Unchained - Crisis and Opportunity: Crypto Market Shifts, Solana vs. Ethereum, and Political Crossroads - The Chopping Block - Ep. 686

Episode Date: August 9, 2024

This episode addresses the recent market crash, the Bank of Japan's surprising rate hike, and its global impact. The team also discusses the Science of Blockchain Conference's relocation from Stanford to New York, and the current political landscape affecting crypto, including reactions from key politicians and internal community conflicts. Highlights include Solana's recent performance surge, opportunities in its ecosystem, and the effects of Elizabeth Warren's letter to the CFTC on prediction markets. Tune in for an insightful overview of these significant developments! Show highlights 🔹 In-depth analysis of the recent U.S. crypto market crash caused by the Bank of Japan’s unexpected rate hike and its impact on global financial markets.  🔹 Discussion on the resilience of DeFi during market turmoil, with highlights on record on-chain volumes and DEX stability.  🔹 Examination of the rebranding of the Stanford Blockchain Conference and its implications. 🔹 Insights into the political landscape affecting crypto, including perspectives on Kamala Harris, Trump's pro-crypto stance, and Elizabeth Warren's opposition to political event betting contracts.  🔹 Analytical focus on the Solana ecosystem, its early investment opportunities, network reliability, UX advantages, and its influence on newer EVM chains.  🔹 Reflections on market trends and opportunities for smart investors to capitalize on new developments. Hosts ⭐️Haseeb Qureshi, Managing Partner at Dragonfly  ⭐️Tom Schmidt, General Partner at Dragonfly ⭐️Robert Leshner, CEO & Co-founder of Superstate ⭐️Tarun Chitra, Managing Partner at Robot Ventures Disclosures Links What Drives Crypto Asset Prices? Adams, Austin and Ibert, Markus and Liao, Gordon, (July 30, 2024). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4910537  Timestamps 00:00 Intro  01:29 SBC 03:57 Market Crash & BOJ 06:58 Crypto Market Reactions and On-Chain Activity 17:41 Fed's Interest Rate Decisions and Market Implications 23:27 Political Landscape and Crypto 38:50 Elizabeth Warren Doesn’t Like Prediction Markets 55:09 Solana vs. Ethereum Learn more about your ad choices. Visit megaphone.fm/adchoices

the newer entrance are realizing they need to learn things from Solana, which I think was like just a, you know, you would be an outcast to say that six months ago. To be clear, I think everything I'm saying is not supposed to be a judge of the quality of like Solana products or builders or the chain. Actually, we have some in our portfolio. They're fantastic. You know, nothing but respect.

It's more of like a capital markets comment. It's like, you know, would you want to go public in China or do you want to go public in the U.S.? Well, there's a reason why ADRs exist and CDRs don't exist. Sure, although I think the problem with the roll-up marketing is like, hey, you can join the U.S., but you have to start your own state. And starting your own state is a lot more work than building a building in Tokyo. Not a dividend. It's a tale of two pawn.

Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. Unimmedged trading firms who are very involved. D5 protocols are the antidote to this problem. Hello, everybody. Welcome to the Chopping Block. Every couple weeks, the four of us get together and give the industry insiders perspective on the crypto topics of the day. So quick intro, first you got Tom, the Defy Maven and Master of Memes. Hello, everyone. Thanks, we got Robert, the Crypto Connoisseur, and Tsar of Superstates. Aloha. And we've got Tarun, the Gigabrein, and Granth, and Gondent, and Gondland, and Gondent. Namaste. Finally, I'm a see Head Hype Man of Dragonfly. So we're oeastered investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see Chopin Block. That x. X.Y Z for more disclosures. So we are together in town for SBC. Used to be called the Stanford Blockchain Conference.

They rebranded because they moved to New York. So they have to call it the science of blockchain conference, which might be the cringiest rebrand I have seen in a long time. In my head, it's still Stanford. I know. I'm embarrassed to tell people I'm at the science of blockchain. I didn't even know they rebranded it. I actually told a friend, I'm like, oh, I'm going to the Stanford blockchain conference at Columbia.

And I was like, yes, that's confusing. But the other funny thing is like all the workshops just were like, we are science of X. So it's like science of proof science of MEV. I'm like, oh my God, that's even more cringe. Better than the Stanford of XYZ. Yeah, yeah, yeah. Well, I, you know, I had some incendiary tweets that I got a lot of flame for where I made fun of San Francisco in very direct terms and said, you know, the loss of this conference is a very clear sign that, you know, crypto will never have a home.

Why did they give up? Why did they give up the Stanford Blashton conference? I think Cornell and Columbia are paying. I don't think it's just moving here permanently. I think it's just moving between institutions. Oh, so it's going to rotate back? It's going to rotate back. Oh, I see.

I think it's just more they wanted to like. Well, it's also like the researchers, there's not that many researchers left in Stanford. There's some Berkeley, but I feel like there are way more people in Cornell and Columbia and Princeton now. Whereas like pre-pandemic, there were way more in Stanford.

And a lot of the kind of, especially on the zero knowledge proof side and the advanced cryptography side, a lot of the PhD students started companies and those companies are all here. Like no one in their right mind would start a crypto company in San Francisco nowadays. Like there are a few really good examples.

Like Solano still has a big officer or succinct. But like once you go after that, It drops off really quickly. And I think in the U.S., you just don't see that many new crypto companies in the Bay Area. Also, there's this thing where you're always competing with AI for talent, and it's like no one wants to work in crypto there. It's true. Crypto is kind of cringe in the Bay Area right now.

But I do think... I wouldn't call it cringe. I think it's kind of crud. In the Bay Area? In the Bay Area. In the Bay Area, it is. Everyone there is like, I don't even tell. I just tell people I work in cybersecurity.

I guess that's accurate. Yeah, that's brutal. That's brutal. Okay, well, speaking of cringe, we have just had a very big market crash and then kind of pseudo rebound. So for those of you who are paying attention, we had one of the worst days in market action for a couple of years. And actually the worst day for the Niki in like 30 years or something since October, 1987. So basically, I'll give you the kind of play by play of what happened. Then we'll talk through some of the details. So it's all starts with the Bank of Japan. Bank of Japan last. week on Wednesday raised interest rates after 17 years of holding their rates at zero. They raised their rates by 25 basis points. So from zero to 0.25 basis points. So like what you would normally think of as a very, very tiny raise in interest rates. But most people were expecting the Bank of Japan to basically keep their interest rates at zero forever.

So now just to set context for those of you who don't necessarily follow the financial alchemy here, all of the other central banks have raised their interest rates dramatically over the last couple of years. But Bank of Japan was the one odd duck out that kept their interest rates at rock bottom rates. And so you can sort of think about that as like, you know, everybody else is saying, if you want to borrow money from me,

you have to pay me a lot of interest. And the Bank of Japan is just like, you know, this big, I like to analogize to defy. Like imagine there's like one defy protocol that is just offering you, you can borrow from me for free. This is free money. If you just want to do anything with it,

whatever the hell you want, here's free money. And the Bank of Japan has been doing this. for a very long time. And so people got really levered on what's called the carry trade, which is borrowing from the Bank of Japan and then going and investing it into other assets. And when the Bank of Japan raise rates, this blew up a bunch of these carry trades and forced people to have to go and unwind those carry trades, pay back the yen, which drove the value of the yen up and caused massive drop in the Japanese stock market, as well as a big pump in the

price of yen, as well as a massive drop in the S&P. So we have a massive drop in the S&P. So we have had minus 3%, NASDAQ dropped 3.4% on Monday. And the crypto market clocked off along the same time, the biggest sell-off in almost a year, losing about $500 billion in market capitalization in a single day. So absolutely seismic event in the crypto market. And many people speculate that what was going on is that this may have been due to somebody who was caught in the yen carry trade,

who was forced to liquidate their crypto holdings. And of course, we see looking on chain that Jump, or address associated with Jump, seem to have been selling off huge amount, like almost a billion dollars worth of crypto assets that were sold off from addresses associated with jump. So by Tuesday, markets seem to be stabilizing somewhat, and now it seems like there's a little bit of calm, even though the carry trade is not fully unwound. It seems like there's another probably 30, 40 percent of this carry trade, but hopefully

the rest of that unwinds in a more orderly way. But we've sort of bottomed, it seems. Bitcoin went all the way down to like 49K. Now it's back up to, you know, 55-ish. but we've seen a lot of blood in the streets and a lot of chaos in markets and alts are just generally down about 30% of the week. So just want to real quick get observations. What do you see? What worked well? What went poorly? What were you seeing in terms of reactions to what was happening over the weekend? I mean, I think a lot of people were getting flashbox to like Black

Thursday kind of COVID crash. Last time we saw that much, you know, volatility or Vic's spiked a month, what, like 60 in a single day. And for crypto is especially traumatic. But I think, you know, sounds like a broken record, but you know, this time around everything worked pretty well. There were no, you know, broken liquidations. You know, the chain was got a little bit congestion, but for the most part still function. Exchanges seem to be working fine. So I think obviously other than like, you know, the drop in prices, it's not like sort of the core plumbing of the market broken anyway, which is, which is good to see.

