The Ethereum Foundation Is Splitting Up - The Chopping Block

Transcript

The EF is giving money to ETH Labs. I think it's not the line share their funding, but they are giving money to to ETH Labs. Drew, what's your take? >> I think the announcement had committed one really big fa, which is that they ordered everyone's names lexographically from their first name, not their last name. >> That's what you That's what you fixated on. That's why we have you on the show, Terrone, for those deep insights, >> not a dividend. >> It's a tale of two clan. >> Now, your losses are on someone else's balance sheet. >> Generally speaking, airdrops are kind of pointless anyways. unnamed trading firms who are very involved. >> Is the ultimate obviously DeFi 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 we got Tom the DeFi maven and master of memes. >> Hello everyone. >> Next we got Tarun the gigab brain and grand puba at gauntlet. >> Yo >> joining us today we've got Laura CEO of the show. Welcome back Laura. It's been a minute. >> Thanks for having me. >> And I am a Steve, the head hype man at Dragonfly. We are only investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping block.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 who don't know, stretch is the preferred shares that Michael Sailor has issued that are basically near the top of the capital st or the pyramid I should say the capital pyramid of micro strategy now just known as strategy. So, Stretch is designed to trade at $100 and the idea is that their preferred it's it's preferred stock and it issues a dividend that is basically I think it was originally like 10 and a half% 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 um since the debacle that we talked about a few weeks ago where he sold 32 Bitcoin and spooked the market, uh Stretch has

started to weaken from this $100. It's not it's not a peg, but we can say like kind of price target. So, it's weaker from the $100 price target. Went all the way down to 82 cents. Now, it seems to have stabilized around 86 85. Um, stabilize is a strong word before it's not supposed to be sitting there, but the the 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 um 85 that means something closer to like 14% or something like that yields 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 Sailor 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 Sailor's good for it. But the fact that this asset has gone down, that stretch has gone down, means that Sailor 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 uh strategy. But right now, they they do have, I believe they stated recently they have uh 32 years of dividend coverage supposedly. Uh, 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

22nd. So, they do have quite a bit of cash sitting on the balance sheet. And every year they have something like a billion5 um 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 micro strategy land. If you didn't follow that high level is that in Terun's words, this might be the Luna for Bitcoin.

>> Yeah, >> I think I think Luna for suits. Luna for suits. >> Luna for suits. I'm sorry. Luna for suits. Luna for suits. 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 to pay the dividends for you know at least a year is that he he made a ser or 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 >> but that means paying the dividends, right? Like that's the only thing they care about if you hold preferred stock. >> Right. Right. PE but people because so so let me recount the series of events that kind of shook investor confidence because basic so basically my theory is that essentially when people are buying this they are expressing their confidence in the ability of strategy to manage you know this whole setup that they created and because they made a few different decisions you know in the last 6 months that kind of 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 100 you know it was like they did have enough so I forget the exact 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 I I forget the exact number of months, maybe like six months or or less in terms of the amount of cash they had to pay the dividends. And so that's kind that kind of like set off this whole thing. So that's why I think that even and then they 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 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 do have 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. 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 arbitrageed back to 100 bucks, but >> people are thinking might explode. >> I mean, there's a small probability. Well, there's a small probability, but like look, this is basically this is bond math, right? Like if okay, you're you're you have a like I I don't know. It's not it's not that complicated. It's like there's risk of ruin, there's the yield, and there's the preferred the just the the value of the underlying stock. And people are multiplying numbers together. And now the the the risk of ruin went from, you know, 1% to like 8% 9% 10% or whatever it is that gets you to this number of 88 cents or 86 cents or whatever it is.

>> Okay. So, yeah, we're I guess then now we're saying the same thing in different ways basically. 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 was 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 and you know I've done multiple shows on this so people can listen to those podcasts but like no matter what they do every single step is going to hurt some stakeholder in in this. So they've kind of like backed themselves into a corner which again goes the sailor.

>> Exactly. Okay. Beautiful. 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. So, >> right, >> really no different to uh to to to Luna and and the difference is how you show the content.

