The Chopping Block: Crypto's Rebound, Reg Crypto, and AI Router Wars

We had lunch with the king of Bhutan. He's actually very excited about AI. He told me he uses cloud code and obsidian. But he's been playing around with Kimmy, and he was impressed with Kimmy Bury. What? Not as dividend. It's a tale of two pawns. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. I manage trading firms who are very involved. I like that eat the ultimate pawns. DeFi protocols are the antidote to this problem. Hello, everybody. Welcome to Chopin Block. Every couple of weeks, the four of us get together and give the industry insider's respect on the crypto topics of the day. So first up, we've got Tom, the DeFi Maven and Master of Memes. Hello, everybody. And so we got to run the Gigabrain and Grand Puba at Gauntlet. Yo. Then we've got Robert, the crypto connoisseur, and Zarr of Superstate. Hello, everybody. And finally, I am a seed that had hype man a dragonfly. We are at least Asian investment crypto. I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Police at Chopin Block, the XYZ for more disclosures. So for those wondering, Taroon and Tom are not having a spa day. Actually, they're joining us from Bhutan. I think congratulations. Thank you. Well, yeah, that's very, very exciting. Tell us what you guys, what are you guys doing in Bhutan and how are things over there? Things are lovely. We're here for a variety of reasons. There's a demo right here. We met with the king. We learned a lot about Bitcoin mining. Tell me he uses Cloud Code and Obsidian. But he's been playing around with Kimmy. And he's impressed with Kimmy. Yes. He's varying. One of the most amazing stories of how he decided to mine Bitcoin when Bhutan was $4. I mean, the guy is extraordinary. I was definitely blown away. I was like, I wasn't expecting. My problem is the British monarchy, where everyone's kind of a moron, like Prince Harry or whatever. I just kind of expect everyone to be a moron when I hear, and this king is opposite. He's kind of clearly a genius. Well, I did meet the king of Bhutan once at an event that Binance was hosting. And he was, I remember him being very suave. Just like super cool guy. He had these little glasses that he was just kind of seem incredibly gentle. And I don't know. He seemed like a character from a movie. He was like, OK, the first king I've ever met and very good introduction to the world of kings, I will say. Yeah, yeah, yeah, for sure. He made me, you know, my impression was just like, again, reality TV shows with the British royals. And I'm like, wow, they're all morons. But clearly that's not true. Are you a monarchist now? No. I don't think so, maybe. I don't know. Maybe for a good one. If you can get the king of Bhutan, it won't be so bad. Well, I mean, they also have a prime minister. It is a democracy. It's constitutional monarchy. So they-- But England has the legacy of a monarchy. England has that-- The people kind of, yeah, the vibe around it feels kind of bad, I don't know. The vibe here around it is like, everyone loves king. It seems like kind of chill. And he seems much more involved is working on this GMC project, which is kind of their own S-A-R-S-E-Z kind of thing, so they want to get more entrepreneurs over to Bhutan. And you know what you're saying? And he was right. I feel like there's a central Asia focus. Like the orb is kind of shifting from Southeast Asia to Central Asia, and well-positioned. What is the king of Bhutan vibe coding? We didn't get that far. It was a 12, 14% lunch, so I couldn't really go deep. But you use obsidian. So I think that's the smell they're going to, you know, deep cut. All right, I feel like you got, before you leave Bhutan, you got to get the word of what? Is he like vibe coding government services for the country of Bhutan? Or like, what is he working on? It did. National ID system on AWS on that. We did make the folly mistake of not asking him if he wanted to be a chopping block, yes. I apologize. Next week on the chopping block. We did get some things on other guests, though, for future episodes, so stay tuned. Yes, very good. Very good. Very good leads. Yes. Okay. Okay, excited for that. Well, it's a good time to bring on different guests, because crypto is finally cool again. So the big sort of the week has been a big rebound. No, I think we're back in the headlines. People are excited. We're getting a lot more energy in the markets all of a sudden. And this has happened right as Bitcoin is just scraping against $80,000. It went over 80K yesterday. And now it's kind of right around 79.5,000. There's been a huge amount of short liquidations, over 2 billion in ETF inflows, which the ETFs have been very quiet, up until very recently, all of a sudden, now we're seeing inflows again. And a lot of this has been accelerated by what's happening on the macro side. So big story in macro has been Secretary Becant, has started to try to pull in the long end of the curve, buying back long dated bonds to issue short. And all of that has been very stimulative of risk assets. So it has brought back what's been called the debatement trade. This idea that, okay, the central bank is starting to, or not the central bank, sorry, Treasury, is starting to metal in controlling currency markets and bond markets again. Besson basically thinks that the long end is too high, which showing some lack of confidence perhaps, or lack of demand in long-issued government bonds. So, all of that has gotten a goal to rally. It's gotten Bitcoin to rally. And it seems to have people thinking again of like, hey, maybe finally it's time to revisit that old Bitcoin thesis or crypto thesis. And all of this was, was capped by a rise in hyperliquid. So hyperliquid recently hit close to an all-time high, or actually thinking no, it did hit an all-time high. And this was accelerated by Trump at a White House Summit, talking about crypto, where he said that C-LIG, the chairman of the CFTC was working to bring hyperliquid into the United States in a fully compliant and legal fashion. This saw hyperliquid rally to crazy heights over $80. And this seems to have been a combination of a lot of the groundwork that the hyperliquid policy center has been playing in the US to try to figure out how can you bring hyperliquid to the US in a way that is more compliant. And lastly, there's been a lot of petitioning from the hyperliquid policy center for the CFTC to exempt non-custodial defi, like hyperliquid, from legacy exchange rules that would normally cause them to have to register, do KYC, et cetera, and all the things that normal exchanges has to do within the US. So there's also a push to see if clarity can pass. There was a lot of mention from Trump at this White House summit about clarity, but clarity's still sitting now around 15% on polymarket. It looks like clarity's not very likely to pass this year. But if you draw the line forward for another two years, clarity's probably about 50/50. It seems like to pass before the end of 2028. So stop there, thoughts around the horn. And what are you guys hearing sitting