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- [00:00]
A
The EF is giving money to ETH Labs. I think it's not the lion's share. They're funny. But they are giving money to ETH labs. Tarun, what's your take?
- [00:06]
B
I think the announcement had committed one really big faux pas, which is that they ordered everyone's names lexicographically from their first name, not their last name.
- [00:16]
A
That's what you. That's what you fixated on. That's why we have you on the show, Tarun, for those deep insights.
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C
Not a dividend.
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B
It's a tale of two Kwan.
- [00:23]
A
Now your losses are on someone else's balance sheet.
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C
Generally speaking, airdrops are kind of pointless anyways.
- [00:28]
A
I named trading firms who were very involved.
- [00:31]
B
Alec Eth is the ultimate defi.
- [00:34]
A
Protocols are the antidote to this problem. Hello, everybody. Welcome to Chopping Block. Every couple weeks, four of us get together and give the industry insiders perspective on the crypto topics of the day. So quick intro is first. You got Tom the Defi maven and master of memes.
- [00:47]
C
Hello, everyone.
- [00:48]
A
Next we've got Tarun, the Giga Brain and Grand Poobah at Gauntlet.
- [00:52]
B
Yo.
- [00:54]
A
Joining us today we've got Laura, CEO of the show. Welcome back, Laura. It's been a minute.
- [00:59]
D
Thanks for having me.
- [01:01]
A
And I'm Haseeb, the head hype man at Dragonfly. We are early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping blocks at XYZ for more disclosures. Okay, so it's been another choppy week in the markets and we were actually debating before we went live whether or not we wanted to open the show. Talking about Stretch and Stretch one. We are going to talk about Stretch. So for those of you don't know, Stretch is the preferred shares that Michael Saylor has issued that are basically near the top of the capital stack, or the pyramid, I should say the capital capital pyramid of Microstrategy, now just known as strategy. So Stretch is designed to trade at $100 and the idea is that it's preferred stock and it issues a dividend that is basically, I think it was originally like 10 and a half percent or something, and that was trading at $100 for quite a while. And he issued more and more of these as a way to finance his purchases of bitcoin. And since the debacle that we talked about a few weeks ago, where he sold 32 bitcoin and spooked the market, Stretch has started to Weaken from this hundred dollar. It's not a peg, but we can say like kind of price target. So it's weakened from the hundred dollar price target, went all the way down to 82 cents. Now it seems to have stabilized around 86, 85. Stabilize, a strong word for it's not supposed to be sitting there, but implicitly what that means is that the market believes that they need more than the 10% yield in order to hold this thing right. So at 85, that means something closer to like 14% or something like that yield that you're basically getting on, on holding this asset. And it kind of implies that now all of a sudden there is a risk perceived by the market that Saylor might blow up. And presumably that's the reason why this thing would get priced down. Right. If you believe that he was always good for the dividends, then everything should be okay. There's no reason why you wouldn't hold this thing at 100 because saylor's good for it. But the fact that this asset has gone down, that stretch has gone down means that Saylor now needs to do something in order to be able to pay these dividends. And the market doesn't believe that he can do it. One of the things that he could do, of course, is inflate the supply, sell more shares of common stock and inflate the common stockholders of Strategy. But right now they do have, I believe they stated recently they have 32 years of dividend coverage, supposedly. Now, I'm assuming that means by selling the bitcoin, which is obviously not what they would actually do, they do have, I believe, 1.4 billion in cash as of June 22. So they do have quite a bit of cash sitting on the balance sheet. And every year they have something like a billion five roughly of dividends that they're owed on the outstanding stretch. So they've got basically one year chambered, assuming that they don't issue any more stretch. But it does mean that Sailor's going to have to find some way to cough up this cash, and that may be by further pushing down the strategy shares. So that's the high level. If you follow that, you're probably deep in microstrategy land if you didn't follow that high level. Is that in Tarun's words, this might be the Luna for bitcoin?
- [03:59]
B
Yeah, I think Luna for suits. Luna for suits.
- [04:02]
A
Luna for suits. I'm sorry, Luna for suits. Luna for suits.
- [04:05]
D
Well, I just. One part that I disagree with in your characterization was you said Something like the price is down. And by the way, I think it's at 87 right now because people don't believe that he can pay the dividends. But that's. That's not how I view it. I view that the reason that it's down, despite the fact that now they do have enough cash. Cash to pay the dividends for, you know, at least a year, is that he. He made a series or they made a series of decisions that just kind of spooked the market's confidence in their financial judgment and in their ability to manage this smartly. Right? It's like they had enough.
- [04:44]
A
That means paying the dividends, Right? Like, that's the only thing they care about if you hold preferred stocks.
- [04:48]
D
Right, right, right. But people, because. So. So let me recount the series of events that kind of shook investor confidence. Because my theory is that essentially when people are buying this, they are expressing their confidence in the ability of strategy to manage this whole setup that they created. And because they made a few different decisions in the last six months that spooked the market's confidence in their financial judgment. That's why, despite the fact that now they do have enough cash to. To pay the dividends for a good stretch that, no pun intended, that that's why it's still not trading at a hundred. You know, it was like they did have enough. So I forget the exact minute, but I think it was like roughly 18 months that they could have covered. And then they took a huge portion of that and they just paid down debt that was due in 2029 that just, you know, it wasn't really necessary for them to do that. And then suddenly they only had, you know, whatever it was. Like, I forget the exact number of months, maybe like six months or less in terms of the amount of cash they had to pay the dividends. And so that's. That kind of like set off this whole thing. So that's why I think that even. And then, you know, they sold the 32 bitcoin for. For what reason? It was like, again, it just shook the market's confidence. You know, it's like such a nominal amount of money, two and a half million dollars, like, it doesn't move the needle on anything. All it does is just create more concern about their judgment. So that's why even though now they kind of fixed it and now they. A good amount of cash, which, by the way, was dilutive to, I think, the common stockholders. So that. So again, it's just like no matter what they do they're going to hurt one part of their little empire. So it's really more a confidence thing. It's not about just, oh, they have enough money, they can pay 32 years of debt. It's not that. It's like, it's. It's. It's really a psychological game, and not about, like, the numbers.
- [06:45]
A
I think the psychological game gets cashed out in numbers, right? Like, if you pay the dividends forever, there's no reason why this thing should not get arbitraged back to 100 bucks. But people now are thinking that this might explode. I mean, there's a small probability. Well, there's a small probability, but look, this is basically, this is bond math, right? Okay. I don't know. It's not that complicated. It's like, there's risk of ruin. There's the yield and there's the preferred, just the value of the underlying stock. And people are multiplying numbers together. And now the risk of ruining went from, you know, 1% to, like, 8%, 9%, 10% or whatever it is that gets you to this number of $0.88 or $0.86 or whatever it is.
- [07:26]
D
Okay, so, yeah, we're. I guess then now we're saying the same thing in different ways, basically. Because, like, all I'm trying to say is like, okay, let's let. This is what I'm trying to say. Before the preferreds, it was super simple. Ms. Europe is going to acquire Bitcoin. And, you know, so it was like, just straightforward mission, and now it's so complicated. Right. Like, as I mentioned, and, you know, I've done multiple shows on this so people can listen to this podcast, but, like, no matter what they do, every single step is going to hurt some stakeholder in this. So they've kind of, like, backed themselves into a corner, which again, goes, we
- [08:00]
C
have a new trilemma.
