Unchained - The Chopping Block: Venezuela Sanctions Drama + Polymarket Insider Trading + Zcash Foundation Exodus

Episode Date: January 14, 2026

The Chopping Block breaks down the Kontigo Venezuela sanctions scandal, poly market insider trading drama around Maduro's capture, and the explosive Zcash governance crisis that has the entire Electric Coin Company team quitting to launch CashZ amid foundation versus for-profit wallet debate. Welcome to The Chopping Block — where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest in crypto. This week, the crew dives deep into Venezuela's unexpected crypto connections following Maduro's capture, unpacking how the YC-backed fintech Kontigo allegedly used stablecoins to arbitrage sanctions and capital controls. They debate the moral complexities of banking the unbanked versus violating US sanctions, and whether stablecoins are fulfilling their promise of financial freedom or enabling bad actors. The conversation then shifts to prediction markets drama, as a mysterious trader made $400k betting on Maduro's downfall just hours before it happened — sparking calls for insider trading laws in political betting markets. Finally, they tackle the governance chaos in Zcash land, where the entire Electric Coin Company team quit en masse over disagreements with the nonprofit board, launching a new for-profit venture called CashZ. The hosts debate whether this signals the end of the foundation era in crypto, or just growing pains for protocols trying to build killer products. Hosts: Haseeb Qureshi Robert Leshner Tarun Chitra Tom Schmidt Links: FinTech Business Weekly - Kontigo: Y Combinator's Venezuelan Sanctions Evasion Startup Wall Street Journal - A Mystery Trader Made $400,000 Betting on Maduro’s Downfall Learn more about your ad choices. Visit megaphone.fm/adchoices

So the first thing is, like, looking at it as an investor, it's pretty clear that there were some real big diligence failures here by everybody who underwrote this. And just, you know, you don't touch it. You don't mess with sanctions. Sanctions are really, really serious. And your exposure under U.S. law, sanctions are strict liability. It's not enough to say like, oh, I didn't. Oh, ha ha, ha, whips a daisy.

It doesn't matter. Strict liability means that you violated sanctions, punishments come on you regardless of what your intent was. Not a dividend. It's a tale of two fun. 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.

Delic.Eight is the ultimate pump. DFIPITES 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 insider perspective on the crypto topics of the day. So quick and chose.

Just you got Tom, the Defy Maven and Master of Memes. Hello, everyone. So we got Robert, the Cryptoeniconisurer of Super State. Good morning. I get to ruin the giga brain and grand poohba at Gauntlet. Yo. And I am a C of the head hype man at Dragonfly. We are early stage investors in crypto, but I want to caveat that nothing we say here is

investment advice, legal advice, or even life advice. Please see chopping block that XYZ for more disclosures. So it's a very joyous time in America because a new colony just dropped. Apparently we are now taking over Venezuela. So surprise. It's a morning in America. And unfortunately, Venezuela has been a little bit of a couple of a couple of complicated situation. So for those of you who are living under Iraq, the president of Venezuela was

basically picked up very kindly by American military and brought to New York, where he's now facing charges. And as part of this invasion of Venezuela, it turns out crypto actually had a lot of intersections with what happened in the takeover of Venezuela. So first, there was a rumor, turned out to be unfounded, that Venezuela had an enormous portion of their holdings in Bitcoin. It looks like this has been invalidated. It seems to be not true. However, it is proven that they were using tether very extensively in their purchases of oil to get around. Obviously, they were sanctioned, and so it was difficult for them to transact in dollars.

And so as a workaround, apparently they were using quite a bit of tether to get access to this. Now, there's a bunch of companies on the ground in Venezuela that were growing quite rapidly before the invasion of Venezuela took place or whatever, not invasion, whatever you want to call it, the capture of Maduro took place. And one of these companies is a company called Contigo. So Contigo was founded relatively recently. It was a YC company, but Y Combinator, which is a big startup incubator in Silicon Valley. And so Contigo, interestingly, they got hacked just a couple of days before the capture

of Maduro. So this was perceived to be a little strange, just the timing of this, like, okay, wait, the money is gone, seemingly right before Maduro is either C, D. or potentially some people speculate that he may have been given up by some people who are inside the administration, who collaborated perhaps and wanted to see some turnover in the power structure in Venezuela. And then just on January 11th, FinTech Business Weekly dropped a gigantic expasse on this company Contigo. So a little bit of background contigo. Contigo was supposedly one of the fastest growing companies that had come out of YC. They were doing basically reminses

app for Venezuelans. They were on the ground in Venezuela, and they allowed you to get you know, like many of these fintech apps that use stable coins underneath the hood, they allowed you to get dollar banking in Venezuela. But interestingly, they were using two rails in particular. So one, they were using these J.P. Morgan smart accounts. So these kind of just in time accounts that you can get without actually being yourself a J.P. Morgan customer. So they can have these accounts on behalf of individual users. And as well, they were using a bank that is a Venezuelan state bank. And they had one of the only two crypto licenses in the country by the crypto regulator in Venezuela. And so this expose

revealed that Contigo in some way seemed to have been enabled to transact with sanctioned entities, despite the fact that they were using U.S. banking rails. They were using JP Morgan, Stripe, lead bank, and supposedly there's speculation, I didn't see any proof of this, but there's speculation that there were

ties to Maduro's son, who was somehow connected to the startup or invested in the startup or something that allowed them to get access to the license as well as these rails. So how are they making all this money? You know, supposedly they were on, actually, I don't remember the number, but, you know, tens of millions of run rate they were on, a very, very, growing in a very, very rapid clip. And supposedly the reason why they were making so much money is basically that they were getting access to U.S. rails, but they were allowed to essentially play both sides of the black market on what's the currency?