>> How is it how is it no different from Luna? That does not sound right at all. >> 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 like more safeguards. you sort of are at the whim of like the management company for that pot of Bitcoin, right? Versus like true Bitcoin, you don't have that. And in 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, i.e. pro probability

of failure goes down then you discount that pool of assets significantly relative to NAV which is obviously what 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 um on 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.

>> Okay. So, let's like sharpen this thing because I think when people hear this, I think what it implies is that Micro Strategy is inevitably going to collapse. And I don't think >> Well, I think the different the difference is that the difference is >> inevitable, right? >> I'm not sure stretch was not inevitable when it's the 14th thing in the cap structure. >> No, no, no, no. I I'm I'm saying that Luna was inevitably going to collapse like with enough time that thing will collapse right? >> Is this note? Sailor has taken on debt. Sailor has taken on debt at a certain he has a certain sort of LTV capital ratio to strategies capital stack. It is not guaranteed that strategy will collapse.

Right? There is a 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. You know, if you rewind the clock two years ago, what everyone was saying was that wow, Strategy has such an amazing uh 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 a, you know, an 80 asset is just amazing. That's totally what you should be doing if you can if you can do it.

Now, here's the downside of that is that yeah, the the asset goes down sometimes and then suddenly it looks like he can't pay your prefers. You can't sell the stuff stuff to common. But, you know, 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 that like the MNAV fluctuates by 100% every single year, that's that's clearly not like a Luna level. Oh my god, this thing is going to collapse. But they both they both did comp lower issuance to to buy back to try to make the other side stay near a bounded range, right? Like Luna would change its inflation to adjust in the exact same

way as the common trailers are getting diluted. The difference is that it's like structured and also this preferred stack sort of is weird in that >> who gets paid out the interest first. you know, the the the Luna analogy would be slightly different in that anchor depositors would get paid out first while the rest get diluted to zero. >> Well, okay, here's the other difference. No, hold on. The other difference, of course, is that Sailor does not have to pay the dividends, >> right? You're you're you're describing this as though, okay, well, if Stretch if [laughter] Stretch just goes down to zero, >> that's that that's the that's the beauty of custodial finance. You can rug people.

>> 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? That's like, you know, it's like it's like declaring bankruptcy. You get seven years of no credit. That's what happens if he just lets Stretch die. But so he really wants Stretch to survive, right? But let's say that there is truly death spiral scenario like the the you know, 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 micro strategy stock, the whole thing's going to collapse and Bitcoin's going to go to zero. Okay.

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 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 to be worth it is very impressive. He is someone whose stock has gone down 99% before. >> Yes. Yes. And so I think he knows how much it hurts to have that happen again. I don't think he will.

>> Well, now it's down like 80 or something. But okay. Okay. So, here here's where I agree with Tyrone and also see what Hib is saying. So I think Tyrun is correct in the abstract that the dynamics are quite similar to Luna, but Hiba is right that yeah, the 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 STRC 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 bit or 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 create it does create a little bit of a downward spiral or or maybe even a moderate amount. >> [laughter] >> 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. >> It if 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 if if basically he's like, "Look, I will never pay another dividend again on Stretch. Too bad. Game over. GG. Stretch failed. Uh 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, you know, 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 you 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

like the rest of us are going to stay on the island. >> Yeah. I mean, that's why I said like the likelihood it actually ends up that way is is unlikely. However, I do still like like think about when he sold the the $2.5 million worth of Bitcoin. That that created more problems for them, right? So that 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 in >> you know I obviously understand that obviously I 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.

>> Yeah. But I never said that. I I I don't know who you're talking about. >> The comparison to Luna the comparison to Luna is this idea that the whole thinking >> I think the only the only comparison to Luna here that I would think is worth anyone wasting any more brain cells on before we hopefully move on is just the idea that like >> this is why I didn't want to talk about stretch. 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 with 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. I I think the Luna part is you have strategy execs on Twitter saying that they're publicly buying you know [laughter] fresh I assume on their PA which I'm like that is very Luna and then I heard you know like last week they were calling up random different you know funds and people in crypto that manage money trying to sell them stretch people who you probably would not normally call in the you know event that you you need a capital infusion and so those just gave me very much you know Luna Luna flashbacks but I agree I'm like this is a very manageable small problem with a lot of hard like it's it's unfortunate there. It's more like a Argentina default versus a Luna moment.