- [08:01]
B
The sailor Trilemma.
- [08:02]
D
Exactly.
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A
Okay, beautiful.
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D
Like, it shakes people's confidence in them. And so it's more like instead of just this bitcoin dad, it's more like this kind of hedge fund or I don't know what you want to call it, where it's really about, like, do you have confidence that they can manage this whole thing in a smart way? And that's why I feel like even though now they do have. Yeah, I think it's, it's, it's. So. It's not quite, but it's close to what they started the year with. Like, even though the numbers now are kind of comparable, suddenly it's trading at 87 instead of, you know, 100.
- [08:37]
B
So really no different to Luna. And the difference of how you show
- [08:44]
A
the confidence, how is it no different from Luna? That does not sound right at all.
- [08:48]
B
I think I like to think of this as like by people suddenly accepting securitized Bitcoin, like taking a pool of Bitcoin, wrapping it in a stock and hoping that it trades one to one and not necessarily etf, where there's more safeguards. You sort of are at the whim of the management company for that pot of Bitcoin. Right. Versus true bitcoin. You don't have that in a lot of these kind of things that are trying to achieve a permanent target that they trade against. If suddenly basically your confidence in the management of that target goes down, that is the probability of failure goes down, then you discount that pool of assets significantly relative to nav, which is obviously where we're at now. But there's also a sense in which the idea of like, hey, I'm going to increase the preferred dividend, which effectively dilutes the common shareholders indirectly. Because that's the first line of defense before kind of selling Bitcoin. You know, if you look at all the convert sales they've done in the past, that's not that different to like, hey, I have Luna inflation. The only difference is like I'm doing it continuously on chain versus like I'm doing it discreetly via these like convert events and like the, the paying out dividends on the other side.
- [10:07]
A
Okay, so let's like sharpen this thing because I think when people hear this, I think what it implies is that MicroStrategy is inevitably going to collapse. And I don't think.
- [10:16]
B
Well, I think the different. The difference is that the difference is inevitable.
- [10:19]
A
Right?
- [10:20]
B
I'm not sure stretch was not inevitable when it's the 14th thing in the cap structure.
- [10:24]
A
No, no, no, no. I'm saying that Luna was inevitably going to collapse. With enough time, that thing will collapse, right?
- [10:30]
B
Is this not inevitably collapsed?
- [10:31]
A
Saylor has taken on debt. Saylor has taken on debt. He has a certain sort of LTV capital ratio to Strategies Capital stack. It is not guaranteed that strategy will collapse. Right. There's a certain set of choices he could make that would cause strategy to collapse. It's quite likely that common shareholders are going to take losses based on bad sales he makes by basically buying with debt. If you rewind the clock two years ago, what everyone was saying was that, wow, strategy has such an amazing debt facility that normal people could never get access to of basically being able to take incredible terms on financing to just lever up and buy Bitcoin. And it's like, wow, doing that on an 80 Vol asset is just amazing. That's totally what you should be doing if you can do it. Now here's the downside of that, is that, yeah, the asset goes down sometimes and then suddenly it looks like you can't pay your prefers, you can't sell the stuff to common. But in absolute terms he has $55 billion of Bitcoin and he's got a billion and change of cash he's got to pay a year. Diluting the common shareholders for a stock that the M nav fluctuates by 100% every single year. That's clearly not like a Luna level. Oh my God, this thing's going to collapse.
- [11:45]
B
But they both did comp lower issuance to buy back to try to make the other side stay near a bounded range. Luna would change its inflation to adjust in the exact same way as the common shareholders are getting diluted. The difference is that it's structured. And also this preferred stack sort of is weird in that who gets paid out the interest first. The Luna analogy would be slightly different in that anchor depositors would get paid out first while the rest kept diluted to zero.
- [12:19]
A
Okay, here's the other difference. Hold on. The other difference of course, is that Saylor does not have to pay the dividends, right? You're describing this as though, okay, well, if Stretch just goes down to zero,
- [12:30]
B
that's the beauty of custodial finance. You can rug people.
- [12:34]
A
This is why we said it's such a great financing mechanism, right? Like look, he wants Stretch to survive. If Stretch dies and just gets destroyed, he cannot get this kind of financing ever again. Right? It's like declaring bankruptcy. You get seven years of no credit. That's what happens if he just lets Stretch die. So he really wants Stretch to survive. Right. But let's say that there is truly death spiral scenario. He basically can't sell enough stock to make the Stretch shareholders whole. He can't pay the dividends anymore. It's just screwed. If he tries to sell any more microstrategy stock, the whole thing's going to collapse and Bitcoin's going to go to zero. Then what does he do? The answer is he defers the dividends indefinitely. And he can do that. He has the right to defer the dividends until infinity. That means he never gets to raise Stretch again. And that's unfortunate. Now he's just got to be an honest bitcoin dad. But if he knows that, look, my stock is going to go to zero, he gets paid on the size of the stock he wants.
- [13:26]
B
It is very impressive. He is someone whose stock has gone down 99% before.
- [13:32]
A
Yes, yes. And so I think he knows how much it hurts to have that happen again. I don't think he will.
- [13:37]
D
Well, now it's down like 80 or something, but. Okay, okay, so here's where I agree with Tarun and also see what Haseeb is saying. So I think Tarun is correct in the abstract that the dynamics are quite similar to Luna. But Haseeb is right that, yeah, the likelihood that that happens is, is not obviously anywhere near as likely as Luda. But the, the thing is that because it goes back to this confidence thing I was talking about. If he were to, you know, stop the dividends on sdrc or if he were to, you know, just like sell a whole bunch of bitcoin in order to, to make sure that he has enough money to pay the dividends for some period, like all of those things are, you know, going to crash the price of, or at least lower the price of bitcoin further, which is going to hurt him more. It's like any little thing he does, it hurts. It does create a little bit of a downward spiral or maybe even a moderate amount. An amount that would.
- [14:39]
A
It's not a spiral. It's not. No, no, no, it's not a spiral. That's what I'm saying. There's no spiral. If, let's say Stretch goes to whatever the floor price is. Right. Basically it just becomes a purely equivalent to common stock. Right? Then if basically he's like, look, I will never pay another dividend again on Stretch. Too bad. Game over. Gg. Stretch failed. Sorry guys. You lost your money, you took a risk and it didn't work out. If he does that, yes, bitcoin will go down because then, oh, he's not going to finance. He's not going to have this cheap debt to go buy more bitcoin. And that's so sad. One of the marginal buyers of bitcoin has decreased. That makes bitcoin go down. Right? But that is a one time event. He doesn't have to sell any more bitcoin. He doesn't have to. There's no death spiral. There's no margin calls, there's no nothing. That's why it's not like Luna. With Luna, there's no way out. You have to pay the dividends. Right? You are Forced. Because this thing is stuck. It has to go to a dollar. He can just let go of it. He can just say, okay, burn the boat, push it off to shore. Sorry, guys, didn't work out, and the rest of us are gonna stay on the island.
- [15:38]
D
Yeah, I mean, that's why I said the likelihood it actually ends up that way is unlikely. However, I do still think about when he sold the two and a half million dollars worth of bitcoin. That created more problems for them. Right. So that's what I'm. I'm just saying that, like, yeah, the likelihood that they actually completely crash out is unlikely, but they are. They've put themselves in.
