Financial Populism - with Su Zhu and Hasu

Transcript

welcome to uncommon core where we explore the big ideas in crypto from first principles today sue and i discuss the rise of wall street bets and financial populism in general as one of the most experienced market participants i know sue has a unique perspective on the story behind the gamestop short squeeze we explore why he thinks it is going to end in tears for small investors which invisible rules of the traditional financial system have been laid bare for everyone to see and why all of this massively validates crypto and defy going forward enjoy okay so so watch that so wall street

bets it was catapulted to mainstream popularity everyone is talking about it now even my parents everyone i know is talking about it arguably it all started with the gamestop short squeeze that's how it kind of permeated the media initially then it kind of morphed into a almost like a culture financial counter movement so what happened and why do you think it went viral well i think wall street bets it's been around a while right it's basically a subreddit that people discussed trading ideas on mainly u.s equities single stock names and i think the idea is that on reddit itself it's

very user driven so people just post ideas they're pseudonymous uh and it's kind of community participation not unlike crypto right there's no coin for wall street vets but there's this idea that you're contributing to a sort of an open source uh well of ideas and i do think that uh the big explosion of interest in in that has been due to their main success which is the gamestop squeeze and that was a squeeze that one of the users there had been planning for quite some time michael berry was in that as well and where they basically realized that there are some hedge funds that had been running long short equities

books where the short legs uh had gotten very big in terms of percentage of overall uh shares outstanding so i think uh the success of that squeeze has been really fascinating for people and made people realize that they can source very good trading ideas and do very make a lot of money from just being on reddit and just being part of that community yeah so i agree it's extremely similar to crypto twitter in that sense i had not been on world street bets before last week but when i joined i a dream similarity to crypto twitter immediately struck me as as notable talking about like how they identified

this this trading idea so why gamestop i mean you mentioned that there was really above 100 outstanding float um was short did they like analyze a lot of companies to see which one would land itself for a short squeeze yeah i think i think michael berry had an interesting tweet a few days ago where he said there can only ever be one game stop uh because it was the perfect squeeze and i think he's i think he's right for a few reasons i think one is that the element of surprise is important so the idea is that people are buying a lot of calls right they're buying a lot of

calls from dealers and they're also um you know they're they're sort of attacking before it has ever happened to any fund so you know the way the shares get moved around as well to get recalled so so that people who are short have to buy back i think there's just just that overall confluence and i think the the main thing with long short equities and and why it's such a dangerous game at times is that people end up having the same positions because they all want to beat each other uh or at least track each other so so there's a memetic quality to it so kind of after kovid a lot of long short funds jumped into the thesis that you know the brick and mortar shops we

do poorly like amc which is a cinema company runs theaters you know gamestop where you buy video games at a store but uh yeah there's basically these two kind of the big ones that people just said you know what these companies are gonna do really poorly during covid and so they're easy shorts consensus shorts and so they become very crowded positions and on the long side you know they buy the internet stocks so that's kind of why also we saw that internet stocks kind of took a tumble while gamestop was going up because people were having to unwind their lungs in order to have more collateral for their shorts so anyway i think gamestop without getting into too much detail they

basically executed it very well uh the timing of it so that the shorts they couldn't do anything at that time i think also that the whole narrative around it brought in a lot of fresh money to buy it and pump it up which made it obviously even more painful for the shorts for a while so yeah and um i don't know if you know about this but gamestop it already has a huge memetic quality to it i remember for years there being this meme where people called gamestop on the phone their local gamestop and asked if they had a game in store called battletoads and um this game had been out of print for like a decade or something and this was a very

popular internet meme by the way i hadn't thought about this until now but yeah um so everyone like in kind of the 4chan and reddit community was already like gamestop was a name to them even if they left outside the u.s like i do like gamestop doesn't exist here but even i knew about gamestop and it know that it's something that like a lot of people have a lot of positive you know nostalgic feelings about right where you hang out at a physical store and um play the latest games and so on you know yeah um so a lot of people try it um try to connect these events with like crypto and bitcoin or in other words like bitcoin crypto people they feel very drawn to what is happening here yeah

