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- [00:00]
Haseeb Qureshi
The reason why volatility is so high in AI is that nobody can predict anything. People keep getting surprised. You see like half a trillion dollar deltas in the open and closes on these markets where like Amazon and Apple are getting repriced 15% on a day like these things are trading like shitcoins. And why is it happening? It's happening because nobody can predict anything.
- [00:19]
Tom Schmidt
Not a dividend.
- [00:20]
Tarun Chitra
It's a tale of two kwan.
- [00:21]
Haseeb Qureshi
Now your losses are on someone else's balance sheet.
- [00:24]
Robert Leshner
Generally speaking, airdrops are kind of pointless anyways.
- [00:27]
Haseeb Qureshi
Unnamed trading firms who are very involved.
- [00:29]
Tarun Chitra
Alec Eth is the ultimate default defi
- [00:32]
Tom Schmidt
protocols are the antidote to this problem.
- [00:35]
Haseeb Qureshi
Hello everybody. Welcome to the chopping block. Every couple weeks the four of us get together and give the industry insiders perspective on the crypto topics of the day. Quick intro is first you got Tom the defi maven and master of memes.
- [00:46]
Robert Leshner
Hello everyone.
- [00:47]
Haseeb Qureshi
Next you got Tarun, the giga brain and grand poobah at Gauntlet.
- [00:50]
Tarun Chitra
Yo.
- [00:52]
Haseeb Qureshi
Next we got Robert the crypto connoisseur and czar of superstate.
- [00:55]
Tom Schmidt
Good evening.
- [00:58]
Haseeb Qureshi
And I am Aseev, the head hype man at Dragonfly. We are early stage investors in crypto. I want to caveat that nothing we say here is investment advice, legal advice or even life advice. Please see chopping blocks at XYZ for more disclosures. So boys, it's good to have you all back together. We have an interesting docket this week. Starting off with bad news because that's how we always like to do the show.
- [01:17]
Tom Schmidt
Always.
- [01:17]
Haseeb Qureshi
First bad news. First bad news of the week is a exploit in crypto of a wallet called Coldcard. Now I have not heard of Coldcard up until this exploit.
- [01:28]
Tarun Chitra
That means you have.
- [01:28]
Haseeb Qureshi
Any of you guys heard of Cold Card?
- [01:29]
Tarun Chitra
Follow enough. Bitcoin maxi.
- [01:30]
Robert Leshner
Yeah, you're not a bitcoin maxi.
- [01:31]
Tarun Chitra
It's a bitcoin maxi. It's a bitcoin maxi wallet.
- [01:34]
Haseeb Qureshi
Have you guys heard of it? Have you guys heard of it?
- [01:35]
Tarun Chitra
Yeah.
- [01:36]
Haseeb Qureshi
Yeah, you've heard of it?
- [01:36]
Tom Schmidt
Yeah, I heard of it this week.
- [01:38]
Tarun Chitra
Oh no, no.
- [01:38]
Haseeb Qureshi
I heard it. So Robert and I both first heard of it this week. Tom and Tarun have heard of it before.
- [01:43]
Tarun Chitra
Do you remember this guy? NVK like this Bitcoin maxi account from like 10 years ago. Very popular. That's the person who made Coil.
- [01:53]
Haseeb Qureshi
Okay, all right.
- [01:54]
Tarun Chitra
Started the company. Yeah.
- [01:56]
Haseeb Qureshi
So Coldcard, Very unfortunately so Cold Card is a. Is a very minority vendor in the wallet space. They only do bitcoin wallets. So most of the, you know, if you think of like Ledger or Trezor, usually these are like multi chain wallets, cold card bitcoin only. So it's really appealing to Bitcoin Maxis. Judging from the numbers that they have published, it's probably something like 1 to 2% market share of the bitcoin wallet ecosystem. So it's a pretty minority vendor. Their whole thing is that they're open source and they're bitcoin only. Now they suffered unfortunately a very massive exploit. It looks like so far there's been almost $100 million in Bitcoin that's been drained from cold card wallets. Now these are cold wallets or Knocko wallets. These are hardware wallets. So this means that the key should have been generated on device and only stored in the hardware. Therefore the only time it should ever have access to the Internet is when you plug it into a machine and do a transaction. So how are these machines all getting hacke? Well, it was discovered that there's a vulnerability in the random number generation on these devices. Okay. Now this vulnerability was introduced five years ago in a firmware change that some developer basically just changed some random macros or definitions in some C code seemingly to just get some code to compile. And they didn't really seem to understand what was going on. They wrote a one word commit on the code change that led to this massive bug. And basically it went from a hardware wallet that's normally using very robust on device RNG or random number generation, which is the entropy that's used to generate the key, and instead fell back to some very weak software based random number generation which is very easy to crack. So these insecure keys were getting generated for the last five years until this weekend it was discovered that this vulnerability was getting exploited. Presumably somebody pointed their lasers of, you know, their AI agents looking at this code, trying to find out what could have been going wrong that cause all these keys from the same vendor to get hacked. And reportedly somebody used Claude code to look at this code and found the vulnerability in eight minutes. Now this vulnerability that was found through Claude code, people were saying, oh, this might have been contamination because maybe it was searching the web. And so Somebody else took GLM 5.2, an open model, gave it no Internet access and was able to find this bug in 20 minutes. Now I was able to go back and do a little bit of math. 20 minutes of GLM 5.2 costs about $2, meaning that this team, whoever they were, I obviously don't know Them, it did not seem they did almost anything with respect to using AI to monitor their own code for vulnerabilities and kind of harden the code that they were writing, which kind of at this point, given where we are in the ecosystem seems incredibly delinquent. So obviously this is a tragedy. Very unfortunate for the people whose money was stolen because it's very difficult to get Bitcoin back once it, presumably it was hacked by sophisticated people. They did ship a firmware upgrade over the weekend. Obviously too little too late. If you have a key that was generated on one of these during this period of time, doesn't really matter. You have to go and regenerate the key and go move to a new address if you want to keep your fund secure. But probably anybody who's vulnerable, very likely you've already been swept. But my understanding is that there were three waves. First wave was big accounts. Second wave of smaller accounts. Oh, there's a fourth one now. There may be a fourth wave of people just gathering up dust or something. And, and obviously it's possible that these are not the same attacker. Once over the weekend it was confirmed that this was going on. Anybody can do this. This is very trivial to do if you have a weak rng. So a lot of people were saying this is the death of self custody. I think Nicardo was out there saying this is the death of Bitcoin maximalism.
- [05:41]
Tarun Chitra
Got.
- [05:42]
Haseeb Qureshi
What are we calling the death? Obviously it's probably the death of cold card. What is this the death of if anything?
- [05:47]
Tom Schmidt
Responses, it's the death of two things. One, cold card, as they should, right? People ridicule them as being a five person company, you know, rolling their own, you know, security, all of these things, right? Building hardware is extremely tough, right? All sorts of things. How could anyone trust that? Again, I think, you know, cold card, this will be a learning experience for everybody. I hope that it's the death of open source projects not being audited by white hats first with all the tooling that's available, right? To your point, Haseeb, how could they not have pointed the candidate themselves? Right? That's crazy, right? Any open source project at this point, whether it's a smart contract, you know, running a defi protocol, whether it's some other open source, anything. It doesn't hurt to train the security budget on yourself or on a friend's project or whatever. You know, it's hilarious that we got to this point where you know, such a core bug that compromised randomness basically
- [06:56]
Haseeb Qureshi
based on the main thing, your main job As a hardware wallet.