there in Bhutan about the sentiment towards crypto and Bitcoin? - Well, I think the king has just never been more bullish. I mean, it's kind of crazy. I think the other thing that's interesting is I think whenever you go to Asia, you always remember, they're just people who just love tokens. It's just like, sometimes in the US, there's this kind of, it's like on and off relationship, right? It's like, oh, we love tokens, we hate tokens. We love it. And Asia, everyone's like, no, no, no, no. Just one more trick. There's going to be a new token. There's going to be one token to make sure, you know? Like, and what? - I think that mentality you can kind of tell is like, people, you know, last time I was in Asia and it was like kind of more bearish, everyone's like, oh, yeah, there'll be one more token eventually. And now it's definitely like, yeah, wait, it could be my token. You know, like that. That's how I would describe it. - Weirdly, I think there are like, you still see some of the US specific trends. Like, FOMO obviously has been, you know, on a tear the past few weeks. You know, and I speak fundraising around as well. And there's just really not as much interest or excitement or even like awareness of FOMO in Asia from some of the folks that we're talking to. But I mean, overall, people also obviously do pay attention to the US. We ran the CZ. He's very much paying attention to what's happening in the US. And so people are curious about this crypto summit. I think there's one perception, especially among the retail. That means that this means there's going to be full bore anyone in the US can just go use hyper liquid and it's going to be, you know, in your Schwab account. I think that's like not going to happen. I think it's going to look more like what Lighter did with Robin Hood in Europe where there's a KWC you get in version of it. And maybe there's some interoperability. Maybe you can use collateral across different deployments. But there's going to be, you know, some sort of KWC gated version or some sort of version of it that means sort of the standards of compliance that you do the US expects of new venues. - Rob, what's your take? - My take is the devils and the details. Definitely everyone is aligned with trying to figure out how do you wrap your arms around the big complex new thing that everybody wants. I think there's going to be a lot of figuring out the nuances here about how to make it work. I don't think there's going to be a quick thing. I think everyone is directionally aligned. But I think there's also going to be a lot of adversarial conflicts with legacy incumbents. As they watch something huge and new come in and they're afraid that they get treated to a easier standard, right? We talk about no KWC. Everybody on earth would prefer no KWC. right? It is a massive friction. Nobody wants to see, you know, something so permissible. Everyone's like, most humans on earth who have the fortune of never getting a legal degree. But let's just say it is an overwhelming advantage to not have to deal with those frictions, right? It's operationally simpler. It's easier for your users, blah, blah, blah, blah. And so everyone's direction aligned. I'm just skeptical that it's going to be an easy journey. Yeah, I mean, to your point, the scammy stock took a big lot thing on this. Oh, yeah. Do you think this is going to be worth to see this? No, what's the name? Duffy, he was just like on CNBC getting angry. So like, I don't think it's like a, hey, everything's going to just happen type thing, you know, right? I mean, it's interesting that this made it a Trump speech. You know, that's a level of specificity that I would not have expected at the stage without more details. So Baron was trading on hyper liquid, right? That's what we're saying. Somebody in the inner circle seems to really care hard to know who it is. But the given how, like, I think Polymarket is probably the clearest blueprint for what that looks like, which is that, okay, you know, there's an overseas version, which is no KYC, which is, you know, totally open. It's on the blockchain blah, blah, blah. That one's decentralized. The US version is probably not going to operate that way. The US version is going to have to be, you know, market surveillance. It's going to have to be KYC. CFTC is going to have to oversee it. They're going to have to know everybody who's trading on it. They're going to have to be able to pull their names if there's some kind of market manipulation. You know, you might know more than half of their volume. They might not have the idea. If you look at the call sheet, that's a big point, right? Actually, I wasn't aware of that. On the perpside, what's the alternative to ADL? Like normal future is clearing, like centralized clearing. Oh, I see. You have like a broker who takes the hit, like, they put up capital risk capital. So I think that stuff is actually going to be the real deficit in the detail. Is like how the kind of clearing settlement stuff works, because like that's sort of where governments spend a lot of time writing law also. So like, I don't think they're just going to be like, yeah, we're going to rip that all up and have it be fully algorithmic. That's my guess. Again, just sort of the vibe I get from CFTC people who've talked to, it seems like. Oh, is it to your point? I mean, there's precedent now around, you know, offering, you know, onshore perps to a limited extent through through college. I think the big question is, can you offer a compliant DEX, a separate deployment or a separate version of it, two people in the US and sort of meet, like you said, you know, for example, surveillance requirements. And I think that was part of the discussion. I was like, hey, actually a DEX that's well built has a lot of things that you would normally have to sort of do manually for compliance built in, like the code actually does it for you. And so that would be a huge step forward versus hey, this is another, you know, centralized perps venue, which I kind of imagined is a huge pipeline of applicants. They're about to be approved. Yeah. Well, I mean, one of the distinctions, though, is that, well, I mean, it's like Polymarket US in that you probably do have to have a separate pool of liquidity, right? You can't have domestic people trading against liquidity on the offshore or on the overseas on-chain exchange. In large part, because of course, you don't know who the other person is. You have to be able to unmask the person you're trading against. So if somebody is filling you or you're being filled or, you know, you're filling somebody else, and that person is in some unknown country, well, then half of the trade cannot be surveilled, right? And that's a big part of what the CFTC does is to make sure markets are orderly, no one's manipulating anything blah, blah, blah. And given that half of their volume is RWA's, more than half of their volume now is RWA's. Like, obviously that exists under very different regulatory regime that has to continue to be respected if you're going to do that domestically. So how that's