why do you think that is what is the connection between the two well i think both come from a from a deep sense of financial populism a sense that the little guy has a very hard time making money in traditional finance as it were and they see this as a chance for them to make outsized gains and also for them to make gains while the big guys suffer right more more importantly so kind of a short squeeze mentality where the hedge fund guys are finally the ones who lose money and um so i think with crypto you know it's less that the outside world is losing money but rather that it's you know it's kind of like us versus

them mentality where um the individual investors the individuals that are on these internet communities are though are the victors and the institutions uh you know the guys with the nice um with the nice suits and ties are the ones who have to scramble to figure out what's going on so i think there are those similarities there but um you know i also think there there's very important differences and and i i made a few tweets when the game stops coming out kind of warning people that you know you don't really actually want to take on citadel in traditional markets you don't really actually want to do these kind of things because because like michael berry said gamestop is a one-off uh it took uh years of research and you

know months of preparation for them to pull that off and even now gamestop's starting to sell off and there's these games that citadel can play uh they are the market maker for it they are have exemptions to giving them a seven day window they can still make it short they can move positions around from ncd's entity claim they covered shorts they can basically play a a long trench warfare to win right and you know i i i kind of see it as you know the whole idea of a protest by where people protest the system and then buy something i think that that's what really fascinates the crypto ogs and the and the crypto thought leaders who say you know what this is actually what

bitcoin is all about as well right bitcoin is also a protest by you're you're protesting the fiat system and therefore um by doing so not only do you do well but you also draw attention to it and you also help engender the success of a community so my fear with the gamestop stuff is that they ultimately will lose that fight because that fight is still within the traditional finance system itself where your opponents do have all the regulators on their side they do have all the institutions on their side who actually hold your shares right who actually custody everything who actually can lobby for rule changes so that's i think what scares me about you know the idea

of another game stop because next time they will be prepared and and they will and they will fight back very well in my opinion uh so i i see that that energy being much better spent in crypto than in than in the uh stock market oh so much interesting stuff to unpack there so let's talk about financial populism just really briefly so would you say that like my take on it would be the word has become so gentrified i don't know if that's even the right word here and then like the the the options of people so restricted especially now with covet where like other forms of protest might not be viable so it has kind of what you buy like what you

consume and what you buy has that become the last battle line in your opinion yeah i think it's always been a battle line in some sense but you're right that because people can't go outside consumption has gone down and internet use gone up and speculation has also gone up i think that the memetic nature of money and the memetic nature of finance has never been higher so when when we talk about financial populism i think that has to be understood in the backdrop of record inequality in the states and um record amounts of malcontent toward toward the way that cobit policies were

also done where you know you had small businesses that were shut down but walmart was left open you had small restaurants shut down the bigger ones were allowed to open you know there are all these things that favor the bigger guys over the smaller guys right and yeah it's it's to the point now where people just you know the the people who make the rules they don't even see what's wrong with it anymore because they just say well that just makes sense right yeah and and you see this really starkly in the in the structure of financial markets because just take them just take a financial market right like a stock you have a designated market maker that market maker trades on on different rules than you do they almost pay no fees because they have high volumes they get volume discounts they also uh have ability to short sell

in ways that you can't because they're the designated market maker they also have um a whole host of advantages right maybe they can access capital at a much cheaper price maybe they can uh do long short trades on higher leverage whatever it is this is kind of baked into the system and the incumbents don't even see what's wrong with it right they take it for granted and for the smaller guys it it's it's it's seen as a given that these guys will pay money they will they will gamble they will speculate but they will lose money to the market makers they will lose money to the um the the professionals and so and so but with that said the the small guys are realizing that if

they if they if they collectify or if they kind of can coordinate then they can accomplish big things or so they think right so you have gamestop and then in crypto you had dogecoin where doge went extremely viral on tick-tock uh and other kind of non-traditionally crypto related uh mediums where you know deutsche coin briefly went into the top five uh which is kind of incredible to think about um coming from where it is and and so i think i think that financial populism you know it made its start in in traditional finance with with the idea of these with gamestop but i do see its natural home it's sort of natural habitat