- [07:00]
Tom Schmidt
The main job of a hardware wallet based on like a broken if statement. It was like if you know this, like we're good. Otherwise fall back to this horrible library. It's like, turns out we weren't making secure hardware wallets for five years.
- [07:12]
Tarun Chitra
Whatever.
- [07:14]
Tom Schmidt
Hopefully it's the death of people not taking the time to audit open source things. Hopefully this like inspires people. Not the black hats, but the white hats and people maintaining projects and building open source things. To your point, all of this is open source. There's incredible models now run everything you have open source through the models. The death of apathy.
- [07:36]
Haseeb Qureshi
Tom, how do you react?
- [07:37]
Tom Schmidt
That's Stuart.
- [07:38]
Haseeb Qureshi
Death of apathy. Death of apathy.
- [07:40]
Robert Leshner
I mean I, I assume they had this audited and whatnot. I mean, I agree. I, I mean I would be shocked if they had zero.
- [07:48]
Tom Schmidt
Yeah, but are humans gonna find this issue right?
- [07:51]
Tarun Chitra
I actually think there is a thing about the bitcoin maxi developer community where they don't believe in a lot of, you know, it's like, it's like the seed oil thing. It's like, it's like they're like the RFK of security practices.
- [08:03]
Haseeb Qureshi
You think they're getting seed oil?
- [08:04]
Robert Leshner
They don't get, they didn't do audits.
- [08:07]
Tarun Chitra
I remember there were a bunch of exchange hacks for bad entropy generation historically and there were all like these like bitcoin only exchanges that didn't have to do entropy generation for multiple different types of key pairs and different signatures and stuff. So like they weren't as careful as like someone who know has shot themselves in the foot. And I think the maxis always, there's a sort of like this almost they, they over memed themselves into this, you know, verify don't trust thing where they like we're like, well we verified once, you know, like the, the idea that they have to do it again and it wasn't perpetual is like something that I think is like a, especially the bitcoin developers. Obviously bitcoin development basically is non existent nowadays. But the, the people who kind of stopped a lot of the development, like the miners and large holders in some sense are the, in part of the problem here because I feel like there were a lot of people trying to make upgrades, make changes and it was like, nope, nope, Bitcoin doesn't need to be changed. We're done, we're ossified forever. And that like even applied to users, wallets, whatever. So I'm not as surprised because I remember like for instance, like when a bunch of L1s launch with BLS signatures where you need way more entropy than like a normal ECDSA or kind of stuff like that. There were like exchanges that were doing crazy ass entropy ceremonies, right? Where they would like have like five different laptops not connected to the Internet, brand new, generating entropy, and then they would like smash them with a hammer and record the video of that as proof of like destruction or whatever. And I'm like, these guys have like the amount of entropy that my TI83 has. You know, it's like, all right, this is more an incompetence thing also a little bit. Right, because like there was. There's a little bit of hubris in the bitcoin maxi wallet community, in my opinion.
- [10:00]
Robert Leshner
Yeah, I mean, fair enough. I think it does remind me of like the vanity address generator bug in, in sort of Ethereum land from a couple years ago.
- [10:09]
Tarun Chitra
Yeah, exactly.
- [10:10]
Robert Leshner
It's very similar to Core that you don't think of about it. Like when people think of sort of attack services, I mean, as you've even sort of seen recently, it's like, hey, does this transaction hash that I'm signing actually end up on the device? Can I see? So the result of and state changes from what I'm signing, But thinking that, yeah, using the wrong rng feels so kind of past it. But I am also kind of surprised by how small the hack is actually like 100 mil in cold storage these days. I mean, it is a lot of money, obviously.
- [10:40]
Haseeb Qureshi
Small player.
- [10:41]
Tarun Chitra
Yeah.
- [10:42]
Robert Leshner
But I don't know, maybe that's just the way the industry is right now.
- [10:46]
Haseeb Qureshi
I mean, there were some heartbreaking messages that were getting shared on social media of people who are like, look, I've been spending the last five years scrimping and scraping to get my three bitcoin, and now they're gone and I'm just like, I'm done. I can't do this again. I thought I did all the right things. I was listening to what the high priests were telling. Self custody, don't trust exchanges, don't buy the etf. And now my bitcoin, I wake up and my bitcoin's gone. And that is brutal. That is absolutely brutal. Anytime we have a story like this where we're dunking on some company for doing stupid shit, the reality is that there's real people who just have their lives destroyed by something like this. And it is heartbreaking. The reality, I think do the right
- [11:29]
Tom Schmidt
thing by getting the niche bitcoin maximalist hardware wallet right. That's like the Best thing you can do as opposed to getting ledger or something that supports all the shitcoin chains and blah, blah, blah. Like, people thought that that was the right move and they listened to people in the community.
- [11:45]
Haseeb Qureshi
I think Nick Carter's point actually on that part resonated for me is that the idea that there's like this, this virtue coming from bitcoin maximalists that if you follow them, you'll be okay. I feel like that's really gone away. I think it's very hard to believe that these days that with everything changing in the world, that bitcoin maximalists are going to be able to guide you in the direction of what you should do with your life.
- [12:07]
Tarun Chitra
Are they still stuck in a volcano in El Salvador? Like, do that.
- [12:13]
Haseeb Qureshi
The other thing that I think connects to this is that the economics of AI and of cybersecurity are making everything really change. And one of the obvious things that changes is that humans are not doing this anymore. It's not humans on either side. Robert, you said the word white hats. There are no white hats in the sense that there's no humans who are going and looking at this and being Good Samaritans anymore. The Good Samaritan is like a dev who, you know, looks at some code and is like, hey, you know, let me, let me chuck this into my opus and see what it thinks after looking for like three minutes. And if it says it looks fine, then I'll use it, right? And so they're using a couple dollars of compute at most to just verify, like, hey, does this look sanity check this? Right? And if, if there's an attack that requires $50 of compute or $100 of compute, they're not going to find it. Nobody's going to spend $100 of compute on some random, you know, open source thing that they're just taking a look at or that they're a vendor of, they expect. And then of course, the attacker is going to spend $1,000 to compute $5,000 to compute hundreds of thousand dollars compute if they think the Prize is potentially $100 million worth of Bitcoin. So the only party that's really. It used to be the economics of open source was that, oh, well, with open source, you have all these humans looking at your code, and that means that your code is going to be more secure because of all the good people who are looking at it are going to outweigh the bad people who are looking at it. But in AI, I wrote a whole thread about this, is that in the world of AI. The AIs themselves are much less diverse than humans are. AIs are very similar to each other and people are mostly using the same models. So if everyone's using the same models, then every good person, every good Samaritan quote unquote, who's going to point $10 of compute at your code, is basically going to do the exact same thing. They're going to be duplicating the same work, which means that they actually don't add any security. They're kind of just treading the exact same loop and going down the exact same investigative grooves. But North Korea or whoever did this attack is going to spend a lot more money and the only way you're going to be able to counteract that is the company spending $1,000, $10,000, $50,000 of AI hardening on their software. So it means that open source no longer is the protection that it once was. Open source in a way is protection against a nefarious developer, but it's not protection against a nefarious third party, which I think is once the way that we cognized open source. So it does kind of change things, right? Really at this point when it's AI, it's all about money. It's just how much money are you spending on a frontier model trying to find attacks against this thing and fixing them all? And if you didn't do that, North Korea will. It's as simple as that,
- [14:53]
Robert Leshner
I think. Agreed. Obviously this other nice things about open source too. But even like there's I think like Solana I kind of point to as being, you know, sort of this, this closed source ecosystem. But like obviously we've seen also how good AI is at decompiling and then obviously making bytecode or code that it can read. It doesn't even really need to be human readable, which is always the issue when you do decompilation. So it's like I don't really know what the answer is here. And it sort of goes back to what was that opens up Lynn founder from a couple months ago saying get all your money out of Defi. But it's like I think we're reaching the precipice of either the code is 100% airtight or the leaks are going to get found in the immediate future.