going to look. Obviously, TBD, we got zero details. Nobody seems to be super clear exactly on how this is going to be structured. But it is very clear that perps, like we're going to see this. What Polymarket did is going to happen on the perps side as well. Probably you are going to see if there's been a lot of a chatter about lighter in which we are, we are all investors, we're investors in hype as well. There was a lot of chatter about lighter doing the same thing. Of course, they have this partnership with Robin Hood. And lighter has also been rallying on the news that, hey, you know, it looks like perps are going to be coming to the US. And there's going to be some room for these products that are decentralized to have some kind of gated US version. So big story. But on the other side, we've also seen a lot of regulatory developments. Now that clarity seems unlikely, both the CFTC and the SEC have been signaling that they are going to be starting to pass some kind of rulemaking to basically get the same thing that's in clarity. But via rules, instead of by law, right? So we don't know how long clarity is going to take. There's an outside shot that it passes this year, but most likely it's going to be either 2027 or 2028 story under a very different Congress. So in the meantime, the SEC, the CFTC has signaled, yo, we're going to do this. We're going to move forward with something or other. We're going to pass some rulemaking on both prediction markets as well as for, you know, the, they have a compute markets rfc as well as a bunch of stuff that they're going to do on perps and crypto exchanges. And then the SEC came out with a 402 page release for a set of rules called regulation crypto assets. Their first actual crypto rulemaking that they're going to be doing, they've listed it as 60 day common window. And in this, so I haven't read this entire release, to be honest, I can't imagine most will have. I threw it into my AI and started poking around a little bit. The main stories behind this rule is that they're going to be fundraising exemptions. So one of them is a one time five year fundraising exemption over four years. So you can issue some token, sell it to five million dollars. Or if you're issuing audit financials and some ongoing reporting, you can raise 75 million over 12 months, over a 12 month period. So very substantial fundraising opportunity for token projects that they can do under this new rule. There's also a conditional safe harbor. So you maybe, if you're qualifying token, you can, you can basically elect that look, there's not an investment contract. And you can exit from security laws. Entirely from some kind of SEC approval, they can go and look and say, hey, you're no longer fulfilling this kind of managerial role. And therefore this thing, you know, the investment contract has not expired. And all of this is still subject to comments. So I think a lot of crypto funds and crypto projects are going to be weighing in on this set of rules that are coming out. So Robert, given that you are the one probably closest with your ear to the ground on the regulatory side, what's been your perception of the SEC rules as well as what the CFTC has been signaling here? Yeah, so I'll just focus on the SEC and Reg crypto because this is very tangible proposed rulemaking. It's not nebulous in any way. This is rulemaking that in a lot of ways dates back to the Dow report and the process of raising capital using a, an ICO, right token fund raising. We've had this regulatory chasm going all the way back to when Ethereum started conducting ICOs. There's been a lot of consternation about it. And with the stalling of the clarity act, the SEC has really stepped in and said, hey, we are going to define something that needs to be defined. When is it appropriate to raise capital using a token to like sell token for money to build your project. It's something that has been talked about for a really long time. And how do you create a framework to do it correctly in proper, right? This is something that frankly that I think they could have or should have released eight years ago. This is not something that required any legislation. You know, I think one of the reasons why it took so long is, you know, especially in this administration, they were waiting for the legislation to come first, right? If the clarity act passed, I don't even think they would necessarily need to come out with reg crypto. What reg crypto is is it looks a lot like other paths, alternate paths to raise capital. It looks like reg A, it looks like reg A plus. It looks like all of these things that have been developed in the past to say, how do you raise capital with a lighter burden than going public, right? And so I think right crypto does that very well, right? It says, how do you raise a little bit of capital? How do you raise a lot of capital and what are different requirements? Raising a lot of capital, it looks like reg A stuff. It looks like mini going public that burden on a project is not insignificant, right? Like this requires you to be a pretty buttoned up project if you want to raise $75 million. But if you want to raise $5 million dollars, it's actually very permissive. And I think a lot of projects could fall into this path, right? There's still a lot of projects that are going to say, oh, it's easier to just do it offshore and not offer it to US people and blah, blah, blah versus do a little bit of paperwork. But I actually think the $5 million dollar path is going to be potentially exciting. If we go back to a market where a lot of founders are coming into the space, it isn't very burdensome. Frankly, to raise $5 million dollars using this little less frame, right? I can see projects doing token sales in a small way. You know, to get off the ground, I can see people testing this. I can see people using this. I can see victories coming out of this. - Frankly, these token sales, you can do full crowd sales. These are not like only to a credit investor, so it's worth it. - Yeah, correct. - Correct. - Can I ask you a very stupid question 'cause I haven't read this? Is it only in USD funding? Like, I can't do like an ETH denominator, I say a soul. - No, you should be able to. - You should be able to. - Okay, I'll drive in kind matter adverse not. - No, it's just about like the value of what you're raising, right? It's like how much capital are you taking in by selling tokens? - I just feel like there's lots of ways of getting around the 5 million limit if you're taking in kind to that's why. - Oh, right, right, right. But like, yeah, you're able to raise five million dollars if capital by selling tokens. And I think this is a good thing, right? This is objectively positive to allow this framework. I don't think it's gonna be that controversial. This is not something that completely disrupts how traditional equity markets operate. This is not something that necessarily runs into the complex friction of incumbents. This is just like no one was opposed to fray game. I was like, oh, making capital formation. A little bit cleaner, a little bit