uh being back in crypto because in crypto right in contrast to traditional finance if everyone gets together and buys a coin there's no one that could come and say you know what you actually need to sell that coin because of some rule or you can't buy more of that coin you know like what we saw with robin hood right and uh and with um gamestop where they actually forced some customers to sell uh because it was a margin account and they even if the account had enough money in it they could make up some reason why you had to sell it and also they wouldn't let people buy anymore because they said it was risky to the system but it's all a bit opaque right and there's all there's always some reason that they give

um but at the end of the day like you know that you know the forces that be they're looking for that profit and they're looking to treat the customer as a revenue source right so i think my hope is that that that energy will transfu will will sort of um uh trans trans morph over into into crypto a lot of the unhappiness with the current system kind of culminated with this with the event and robin hood disabled kind of the buying of the securities or in some cases even unwanted positions automatically and this they they claimed right that this

was due to them having insufficient collateral at their clearinghouse which is a very valid argument but now everyone is is arguing that this kind of proof that the market structure is inherently rigged against the small small guys so i feel like i i already got a clue what you're what you're going to say but do you think that like very clearly that is true like the the financial the traditional financial market is rigged against the small investor i wouldn't say it's rigged per se i think rigged is a is a tough word to prove but i think that the the structure assumes certain things right it assumes for one that if you trade more volume you should get lower fees it assumes that if you

are a bigger participant that you can lobby for things that smaller participants can't uh you can have these hosts of benefits and and a whole host of um advantages and when you can when you contrast that to d5 right where in d5 no matter how big you are you're you're still participating on an even playing field um you're still having to pay the same fee and having to uh interact with the same smart contracts i think that that that stands in very stark contrast right like the probably the most egregious example of where this is an assumption it would be

in you know in in retail fx brokers or in retail options uh trading where massive amounts of flow get internalized because people assume that the flow is dumb and they and they know that it often is and then they're competing to pay for that to to acquire that flow and the flow doesn't even hit the real market right it just gets gets put on the market makers books where they they they hope to either net it out or move the market in a way that they can then scalp out of profit but all these things right but then you ask the question well why can't these clients trade with each other why you know why can't they match with each other why why is that sort of internalized or even needed um and i think i think defy is asking that question now nicely

where it's saying you know can can you create a system an alternate system where people are interacting with each other directly uh with each other's liquidity and you don't have this need for a systematic internalizer sitting in the middle that's trading like against every client and on the opposite side of every trade um i think that these are the questions that i think um d5 will ultimately be able to solve that i think traditional finance uh because of the way that it's structured uh it assumes certain profit motives and it assumes certain things must hold right the the investment bank for

instance is is known as the rightful broker-dealer um and you know if you're not invested bank it's very hard to become a broker dealer to face clients there's regulatory red tape that make it so that you know those are the right firms to be doing so i mean my my firm three arrows we used to trade a lot of foreign exchange emerging market ndfs you know we would have loved to make markets to other clients but the structure of the market was such that you wouldn't even be allowed to you know for the longest time they would ban non-bank participants from the interbank dealer market because they thought that by allowing non-banks into that market that would be

extremely damaging to the bank's profit margins and so as a result they they sort of create this cartel right where they say they you know did they they they use regulation they use uh relationships with um with governments and things like this to to basically uh say here are the things that we make money from and here's everything else and this is the pie and within this pie you can control us but this is ours right and and i think that this structure is inefficient and it's also uh it's red sinking there's no real value being added in my opinion um and you kind of seen the breakdown of that in some markets

right where you know like for a long time interbank uh fx rates are very cheap but the rate you get when you go and convert is very expensive um if you go to a teller or if you go to some some place and that's come down a lot with with revolut and things like that and then you you you kind of see similar type things happening now where uh in the u.s fixed income markets non-bank market makers are now 80 of the volume because these are you know leaner firms and they don't need to make as much money because they're smaller that they don't have as much overhead and these are incidentally some of the firms that

