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- [00:00]
A
And the most cypherpunk thing that you can do is not to have no connection to the real world. The most cypherpunk thing you can do is to fucking survive and to allow anyone to be able to use it.
- [00:10]
B
Not a dividend.
- [00:10]
C
It's a tale of two Kwan.
- [00:12]
A
Now your losses are on someone else's balance sheet.
- [00:14]
B
Generally speaking, airdrops are kind of pointless anyways.
- [00:17]
A
I named trading firms who were very involved.
- [00:20]
B
Talik Eth is the ultimate defi.
- [00:23]
A
Protocols are the antidote to this problem. Hello, everybody. Welcome to Chopping Block. Every couple weeks, the four of us get together and give the industry insider perspective on the crypto topics of the day. So, quick intro. It's first we got Tom the Defi maven and master of memes.
- [00:36]
B
Hello, everyone.
- [00:38]
A
Next we've got Tarun, the Giga brain and Grand Poobah at Gauntlet.
- [00:41]
C
Yo.
- [00:42]
A
And joining us today we've got special guest Jez, the perpetually online pundit of perps. Welcome to the show, Jez.
- [00:49]
D
Hey, guys, glad to be here.
- [00:50]
C
Wow, that was the best. One of the best ones you've made.
- [00:54]
A
There you go. All me. And I'm esteem, the head hype man at Dragonfly and the head screenwriter. We are early stage investors in crypto. But I want to caveat that nothing we say here is investment advice, legal advice, or even life Advice. Please see ShoppingBlock XYZ for more disclosures. So, Jaz, my understanding is that this is a reunion for you between you and Tarun. You were telling us just before the show started that Tarun was the first guy you met in crypto.
- [01:17]
D
Yeah, the first person that I met in real life. So I sort of, you know, I came. There's a very good article, why the Yuppie elite hate bitcoin. I sort of came from that circle. Everyone from mit, everyone in my roles at Quant Finance, sort of like hated crypto. So I was sort of on this island. I had a lot of Internet friends, but no one sort of like in real life that I could talk to about this topic. In 2021, sort of the peak of it all, everything was very frothy. I had in mind this old image from the Wall Street Journal where it's like everyone is getting filthy rich and you're not. And it was those guys wearing the bitcoin and the Ethereum sweatshirt. And I had never been to one of those events. And so things were frothy in 21 and I was like, I want to go experience one of these events and parties. In real life, before the cycle ends. And there was a CryptoPunks Christie's auction viewing party that a photographer named Justin Arsano was hosting in New York. I was like, all right, this seems like a good one. I have a couple punks. I filled up a backpack full of beers and I walked into the venue and the first I get in, it's kind of like this dark room and there's a guy in front of me with colored hair and colorful glasses. And I'm like, this guy looks interesting to talk to me. And we both went to the same school. We had a bunch of similar background.
- [02:29]
A
And you were like, surely this is a get up for the. Like, he doesn't actually look like this. This is like a joke, right?
- [02:35]
B
He's an atmosphere man.
- [02:36]
A
Yeah, yeah, yeah, exactly.
- [02:39]
C
I've graduated to wearing tennis shirts of people playing tennis.
- [02:42]
A
Yeah. What's going on? What's going on?
- [02:45]
C
Yeah, it's just like a shirt of people playing tennis. It's like a production.
- [02:49]
A
It's literally a shirt.
- [02:50]
C
It's literally of people playing tennis.
- [02:52]
A
I thought you meant like a tennis shirt. Like, that people wear.
- [02:54]
C
It is a tennis shirt, but also a tennis shirt of people playing tennis. On.
- [02:58]
A
Okay. Wow.
- [02:59]
D
Yeah. So. So Tarun was the very first person that I met. I think we talked for like 45 minutes. I then went and I met you
- [03:05]
A
left, and you were like, I've never come back.
- [03:07]
D
No, it was amazing. I turned around and I ran into, you know, Jamis, Rest in Peace, and a bunch of the pleaser guys and people pleaser, and they kind of became a bunch of my friends as well. So it was, it was. It was sort of like one of those things where, you know, sort of just show up. You can just do things, make friends.
- [03:22]
A
That was a moment in time. A lot of people now on the timeline are lamenting that crypto feels really different. I mean, Jaz, how do you feel about that? We've been talking about it on the show for the last few weeks. What's your. What's your sense of it?
- [03:36]
D
I would completely agree. For a lot of things outside of a very few subset of successful vertical niches, the dream is dead. I've told this story before where in 2021, when I fumbled my uniswap spot position, I, like, cried because I was like, I might. My dream was to rent, seek global finance. I was going to stake my uniswap and get like a percentage of all, you know, financial transactions that were going to happen in swap. And I was like, you Know, I was, I was sort of like in shambles that like I'd lost what I had thought was, was an important part of my dream. And now like who's ever crying over like a missed position in this market? It's just sort of like, oh, you know, you miss whatever L2 trade, like either there'll be another one or you don't really feel like it was a moment in time maybe for special projects like Hype where there still is really belief. But I think in general, sort of like the asset diaspora that we had NFTs to some extent like certainly started it and helped proliferate it. Meme coins. I'm going to like name as sort of like the obvious detractor here but there's too many assets and people don't believe in the assets as they're buying them and there's no long term belief for most things. And I think that you don't have opportunity.
- [04:50]
A
It's that the idealism is gone. Like the, the sense that there is like this one, one mega trade that's going to save you.
- [04:57]
D
If you look at the demographic of crypto participants in like certainly like 2017, it's a lot of like punk and like anarcho punk technologists who really believe that like this technology is going to change the world and they're investing like their entire net worths into it because they believe that this is like, you know, the future. And I think if you look at a large set, I'll call out Solana for I think having cultivated a bad culture here, but a large set of just general crypto. I think today is much more short term. It's much more about, you know, how can. It's always been about how can I make money? Like, let's not lie here. Like that's always been like a very underlying strong product market fit. But I think, you know, rugging a pool even two, three years ago was like, you know, red mark on Etherscan and completely like, like blacklisted from the community. If people remember who was the guy that did Bald on base, he was a big DYDX basis trader. It's, it's embarrassing right now that I can't. It, it'll come back to me. But he got shunned out of all the communities because he rubbed the bald token on base. And now on Sol, it's just like if you don't rug, people will kind of look down on you as like, oh, you're not playing the game optimally.
- [06:09]
C
So certainly the tools themselves and the protocols have made it one click. Whereas like before you had to think a little bit. Now it's like encouraged and like in the ux it's, it's even, it's even more, yeah, crazy.
- [06:20]
D
So I would say it's just, it's a different participant set and, and that's sort of a lot of the follow on effects that we're seeing are coming, are coming from that.