- [15:34]
Haseeb Qureshi
On some level, it doesn't matter whether it's open or closed because to your point, it can get disassembled very easily by an AI. So it just increases the fixed cost by $10 or I don't Know whatever it costs to disassemble your code and figure out what the original source code was. And then once it's there, it's just how motivated is the attacker? And the attacker's motivation is going to come from your aum. It's not going to come from if there was an extra decompilation step. They're already spending way more than $10 trying to break these things. So yeah, I really think that the norms that we've had historically about where security comes from are just wrong now. And it feels like the world is not adapting and it's going to take a few more of these before people do start to adapt. And ultimately what it means is consolidation. What it means is that minority little. Okay, here's this passion project, Crypto Wallet. Those are going to just become impossible to trust because how much money are they spending on securing this thing? I don't know how much, what are their quarterly sales? What could their budget be? How much do they raise from VCs? How much can they actually afford to spend on every release? Those are the questions you have to ask yourself. And it's very hard to ask that for Coldcard or one of these minority vendors. It's a lot easier to ask that for Ledger or one of these venture backed ones that have real meaningful capital. But I think you're going to see this everywhere. It's like with exchanges, with hardware wallets, with smart contracts. It's the same thing happening with smart contracts is that last month we saw actually a very low number of total dollars hacked in DeFi. Actually over the last two months since April, total dollars hacked in DEFI has been very low. But the number of incidents in DeFi both two months in a row of all time highs. So very low numbers of dollars hacked, very high number of hacks. Which means most of these hacks are happening on tiny protocols. There's basically like a bloodbath of like 5 million FTV protocol or 5 million TVL protocols that are just getting rated left and right across Defi. And it's kind of the same thing with Cold Card, right? Cold Card is this tiny player. They have almost no market share. It's like this times a thousand. And you're going to see this everywhere. When we talked about this AI apocalypse, I think people assumed it was going to be the big guys who were getting hacked, but I think it's actually the opposite. I think you'll continue to see this over the next couple years.
- [17:49]
Tarun Chitra
I mean, nothing that we haven't already said. I mean, I Think the only thing is, you know, I think open source will have a comeback, but it's going to take a couple of years. Right. Like it's a little bit like everyone is going to get hacked. I actually think that the closed source people though are like way too overconfident and that they found all their bugs. Whereas I feel like in the open source and I think the open source is going to take the bludgeoning first, whether it's crypto which is incentivized open source or pure open source. But I think the closed source stuff is actually going to end up having the bigger catastrophe. Is my bet is that like if I had to bet on like economic damage due to AI attacks between open source versus closed source in terms of largest dollar amount lost, my bet in a five year horizon is the closed source losses will be higher.
- [18:41]
Haseeb Qureshi
You don't think to Tom's point it just doesn't matter anymore because AI can just disassemble binary.
- [18:46]
Robert Leshner
Yeah, I think is maybe like they've had some sort of immunity from a lot of attacks so far because it's all SQL obviously harder to sort of reverse engineer via closed source.
- [18:59]
Haseeb Qureshi
Open source is going to have more damage, right?
- [19:01]
Tarun Chitra
No, no, no, no, no. I'm saying closed source has more damage. I'm saying open source takes it up front because it's like easy.
- [19:07]
Haseeb Qureshi
Oh, oh, I see what you're saying.
- [19:10]
Tarun Chitra
But I think the longer term, in five years if you look at like, if I bucketed them in two and say like which had more damage, I think it will be closer.
- [19:18]
Haseeb Qureshi
Got it.
- [19:18]
Tarun Chitra
That's like, that's sort of my prediction is that there's a lot, there's a lot more you don't, you're like in a less adversarial environment. In closed source obviously the Pareto frontier changing means that like for open source the notion of the adversary has changed a lot. So it's like much harder. But for closed source I just still feel like people's best practices kind of are not very good on this type of stuff. Even mission critical. I just still think about how the US Federal Reserve almost wired $1 billion to North Korea off very minimal social engineering plus tiny exploit. That was a billion dollar wire that would have cleared and Swift would not have done anything to prevent it. And they got very lucky. And I'm just like, you're telling me the Fed, you're telling me the Fed is not going to get hacked? Like I kind of believe like some central bank is going to get hacked and that's going to be the bigger thing than kind of.
- [20:13]
Haseeb Qureshi
Robert, you want to jump in?
- [20:15]
Tom Schmidt
Yeah, I mean we're starting to beat a dead horse. But open source is going to be more vulnerable in the short term because it's more exposed. Closed source, bigger projects, the Fed, closed source.
- [20:29]
Robert Leshner
Right.
- [20:29]
Tom Schmidt
Like all of these things are huge systems that people are complacent because they can't easily see the code. They've been running stuff for 30 years. It's been evolving with just garbage and ancient computers. I mean it's a mess and it will get wrecked in a much more horrific fashion than the open source things. Eventually I think open source in general is going to go full circle and feel like early defi again which is like oh, if it's open source that's how you know it's safe. Because every agent out there will analyze it in 0.01 seconds of it being created and prove that it's safe or prove that it's unsafe. And if it exists at all, it's safe. Right. And it will become a badge of honor again. But not for a while, not until all code is just so thoroughly hearted through its development. Yeah, I like to say don't trust any code before 2026 period.
- [21:28]
Tarun Chitra
Or hasn't had other.
- [21:29]
Haseeb Qureshi
That's an interesting way to put it. Yeah, but I think that's actually well said is that in the same way the AI companies will not ingest any data after 2023 because it's just all been polluted by LLMs in the same way it's kind of like okay, maybe you shouldn't trust any code written before 2026 because it was all written in such a totally different environment.
- [21:49]
Tom Schmidt
Yeah, we should be code ageist.
- [21:52]
Robert Leshner
I've thought that too. I mean you see these 18 year old day zeros that are zero days that are found in the Linux kernel and stuff like that. But then I think just today it was like there was some Claude coded patch in rsync that introduced some big bug and decided to roll it back and then there was some big supply chain attack on tv. So there's like on the older versions you're fine, but if you 6.0 issue and then even the open source repos are also just locking down. They're not accepting any new PRs because they're just getting overrun with random slop. So I don't really know what the answer is, but it feels like the new code also obviously has issues.