And I think seeing some, we saw a lot of record volumes on chain within D5, like, you know, there's at least four protocols that had a billion dollars of volume that had never touched that amount on chain. And I think the fact that Dex market share has just been going up, even for perpetuals lately, is a pretty good sign that people are actually getting a lot more comfortable using on-chain and self-custody stuff. It's also interesting that the majority of the volume happened on Salana by like a long shot. If you compare Salana to everywhere else on the day, it was. I think that goes to latency issues. I mean, Ethereum had gas prices go up to like 700 G-way, which was, you know, which is a lot.

I mean, like basic transactions to like send ether, let alone like interact with a complex protocol. We're getting like, you know, $10, right? So it's like gas prices went up where for most users it becomes completely unusable economically. Well, wasn't most of the volume on like hyper liquid UIDX sort of blew past everybody else in terms of the volumes they were doing? Yeah, they did. But I would say that they're not like their own chain. in some ways. Are they not?

I mean, even though. Sorry, sorry, sorry. They are their own chains, but they're kind of like, they live in isolation, right? Yeah, yeah. They kind of live, they're almost like centralized exchanges in that sense. They're not like, whereas in Solana you saw like tons of crazy unwinds of like people closing out loans, atomically hedging them, like, you know, a lot of the kind of liquidity profile for the market making pools, like the JLP style pools, which also you saw with the hyperlucid pools, were actually printing a lot of lot of money for the LPs. It was actually a very solid day for a lot of people in DFI

who are not directional traders who are just liquidity prayers because you just had a full U-turn almost depending on the timing that you enter the market. So I think it was just a very resounding success story and it was probably the most crazy on-chain activity we've seen that had had no real crazy issues. Yeah, I mean compared to the last last 20% days, it was uneventful, right? It was eventful from an asset price perspective. It was completely uneventful from what else happened within the ecosystem. Crypto-C-C-Fi exchanges were up. D-Fi worked the entire time. You know, there was very few headlines besides price go down a lot. Well, there were headlines of Tradfai stuff not working. Yes, which is actually worth

Both brokerages were down. So you couldn't trade a Bitcoin or Ether ETH, but you could trade real crypto. Okay. So here's a question. Do you think there are any people who are trading Bitcoin or Ether ETFs who were like, hey, maybe I want to actually just go buy Spot now? Well, I'll. Do you think there were, I mean, probably not.

I think it's more like if we wanted to sell Spot because they couldn't panic sell the ETF. Well, I will admit to some personal activity, which is somewhat interesting. Right when all this was going down, it was like whatever night this was Tuesday night, I guess. Gas prices were like 600, 700 on chain. I wanted to trade a little bit personally. I was like, oh, gas prices are through the roof. You know, I don't really have any assets on Solana. I actually traded like a CME ether future as the there is no gas prices here.

I can just do it activity right away. oh, I like bought an ether future, you know? And it was the first time I'd ever bought an ether future. But I was like, huh, like, you know what? Like, let me actually like think about and try the TradFi products here. You've come full circle. I've come full circle. I've come full circle.

You really, you really have. I know, I know. I wonder how many of our listeners have ever traded an Ether future on the CME. But I actually bought some, the extra Tradfai way. Interesting. Yeah. Yeah, it does, it does seem like this was very good vindication of Cryptorails working well in a time of distress.

I think the point that you made about, okay, you know, you've got the hyperliquids and the D-YDXs that kind of live on their own chains. In some way, this was also a vindication of that choice, which is that, you know, I mean, I wasn't trading on D-YDX, but I have to assume that, you know, D-YDX and hyper-liquid fees, those are probably working in an orderly way. And it's a good point in favor of this kind of chain isolation that when stuff gets really crazy and everybody wants to trade on Ethereum,

it's kind of nice to be like, well, you just bridge in once, then you can do all your trading there. And it's not being beset by all the noisy neighbors of everybody who's trying to liquidate things and get out of things and move assets around and so on. So that is one of the virtue. People talk a lot of shit about the fragmentation in the EVM or Ethereum ecosystem. And obviously these things are kind of. Well, I think the fragmentation for spot is very different than the fragmentation for derivative.

Right, naturally, naturally. But that is one of the virtues, right, is that, okay, even if you have a spot market that sits on Arbitrum, for example, and Arbitrum is kind of insulated from Eith Mainet, that works your benefit when gas prices spike to like, you know, 700 or 800 way. Yeah. So it can go both ways. So taking look at where we are now, prices are down quite a lot. One of the things that we've seen interestingly is that we had meme coins take a really steep nose dive.

I saw just absolute, you know, just tears in people and just complete capitulation with respect to meme coins. and a lot of the kind of darlings of the cycle. And then as the market starts to turn, like Monday, Tuesday, and then certainly today, you've seen a lot of that just completely retrace, where the meme coins are now bounding up again. They're probably the highest-performing assets today, as well as Solana, you know, really outperforming a lot of the field.

So whenever we see this kind of big correction in markets, very often I feel like markets use that, you know, oftentimes prices can be kind of sticky. and when prices get unstuck and everybody kind of goes back and says, okay, I need to go and rebuy my positions. And hey, it turned out it wasn't really, you know, it wasn't idiosyncratic to crypto. So there's no reason why I shouldn't own the same amount of this that I did a week ago.

But people realize like, hey, why did I own so much of X and why not more of Y? So how do you guys expect this to play out in terms of repricings as people are buying back in the market? Well, here's my quick take. you know, this event wasn't idiosyncratic to crypto itself. Crypto was a, was impacted by the yen carry trade unwinding, but almost everything else has actually rebounded quicker than Bitcoin has. You know, Bitcoin is still at 54, 55K, right? It's sold off tremendously.

Ether is still at 2350 zone, sold off tremendously. The Niki is back. I think it's up, it's weak, up, weekly is up technically. Yeah, it's up technically. I mean, last Friday was a huge sell off in the Niki, but it's like, for the most part, back to like pre-carry trade unwinding. Is that in yen terms or in dollar terms? Great question.

I think, yeah. Okay. The B.OGLs are backed off the rate. Yeah, yeah, they basically. Right. So if all of this came from and originated from the yen carry trade unwinding or partially unwinding, because really it's been building up over 35 years. years, I believe, 38 years or so. All the asset prices in Japan that would have been the most

close to the nucleus of this have returned pretty much to where they were. But crypto is still down tremendously. And equity markets have, we'll call it halfway in the U.S. rebounded, right? And so while the event wasn't idiosyncratic to crypto, in some ways the impact of it has been and that crypto is still lagging behind everything else as a response to this event. Right. And why do you think that is? It's a great question.

I don't know. If I could answer this, I'd find other ways to make a lot of money, but I can't explain crypto. I was talking last night at dinner, there's this paper that came out. I was like Austin Adams and I think two other authors. You mean the one that got made fun of it.

The one that got made fun of a lot of it. Yeah, yeah, yeah. By your colleague, your colleague had a tweet that went viral, I think, making fun of it. Wait, which tweet? Sanat's tweet of crossing out the paper and it was like it was like the picture and it was like Jump jump yeah yeah that was like a funny tweet people were blaming initially you know a lot of the price action started on Sunday people were like oh you know jump is dumping and

they've been doing it for a few days and I'm like grand scheme of things it's like that not that much volume or not that much relative the overall volume of the market it's not 10 trillion of yen carry trades on yes right right but you know the paper busy makes the claim that hey it's like roughly you know, 50% sort of idiosyncratic demand for crypto assets and then like 25% macro, 25% sort of risk asset appetite, which, you know, maybe the answer is, hey, we sort of saw those other, those last two factors in play over the past few days, but like the crypto demand is still sort of this open question, which is maybe why you've been seen the rebound. I think that's generally right that like if you look at the way in which the U.S. stock market

has recovered, it hasn't recovered uniformly in the way that it was before the crash in that, well, crash is a strong word correction. I think there's a crash. goes down 20% in a... The stock market doesn't go down 20%. No. Crypto. Crypto did. Crypto did. Yeah, yeah. So, but in the stock market, what you see is that there's been largely a rotation outside of the hot AI names and a lot of the big tech companies.