- [06:27]
A
Is it a different participant set or is it just that the participants who are still around have hardened, you know, like their, their hearts have blackened with age and like, you know, it's kind of like the idealism has gotten beaten out of them. Like I don't know that, like it is the same generation. Right. Like there was a big onboarding event in 21, 22, a lot of those people fell out when the NFT market collapsed. And then there was another onboarding event in like 23, 24, 25, coming into the meme coin cycle and like Trump NFT, sorry, the Trump meme coin. And I think for those people it does feel like every subsequent generation of crypto is less idealistic than the one before. You know, like the meme coin generation, they came in literally under the philosophy of financial nihilism. Right. The NFT people, they weren't cypherpunks but they believed like, oh, we're all going to make it together. That was literally wagmi was this big aphorism that everybody used. And then before that, in 2017, that was the era where people genuinely believed that we were changing the world. Not because we're all going to make money, but changing the world in the sense of disrupting traditional political systems and financial systems. Every subsequent generation, the ambition is getting narrower. You know, it's more about, you know, like, I don't know, we were just chatting before the show about like these Pokemon card platforms, which it's like now the ambition is like, even, it's like, it's like a sort of pinpoint ambition that like, yeah, we're going to disrupt Gotcha Games, you know, and like now you can buy a Pokemon card directly in Solana instead of going to the local grocery store and buying it there.
- [08:01]
D
Yeah. I think even if, no matter how we decide on the demographics, I think if you look at where the capital has aggregated, the capital has certainly aggregated to the more cynical and short term, mainly because those have been the successful trades for the most part. I talk about, there was a, there was a phenomenon in NFTs where all the floors, all the NFT rarities compressed to floor. Part of that was the airdrops that like made all the NFTs kind of fungible in terms of the amount of tokens that they got. But part of it was because pretty much everyone who really cared about like NFT rarity died in art blocks because they buy, they bought a bunch of rare art blocks and then those things went illiquid and they didn't have the capital anymore. And so that sort of like market pressure of like rarity hunting that maybe started with punks and some of the other on chain NFTs really lost a lot of effect after those people, like they made their preferences on chain with art blocks. They were wrong with their capital. And so they're like, future voting power with their money was diminished.
- [09:00]
A
So a lot of people have been talking about this need for crypto to return to its cypherpunk roots. So Evgeny from Wintermute, who famously controls the prices of everything, he wrote this article recently that he felt that, like, hey, okay, maybe tradfi is embracing crypto, maybe bitcoin has now gotten subsumed by the traditional financial system. But the idea that this is what it looks like to win is a betrayal of the core values of crypto and that we need to go back to our roots, which is that, look, if crypto is not a fundamental challenge, if it's not subversive in this deeper way, then we failed. And I think Gabriel Shapiro also wrote recently something very similar about Ethereum. I'm curious to get the response from you guys to this. I feel like this, this kind of philosophy is gaining steam among a lot of OGs. We're still in the space that, like, somehow we've silently failed something. Then there are voices, you know, I've been one of these voices that says, like, actually, no, things are going great. Like, okay, maybe the meme coin traders are down bad. But like, when, you know, I don't know. That's happened so many times in so many previous cycles that the ICO traders are down bad, the NFT traders are down bad. That's not the barometer of success. The barometer success is like, are we doing the thing that we set out to do 10 years ago when this all started? And my view has been like, yeah, things are working. Prediction markets were a paragraph in the Ethereum white paper, and now they're taking over the world. Stablecoins were also a paragraph in the Ethereum white paper. Now they're 300 billion. Like, DeFi is going crazy. Perps are going nuts. Like, we're going to talk about how much this stuff is taking over the world and actually creating permissionless finance. So my view has been like, actually, no, this is what it looks like to win. Tom Tarun Jaz, how do you guys. How do you guys respond to that charge that many people are making?
- [10:48]
C
I think there was a thing in 2021, right, where Web3 ownership economy was supposed to be. Like every industry, every kind of walk of life would be illuminated by our holy Lord and Savior, the NFT and its derived assets and protocols and stuff that kind of led the decentralized social network. Decentralized, whatever. I mean, you started getting the Uber on the blockchain pitches again. And I think there was a pitch that was much bigger than finance from 2017 to 2022 that was like, every industry is going to be left behind and vanquished if they don't adopt crypto in some way. And right now you see that AI is doing that and it has lived up to the promises that were made. Whereas in crypto, I feel like the finance stuff, you could have seen those promises in 2014. Realistically, most of the concepts of all the things you're talking about, be it in prediction markets and getting implemented, be it in stablecoins, they didn't reach their final form. They needed a lot of other things to work. They needed DeFi for liquidity to make it more feasible. They needed infrastructure for bridging. They needed totally fine. But the concept was there. And that. It feels more like the 2014 and 2015 vision of crypto succeeded. But it feels like the 2017 through 2022, let's say vision completely failed and has been usurped by AI and there's no way back. That's sort of how it would.
- [12:22]
A
What was the 2017 vision of crypto?
- [12:25]
C
Everything on the blockchain.
- [12:28]
B
I don't think anyone serious, like wanted Uber on the blockchain or like blog posts on the. On the blockchain. Maybe that some people.
- [12:35]
C
I don't know. I don't know. Do you remember, do you remember the network Justin sun took over? What was that, what was that thing called?
- [12:41]
A
Steam it.
- [12:42]
C
Steam it, right. Also, by the way, I thought his attack was based. That was like, kind of funny. He just showed how useless the thing was.
- [12:50]
D
I find myself in this paradigm a lot where I'm was like genuinely excited about a lot of the financial stuff. Like always thought, like, I remember in 2017 reading like a bunch of the supply chain white papers and I'm like, well, this is dumb. If you trust Coach, you trust them to run their own cryptographic database that you can check. Like, why is this a public rent seeking? And but then dealing with everyone else's disappointment when these dumb narratives falls through is always like, yeah, well that was dumb. Why did you guys even get excited about it? But then dealing with their disappointment and the falling like sort of like whether it's enthusiasm or price on the back end always sort of sucks. My, I think my take on, on sort of like whether it's disappointment on the arc that crypto has gone for the most part comes from getting overshadowed by the speculation and sort of like Gamba product market fit. Like when I look at like the core things like USDT on Tron is like actually working for millions of people. Stablecoins in general are actually working. Defi over collateralized is actually working. And then when I look at like, okay, well what's cyberpunk and like what's disrupting like perps are massively cyberpunk to the rest of the tradfi. If you're NASDAQ or if you're, you know, nyse, perps are this like kind of like vigilante, like, like kind of terrifying market structure thing that's coming to eat your lunch. So I think like the core spirit of the disruption and the punk is there. But then, you know, I, I, I understand how you can get disillusioned when you're in it for like debanking and then everyone else is buying Joe Bowden on, on Solana or something.