- [16:05]
A
You know, I obviously understand that. Obviously understand that. What I'm pushing back on is this characterization that this is an existential risk to Bitcoin. I think that is just not correct. If you look at the way the financing stack works, there's an existential risk.
- [16:17]
D
Yeah, but I never said that. I don't know who you're talking, but
- [16:20]
A
that was the comparison to Luna. The comparison to Luna is this idea that the whole thing can go.
- [16:24]
B
I think the only. The only comparison to Luna here that I think is worth anyone wasting any more brain cells on before we hopefully move on is just the idea that, like, there's.
- [16:34]
A
This is why I didn't want to talk about Stretch.
- [16:36]
B
There's this person constantly inflating the common shares. And the whole point of Bitcoin is like, I have a fixed inflation curve. And then I tricked people into believing this basket of thing was things, these shares that'll have, like, minimal inflation was Bitcoin plus yield. But then it actually turned out all I did was like, give you a shitty inflation curve that's much worse. Right. That part is the Luna part.
- [16:58]
C
I think the Luna part is you have strategy execs on Twitter saying that they're publicly buying Stretch, I assume on their pa, which I'm like, that is very Luna. And then I heard last week they were calling up random different funds and people in crypto that manage money trying to sell them Stretch. People who you probably would not normally call in the event that you need a capital infusion. And so those just gave me very much Luna flashbacks. But I agree, I'm like, this is a very manageable small problem with a lot of hard. It's unfortunate. It's more like an Argentina default versus a Luna moment.
- [17:34]
D
Yeah, sorry, Haseeb, I know you want to move on. The last point I just want to make is to something that this was
- [17:41]
B
the cost of getting Laura on the show we had to talk about.
- [17:43]
A
I know, I know. Laura insisted that we open with Stretch. And I'm like, it's going to be a stupid conversation, but sorry, Laura, make a point.
- [17:51]
D
At least from my feed, it looks like a lot of people are interested in this, so that's why I voted for it. But the last thing is just Tarun going back to something Tarun said. Like, I also agree that this sort of, like, breaks kind of the whole ethos around bitcoin. It's like bitcoin is supposed to be centralized. You don't have to, like, rely on some government that might mismanage your money. And literally, what is happening now with sb what does this have to do with that?
- [18:17]
A
This is a company on the New York Stock Exchange whose stock you are buying.
- [18:21]
D
I know that has debt financing. But with. With the. With.
- [18:24]
A
Who told you that was decentralized.
- [18:27]
D
So. Okay, but with the initial MSTR mission and how it was initially structured, it was just like, like, this is a wrapper where you can put it into your investment accounts and, you know, and it. And it's going to. It's different from an ETF because we're going to try to get more per share. But now the way that it's structured, it's more on the management of a small group of people. So in that sense, it's against the bitcoin ethos.
- [18:54]
A
Yes, I mean, I agree with that. I think that is true. That is obviously true from the way that Saylor markets it, from the way they talk about how they're going to maximize bitcoin per share, all that stuff. It's never been, oh, this is just a passive bitcoin vehicle. Like, maybe in the past it was marketed that way, but then ETFs came along and everybody moved their messaging to. We are basically, you know, a hedge fund that's going to maximize how much Bitcoin. You know, we're maximizing in bitcoin terms how much is going to sit in this basket based on, we buy a different time, like, you know, averaging into bitcoin.
- [19:25]
D
But all I'm trying to say is, so if you are a person who bought MSTR because you believed in bitcoin and this was just a way for you to get access to it in certain accounts where you couldn't just, you know, get bitcoin or whatever, like, then, now you're kind of realizing, okay, this is a different animal than what I signed up for, and that might be
- [19:42]
A
enough if somebody just figured that out. Now I'm like, what are you doing? Like, you are beyond investor protection. You know, I'm like, I don't. I. There are ETFs already. There have been ETFs for like, years now. You know, there's no excuse if you're like, oh my God, I can't believe MicroStrategy was making management decisions.
- [20:00]
D
I think it's different from the way MSTR was originally structured.
- [20:04]
A
But anyway, sure, okay, okay, okay, let's. Let's move on. Another story that has animated a lot of people this week is more drama around the Ethereum foundation, another classic that we'd like to talk about on the show. So two things happened in rapid succession. One of them was that there was a new lab that was announced called ETH Labs. This is a spin out from the Ethereum Foundation. Although it's formally a totally separate organization, it was composed of seven folks, senior members of the Ethereum foundation, including Barnaby, Josh Stark, Anzgar, Dietrix, I think a few other folks who. I'm very embarrassed that I don't remember their names, but a lot of folks who are very senior, both on the protocol side as well as the, the, the sort of development side of Ethereum. And then at the same time announced. A day later, the EF announced layoffs where it was laying off roughly 20% of the headcount of the Ethereum foundation, which is about 50 plus people. This is across multiple parts of the organization. We had Xiao Wei Wang, who was previously co director of the ef, also leave last week. Seemingly unrelated departure to all of this. She's going on to do new things. So a lot of shakeups within the ef. Now, I should disclose that Tom and I were both contributors to ETH Labs, which is structured as a nonprofit. But it's meant to be this kind of response to a lot of the calls that people have been having about the Ethereum foundation being not oriented enough around adoption, around markets, around DeFi, around some of the things that are at the application level happening on Ethereum, and that's explicitly part of the mandate of ETH Labs. ETH Lab is also being funded by the dats. So bringing back to DAT conversation, I believe Bitmine as well as Sharplink and Joe Lubin personally are among the biggest backers of this group as well as snz. So that's high level. A lot of shakeup going on in Ethereum land, seemingly in the direction of moving power away from the Ethereum foundation toward some of these outer edges and toward a new kind of quote unquote, democratized set of leadership that's more interested in the adoption side of Ethereum. Thoughts on all of this, Laura, why don't you kick it off?
- [22:10]
D
Honestly, the main thing that I think about is I wonder how Vitalik's really going to feel when he has even less sort of like organizational power. That's really one of the questions in my mind. I think obviously the community is probably going to be pretty happy about this because I know they're just over the last two years, even longer there's been, you know, just a lot of consternation about how things were being managed and just even Ethereum's own, the foundation's own interest in like what's happening on its own chain and obviously in Ether the asset. You know, even though Vitalik made that blog post saying like, ETH was the most high value product of the Ethereum blockchain, like, I sort of felt like he was paying lip service. It didn't feel like sincere to me. It felt like he knows people want to hear it and so he decided to like throw that in there. But do I think that he feels that in his heart? I personally don't. But going back to my initial comment about like, I just wonder how he's going to feel when he has less power is just because at least, you know, at least for the portion of the Ethereum foundation that my book covered, he kind of was the secret hand. You know, he always wanted how the super majority votes. And then there was this moment, moment when I, I personally think somebody lied to him about whether or not he still had them. And it caused this whole freakout amongst him and his friends. Like, and just if you look at like the, the way the whole thing has been structured, like even this whole thing with Aya, the former executive director, I feel like he, he probably has some comfort level with her. So even when the whole community was calling for new leadership, he just moved her to the president role and she's on the board. Like, she's not gone, you know, like. So, yeah, I, I basically feel like their hand was forced because the price of ETH is down. Which again, that's because they themselves did not focus on tokenomics for eth. But yeah, when all is said and done and it really pans out the way that they have been portraying in their written communications as their goal, I really wonder if he's going to be okay with it. But I guess we'll see.