Bolivars. Boulevars. Boulevars. Yeah, exactly. So basically, they were able to transact in the black market for bolivars, but also get the reference rate, the sort of fake rate that the government is giving you, that's not the actual market rate, and basically they were able to arbitrage between these two, which, of course, if you can arbitrage capital controls with a license, that's an amazing business. And effectively, that's the accusation,

is that that's effectively what they were doing in violation of sanctions. So now the company has denied all these allegations. The CEO is now on Twitter saying that he's going to sue people for repeating these allegations. So to be clear, these are allegations. No idea whether or not these are true, but a very curious situation because in many ways, this story strikes at the heart of what stable coins are about. We have advocated for a long time that a big part of the banking of the unbanked, a big part of the value of stable coins, is that they extend the reach of the dollar into many of these countries that otherwise would be dollarizing, right, but for capital controls or for restrictions that people place on individuals. And one of the reasons why stable

coins are so attractive is because they allow individuals to route around these controls. Now, at the same time, the companies that enable that, something like Contigo, is doing so potentially in violation of sanctions. So it's a little bit of a, you know, it's a very sticky moral quandary because companies like Contigo, they are the core of what stable coins do. A lot of the adoption of stable coins is in emerging markets, and it's doing so in contravention of what the government wants. But what individuals want, of course, like the people of Venezuela, are being horribly repressed by their government. The Bolivars had insane inflation,

one of the highest inflation currencies in the world. They're basically hyper-inflating. And so people there informally are using dollars to get around it. But we've also sanctioned the government and sanctioned the banks and make it very difficult for banks to transact with Venezuelan individuals, despite the fact that Venezuelan individuals

aren't necessarily sanctioned. So all of that is backdrop, wanted to get your guys' reactions. What did you think about this Contigo story and how does it reflect about how you think about stable coin sanctions and how, all the stuff, how all the stuff comes together.

Well, before we go into Gatigel, let's go for the even deeper Venezuela and stable coin backstory, which is I remember when Venezuela launched its own stable coin specifically to evade U.S. sanctions called the Petro, right? This was, it was supposed to be stable. It was tied to oil. Yeah, yeah, yeah, yeah. I'm not even sure if it was supposed to be stable. I thought it was just like tied to oil.

Stable pegged to a barrel of oil. It was a barrel. It was a barrel. barrel crude. It was a barrel crude. Yeah, it was a barrel coin. But they launched a barrel coin specifically to evade sanctions, knowing that the inherent properties of a stable coin was that it would be censorship resistant enough such that the U.S. government could not censor the transactions in the currency.

It failed to take off. It failed to get any traction whatsoever. But there's been very demonstrably longstanding interest from the Venezuelan Maduro regime, specifically, to use stable coins in a censorship-resistant way. So I don't know the details of Contigo. I would not be surprised if there was cooperation or, you know, a closed eye or two or something more deliberate. The roots of them being familiar with crypto and attempting to exploit it goes back a long way, right? This is not something that like the average American is like using stable coins for sanctions evasion. It is regimes that are bad guys, right? But this is a

clear example. What's your take on the moral side of this question, of the story, though? Yeah. I mean, the moral side of this is like you actually don't even need a stable coin, frankly, if there's any other censorship resistant assets, right? There's Bitcoin. There's other crypto assets. You know, theoretically, the stable coin element to this only adds a dollar peg that otherwise wouldn't exist. I think there's a long tail of and a growing list of permissionless assets, right? And, you know, I think any regime that's under sanctions is going to find ways around it, right?

You talk to experts about this stuff. Like, every one of these regimes that's under sanctions finds an infinite longtale ways of evading it, whether it's through like physical barter of like oil and weapons and boats and things with other nations. But like they're very hard to enforce outside of the U.S. banking rails, right? Almost everything else economically and financially that like countries engaged in trade with is outside of like direct U.S. control. And so, you know, if you're Maduro, if you're Khomeini and Iran, if you're any of these regimes under sanctions, your goal is to continue to trade in whatever format it comes across. It's frankly a little bit embarrassing if it comes

into U.S. bank rails through multiple hops were complicit in this because somehow, you know, a company was able to get licenses on both sides and nobody knew any better. But, you know, I wouldn't be surprised if people unraveled deeper things, not just about Contigo, but about other fintechs that are somehow in the middle of this. Yeah, I think, I mean, a lot of this also feel specific to, like Contigo's business model, like you said, of kind of taking this big spread between the official rate and kind of the, kind of the, black market rate. I mean, stable coins and tether, you know, it's huge in Venezuela. There's plenty of peer to peer markets. People can use any sort of wallet. I mean, the same way in