- [14:19]
B
I, I think the, you know, speculation, the meme points, I mean, that's honestly like, I feel like that's been there since like day one. You know, people are doing like, you know, satoshi dice and you're doing colored coins and like, okay, that is just human. It's kind of like like something very deep within our monkey brains. You give us something, we're just like, we're going to find a way to speculate on this thing. And I think that's very true. I think, I mean, I agree the original vision of the space or of Bitcoin at least, and why a lot of people got into the space was like, yes, there should be an Internet, a digital native money. And that seems like the natural successor to this kind of fiat experiment that we've been having. And that feels less true. That feels like that hasn't really manifested. And I think it's one, I think every technology goes through this commercialization phase where these sort of pioneers are very idealistic and they have this big vision, and then everyone gets used Net and then your mom's on it, and then it's a lot less. It's more likely that they're just going to be themselves and not like, oh, yes, we should totally revolt against the US dollar and do everything in Bitcoin. Obviously, that's not going to happen on day one. And so I think there is a lot of sort of fertile ground left in that. The space just feels very Balkanized right now, where it's like there are very commercial applications that are working, but it doesn't feel part of one kind of cohesive vision of what the future of finance is going to be. But that said, I think we've seen time and time again these ideas that didn't work at one point. At some point, the right ingredients are there in this kind of primordial soup, and they kind of end up happening. And I think when I zoom out, I'm like, that still feels like it's going to happen. I think when the last fiat currency has breathed its last breath, I think crypto is still going to be there. And I think if you've asked me 100 years from now, what is more likely, that also seems more likely. And I don't know. I still think on a long enough time horizon, this stuff is all going to happen. But the path I guess that we've taken is maybe not what people thought was going to happen 10 years ago.
- [16:14]
D
I was going to say, I want to just bring up one really cool thing that I've been thinking about in terms of you putting the pieces together. And maybe just the time wasn't right. And as long as the foundation is there at some point in the future, I remember microtransactions from way back in, like, 2017. And I remember back in 2017 being like, that's dumb. Like, you know, you can just do batch. Like, you know, I just pay for a batch every day, rather than, like, dealing with the individual micro. But now that we have agents, like, I can credibly see why agent microtransactions might actually be a real service. And so things that, like, you know, maybe didn't have PMF before some other technology invented something.
- [16:47]
A
Yeah. I guess part of the reason why I resist this story that, like, oh, crypto's fallen and it's kind of unfulfilled its vision. I guess a couple reasons for it. One, I feel like it is a bit revisionist. Right? Like in 2017. What was the vision in 2017? That's when I first Got into crypto. So I remember very well what's the stories I was being told and the stories around. No, it was mostly around like, IOT stuff. Like that was what I was getting a lot of stuff about Iot.
- [17:12]
C
Forgot about Iot.
- [17:13]
A
Yeah, there was, you know, it was like so much stuff about like swarms of cars that were going to be orchestrated by blockchains and auditing, blockchain for auditing and for a bunch of stuff like that, basically authenticated databases for business use cases. And I was like, this is obviously not interesting. This is not where the big story is. The big story is about disrupting money. And that was very obvious to me. But when I first came into the industry, obviously there were a lot of bitcoin maxis. That was when the bitcoin block size war was happening. And I remember at the time telling people when I came in the industry, I don't think everyone's going to be paying each other in Bitcoin in 10 years. I don't believe that. I think that people are probably going to use stablecoins, they're going to use something tied to the US dollar. But I think the way in which it's going to happen is going to be inflected by blockchains. Like, there's no way. The way we pay money, pay people dollars 20 years in the future is the way that we did 20 years ago. Now this technology exists. I was literally telling LPs that in our first fund. So that's why for me, like, this is actually the vision that I have always had. I never believed that we were all going to live in the fucking metaverse. And that story was largely promulgated in 2021. It didn't exist before then. That was when Meta renamed itself from Facebook to Meta and all this metaverse stuff started. And this idea that, oh, we're all going to live in cyberspace and NFTs are going to be our front ends, that was all in 2021. If you were around crypto before then, this was not a concept of what crypto is supposed to be used for or why it was supposed to be valuable. So now, that being said, I don't want to dismiss it. Obviously most people in the world were introduced to crypto, were introduced to it then, and that was their first impression, is that, oh, this is supposed to be a Cyberspace 2.0 that is run on blockchains or whatever. I don't know. It's obviously very hard for people to understand exactly what it was, but they got the vibe of it's like Tron, not Tron the movie, not Tron the blockchain. But I think at this point nobody really believes that anymore. And to the extent the people who came into the space in 2024, 2324, that's not the story they were told. So I think on some level it's hard for me to look at that as like, okay, this is a betrayal of what crypto is about. And I agree with Jez on the part that the whole idea that crypto creates this shadow financial system that lives in a box that anybody from anywhere in the world can plug into the Internet and have a financial system that happened, it exists now, it's real. It's a big part of the reason why people are talking about Neo Finance and all these neobanks and stablecoin cards and all this stuff, that's why it's all happening is because we actually built that. It actually works and it's gaining adoption.
- [19:54]
B
It does. But I think it is slightly superficial when you compare it to, I think to the original vision. Like, I think even look at like maker versus the new maker, which is we have this stablecoin, but it's collateralized by this Internet native stuff and it's censorship, resistance and it's truly like self running versus the new maker, which is like, yeah, it's a bunch of RWA stuff and we stick it on chain. I think that is maybe more the disconnect. Like, yes, we do have permissionless exchanges and permissionless lending and permissionless derivatives and that's all cool. But I think the point is it's still sort of like we're sort of in this city of people that have like the gray flannel vest on. And, and that's kind of maybe disheartening. It's like, it works, but like, not. I agree.
- [20:37]
C
There were so many compromises made. Which, which is fine.
- [20:41]
A
Like, which of course should be like, how are you going to get. I think that's who's pumping the prices into these things. Right.
- [20:48]
D
Every time we use USDC instead of ry, we helped encourage these compromises.
- [20:55]
A
No, no, I agree, I agree. I'm going to fight this. I'm going to fight this. I'm going to fight this because like the ultimate answer of like, what did we actually want to achieve? It was not that we are this like tiny priesthood living in some monastery in the Czech Republic, you know, keeping a flame alive. Right.
- [21:12]
C
Don't read the Vitalik tweets from the last two weeks.
- [21:15]
A
If you find yes, but the promise is that actually this is globally accessible and globally scalable and like, look, go try to shut down one of the maker trusts and see what happens. Like, we actually have learned a lot, we actually have improved on these things. And the most cypherpunk thing that you can do is not to have no connection to the real world. The most cypherpunk thing you can do is to fucking survive and to allow anyone to be able to use it. And that I think to the great credit of these things that are not fully like, you know, so the maker of today, or sky as it's now called. Sky of today, yes, it has corporeal entities, it has trusts in the real world that take control of these assets and issue stuff. It has connections to the real world. And once upon a time it was all computer in the sky stuff and there was no physical entities anywhere. And that stuff didn't scale, didn't have a tight peg, could never compete with fiat. And now it can.