I mean, actually, the Magnificit 7 looks like crypto. It hasn't rebounded. Yeah, that's what I'm saying. Yeah, yeah. Yeah. So the stock market on the whole has rebounded. But actually, if you look at it, like, the NASDAQ has done mediocre and the Dow Jones has done really well, which basically tells you, oh, industrials are doing really well. and the tech stuff is like kind of being, you know, rotated out of. So that being said, there's been going on for a few weeks, though. Like the Russell has been like mooning comparatively. Right.

So I think what you should, all eyes I think right now are on the Fed to see what is the Fed going to do. They're going to cut interest rates. Well, they're going to cut interest rates almost certainly, right? The market is pricing in more than 100% chance for a rate cut, which I don't know quite how that works. It's because rate cuts when it comes to like Fed Fund futures, which is how people like interpolate a probability. It's based on the expectations of a 25% cut. Right. So when people are like, oh, it's 150% probability of a cut, that means the market is pricing in the expectation that there's one and a half cuts. But the probability is never actually over 100%. And the Wall Street firms have

their own models to actually figure out the implied probabilities. But it's one of the paradoxes that happens very quickly when there's more than one rate cut expected. Right. So there was talk a few days ago about potentially having an emergency rate cut. Now that talk has been nullified. I don't think that's on the table. But very likely in September, markets are betting very, very likely there's going to be a 50-bip rate cut as opposed to just the previous expected 25-bip rate cut. If that happens, I think that's going to juice a lot of the demand for risk assets once again. But the market is still kind of this, you know, what's the word is, the cat debtor alive right now with respect to how Schrodinger's a bit of a Schrodinger's market right now. Exactly. So we'll

see we'll see how that plays out. Well, it is funny, the timing of that cut around the election, right? I feel like that, to me, is the more interesting thing of, like, there's some politics behind whether they, I feel, I feel like if it's too aggressive, it will, like, look like they're helping one side versus the other. I think at this point, it's not going to look like that. Yeah, the counterpoint is, I don't know what percent of Americans are following the magnitude of Fed cuts.

I think they're following the prices, like, at the pump and, like, in the grocery stores, which are not going to respond at all in any short time frame. They're also falling in stock markets. They're looking at their 401ks, yeah. But, I mean, also, you know, the Fed is one of the last big central banks to have not cut yet. And so, you know, I think you can say that it's political, but it's also somewhat maybe just coincidental timing that, hey, we're like, you know, seeing. Yeah.

I heard inflation measures go down. I feel like Powell would have made it easier on, or the Fed in general would have been easier on themselves if they spread the cuts so then they would not be like accusative always they always overshoot like the fed no matter who the chair is has this incredible ability in almost every economic cycle to wait too long and to overshoot things it's amazing because like to the outside world you're like god the fed so bad at their job like they always wait to raise but i i i it's kind of hard i feel like i know that important of a seat i think a very funny thing i was like uh I'm listening to some interview with this person who studies a lot of, like, the Fed meeting notes,

linguistics and, like, what words are said the most. And apparently Powell's, like, favorite phrase, which, like, is always over is, like, by far the highest frequency, is leading and lagging indicators. And so it's, like, very clear, like, they're thinking about the fact that they're always lagging, but they're kind of, like, you know, too afraid to kind of jump into it. Ideally, the Fed would have gotten us to like 4% interest rates like four months ago. And like that would feel like an actual natural equilibrium. It's just that like they've undershot the mark.

I feel like there's also just committees in general tend to have this behavior. I mean. Or Dow's. Yeah, exactly. I was going to say. Like what do you think about Dow rate governance? Is it that different? Do you feel like rate governance is ahead of the curve ever?

No, it's always behind the curve. Right. Right. They're always like reactive. Exactly. Exactly. So, like, I mean, I don't think that's unique among any institution that's governed by a bunch of people putting their hands on a big Ouija board and like moving around. Like, well, we have to move together. And the only time you're going to agree is when the last person's mind changes, you know? And then it's like, okay, now we have consensus to actually go change the rate.

I've never actually used a Ouija board. So like the analogy is a little bit lost on me. But I have never actually used it either. But I remember those commercials very strongly as a child. Have you used a Ouji board? No. I remember, yeah, the commercials. But I know. I've really, I know. For those who don't know what a Ouija board is. So Ouija board was a game in the 90s. Game is a strong word, baby. It's a, it's a fortune-telling device. Yeah, it's a fortune-telling device. Basically, you'd have a sheet of paper with a bunch of letters on it, and everybody would put their hands on, like, a magnifying glass. And through the power of magic, spooky, you know, something, it would write something out through people's collective holding this thing.

And so now it's kind of an analogy for, you know, group action. I used to have a Ouija board a mouse pad, which felt a little bit more appropriate. You know, as you're as you're moving in the mouse, it's, you know, letting the spirits guide you. Yeah, yeah, yeah. Okay. All right. But everyone had to pretend that the spirit was moving them, right? That was the whole.

I think that's the idea. Well, everyone is sort of suspects that it's happening, but then, like, you know, you sort of get it. I never really understood what I, I assumed that the thing that they're holding had some randomness in it, like, like, jitter. Randomness. I don't know. Mechanical. How much jitter can you put to move, like, five kids. hands together. I don't think that's going to know. I never really understood the ads. I just looked

at the... So next episode on the shopping block, we're going to have a Ouija board. And we're going to pick token symbols. That's right. That's right. Collectively, right? Yeah, because Marin, what's her name, Crypto Marin? She's out of the game now. She has, I haven't heard that name in forever. Yeah, she stopped doing. Yeah, she stopped doing her prediction. So we got to step in. It's a market niche that we need to get into. I feel like an AI astrologer is probably good enough, right? Just like find two. Find a model on some prices, news articles.

All right, moving on. Yeah, moving on. Okay, moving on, moving on. All right. So we've been speaking some about the intersection of politics and the Fed. There's a lot now at the intersection of politics and crypto. So first is, so of course, Kamala Harris presumpt, or the now the Democratic nominee,

she has a picture running mate, but we still haven't gotten a lot of clarity around Kamala's policies of how she's going to be treating crypto. Now, we started to get the very, first indications that we talked about a little bit on the last show that she has reached out to some of the some of the sort of crypto folks that I think Rokana has been intermediating and putting together these groups with some of the crypto lobbyists and industry leaders. So that's supposed to be happening later this week. So I don't think we've heard back yet on how that second round of talks

is going. But we can see that she's engaging. And we've also seen from the other side that a group of So one, we have David Plouffe, who's a former Obama advisor and was also on the finance. That guy is still around. Global advisory board. So he's very much in the crypto mix. He is joining the Harris's campaign as a senior advisor. And then we have a new group called Crypto for Harris, which includes Sheila Warren, Amanda Wick, as well as Mark Cuban, Skaramucci. Scaramucci.

Wow, wow. That's a big, that's a big new turn. Do you not hear his, his own show? No, he's been anti-Trump. Yeah, he's very pro. I should have asked him about this. I got stuck on a bus sitting next to him for a few hours. No, yeah.

He's an outspoken Democrat who's also extremely outspoken pro-crop. I didn't realize. Well, he's a now Democrat. I think he's an anti-Trump or he's an anti-Trump. Yeah, okay. I just thought he was like independent after kind of leaving the administration. You can't really be independent in this kind of environment. Yeah.

Also, one very funny fact that was like listening to some news about was Tim Walsh, who's the vice presidential nominee. He did his financial disclosure. and owns like the least amount. No stocks. No stocks, no bonds, nothing. Like only this 401 or something. Wow.

Okay. So I feel like he's going to have literally zero. Yeah, that doesn't bode amazing. Because all the reporting says he's like very foxy, very down to earth. The school teacher. The school teacher, yeah, okay. Or was a school teacher. Sorry, sir.

Right. He's a politician. Very, very, very blue collar. He's kind of like the Biden to Carla. I was sort of surprised, to be honest, they didn't go with the Pennsylvania governor because I feel like Pennsylvania moves the needle. Oh, let's not let's not turn this into

like politics quarterback show because I think we're going to lose our audience. They already get mad at how much we talk about politics. We are, just to be clear if everybody's watching. We are going to continue talking about politics, but we will try to moderate the amount of non-crypto politics. We're going to keep it focused on crypto. Yeah, we're going to try to keep it focused on crypto.

But to be clear, this is going to be the political year for crypto. And later this year, we're actually thinking about having a crypto special for the politics. Election. Election. Yeah, we got something cooking. We got something cooking for you all. It's going to be it's going to be explosive, so I'm excited for it.