- [24:25]
A
Tom, what's your take?
- [24:26]
C
I mean, I was surprised by how much schadenfreude There was on Twitter, people seemed. They're like, they should cut the rest of the ef. And I was like, you know, I think it's one thing to disagree with
- [24:36]
A
the direction or say a hundred people there.
- [24:39]
C
Yeah, I mean, fair enough. But it's just like, yeah, there are real people losing their jobs, but, yes, excited about eClabs. I think it's sometimes it's like almost like if with a piece of software, like, one version gets so crusty and, like, you can try to refactor it, and it's like, no, sometimes you need a fresh rewrite. And this is kind of the fresh rewrite. So I think it's interesting, Laurie, you talk about, like, the price of eth. I. I think normally maybe that's true if you're talking about share price or price of sovereign bonds, and that being really a representation of sentiment around governance. But I feel like the EF doesn't really care. They never really talk about the price of the.
- [25:15]
D
I'm talking about their Runway. I think they did this because they didn't have enough money.
- [25:20]
C
Yes, sorry. I think you're right. There's a functional reason why when the price of ETH goes down, therefore, you have to do layoffs. But it's not so much that, oh, we need leadership change because the market's telling us that they don't like what the EF is doing. I think the market's kind of beyond that, but I guess we're speaking the same language.
- [25:36]
A
You don't think that when Tomash originally came in that that was a response to the market?
- [25:41]
C
I mean, that was my impression, but I guess. I don't know. There's a functional ETH goes down, we have less Runway as another, oh, the market doesn't like what we like. I was kind of more in the former camp, and I thought lower is maybe more. Or, sorry, in the latter, I thought lower. I moved maybe more in the former.
- [25:58]
A
So I think I originally said on the show that I thought that this was basically Vitalik answering the market. When the EF shakeup happened and the Ethereum pivot quote, unquote, that took place early last year when all that stuff went down, everybody interpreted that as, oh, they're finally listening to the market and they're making the changes that people want to see. And I think people interpreted the reversal of that when Tamash, left Slash, was maybe encouraged to leave or. It's unclear still. Nobody has said exactly how that went down. And a lot of the senior leadership from the EF also left. That seemed to be in the Tamash camp, the Accelerate camp. They also end up leaving or being canceled out or whatever. Again, unclear how exactly that took place. The formal layoffs happened now. And so the formal layoffs happening now seems to imply that what happened before was not layoffs, and therefore these people were.
- [26:48]
D
At least some of them were. At least some of them were.
- [26:51]
A
Okay, so these layoffs may have trickled out over time, and now they're just announcing all of the cumulative people who've been asked to leave.
- [26:59]
D
Okay, that's my understanding.
- [27:02]
A
Yeah. So my sense of all that. There was a moment where after Tomash was asked to depart, presumably, that I was like, okay, maybe I was wrong. Maybe the Theater foundation was not actually responding to the community. And this argument I made about, oh, the bondholders are the ETH holders, and when shit goes really bad, that's when you realize that they were actually in char charge and they actually make the calls about how Ethereum governance is done. And I was like, oh, maybe I was wrong about that. Maybe that wasn't the story. I am starting to think that, like, oh, okay, well, now ETH Labs has shown up. ETH Labs is kind of the continuation of the Ghost of Tamash. And it's clearly the Tamash camp within the EF that is reconstituted and gotten separate funding from more commercial sources than the ef. Right. The EF has this mandate of heaven because we were the original ICO recipients, we were the original team. But the EF has explicitly said, look, we're going to shrink, we're going to have a smaller surface area, we're going to do less things. We're purely going to focus on keeping the small candle alive, which is the core values of Ethereum. And we're not focused on adoption, we're not focused on price, we're not focused on. What you want us to be focused on was a blog post that Bastian just made a couple days ago, the new single executive director of the ef. And that seems to be kind of seeding more of the ground for ETH Labs to take on that role. And so I kind of feel like there's a little bit of a negotiation happening here of, okay, they want this, fine, you guys go do it. The EF is giving money to ETH Labs. I think it's not the lion's share they're funding, but they are giving money to ETH Labs, which seems to imply there's some spiritual passing of the baton here that, okay, people want this all Right. This is how we're going to give it to them. Tarun, what's your take?
- [28:45]
B
I think the announcement had committed one really big faux pas, which is that they ordered everyone's names lexicographically from their first name, not their last name. I was very, I looked at that announcement.
- [28:56]
A
That's what you, that's what you said.
- [28:58]
B
That's, that's the thing. I just kept staring at those deep insights. What are they doing here?
- [29:04]
A
Yeah, yeah, that's a big one. Anything else that stuck out to you about this?
- [29:10]
B
I mean, I feel like we've been talking about this for so many years that I feel like I was bored when the event happened. Do you know what I mean? Like the first time, this idea of the second foundation slash lab, slash whatever happened, it was like, okay, cool. But it's like so late that I'm just like, I feel like in my head I was like, I just forgot, like, you know what I mean? I just don't feel as emotionally attached to the concept. Like what seemed, you know, a few years ago. I wish I could have had more.
- [29:39]
A
Is that because you think like they missed the window or is that just because like the idea has been talked about so much that it feels like a letdown to actually have it?
- [29:48]
B
Sort of the latter plus also not some like, here's the things that we are going to do. You know, it's like the kind of it was still a little fluffy and abstract versus like here's what we want to do in the first 90 days. So you know what I mean? Like I didn't, I'm like, is this just like a slightly different type of cotton candy versus like a concentrated meal? I don't know.
- [30:08]
A
Right. I think some of the reason for that is that there is really no rules right now about how they're going to work with ef. Having a two headed kind of organism is kind of weird. The two heads needed to negotiate. Okay, who controls what parts of the body and how do we. There are a fixed set of resources and a fixed set of players in the Ethereum ecosystem who they take their cues from on what has to get negotiated. And that negotiation hasn't happened. Basically this company just, or this organization just got funded. So I agree with you though. I think it would have been much better for them to say, to signal, here's what we're doing, here's the sprint, here's what we're going to deliver on if we don't hold us accountable to it. That kind of messaging and leadership is exactly what Ethereum has been missing. And I think what people would respond very strongly to relative to just, hey, we're the go fast vibe people. Please applaud us now that we're coming out. So that I totally agree with. And I think they're.
- [31:06]
B
It just felt a little announcement of an announcement, you know what I mean? Like, it didn't feel kind of like there was like a plan. So I don't have anything to assess other than the bad lexicographic kind of typography.
- [31:19]
A
Well, I'm sure, I'm sure that feedback is going to land, so I'm glad we touched on that a few times.
- [31:26]
D
Yeah. I actually also was wondering what the split is between the two orgs. And when I look at the press release, it says that ETH Labs will bring together researchers responsible for key contributions to finality, scaling, data availability, the virtual machine and protocol economics, which sounds to me like tokenomics. So it sort of feels like some of the other things that kind of crops, you know, privacy, censorship, resistance, blah, blah, blah, open source, help me out. But anyway, those things maybe will be more foundation. So this feels to me like more real nuts and bolts around the protocol. Am I wrong? Yeah, now that I think about, yeah, of course, that makes sense. The foundation would be more on research for things that are further out. And ETH Labs maybe is more like what's the next upgrade? So maybe it's sort of like a hierarchy where the research happens at the foundation and then those ideas kind of trickle down to ETH Labs and they focus more on implementation, something like that.