>> Yeah. And sorry, I know you want to move on. The last point I just want to make [laughter] is to something that >> this was the this was the cost of getting Laura on the show. We had to talk about >> 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 your point. >> It 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 to run going back to something Tun 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 decentralized. You don't have to like rely on some government that might mismanage your money and literally what

is happening now. >> What does this have to do with that? This is a this is a company on the New York Stock Exchange whose stock you are buying that has debt but with with the >> who told you that was >> so okay but with the initial MSTR mission and how it was initially structured it was just like we 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. >> Yes. I mean, I I agree with that. I think that is true. It is obviously true from the way that Sailor markets it, from the way they talk about how they're going to maximize Bitcoin per share, all that stuff. Like 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 at different time like you know dollar cost averaging into Bitcoin >> 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 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 another >> I if somebody just figured that out now I'm like what are you doing like you are beyond investor protection you know [laughter] 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 Micro Strategy was making management decisions >> I think it's different from the way MSTR was originally structured but anyway >> sure 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 like to talk about on the show. So, uh, two things happened in rapid succession. One of them was that, uh, there was a new lab that was announced, uh, called ETH Labs. This is a spin out from the Ethereum Foundation, although it's a formerly a totally separate organization. It was composed of seven folks, senior members of the Ethereum Foundation, including Barnaby, uh, Josh Stark, Ansgar, Datrix, I think, a few other folks who I'm very embarrassed that I don't remember their names. Um, but, uh, a lot of folks who are very senior both on the protocol side as well as the, um, uh, the the sort of development side of Ethereum. And then at the same time uh 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. Uh we had Xiaawe Wang who was previously co-director of the EF also leave last week. Um seemingly unrelated departure to all of this. She's kind of 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. Uh, 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 ETHLabs. Uh, Ethlabs is also being funded by the DATs to bring it back to that conversation. I believe uh Bitmine as well as um Sharlink and Joe Luben 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 quotequote 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? 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 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 there just over the last two years, even longer, um there's been, you know, just a lot of concernation about how things were being managed and just even athereum's own in 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 wants want he knows people want to hear it and so he decided to like throw that in there. But do I think that like 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 Athereum Foundation that my book covered. He kind of was the secret hand. you know, he always wanted to have the major supermajority votes and um then there was this moment when I 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 ya 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 tokconomics for ETH. But yeah, when all is said and done and it really pans out the way that they have been portraying in in their, you know,

written communications as their goal, I really wonder if he's going to be okay with it. But I guess we'll see. >> Tom, what's your take? >> I mean, I was surprised by how much like shot and fa there was on on Twitter. Like people seemed they're like they they should cut the rest of the EF and and I was like, you know, I think it's one thing to disagree with the direction or >> 200 people there. >> Yeah. I mean, fair enough, but it's just like, yeah, there are real people losing their jobs. But yes, excited about Eat Labs. I think it's sometimes it's like almost like 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 just need a fresh rewrite and this is kind of the fresh rewrite. So, I I I think it's

interesting where you're talking about like the price of ETH. I think you know normally maybe that's true if you're talking about like share price or you know price of like sovereign bonds and okay that being really like a representation of of sentiment around governance but like I don't I feel like the EF doesn't really care like they they never really talk about >> I'm talking about their runway like I think they did this because they didn't have enough money. >> Yes, I think sorry I think you're right. there's like a functional reason why when the price of ETH goes down, therefore you have to do layoffs. But it's it's not so much that like, oh, we need leadership change because the market's telling us that they don't like, you know, what the ETF is doing. I think the market's kind of beyond that.