participate in crypto that the most as well because they kind of like the fact that it's a level playing field they don't need to have special benefits in order to uh to do well in that system yeah so robinhood it internalizes the orders of their customers we discussed this and actually when you just said that market makers might move stocks to scrap their customers that reminded me a lot of when i read reminiscences of a stock operator a couple of months ago with all these prop shops back in the day where where people would be encouraged to trade very high leverage so they would get immediately liquidated um like on a few ticks up or down of course the prop shops would they would know

all the liquidation points of their customers and they would just call basically their oracle which is kind of the big exchange or a big um broker in some larger city and they would tell them to please move the stock there or there right and then get their local customers liquidated so do you think what sounded like that's still going on today yeah i mean you kind of saw that with steve cohen's tweets right where he was like kind of goating on the lungs and saying you know like let's see how this fight goes or like like trading's tough game you know like he was kind of i think he for a moment they kind of slipped up and sort of said the things out loud that that shouldn't be said you know for for a man in his position and i

think since then he's deleted all his tweets and and and so on but um look i mean it's a it's a zero-sum game in many respects right so yeah so that needs to always be remembered i think no matter how much you know you know lipstick on the pig you want to put on it it's still a zero-sum game so so that that kind of tells you what you need to know i think about what these firms may do or are willing to do but i think that the problem isn't in and of itself the fact that it's zero sum the the problem in traditional finance is that the rules itself of the game are not known well and they're not written in a way that is good for individuals right um there's they're they're not

written in a way that uh you as an individual on the internet can understand them can can reason about them can uh use them to find good opportunities you know like i worked at a etf options um anything of market maker called flow traders which is one of the top eco market makers um along with jane street and some of these other firms and you know like there's so many esoteric games that you can play with stock bar lending with the way you do a creation redemption the way you do um all these types of things that are incredibly esoteric probably fewer than 100

people in the world know how to do them and yet these products that are being traded these are the most commonly traded products in the world these are etfs right the these are stocks and so that kind of massive inequality of knowledge and massive inequality of um access i think is something that crypto fundamentally solves right where we've seen in d5 where you know individuals in their teens you know in their parents houses can make tens of millions of dollars right can can really understand what's going on can reason about it can participate in the governance of it can participate in the building up of it um and so i think that that's a massive

contrast that i think for me having seen both sides of traditional finance and d5 has actually kind of made me more reinvigorated on the idea that crypto is the true home of financial populism and where i see that all the populism in the stock markets fundamentally is going to lead to tears more likely than not and that is because people who engage in financial populism in traditional markets right now they will realize that the rules of the game are to a pack to opaque this is not the battleground that they should choose to to make a stand because they can't win and it probably will take a few like for game stock and a few of these

others to unwind completely um yeah let's actually talk about how how this is going to look how is the the gamestop and the wall street bets and saga and traditional finance going to end for them i think it's a game of attrition right so there's these things you can do where you can you have a seven day window uh to cover naked shorts you can basically hope that the flow that basically the longs can't keep up the battle right that that they get bored as the price goes down people get bored they sell they move on to something else um there's going to be a lot of like counter intelligence where they try to get these communities to be

weaker but in general like people yes some people are in gme for the you know for the protests but a lot of them are also in for the pump right so if they hold it for a day it's not going anywhere it goes down 20 percent they're just gonna dump it and move on right and you know at this price you do like some of the guys are in it from five dollars ten dollars you know it's very crypto like in that sense so you have early adopters of the game stop thesis um you know if they want to actually get out and crystallize their you know 40x they have to sell right and so they're going to also be dumping on the so-called protest buy so you know you you have this situation where

the shorts yes they are short a lot of the company but if they play their cars right they can keep rolling it for some time and if the momentum dies off then it's very difficult actually to ultimately win in that and you kind of need the management of the company to be really on the side of the of the of the small shareholders like think about this right like let's say you and i start a company we list it and then people try to squeeze our company to the moon right yeah yeah what would we do right you and i might say why don't we issue more shares well yeah why don't we do an initial share offering why don't we just even give ourselves stock options then we exercise them now we have stocks now we dump our stocks right so you