- [32:23]
A
My very crude analogy is like the Catholic Church has both the monasteries where people are kind of chanting and keeping the flame alive of the religion, but they also have the business of the Catholic Church, which is whatever. They hold hundreds of billions of dollars in wealth and they have to manage that. And they have these churches and properties and whatever all over the world and the practicalities of how you run, how do we do protocol upgrades, how do we improve scaling, how do we improve performance, how do we make it more usable for enterprises, how do we make all that stuff? The EF is basically saying, we don't want to do that. We are only going to keep the religion alive, we're going to protect the core values. And the core values are privacy and security and open source and blah, blah, blah. And because if we don't do that, nobody will. That's, I think, the view of the ef. And I think, look, that's not wrong in as far as it's stated. But it is true that, look, I mean, with those 200 people, there's a lot more you could do. And the EF is saying, explicitly, look, we don't want to do more than that anymore. We want to explicitly decentralize and have other nodes in the organization take on that other stuff for which they're potentially better suited anyway.
- [33:28]
D
Yeah, you know what, now that I think about it, going back to my original comment about Vitalik, this is just more suited to his interests. He wants to keep his head in the clouds and do the research and be pie in the sky and be the futurist. So in that way, actually, maybe this will really be good for him. So maybe he won't be unhappy with how it all pans out.
- [33:53]
A
Yeah, I mean, look, there will be conflicts between the two organizations, obviously, because Go fast means that you ship upgrades, you break things, you potentially compromise on decentralization or to get higher performance. And there's an actual push and pull there. And at the end of the day, the EF has an enormous amount of influence over, you know, the client teams and the implementers. I mean, a lot of them are getting funded by the ef. So the reality is that there's always going to be politics and incentives and there's negotiations and compromises. So it's like any religion.
- [34:27]
B
Yes, but when the Catholic Church decided to hire a very prominent or good architect of the era to make sure that the buildings were remembered 500 years in the future, I don't see exactly that same type of architect or technical Tom Lee wizard.
- [34:43]
A
You don't think Tom Lee is going to build a beautiful financial pyramid that will last for thousands of years?
- [34:49]
B
Thousands. Thousands. We started by talking about Stretch.
- [34:54]
A
That's true, that's true. He doesn't have any preferreds, right? Oh, no, he didn't.
- [34:58]
B
They authorized. Not yet. Not yet.
- [34:59]
A
Authorized some, but if not issued. Authorized, not issued. Thank you.
- [35:03]
D
He's going to have his own Stretch.
- [35:05]
A
I don't know if that's in the cards right now. Maybe. Maybe next bull market if we're getting another one.
- [35:10]
D
Well, he filed for it.
- [35:12]
A
Yeah. Yeah. Okay. So changing gears a little bit, let's talk about, instead of talking about all these good things happening, let's talk about some bad things that are happening. So one bad thing that is happening is the cme, the Chicago Mercantile Exchange, which is one of the largest derivatives venues or the largest derivative venue in the world. In America, they own something like 93% of derivatives traded in the U.S. the CME, or, sorry, I should say Exchange traded derivatives. Obviously there's derivatives that are not on exchanges. The CME decided to sue the cftc. The cftc, of course, is the primary regulator of derivatives. Very weird to sue your primary regulator. So why are they suing the cftc? Well, the answer is because the CFTC approved perps, of course, approving perps from Kalshi and then later approving perps from Coinbase as well as signaling they're going to be approving other perps down the line as well. And the CME is arguing that these perps are bad. Now why are they bad? They're bad because they are one. They create excessive volatility and risk for retail traders and because they're not appropriate for institutions. And so they're claiming that perps are actually swaps. They should not be treated as futures. And swaps are regulated in a totally different way. They don't have this kind of. Basically you couldn't approve them in the way that the CFTC did if in fact they're swaps and not futures. And that is essentially a regulatory categorization that allows the CME to block the approval of perps in the us. So CME is out there fighting. The CFTC has fought back, saying that they believe the lawsuit is frivolous and that this is basically an incumbent using lawfare, quote unquote, which I guess now is the term everyone, everyone in the Trump administration calls everything lawfare now. So this is lawfare from the CME to try to protect their, you know, borderline monopoly in the market. And they think that they're going to win in court. So this is pretty aggressive language from the cftc, especially toward the cme, the single largest company that does derivatives in the us. Normally, I would assume, I don't know, but I would assume that they're on pretty good terms in a normal administration. But these are fighting words from both the CFTC and from the cme. So many people of course in crypto are on the sidelines, but they are parties on some level to this because if the CFTC loses, they lose their perp licenses and perps no longer are eligible. They have to go through a totally different regulatory regime as swaps. So, thoughts on CME suing the CFTC to try to take down domestic perps? Trinidad, why don't you go first?
- [37:39]
B
Well, it's amazing to have a former CFTC chairman suing the current cftc. That's the first thing to note for the former CME CEO was the former Terry Duffy. Yeah, I thought so. Right.
- [37:55]
A
Is That I don't know. That could well be true.
- [37:57]
B
Yeah, I'm pretty sure he was at some point.
- [38:01]
A
Okay, let's assume that's right and if it's wrong, we'll fact check. Okay, let's assume that's right. Okay, yes, great point. What an irony.
- [38:07]
B
Basically I just thought it was kind of interesting in that sense. But also shout out to you guys for having Lindsay go on TV and defending perps multiple times. Lindsay from Dragonfly, I saw her on tv. I mean I think in general I generally kind of agree with the like hey, this is just defending monopoly position. Like the CME on every financial crisis in the last 20 years has like consolidated futures markets. Like there were more futures markets prior to the financial crisis. Obviously it's not just the crises. Right. It's like the market structure bills nbbo all these like other things implicitly kind of changed structure to concentrate to a small number of players and sue me. But I don't know if I totally buy the swaps argument. I think the main thing about swaps is they're not continuously settled or repeatedly settled and somehow you have to be assuming that that's happening. Obviously there's contract for differences which are swaps sometimes you have to think about but usually they don't have this periodic funding behavior which I think is going to be the thing. The technical detail I suspect that this will rest on is computing the funding all the time, doing it periodically. Does that give it sort of like a real price that like a swap might not have because it's more like a fixed contract.
- [39:31]
A
So I obviously don't follow the details. What is the definition of a swap that they're appealing to here? Because I think their claim is that okay, it's not a feature because it doesn't settle, therefore it's not a feature.
- [39:41]
B
I'll try to give it describe it via example but obviously I'm not a lawyer so you can feel free to if I make mistakes I, I, I am not lawyer at this time by
- [39:54]
D
the way I did look it up. Terry Duffy was not a former C
- [39:57]
B
of I found his bio.
- [39:59]
A
Yeah good to have, good to have an actual journalist on the show.
- [40:03]
B
Thanks.
- [40:03]
A
Thanks Laura.