- [22:08]
B
I agree. I mean it's practically. This has created much more utility than the other path. I think people were optimistic or maybe idealistic that the other path would just end up getting really big and everyone would kind of get converted and there'd be this big kind of, I don't know, global religious awakening around money. And I think that that was unlikely to happen. But it also more of a results based kind of focus of like when I zoom out, we still don't really have permissionless Internet money, which is kind of what people really wanted in the first place. You know, still don't really have a permissionless financial system the same way the way people wanted. Right. Like we have court orders forcing people to like swap out contracts to like go steal their funds. And like, I think that was a large part of the original vision. Like the stuff is not really extra national.
- [22:54]
C
Or private.
- [22:55]
B
Yeah, or private. Which I think is maybe a large part of people's privacy.
- [22:58]
A
Yes, privacy is a good point.
- [23:00]
B
Yes. I think that is actually maybe a large part of the thing. But I think it's not that things are bad today or we didn't succeed. It's just not in the way that people maybe imagined or kind of hoped it would. Not everyone's running their own jabber server and chatting with their friends. They're using WhatsApp.
- [23:15]
C
And remember when you were supposed to run a full node on your mobile phone? That was 2017.
- [23:20]
A
There's still people pitching me on that that was a part of something that actually still exists. But okay, one last thing. I'll say, and then I can stop being annoying about this.
- [23:31]
C
But no, honestly, we haven't had an argument like this in a while, so it's kind of good.
- [23:35]
A
No, I know, I know, I know. It's a good moment to re litigate the kind of basics. But I guess, look, the last thing I'll say is that it's certainly true that we live in a world now that crypto is largely intermediated. It's intermediated by exchanges. The vast majority of crypto users use exchanges. They don't. They're not operating directly on chain. We have things like, you know, websites with people, DNS blocks and IP blocks and, you know, there's all, you know, there's block builders who obey OFAC restrictions and blah, blah, blah, all that stuff. Yes, I grant it, it all exists. You're totally right. This is not the great untarnished vision that once we had once upon a time. But here's my claim is that those two things coexist and that's actually what the dream was. The dream was never that the regulated intermediated version doesn't exist. If anybody had that dream, they were high. That is an absurd dream. It's never going to happen. That no intermediaries will ever form, that no middlemen will ever form. Of course they will. Middlemen exist for a reason, which is that people want them. They want middlemen, they want intermediaries because it's fucking scary and weird and hard to use the blockchain directly, right? So yeah, they want the coinbase, they want the binance sitting in between. But although these things exist, although BlackRock exists, although the ETFs exist, you don't need to use them. And the people who do live in cyberspace, the people who are completely anonymous, they have totally unperturbed access to everything that we have built. There's not a single thing I can think of that if you are anon, you cannot use in crypto. I mean, maybe, maybe courtyard or something like that, Right? But like almost everything else that we've discussed so far on the show, almost every single one of them you can still use despite being, you know, some, somebody from, you know, Mongolia or Iran or whatever, who's totally anon and has no connection to any of these services directly.
- [25:23]
B
Totally. I, I, I think, I think the, the, the worrying thing is like maybe, maybe it's more the trend, you know, it's, it's like today that is, that is true. I don't think in five years there will not be something where it's like, you know, can't use it if you're an on. I think the gates will slowly come down. And again, that overall just increases the TAM and the size. And in some ways that is very good.
- [25:43]
A
If that's the claim you're making, that there's an inevitable closing of the gates. Right, so you made the point about jabber. Obviously, a lot of people use WhatsApp and WhatsApp is intermediated, is centralized. Okay. You're trusting Facebook or meta or whatever. But okay, if they ever shut it off, which they have in certain countries, right. Like when countries censors the Internet or whatever, then people find something else they use. I can't remember what's the Bluetooth one that people use, like fire or something?
- [26:09]
C
Oh, yeah, Jackdaw, the Jack Dorsey one.
- [26:12]
A
Yeah, I forget. Something like that. Yeah, yeah, yeah. So like, there are these sort of decentralized alternatives that people use in times of genuine crisis, when the centralized intermediaries get shut off. So if your claim is that, well, that's going to happen. It hasn't happened yet, but it's going to happen. We're on an inevitable road to the properties that we have today of crypto, that it is genuinely permissionless, decentralized for those who want it, that is going to end, then I think, okay, if you're right about that, you have a point. I don't think you're right about that. I don't think there's a good reason to believe. Because what have we seen that happen to. So far the answer is like, really nothing. I mean, you can still use tether. I mean, countries around. I mean, in crypto.
- [26:52]
B
No, I'm saying I think the technologies are very similar and following a very similar path. And the worry is that like, oh, it's just one sweet green. What's wrong with my neighborhood? And I'm like, dude, the rent is about to go up. There's about to be hello people coming into the neighborhood, and it's going to change pretty dramatically and you're going to be the minority and no one's going to give a fuck what you think. And I think the Internet is very much going down this path. And the worry is like, well, maybe we're seeing ourselves 10 years in the future. Can we kind of steer a little bit to try to make sure it's not the exact same path?
- [27:21]
D
I think to me, the worry that I have is like, in the deficit of having done clean activities and having like, entered the the Fed. Like, let's say there's like an on chain fed zone where you're like whatever, you posted a ZK proof or whatever, this is like, like fed chain. The worry is that as that grows, maybe rightfully, maybe just through convenience, everything outside of that subset gets automatically labeled dirty. In the same way that like all of Tornado right now is labeled dirty because there's such a large clean set of eth outside of Tornado that anything in it is just dirty by default. That's the sort of thing I think about like, like in 20 years has is the only like crypto stablecoins that say haven't like off boarded the dirty ones. And you who just held like naturally get lumped in through no fault of your own.
- [28:11]
A
If your claim is that my government will eventually close the door on me being able to legally use this stuff, no doubt already many governments have, right? You go to China, you're not allowed to use this stuff. You go to many countries in Africa, you're not allowed to use this stuff. That is a matter between you and your government, right? It's like any individual does not have the guarantee, absent their own civil engagement, that they're going to have the right to do whatever the fuck they want, absent hurting anyone else, right? But the question is whether crypto will exist. And crypto is an international thing. Like whatever the US does, they're not going to be able to bend Bitcoin, they're not going to be able to bend Ethereum. They may bend stablecoins and say that like, hey, stablecoins are going to kyc only you have to have some identity with Circle in order to hold a stablecoin. Now I don't think they will do that. I think they actually will explicitly never do that because the point of the stablecoin is to internationalize the dollar. And the reason why Bessant is saying the stablecoins are so important is because of all the Chinese people and Russian people who are against the wishes of their government holding dollars. So I actually think it's the opposite. I think that the reason, like it's a feature, not a bug of this technology, that it is open and permissionless and that we don't know who's using it. If we did know who's using it, maybe the government wouldn't have the stomach to allow stablecoins to be open as they are.