But I guess we're we're speaking the same language. >> Well, but you don't think that when Tomas originally came in that that was a response to the market? I I mean that was my you know impression but I guess I don't know like there's like there's like a functional ETH goes down we have less runway as another oh oh the market doesn't like what we what we like I was kind of more in in in the former camp and I thought Laura is maybe more or sorry in the latter I thought Laura was maybe more in the former. So I so I I think I originally said on the show that I thought that this was basically Vitalic answering the market when the EF shakeup happened and the Ethereum pivot quote unquote that took place uh 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 Tamas left slash was maybe encouraged to leave or you know what 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 seem to be in the Tomas camp the accelerate camp they also end up leaving or being canceled out or whatever. Again unclear how exactly that took place. um 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 >> at least some of them were to leave >> at least some of them were >> okay so so these layoffs may have trickled out over time and now they're

just announcing this the all the cumulative people who've been asked to leave okay >> that's my understanding >> yeah so like my my sense of all that like there there was a moment where after Tomas was asked to depart presumably that I was like, "Okay, maybe I was wrong. Maybe the maybe the Ethereum Foundation was not actually responding to the community and like this argument I made about, oh, the bond holders or the ETH holders and when [ __ ] goes really bad, that's when you realize that they were actually in 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 maybe 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 of Tamas, you know, and and and it's clearly the Tamas camp within the EF that has reconstituted and gotten separate funding from more commercial sources than the EF, right? The EF has this, you know, 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 Bastion just made a couple days ago, the the new uh single executive director of 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 line share their funding, but they are giving money to 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. Trin, what's your take?

Uh, I think the announcement had committed one really big fauxpaw, which is that they ordered everyone's names lexographically from their first name, not their last name. I was very I I looked at that announcement. >> That's what you That's what you That's That's the thing I I just kept on the show for those deep insights. >> What are they doing here? [laughter] >> Yeah. Yeah, that's a big one. Anything else that stuck out to [laughter] you about this? I 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 like the first time this idea of the second foundation/lab slash whatever happened it was like okay cool.

But it's [snorts] 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 as like what seemed you know a few years ago. I I wish I could have had more. >> 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 let down to actually have it >> 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 Like I didn't I it it I'm like is this just like a slightly different type of cotton candy versus like a concentrated meal? [laughter] >> I don't know. >> You're right. >> I 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 need to negotiate, okay, who controls what parts of the body and like how do we how like there 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.

This basically this company just or this organization just got funded. So I I agree with you though. I think it would have been much better for them to say like to to signal here's what we're doing. Here's the sprint. Here's you know it 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 that I I totally agree with and I think they're >> 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 lexioraphic kind of >> okay >> typography of >> Well, I'm sure I'm sure that feedback is going to land. So I'm glad I'm glad I'm glad we touched on that a few times. >> So 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 tokconomics. So it sort of feels like some of the other things that kind of crops uh you know, privacy, censorship resistance, blah blah blah, open source, help me out. But anyway, th

those things maybe will be more foundation. So this feels to me like more real nuts and bolts around the protocol. Am I wrong? And and the and yeah, actually now that I think about Yeah, of course that makes sense. Like the foundation would be more on research like fur like things that are further out and ETH labs maybe is more like the 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. I mean I I mean my very crude analogy is like the Catholic Church has both like the monasteries where people are kind of chanting and like keeping the flame alive of the religion but they also have the business of the Catholic church

which is like you know 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 like the the the practicalities of how you run you know how do we do protocol upgrades how do we improve scaling how do we improve performance how do we make it more usable for enterprise es how do we make like 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 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 we 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. >> 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 he he wants to keep his head in the clouds and do the, you know, the research and be pie in the sky and like be the futurist. So, in that way, actually, maybe maybe this will really be good for him. So, so maybe he won't be like unhappy with how it all pans out.

>> 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 you know, potentially compromise on decentralization or to get higher performance. And like there's a there's an actual push and pull there. And at the end of the day, the EF has enormous amount of influence over, you know, the the client teams and the impleers. I mean, a lot of them are getting funded by the EF. So the 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.

>> Yes. But but 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. You don't think Tom Lee is going to build a a beautiful financial pyramid that will last for thousands of years? >> Thousands. >> Thousands. >> I know. >> We started by talking about stretch. >> That's [laughter] true. That's true. Hey, he doesn't have any preferred,s, right? Oh, no. He didn't authorize. >> Not yet.