Okay, so then what about on the Republican side? Trump, just this morning sent out a tweet that surprised everybody said, we are about to shake up the crypto world with something huge. Decentralized finance is the future. Don't get left behind. Donald Trump Jr.

Yeah. And Eric, it's the young Trump's. And Eric Trump's. Eric Trump also. They had some hashtag with defiant. Be defiant. Be defiant. Be defiant.

Be defiant. Yeah. Also, who's using hashtags? It was like in 2024. When you have like an agency writing your tweet. That's yeah. Yeah. Yeah.

Go throw hashtags in there. That's true. What agency do you think wrote that tweet? I bet they hired some bad firm that's doing this crypto partnership and setting it all up and writing tweets. But I actually think hashtags are an interesting thing in that they're clearly going for an older demographic. Has anyone

Has anyone clicked the B defiant hashtag yet? Just to see if anyone else is there. There's no way. There's absolutely no way. I'm going to start using it on every tweet. Yeah, we can try to make it a thing. Hashtag be defiant. Hashtag be defiant.

That's very sweet. So anyway, we've got now increasing sense that whatever administration is coming in, there's going to be some moderation on crypto policy. And it's probably going to be that good. but there's still this civil war going on right now within crypto about, you know, on the one side,

you've got the Ryan Selkis of the world who basically say, look, the Democrats betrayed us. We have to go, you know, Republican or die all the way and like embrace the side that is giving you a path to life. And then you've got the moderates, people who are sort of saying, well, you know, why not, you know, play both sides and allow everybody to appeal to us and be good in either case. So, you know, it's a probability game and you want to play the probabilities. And then you've got the people who say, look, Trump existential threat. You know, crypto is not the only thing that matters. And for other social policy reasons, you should only go with Democrats.

So it does seem like relative to any other election I've seen, this has been the most that I've seen crypto get political. Well, did you use the Elizabeth Warren prediction market letter this week? Yeah. That was also. We can talk about that on the show. Yeah. That's a good topic.

Yeah. Yeah. But what's your guys sense of like this? an internal civil war thing that seems like it's starting to materialize it in crypto? Well, I think, and I'm going to be broadly generalizing here, and I'm not an insider, and I don't actually know, and it's all speculation, you know, here's my personal take on the situation. The Harris campaign knows that politics is an issue, but doesn't know what their stand should be

yet. They know that a very large audience is screaming about it and that it's not. black and white. Well, a very large audience that also funded the largest super pack. That also funded the largest super pack and continues to take down anti-crypto candidates in the House and Senate, right? Like just last night, Cory Bush, who's anti-crypto, lost her primary. One of the major reasons being she's anti-crypto and the crypto audience came out strongly

in support of her opponent. And so clearly, you know, the pro-crypto. So money and voters are aligning very quickly. And so it has to be an issue. But I don't think there's any indications on what their policy platform will be yet. You know, it's very clear what Trump says. It's, you know, we need to embrace Bitcoin. You know, and defy now.

And defy now. And defy us. B defiant. Hashtag beatifying. But these are things that are historically antagonistic to the left wing, right? Bitcoin energy usage has been a constant topic of conversation. A lot of people have come out. But luckily AIS energy usage has been 25 times higher than crypto usage, and now it's pivoted.

Of course. But there's a lot of old tropes about crypto, you know, forged years ago before anyone was really paying that much attention about, oh, crypto is bad for the environment, right? Like uninformed takes, but crypto's bad for the environment. So we have to be against it and all these things. It's going to be hard to reconcile what they've heard previously. with what they want to be able to say now. Because large swaths of the Democratic Party

have been anti-crypto for the wrong reasons. And so to reconcile where they've been to where they want to go is complex. And it's not easy. And I don't know what their positions are going to be, but they're not going to parrot Trump and take the same views. I think they'll probably come out

with some views that are like, we're pro-innovation and like pro-new technologies and, like, leave it at that. I think this America-China thing, is also going to play very well in this cycle as being a reason why, hey, we have to keep crypto in America, we can't lose the fight to China. That plays well on the Republican side and on the Democrat side increasingly. Right.

So this is like the bipartisan issue. And I think, you know, there was a letter that was sent from a bunch of kind of rising Democrats in the party to, I think it was to Kamala, basically saying like, hey, let's make this part of the Democratic platform to be pro-crypto. And I think a lot of these folks who, I think people realize these are going to be the rising stars and like the folks in, you know, 10, 15 years we're going to take up more and more of the space in the Democratic Party. They realize that for their constituents, crypto is important because they're young. And it's like, okay, if Democrats, you want to keep winning, you have to have some appeal to young people. And for them, like, you know, it's just much more salient of an issue than for folks who are in places where, you know, the average age is just going to be much higher for their constituents.

I get that there's some delicateness to sort of threading this needle of transitioning from where they were in the past to maybe where they want to be. But this seems like the math still does not make sense to be anti-crypto, right? On the one hand, you have... No, the math is horrible. Yeah. And so it seems like it should be so obvious. It doesn't have to be all the way towards, let's have, you know, strategic Bitcoin reserving. Maybe that's even going too far.

But it's like if you're pro-deficit spending, you know, if you're, you know, pro sort of wealth, pro, you know, you would think that inherently you should want to therefore have this pro-cryptop platform and addition to all the other benefits that we've seen and all the influence that we've seen in this election. So it's weird to me that, I don't know, it's been, it still feels like kind of this arduous drawn-out process for something that should be very simple math. I think there's a little bit of preference falsification that when we saw the fit 21 vote, people sort of realize like, look, I don't really feel strongly about this, but it seems like

there's a partisan issue and I got to signal allegiance to like, you know, like it sort of became right-left-coded crypto in the U.S. And so you're like, okay, now that it's coded, I kind of got to do my thing. But once people are like, okay, well, now my constituents are watching because, you know, it's election year. So people actually care what I do. And this is, you know, well-founded research shows that politicians tend to vote more in line with their electorate in election years.

And outside election years, they tend to vote more, quote, politically, meaning, like, forging alliances and, like, doing quid pro quos and this kind of thing. Because people just pay more attention in election year because, like, oh, you know, you're up for review. what you've been doing for me lately. And so on some level, it's not surprising that you see behavior shift. But I think also there's a little bit of, I think some degree of preference falsification, but also just another degree of like, these things were always like not that strong.

Yeah. Right. Like a lot of people were just like, look, I don't know that much about crypto and like. Right. Well, it's also very regional. Like, I think that's another part of it for the Democrat. Like, I think for Republicans, it's almost kind of uniformly across the country. They have like very similar views on crypto.

They don't like, because. they're kind of more flat. Whereas with the democracy of certain particular regions that seem to have much more anti-crypto like Massachusetts, excuse me, being one of them. Well, that's just because it's Elizabeth Warren's. But I actually think, like, I remember that map of the coin-based, like, survey of people like in crypto. And there were definitely, the states that had the highest variance were definitely like the blue, certain blue states, like the northeast. Messrs is like famously very conservative kind of you know it's like everything closes at like 11 or something and you just like there's like liquor laws are very restrictive it's like you know it's got this uh kind of Old schoolness.

Yeah, yeah. There's definitely, I don't. So, like, I think that the Republicans just don't really care about that at all. Even the new school or old school Republicans are just like whatever. Money is money. But I definitely get the feeling the Democrats are very much not like. And it's regional. So, like, I think there's in California, the California Democrats probably will like instantly jump as we're seeing.

Well, Kamala is technically a California Democrat. True. True. Yeah, and that is really the curveball in all this. Yeah. She, I mean, she might not be herself technical, but she understands the politics of technology very well. She's very connected with a lot of the folks who are plugged into that space. As much as you might want to abandon them,

they are right now our connective tissue to... Well, the other thing I find funny about the current kind of environment is like the AI lobby seems to be so much less effective than the crypto lobby. They're brand new. We were not very effective four years ago. No, it's true, but they're not really. really brand new because like they really are extensions of like big tech companies and like and especially because of all the crazy laws you're seeing it's kind of interesting to to look at the compare and contrast

with the two yeah i think even in what europe there was that some like uh ai bill pass and oh like the author of it was like oh yeah actually maybe that was bad like maybe maybe that was like you know it's it was like the california ibo where it's like oh above us like models that are computed with above a certain number of gigaflops it's like what the fuck kind of regulation is that like that's so Oh, just banning math? Yeah, but yeah, it's like, oh, you can't use this much compute to like... Well, no, they also were like, you can't use floating point. Yes, yeah, yeah.