Argentina, you would go to like Equiva and exchange, you know, pays with dollars. Similar kind of phenomenon. And people have been doing that for a long time. But then obviously you offer it through this app that then is connected into traditional banking rails. And that seems like where you run into issues with what they were offering. Yeah. It's surprising that this doesn't seem hard to have figured out. There were only two licenses given by the Venezuelan crypto regulator and Contigo is one of the two recipients and they were working with like so i think Venezuela has like two state banks they were working with one of the two state banks both of which are sanctioned by the u.s. government so it's it's sort of like i mean did they i i mean i don't know but

i can't imagine they did any diligence whatsoever or maybe they got the licenses after they were able to get the u.s banking relationships that seems plausible to me that maybe they just didn't update the whatever when they were onboarding onto these virtual bank accounts that they had at these U.S. banks that they just didn't circle back once they'd gotten these Venezuela licenses, but I obviously have no idea. Turin, what's your take? I'm more of the camp that, you know, any Eurodollar-like product eventually has this type of thing where, like, there's somewhere in the world where they, their entire, the majority of

their business model is arming the fact that either there's some yield that's not accessible or a license not accessible or sanctions, Like they're all kind of like there's like a slippery slope and I think if your goal is maximum distribution, then you're inevitably going to have this. And I think this more shows a failure of how KYC works and a lot of banking regulation in that it's like a it's a point estimate at one point in time, right? It's like I KYC do I never check again. Right. And to your point about like, oh, maybe they got the license after and then no one bothered checking that. that is sort of why the whole KYC system seems kind of broken anyway in a lot of ways.

Like there's no live measurement of anything, despite the fact that we have the internet. Like, it feels like looking at a fax machine sometimes when you listen to like these procedures. Well, it's evolved from the analog era, right? Like the rules were designed pre-crypto. The rules were designed mostly pre-internet. The rules were, you know, it's evolved over time. But it started from a very low-tech perspective. Dating back to the day where people walked into banks and you got to know the person

who was standing in front of your face. And they said, you have to know who that is. How could you possibly do business with someone if you don't know them? Yeah. I mean, so I'll speak to, because it's funny because I met this guy, Jesus, I think is the name of the founder. He was going through, he was going through YC and then he also went through, what's the, What's the one in SF that's like 12 cohorts in Elmo Square?

HF0. HF0. HF0, yeah. They also went through HF0. So I think we spoke to them then. We ended up passing on the deal. It seemed like a smart guy. I didn't know that.

Obviously, I don't know a ton about Venezuela. You know, as much as any crypto person knows, which is that it exists. It's a country that's going to go hyperinflation. It felt too early for us to really consider it, so we didn't go that deeply. And I guess, so I'd say a couple things about, this whole situation. So the first thing is, like, looking at it as an investor, it's pretty clear

that there were some real big diligence failures here by everybody who underwrote this. And just, you don't touch it. You don't mess with sanctions. Sanctions are really, really serious. And your exposure under U.S. law, sanctions are strict liability. It's not enough to say, like, oh, I didn't, oh, ha ha, ha, whoops a daisy, doesn't matter. Strict liability means that you violated sanctions, punishments come on you regardless of what your intent was. So sanctioned violations are very, very serious. Now, all that being said, so there's the legal question, which is like, and the investment question of what you should be doing as an investor, which is stay as far away from this kind of stuff as you can because it's very, very dangerous.

And then there's the moral question. And the moral question kind of disentangles from the legal, from the legal question, right? On the moral question, I think it's pretty clear that, like, both from the perspective of morality and from the perspective of American interests, we want Venezuelans to use stablecoins. Like, as America, like the whole idea of stable coin policy and internationalizing the dollar is that places like Venezuela dollarize, and that's good for America. So in some sense, like, this is what we wanted with the Genius Act. It's why we made it so that when we legalize stable coins, you do not need to KYC as a user of a stable coin, right? We don't care if you're Venezuelan, even if you are some bad guy or

you're part of the Venezuelan government. If you're using dollars, great. We actually want the whole world using dollars. So in that sense, like the expansion of dollar. even into quote-unquote bad guys is actually good. That's part of the explicit goal of the geopolitical strategy behind stablecoins. And at the same time, and the other side of that, of course, the crypto side, which is that, you know, the advancement of banking the unbanked, giving people more human freedom, and giving people more financial access, companies like Contigo explicitly do that. That is what they do.

I mean, they do all this other stuff, too, of like Arbing the, obviously this is how they make money. but the core product is just you got bolivars, we're going to get you out of there. We're going to get your dollars. And to me, that seems pretty obviously good for Venezuelans. And one of the strongest arguments for why crypto is increasing human freedom and doing good for people. Now, that being said, the sanctions are messy. Sanctions are complicated because they're a tool that causes a lot of harm for this game theoretic purpose of basically bargaining with nation states.

And you take the harm because you think that. it gives you the bargaining power or it gives you some other advantage. I do tend to think that as a country, we overuse sanctions. I think that we overestimate what they can do. I think actually they have a pretty weak record. But there are times when sanctions have been tremendously powerful, although it tends to mostly be the threat of sanctions rather than actual sanctions. I mean, I don't know if they are ineffective.

Like, frankly, if you look at countries like Iran today that have their currency has completely collapsed, it's due to sanctions, right? If you look at Venezuela, their economy has also completely collapsed. We do use sanctions as a nation, right, a tool of national security and national interest that I believe is highly effective. The problem with sanctions is that they're very indiscriminate, right? Like, we hurt the Venezuelans much more than we hurt the Venezuelan government. The Venezuelan government just started hyperinflating, extracting more, doing more and more

damage to the people of Venezuela. So there's a targeted tool to attack a government. Sanctuary, like, I mean, just look at Iran, right? Iran has been so many decades that we've been sanctioning them. And mostly the people have been heard is not the hominee, or however you pronounce his name. It's been the people of Iran who've been mostly heard. So that's what I mean when I say it's a very blunt instrument. It doesn't have a great record relative to other ways of trying to depose regimes.