better. High five. This is not that controversial. This is not a controversial set of rules that are being proposed, right? - If you-- - Well, so Robert, I was okay. The 5 million dollar threshold, I agree. It sounds pretty light touch. You know, there's some self-certification you have to do. There's some basic information that you have to disclose. But it's pretty easy. It's not super expensive. The 75 million dollar thresholds. You get a past 5 million. You have to get PCAOB audits. - You know, it's burdensome. - Yeah. I don't think that many people are going to adopt it, frankly. This is my portrayal to take. I don't think it's gonna get used. I think they designed a rule. - Right. To get audits that are PCOB compliant, that's probably gonna cost you in the hundreds of thousands of dollars, I would assume. And then all the lawyer filings and whatever else you have to do to get a, whatever that threshold is. Now, to your point, Robert, if you want to sell to non-Americans or you don't wanna do a crowd sale, you're good. You don't have to do this. Which means that presumably to sell to VCs, you know, private investors. - You don't need it. - Do the normal old thing you've been doing in the past, right, exactly. You don't need this, you don't have to do this. - Yeah, it's a form day. It's private sales. It's accept, right? So I'm also skeptical that people are going to use this 75 million dollar tier of public fundraising. In the same way that we've seen very few, I don't know if there's been any, I mean, if there have, it's gone under the radar. I don't think anyone's really using the reg A plus 75 million dollar threshold. Nobody wants to do 100 in financials, right? Like it's just, if you're doing that, you literally may as well go actually public. You may as well file and as well, right? Because like that's the same requirement. And so no one's using reg A plus tier two. I don't think people are gonna use this relatively burdensome tier two of reg crypto funders. I think it's probably gonna be untouched, but because the standards are no different than already exists, there's really nothing for anyone to complain about. It just really says, instead of selling equity and raising 75 million dollars, you can sell tokens and raise 75 million dollars. I don't think it's gonna be commonly used because very few people sell equity under reg A plus tier two. I do think people are gonna take advantage of this lower tier. I think it's gonna be popular potentially. I think it's gonna be exciting. You know, if you're a smaller project, like it used to be $5 million was a lot of money. Doesn't mean you have to sell all your tokens. You can sell a small sliver for $5 million to get started, whatever. I'm excited to see people test this. I think it's a great channel. I'm actually proud of a lot of the staff and the commissioners and the hard work that went into thinking through this. And so there will be teams that come along and use this and I think that's a good thing. - Through Tom, what do you guys thoughts? - I mean, I think I grew through Robert and that they should come out eight years ago, but maybe more in a more pessimistic sense. I think the really, the crux of the industry's beef with the SEC right now, I think it's more around asset categorization. What is the security, what's on the security and what has that path sort of unfold? And obviously that plays into fundraising. But I don't see a lot of new teams that are in the spirit of a 2017 ICO, trying to raise some money to build a new network that gets decentralized and what is that threshold meat, et cetera, et cetera, building a new DeFi protocol. It's much more about there's some sort of app or some sort of centralized company that has some value and they also want to issue a token. They want to send some value back to the token. Have these two interact. It's sort of this open question when we talk about all the time. But that's really what people look for. And obviously that allows there to be regulatory clarity within the existing Reggae or Reggae security sales regime. But short of that, you don't actually know what the token is. And so therefore, hey, you can't say harbor, but to what end? - So your point is almost that this set of regulations is really designed for an older generation of crypto where a lot of those founders were building decentralized stuff. Today, how many things do you get pitches for that are like, yeah, I intend to walk away from this project and no longer be involved 'cause it's all self-sustaining on chain. - Yeah, exactly. And that was like the spirit of those ICOs and that's why I hate it was all these lawsuits around. But what were these tokens sold as? What did they become? How did they become with it? What it became was that path? And so both of those sort of components and obviously the two are intertwined. But today, you just don't see a lot of teams that are from day one or even for successful teams talking about what we want this to be, totally decentralized. We're gonna do our first raise as a crowd fund and then build a decentralized network. Maybe it'll come back and maybe, hey, this is providing the path to do that but it's not really what we see in the market. - Yeah, I would also just say like the word decentralized has been watered down and changed so much. That like I don't even think there's this question. What that's to see concerns decentralized will hyper-liquid concerns decentralized what's so on a concerns decentralized what Ethereum concerns decentralized are all kind of different notions. So I'm not even sure like, this is, yeah, to talk about it. - There's gonna be a little standard now. - Yeah, it's just a little feels like, yeah, a little too little too late. But I think the five million thresholds interesting. I'm kind of curious if there's gonna be someone who like tries to make like a holding company that launches like 20 different tokens to get to the 100 million without having to do the audit financials. Like, I'm sure there's gonna be some kind of like clever way of farming the five million limit to emulate the 75 and someone will do it. It's crypto. There's always someone whose financial engineering interests will lie in doing this. - I think to also Robert's earlier point, I think Stax did a reggae offering 10 years ago and Muni was always complaining about how much of a pain in the ass it was. So hopefully this is, you know, less of a pain in the ass. - That's what I'm saying. - It does look like it will be that much less with pain in the ass. It looks quite pain in the ass. - No, 75 going dollar one sucks. - Yeah, but the point is like, imagine I find a way to make like a holding company. Like especially in a world where everyone, there's 100,000 tokens, you know, there's hundreds of thousands of tokens now, right? This is not the world eight years ago where it's like, there's very few, it took a while to launch one, whatever, right? There's gonna be someone who like meme coin style de-dawses this legislation. Like I'm willing to bet that that will happen. - I think that the de-daw's protection is