So it's like, oh, well, but I could do fix everything in fixed point. All right, who cares, I can get it. Right, fixed point. It was like so stupid. Like, the regulation was clearly written by people who had never actually, you know, compiled a model. Well, it's written by staffers with varying degrees of knowledge, right? Which is true of all law.

Which is true of all law in like every country and every jurisdiction. Right. It's like, yeah, whoever wrote it probably doesn't know the nuances of like computation and like floating point, you know, math. But they chose a very random set of thresholds. I know. It's arbitrary. Yeah, yeah. Which was like why.

Because they probably asked an expert for advice and they said, oh, you know, here's some levers. You could pull hypothetically. And they just picked a few and we're like, that's the bill. Right, right. I mean, the law is full of thresholds. Yeah. Right. There's like above this amount of money you have to register with the SEC.

above this amount of this, you have to do that. So the point of it, obviously, is that they want startups to be beneath it and big companies to be above it. Do they pick the right threshold? Obviously, many people don't think so. But regardless, you know, AI lobby aside. And it's the right threshold, not to pound on this dead horse, but it's the right threshold maybe for now,

but it won't be in two years. Right, right. Technology advances so exponential. And unlike with smart contracts, we don't have auto-incrementing laws. So we can't, you know, just put like a pit in there or something and get it. Yeah. And every time you try to pass a law, with this auto-incrementing thing,

like you always get the number wrong. So even if you're like, oh, with 2% increases per year, it's fine if inflation is 2% or whatever. But like when it changes higher or low, you're all sun off base. Yeah. It is surprising how infrequently, even like relatively basic solutions.

Okay, so we'll just like, peg this is a CPI. Like they just don't do that. They will be like, oh yeah, 2% a year. It goes up by 2% a year. Or like, oh, every year it goes up, but you have to reappropriate and then there's another fight and then there's a hold up. people fight over the CPI calculation, though.

So I feel like that's the real reason. It's just like, you'll fight no matter what the fight is, but like, is that really not better than just, okay, well, minimum wage is X and we have to like fight every single year to change it? Like, that seems like obviously the worst solution of all is just make it a constant. Yeah. I don't know. I could see the CPI calculation is something people fight about.

And you could imagine that the fight over how what the weights are for every year is exactly the same as the fight. Right. Granted. Granted, yes. But my point is that like, yeah, let, let, don't let the perfect be the enemy of the good, you know, but that just happens all too often in politics. So anyway, all right. Switching subject a little bit.

So the other big story going on has been, of course, the rise of Polymarket, the prediction market, into which, well, disclosure, we are all investors. Polymarket has just surpassed a billion dollars in total trading volume as of July 30th. More than one third of the volume was brought about by bets made in July. alone. So it has just been a meteoric rise in the total amount of betting taking place on polychain, or sorry, on polymarket. And at the same time, as you were mentioning, I love the idea of Olaf has a bookie, though. Polly chain trading on Polly chain. It's probably a lot of liquidity on there. They did

leave the seat around, so I wouldn't surprise me. So anyway, Elizabeth Warren sent a letter to CFTC chair, Rosson Benham, calling for the banning of political event betting contracts, which of course would encompass prediction markets. The quote from this letter to the CFTC saying, hey, these things should be banned. Actually, I should be clear, they're already banned, basically. But they want to be like extra banned. So there was basically like a kind of redoubling of,

hey, you know, these like little no action letters you've given out and these like, you know, little carveouts were like, oh, you know, predicted and this and that. Let's like slap all of them down, take away all of their little, you know, sort of sandboxes. which we've allowed them to proliferate. And the line here from the letter is allowing billionaires to wager extraordinary bets while simultaneously contributing to a specific candidate or party and political insiders

to bet on elections using non-public information will further degrade public trust in the electoral process. Thoughts? I don't know any billionaires who are on Colleen. You have to be so far out in the risk spectrum that I don't think you're like like this idea is her usual bluster. I mean, I actually was wondering. I wanted to go see. I meant to do this, but I wanted to look at what her re-election probability is on

Polymarket right now because like maybe she doesn't like seeing her number. I'm going to look it up for the look. Okay, yeah, look at it. I'm going to look at it. I'm going to look at it. I'm going to look at war as odds on Polymarket. Because like I bet you if it's like really low because, you know, the D-Gen's like purposely making it low.

She hates looking at it. I don't. I mean, that's not going to work. But on the D-Gen side. I know, I know. I wonder if that's enough to get her to write the letter. I think there is, I mean, to be clear, I think, like, this is all very reflexive. And, like, we were writing something about prediction markets for our LP newsletter for, you know, at the end of the quarter.

And I was, I was reading about a lot of the history of prediction markets. 97% odds. 97. 97. She has nothing. She should love the prediction. Yeah, yeah. She should be tweeting out, like, the polymarket market.

Yeah, just like Trump, just like, you know. tweeting you know look at this i'm crushing my yeah 97 i'm gonna win yeah um no it's it's interesting because like this idea that prediction markets are corrosive to democracy um was not always believed right so if you if you look at the history of prediction markets people have been betting on elections in the u.s basically since like the early 1800s and if you look at the late 1800s and early in 1900s, betting markets were actually crescendoing in, I think it culminated the election of 1916, in which over $130 million in modern-day dollars is bet on that election. And around that time, like in the early 20th century, like the New York Times would print the prevailing odds

in the paper every single day. And there was a great quote that I read from the study that was showing, so one, showing that the prediction markets were actually, this is before the rise of scientific polling. The prediction market, were actually massively out predicting the, like, primitive polls that they had at that time that they were using. So they were much more effective than any other method of, like, actually predicting the odds. And there was a great piece in the New York Times in, like, I think it was like 1920, where basically New York Times was like explaining to their audience that, you know, Wall Street is known for being unemotional and being able to bet on the correct

odds of something happening. And the reason why you should expect the odds to always be correct is that if somebody were trying to push the odds in one direction, that, like, cold calculating Wall Street people would push it back into the normal line. Right, which is obviously correct, right? But like this idea that, well, no, no, no, no, if you allow there to be betting markets on elections, that's going to corrupt the process and to cause, like, people to throw elections and do all this other crazy nonsense. That idea started in roughly the 30s with prohibition.

And just a general kind of moral environment of, oh, you know, sinful. Well, the crash in 1929 in between probably influenced that kind of. Maybe it had something to do with it. But like there's actually never been any evidence from any U.S. election that prediction markets or betting markets actually didn't think that. I think the interesting thing that people seem to underweight about prediction markets is like, I don't know where the fuck the money in a super pack is being spent realistically, right? Like they have to disclose it.

They disclose some of it in chunks. They don't tell you everything. The prediction market, at least I'm looking at like every single transaction. I can actually see where the money is going, which I actually think is almost better transparency-wise if you care about that versus kind of like the minimal accounting requirements of some of these other entities. Because like, okay, well, I'm going to be funding this thing. And you could imagine that candidates were, you know, a funny thing would be imagine if the candidates were like liquidity providers to their own market. And then depending on the side, they split the fees. and that was their funding.

That's what you're making a joke earlier that that was going to be the Trump defy announcement. They're going to have a Trump-eat-staking derivative and you give the yield to the Trump campaign. Hey, that would be a fun idea. Trump, if you get that idea for me, you owe me some royalties.

Yeah. You have to name it after Toronto. Yeah. I do think, you know, really the reason why different types of futures contracts gotten banned in the U.S. It's because of like market manipulation or risk for market manipulation, like onion markets very famously are not allowed in the U.S.

because someone cornered the market at some point, embassy manipulated it. You know, Hollywood as well. Bring back the onion markets. Yeah, bring back onion. Where are my- I want to speculate on onion futures. I feel bad for the onion farmers. Yeah.

They can't have. They're not allowed to head. But, yeah, I think until something like that acutely very happens, it feels very far-fetched that somebody would. It's a lot of like the bans on short-selling. right when the market's going down like the first thing that a lot of countries will do is ban short selling which is obviously stupid and doesn't work and like it's counterproductive in fact yes because if you're not able to short something the price becomes more untethered from reality

right in one direction it hurts liquidity it hurts liquidity exactly it's like you might think it's productive but it's anti-productive yeah it's just like everyone thinks that tariffs are good for an economy it's like no tariffs are not it's like all these things that seem direction like correct? Like, do you break them down or directionally incorrect? Well, I would say it's more like, you know, price controls on a currency, right? Price controls. You know, it's like, oh, you can only exchange, you know, the bolivard to the dollar at this rate. And it's like, well, no, we're going to go trade it at the real rate over here while you're not looking. Right. Most artificial controls on anything that

deviate from the free market or inefficient in some capacity. Right. And somewhere, you're, you know, it's kind of like, you know, pushing on these like air pockets. Like, you push it over here and it pops over here, right? At the end of the day, if people want to either bet on an election or hedge their risk, which is tied to an election, which, like, if you think about it, one of the most momentous markets anywhere in the world, actually there's a very famous paper I think from like 15 years ago called, you know, many people in America like to lament that there's so much money in politics and that it's a very corrupting force. And this great paper which asks the question of why is there so little money in politics? Because if you think about it,

right, like the amount of money, and we're talking about the fair shake pack. right, the Farshake Pack, biggest super PAC today, $200 million, out of which only $40 million has been spent, which is, in absolute terms, not a lot of money given the size of the crypto market and the size of crypto economy. On that level, it's like, how why is there so little being spent when we spend so much money on so much stupider stuff? And this question of how politics is going to shake out for crypto is so momentous to the industry, right?