- [29:24]
C
So I think a more optimistic view, like I feel like Tom and Jess, Tom's view in particular is sort of the one that got me into like crypto full time is like, okay, yeah, it's platform Risk thing. And like concentrating and becoming a walled garden has, has like definitely ruined the quality of Internet usage. Obviously that's only increased exponentially since then. But I think there is this interesting question of like, if we take the middlemen who most people using crypto rely on and we assume that the middleman gets replaced by an agent that you have enough control over what they're doing, like maybe you do kind of go back to like the more ideal state if you really can trust the agent doing actions on your behalf as your middleman without it being like a company that's your middleman, someone else their keys is a middleman. Dot that. Right. Like obviously there's a lot you have to get right on the cryptography side, security side, etc. Like interpretability, making sure it's like you can fit, you know, you say an intent, you actually get executed that way. But there is a version of the world you could imagine. Like to, to Jeff's point earlier of like everyone in 2013 Bitcoin, all the fuck anyone would talk about is like micro loans and how there's going to be millions of people on the Internet doing $1 loans to each other. And like that seems idiotic. Even at that time when people were saying this, I would go to these bitcoin core dev meetups and I just would be like, are you guys crazy? Who the fuck would want to do this?
- [30:56]
A
That was micro finance mania, right?
- [30:58]
C
Yeah, exactly. But there's kind of a weird thing where it kind of sucks because the intermediary, you can't source stuff, you can't pool stuff efficiently. Bitcoin people were never thinking about pooling to get together assets and lending them out or doing all the stuff you do in defi, right? But fast forward to post defi post stablecoins. Now we have these agents managing that could actually optimize on that level. It's like, doesn't seem like such a crazy idea. And so maybe the hope is that the middlemen were just the blueprint that you can give your agent to do all those actions without you having to know them while still having some sovereignty. But that's sort of the, like there's a little canyon of optimism that the jet has to fly through. It could very easily crash and then all of these things are gone. But to me, that canyon, that little slit is the thing you're really hoping
- [31:52]
D
that we steer to openness, soft landing.
- [31:57]
A
And that's also dependent on open source AI, right? If Tom's thesis is true that the walls are closing in and over the next five years, governments are going to become increasingly, or our government, the US government is going to become increasingly draconian toward crypto. The thing that saves you is the, is having the ability to control the intermediary if you have to use OpenAI's models. And OpenAI says, oh, I'm sorry, I'm not allowed to use defi. It's illegal. You know, like, oh, you know, your government has instructed me not to do this, or the Department of War has, you know, it's against my regulations.
- [32:29]
B
It's been requisitioned.
- [32:30]
A
Yeah, yeah, yeah, exactly. Speaking of which, maybe this is a. Yeah, maybe, maybe this is a good transition point to talk about some of the news topics this week, which we did intend to get to. So obviously the big thing happening in the world is the attack in Iran. So the joint US and Israeli war that is now being waged in Iran has caused huge amounts of disruption in financial markets. And this attack took place, I believe Friday night in the US or Saturday morning in the US and this caused huge volatility in commodities markets. And turns out the only place where you could trade these were in defi. So this may be going exactly to the point about the permissionless kind of scary finance that's happening, the cypherpunk stuff that we're still seeing. So you saw huge amounts of trading volume on both hyper liquid and lighter. I think the silver contracts on hyper liquid did over 220 million. Gold did 170 million. Similar numbers took place on lighter huge amounts of spot volume traded on X aut and on PAX G tokenized gold. So we saw enormous amounts of price discovery at a time when, you know, everybody in traditional finance was saying, oh man, I wonder what's going to happen when markets open on Monday. And the answer was that the price discovery was happening in defi. And I think this is a trend we're increasingly going to be seeing over the next few years. Any thoughts? Jez, I know that you're very deep in the perpetrating world and especially with RWAS thoughts on what you saw over
- [33:55]
D
the weekend, this is sort of the most exciting thing to me now. One thing I want to point out is like, I think the 247 is really good to bring to people's attention. Like it's something that doesn't really exist in the traditional finance market right now. So by that absence this like stands out. But to me, like, the benefit is much more around like liquidity aggregation in a market than it is around like the fact that you can trade it off hours in Nasdaq. And I think like in general if the desire to trade it off hours was like the main feature of this thing, you would actually see more elevated per like trading generally after hours as market makers switched over. But you actually see less because most of the volume is like whether it's arbing or staying in line. So generally like I think super, super exciting. I think perps. This has been one of the longest standing thesis of mine. I've got tweets from like 2021 and 2022. I remember going up to Brett Harrison at the FTX ERO party in New York and being like spx, perps are going to eat the world. And he who are you? Like get out of here.
- [34:57]
C
Well that's what he's doing now. So who won that one?
- [35:00]
D
Yeah, exactly. But yeah, I mean when you think about it, whether it's futures sort of having confusing naming conventions, confusing pricing conventions, very high lift in terms of like getting access to. As a retail trader, options are just the wrong instrument. Despite having like fairly easy access, you're trading volatility which is just the wrong instrument. It just happens to be the best way for most people to get short term delta leverage. And then when you're talking about like spot margin leverage, you're usually capped at like 1.5 or 2.5x through like Robinhood or Scottrade. And so perps are just like the most efficient, most fungible, most aggregatable way for retails to express retail or even market makers like you find in Tradfi. Most market maker swaps, most market maker trades happen through swaps of like an institutional desk to a market maker which is essentially a perp trade like just with the swap like Oracle in the background. And so markets over time have consistently found that this is just the best form factor. The fact that we're finally seeing it take over is what's allowing for like the 247 part is just the fact that it's such a good liquid form factor is what's letting people then go ahead and trade. But I would point out like people have tried to do overnight trading before just on worse instruments, whether like tokenized stocks or wrapped stocks or something. But without the per form factor it doesn't work.
- [36:19]
A
I think it's worth throw curling here a little bit which is that obviously for what Defi offers, a lot of times what Defi offers really shines in moments of crisis. What's happening with the war in Iran is fucking awful. I mean depending on what side you're sitting. It's awful for different reasons. And it's extremely disruptive to everybody who's in the region. I mean, we know a bunch of founders who are in Dubai, who are in the UAE or just neighboring countries. I have family that are in some of these neighboring countries. It's genuinely. It's a fucking war zone. It's like actually a war zone to anybody who's in the region, because anybody who's in one of these countries just catching strays from Iran. That being said, it's same thing happened in the Ukraine war was that in a way, crypto kind of shows its power in these moments of crisis, which is that because these are permissionless 247 markets, they allow people who need to price risk, who need to have an understanding of what's actually happening by looking at these financial markets, to be able to express that through finance. That's the reason why finance is so fucking important. So something similar was happening in Polymarket and also on Kalshi. So on polymarket and Kalshi, there were markets on basically the tenure of the Khamenei regime. So on Kalshi, it was, I believe the market phrase. Did I. I mean, it was literally,
- [37:43]
C
I mean, just like tenure is like
- [37:45]
A
out as Supreme Leader of Iran. That was the, that was the, that was the name. So it was not.