Yeah, that's cool. I agree with that. It is a very blunt instrument, but it's also a very gnarly and effective one. It's a very gnarly. It's a good way, but it's very gnarly. There's one more story about, anyone want to comment any more about that, but there's one more story about Venezuela when I get to. So the other story, the other story about Venezuela comes from our good friends at Polly Market.

So there was a lot of hubbub right after the capture of Maduro, that there was some trader on Polly Market who apparently traded the likelihood. that Maduro would end up, I think it was that Maduro would no longer be the leader of Venezuela or something like that. Some market related to Venezuela's Maduro. And they made, I think in like the day before or maybe even the hours before, $400,000 from what is perceived at this point to be some kind of insider trading, quote unquote, on the capture of Maduro. And so this caused hubbub front page news on Wall Street Journal. A lot of people were talking about it. What does this mean?

It led to the proposal of a potential bill that would outlaw. insider trading by government officials in prediction markets. It doesn't expand to everybody, but specifically government officials trading on information they learn through their work as in the government. And a bunch of speculation about who could this have been, was it somebody in the U.S. government, was it maybe somebody in the military? People seem to discount the possibility that it was somebody in Venezuela. Like, you know, I sort of alluded that perhaps it might have been somebody in the opposition

in Venezuela who sort of sold out Maduro, knew that this was happening, was collaborating with the Americans in order to, you know, help take down the, air defenses that we did or to give up where Maduro was or what he was going to be doing. So there's a lot of potential stories about who could have been this traitor. It could have also been, to be clear, somebody who just saw something like, oh, I see some helicopter or I see like some other signature of military action that is uniquely, that I can uniquely see, no insider information. I just saw it and I traded on it.

The same way the guy who commissioned all these polls to figure out that, oh, Donald Trump was more likely to get elected than most people. thought that guy had alpha that nobody else did so here's to get you guys thoughts on the story because it's very polarizing for people i think we should get richie torres as a guest given his he's the one who's the most interested in pushing that's uh i agree richie come on the show richie let's actually talk about i feel like i'm kind of curious i'd love to get his his uh that that's that's my only real thing okay what's your what's your point of view what's your point of your turn i i kind of take this like Matt Levine type of stance towards insider trading which is like the definition is

always this moving target and you can never perfectly get it correct or have it like uniquely identifiable and like I think you know if you've read the 10 years of his columns probably his best writing in my opinion is when he writes about insider trading because of how annoyingly complicated it is to prove that someone got a benefit like there's sometimes the person who gets the information and tells someone else who makes money off of it. Sometimes only they are liable, and sometimes only the person who traded and made money was liable. And those scenarios are all kind of complicated,

depending on the asset type, depending on microstructure. And I don't really think that Kalshi's solution is like a full solution, to be honest, because it's like, hey, we have a committee and we have your KYC. That's like kind of it. And I don't know if that's enough, to be honest,

especially for some of the parlay type bets where it's like, well, what have had information on A and B, but not C, so that increased my probability of winning the parlay? Like, maybe that's insider trading? I'm not sure. I actually don't know what the stance on that is. So I don't think any of these people have a solution. I'm pretty sure there's case law that, for example,

if you, like one way to trade on a merger, like a very obvious way to trade on a merger would be to buy one of the two companies that are going to merge or whatever. Another way to trade on it is to like short, competitor or to do something that you are pretty sure is correlated, those have also been prosecuted as case of insider trading. But parlayes are a little biter because correlated is different than the ones that are like A and B or C happen, right?

Like there's actually a much weirder went up a lot. But we're talking about equities, okay, where information belongs to the company and you're basically in one sense or another stealing from a company. Okay, there's not insider trading in commodities because like how can you insider trade corn, right? Well, there is there is actually, I think two cases ever of insider trading commodities that have been successful prosecutions. So it's, was that under just general fraud? What was the sort of? I don't remember.

I don't remember, but like there is that wrinkle that every lawyer will have. Mostly there's no insider trading in commodities, but technically there can be. Right. But like the question is, is an event, right? more like a company or more like a commodity, right? And they happen to be regulated by the commodities regulators, right? So that's the first thing where it's more similar, right? And it's not like, it's, if you had the basis, just based on that,

I would say it's more commodity like, right? But it is in some ways more company-like in that it's information that belongs very really to somebody that they don't want to get out. So if it's about us capturing Maduro, that is for sure information that Delta Force doesn't want to get out. Right. And so in that sense, I think the information does have a rightful owner that you're stealing it from. That could compromise national security interests or all sorts of things, right? If Maduro saw the probability of him getting captured, go on a given Tuesday or given Saturday, go from, you know, 2% to 90% to.

He's going to get out of Dodge. Right. And, you know, I do think that that information has, you know, consequences to the owner if it leaks, right? Very clearly. Like, there is this futarchy argument where you're like, it's better if everything's public and it's priced in in real time. And like, if there's going to be an event, like, wouldn't the world be better off knowing two hours beforehand?