- [22:33]
Haseeb Qureshi
The new code definitely will always have issues. That said, the fact that somebody immediately found like, hey, this new patch that you added introduces a bug. The kind of thing that used to take years for people to figure out. Now it's like, oh, somebody else figured that out in the span of a day. I think that's probably a sign of progress because of course bugs are getting introduced into new code. It's just really a question of how long it takes and what's the base rate of those bugs getting through. If something gets added and then removed very quickly, that's incredible. That's not how it used to work. At least that's the perspective that I would take. And I do think also the harnesses around secure coding are still pretty nascent. There's a lot of different products out there, a lot of people who are using vanilla cloud code. They're not really orienting it around secure coding. I think within a year you're going to see best practices change dramatically. Of course, there's Mythos in Project Last Wing, There's Daybreak from OpenAI. Most people, even in commercial projects don't have access to any of that stuff. So I think also when you see that disseminate more widely. If everything that they're doing in some very important open source repo is running through Daybreak or Project glasswing, I think you'll see practices change and the quality of code significantly increase. We know a lot of people who still are working on open source repos, they don't have access to anything, they're just using vanilla, just kind of cloud subscriptions. Okay, so, security stuff aside, another thing happening in crypto governance land is there's a proposal, a new EIP called EIP8361. And it has people very mad. So, as is often the case when it comes to Ethereum governance, this new proposal proposes to taper the ETH staking yield to zero if more than 50% of ETH is staked. So this was an EIP issued by Pintail as well as Justin Drake and a number of other kind of crypto Ethereum governance thinkers. Basically, the long story short is that they believe that too much ETH is getting staked, the yield is too high, and they want to create some kind of pressure function within the protocol to prevent too much ETH getting staked. Because if too much ETH is staked, it leads to some centralization, it leads to validators, kind of whatever, getting too much ownership. It also leads to tax leakage and it means that solo stakers will likely get pushed out in favor of professionals. So there's all these reasons why you kind of don't want to just keep spewing out tons and tons of eth. So they make this very rational economic argument that hey, it's like optimal to only spend this amount and there's too much demand for staking. And so it's kind of like this central bank kind of wonkish perspective that we should make the yield go down as the amount of stake goes up. Okay. Proposal makes sense on paper. Everybody is vomiting all over this proposal. And why are they vomiting all over the proposal? Answer largely 1. Nominal yields matter. People really like nominal yield. Tarun, given that you run a business based on nominal yield, what is your perspective on this eip?
- [25:40]
Tarun Chitra
I mean, I guess from a philosophical perspective there's kind of this argument that Justin and others have had forever, which is like ETH needs to be harder money like Bitcoin. But there's kind of this inherent thing of like if you constantly change your policy no matter what, even if you end up at like, hey, I'm like making the supply go down, you're still fucking are not hard money. You're not. Because no one, no one believe. There's no confidence that in the future this won't change again. Right. Like that. So I kind of think like this stuff is like very weird. It also like feels like the type of thing that's like not going to get past like much more gradual. Right? Like where it's like they are
- [26:26]
Robert Leshner
like doubling the disinflation. Right? And they had one in like at the end of last year too.
- [26:31]
Tarun Chitra
They were also. And they. And they tapered it and so like it's interesting they're both happening at the same time. It does feel like it's also like a very bear market thing for your asset when. Whenever anyone has to talk about this. I think the interesting thing though is like the nominal yield from staking. Like no one gives a shit about leverage staking anymore. Right. Like it's like everything's moved. Stablecoin yield. Like I. Arguably the staking yield complex is like really collapsed. But that's why you saw a ton of M and A from staking providers right? Over. Over the last.
- [27:01]
Haseeb Qureshi
Isn't. Isn't the TVL and like lido and eigenlayer still enormous?
- [27:05]
Tarun Chitra
Yeah. But like people are not looping, right? Everyone's too afraid of that. After all the hacks, people are not like, like and they came down a lot. Right. So there's the leverage exposure to staking has gone down which is actually just overall tampon demand. And I think like the stablecoin yield complex is like much stronger to be honest, right now, just in general, probably partially because of RWA demand, partially because just like people feel safer doing that. And arguably all the new users who are coming from neobanks are like not touching Ethersol, right? They're pretty much only touching silicon. So I think like it's sort of a weird thing. There's also a very, an interesting argument that I think a lot of the kind, the irony is like this type of thing has like divided the what I would call the Raspberry PI eth consortium because like there's the one side which is like the we want hard money but also Raspberry PIs and there's the other side that's like Raspberry PIs will be uneconomical if we do this. And so I think that's like, that's like the two sides I've been watching fighting about this because like they used to both be believe in the same kumbaya drink out of the same fruit punch bowl, but like now it's like one of them views the other one as having poisoned it. And it's kind of an interesting, like watching the schisms, the micro schisms of Ethereum are kind of funny to me as just like over time, inevitable. I think the Solana one is more, honestly a lot more well founded. Like they, if you read the Solana proposals, I think like they did actually put a lot more effort. This one feels like they drew a curve and are like, all right, well this seems good, like great, like hard money. It's very thoughtless, kind of comparative, like the amount of research that went into it compared to the Solana proposals, which is weird to say because like Ethereum used to be the place you would see way more thought into the proposals like this. But the Salon proposals are just fundamentally better, better research, better studied. And I feel like the discussion there, the Ethan is just like people getting angry and no one arguing about the content of the proposal and the Solana ones. So it's kind of an interesting change of guard. That's the thing I would say I
- [29:17]
Haseeb Qureshi
did see a lot of criticism of this EIP was this idea that I think the timeline for this IP voting is in four days or something. And so I think a lot of people were like, oh, why was this rushed? It kind of seems like this was decided by some cabal and everyone in the community hates this and doesn't want this to happen. Tom, what was your reaction to this?
- [29:40]
Robert Leshner
Yeah, I mean, agreed I think one, yes, even already 1559 and staking was a huge change in ETH monetary policy. And so again just removes credibility and more functionally it's such a marginal difference, right? We're talking about a reduction of 1% year in terms of inflation. Like that is not really what's moving the market around eth. What's moving the market around ETH is developer activity, stablecoin activity, excitement about things that are happening on, on the chain. So overall just feels like a big distraction. Like I mean I empathize with sort of the high, you know, staking rate but like that seems foreseeable. That's happening on, on basically every chain. I think every chain now is also realizing their way overpaying for security which is why you see chains cutting issuance to zero or near zero. But I don't know, this feels like the wrong problem to be solving. And also it's a very sort of minor tweak in the grand scheme of things.
- [30:35]
Tarun Chitra
I think fundamentally, if I were treating it, if we're doing the quaint old memes of if I were the CEO of Ethereum, I would just fucking not touch the inflation curve and only focus on this post quantum stuff. You're going to get a better valuation as hard money if you're the first real scalable post quantum chain, right? The bitcoin people can't say that they're getting their fucking wallets hacked left and right. Instead you want to do something like it doesn't like, you know what I mean? It's like, it's like true, like shit posting, navel gazing. And also the proposal reads like shit. It's like a truly horrendous post compared to like, like some of the earlier inflation posts for Ethereum were much better research. They spend a lot more. This one is like a meme post. I like, I don't even know why the fuck you put this out. It's like a little embarrassing to be honest to me personally. I just like, I think the content
- [31:24]
Tom Schmidt
quality, yeah, it does seem philosophically like they're just knee jerking and trying to like do the right thing in the absence of having a more specific vision.
- [31:39]
Tarun Chitra
But the quantum one, the crops thing, right, like that.