you know that's the that's the problem of using stocks as a store value or using stocks as crypto is that it's actually the the direction of the company is not up to the holders of its stock it's up to the management that that is in power right how long does it take to issue a new stock or write a new stock it can be done it can be done in a day right i mean it can be done it can be done very fast so like there's all sorts of game theory that you know like if you're a citadel you can maybe talk to the management get them to agree that you know get give them a split of the profits you can do all these games right and and i would not i would not think that it's a game that citadel

would want to lose either put it that way yeah so i think there there's a good tweet threads today someone posted where he said that like citadel is already up money net from gamestop just from all the volume yeah from the back and forth they've already made so much from the float that they're net up okay that's pretty shocking if you think about it but they're already net up 0.72 is definitely down a lot uh because they simply invested in melbourne before the squeeze so they kind of caught the whole loss on the way up and you know they're also not the market maker on it so they but but it's kind of it's kind of like you know these guys will protect their own because they'll say look this is my turf my game is long short equities and i can't just

you know be squeezed like this willy-nilly so they're going to make a stand here they're they're kind of not going to take it laying down so i think that that that that whole reality is something that is going to start to set in for for the idea of financial populism in in stocks and also if you if you look at the standard of discourse now on wall street bets and talking about this it's not it's not that high uh if you if you look at you know the guy's buying at five dollars who started the squeeze they're obviously very smart but a lot of them have have now exited too right there's a korean fund that announced that you know they made made a billion dollars on on gamestop right it this is not this is not an

individual these are not people right this is a this is like another financial company betting against uh something else and then like amc as well i saw like silver lake announced that they sold all they sold all their amc right like there's convertible notes people who are long like you know hybrid fixed income notes where they get to have stocks if the stock price goes high enough they go in the money and then they exercise meaning that they start getting shares you know shares start coming out of nowhere and start being able to be dumped on people so you know there's all these ways that shares can be created there's all these ways that shares um already exists from people that are incentivized to sell so it's not at all like crypto where you know if you buy doge

the beauty of doge is that it's pure meme right it's a tokenized meme like there's nobody there's nobody sitting around with like doge options where if the doge price goes high enough suddenly they have a lot more doge that person doesn't exist right probably a lot of people have like huge amounts of doge lying around that they just don't care about because it's not worth very much and you know but when it pumps then a lot of the supply will maybe activate i don't know yeah but it's still the fundamentally it's different because no one is expecting it to be something other than a meme or other than a a kind of like a viral crypto uh concept so i think the whole cryptolization of stocks idea that's kind of where it ultimately

breaks down because stocks are still actually stocks they're they're still percentage ownership of a company and those have rights and some people have more rights than you do right they may have management rights they may have preference they may have a higher class of shares than you so there's all these kind of it's actually more like you're buying a share of a dow and and you don't have decidability on this dow either so you know you don't actually own as much as you think you do and you don't control the narrative as much as you think you do so you said that um the most likely way that jim is going to unwind this from the narrative dying down so do you think that actually this this this squeezes in silver and um and doge that they are kind of

manufactured narratives in order to distract people from from gme and some of the earlier stock squeezes kind of spread the capital over more bets it's tough to answer that question but i will say that the whole financial system does not want the wall street bets people to win on gamestop right because a lot of these funds who are short game stop they're all so long everyone's favorite companies they're long facebook apple amazon netflix google right so you know yesterday uh monday the the stock market went up a lot as gamestop fell because people got you know they got calmer about systemic risk as gamestop fell you know gamestop went to ten thousand

dollars there's a lot of holes in everyone's balance sheet right because now like everyone has to pay these gamestop longs out for huge amounts of money right and and so that that like you're kind of trying to break it's almost like counting cars against the casinos the way i would say it is like yeah you can be the best card counter in the world but you're still playing in a casino you still need them to pay you out right there's some worlds where that wouldn't even get paid out like you know the us maybe is like probably not a thuggish country but if you did the same trade in like argentina or you did the same trade in brazil or in like some parts of asia like no one's gonna pay you out right they're they're gonna say it's a cool