But using the Maduro example, the world would not be better off, right? If... All right. So let me give you a counter argument to that. There's a symmetry here, right? One version is like, well, you know, it's bad for the U.S. government if Venezuela learns that the Maduro market is spiking, right? But it's also symmetrically true for us.

Well, it's good for Venezuela, but it's also true for us if there's a spiking market that Iran is about to fire off nukes and somebody in Iran is inside of trading that. We also learn two hours earlier that, oh, shit, you know, get the F-16s up there. So it's not obvious. It's not obvious. Like, it's ultimately a question of externality. is that for this market, for the securities, let's say for stocks, right? What is the point?

What is the positive externality of allowing somebody to trade on, I know this merger is going to happen? Not really obvious there is anything. Not really obvious there's any benefit that's happening. And there's some value being taken from the company that they might otherwise, you know, do something with. In the case of a commodity, there is value to you hedging your own oil exposure, even though you know, we just drilled a bunch of oil.

We know a bunch of oils coming. We haven't told anyone. we want to hedge all of the oil that we are going to, we don't want to hedge oil prices because we want to lock in the oil that we basically just found. And the value to that business of doing that is actually significant, right? So we're thinking about the externalities in deciding how to set up the regime of insider trading, I think, and the externalities for prediction markets are really not obvious. It's really not clear ex ante if it's better or worse for there to be advanced notice of certain things in violation of the

government knowing, like if we learn, like, let's say, for example, there's a market on, will, I'm, so I'm going to try to pronounce it. Chominy, I think is how he pronounced his name, whether he's going to step down by January, by the end of January, end of May, end of the year, or something like this. There's like three different markets. You can see that progressively the numbers get higher as it goes into the end of the year, okay? If that number spikes for January, let's say U.S. intelligence does no idea what's going on, and all of a sudden they see the polymarket goes up to 70% for,

for January. Somebody's training it like crazy. Maybe it's time to shoot airstrikes. Maybe it's time to go in there and like to start to start taking advantage of the situation that you know that some shit's about to go down. The U.S. government might say like, actually maybe we're okay with there being a little bit of, you know, actually it depends on how many of these markets are about us, but it's how many of these markets are about other people. Yeah, I don't think there's any sort of like theory of investor protections for capital markets. And there's certainly many other laws that would prevent someone or discourage someone from leaking state secrets, independent of that's getting expressed to like prediction market or not.

And I think also like, as you said, because many other ways this information can get out that isn't directly related to people who have direct knowledge of the matter. I mean, we even know that like, you know, the U.S. government was like trying to flip Bidreux pilot for a while. Apparently he was game and then he backed out. So like, okay, there's one thing or like,

I remember during like the bin Laden raid, there was like a tweet. Someone was like, a lot of helicopters tonight over a Badaabad. And like that was like, yeah. Yeah. Yeah. Yeah, it was like now, you know, it's famous. But, yeah, I kind of tend to agree.

It feels like everything we've done so far in rest of protection is to preserve capital markets structure, to encourage good, you know, capital formation. And I don't really get the same sort of impression from prediction markets. I mean, I think the real problem, right, is like, A, the value of the information is valuable to one party, but B, it's like, who, whose benefit? is like who receives the benefit and how do they receive the benefit? It seems to be a really big part of securities law

that I don't think there's any analog for the latter part. This is why I think these kind of like insider trading committees and attribution things are like they probably work for these sports markets. I actually think the sports markets, I can 100% believe that makes sense. But I think these types of politics, rare events markets, I think you're going to find that you run into tons of weird contradictions with KSaw. If you want to try to emulate that system perfectly,

and that's where I would mark the line. Like, I really think the sports stuff, I think it's pretty fair game, especially given all the incidents you've seen, that you could find a way to make a system that works. Because the other thing about sports is you know when the market ends, right? Like, everything is like a fixed endpoint. So it's like much easier to determine.

things. But yeah, I think he's political ones that fraud. Yeah, I think there's one, okay, the one edge case that's very obviously bad is the person the market is about betting on the market, right? That's the one case where definitely that breaks prediction markets. You should never allow that. And that's, you know, potentially hard to police because you can use whatever third parties or something. But that very clearly, there's no theory of prediction markets under which that's useful to anyone. No positive actual knowledge from that. But there's, you know, there's a very clearly, There's always more people. So, like, any market is going to be about someone.

And information about them, they don't want information about them to necessarily be elicited. So if it's about Iran, if it's about Ukraine, if it's about whatever, everybody else in the world benefits from that information except that party. So when you're the U.S. government, you see a market that potentially is about you, such as, when am I going to go in and, like, get the guy? You really don't want that market to be disseminated, or you don't want that information to be disseminated. But I think, you know, to your point, Tom, like there's already laws around that,

which are, you know, basically protecting state secrets and so on. So now you can redouble that law by saying, okay, government officials are not allowed to, and I think that's reasonable. You know, I don't think that's a big loss for anyone to say that. But my other sense is that this argument we're having now is not the argument that people will actually have because the reality is that people's moral intuitions about that, about all of this. Like prediction markets are extremely morally unintuitive to people.

they do not jive with how people think things ought to work. They think certain things should not be bet on. They think that putting money at stake into something like human life or a war or even an election is morally wrong or just gross or dirty. And they think that making money from knowing that something is going to happen is illegitimate. And that's why insider trading is illegal. They feel very strongly this like fairness intuition about insider trading. But of course, that's not what insider trading jurisprudence is based on.