- [37:49]
B
It is technically his tenure. Yeah, yeah, yes, yeah.
- [37:52]
D
It was a proxy.
- [37:54]
A
Well, that's the thing. It's like, obviously it's ambiguous, right? It could be that he steps down, could be he dies of old age, could be that he just, you know, whatever. There obviously there are many reasons and all those get priced into the market, right? Like actuarial tables are part of how you look at an 80 whatever year old. I think it was 86, right? Like he's an 86 year old man. So obviously there's a possibility that he just like, hey, you know, I'm getting up there, long in the tooth, getting dementia and I'll just, you know, hand off to my son or whatever. So they had these markets both on polymarket and on call sheet for quite some time about how long Khamenei was going to continue to be the Supreme Leader of Iran. Now this market unsurprisingly, became incredibly contentious because this market resolved. The obvious way to resolve this market is that Khamenei was out the moment that he was killed. But Kalshi, being regulated by the CFTC and being a domestic US market, has a rule against markets on death. This is a rule promulgated by the CFTC is a long standing rule. And so I think it's death, war, terrorism, you're not allowed to have markets on these. So this market ended up becoming resolved because of a death. And because of that, Kolshi was like, we cannot resolve this market to a yes because of death. And so they decided that they were going to resolve the market at the last traded price before Khamenei was killed. Okay. So at the time that Khamenei was killed, I don't remember what, maybe like 86, just to name a number, let's say 86% chance that Khamenei is out by the end of March or whatever it is. Right. So it was very likely that Khamenei is going to be out the door, but it's not certain because he's not dead yet. So they were like, okay, we're booking everybody out at this price now. This made a bunch of people very, very mad because they were like, hey, I bought the market actually went down. I bet that he was going to die. And I bought it in 90 and it went down 86. And I lost money even though I bet in the right direction. But people got really upset. Polymarket, of course, being off being offshore and being the international global prediction market that's on chain, they resolve the market as one would expect, which is that he died. Obviously this is a, this resolves to yes, Khamenei is out. He has, he has been deposed. So now it's still in dispute and they have a dispute resolution process I think with uma, but the expectation is that it's going to resolve to yes. Obviously he's out. And therefore the people who voted yes should get $1 and everybody else should get $0. But there's been a big dispute about this. I think Adam Schiff in Congress has called out to say, hey, there should be investigations about this, about these markets and that these markets should not exist.
- [40:15]
D
Exist.
- [40:16]
A
It's a tricky problem because it's not obvious ex ante that this is a death market. Right. Obviously there are many ways for this to resolve without death. And there are many markets that can potentially resolve with death that do not necessarily resolve with death.
- [40:29]
C
Right.
- [40:29]
A
And so curious to get your guys thoughts. Obviously you guys have spent a lot of time thinking about prediction markets as well. But this is one of those things where permissionless markets intersect with the desire for trying to find the truth.
- [40:40]
B
Yeah, I find it a little kind of facetious when Kalshee said, oh well, you want to have a Death market. But then they're actively promoting the market on social and on the site and it's like this isn't some random celebrity being assassinated and everyone didn't think they were going to die and so obviously they're not going to win the Oscar if they're dead. This is like, yeah, he's the leader of a nation that people were rumoring for a long time was going to be at war. I mean the US bombed them, you know, six months ago. So it's like very obviously death was a very likely outcome here. And so to still even like list the market but then like not resolve it the way that people anticipate it being resolved, I think is just like very kind of two faced. So I understand obviously they have to have restrictions based on what the CFTC can offer, but it is like, you know, it's like if there's an international manhunt for somebody and you're like oh well you know, if they catch him but they don't kill him, it doesn't count. Like obviously it's a very likely scenario and so that should, should be baked into the market.
- [41:38]
A
Well the other thing I'd say is that in expected value terms there is really no difference, right? If like if you freeze the market at a certain point, as long as there's no trading after that, if you freeze the market at the point at which he dies and you close the market there, like for the people who are trading before that there is effectively no difference, right?
- [41:54]
C
No, you have a different boundary condition.
- [41:58]
D
The problem was that they announced before the market closed that if he died it would close. Which means that all of a sudden the market can only really trade like 40 to 60 because as soon as it's on tails like you're pretty happ happy to like take a bunch of money and push it back.
- [42:12]
A
Right? So the timing matters, right. If they pre announce this is like if he dies we are going to freeze the market at the moment of death and resolve it at that price. In that case it is isomorphic from an expected value perspective.
- [42:25]
D
No, that, that made it. If they hadn't announced it, if they did it surprise when he died then if they, if they hadn't announced it and they did it surprise, it would have been isomorphic. Them announcing it changed the conditions of the market. Because now it's just like if I have more money than you, I can push the price in my direction.
- [42:40]
C
Exactly.
- [42:41]
A
Oh I see, I see, I see.
- [42:43]
C
The conditional, the conditional thing is very difficult.
- [42:48]
A
Money before the person dies Okay. I guess it gets weird if you can anticipate their death.
- [42:52]
B
There was another funny thing too, where like this was all going down, you know, Saturday morning in the US which was the 28th. And like there was an expiry for the 28th at like what, like midnight ET so it's like, there's just like, it's like rapidly like, like theta decaying. And then it's like, oh, but then, okay, does Trump announcing it count? And the people like, no, that doesn't count. Like, we need a journalist. I'm like, the, the President announced that he's dead. Like, I don't. What, you know, what more do you.
- [43:14]
C
Well, the weird thing was like multiple people announced he's dead. And then multiple people were like, no, he's not dead. And then it took like 12 hours or something for Iran to. Yeah.
- [43:23]
A
Because the Iranian government was denying it. Right. So clearly.
- [43:25]
C
Yeah, yeah, yeah. So it was like a very weird. It was a weird, weird. Yeah. It's a weird thing in general if people are like, oh, yeah, implicitly it's a death market. I mean, yeah. I could also say part of the treasury futures market is a Jerome Powell death market because if he dies, then all of a sudden everyone's expectations of rates are suddenly very different. I don't think you can really try to be like. Unless the market is explicitly a death event. You can't really try to be like, oh, this market doesn't exist. There's regulated financial markets that completely change and implicitly are a death market too. And so I kind of don't. I think the legal argument that these things should be illegal doesn't really make sense.
- [44:10]
A
If you don't grant that, then you can just say, okay, well here's a market on somebody's heartbeats per minute and like, okay, it's not a death market because your heart could stop without you dying. But it's like, come on, this is a death market. Let's be serious. Like, I think the law allows for some like, common sense to interpret, is this a death market or not?
- [44:31]
D
I think all of this is a tremendous coup by Kalshi and polymarket to even be like, mentioned in these times, especially compared to like the 247 market.