the fact that you have to get, like it's still the legal costs, I think, to do the filings I was asking Judge BT to estimate the cost of like the, just like the administrative burden of even the five million dollar threshold. It's probably like between $10,000 and $20,000 of just like the little work you have to see. - Yes, 15 subsidiaries of one company. And I can now share those costs. And it's not gonna be 15 times 20K, it's gonna be more like 100K, right? - Yeah, fair enough. - You're just saying, there's gonna be someone who figures out the engineering to basically do many of the small offerings. I don't doubt that that will happen. - Yeah, that's interesting 'cause just yesterday, someone unrelated, but actually in a weird way related. I was reading this economics paper about this concept of like AI flooding of government services. And the idea is that, you know, there's a lot of government processes that have a high fixed cost because of the costs of basically navigating administrative complexity or just sort of bureaucratic bullshit. And the cost of effectively decreased for a lot of government services of like, you know, for example, applying for refunds or contesting parking tickets or sending common letters. Like a lot of stuff like this that's actually designed to have this proof of work that makes it costly. And now a lot of those government services are getting overwhelmed because of LMS. And basically people sort of didn't realize that there was this fixed cost. They were sort of pretending that there wasn't a fixed cost. But that was kind of their flow control was like, you know, because it's like it's hard and you have to hire a lawyer. But now it's not hard and you have to hire a lawyer and therefore it's basically like a one click thing that you can get your chance to be cheated to do it overnight. And this paper was looking through a lot of these different mechanisms in different government services and being like, look, you have to kind of revisit what was effectively a speed bump that has now been removed from society. And like a lot of these things are now getting de-dost effectively by just genuine people trying to consume government services that we didn't realize we were rationing through bureaucratic bullshit. And I kind of feel like this is the same thing potentially for capital markets, right? There's like a sort of rationing of capital markets through fixed costs that might go down because you can get your LM to like prepare the all the administrative statements or whatever and it's like, okay, now the SEC is getting overwhelmed by these yeah, I don't I don't I don't doubt I don't doubt there's going to be some civil attacks like it just like seems people are too clever and like this will be easier than the 75 million thing right so yeah, totally so this is ultimately good though I mean I'm very curious yeah, like at the end of the day, this is still mostly focused on crowdfunding right if you're going to raise money from VCs probably you don't need to do this and any of the VCs were worth their salt they have some kind of overseas structure and they have the ability to you know whatever kind of be non US domicile for for investing into some of this stuff. So the interesting question here is like, who is actually going to avail themselves of the $5 million crowdfunding limit right if you're a meme coin you don't need this because you're not a security right we already established that mean coins are fine so what are the projects that are going to be doing $5 million crowd funds to US investors and have to do some amount of disclosure right it's not nothing you still have to disclose you have to disclose a team you have to disclose what your manager your efforts are going to be etc etc like you got to you got to put out some stuff here that does give you exposure. I have a more be crazy hair brand theory but I think like to me this is the next token type that will be the L1 potential like I don't know if it will be as big like I don't think it will suck up as much capital as L1 tokens but but I really think that the Venice token like inference play of like I'm giving you this real service and like the state maybe if I stake I get a discount or if I stake I get kind of like I kind of get zero data retention from the inference right there's like different levels of quality of service you can you can do with the token and the token can have revenue on day one from the inference providers in fact we were talking about that with the king who actually is already thinking about this he's very excited he's hoping to say very excited the king was like super excited but the these types of tokens I think like you're seeing a lot of crypto companies becoming inference writers because it's like very similar to running a decentralized network right you're managing a bunch of nodes maybe they're more co-located you don't need them super distributed but you're seeing this like for instance with eigen layer of becoming inference writer with with Venice of course and you're starting to see a lot of other teams can go this direction I think it's actually a very natural tokenization because you're delivering a digital good right it's not like I'm doing some off chain RWA type thing that's complicated I can kind of value the good now there's some trust assumption out there for sure but again like I said no one's trying to say we're tokens equals full decentralization anymore in 2026 and I think there's going to be a lot of these types of like small cap AI type of raises because you know the minimum AI race like now is like feels like it's like 20 million right but there might be a lot of these smaller teams that are going to raise less to like do a small inference writer to kind of like localized certain technologies so I I kind of could see that market actually being like they're going to be like many Venice tokens and like there's kind of going to be there and that's like the non meme coin token boom of the next cycle yeah you I feel like you saw a little bit taste of that is also this past two week like all the non crypto AI and army people were really excited about the dark bloom which was like the like Apple silicon you know distributed which is for my yeah like backyard compute kind of thing and it's like almost rediscovering the like decentralized inference you know idea from from kind of first principles like running in the same issues and you know this obviously being kind of like the next step and okay well once we actually have this like network of computers that we can we can you know do inference on you know how do we actually go about you know distributing some of the value and strengthen like the rest of it I think it's going to look like new pulls actually it's like it feels a lot more like mining pulls except like you don't have cryptographic guarantees you have these like statistical guarantees the cost of cheating is high versus like the cryptography making sure it's like basically internet but I think like if that we start to see more of those tokens take off like I could totally see those