- [40:04]
B
I I either way I yeah those see see I gave a disclaimer already
- [40:10]
A
your credibility has tanked Tarun. But please go on explain to us
- [40:14]
B
how work interest rate swap. Right. The simplest type of swap is like I have a fixed rate asset like fixed duration fixed rate like I am borrowing using a asset for a month and I'm paying 5%. And you want to take a variable rate thing like the price of Treasuries daily and swap it with me. So I pay you the fixed rate, at the end, you pay me the variable rate. And the idea is that like we have a fixed contract ahead of time of how we're exchanging these kind of rates in some ways akin to what the long and short in a perp are doing. But the difference is it's sort of fixed once and not repriced. And that aspect is a little more like a futures market than a swap market, like the not fixed price. And generally speaking, different countries regulate it differently. And one of the reasons for that is the clearing is different for swaps because you need to know both sides the whole duration. Whereas the clearing for futures, if you've ever had to do a physical delivery, your broker might not ask you until very close to expert. You don't have to already have everything kind of settled and whatever are not
- [41:25]
A
perpetual or do they settle on a fixed date?
- [41:27]
B
They're usually settled on a fixed period. I think that's sort of the place where I think if I were to guess kind of this is going to get tripped, people are going to argue something around that as one side or the other of the swap side, the CME side might just be like, well, how is it that different? And the crypto perp side is going to be like, well, you have this contango effect and people are arbitraging back to the spot. You couldn't do that with the swap because you're stuck in the contract. There's not really a liquid secondary type thing. So I think there's going to be some fight over that. That's my prediction for this.
- [42:03]
A
So actually this is also a more basic question. I've heard perps described as perpetual futures and as perpetual swaps, which is more common because I kind of feel like there is a sort of like whatever we named it kind of is inherently persuasive of just like, well, this is what people call it.
- [42:21]
B
Well, I think it's a little bit like how swap gets used for spot trade and crypto, like Uniswap, like people in crypto have used swap in the not tradfi terminology, which may end up being a negative in the long run because they've used something that in theory maybe you could argue is kind of like the LP in a uniswap pool, maybe maybe agreed to a swap, potentially depending on how this type of stuff turns out. So there's sort of a weird. There's something weird about the fact that crypto people use swap for spot trade. And it's like, unfortunately meant that swap is used everywhere in crypto vernacular, but it might not. But my suspicion is also like the. Even if there is like some way a perpetual future is deemed as the ones that are approved are deemed a swap, there's likely some way you can get around that by like changing the structure, changing the custody, changing the payouts, whatever. And like, I don't think this is like a. I mean coinbase had like
- [43:20]
A
the ten year futures, right? So like that is basically the workaround where you just have a perp for 10 years and you do the same one until it's close to the 10 year mark and then you roll to a new one is okay. Every 10 years we have to create a new contract.
- [43:33]
B
Yeah. My point is, I think the CME going after this is ironically going to create many more. It's like a whack, a mole. By trying to kill one, they created 10 more. And that might be what happens because crypto people are very creative at getting around these things. Look at the rewards, stablecoin rewards thing and stuff like that. The coinbase people, the tradfi people don't understand that. They don't understand that. They're like, oh, they're like, check mark, I killed you. And it's like, oh no, I just made another derivative that looks slightly different. But actually, hey, good for thinking you killed me.
- [44:09]
A
It's like video game logic.
- [44:11]
B
Yeah. I think the tragic people don't get that. They're like, they think it's like a one and done thing, not a repeated game.
- [44:19]
D
Okay, another quick fact check. The Coinbase perps roll over after five years.
- [44:23]
A
They roll over or, or like what you.
- [44:27]
C
It's a five year contract, not a ten year contract.
- [44:30]
D
Yeah, sorry.
- [44:30]
A
Right, right, right. Yeah, yeah, five years. Yeah, yeah. They expire in five years. Yeah, yeah. I mean five years is like in crypto time that is kind of like 100 years. But I think if you just offer, if you just said, look, fine, CME, you got us. Totally. They're swaps, you know, GG, we're going to change to 100 year futures that have, you know, perp, like hourly payments in order to balance along and short that that's what we're going to do. And the end, you win. I think that's like, okay, done, like, we don't have to have the fight. Nobody has to sit in uncertainty. Nobody has to wait for this. We all just standardize on hundred Year futures.
- [45:02]
D
Yeah. I mean, my take on this whole thing is so I don't know anything about the legal thing, I don't know anything about the structure of all this stuff, but it's just what you see on crypto Twitter, which to me makes so much sense. The CME is just doing this because they don't want the competition. They know it's coming. They're just trying to defend their turf. It's just. I don't know. Honestly, it's sort of like a crybaby move or some kind of victimy sort of move where it's like, mommy, Daddy, save me. Like, you know, so I just feel like, yeah, I don't really care what the law says. I don't really care about the structure. It's. To me, it's. We see the motivation, we know what this is really about. Like, all the details, that's surface level and like, what. What's happening on a deeper motivational level is like, what's more important. And to my mind, it's like, if they succeed, despite. Despite crypto's ability to be the mole and whack a mole and survive, I. I don't think it's good for the US if. If for whatever reason, hopefully they won't succeed. But it's just like, again, I've said this before so many times, but the more that all the financial incumbents do this in the us, the more they are setting the US up to no longer be the, you know, leader in finance globally. And so, yeah, it's not good for the country.
- [46:23]
B
I mean, I think they have a very real reason. It's just their stock price just keeps going down when hyper liquid volume goes up, it's like a kind of very. I mean, there's CME stock prices and also you should go look at the transcripts of the last call because, like, hyperliquid comes up like a bunch of times. CEOs getting very annoyed about having to answer all those questions. So it's like, I think there's like a very clear look hyperloops in the Wall Street Journal every week now, right? Like, there was like an article today about how, like, it's display and relative to the volume of cme, it's. It's a tiny blip. But in the media presence, it's so much that it's like impacting, I think, shareholder perception of cme. I think they don't have a choice but to try to do something like this.
- [47:10]
A
Fiduciary responsibility.
- [47:12]
B
Yeah, I think that's kind of that I would argue that's kind of to
- [47:14]
D
waste their money on a lawsuit.
- [47:15]
B
Isn't the CEO retiring? Isn't that guy retiring soon?
- [47:19]
A
Terry Duffy, are we really going to do more?
- [47:22]
B
Yes, he is.
- [47:23]
A
Have you not learned your lesson?
- [47:25]
B
Effective March 1, 2027, he'll resign.
- [47:28]
A
Okay. Okay. That's quite a while from now, but yes. Yeah, I tweeted about this and I think the interesting thing about this lawsuit, it's like the inverse of the Coinbase lawsuit where Coinbase sued the SEC for the right to compete and the CME is suing the CFTC for the right to not compete. And it's just kind of like, come on guys. And I agree with Train's argument that look, if you even have a whiff that they might win, they're just going to adapt and the crypto people are going to change up and the CFTC of course can accommodate. If you can do a five year future, why can't you do a 10 year future and a 50 year future and 100 year future? Of course you can. So the end Bitcoin is supposed to exist for 100 years. There's no reason why it shouldn't. If you can do 100 year bonds, right, you can do 100 year.
- [48:10]
B
I think the main places that are going to be contentious is like I think this is. CFTC commissioner did give some talk today saying at like a agriculture thing, saying that like well, not all commodities should be perpetual futures, like things that have physical delivery. It was like clearly like there was
- [48:32]
A
a little bit of the CME said that or the cftc.