- [31:42]
Tom Schmidt
Yeah, yeah, yeah, that's, that's a good target to go to.
- [31:44]
Tarun Chitra
Like yeah, just do that.
- [31:46]
Tom Schmidt
Yeah, I know this is like I will say deck chairs on the Titanic.
- [31:51]
Haseeb Qureshi
Look, I'm sympathetic to the argument that like, look, you know, having a high staking rate is like nominal yield. You've got tax leakage it's creating all these weird kind of games. I'm like, I think all those things are correct and I think if you were designing Ethereum today, maybe you should have had the staking rate be lower and kind of disincentivize very high. Now that we've seen how it all played out, like yeah, you can look at that and say, oh wow, that's really weird that that's what we created as a emergent phenomenon on top of the staking curve that we created. But I think, look, if you are thinking of this as a central bank, you kind of can't just like great, let's jack up rates to 11 because like my model says that we should. Because you would just like you would create so much chaos and you would lose a lot of confidence. And like that's the other part of being a central bank that I feel like is being ignored here. The reality is that that was, I
- [32:41]
Tarun Chitra
mean the changing your policy. Like look at the reaction to the, the current Fed governor. It's like this feels a little bit like that.
- [32:49]
Haseeb Qureshi
Yes, yes. So the reality is that there's so much that's been built on the assumption that this is how staking works and if you rug that it breaks a lot of stuff, it's going to cause a huge unwind in defi. It's going to cause all of this shit that is very foreseeable that your job as a central bank is to maintain stability. And like that is suddenly saying like guess what? Rates are basically zero now. No one's going to do anything, everyone's going to unwind, a bunch of people are going to unstake, there's going to be massive unstaking queue, a lot of protocols are going to go to zero because basically they have no business model anymore. A lot of DATs are going to be like, well I have no value add over just holding an ETF because now my nominal staking yield is zero. So I got to do some weird structured, I got to start taking risks. There's all these flow through effects in the economy in the same way that look, if you jack up rates to 11, a lot of stuff breaks. A lot of people default in their homes, a lot of businesses explode. A lot of financing breaks a lot of debt. Lots of things depend on relative continuity in an economy that are just doing this very gross high level model of oh well, R star is this. So therefore let's move the rate there. Yeah, you don't do that. So I think that's what they're perceiving it's not being explained in those terms, but I think that's what they're perceiving when everyone is throwing up on this because everyone has exposure to something that would explode if suddenly rates were going to go to zero in DeFi, even.
- [34:17]
Tarun Chitra
It's not even just defi.
- [34:19]
Tom Schmidt
Right.
- [34:19]
Tarun Chitra
It's like the CFI complex also kind of like keep people keeping their assets in crypto relies on some of this. Right. Like a lot of people are like, well, I have a bunch of unrealized gains. I don't want to get taxed on them, but I do want to get some yield to keep it in Coinbase or keep it in wherever. Right. And like now they might look at this and be like, well, actually I might just take the gains and go to AI. Right. Like. Like that. That's like.
- [34:46]
Haseeb Qureshi
Right, yeah, exactly, exactly.
- [34:47]
Tarun Chitra
There's so much like. It's so much stupid stuff where I'm like. But that my point is exactly Robert's point. Rearranging deck chairs on Titanic. Exactly. The correct metaphor. Like focus on something that actually gives the thing value, not like picking winners and losers in a different way. Slightly, like.
- [35:05]
Haseeb Qureshi
Right.
- [35:06]
Tarun Chitra
And like that's what the post doesn't get. The post, like, it reads like it was like a few years. It's like, it's. It's kind of nonsensical to me that you Write this in 2026.
- [35:15]
Haseeb Qureshi
Right, right. Right. Is like the post, for those of you, if you. If you didn't know true, thinks the post was not written.
- [35:24]
Tom Schmidt
Well,
- [35:26]
Haseeb Qureshi
okay, I think we can move on. I feel like people.
- [35:29]
Tarun Chitra
It's like in a world of slop. It's a world of slop. You want something better?
- [35:35]
Haseeb Qureshi
Give us one more. One more Tarun.
- [35:36]
Tom Schmidt
One more.
- [35:39]
Tarun Chitra
Yeah, I don't know. That's just my. That's my.
- [35:40]
Tom Schmidt
It.
- [35:41]
Tarun Chitra
It was a little sad because, like, Ethereum, you know, I think I feel like brought a lot of people into the world on. On like good quality, like research, content and quality. And this just makes me want to shoot myself.
- [35:55]
Haseeb Qureshi
How far are they done Fallen? Okay, well, speaking of wanting to shoot yourself, one of the big stories is. One of the big stories is the collapse of a fund, a very high flying fund, not in crypto, but in AI called Situational Awareness. Of course. This is founded by Leopold Aschenbrenner, the young wunderkind who wrote this very famous post called Situational Awareness, calling this AI Super Cycle. He was able to raise a fund that went all the way from. I don't know how Much he raised like 5,6 billion I think totally raised. Ran it 45 billion. Started very small. Right? Right. But total capital raised, Total capital raised. I read it was somewhere in some number of billions that he raised of total capital. Ran it up all the way to 45 billion at peak, making him one of the largest US hedge funds. And then over the course of a few days was forced to run a fire sale. Went down all the way minus 67% in July after gaining almost 400% plus in June. Was up over 1,500% since inception, but was levered 4x when of course there was this huge wipeout in a lot of AI names and a huge wipeout in the Korean stock market. A lot of his long short book just totally blew out and basically he was forced to sell his entire liquid book to Citadel. So Citadel bought the whole thing at a significant discount. He's now, he's still alive. 10 billion AUM. I think a large portion of that is just his private anthropic exposure. But he still has some public book that he's continuing to trade. Legendary wipeout of a fund that we have seen few times. We have seen it in crypto before. Very reminiscent of Three Arrows Capital in many ways. Although unlike Three Arrows Capital, Ashton Brenner survived where and of course there was somebody to buy his book that for Three Arrows, of course. Not, not. Not so much. So, thoughts on this event?
- [37:51]
Tom Schmidt
It's a big event. Luckily it has nothing to do with crypto. It's fun to talk about a topic that shows that there's financial disasters in traditional financial markets consistently too. This one reminds me more of Archegos or one of those people that just flew way too close to the sun, way too aggressively. It was a hedge fund. Flew way too close to the sun,
- [38:16]
Haseeb Qureshi
way too close to the. Still is a hedge fund. Still is a hedge fund.
- [38:18]
Tom Schmidt
Still is a hedge fund.
- [38:19]
Tarun Chitra
Still is a hedge fund. But my liquidity costs just went up because the only thing left is a liquid position.
- [38:24]
Tom Schmidt
Correct.
- [38:25]
Robert Leshner
And I don't know.
- [38:27]
Tom Schmidt
Yeah, I don't know the exact terms of how it's structured under the hood. There's been some conversation that certain private investments like anthropic are side pocketed and so more recent investors are 100% wiped out. And if you do the math based on how much the fund declined, the only thing left was the private stake.
- [38:48]
Haseeb Qureshi
Well, no, no, no, no. They still have. They said no, no, no, they still have publics. He said in the investor letter that they still have a public book.
- [38:53]
Tom Schmidt
Yeah, but he's also been raising more money. I mean, he sold, based on what I read.