Like the amount of money that is the amount of like sort of market cap. Right, the EV of it is like. way bigger. Is like somewhere along the lines of like $2 trillion. I mean, this is again another reason why her claim that their billionaires manipulating the market is crazy. There's only been a billion dollars in cumulative volume.

Volume, not even like opening. Yeah, not even open. Yeah, it's like how, what do you talk about? And you also find it, I think like,

you know, in the sort of in trade predicted days, obviously it was very novel to have prediction markets. Intraded predicted being early prediction. Yeah. very novel way to sort of get signal on what's actually happening with the election. Because in those days, also everyone just reported national popular vote polls, which was like totally pointless for the most part.

Then obviously you have sort of 538 come along, take a more sophisticated approach to modeling and get more accurate. And these days, I think in many respects, it does feel like kind of the tail wagging the dog where I actually think those kinds of sophisticated models are more accurate and like less biased than what was happening in the market. And there's actually another good paper out recently talking about this exact phenomenon that on certain markets like, you know, manifold or predict it where maybe they're very constrained. Yeah, they can be more accurate than a sophisticated model. But for something like polymarket is more entertainment, it's not like this is actually like moving the market.

It's actually kind of like the other way around. Wait, I didn't follow. What are you saying that polymarket diverges more because it's more like entertainment? It's less accurate in predicting the outcome of certain elections than. just a sophisticated model, like a 538 style model period. Or I guess whatever's new thing is the silver ball. Interesting. Yeah.

I've seen, I mean, I have to imagine that polymarket has really gone through a phase transition. Yes. Just with the amount of money that's there now relative to what there was a year or two ago. But it's still not like that deep of a market. Like even on the headline markets of like, you know, Trump versus Harris, right? Like it's only like $100,000 to trade a couple points up and down. like there's not that much liquidity.

There's not a ton of liquidity. No. But relative to where was a year ago, right? It definitely attracted a lot more noise traders. That's kind of like what. And I think it's really actually more interesting for these long tail markets, like the VP NOM market. If you were trying to track that, there really was not a great signal coming from

mainstream media outlets, you know, for a while. It was, oh, it was going to be Shapiro. And then walls were like 4%. And then in a few days, you know, he shoots up to 100%. And so, I mean, I mean, I. I've been seeing all the people on Twitter being like, oh, this is proof they don't work. I'm like, come on. Yeah, if you didn't have that, you actually had no idea you would have thought it would have been

Shapiro for the longest time. Yeah, the media made it sound like Shapiro too, right? So it wasn't really like. But that's why the prediction market, I think, reflected those odds is because the media was making it seem like it was a choice between like one candidate and like who else. Yeah, yeah, exactly. Or even, you know, frankly, something as wild as Biden dropping out that was so unpredictable. for, you know, the longest time.

And then... Although that one, you could argue, the prediction markets did well on it. They front ran... Yes, sorry. The market I was just purely U.S. presidential election markets. I think for everything else, that's really where prediction markets shine because you're not getting...

There's not a, you know, machine set up to do predictions the same way there is for elections for these sort of longer tail events. There's not really that kind of infrastructure. So I don't know. I mean, if you look at like... So Nate Silver, the founder, original founder of... 538, who kind of reinvigorated a lot of the kind of scientific polling, or model making around scientific polling. His model looks very in line with the poly market odds, right?

There's like very small divergence. It's like it was almost exactly the same. And then it was just a few percent. Yeah, exactly. The feedback loop between them is like people sort of treat the models as like the external price. Like in the same way that like on chain on dex is like you have the finance price. People arbitrage relative to that and there's something. People oftentimes treat the models.

or the news predictions as effectively like an Oracle price. And then they trade relative to that. That's kind of... That's more my point is like that's kind of the tail wagging the dog. And I think the paper I was referencing to was talking about state-by-state basis. And that's how it sort of draws the correlation. Because you're right that on a national level, you get one shot every four years. And so there's not a lot of data points.

Whereas if you look at the prediction markets versus sort of modeling ability to predict state elections and how accurate they are, that's where you kind of see the reliability of the models. Right. And I guess there is some part of it also, of course, is the capital constraint and the capital efficiency that right now on the market is relatively low. So every market is like kind of cordoned off and they all expire at the time of the election.

And so there is some sense in which like the odds should actually be getting more accurate the closer you get to the election because of the fact that the cost of capital is, or the opportunity cost of that capital is decreasing. Yeah. So this far out, it's like, okay, well, there's like four months for the election. And those four months, it's like, well, interest rate is 5%,

which means that it's actually unprofitable if you're going to pay 2% and opportunity costs between now and then. It's actually unprofitable to say, well, the real odds are 55 and they're giving it 53. I can arbitrage it back to 55, even excluding fees or liquidity. It's actually not profitable for anybody to do that, which means that the bans, ironically, like the interest rate actually gives some bound on these long-dated markets for being able to actually track the sort of true value of an asset.

So there's a natural function of these very long-dated assets like prediction markets unless there's something that can kind of allow you to get better utilization of the capital that's in those prediction markets. So I don't know. But that seems pretty difficult to do without knowing ex ante the correlation matrix between like, well, you know, if like Kamala wins, how much more likely is there. There have been some people who have been trying to claim, hey, look, if you're resting it could be in a prediction market, maybe you can earn yield on it in another way and then

pass that back so it offsets that somewhat. And so I think a lot of people who are trying to be like, oh, we're changing the prediction market mechanism or doing things like this to like tighten that. Yeah. Improve capital efficiency. But it's like it doesn't feel like it changes the fact of the matter, which is that the participants in this market are already so far off in the respect. they're not like super low risk like they're looking to triple their money by picking an outcome of

the thing correctly yeah they don't care about the presidential election obviously you're not tripling the money well if the odds are 33 percent which which they're not no now but they were i mean they were yeah yeah a few days ago right so it's like you know find doubling your money everyone thinks they're that's right that's right no that's true that's assuming the odds double your money in four months and uh obviously that's going to be you know the the dominant factor for most people who are betting emotionally. And at the end of the day, it's kind of like sports betting. You have to make it emotional. You have to make it fun and engaging to get more and more people into the fray for the kind of financial types to actually even think it's worthwhile to like make the markets

and make them liquid. Yeah. So, but it'll probably be a while before we see like real kind of market depth comparable to I think what the gravity of the market warrants, right? There will be a point where somebody is hedging their own geopolitical risk on a prediction market. Right, but I still don't think even the markets are remotely close enough to being liquid enough for that. Yeah, yeah. They're not yet. They're not yet. A major corporation or industry can't even use them to hedge because there's like $100,000 of liquidity.

Right. The volume of trading is huge. Yeah. But if you want to put on a $10 million position, you can't. You like physically can't. But that is what I'm claiming will change. Yeah. That is what I think will change in a little time.

Yeah. Hopefully, hopefully. Hopefully. It would be interesting. Okay. Last piece that I wanted to talk through is the Salon outperformance. We kind of alluded to it earlier when we were talking about how Solana has been kind of pulling out of the rebound. There's definitely a resounding Solana summer vibe as we've seen

for the first month, Solana's Dex volumes were higher for the entire month over Ethereum. And if you look at, you know, net of the like the MV tips and all the fees and everything, that has also flipped Ethereum for the first time. We saw an individual days where that has happened or even weeks, but now we've seen an entire month of sustained activity with Solana netting higher than Ethereum. Despite that, there's been a lot of, many people have noted that Salana still kind of has a dearth of VC investment in the ecosystem. So if you think about just the total amount of dollars going into the Ethereum, EVM compatible ecosystem, it's pretty massive. But if you look around at a lot of the Salana conferences or hackathons and so on, it doesn't

really seem like we're seeing the same volume of capital coming into that ecosystem. And of course, it's also true that in the Salana ecosystem, the biggest winners have been Salon itself, some degree Jupiter, and then mostly mean coins, not the rest of the Salana ecosystem of like, you know, the defy applications and so on, and, you know, the sort of more Web 2, or sorry, Web 3 style apps on Salana. So curious to go around and get your take of, how do you feel about where the Salana ecosystem is at? Obviously, you know, the mean coin activity is driving a ton of revenue and a ton of fees. But where do we think this is going? And why isn't it that we have seen this congealing of more of a complete VC ecosystem comparable to the Ethereum ecosystem.