>> Authorized, but not issued. Authorized, not issued. Thank you. >> He's going to have his own stretch. >> I don't know if that's in the cards right now. Maybe. Maybe next bull market if we're getting another one. >> Um, well, he filed for it. Yeah. Yeah. Okay. So, changing gears a little bit, uh let's talk about instead of talking about all these good things happening, let's talk about some bad things that are happening. Um so, one bad thing that is happening is uh the CME, uh the Chicago Merkantile Exchange, which is one of the largest derivatives venues or the largest derivative venue in the world in America. Um they own something like 93% of derivatives traded in the US. The uh CME or so 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 PERS, of course, approving PES from Keli and then later approving PES from from Coinbase as well as signaling they're going to be approving other per down the line as well. And the CME is arguing that the these PERPS are bad. Now, why are they bad? They're bad because they are uh one they they create excessive volatility and risk for retail traders and because they are not appropriate for institutions. And so they're claiming that pers 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 uh you know basically you couldn't approve them in the way that the CFDC did if in fact they are swaps and not futures. And that is essentially a regulatory categorization that allows the CME to block the approval of per. 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 a 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. This is pretty aggressive language from the CFTC, especially toward the CME, the, you know, 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 um these are fighting words from both the CFTC and from the from the CME. So um many people of course in crypto are on the sidelines but they are parties on some level to this because if they if the CFTC loses they lose their per licenses and per no longer are eligible uh 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 perman >> well it's amazing to have a former CFTC chairman suing the current CFTC. That's the first first thing to note. Is that right?

>> Oh, interesting. >> Or the former CME CEO was the former Cuffy chairman. >> Yeah, I thought so. Right. >> Is that I I don't know. That could well be true. >> Yeah, >> I'm pretty sure he was at some point. >> Okay, let's let's 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. >> Basically, I just thought it was kind of interesting in that sense. But also, shout out to to you guys for having Lindsay go on TV and defending uh Pers 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 crisis, right? It's like the market structure bills, NBBO, all these like other things implicitly kind of changed structure to concentrate to like a small number of players. I I sinc I don't know if I totally buy the swaps argument. You know, I think the main thing about swaps is they're not like continuously settled or repeatedly settled and somehow you're you have to be assuming that that's happening. Um obviously there's contract for differences which are swaps you have to sometimes you have to think about but

usually they don't have this like periodic funding behavior which I think is like going to be the thing the technical detail I suspect that this will rest on is like it does this computing the funding all the time doing it periodically does that give it sort of like a a real price that like a swap might not have because it's more like a fixed contract. >> So I I I obviously don't follow the details. What is the definition of a swap that they're appealing to here? Cuz I think their claim is that okay, it's it's not a future because it doesn't settle. Therefore, it's not a future. >> 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 the way, I did look it up. Terry Duffy was not a former CFC. I found his bio. [laughter] Yeah. >> Good to have good to have an actual journalist on the show. Yeah. Yeah. Thanks Lauren. >> I I uh either way uh yeah, that was see I gave a disclaimer. [laughter] >> Already your credibility has tanked. Arun, but please go on explain to us how swaps work. >> Interest rate swap, right? The simp 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 like how we're exchanging these kind of rates in some ways akin to what the long and short in a perk are doing. But the difference is it's sort of fixed once and not repriced. And that aspect is a little more like a a futures market than a swap market like the the not fixed price. And generally speaking that different countries regulate it differently. And one of the reasons for that is like the clearing is different for swaps because like you need to know both sides the whole duration. Whereas the clearing for futures you if you've ever had to do a physical delivery your broker might not ask you until like very

close to expert. You don't have to like already have everything kind of settled and whatever. So, and swaps are not perpetual or or do they they settle on a fixed date? >> 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 like people are going to argue something around that as like one side or the other of like the swap side, the CME side might just be like well how is it that different and the crypto per side is going to be like well you have this like contango effect and like people are arbitrageing back to the spot. you couldn't do that with the swap because you're stuck in the contract. There's not really a a liquid secondary type thing. So, I think there's going to be some fight over

that. That's like my prediction for this. So, actually, this is also a more basic question. I've heard per described as perpetual futures and as perpetual swaps. Which is more common? Like, because I kind of feel like there is a 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. Well, I think it's a little bit like how how swap gets used for spot trade in crypto like unis swap. [laughter] >> Like people in crypto have used swap in in the not trady 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 unis swap pool. Maybe maybe