- [38:58]
Haseeb Qureshi
Down a lot. They must be down a lot. But they're up this year. So if private investors came in in January, they're up 80% year to date.
- [39:06]
Robert Leshner
Isn't that.
- [39:07]
Haseeb Qureshi
However, if they're not in the side
- [39:08]
Tarun Chitra
bucket that's on the private.
- [39:10]
Haseeb Qureshi
Right. If they're not in the side pocket, then they may be down.
- [39:12]
Tom Schmidt
Yeah.
- [39:13]
Tarun Chitra
Yeah.
- [39:13]
Tom Schmidt
So I don't know the exact math and accounting that they're using, but it sucks. Like he basically wiped out a lot of value on highly levered bets. Right. He's extremely young. I feel like this is a mistake that everyone makes in their twenties at some point. I think we're going to be talking about him for a long time because anyone who can reach this level of venture this early is not going away.
- [39:38]
Tarun Chitra
Never. Remember, John Merriweather raised multiple, maybe four hedge funds after ltcm and they were bigger than LTCM stuff.
- [39:47]
Tom Schmidt
Absolutely right, Absolutely.
- [39:50]
Tarun Chitra
I feel like the bigger your loss, the higher your chance of raising your next fund. That's kind of the lesson I think finance has always taught you, which is like for some reason everyone unfortunately rewards the. Not unfortunately, sometimes it's fortunate, but there are cases where it's unfortunate that reward the SBF side of the log wealth debate.
- [40:11]
Tom Schmidt
Yeah. But too much leverage blew up. Sucks.
- [40:16]
Tarun Chitra
I do think it's funny, there's so many crypto thing lineage to the story. Also the fact that he works at the Future Fund and stuff.
- [40:27]
Haseeb Qureshi
Right. So Ashenbrenner worked at FTX on the Future Fund, which was their charitable arm. He was part of the effective, or still is part of the effective altruism movement and is marrying, actually married two days after his fund blew up. Married the chief of staff at Anthropic, which of course was invested in by ftx. FTX led their Series A, I think it was. So there is a weird kind of extended crypto universe element to the story. Although Ashton Veteran himself was never actually in crypto. Tom, did you have a reaction to the story?
- [41:01]
Robert Leshner
I don't really have any take other than what people have said so far, but there is still this, I don't know, era of schadenfreude still, still running around like Fintech crypto Twitter with you like mocking for, for, you know, collapsing. But it's like, look, he's still alive, still up and he's still better investor
- [41:21]
Tarun Chitra
than like he's still. Yeah, exactly, exactly. I, I do think that like the, the, the schadenfreude is, like, a little misplaced because, like, if history is a lesson to you, anyone who blew up this big has a future success. Like. Like, it's just, like, inevitable. But I do think an interesting thing about this is, like, the. The idea that, like, you know, this was a fund that, like, raised all of its capital, like in sf, basically, and then, like, unsuccessful at raising money in New York. And so I think it's, like, kind of fitting that it ended up with a mainly private book. It's like. It's kind of like almost like a fitting end, you know, like. All right, well, yeah, you should just.
- [42:04]
Haseeb Qureshi
I expect he's going to run it back on the public, I think, after this story. Now everybody in the world knows this guy's name.
- [42:11]
Tarun Chitra
I mean, also, it's kind of hard to beat the index. And the Cosby is down 50% and he was so correlated to it. Right?
- [42:20]
Haseeb Qureshi
I mean, he's crushing the index. No, he's crushing every index. No, no, no, no.
- [42:24]
Tarun Chitra
Sorry, he was levered off. No, no, but his liquidation. Yeah, the liquidation part, he just was. You know the old phrase, it's like, do you have alpha or are you just levered beta? And then if you have levered beta, well, then you're fucked because there's always some probability of a drawdown big enough to liquidate.
- [42:42]
Tom Schmidt
I know, but he wasn't just levered beta. He was levered. Most connected to the AI growth.
- [42:50]
Tarun Chitra
Well, that's why I said Cosby, because the Cosby index became a semi index.
- [42:54]
Tom Schmidt
I mean, sort of.
- [42:55]
Haseeb Qureshi
Right, but to be clear, that was relatively recent. Right? This guy's been doing this for a while. He ran it up from a very small director.
- [43:01]
Tom Schmidt
He said, I'm going to buy.
- [43:03]
Robert Leshner
Nice.
- [43:03]
Tom Schmidt
I'm going to buy stocks that benefit from AI. Boom. That was the thesis, right?
- [43:08]
Haseeb Qureshi
I mean, look, the problem with leverage is really that you can be right on all the. On the endpoints and the path can take that. That's.
- [43:15]
Tarun Chitra
Sorry, that's what I'm trying to get at is the path dependency thing is like, clearly what you can do the
- [43:19]
Robert Leshner
anthropic A and still end up in prison, so.
- [43:23]
Tarun Chitra
Correct. Tom, Tom, Tom, Tom. Sometimes you got to have more of these zingers like that. Like, I feel like you're holding them back from our audience.
- [43:33]
Robert Leshner
People want zingers? I'll give them more zingers.
- [43:35]
Tom Schmidt
More zingers, Tom. The east of Zen Zing. What a new title for him.
- [43:47]
Tarun Chitra
The Zealot. Okay, that's pretty good.
- [43:50]
Robert Leshner
Bad. That's not bad.
- [43:50]
Haseeb Qureshi
All right, all right, all right. We'll definitely be hearing more of this kid. I think it's very clear this guy is very, very good at what he does. And obviously it's a lesson. And anytime somebody blows up, they get chastened, and it's one of those memories they keep with them forever. He is never going to forget what happened over the last couple weeks. But it's very clear the amount of alpha inside of that office is probably more than any other hedge fund in America. So whatever it is they're doing with respect to the AI cycle, they are absolutely crushing it, and I expect to continue doing so. So now, coming back a little bit to Cryptoland, one of the things that we've seen is that it's not just AI that's changing. Crypto's changing, too. One of the ways in which it's changing is what people are trading is changing pretty dramatically. Once upon a time, the most traded thing on Robinhood was crypto, and a huge amount of the revenue was coming from crypto, actually even more so than equities. That is no longer the case. But it's also no longer the case that it's not that crypto is pulling back, but actually prediction markets have now flipped both crypto and equities. Prediction markets on Robinhood, as of their Q2 earnings, are generating more revenue than equities, which is worth 129 million. Crypto worth about 100 million. Event contracts hit 156 million. It's only trailing options. Options now is about a little bit over twice the size of event contracts. But basically, events are an enormous business for Robinhood. Of course, Robinhood has been routing a lot of their volume to Kalshi, but increasingly they've been routing more and more to Rothera, which is their JV with Susquehanna. And we saw the same thing happening in DeFi. So in DeFi, of course, the big story has been Trade XYZ. We've talked about it a lot. RWA volumes are increasing. We just saw two weeks in a row in July that Trade XYZ did more volume than the rest of hyper liquid, meaning trading crypto. So RWAs are now flipping hyper liquid volume for almost the entire month of July. So we're decidedly in a new world. Coinbase is seeing the same thing. Prediction market revenues are growing dramatically. And of course, both Polymarket and Kalshi are seeing their revenues increase. How do you guys think about this with respect to the future of crypto trading, with respect to the future of exchanges Is everything in everything exchange. Now, should we stop thinking about crypto trading as a meaningful line item?