- [44:41]
A
This is front page news. This is.
- [44:43]
D
I know, but if you look at the actual market, it's 120 million lifetime volume on the Khmeni out by February 28, which was like the biggest market. It's 128 mil volume on Poly market reported. And I've done The research where like, you know, if you mint, if you have a tail poly market position that's 0.0, like a super tail point zero one cent and you sell it to somebody else who buys it for 0.01 cents. So 2 cents or 0.02 cents. Has trade changed hands? Polymarket report that as $2 of volume because you've both traded a $1 contract, so like really highly capped at 120, but like somewhere maybe between like 30 mil and like it's not a large amount of volume compared to like actual billions pumping through trade XYZ and lighter on these sort of events. And so I think they're really fun to talk about. I do think that there's genuine societal value to being able to like come to consensus on a, on a sort of market as, as it's happening. But I think from a financial perspective, these things are like toys and I don't think that they'll necessarily grow out of toys when you could just trade the asset. Like if you believe that they're going to missile strike. Buying oil is the correct like asset trade. It's much more liquid. It'll move asymmetrically in the direction that you want. You can make more than, you know, 2x or 3x your, your entry that you're not capped.
- [46:02]
A
I agree with, don't have a time duration, make money. I agree with you. If you're trying to make money, right. If you're trying to, if you're trying to size a big trade, obviously playing the oil futures can be a lot better than, you know, trying to bet on polymarket. If you're trying to move like $20 million. But if you're trying to understand what is the likelihood that the Supreme Leader is dead, looking at oil futures will not give you the answer. It won't even suggest the answer. And very famously, you really care about that.
- [46:28]
B
Yeah. And also the whole point is to sort of disambiguate these, right? Like very famously, like SBF predicted the 2016 election and then thought US equities would dump and they actually rallied and so actually like lost money even though he accurately predicted that Trump would win. And so here it's like previously, yeah, you would have looked at oil futures, gold, to sort of get a sense of how much chaos is there in the region. But if I actually want to know, is coming a dead or not, there's not really a good way to do that versus like. Yeah, I mean I was watching this over the weekend because this is way more interesting and I Think a distilled signal versus just reading headlines on Twitter and it's not perfect. There is high volatility. It is influenceable in some ways, but if that's what you care about, you're just trying to follow the news. This is actually kind of pure distilled signal.
- [47:12]
C
I was just going to say the only thing I've realized over the last 10 years of both being in crypto and not before that is the Monitoring the Situation bros unfortunately can be much more accurate than almost anyone who's a journalist by orders of magnitude. So it's kind of like, all right, do I want to aggregate the monitoring the Situation bros kind of like at that.
- [47:34]
A
Well, it's not just journalists. It's like financial aggregates. Right? Looking at the price of gold, looking at bonds, looking at oil. Are these like huge aggregates of lots and lots of information that are basically distilled down to a point estimate of like here is what I think the marginal demand for oil is and that is compressing so much information. And I, what I want is not this like huge dimensionality reduction. I actually want to know how long do we expect this war to continue and oil prices just do not yield? The answer, yes, okay, but look at the oil futures curve and blah, blah, blah. It's like, yeah, okay, maybe, but there's so much of this about like, okay, when are they going to open the Strait of Hormuz? And Trump says, oh, we're going to send AI troops.
- [48:16]
C
I mean the Strait of Hormuz, regardless of whether Khomeini died or not, if there were any bombs that hit, they still could have closed it. Right. So it means the oil price is almost right.
- [48:24]
A
Right, right, exactly. Which, but also like, okay, well who's the OPEC is doing this and then China is doing that and da, da, da, da, we're tapping strategic reserves. All these things get priced into oil, which is not, which is not the information I'm looking for.
- [48:39]
D
So if I, if I agree with you that the primary value from these poly market and costly markets is like genuine information, like say information density in like, like a probability space of like what I'm looking for. Why are we banning the people with the correct information?
- [48:54]
A
I agree. You won't find disagreement here. Yeah, I think it's who are we protecting?
- [49:01]
D
Like I understand investor security protections because there's like a huge social good to like distributing capital to these companies that can use the resources and reinvest it. Why are we protecting people that are gambling in the acme.
- [49:13]
A
Well, I mean so the rationale obviously behind the CFTC regulation is that we don't want to create incentives to kill people. People. And obviously a market on killing people is effectively a bounty. That's the argument, and it's not an incoherent one. And I think there are good reasons to think that, hey, we should not have markets. There's a moral outrage reason, which is that markets on war, I think are. That's not really a good argument for markets on war. I think markets on war are a little absurd where it's like, oh, how could you profit from war? That's so evil. It's like there's a lot of public trading.
- [49:46]
C
Bonds. Trading that country's bonds.
- [49:49]
A
Sure, yeah. I mean, exactly. There's obviously nothing illegal about profiting from war. There's huge parts of the economy that do it. But there's a moral outrage component to the war prohibition. I think that's absurd. But for terrorism and for assassinations or deaths of individual people, I think there's a reasonable argument that the externalities of this market are not worth the information. I think if it's a head of state, especially in a huge international conflict, it's kind of a different story. If it's some random person or some random celebrity, it's like, okay, there's no value to society to know the likelihood that this celebrity dies or this regional politician dies, but to know the likelihood that Trump has a heart attack is actually incredibly important. Right. That's like, okay, what's the likelihood that J.D. vance has to step in and become the next president? So I don't know. I think there's nuance that isn't captured by the laws it's currently written.
- [50:39]
D
I was actually more pointing out, like Mr. Beast's editor.
- [50:42]
B
Yeah, yeah, I was gonna say,
- [50:45]
A
but
- [50:45]
D
I agree with you that we should not promote or incentivize people's deaths directly.
- [50:50]
A
Okay, so do we want to talk about that? So there was. There was another story unrelated to the Iran stuff, that Kalshi brought. The first actions against insider trading in prediction markets. So they brought actions against the editor of Mr. Beast videos, one of the editors of Mr. B's videos. I assume he has a team who apparently insider traded on some kind of Mr. Beast related market. And then they brought another action against some California gubernatorial candidate who bet on his own candidacy. And so these fines were not. They were not huge fines. I think there was like disgorgement of profits, which are relatively small. And then the fines were like 5x $2,000. Yeah, it was like, very kind of slap on the wrist. It was not like SEC or CFTC kind of fines. But obviously this doesn't preclude the CFTC from bringing their own charges against these people. That's obviously possible. In principle, we don't know. But these were the first cases that we have seen be prosecuted. We know that there were many other cases. I mean, there have to have been. There's no way these are the first. And it's possible that those are working their way through the Kalshi process or what, I don't know, whatever you want to call them. But these do seem to have been the first shot across the bow for. Okay, there is some enforcement of insider trading that's going to be publicized for these prediction markets. So, Jaz, you were just speaking to that.