- [48:35]
B
Cftc.
- [48:37]
A
Oh yeah, he's been saying it the
- [48:38]
B
whole time he's been saying like, yeah, there's like, there's a lot agriculture products should not be on there or whatever. Right?
- [48:43]
A
Yeah, everybody bows to the agriculture lobby. Like there's no question. That's always been true.
- [48:50]
B
Yeah. But like my point though is that like there's, there is going to be some limits. It's not like it's going to be arbitrary. Things are going to get in a perp. Right. That's going to have to sit on deck this right?
- [49:02]
A
Tom, anything you want to throw in here?
- [49:03]
C
I'm just surprised by how unpopular one, the Coinbase Offshore perps have been and then two, I mean the Kalshi perps, they're just obviously wash traded, they're trading at 100x200x open interest. So it's like, I don't know, I think we kind of dream of like oh, if you just make this available to Americans, they will just pick it up and use it. And there's some other reasons why they're not popular. Right. It's like 3x limited in leverage or I think 6x in some markets. So I think yeah. So in many ways using decentralized perps or non US perps is like superior for, for a lot of people. So I don't know, I'll be curious to see how this plays out. But I generally agree this is so obviously protectionist. Even if you think they should be swaps, why not just offer it? I think one thing we also didn't talk about is the tax treatment. And I think that's another obviously part of this too is swaps are worse tax treatment in the future. And so there's all these little things in it.
- [49:59]
A
I think we just go to 100 years. I think we call it the Haseeb perp hundred year perps. Everybody just straight off bald perp just literally route around the lawsuit. Who cares if you win or lose? Everyone just go to 100 year perps. Like right now, just do it. And CFTC just put the call if anybody wants to launch 100 year futures with regular long short payments, it's cool, you can do it. We're open for business anyway. On the subject of competition, last story I want to talk about is so Meta, it was just leaked, is apparently considering launching its own prediction market in response to call she and Polymarket called Arena. Now arena, according to press reports it will initially be offered to the universe of Meta users across Facebook and WhatsApp and Instagram, but it will initially not be real money. But they are not closed off to eventually offering real money if the product evolves and if it ends up doing well. Now Tom, you used to work at Meta, I think before it was called Meta. Right. At Instagram. So you have an inside view on the product velocity and development cycle at Meta. What do you think about this? Them coming into Polymarket and call she's lane with their own product?
- [51:15]
C
I mean they've already done this a few times which I feel like is the thing that didn't really get picked up is like there was an internal version when I was there. Yes. There's always new apps that they're experimenting with. It's points based, kind of like manifest style prediction markets. And so previous years employees could play manifold rather. And then in 2020 they had forecast which was another points based one which
- [51:37]
B
I remember that one that was pretty fun.
- [51:39]
C
Yeah. So this is like another one that they're doing.
- [51:41]
A
So where were these accessible?
- [51:43]
C
Forecast, I think was like gated. So it was users, but only certain people were passed through the beta gate and then the internal one was just like an internal one. So this is like the third or fourth time that they've.
- [51:55]
A
So tell us about what was the markets on? On?
- [51:58]
C
Yeah, I mean, forecast was kind of classic prediction market type thing. So it was like, oh, you can trade the weather. Or this was during COVID So there were a lot of COVID related markets, macro related markets. I think there were maybe a few election things, but again it was just all for points. And so I guess forecast didn't do super well. So they ended up winding it down, they winded it down. But maybe there's appetite amongst consumers to trade more stuff now. And so I'm guessing that's where they're going with this. But I think people are jumping a few steps ahead to assume that they're making a polymarket competitor. I think more likely it's like, is this something people even want to do? And then maybe we actually go and end up doing it. But it does feel like a weird behavior to add. I can't think of a surface that Meta owns where they would want their own prediction market.
- [52:42]
B
Predict how many likes Kylie Jenner gets from this picture before it gets posted. You get to see a random subset of it.
- [52:49]
A
Okay, so hold on, that feels like a little bit too bearish because. Okay, just because Meta has done it before and like it didn't take off, like. Yeah, well, nothing in prediction markets took off five years ago, 10 years ago. Like, it's, it's sort of like these things. Consumer products don't work until they work. Right.
- [53:04]
C
So yeah, I'm not, I'm not saying that, I'm not saying that it's not going to work. I'm just saying they have tried this before. I think my point is more around like, you know, sort of consumer intent and mindset and brand association with the products. You know, they also have. And I think Meta products often have this thing where they have this superficial victory. Facebook dating is actually gigantic. But I don't think any of us know anyone who uses Facebook Dating. Exactly.
- [53:27]
A
Really?
- [53:28]
C
Yeah. Or Facebook Marketplace also.
- [53:31]
A
Marketplace. I know, I know Marketplace is huge. Yeah.
- [53:34]
C
Or I was thinking of workplace actually was also huge. And they ended up spinning it down and winding it out. And so there's a different kind of, I think, tier that you need in terms of success in order to actually have something be sticky there. And I don't think most people are going to trade, but I don't know, I could be pleasantly surprised.
- [53:49]
D
So is your read that the fact that it's just points and not real money is like they're floating this as a test and then if it takes off, then they will somehow implement real money. And I don't know if that would be like, just using USDC or if they would partner with, you know, like a polymarket or it's.
- [54:10]
C
It's Meta. I think they would just. Just buy or acquire the licenses and the tech to go and have one in house.
- [54:17]
D
But we're seeing it as like, this is an experiment and if it goes well, then they'll actually move into.
- [54:22]
B
Well, they are doing stablecoin payouts and stablecoins, right?
- [54:27]
A
Yeah, but that's for creators.
- [54:29]
C
Yeah, yeah, yeah, yeah, I know.
- [54:31]
B
That's different.
- [54:31]
D
And it's in, like, Colombia or something.
- [54:34]
A
Yeah, it's for emerging markets. Right. This is like, to improve payout efficiency in emerging markets as opposed to a consumer experience for Americans. Slash, who's betting in prediction markets? Obviously, if you look at polymarketing policy, it's a lot of Americans.
- [54:46]
C
Yeah. I think, again, it's like you get 10 people together to work on an app and then it's one of dozens of apps and internal projects, and so it's not a huge area of investment, but then it becomes a headline. And I think the idea is so salacious and crazy in people's minds that Meta would add gambling or sports betting or predicting or whatever into any of their apps that. I don't know. I think something about it just tingles people's brain when in reality it's like, yeah, there's like 10 dudes in a room and they're working on an app and I don't know if it's going to work or not.
- [55:19]
A
Yeah. Obviously meta is like the size of a city in terms of the number of employees,
- [55:26]
D
but the platform is the size of nearly the globe.
- [55:30]
C
Totally. I'm saying it's like there's a big difference between Zuck getting in front of the entire company and saying, we're going to be a Metaverse company now and everyone go do. Or everyone go do AI stuff, and every team has to be AI aligned. And like, no, there's just a small team that's working on some experiment and maybe it'll work, maybe it won't work.
- [55:47]
A
Yeah. Well, so according to the story, supposedly this was like Zuck's personal directive is like, we're doing a prediction market, which I don't know how often he just says, great, let's do this particular thing. I did see a lot of bearishness about it. I don't think that many of the responses that I saw were like, oh, my God, they're going to. They're going to steamroll polymarket and Kalshi and they're going to dominate the market. I think most people saw this as like, oh, that's like more meta jumping on every trend and probably they're not going to deliver because they just don't seem to.