people raising on this like that makes total sunscreen well speaking of a inference one of the big stories this week has been that stripe purchased open router for seven billion dollars now open router was founded by Alex Tala who is the co founder of open sea long time you know kind of in the crypto world ended up in 2023 I believe founding opening router founding open router open router for those who don't know it is basically an aggregator of inference providers so it's kind of like one inch if you if you know any of the defi aggregators but they do that over LMS and particular models for you know finding you the cheapest or fastest or most of you know low latency or highest hashing rate LMS provider for a given model so they've been growing like crazy this has been one of the big stories is just how fast a inference has been growing and of course how fast open router is going relative to the centralized players in a world where you know it's just open AI and anthropic maybe you don't need something like this but in a world now where we're seeing so much more competition from all these other open models especially from the Chinese labs something like open router suddenly becomes very compelling now to run you recently published an article called caching cheaters on open router a bit of a pun like catching cheaters do caching cheaters you gave me the idea for the title wait wait I think that what was the original title was something very catching and I was like actually why we just make it a pun by removing one letter there was it was very very good very well done do you want to summarize you want to summarize the paper of what it was about because it's a very it's a very like defi me v inspired paper looking at what's happening in inference markets yeah so maybe I'll give a little high level view of this and also why I think like there's a huge genius in what Alex did like whether he explicitly realized he was going to end up making like a very crypto like thing out of AI stuff or not I'm not sure he clearly obviously has amazing timing and taste historic like from two having two large kind of exits like partial exit and one and you know like it's kind of like you know there's real skill like he really understands he sees the future you know but there's something interesting about how open router started so let me just give a little bit history on the open source small world so like chachi pt comes out there's this huge you know burst of interest in demand this pre-clawed and that was at the time where like all the big tech companies were getting very scared of losing their modes right like Google feels like they're going to lose search or Facebook feels like people are going to use social media less because AI will make the content worse and so Facebook of course famously made llama right the one the first large open source models there were a lot of smaller open source models but they were just not very good they were like not competitive but once llama launched there was this whole cottage industry in 2023 of making like fine-tuned versions of llama like llama for coding because at that time the coding models weren't very good or llama for images to compete with like like you know people who make open source versions of mid-journey like stuff like that right so there were starting to be these like flora and fauna of like special purpose models built off llama and it was really hard for you to know I want to make an image of seat with hair right like that's my prompt and it's like okay which one do I go to and I think in the closed source world right you just get one prompt right it's like open AI gives you one thing clogged you know in the open source world it's very unbundled you have to figure out okay like this llama thing made by this academic lab fine-tuned apparently does really well on this benchmark for generating hair correctly realistic hair okay great that's the model I use right so that was the original pitch for open others like the flora and fauna of these open source models there's too many of them very similar to how defy there were tons of forks right there was tons of you know at once amms or popular everyone started working uniswap same with obvious and compound right so you you kind of actually see this very similar thing and there was this kind of unbundling that occurred in defy of the centralized service right like the centralized services Binance and Coinbase offered defy unbundled them and but then it made it on the user to figure out how to use them and there was services that aggregate in that was like the natural thing so where we kind of are right now with the open source model world is something that looks really really similar to defy so there's there's sort of the front end the harness so like clogged code called desktop whatever your your app that you're using there's the router which decides which model to use then there's the model itself and so if it's open weights you know you can go download you know the model weights and run it and then there's the inference router the people who provide the GPU that actually runs the device is very similar to to on-chain finance where the harness is like the wallet the front end it whole holds the data users private data my whole secrets like private keys API keys things like that then there's the router will like a Dex router so if you've ever used a swap function in phantom or one or uniswap under the cover there's a router that's routing you to different pools and you don't even know that you're using it then that there's a model like the protocol you know they collect some fees usually less than the other providers and then the inference router like liquidity providers or or validators in a decentralized network and if you look at the lessons of crypto it kind of tells you the value flows to the edges like it goes to the liquidity providers or entrance writers or it goes to like the wallets and so a natural question is if you see this kind of analogy do you a natural phenomenon crypto is M.E.V. right we're validators might reorder your transactions, might put certain preference, certain users, might front-run you. And the question is, do you see this in OpenRouter? And so that was something I spent like a couple months just scraping data from OpenRouter. And the nice thing about OpenRouter is, it's on the blockchain, right? It's like a private service. But they publish and post prices continuously. So these inference riders, like a Venice base 10 together, they can update their price all the time for how much they charge you for the different tokens. And basically the type of thing that the paper folks on is, there's a difference between cash tokens. So tokens that don't have to do the full compute, you get to reuse compute you did earlier in your chat versus input tokens. And but there's no cryptographic verification of that. Or there's no real verification. The inference rider just says, oh yeah, I used this many cash tokens or not. And so one way of manipulating that is saying, hey, I'm going to give a lower price on the expensive