agreed to a swap potentially depending on how the type of stuff go 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 spot swap is used everywhere in crypto vernacular but it might not but I 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 as a 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 I don't think this is like a >> I mean Coinbase had like the 10-year futures, right? So like that is basically the workaround where you just have a per for 10 years and you do the

same one until it's close to the 10ear mark and then you roll to a new one is okay every 10 years you have to create a new contract. >> Yeah. My point is like my point is like I think the CME going after this is ironically going to create many more. It's like a whack-a-ole like they by trying to kill one they created 10 more >> and that might be what happens. [laughter] Okay, >> crypto people are very creative at getting around these things. Like look at the the rewards stable coin rewards thing and stuff like that. >> The coin >> people the trady 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 [laughter] that looks slightly different but actually hey good good for thinking you killed me. >> It's like video game logic. >> It's a Yeah. Yeah. Yeah. I I think the trap people don't get that. They were like, they think it's like a oneanddone thing, not a repeated game. >> Okay. >> Another quick fact check. The Coinbase PES roll over after five years. >> They roll over >> or or >> like what you're saying it's a 5year contract, not a 10 for five years. Yeah. Sorry. >> 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 a 100red 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 a 100red-year futures that have, you know, per per like hourly payments in order to balance the long 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 100-year futures. >> 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 of all this stuff, but you know, 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 it's like it I don't know. Like honestly, it's sort of like a crybaby move or like 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 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, um 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. >> I mean, I I think they have a very real reason. It's just their stock price just keeps going down when hyperlid volume goes up. It's like a kind of very I mean, their CME stock price has not been and and also you should go look at the transcripts of the last call because like hyperlquid comes up like a bunch of times. CEOs getting very annoyed about having to answer all those questions. So

it's like I think I think there's like a very clear I I argue look Hyperl was in the Wall Street Journal every week now, right? Like there was like an article today about how like it's just 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 >> to produce your responsibility. Yeah, I think that's kind of that's I would argue that's waste money. Isn't the CEO retiring? Isn't that guy retiring >> soon?

>> Terry Duffy. >> Are we really gonna do more? >> Yes, he is. >> Have you not learned your lesson? >> Effective March 1st, 2027, he'll resign. >> Okay. Okay. That's quite a while from now, but yes. Yeah. Yeah, I I I tweet about this and I think um 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 like and and I I agree with Truan's argument that like look if you if you even have a a whiff that they might win, they're just going to adapt and the crypto people are going to are going to change up. And the CFTC of course can accommodate like if you can

do a fiveyear future why can't you do a 10-year future and a 50-year future and a 100red-year future? Of course you can. So you know at the end Bitcoin is supposed to exist for 100 years. There's no no reason why it shouldn't. If you can do 100y year bonds, right? You can do 100 year uh >> I think the main places that are going to be contentious is like I think this 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 a little bit of >> the CME said that or the CFTC. >> CFTC. Oh yeah, he's been saying it the 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?" So [laughter] I think >> everybody bows to the agriculture lobby. Like there's no question that's always been true. >> Yeah. I I I 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 per, right? That's going to have to sit undeck this, >> right? Tom, anything you want to throw in here? I've just been surprised by like how unpopular one the Coinbase offshore pers have been and then two I mean the couchy pers right they're just

like obviously wash traded you know they're trading at like 100x 200x open interest so it's like I don't know I think we we kind of dream of like oh if you just make this available to Americans they will like pick it up and and use it and there's some other reasons why they're not popular right they're like it's like 3x li limited in leverage or I think 6x in some markets so I I I think yeah so you in many ways using decentralized per or you know non- US per is like superior for a lot of people. So I don't know I I think we're I'll be curious to see how this plays out but I I generally agree this just so obviously like protectionist like even if you think they should be swaps like why not just offer it and um I mean I

think one thing we also didn't talk about is like the tax treatment and I think that's like another obviously part of this too is swaps are high you know worse tax treatment than futures and so there's always like the little little things in it. I think I think we just go to 100 year. I think we call it the h the perpundy year persp. Everybody just go straight off like just like literally route around the lawsuit. Who cares if you win or lose? Everyone just go to 100ear pers like right now. Just do it. >> And uh CFTC just make just put the call. If anybody wants to launch 100red-year futures with uh you know regular long short payments, it's cool. You can do it. We're we're open for business. Um anyway um on the 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 Colian poly market called arena. Now Arena according to press reports it will initially be offered to you know the universe of uh meta users across Facebook and WhatsApp and and Instagram. Um but it will initially not be real money but they are not closed off to eventually offering real money um if the product evolves and it ends up doing well. Now uh Tom you used to work at Meta I think before it was called Meta right be you know at at Instagram. Um so you have an inside view on the product velocity and development cycle at Meta. What do you think about this uh you know them coming into poly