- [56:16]
B
I saw so many people posting pictures of that Infinite Machine quote by Demis has said this about how Zuck just loves everything will jump on anything without thinking. I don't know if you guys know that quote. It's like why he sold DeepMind to Google and nothing. Facebook. It's like a very famous, very famous quote. But people always keep posting that picture whenever they want to make fun of Facebook. So I always.
- [56:42]
C
I think there's like a, like Maslow's hierarchy of financial services. And generally it's like you offer payments or services or savings or something before you get to prediction markets. And the fact that they haven't even been able to do that makes me think they're probably not going to be able to do this as well, but who knows?
- [56:58]
D
Okay, wait, you guys. I was thinking that I found it a weird fit because I was thinking the age demographic for prediction markets and the age demographic for Facebook do not line up. But here's the weird thing, at least just according to Google Gemini. So prediction markets, as we would expect, it's popular with Gen Z, 18 to 34. It says heavily driven by men under 45. Okay. Then I asked, what is the age group most active on Facebook? And at least Google Gemini says 25 to 34 is the most active demographic. That doesn't make any sense to me. It's so confusing. But it says that that makes us up about a third of the platform's global user base. So maybe it's just like other countries.
- [57:40]
A
It's probably because it's. Yeah, exactly. It's aggregating across, like India and Africa, where Facebook is ubiquitous.
- [57:46]
D
Okay, okay. So. So I should. Okay, okay. So I'm gonna.
- [57:49]
C
A third doesn't seem that crazy.
- [57:51]
A
Yeah, you want to revenue weight. You want to revenue weight this? If you're talking about prediction.
- [57:55]
D
No, no, no. But. Okay, wait, wait. No, no, no, no, no. I made it more specific. I asked, what is the age group in the US most active on Facebook? And it still says 25 to 34.
- [58:07]
A
So where is it pulling from? Is it pulling this from, like.
- [58:10]
C
But you said it's. It's like a third, and I'm like. I would imagine that's actually maybe slightly less than a third of all, you know, you as adults who are online. So it's like, it's not. It's not like it's, you know, disproportionately or even a majority in that age group. That's just like a very white age group.
- [58:24]
A
That sounds wrong to me. That does sound wrong to me.
- [58:28]
D
On Instagram, it links to Statista, and I just put the link in the chat if you guys want to open it.
- [58:34]
A
Absolute garbage.
- [58:35]
D
Okay, well, so, yeah, I just opened a browser tab to find this, so maybe if I.
- [58:41]
A
Okay, okay. Let's not debug your AI query.
- [58:44]
B
Yeah, okay. Okay. I have one thing that I wanted
- [58:50]
A
to say about this, which is Weaponizer. We'll close with your one thing. Drew, give us your one thing, which is.
- [58:56]
B
I've said this many times on this podcast, which is I view prediction markets as like, media companies that are dressed in the sheep's clothing of a trading platform, because realistically, they just have so many more users who are reading it to get information versus people who are trading. Right? Like, that ratio is only growing. Even though obviously volumes and usage are up a lot, there's still just way more people who care about the. Out the. The actual pricing on the market than people who want to trade it. And in some sense, to me, that is sort of like a social network. It is. Is kind of like a new way of getting information for you from that you're getting aggregation over, like, a social graph. And I think, like, Zuck probably has the right instinct that that's true, but then, like, kind of the wrong user base to figure out how to, like, do that with is sort of like the impression I kind of get because, like, I feel like bootstrapping. This is very different than bootstrapping, you know, threads or whatever. But there is a sense. I still. I still fundamentally feel that, like, in the next five years, there is going to be. We're going to view these things not as the market aspect and, like, view them much more as this information social network type of hybrid. And so, like, I don't know, it's not that crazy to me from that standpoint. It's more crazy to me from an execution standpoint. Like, I just don't see them to Tom's point, but it.
- [60:21]
A
That is actually a very good point, is that maybe what Zuck is going for. Let's assume that this is a big priority is not so much like, okay, I want the trading revenue. Because from the perspective of Meta, all of these things are just tiny. I mean meta is just enormously valuable company. Winning prediction markets as a category just doesn't matter to them. But what does matter is the eyeballs. If you can get the people who are looking at polymarket versus the people who are betting at polymarket. Polymarket makes money on the people betting. It doesn't make money on the people who are looking. Making money on the people who are looking is kind of Meta's whole business model. That is really what they are better at than anybody else. And so I could see actually that being the angle of the story is that, hey, I think actually this is going to displace more and more news over time and more and more of people getting their information from just looking at their feed on social media. Maybe they are going to be looking at the aggregations of markets. Well, I want to own that market. That then because I want to own where the eyeballs are going. I can buy that story.
- [61:17]
B
That's sort of the thing to me that makes the most sense of this whole thing.
- [61:21]
A
Because if that's true, you don't actually need the volume. Right? If mail.
- [61:25]
B
No, no. The weirdest thing about it is why even own the exchange then? Just be an aggregator for the other exchanges and then. Right, that's sort of what it seems like. You're driving the order flow. You force them to even pay you back for that. Why not just be the front end? There's no reason to even have the exchange yourself.
- [61:43]
A
Yeah, I mean, look, you can take a fee for routing traffic or routing flow to one of the venues, but it might even be like, look, you're not even allowed to bet. You're only allowed to bet fake money. But you can see the real money odds and the real money odds are very interesting to you because they are this very unbiased source of information about what people actually expect will happen in the Iran war in the.
- [62:03]
B
Hey, sometimes you want the bias, sometimes you want the bias from the insider trader though, because then it's more correct.
- [62:10]
A
Stay on Facebook. Okay, well, yeah, fine. If you want biased news, we've got that, we've got the Facebook feed. Right? But if you want unbiased news that's more objectively market driven, then look at Facebook markets or whatever the hell they're going to call it. And I can imagine actually that that is an accelerant for polymarket Kalshi and all the other players around the world, where you're in the Middle east, you're in Africa, you're in. In Asia, you can't get access to these prediction markets. They're banned in your country, but the data is not banned. Right. If Facebook just has this play money venue and then they have the real money prices that they're aggregating, then it's like, okay, everybody in the world now knows to understand what prediction markets are and why they're a useful source of information.
- [62:54]
D
Yeah. And for them, they monetize the ads. Yeah. They get information on what you're interested in, and then it helps them target you with ads. So they're making money just.
- [63:03]
A
I mean, they just show you ads on the, like, they just show you ads that there's no. They don't need to do any other
- [63:09]
D
personalization, but they get good data. They know more about your interests.
- [63:14]
B
Like, I mean, they know more about your real interests.
- [63:17]
A
They already know everything there is. Like, they know everything about you already. They don't need prediction. They just need to show you more. More ads.
- [63:23]
D
Yeah. But I don't know what you guys experience is, but, like, far and away, Facebook and Instagram serve me better ads than, like, pretty much anywhere else on the Internet. So, yeah, I could see this for them as like, it's an amazing way to get to know who they're targeting even more.
- [63:40]
A
Fair enough. Fair enough. Okay. Interesting discussion. We have to wrap. Thank you, everybody. And we will be back next week. See you all.
- [63:49]
D
Thanks. Bye, everyone.