tokens, like the input and output tokens, like the fresh ones. But I'm actually just going to say I never use cash tokens. So I can kind of charge more. And so there's evidence of that already happening. The interesting thing is a lot of the people who are doing it are used to be in crypto, or we're Ethereum miners, or have connections to crypto. So I think the lesson here is that this market structure, which Alex kind of invented in some way, like you can really argue that OpenRouter opened up this market. It was not kind of, you need the router to glue together this market. Without the router, this market is a bunch of independent things you have to stitch together. It's like the UX, in a way that in a Dex aggregate, or it's a little bit easier. But the main thing, I think that's interesting right now, and I'm kind of curious about your guys' takes on this, is how I kind of think we're about to have the revenge of the SaaS company, like Enterprise company. Because the last two years, SaaS company stocks have just been getting bludgeoned, right? Sigma, obviously, Sigma had the worst hit in the sense of anthropic literally made a, initially it was a partner, and then just made a clone/better version, whatever. And so there's been a lot of this consternation of all these software companies. Are they going to survive? Because they're going to lose their seat. Everyone's going to write their own CRM software. Using Claw, they're not going to pay Salesforce. But what you're finding right now is that these companies are finding a new way to monetize SaaS users with routers, which is sort of the revenge against anthropic. So say you have data sitting in-- so for instance, like Ramp, the credit card company will launch a router, Stripe, obviously, just bought open router, they have a router, Databricks, Palantir, are both have their own routers. And so you're starting to see this kind of like every SaaS company who owns a bunch of user data, like user data that maybe the user wants more private, or they, they, it's too expensive for them to like move that anthropic or in a data warehouse or an anthropic could access it as easily. You're starting to see them offer routers and charge a percentage fee on tokens. And the routers won't route all the tokens anthropic for us, so route them to cheaper open source models. And so you're finding out that the monetization of this, again, looks like crypto. There's almost this like payment for orderflow type of thing. I generate orderflow from my users who are using my SaaS app. Some of the tokens I route to anthropic, some I route to Chinese models. And I can take a little bit of a spread on that. Well, there was a very interesting idea, actually, by Brett Harrison, I think he posted this yesterday, that the payment for orderflow in token routing probably actually looks like hedge funds that will pay you for your LM queries just to get real-time information into what's happening in the economy. Yeah, for sure, for sure. I think that was already happening a little bit, but not at like the systematic level of hedge funds, but more in the level of the inference providers are offered deals to people who send them tokens. Like, if you guarantee me two billions tokens, yay, I'll give you a cheaper price, which is like already moving in this direction. But I think the interesting thing about this market is it really, really looks like crypto, except decentralization isn't the most important thing, but like, open competition is, right? So it's like, you still have the centralized entity and open router, like deciding which providers are added. It's not like anyone can join and leave, but the open competition is the thing that's actually been driving the price down a lot. And I think this is like, if this works, it sort of says like every SaaS company is gonna be a router, because it's the easiest way for them to charge or margin on top of like owning user data and user flow. And I think to me, this is gonna be the most exciting thing in AI that kind of looks like crypto. It's like, to me, it's like the one thing that's actually kind of a real place where they might intersect. So anyway, I know I went on a rant for 10 months. - Tom, what's your take? - Yeah, I've been jamming on that this a lot this week. I mean, also just like, you know, talk about, hey, like just offering discounts for ZDR. I think it is feel like you gotta keep learning the same lessons around like, you know, statefulness and stickiness being like the moat and thing that is like monetizable. And you know, I could see a world, you know, down the line where even the frontier labs end up, you know, maybe using through pretty models and they just kind of end up having so much stickiness from, they're just gonna use your base. And you already see that a little bit, right? People will like, yeah, I love Cloud Code as a harness, but like I wanna swap out the back end and use Camey or something. I think the question is almost more on the models where you actually see, again, some crypto analogs that Camey get three when they published the new license, it's very BSL-like where it's open weights, you can use it for personal use. But if you're a company with over, you know, 20 million revenue, you have to pay us a licensing fee and here's the fixed price. And so you can't, you'll just get this, get to use this for free, which was also some of the original concerns about, you know, open source DeFi, which is, you know, why would someone not just pick up new swap and copy paste it and make the run version? You know, how does this not just get absorbed by sort of both ends of the stack? And like, this is the answer so far, but it seems kind of brittle, relies on, you know, the legal systems to kind of adjudicate this. And we were also discussing like, you know, open writer also, you know, charge a listing fee for infinite providers to get added. So like, there's all sort of like, weird interesting kind of kind of analogs and, you know, across both. - So much like, much like Binance in the token market. It was interesting, yeah, yeah, yeah. I mean, the market structures are very similar and then, you know, this being kind of this open worldwide competition for this service. I do think what we are going to see more. So, you know, to ruin what you pointed out in your paper was that there's incentives to cheat by nominally lowering your price, but not actually lowering your price. Like, you sort of cheat on the back end to have like a lower sticker price, but actually higher all in price, or the same all in price, or whatever. - Yeah. - There's a, one can imagine. So, you know, there was a stories about these data brokers that would give you illegal access to Quad in China, or, you know, overseas in countries that Quad is not allowed. And these data brokers, you know, usually what they're doing. - Arrested recently for like running one of these services, actually. - Oh, interesting. - Yeah, it's like students. - Right, so what a lot of them do is they're either one, they're stealing accounts, so they're aggregating like a bunch of account