market and call she's lane with their own product? 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, they there was always like new apps that they're experimenting with. It's it's pointsbased kind of like um manifest style prediction markets and so you know previously employees could play >> manifold rather and then in 2020 they had forecast which was another points based one which I remember that was pretty fun. >> Yeah. So this is like another one that they're doing. So >> wait, where were these accessible? forecast I think was uh it was like gated so it was users but only certain people were passed through the beta gate and then um the internal one was just like an internal one. So this is like

the third or fourth time that they >> so tell us about like what was the what was the markets on? >> Yeah I mean forecast was you know kind of classic prediction market type things. So it was like oh you can trade the weather or this was during COVID so there were a lot of like COVID related markets, macro related markets. I think there may be a few election things but again it was just all for points. Um, and so I guess forecast didn't do super well, so they ended up winding it down. They wind it down. But maybe there's, you know, appetite amongst consumers to trade more stuff now. And 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 like a poly market competitor. I think more likely it's like can do 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 like a surface that Meta owns where they would want their own prediction market. predict how many likes Kylie Jenner gets from this picture before it before it gets posted. You get to see a random subset of it. >> I mean, 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 5 years ago, 10 years ago, like it's it's sort of like these things consumer products don't work until they work, right? So, >> yeah. Yeah. I'm not I'm not saying >> I'm not I'm not saying that it's not

going to work. I'm just saying they have tried this before. I I think my my point is more around like, you know, sort of consumer intent and mindset and brand association with with the products. You know, they also have >> and and I think meta products often have this thing where they have this superficial victory like like Facebook dating is actually gigantic, but I don't think any of us know anyone who uses Facebook dating. Exactly. Really? >> Um and yeah, or Facebook market is also your I mean Facebook. >> I know. Yeah. >> Or uh I was thinking of workplace actually was also huge and they end up spinning it down and winding it out. And so there's like a different kind of I think tier that that you need in terms of success in order to actually have something be be sticky there. And like I

don't think most people are going to like trade, but I don't know. I could be pleasantly surprised. >> 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 Poly Market or Koshi or >> it's it's meta. I think they would just, you know, buy or acquire the licenses and and and the tech to go and and, you know, have one in house. But um >> but we're seeing it as like this is an experiment and if it goes well then they'll actually move into >> they are doing the stable they are doing stable coin payouts and stable coins,

right? For >> Yeah. But that's for creators. >> Yeah. Yeah. Yeah. I know I know that's different >> and it's in like Colia or something. >> 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, you know, like who's betting in prediction markets? Obviously, if you look at polymeric calls, it's a lot of Americans. >> Yeah. I um I I think again it's like you know 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 investment but then it becomes like a headline and I think that the idea is so salacious and crazy in people's minds that you know Meta would add you know gambling or or sports betting or predicting or whatever into

any of their apps that like I don't know I think something about just like tingles people's brain when in reality it's like yeah there's like 10 dudes in a room and they're they're working on an app and um you you know, I don't know if it's going to work or not. >> Yeah. I mean, obviously Meta is like the size of a city in terms of the number of employees. So, >> it's But the platform is the size of nearly the globe. >> Totally. I'm saying it's like, you know, 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 you know every every team has to be AI aligned and like no there's there's just a small team that's working on some experiment

and um you know maybe it'll work, maybe it won't work. >> Yeah. Well, so the the story according to the story supposedly this was like Zuck's personal directive is like do we're doing a prediction market which I I I don't know how often he just like says great let's do this particular thing. It is. I I I did see a lot of bearishness about it. I don't I don't think that many of the responses that I saw were like, "Oh my god, they're gonna they're gonna steamroll Poly Market and Cally 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 like probably they're not going to deliver because like they just don't seem to.