Tom, when do you start? I'm the Salana. No, Tarun is, but you can. I mean, I definitely would say I'm probably the most pro-Slancaps. Yeah, you're the most slant. You're the most slant pill. We'll let you go last. Yeah, I mean, I think it's always this sort of EV calculation.

I was actually thinking about this recently so much time about like, obviously the Canadian economy is not doing super hot right now. Everyone's like, oh, there's brain drain to the U.S., and, you know, we should be doing more to encourage, you know, startups in Canada. And, you know, part of the answer is like, well, if you're an entrepreneur and you want to start a company, there's way more capital. It's a way bigger market. It's way easier to do that in the U.S. you have a way bigger outcome.

And so unless you kind of change that equation, it's hard to have it make sense. And I think there's a very similar dynamic for entrepreneurs and VCs for different chain ecosystems of, well, if I want to start a new, you know, DFI project, you know, maybe I can do it in this new ecosystem and hope that I can get enough capital and users. and kind of like make the whole kind of wheel start turning. But for VCs, they look at it and they see, hey, well, this is like a smaller ecosystem with a smaller likely outcome. And so therefore your valuation is probably going to be smaller. And I think this is kind of the tension I see

when I look at. But okay, but people don't launch these things directly on Ethereum that often, right? Very often it's like, oh, I'm on Arbitrum. I'm on base. I'm on, you know, something else. OPE or whatever. And that, like, those individual ecosystems

are each smaller than Solana. Yeah, but, you know, EVM is also you can multi-homb pretty easily, which is also, I think, what we see, where, hey, I'm going to do all the major... Deploy the plate of six at the same time. Yeah, exactly. And it's not additional overhead infrastructure to do. Well, well, it's definitely overhead. Not substantially so.

Trust me, dealing with those oracles when things are crashing is a substantial overhead. Hopefully things aren't crashing all the time. Only when they carry trade on lines. Yeah, exactly. The Bank of Japan. Yeah, Bank of Japan, 17 years as they raise... I'm just saying it's not just like one-click. I never think about it.

But yeah. But yeah, I think the answer is, well, again, we kind of have this with the application investment thing a few weeks ago, which is, well, you actually want to see great outcomes in this ecosystem and you want to see your valuations and comps sort of go up. And so that when entrepreneurs are raising and BCs are investing, they know that there's a good outcome. There's a good story at the end of the road. And right now it feels like there's kind of that question mark.

And so as an entrepreneur, are you going to willingly take a lower valuation and have a less favorable capital environment if you're going to go and do something kind of, kind of esoteric. What do you say? Yeah, I would say it's an inefficiency that smart participants in the market will solve to make an outside product for themselves. Like, fine. If there's not enough VCs in the Solani ecosystem, then the smart VCs will migrate there

and specialize there. And until they do, they'll have, you know, market returns and the ones that migrate for We'll have above market returns and then the opportunity will close and then everyone will return to market returns again. You know, so if you think it is, you're declaring that's an arb, there's free money sitting on the table. Yeah, they're probably is. Are you going to spend more time in the salon ecosystem as an investor from robot? Yeah, I want to. Okay.

Like we have. Yeah, we have, right? But like, you know, yes, like more people should be spending more time if that's where the activity is migrating to. Like, you want to be ahead of the curve, not behind it. And so, like, I think that that is opportunity. It's not a problem. It's a problem if you're a founder in Salonaland and you're getting a lower valuation. If you're a founder in Salonaland, message Tarun and I and we'll chat.

Yeah. Well, so it's interesting because I feel like every cycle there is some change in the meta. Yeah. Right. And that change in the meta creates an opportunity for a new fund or a new strategy that is like, sometimes overfitted, but very much like, you know, kind of cater to that particular. change in the meta to have a really meteoric rise. So if you think about, you know, in, I don't know, 2018, like FBG or something,

and then in 2021, you saw Delphi kind of rise to the top of the ranks and become super competitive from their Web3 metaverse gaming strategy. And so it allows you to kind of skip a bunch of spots on the leaderboard if you are able to take advantage of the way in which the meta has just shifted. And so it sounds like you are projecting that the shift over into Solana, it's still. still early, the VCs haven't caught up yet. And if you shift now, you know, I think about folks like, what's Logan? What's Logan's fund?

Logan, Joe. Oh, I forget the name. Frictionless? Frictionless, is that? Frictionless, right? So that's one example of a fund that's very catered towards a salon. A good brain. Do you think that these, Sixth Man?

Do you think that these are going to see like this sort of rising in the hierarchy of venture because of them being early to this? Probably, yes. If it pans out and so far it looks like it's panning out. But again, like it's too soon to tell. Like we're talking about trends that have been around for like six months. Right. In a lot of ways.

Or it's like if in a year and a half we're like, oh my God, Solana overtook Ethereum in terms of like applications and like users and market cap, then at that time we're going to look back at the VCs that were focused on Salon and be like, very likely they outperformed everybody. Yeah. I think there's a couple things. First, I think the reliability of the net. network has gone up significantly thanks to things like Gito, which disclosure investor.

Because I think a lot of the infrastructure problems that Solana had when it first had a ton of demand in 2021, 2021, have been ameliorated by kind of engineering solutions versus like theoretical, fully baked research solutions. In the sense that, like, I do feel like there's a sense in which the Solana ecosystem founders and engineers are much more pragmatic. In Ethereum, I think there's a high startup cost that is perceived by both founders and investors in the sense that, well, if I'm going to build something and it has enough novelty, it needs to be a roll-up or it needs to have its own infrastructure. And the infrastructure just has a higher cost, which implicitly gets priced into the valuation. Now, the question of whether we can see those valuations persist in the long run post unlocks. will be a very interesting era for roll-ups. The second thing is, I think, the interoperability story

has been on a theorem, has just been abysmal in a lot of ways. Like, I feel like, you know, it's just like, it is a lot of effort to actually move between roll-ups in a lot of ways. Like, fine, simple token transfers are easy, but like suppose I want to migrate an LP position. It's like a pain in the ass and the message-pressing bridges. Yeah, there's more fragmentation than that. There's just more fragmentation than stuff.

And as an example, I was in the country of Georgia recently, and I need to get money from base to Tron because I could pay in USDT on Tron for like toothpaste and cocktails. The first time I ever like really... Toothaste. Yeah, yeah, the pharmacy. And cocktails? And cocktails.

Bars were taking Tron? So basically the story with Georgia is, if you're Georgian or American or European, you'll just use Apple pay for most things. But there's a ton of Russians who came to Georgia post-Ukraine war and a lot of them can't really get bank accounts or use Swift because they've been kind of sanctioned,

banned. So they all use tether, and they're actually relatively wealthy, relative to the locals. They spend a lot from tether, and so they're these POS devices that you will give you QR code and you pay in Tronon. What company do you know? I have no clue, but it's definitely a trust wallet

things of Binance to somehow. Somehow, it can't be that far away. Okay, okay. I see. But I don't know. It was the first time I did it. And it took me almost 40 minutes to figure out how to get money on to Tron. There was like some really sketchy bridge that was an EOA on one side. I was just like, I was like, and whereas like you think about the experience on Solana

for someone who's never used crypto who's trading meme coins, they don't have to think about all these like crazy things. They don't have to go like understand what this bridge is doing, et cetera. So I think there's a lot of UX stuff. I mean, it's not that I'm not in the long run. I think roll-ups will eventually figure out a lot of these things. But I think it's just the pace of development is slow. There's not this kind of like engineering mindset in a lot of parts of Ethereum,

which I think has slowed it down in terms of performance in terms of new applications. And I think the other thing is if we think about the applications that are most successful in crypto, very few of them, applications on infrastructure, very few of them really needed that much funding to get off the ground. Like if I think about uniswap, I think that polymarket, I think about pump. Dot fund, right? Like, they didn't really need that much money to get off the ground. Once the infrastructure is sufficiently good, you could start kind of easily. And I think in Solana, people just don't need that much money.