story that you did here you have nothing now i've i've zeroed out your account you have nothing you know and and you were doing market manipulation and they'll throw you in jail as well right so yeah so i think the us probably not that stuff can't happen in the same way but the idea that the whole financial system will kind of you know allow this to uh get paid out in a huge way that is a very tough battle it's it's actually tougher than the battle of hyper monetizing bitcoin even in my opinion um that's something that i didn't really realize until now is how how you can lay over what happens on crypto twitter on wall street bets over traditional finance media as well like like everyone is shilling their

favorite coin on crypto twitter in like very blatant ways right it's it's like it serves the only goal is kind of to manipulate the market or kind of coordinate people on betting on the same thing right and then squeezing everyone else who's not in it and and triggering the fomo but that is exactly what all those uh large fund managers do um by going on cnbc right it's the same thing once you once yet you cannot unsee it that they aren't just the twitter talking heads who manipulate the market in extremely obvious ways certainly yeah so let's okay so so we established that traditional finance is not the right battleground um for financial populism to win right they can

fight a few battles there but hopefully only in order to realize that this is not this is not the right battlefield right so let's talk about crypto and something uh that i thought was super interesting interesting that you said earlier is that um the smaller guys are realizing that they have to coordinate with each other right they have to co they have to form a collective and that's how they can get some of the benefits that the big guys get right um and um i the way i think about crypto and always have is that crypto is also is in itself a coordination mechanism right so you it would be impossible for people to monetize a new form of money

like from the bottom up for example like bitcoin because how do we agree on on what money to use for that right there are so many so many options and the problem is also like the way that kind of that i see that bitcoin solves this is it gives people an incentive a financial incentive to bet on the right thing right because they can get in early and the earlier they get in the more that they can win right so it's actually like a famous story that kind of why die it's it's a famous cryptographer in the inventor of b-money and he wrote to like he he didn't satoshi wrote him an email telling him about bitcoin and and uh why i didn't take it seriously and didn't respond and then years later he came up with like

big regrets and he said okay bitcoin is like a blown opportunity and if i could turn back time i would do it and i would tell satoshi to make bitcoin a stable coin right because the fact that bitcoin um is fixed supply makes it like completely unworkable and pointless but i like in my view like the fact that bitcoin has fixed supply and floating against everything else that's what makes it the big innovation because that's what creates this coordination mechanism where people are actually incentivized to all buy the same thing and that's what allows it to monetize in bottom-up way and yeah the same in my opinion applies to d5 so um let's talk about that yeah i think you're absolutely right

right i mean the the coordination effects in bitcoin are so powerful that if every bitcoin holder in the world says they will be bdc denominated they'll put all their fiat gains back into bdc then even with no new people coming in the price will almost certainly go up because at any given point the dollar value of the fiat earnings of existing btc holders is far higher than mining supply than mining emissions right so as long as they buy up enough that they have enough fiat earnings relative to the fiat cost of the system the price will keep going higher and higher so that kind of short squeeze on the world

effect makes people say okay well do i also join this game and do i also by joining it also become wealthy with these people right and and so that's why like that's why you're absolutely right like if you didn't have that mechanism where uh by getting in early you you benefit from evangelizing it and from uh being a part of it then you would never have that adoption right so i think with defy with governance tokens with with farming early farming participation you know people also fundamentally respect uh the work that has been done by people right people you know when people first learn about crypto they don't quite understand

like why do you need proof of work that seems wasteful or why do you need to give the early adopters of a d5 coin like a lot of the supply well it's because how else do you give it in a way that anyone can compete for it pseudonymously anonymously how do you give it away in a way such that like the whole world will think of it after it's done as the fairest possible way right so if you give it all to yourself you give it all to yourself then people will say well that's that that may still be okay but how are you then gonna give it away and how fast will you give it away right so that would be kind of the foundation model but if you were to start from scratch and say you know you try to give away as much as