>> I saw so many so many people posting pictures of that infinite machine quote by Demis has said this about like how Zuck Zuck just loves everything will like jump on anything without thinking. >> I don't know if you guys know that quote. It's like why he sold Deep Mind to Google and not 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 was >> I I think there's like a um like Maslo's hierarchy of of financial services and you know, generally it's like you offer payments or services or or you know, savings or something before you get to prediction markets. And and the fact that they haven't even be able to do that makes me think they're probably not going to be able to do this as well, but

who knows? >> 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 demog. That doesn't make any sense to me. It's so confusing. But it says that that makes up about a third of the platform's global user base. So So maybe it's just like other countries.

>> Probably because it's Yeah, exactly. It's aggregating across like India and Africa where Facebook is ubiquitous. >> Okay. Okay. So So I Okay. Okay. So I'm going to >> A third doesn't seem that crazy. >> Yeah. >> Yeah. You want to revenue weight. You want to revenue weight this if you're talking about prediction. >> Oh, no, no, no. But okay, wait, wait, no, no, no, no. I 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. So, >> where is it pulling this from? Is it pulling this from like >> But you said it's it's like a third and I'm like I I would imagine that's actually maybe slightly less than a third of all, you know, US 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 wide age group. Does >> that sound wrong to me? That does sound wrong to me. I'm gonna put this on Instagram. It links to Statista and I just put the link in the chat if you guys want to open it. >> Statista. Statista is absolute garbage. >> Okay. Well, so yeah, I I I just opened a browser tab to to find this. So maybe if I debug your AI query but Okay. Okay. I I I have one one thing that I wanted to >> okay >> to to say about this which is >> we're we're up on time. We'll close with your one thing, Drew. Give us your one thing >> which is I you 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 like 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 like obviously volumes and usage are up a lot, there's still just way more people who care about the out the the actual pricing in the market than people who want to trade it. And in some sense to me that is sort of like a 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 Zach 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 I kind of get cuz 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 5 years there's 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 >> that that is actually a very good point is that maybe what Zuck is going for if

let's assume that this is a big priority is not so much like okay I want the trading revenue because you know from the perspective of meta all of these things are just tiny right 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 right if you can get like the the the people who are looking at poly market versus the people who are betting at poly market poly market makes money on the people betting it doesn't make money on the people who are making money on the people who are looking is kind of Meta's whole business model, right? That is that is really what they are better at than anybody else. And so I can 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 then because I I want to own where the eyeballs are going. >> Yeah, >> I can I can buy that story. That that's sort of the thing to me that I like makes the most sense of this whole thing >> because if that's true, you don't actually need the volume, right? If >> you don't care. No, no. The thing the weirdest thing about it is like why even own the exchange then? Just be an aggregator for the other exchanges and then >> Right. >> Like that's that's sort of what it seems like. You you're driving the order flow.

You force them to even pay you back for that, right? Like >> why not just be the front end? There's like no reason to even have the exchange yourself. >> Yeah. I mean, look, you can take a, you know, a fee for routing traffic, routing routing slow 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, you know, in the >> Sometimes you want the bias. Sometimes you want the bias from the insider trader though, >> cuz then it's more true. And like if you want that, you know, stay on Facebook.

Okay. Well, yeah, fine. No, but like if you want 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 objective and market driven, then look at Facebook Markets or what, you know, whatever whatever the hell they're going to call it. And like I can imagine actually that that is an accelerant for poly market call and all the other players around the world where you know you're in the Middle East, you're in Africa, you're in Asia, you can't get access to these prediction market. They're banned in your country, but the data is not banned. Right? Right? If Facebook just has this like 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 useful sources of

information. >> Yeah. And for them, >> yeah, they get information on what you're interested in and then it helps them target you with ads. So, they're they're making money just >> 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 personalization. But they get good data. They know more about your interests. >> Like I mean >> they know more about your real interests. >> They already know everything there is to like they know everything about you already. They don't need prediction revenue. They just need to show you more more ads.

>> Yeah. But I don't know what you guys's 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. Fair enough. Fair enough. Okay. Interesting discussion. We have to wrap. Thank you everybody and we will be back next week. See you all. >> Thanks. Bye everyone. [music] >> [music]