So, fine, valuations are lower. They just go do it. And if it's successful, like pumped out fund, then, like, obviously you have this huge amount of fees in valuation increase. So, like, you should care about the delta and increase in valuation much more than you care about where you start. And I think that makes it potentially less attractive to VCs, but also at the same time. Or more attractive if you do it correctly. Yeah, or more attractive if you're willing to size correctly, do more syndication, right? Like you have to think of the strategy in terms of more diversification rather than more concentration in ecosystems like this.

And I think that's sort of a portfolio of construction. Yeah, if you're an early stage investor, I think Solana ecosystem is relatively more attractive because the multiples are there, even if like the net dollar amounts are. are going to be smaller, yeah. So, I mean, that sounds right to me. And I like your point that this is kind of a wedge for an emerging VC to kind of make a name for themselves and find a niche that maybe is being underserved by a lot of the bigger guys. You know, to Tom's point, it is just true that like the quantum of capital that's available

on Salana is just smaller, right? It's like $5 billion in total in TVL in Solana compared to the EVM ecosystem writ large is just basically everything else. You know, that's pretty much all the other money is on the. UVM of one form. It's just that the velocity of the money on Solana is so much higher. Right. But specifically when you're toward the like the beating heart of Solana, which is around

Pump. Dot Fun, meme coins, radium, that's where the velocity is very, very high. So like what I would tell founder today is that look, if you're doing anything touching meme coins or you're doing anything that's like very kind of intrinsically DGEN or you are doing D-PIN, absolutely 100% should be on Solana. There's nowhere else to go. I think anything outside of their. It really depends on what you're building, who your audience is. Like, there's really nothing else that I'd say, obviously, you should be on Solana.

And I think the, like, the reality is that, like, if you look at the experience of, like, the old school defy founders on Solana, like the guys who built out, the original trading markets, the lending markets, the, you know, the perps markets, all that stuff, like, their fate is very different from the folks who are doing the meme coin stuff. And that's kind of a tale of two cities, right? there's people who are like eating rich. And then there's a lot of people who are just like, Leffered dead and we don't talk about them anymore,

even though the protocols are still used and still are like part of that value chain in Salon. Are you thinking of like the Orca, someone like Orca? Something like Orca, you know, Soland, you know, like a lot of these players were there early. Yeah. And really still, you know, have big TVL numbers. But to be fair, this happened in Ethereum too, right?

Look at zero X. Look at like the protocols. Right, but they're not still, but they're not still dominant. And like. But I'm just saying that's like inevitable. you might just invent too early. Right? The scale factor is very different. Right? The scale factor is very different. I mean, zero X is still like...

I think Xerox is still actually worth more than ORCA. So like that's... Yeah, that's fair. That's fair. And that's... But again, it goes back to like, well, you want to get listed on Centralals Exchange. 10 times easier to do that if you're in ERC 20 versus if you're... Yeah. Yeah. And look, I do think that that will converge over time just because people get more...

Yeah, I actually think the SPL stuff is not an issue anymore. Like, if I don't think that's a... Flurf or whatever, right? That was like almost insane. It's not a technical issue, but it's more hand when you're like talking to, Yeah, it's different. Yeah, it is. It is. And like, look, some of these things are not rational. Some of these things are just like, well, there's kind of a vibe to an SPL token that

in exchange just kind of, well, you know, they sort of have associations their mind with, like, things that are not. I feel like people are getting over that. I really do feel like that's changing quite a bit. I think, oh, you look, whether they're getting over it or not, I think the thing that's, the thing that is clear right now is that, like, Solana at this point has this, like, very, very large, what's the term for like inequality measure? Genie coefficient. It is very high geneal coefficient on Solana relative to what I see in other ecosystems where like there's people

just like crushing it, getting incredibly rich. And then like most people are just like, where is everybody? That's what Solana feels like to me. And I think that feels less true in a lot of the Ethereum ecosystems is that if you think about like the people fighting it out on blast or base or whatever. It just kind of feels like it is easier for people to get off the ground and find somebody to show up and use their protocols. So now is the market wrong to be ascribing these multiples and so on? The other thing I'll say, and I don't know, look, it might well be. And I think that's possible that there will be more of a catch-up. But right now, you know, we've seen with the rebound, most of the rebound is not Orca and things like that. Most of the rebound is dot coins,

you know, in the Salana ecosystem. The last thing I'll say is that I think Solana is putting a lot of competitive pressure on the Ethereum ecosystem. So if you look at the new generation of EVM chains, they're all a response to Solano. For sure. I think one interesting thing is when you talk to Ethereum core developers or you talk to kind of people

who are the older generation of roll-ups, they generally are like unwilling to be like, oh, we could learn something from reading the Salana code base. But if you look at the newer generation of roll-ups, like the ones that are launching they're trying to be high performance. They're much more trying to draw inspiration from Solana's codebase, right?

And it's like interesting because the Solana side is like everyone is looking at the eth code base and codebases and drawing inspiration. And I feel like that, like, the fact that the learning was all going one way reminded me a little bit of like Bitcoin Maxi's being like, oh, we never need to learn anything from Ethereum. Or like China in the U.S. Yeah. Wait, who's China? Who's the U.S. in this analogy?

Depends on which product, I guess, right? It goes. But, but, but, like, I think there's kind of this interesting thing where, like, the newer entrants are realizing they need to learn things from Solano, which I think was, like, just a, you, you know, you would be an outcast to say that we should learn. 100%. And, like, even, like, six months ago. And that I think.

To be clear, I think everything I'm saying is not supposed to be a judge of the quality of, like, Solana products or builders or the chain. Actually, we have some in our portfolio. They're fantastic. you know, nothing but respect. It's more of like a capital markets comment. It's like, you know, would you want to go public in China or do you want to go public in the U.S.?

Well, there's a reason why ADRs exist and CDRs don't exist. Sure. Although I think the problem with the roll-up marketing is like, hey, you can join the U.S., but you have to start your own state. And starting your own state's a lot more work than building a building in Tokyo, you know? It's like. Yeah.

And I think that that difference is a big difference. Look, that's happening on the roll-up side, too, is that everybody's losing the base right now. like base is just gobbling up everything with respect to roll up market share. It's making it really tough for anybody else to get any oxygen. And the same thing happening on Solana in many ways because of the fact that retail is basically on two chains, which is base and Solana. And almost everything, whether there's mean coins, whether it's just like crazy D-Gen experiments or like the cool new thing that's happening. It's almost always happening on one of these two chains now.

But I do like this point. I think it's a good note to end on is that Solana has raised the bar for everybody. Like anybody who's launching a chain now or anybody who's doing any kind of R&D, it's always a question of what is your answer to Solana? Why would someone not to do Solana instead of using your stupid, you know, fancy new thing? And I think that is, that is ultimately what you want to see in a market is people responding to each other's challenges and technology like kind of winnowing its way to get better and better. So what I want to see in the long run is Salana getting better in many ways, like, you know,

all the stuff that they're talking about multi-proposer, you know, going in a way, in a response to what's happening in the MEV stuff that's also evolving on Solana in response to what they see happening on Ethereum. And in the same way, Ethereum or the EVM ecosystem saying, oh, shit, we got to get better on latency. We got to get better on throughput. We got to get better on, you know, making this like retail friendly experience and not these like 40 minute wait time. So like move an asset from here to there. Yeah, some of the, I just also the other thing is like the high variance and interrupt quality across bridges. If you're a random user and you like Google like, how do I bridge between X and Y and you choose the first result.

Chances are you chose a highly suboptimal one. Maybe your funds are locked for 20 minutes. You haven't been able to think of it. You know what I mean? Like you don't think about that on these integrated chains. So you need, I think like we're seeing people trying to turn this in a pure, think of this from a pure engineering standpoint. But I also think there's a sense in which, yeah, people need to learn lessons.

Yeah, well, look, we also got the SVM rollups coming. So we're going to feel like every lesson is going to be learned on every side. I mean, yeah, I guess they're live. They are? Well, Eclipse is live. I didn't know that. Yeah. How's it, has the launch gone?

Pretty good. Wait, this eclipse like the, the Neal world. They're the number on blob producer on Celestia right now. No kidding. Yeah. No kidding. They like doubled Celestial fees. Why don't we?

From nothing. Let's get a guest to that world. Yeah, yeah, yeah. Well, no, I actually think for in Singapore, we should get Antalue. That would be great. Yeah, yeah, that'll be a good one. Okay, well, we got to wrap. Thank you, everybody.

We'll be checking back in next week. Hopefully, Marcus will calm down. Until then. See, everybody. I've got to run the meeting. Yeah, I'm late for something.