks in the s&p 500 that are driving all the returns are tech stocks in ai and basically all of them are ai if you think about it right like facebook is ai google is ai microsoft is ai Hesla is AI

NVIDIA is AI all of them are AI right so maybe public markets also follow mandatory returns I'll take it

a step further I have a letter to investors sitting in my drafts that is called the power law

era and it talks about this but not just the five stocks in the S&P 500 it does two things

one it looks at all markets across market cycles, across asset classes, et cetera, are power laws and actually have been for a long time. People just didn't realize it. And I got this idea because there are two brothers from New Zealand called the Chandler brothers

that a lot of people don't know about. But essentially the story is their parents started the largest department store in New Zealand, kind of the Neiman Marcus, if you will, of New Zealand. And they went to college. And when they came back, they were like, hey guys, we don't want to run the department store, but like we like investing why don't we sell the family business get the cash and like we'll go

invest they did when they sold the family business they got about 10 million dollars at the time and in a 20-year run they turned 10 million dollars into five billion dollars so no outside investors just pure investing and when they looked at all of their uh investment portfolio and returns it boiled down to about five investments they made over those 20 years that drove all the returns And so when they looked at it, they realized about 5% of all the decisions they had made drove 95% of the outcomes. And so they became very interested in this idea of power laws, et cetera. And so if you then go and you actually extrapolate this outside of financial markets, in your

life, power laws dominate everything, right? You probably have five to 10 personal relationships that actually are the outsized kind of contribution to happiness or to meaning. if you think of trips that you make, right? If I ask you, hey, where have you traveled to? You probably will think of three to five trips that you've made in your entire life of all the days you've been on earth, right?

And those are the things that you kind of remember. And so it is this very weird dynamic where like maybe actually power laws are the default across financial markets, across life, across all these different things. But because the human brain really can't think in exponentials and understand power law,

we just assume it's the opposite. And so what you're really getting at here is we're uncovering in some weird way because of our access to information and also the severity now of underperformance and outperformance what's actually been true for decades in financial markets as well.

And by the way, this is why the hodlers, Bitcoin hodlers were so prescient. Like if Bitcoin goes up 2X and you sell it, you're never going to be able to capture this power law. um the in my 10 years in crypto my best all basically 95 percent of my money comes from just holding for 10 years and never selling i wrote a piece uh earlier this week and i said that uh bitcoin essentially took financial discipline and codified it by really looking at if you look at you know to use bitcoin but but i think across crypto this ends up being true

all of the great details and nuance of great investors are part of the Bitcoin culture. Warren Buffett, buy great assets and never sell them, right? Dollar cost average, right? Don't look at the price, just buy consistently over a long period of time. When things go on sale, buy more, right? I mean, you just kind of look at all these different components and you realize like, wait a second, in some weird way, crypto, although there is speculation, although there's degens. Although there's all these things that people thumb their nose at, it's actually taught an entire generation how to be great investors. That, I think, blows people's mind. If you walk into a hedge fund on Wall Street and you're like, yeah, the crypto people actually understand

investing better, you'll get thrown out. But if you dollar cost average since the beginning of January 2021, so basically, you said, I rode all the way up the market, and I rode it all the way down and back to where it is now. And you were buying Bitcoin when it was overvalued. You were buying it when it was undervalued. You're up like 50% by simply just dollar cost averaging on a daily basis. And so it is a very weird phenomenon. 100%. What are you most excited about, let's say, in this coming bull market? I've already mentioned a few. Payment, Stablecoin, RWAs, they're all under-discussed just because speculation is what drives all the attention.

Stablecoin is boring, RWA is boring, they're boomer even, but I'm really excited. I think both are still fair to contrarian. BAYS, I'm excited. BAYS, again, probably top three contender for the most important layer two on Ethereum. Solana, I'm very excited. Obviously there has been a lot of hype recently, but Solana is fundamentally different from Ethereum, making good trade-offs. I'm excited about that.

I'm excited about meme coins. I'm excited about penguins, Pudgy penguins on Ethereum, MATLADS on Solana, Bonk on Solana. Hoshi on base, all these D-gen stuff, I'm excited. I'm excited about Coin, the stock. Oh, I'll throw another name, Circle. If Circle successfully IPLs next year, I think Circle will be the purest form of bet on the growth of Staplecoin around the world

because that's literally the only thing they do, USDC. So fingers crossed. I was already investing in Circle, by the way. fingers crossed on them successfully IPO next year. What else? That's a pretty good list. Yeah. That's a fantastic list. Chao, where can we send people to find you on the internet or find out more about Alliance now?

You can find me on Twitter, QWQIAO. So my initials, my first name. name uh alliance style our website is alliance.xyz um and uh yeah that's it awesome well i really appreciate taking the time to do this your uh your tweets are awesome to make me think every time you tweet so please keep it up and i'll definitely get in the future thanks for having me