It's not based on fairness. It's based on a duty to your employer or to the person from whom you got that information. And prediction markets potentially break that completely. But I suspect that legally, in terms of like the arguments, the laws, the public debate that we're going to have around this, because now prediction markets are so everywhere in your face and they're so political. They're about big stories. These moral intuitions are probably going to dominate the public conversation, not the debates that we're having right now, which are, I think, a long. lot more technocratic than where things are going to go. So my prediction is that we're going to see more things like this.

If we see, you know, somebody who's like, I learned that Taylor Swift's going to get married because I baked the cake for the wedding or whatever. People are going to be in a fucking uproar when they learn that that person made money off that market. And obviously, there's a flippant example, but I think there are going to be other examples like that where people get really upset. It's like no matter who it was who traded on the Maduro thing, unless it's somebody looking out their window seeing helicopters, like the Abbottabad bad guy.

people will be really mad. Doesn't matter who it is. Could be the flipped helicopter pilot, could be something out, it could be a hedge fund, anything else people will get mad. Yeah. I mean, it's hard to disagree with that.

Okay. So let's switch gears. Well, actually, one, one final thing is like, I do think there are prediction markets that do border on these securities law things, which are like the like, what is the earnings of X company and X, the next quarter markets.

And so I think there is going to be this part where the technocratic thing gets totally used, right? Yeah, you could totally take an equity thing and move it into a prediction market future-based structure. I think those are going to be where we find the weird edge case laws where everyone tries to apply like the known laws. Yeah, I mean, that's even an easy application though, because it looks like the normal thing.

You just use a different tool. I feel like it's still the same, like, classic. insider trading if like you work at a company, you know what the earnings are, and you go bet with a bookie, right? Just because the form factor is not the usual form factor, the mechanics are still the obvious one. But because that one is obvious, that might be the one you get law for first. And then all future law has to cite that as precedent and then refute that, right? So there might be some like thing where it's like the Genesis block that biases what happens. I mean, that would be good, all things equal, because like this sort of duty of care type, you know,

jurisprudence allows for the way that we like our moral intuitions about prediction markets, which is that, yeah, as long as you're not trading on yourself or you're not violating some other obligation that you have, it's fine. If it's like the pilot, the Maduro pilot trades on it, it's cool. No worries. So, yeah, I think if that's where we land, then that prediction markets is kind of, I could just see that as one potential path. You know, like there's the path you're talking about, which is like the sort of moral kind of arguments win out. But there's also this weird path of like, oh, there are all these markets that can be regulated and probably are the easiest to regulate. I think those markets just get negated, right? More likely those markets, they're not

like treated differently. They're just like shut down basically. Yeah, maybe that's because you need to be an SEC registered exchange to have a swap on a security, right? Yeah. Yeah. Yeah. That's true. That's true. It's True. Yeah, and like none of these, none of these prediction markets are going to, you're going to do that. So that would be my guess. Okay, so let's switch gears. Another big story this week has been some drama brewing in Zcash land. So Zcash, of course, the ascended privacy coin, a bit of a brewaha this week where, to give a little bit of backstory. So Zcash has a foundation. It also has a, the foundation is called bootstrap. It also has a company called the electric coin. company. And the electric coin company does all the development on Zcash as well as manages Zashi, which is the big wallet that has been increasingly responsible for the onboarding of many more users into Zcash in the last couple years. So all the members of the electric coin company, ECC, recently quit all at once. Everybody quit. And the claim was that the quote unquote majority of the bootstrap board members moved into clear misalignment with

the mission of Zcash. They announced that they are starting a new company building unstoppable private money. It will be called Cash Zee, a new ZeeCash wallet to replace Zashi, presumably. They're going to be building on the Zashi code base, which is open source, and they want to scale Zcash even more than they already did. It's a, their claim is that the reason why they did this, the reason why they did this was because originally they were planning to, quote, quote, take Zashi private. I don't totally understand what the way the Zashi was structured, maybe it was some kind of nonprofit, it was owned by a nonprofit or something,

but they were planning to basically take external investment into Zashi, and apparently the board had some kind of 501C3 nonprofit constraints, which made it difficult for that kind of path to be followed. Josh Swihart, the CEO of the electric coin company, claimed that the terms of their employment were changed, which made it impossible for them to perform their duties effectively and with integrity.

The board came out and said, look, we and ECC are non-profits and those constraints are very real. I wasn't clear that ECC was a nonprofit, but apparently it is or they're claiming it is or they're tied to a nonprofit in some way. Maybe there's some kind of obligation they have to

bootstrap. They claim that urgency does not excuse a fault process. If we were to do this the way they were describing any of our donors could sue, the transaction could be unwound, the board has no discretions on these matters. Assets must serve the public mission. And Zuko, who is formerly the CEO and is the

co-founder of Zcash claimed that he felt that the board was composed of people with very high integrity. He didn't have a clear view either way, but we now have this big flashpoint, Twitter is up in arms. Zcash ended up lagging down on this announcement, but then has recovered somewhat on the announcement of Cash Z, the new iteration of the wallet. I want to point out one financial thing. Manero is at all-time highs. It's hit its all-time high in the last. day. Yeah. Manero pumping on this news for...