takeovers and just jumping around between subscriptions and selling those to third parties. But another thing that a lot of them do, actually, besides lie, you know, some of them are just like, there's not actually Quad, but what a lot of them will do is that they will give you highly subsidized prices because they are scraping the contents, and they're selling them. And usually they're selling them in large part because there are a lot of secrets in them. So there are API keys, there's PII, there's, you know, all sorts of stuff that literally they'll just come in, grab a bunch of the secrets that you have, and then like drain your accounts. So what you can imagine that the more of this kind of thing you do, we talked about hedge funds doing it to just have information, but you can imagine, you know, more nefarious ways of monetizing the data that you're getting, and that creates a lot of the competition of, you know, having lower and lower prices because you're making it up on the back end, doing wildier and wildier things. - But you're talking about a malicious version of this, but there's already kind of a non-molicious version of this in that thinking machines on open router and like just generally, if you use their models and you don't use zero data retention, like they delete all your chats and prompts, they give you a cheaper price because they're basically trying to generate mercores, you know, like these companies like mercoresurge, scale the AI who like do all this human annotation, very expensive, right? Because it's hard to grow off that. And you're starting to see people basically do the 20, do you remember the 2017 token dream of like, okay, get paid for your data, somehow use a token to do that, whatever. This is actually the first time I actually think that stuff like, it might actually work in this trace model where you basically give rebates or cheaper inference, which could be done via token model, like a Venice type of thing or not, but like some type of rebate to a user if they give you their data for their chats for your post training or for later usage. And like, again, this is like these crypto dreams that were just like too early. They were like, it just like didn't make sense at the granularity because like your data was sitting on this platform, like on Facebook or in Google and like you couldn't like pull it out. But the AI now makes you generate, makes kind of streams out your data for you. And so now you can actually resell it and like actually get a cheaper cost of using AI. And the other thing that's really worth noting here is that there's this huge rush of like, people making data companies, right? Like the mercores and surges and whatever. Because, you know, all the labs are talking about how there's spent, you know, anthropics that they're going to spend 10 billion on data like payments this year. And so there's this kind of interesting thing in the AI world which is very much like crypto. where there's the cost side like training, data collection, and then there's the huge margin side inference, right? Like inference is like 90 plus percent margin. Like like in a lot of cases, people are basically running away in terms of like the financing cost, right? Like all of the people doing the open-weight models, like the Chinese companies, they're all of their revenue comes from just being one of the many inference providers in this market place. And so I think the crypto stuff, like there's a sense in which we should be revisiting a lot of ideas from 2017 right now. Like there are a lot of them that just sound as sci-fi, it didn't make sense for too hard to do, that actually might, like the token models for the crypto tokens, for making it easy to monetize these inference tokens, I think there's actually gonna be stuff there. And that might be our next real bull market. - So speaking of bull markets, we've got a couple of minutes left for we wrap. - I mean, I know, no, no, no. I bully pulpit today, yeah. - No, it's good, it's good, it's good. - Bull. - E-Pul. - Given that you guys are in a very different environment out there in Asia right now, in Bhutan, what's the vibe that you guys are getting? Are we in a bull market? Has it truly begun? Is it just a bit of a rebound? Like what's the vibe check just quickly from us here at the table? - Weirdly, most of the teams I've been talking to are still very much in this kind of button up, tradfi, RWA meta that we've been in for the past two years of where we're gonna tokenize some invoices, we're gonna do invoices, factory and effects. And so it's almost like the gear shifted again, and you're still doing like STOs or something. And you know, I think those are good markets and I think they're probably plenty of good projects. But it feels like a lot of people were caught off guard with the shift. It reminded me a little bit of when Larry think went on TV and said, "The coin is good," and the ETFs were getting approved and everyone's like, "Oh shit, where'd that come from?" It feels like we're kind of in the little bit of that gear again, too. - So, Sam Reid. - I think the interesting thing to me is like, I think of like Asia as the true source of like KOL gambling punter, like trading token $199 in market cap as they fit with their entire life savings, right? But the funny thing is, everyone seems like less degen than the US, like meme coin stuff. The US meme coin stuff is actually very crazy. Like there's something weird about that that like it hasn't translated here. And I don't, that's the thing I'm, I don't know if that means there's like another bull cycle or like mini cycle for that or not. But like, you were saying that earlier, right, too, right? Like they haven't had the like FOMO pumped up fund stuff as much. And like, there's a lot of people trying to figure out how to like Asianize that. - Asianize. - I don't know if that's-- - Up at volumes of that morphology? - It's more local, more local friendly, right? The social trading stuff is like kind of very interesting. - Word is localized. - Yeah. - I know, I know, I know. - I was just. - You're good. - And localized, you're good. - The FOMO localized FOMO. Like that, I think there's a lot of like people want to bring. And like that, maybe that is like a-- - A little Binance life is doing really well. Binance life is rallying. - That's like the one Chinese characters on page one of Quinn Mark Depp now is Binance life-themed coin. So yeah, the trenches are back to life. We are up on time, so we got a wrap, but thanks everybody. Welcome back to Crypto Being Cool again, or at least starting to get the green shoots of being cool. - Hot again. - Hot again, hot again, hot again. I think the coolest and the hotness are very correlated. I will say that. - Okay, and the longer that Teferone and Tom wear those robes, the cooler and hotter, the cooler and the hotter it's getting. - We are definitely hot. - We'll bring our normal, yeah, with undery layers. - Yeah. - Okay, all right, nice. All right, we'll enjoy Bhutan, you guys, and we'll be back next week. - Yeah. - There we go. (upbeat music)