- [52:08]
D
And from my perspective, I completely understand why Kalshi and polymarket want to bring this because they want, you know, gamblers essentially to feel safe on their platform and not to feel like they're getting adversely selected against. But I think when I take a step back and you look at like, okay, well, why does society sort of bring enforcement actions against, say, like, market manipulation or insider trading? Generally, it's because you want to protect the sanctity of a market or you want to protect, like, a social good that's being provided. Stock markets have a lot of protections because the capital that the stock market allocates is very useful to society. We can sit here and we can debate that, argue that, you know, putting a percentage on Trump's, like, heart attack percentage by end of year has value to society. But then why, if his doctor came in and said, like, I know that Trump is like, very likely to have a heart attack and would go and bet on that, why are we stopping the most informed participant in the market from giving us his information?
- [52:58]
B
I mean, I totally agree that's the point of these kinds of contracts. I mean, it's risk transfer. I think also, just practically speaking, it's not really possible to enforce this in the way that insider trading on companies is enforced in the sec. He's like, you don't have to register as an officer of Mr. Beast and you have to register as a family member of an officer of Mr. Beast. It's like, already, I think the SEC has so many issues and weird nuances around what constitutes insider trading and not shadow insider trading, whatever. But ultimately it is serving this end goal, which is good of, like, protecting capital formation and capital markets in the US this just feels like, yeah, I mean, I think they want to show that they're doing something. Because there have been all these sort of high profile cases recently that have been again, sort of dealt with outside of the protocol. If you're leaking state secrets through Kalshi, you probably have bigger concerns. But I agree within the protocol. That is kind of the whole point is you want people who have information to reveal it and get paid for it. And you should take that into account when you're trading.
- [54:00]
A
Yeah, I do think there is a special case where you are the subject of the market. I think that's a unique situation. So if you're like the Mr. Beast editing team, I think that's. Or you're the gubernatorial candidate. When you're the subject of the market, there is really no positive value.
- [54:14]
C
Okay. My take against that view in some ways is that one of the reasons these markets have so little liquidity and trading volume relatively is there is this adverse selection cost. It's like almost anyone who's trading on information that's a martingale plus a little tiny bit of I read the news versus someone who's like, oh, I actually know the truth of the event. The former are the fish in a casino game where you're losing 70% on every round around. Right. Like it is a kind of negative EV type.
- [54:49]
A
Isn't this more true for providing liquidity than it is for trading itself?
- [54:52]
C
Yeah, for sure. But arguably a lot of the traders I feel like are effectively implicitly liquidity providers because a lot of these markets are so illiquid that no one is quoting both sides at all times. So they're placing limit orders and waiting there. So they're just kind of like bad market makers as you go down on the volume side. So I think there's an argument that the adverse selection cost should be learned by the market participants and they should be bringing their win rate closer to 5050 than 7030 of loss to win. And the argument I think from the social good standpoint is, well, maybe that just takes so long that people will just go bankrupt before they can reach the point of parity. To know how to provide liquidity correctly, I think that's more of the question is will people learn to adjust to this adverse selection? Are they just like, is it going to be like meme coins where they are the rug pull ever? You know, they are the adverse selection. Right. Like any liquidity provider. But putting money into the bonding curve is like becoming the adverse selection. Right. Like there is something about these games that is similar. Whereas I think in the perps case or the spot trading case, it's like there's a notion of, of realized value that is not. There's no notion of any participant who has perfect information. Right. Like it just doesn't exist per se because the asset is an amalgamation of
- [56:15]
B
a lot of stuff.
- [56:16]
C
And I think that's sort of the difference here. And that's why people have this emotional reaction because prediction markets are like interpolating between the perp side, like the pure, there's no perfect answer. And the like meme coin thing where it's like, yes, obviously the deployer rug pulling you has perfect information on like.
- [56:35]
A
Yeah, I agree that there's this bimodal distribution of markets where there's markets that have incredibly complex, that are measuring something incredibly complex, like what is the likelihood that Iran falls or whatever. There's regime change, right. And nobody really knows that. And then there's like, when is Mr. Beast going to release his next video? And there's seven people who definitely know that and everybody else doesn't know. And so I think what's that?
- [57:01]
D
Just don't trade that. Market participation.
- [57:03]
A
Yeah, yeah, Well, I mean clearly not a lot of people do. Right? So like it is in a way self correcting. Like if you just look at where the volume is, the volume is mostly on like sports games and like big political questions and like the fed funds rate, it's not on, you know, Mr. Beast videos. But Mr. B's videos scandalize people the most because I mean, and here's the other thing is that people's moral intuitions about why insider trading is forbidden is completely opposite from the legal justification for why insider trading is forbidden. The two are not in any way similar. And that breaks down when you have a new modality like prediction markets where it requires basically self policing because the rules are not yet written. And CFTC has not made clear exactly how they're going to be policing this stuff. And so the platforms kind of have to police it themselves in order to win consumer trust. And if you have to police yourself in order to win consumer trust, you, you kind of have to do what people's intuitions are and not what the law is. Right? So the law is that, okay, you can't trade on information that you did not fairly receive, that you owe a duty of confidentiality to the counter, blah, blah, there's all these rules that have nothing to do with, oh, it's unfair, you made money. That's not why insider trading is illegal. It's totally fair to make money. We don't give a fuck in the law whether you unfairly made money. But people's intuitions are like, well obviously that's why insider trading is illegal is because you didn't earn it. And you should earn it if you make money, you know, or you should get lucky if you made money. You should not be guaranteed to make money. And that tension I think is the reason why this is going to continue to be really stupid. Is like the what, what Kalshi and Polymarket us have to project is we have an insider trading policy that aligns with your intuitions, which is not at all what the law demands.
- [58:43]
D
And if I, if I have to strawman, like if I had to sit here and be like, okay, like what are the best rationales for kalsheet prosecuting insider trading that's not just protecting their own gambling walled guarded fish. It's because maybe the market of a bunch of people uninformed guessing is better than like a blown out widespread market that one guy that informed can barely even cross because the market makers are like fuck you, I'm only going to get hit by asymmetric information.
- [59:09]
A
So you're like, no, totally agreed. Okay, well, we are up on time. Jez, where can people find you anything you want to plug?
- [59:17]
D
Twitter. Follow me on Twitter. I'm around with. Sorry, I shouldn't say that I'm messing around with.
- [59:25]
C
Everyone knows that Robert's not here.
- [59:27]
A
Everyone can say whenever they're around. Yeah, I'm always Dad's not home messing
- [59:32]
D
around with open claw a lot, so. So keep an eye out.
- [59:35]
A
Okay. Sick, sick. What's your, what's your handle?
- [59:37]
D
I can people find you Isabel underscore eth on Twitter.
- [59:40]
A
Isabelle underscore eth. Okay Jez, it's been real. Thanks for joining us. Thanks for having me.
- [59:46]
D
Thanks A good one.