- [46:09]
Tom Schmidt
I think if you zoom way out and you say what attracted people to crypto generally, it's two things. One was a grounding philosophical belief in the transformative potential of Bitcoin and the ability to create something neutral and big and more valuable than all the other currencies on earth. Right. Number one, attraction. Number two, attraction is volatility, excitement, trading, speculation, all the fun ways that people are making money around that extremely core philosophy. And right now, I think a lot of the conversation in crypto in our society has sort of muted a little bit towards the first thing. What is the transformative power here? And people are still a little bit focused on the exciting part. I think it's natural that all of the products will gravitate increasingly to the second part because they can't invent a new bitcoin. They can't really latch onto that drive and gut and emotion. And so they can give the market what it wants, which is trade the craziest products, trade every product wherever there's volatility, be able to jump on it in some way with as much leverage as you can. And that's what the people want fundamentally. And so I think it's a natural destination for every platform. I think it surprises none of us. I mean, we were talking a few months ago about how the number one product on polymarket was starting to be these extremely short duration markets because they're exciting. Every platform and every product will slowly gravitate towards the most exciting product that the people are clamoring for. And so it doesn't surprise me. I think it's a long term evergreen trend. I don't think it's going to go away. And I think people are going to continue to optimize and design around that product.
- [48:09]
Robert Leshner
Yeah, I think it's like the Al Capone quote. It's like, why do you rob the bank? That's where the money is. And it's like, why do you trade the xyz? It's like that's where the volatility is. And I think that's really just the answer I'm with. The singers want to trade, people want to trade whatever is worth. Why do people want to trade Pokemon cards right now? They're going to wake up.
- [48:28]
Haseeb Qureshi
Pokemon cards.
- [48:28]
Tom Schmidt
Got that?
- [48:29]
Robert Leshner
Pokemon is amazing. I really, really care about Pokemon cards all of a sudden. No, it's. Yeah, they have the vault and you know, in the early 2000s it was like FX and people really trade. FX was volatile. And like, we've seen this kind of cyclical, cyclical behavior in terms of what assets people want to trade. And it just happens to be right now that crypto is really boring. It's really flat. There's nothing really happening. And maybe one week it's commodities, maybe one week it's particular equities or indices, whatever it might be. But like, that's also just a much, much bigger market than just trading bitcoin. And so I think this is kind of where the crypto is going. It's also like stablecoins kind of eating the use case of payments, right? Like, well, bitcoin's big, but the US dollar is bigger and in some ways kind of better. And so people want to use that to conduct payments instead of just only relying on crypto assets. So until someone brings volatility back to crypto or maybe more volatile assets on crypto, like, I think this is the way it's going to go.
- [49:23]
Haseeb Qureshi
So you think this is a temporary regime or you think this is long term? Look, look, we've grown into it. We're mature now. There's not going to be the crazy volatility there once was.
- [49:33]
Robert Leshner
I think, unless you really, I mean, I think volatility will return to crypto. This is like famous last words, you know, it's, you know. Yeah, this is all the way down.
- [49:40]
Tarun Chitra
Yeah, this is like the New York Times articles that are like, the bitcoin is dead, right? Like, that's like betting on crypto volatility.
- [49:47]
Robert Leshner
I saw one of those. Yeah. So we might be close to the bottom, but I don't know if it's going to be bitcoin or something else or there's already some kind of interesting experiments around tokenized RWAs on Robinhood chain where people are doing sort of like mini DAO buyback thing, kind of like, kind of like nouns, almost like. So I don't know what it's going to be, but I think volatility will return. It will probably look different next time.
- [50:10]
Tarun Chitra
I think crypto maybe in some ways made a deal with the devil of like, hey, we're really going to be kind of web 2.5. I don't know what else to call it, where it's like, you know, we're focusing on the boring assets, focusing on the RWAs, stuff like that. But these are all things you kind of know how to price, right? Like, and like, it's not like they're like some huge margin, huge volatility thing. And so like, there's a little bit of that as a mollifier, for sure. Like, it needs to be a completely new thing, right? Like, that causes a bunch of volatility, right? It's like, think about 2019 pre Covid. That was just painful in some ways, right? It was like, the only asset with volatility was Tron. And so I think. But then, obviously, Defi started taking off. Pandemic happened, and those two things kind of fed off each other, right? And created this huge volume. And so I just think it's like, we don't have a new technological. We haven't had, like, a new frontier thing. And whether it's technological, cultural, whatever, in a little while. And I think, like, the moment there is some very clear sign of that we're going there will inevitably, the animal spirits will be back also. It's just like, people have taken, like, forget about Leopold, right? Like, he's. He's fine. You read some of the stories of these, like, the Korean stuff of, like, Pete losses people took in, like, that stock market. It's like, I sort of just think, like, there's also a sense in which, like, the equity volatility may have, like, gone too high. And, like, we're kind of. We're due for a rebalancing out. I just don't know how long that's.
- [51:54]
Haseeb Qureshi
Well, you know what's striking. You know what's striking is that despite the fact that there was such enormous bloodbath in the Korean market, right. Korea famously was one of the highest countries for crypto trading anywhere in the world. And in Korean retail, you know, anytime something would get listed on upit, you would see just massive spikes in the demand for any particular asset. Despite the fact that we saw the biggest bloodbath in the history of the Cosby, the Korean stock market couldn't see anything. Nothing in crypto, which tells you retail's gone. Like, retail is genuinely not here. It's actually very surprising that people losing that much money does not show up on a crypto chart. Tells you we are in a different regime. For so many years, we've been saying, the institutions are coming, the institutions are coming, the institutions are coming, the institutions are here. They have dampened volatility across the sector. That's what we said we wanted. Now that we have it, it's a little bit like, oh, I like things. Exactly. Grass is always greener, right? Like, we thought we wanted volatility dampening. Actually, we hate volatility dampening. We love the volatility because that's why retail showed up. Retail showed up because they like volatile assets. And so, yeah, you know, like who's trading SK Hynix on leverage? It's not institutions, it's, it's retail.
- [53:04]
Tarun Chitra
Well, some institutions.
- [53:06]
Haseeb Qureshi
Well, I don't know. Yeah, historically. Historically, once upon a time it was institutions. So anyway, all that is to say, I do think I agree with you. I think obviously this is all cyclical. Crypto very famously has cycles. We're very clearly in the lull of one of those cycles. I suspect that long term what we need is for AI, probably one, we need to see a couple of these IPOs get loose. We probably need to see the labs be public. We probably need to see at least a couple of quarters of revenue so that we can start to predict a little bit better what's going on. The reason why volatility is so high in AI is that nobody can predict anything. People keep getting surprised. You know, you see like half a trillion dollar, you know, deltas in the open and closes on these markets where like, you know, Amazon and Apple are getting repriced 15% on a day. Like these things are trading like shitcoins. And why is that happening? It's happening because nobody can predict anything. It is very dangerous. Well, it's happening with free.
- [54:02]
Tarun Chitra
These companies incinerated $100 billion of free cash flow in one quarter.
- [54:08]
Haseeb Qureshi
Some of them did it in a way the market likes, and some of them did it in a way the market doesn't like.
- [54:12]
Tarun Chitra
Yeah, exactly right.