Honestly, I have some friends who are only boomer coin traders because they like only trade on like these platforms that only have ripple and BCH and stuff. And anytime those guys message me, that's how I find out about this. They're like, oh my God, I'm back in crypto. Monaro and BCH are ripping. I'm like, okay. Thank you for the news. Are they are GDACs?

What are they trading on that they only have boomer assets? No, they're trading on like PayPal. Yeah, it's like stuff like that. You're trading on PayPal. Square. By trading, I mean they bought, they bought BCH. You know, they forgot about it. And then they got a notification.

They're like, I'm back in crypto, baby. Got it, got it. Exciting. But here's the question. Do those even support Monaro? I just like correlated to this. I doubt it. That doesn't make sense.

No way. There's no way. No way. I don't think the boomer platforms your friends are using support Monaro. If I have to guess. Yeah, yeah. Robert. What's your reaction?

Governance drama. as the governance defy veteran. Tell us your view on this whole thing. Yeah, you know, the reaction when this first occurred was on the timeline and in the markets, it was chaos. People just saw the headline, which was Zcash core developers resign. I think as everybody has learned more about the situation

and has basically seen this as like potentially a structure in which Zcash is going to have a better foundation, a better set of oversight, a better cleaner set of rules for the core developers. I think it's a positive, right? I think there's never an easy way to shake things up when they have to change, right? Like in every situation, whether it's Zcash, whether it's the stuff we're talking about AVE like a week or two ago. Like any of these highly contentious and important governance decisions, there's no simple, easy off-ramp that everyone's happy about.

for the most part, like, eggs have to get broken, right? And I think there's a case where it's going to be a productive and good outcome where there's a couple of eggs getting broken along the way and a couple people are going to scream about it. But the end state is going to be positive for Zcash. Is this our open AI moment? Is that what this is? Well, that's what Zaki claimed.

I don't know if you read Zaki's post. He's on one of the bootstrap board members. Is he compared it to OECD. Open AI. I think people in crypto who've been crypto for a long time maybe have too fast of a reflex to go to complicated foundation nonprofit models. And in the current world, it seems like asking for forgiveness probably works better. So especially for a wallet that wants to earn swap fees and stuff, like not some exotic thing that's launching a new token. And so I kind of think the company makes sense. If I look at successful wallets in crypto, they're not foundations.

They're not run by nonprofits, right? They are, they have by and large been successful in a for profit manner where they are forced to figure out how to upsell their users on products. And I think like worrying about the open AIS before you have a billion dollars of revenue seems a little bit. I don't know. I mean, why can you just spin it out? Yeah, why can you just spin it out and the nonprofit owns the asset, right? Like, it just, it's part owner. Is it some artifact of like being a PBC is like, oh, you know, a certain mandate and that's out of mandate.

And, you know, I, I don't know, I kind of assume that the board was like operating in good, good faith. Or like, it seems like everyone was basically just stuck. But, I mean, the thing there's also strange with this, too, is like, it is reminiscent of these kind of AI aquires where it's like, okay, you can keep the entity, but everyone's going to leave and start a new. that's going to do the exact same thing, and there's not really a case to be made against, like, it's kind of like Windsor for whatever. And so, you know, I feel like it's actually weirdly

parallel to like the AI industry in like a couple different ways, not even just an open AI. So even in that world, you know, what would you, you know, do if they didn't want to like, you know, if they want to raise money, but they want to go do something similar or they want to do in a different structure. It's like, I don't think there's like multiple reasons why maybe this, you know, wasn't tenable situation. I think one thing about wallets versus foundations, which has been a thing that has, I think I've seen multiple times in crypto now the last eight years is like when foundations start owning front ends, they don't monetize them or like feel the need to like improve them also. Like there's two sides of the same coin.

There's one side just like, hey, we want to like make revenue from the front end. And the other side is, well, we also don't really want to invest in like, more than the bare minimum. And I do think people who are making a wallet that is starting to get some success, traction, usage, whatever, tend to want to migrate away from that benefit the token only structure.

I'm not saying this is them. For the record, this is my own impression from watching the history of wallets that have been successful and the trail of tears of the hundreds that have not been successful. And there is a sense in which the foundation structure, which is like all dedicated to the token,

like in the sense Tom just described, may not really work for your user acquisition strategy or getting your product to be better. And I think that tension does always kind of seem to be latent, especially when you look at wallets from that were incubated by foundations. They often spin out and just like end up not being as successful sometimes as like the wallet that started as a company. I mean, I guess Phantom is like,

the best example of this, but there are tons of other smaller versions. Yeah, I think that's confounded by just like quality of team, right, where somebody who starts, owns all the equity and is like doing their own thing is obviously going to be, you know, if you're really good, you're not going to join a company of like a subproduct owned by a foundation. If you're really good, you're like, I'm going to start my own thing, and I'm going to go at it, hire the best growth people, hire the best engineers. Like in principle, it should be true that if you're owned by the foundation

and the foundation doesn't have a profit motive, it's just caring about the token, that there should be some alignment of like, look, let's just grow this thing, get Zashi into more and more hands, and make it into a great product. And on some level, like, it kind of, the proof is in the pudding,

like Zashi was made by a nonprofit, apparently, and it was a really good product. It is a really good product, and it was able to onboard a lot of people into Zcash. Now, that's not the norm. Most wallets that are built by foundations are pretty fucking terrible, but the interesting thing is like, okay, the opposite incentive,

if you are a private company, you're creating your own wallet, the potential risk is that you're over monetizing, right? If you are a private company, let's say, let's say cash Z. Now cash C, I'm assuming all the investors are going to be very aligned for cash C. But one can imagine, let's say you get Sequoia or let's go even far. Let's say Tiger. You get Tiger Global as an LP for cash Z. I'm not LP, an investor for cash C.