- [54:14]
Haseeb Qureshi
Which means that they can't predict what the market wants. Yeah, so at the end of the day, when everything becomes more predictable is when volatility decreases. And once we can start to guess, ah, here's what the revenue ramps look like, here's what enterprise spending looks like, here's what, you know, supply chains look like, here's what GPU prices look like. And we can start to just draw the lines out farther. That's when volatility will go down. Now that doesn't mean that like prices will go down. Prices may keep going up, but volatility will come down. And that on a relative basis is what will attract retail back to crypto. I think that probably takes like 9 12, maybe 18 months before that happens is my guess personally. But I think that's kind of what you need in order for people to care about crypto. Again, from a retail perspective, institutions, they believe it, right? Institutions, yeah, I believe in bitcoin, believe in stables. I think all this stuff is good, but they're not fomoing into this stuff, and they're like, great, I will take my 1% exposure, part of my diversified portfolio. That's exactly as much as I need. And that's what you get. You don't get explosive growth from that. All right, last story, just to wrap things up. Of course, the big thing on everybody's mind in the crypto industry is the Clarity Act. We've talked about it at length, but we are now going into the final hours of Clarity. The August recess takes place, I think, what is it August 9th or is it August 7th? August 9th. 7th. August, end of this week. So that'd be August 7th, Friday. So we basically have until the end of this week for there to be a vote on Clarity. Otherwise it is very likely there will be no vote now. Possible that after the recess there's a vote, but people mostly think that that's not like it happened. If you look at the market right now, polymarket is pricing 25% chance that clarity passes. It's now very unlikely from most people's perspective, not impossible, but unlikely. Now, interestingly, there's another market on Kalshi that shows that there's a, I believe, 42% chance of a floor vote, meaning that if it goes to a vote, more likely than not that it is going to pass, but more likely than not that it will not go to a vote at all and therefore it's going to get delayed and we are not going to see any chance for Clarity to pass. So right now there's some last minute maneuvering, there's some conversation. You know, we've now seen Secretary Besant start bravading some people. Supposedly there's some kind of 11th hour compromise of the White House that will try to bring everything together and see if they can't get something that Democrats are going to sign off on. But time is ticking very low at this point, and most people think there's not enough time to get this thing passed. Robert, you are our DC Whisperer. What is the, what is the feeling from your end about clarity at this point?
- [56:50]
Tom Schmidt
Yeah, the feeling that I hear most often from Democrats, from Republicans, from industry, from Hill staffers, is that everything hinges on the ethics provisions. Should it? I don't know, but it does, right? I think it's because over the last year, the primary things that have gotten us to this point, the reason why it hasn't passed yet is frankly, the number one person who's made the most money in crypto, besides probably CZ and besides probably the tether guys and robot Ventures besides Haseeb has been Donald Trump. And it's a very visible thing. And so ethics has become the thing that all legislation has compromised. It's all politics. Both sides need a win. Right. I think a lot of people perceive the Clarity bill on its own as being, yeah, maybe bipartisan, maybe a little bit more Republican, its basic nature, but that the Democrats are really looking to stick it to Trump in some way through ethics as the thing that they need to sell it to their base and to grab their own win on the back of clarity. And so if there's an ethics compromise, I think Clarity passes. Right. No one really knows what the Tillis Gallego proposed bipartisan amendment looks like that was sent to the White House. All we know is as of Tuesday, when we're recording this episode at the chopping block, the White House hasn't responded to this proposed compromise that was negotiated in a bipartisan matter. It's like the Tillis Gallego one. They were responsible for figuring this out. It was sent to the White House. We don't know. I believe if there is language that the Senate Republicans and Senate Democrats agree on that Trump won't veto, I'm sure it's not what he wants. But if it's not going to be vetoed and it's negotiated in a bipartisan way, I think if everyone agrees on the ethics language, then I think the bill has a great possibility of passing. I think without that, it's just not going to pass. I don't know whether it's going to come back up for discussion, negotiation, whatever, after the recess. The pre election months are incredibly hectic with everybody spending their time running for office. With the Senate negotiating budgets focused on not giving either side a win, who knows what happens to it. Ethics is the linchpin. If they can get that done in the next two days, that's incredible. If not, there's always a chance that they get it done after the recess. I would not count Clarity out, even if it doesn't get done in the next few days. Personally, I think everyone's focused on it, but there is a very clear path to clarity passing. If during the recess they figure out some negotiated ethics compromise, they can just come back and pass it. They're at the one yard line. The bill's basically ready. So the thing that you should constantly look for is just the word ethics. Search Twitter, set Google alerts for it. You know, if there's any movement there, that's going to be the deal. The deal. That's going to be the bill.
- [59:48]
Haseeb Qureshi
Two. Two points I would make. So one, I think it is very important that they try to actually just get the get a vote. And I think part of the reason why is that for Democrats that are in opposition to this bill, right. They actually don't want to be on record being against the bill because of course they don't want the big boogeyman fair shake to come after them. And if they don't actually vote, then nobody knows who the votes are. And in principle, just holding it up in this big negotiation is kind of the perfect outcome for the anti crypto lobby or the anti crypto Democrats. If it goes to the floor, they actually do pay a cost because whether it's their constituents or whether it's Fairshake, they're out there and they're going to get counted and there's going to be some kind of political accountability for what their vote was.
- [60:35]
Tom Schmidt
Absolutely. But if they pay that cost, right, then they're going to say, well, there's no cost for us to continue to drag our feet on it and not support it. And there's the potential that the probability is they pay that cost starting in August and then there's a lower incentive for them to reach a bipartisan compromise. That's the risk. No one knows what the best path is to get stuck.
- [60:57]
Tarun Chitra
Right.
- [60:57]
Haseeb Qureshi
So you'd rather have the stick and not use it. Obviously it's more effective as a threat than it is when you actually hit someone and see how they respond. I think the other element that's also worth keeping in mind is that so actually Kalshi has a market that shows passage for clarity on different expiration dates. The main market is just for this year and very clear for this year. Both Polymark and Kalshi agree 25%, which basically means that if it doesn't go past the August recess, probably both markets have it at basically nil. But they have another market that also tracks into next year and they put the odds at clarity passing in 2027 at 30%, which tells you that, look, this bill's not dead now. It will probably get renegotiated. If there is a very different makeup of the House, probably there's going to be a different compromise that's struck on a lot of the points. So the bill will not survive in its current form almost certainly if it doesn't pass in August. But Clarity's not dead. And I think even if we don't make it through this corridor, there's still a lot of room because at the end of the day this is an important piece of legislation. So I just want to reiterate that not all is lost, even if we don't end up getting it done this week.
- [62:06]
Tom Schmidt
Yeah. It's too important to get dropped. Right. There's been so much work from both sides to get to this point. Right. Yes. The contours of it will change significantly, potentially in the next 24 hours, especially as people look towards an ethics compromise. Other pieces of it might change. There's still people nipping at the heels on, quote, illicit finance. And the stablecoin yield pieces, they seem pretty settled, you know, especially in comparison to ethics. But the draft text we saw a couple weeks ago will not be the final text that is signed into law.
- [62:42]
Haseeb Qureshi
Right. Well, hopefully by the time you guys hear this, there is good news. But even if there's not, I'd say, look, it's a long game. There's a lot of game left to be played. So with that, we will wrap. Thanks, everybody, and we'll be back next week.
- [62:57]
Tarun Chitra
Sam,