and you raise a bunch of money, okay? Why would Tiger Global not say, hey, you know, this is great that we've got these privacy users and all, but why don't we also add Minero, just in case like some other people want to use Manaro and they don't like the Zcash model? And why don't we also add Bitcoin? Because people love Bitcoin, you know, like, and Bitcoin's part of the whole past, and we can make more money if we have, you know, defy trading. Exactly, exactly, right?

So, like, there is some drift in just that you can only be so big if you only are one asset wallet. And if you truly are purely incentivized by the profit motive, why would you not eventually become phantom? Right? Like you start with Zcash and then you eventually become phantom. So that is the counter argument, right? And obviously we haven't seen that. I'm not arguing that they would. But that is the counter argument for why it makes sense for a wallet incubated by a foundation to say, don't worry about monetizing. Don't make any swap fees. I don't care if you never make swap fees. I will subsidize you forever. Just grow and build a great product. Now, in practice, that doesn't work way. In practice, the great growth people don't want to work for a company like that.

So no matter how much you subsidize them, you're just never going to be that good compared to a phantom. So there's a tension. I don't know how to resolve that. Yeah. Every blockchain needs a killer wallet, okay, for it to succeed, right? At this, like, I remember like the early days of Bitcoin, all the wallets sucked, right? But like, there was at least a couple options available and none of the options were great. That's sort of why we got Coinbase, frankly. But a blockchain needs a great wallet, right? Can you imagine Ethereum without Metamask? Metamask is a privately owned for-profit thing, but it was so wedded to the interest of Ethereum because Joe Lubin and consensus were like Ethereum maximalist

and massive bags and all of these reasons. They had this incredible alignment, but without Metamask, Ethereum honestly was Harwa. Do you remember before Metamask, remember using Mist? Right? Like, it was unusable, right, frankly. And so I think for a blockchain to scale, you need at least one, minimum of one, killer wallet, right? Or killer user experience that like normies are like, I get it. Like, this is great. Like, let me use a thing.

Without one, it's hard to get the traction. And so I think a foundation has to ensure at least one fantastic wallet exists. Can more exist? Yes, absolutely. I would love to see a blockchain experiment with this. I mean, what if there was a blockchain who's using the equivalent of like builder codes or whatever it is at like a chain root level to incentivize wallet and transaction? Hyperliquid does do that.

Yeah. So, okay. Does it on the general transaction stuff? We're just on the. Oh, not on the hypevm. Yeah, yeah, yeah. But take it one step further. Imagine if like Ethereum or Hypervm or Solana or whatever,

gave like the wallet that submits a transaction to the Mempool a portion of the transaction process. I think although I would argue USDAH is kind of trying to do that because like they're passing back the yield based on usage and holding or like the goal is to do that. Totally. It's not exactly this, but it's in the spirit of this. Totally. But like you have to have one wallet come hell or high water.

Right. And so I think in the Zcash example here, like, I, I do agree more with the nonprofit approach to this because you have to get to n equals one without overcharging users, without like mission creep, without losing focus. Like if they had four wildly successful like consumer wallets, I'd be like, yeah, like, why do you need a foundation support? Why not make just pure corporate competition across all four? But they don't.

So it's like, I think there's more alignment with a nonprofit model. I mean, it's classic theory of the firm stuff, which is that, you know, when does it make sense to internalize something versus to contract it out? The problem is always talent, right? The problem with all these arguments is talent, is that the best talent want to own their own fates. Many people have claimed that this Zcash drama is the end of the foundation era. And we've talked about that. We've actually had multiple people proclaiming the end of the foundation era for different reasons. Turin, you've been very down on foundations.

What do you make of this argument? I mean, I think the empirical evidence shows people don't want to do it, right? So it's, and people want to get around that structure because it has so many annoying requirements. Sometimes you have to get technical decisions approved by a board. You know, like there's like a lot of little stuff like that that I think just grates on people. And the benefits of the foundation model seem to be just disappearing, at least in the U.S. Like, what's the point, right? Like, look at lighter.

They launched their token as a U.S. And so I think a lot of people just don't see the benefit beyond like lawyers and the BVI and Kaman's obviously they're probably unhappy. But, you know, I just kind of think it adds a lot of extra constraints. And especially when you have a product that's moving fast and like starting to get traction and users, it might just make sense to to move back to the conventional model. And I think that your talent point is basically that, right? It's just like there's a lot of extra restrictions. I think OpenAI is more like this exception that happened to,

you were forced to have to solve it because it was just printing money. I mean, obviously spending money too, but on a top line basis. And I just think it's like in crypto, people prematurely jump to like pretending they're at that scale. They're not. The foundation model, I do feel like hold you back unless you're, like that type of scale. Okay, very fair. All right, well, we're up on time.

So we got to wrap here, but we'll be back next week with more news. Thanks, everyone. See you next time.