possible to the users or to the people that invest real work into it then suddenly you have this element of of people saying okay so this is something that is actually fair it's not like traditional finance it's not like something where you and i would have no control over how many dollars get printed or how many you know who who gets printed you know where do these dollars go you know where where does fiscal stimulus go you know you could ask the basic question why is stimulus given to people as a thousand dollars two thousand dollars why is it cash you know why is it not a credit uh to your medical bill or to some other bill you know what

there are all these ways you could do it but but financially you have no control over how that's done and so i think in crypto you and in d5 you have very much uh that user governance direct link where the users are the same people as the owners so that user owner combination i think is uniquely enabled by crypto and i think this is actually the the even more so than the technological paradigm or a monetary paradigm it's a societal paradigm right where you really haven't been able to have user owner before this i would broadly classify

kind of our current societal structure as market capitalism yeah do you think that what defy ushers in is or like crypto in general are just in this era of decentralized networks with fair fair and observable and unchangeable rules do you think that ushers in a new general societal paradigm that is like distinct from market capitalism or like how do you think about that yeah i think it's distinct in a few ways i think it's it's distinct in a way that i almost see it as the answer to the question of what are these big tech companies doing if they can never really earn a profit but they have all this mind share and they have all this network offense right

because you could broadly say the 2010s are about big tech right as much as crypto grew and was born in in the 2010s it was really a decade of big tech right facebook amazon apple netflix google these type of firms and i think that the 2020s will be about crypto because crypto has some of the answers to the questions of what do you do if something is very useful but the company can't make much money out of it if it was run as a company um right like linux open source um this kind of spirit of of something that is very useful but who contributes to it who keeps it

going how do users claim the value from it right i mean think about wikipedia linux some of the early power users all that they did that of their own volition right they they did that out of passion right yeah and you know saints and martyrs that they are we now have a way to incentivize participation in these open source endeavors and more importantly make them powerful enough that they can serve they can not only uh surpass what uh traditional finance can offer in terms of utility but they can far exceed it because of the way that they're

governed their costs can be lower you can participate as a market maker from day one you can you can be on both sides of the trade you can kind of be like you can basically rewrite the rules of how peer-to-peer finance works how peer to community finance works so i think that that's that whole blank slate i wouldn't call it a contrast to market capitalism necessarily because capitalism itself is very hard to define really but i think it's a big contrast to the idea of dealer to client or company to user uh and and that kind of uh divide i think that that divide

um ultimately will not be the way that the internet structure of finance um or companies in general that are internet native i don't think that will be their structure i agree i agree i think in it in it in it in the 2010s we saw the incredible power of networks unleashed right that networks eat everything right and if you only bet on that thesis then you would be you would have done incredibly well right but crypto it combines this with i think two important um innovations and the first is that you have kind of the the unchangeable rules right um like you can make networks that

are like um truly neutral right that someone can amass a lot of power in these networks and still not be able to change the rules and that's part like due to the innovation of like the kind of the the decentralized consensus process of these things right that they rely on ethereum bitcoin and the second is like digital value right and the way that we can use this to create incentives for people and um i think we see we see this with bitcoin bitcoin is itself like an enormous economic innovation in kind of creating this coordination mechanism um but we see this

like the innovation of bitcoin taking to something like defy where also people can like completely they can make up a coin that has no value today but the promise of that coin is that it will be valuable when the network like for example a two-sided market for whatever lending and borrowing becomes useful then that thing will be useful so it is in itself form of of equity right same as bitcoin is the form of equity in kind of the bitcoin network and and that's what allows these things to to bootstrap themselves in in a way that we have never seen before for before crypto right and um i think we are at kind of the the the verge of it's almost like like

the early days of the internet in that sense it's it's a completely new paradigm and we have these two innovations like credible neutrality and kind of commissionless financial incentives and i think in combination with the network paradigm of the 2010s i think um it's very hard to imagine what kind of like how it will disrupt the world as we know it yeah and i think it's not a coincidence too that sort of coinciding with the robin hood stuff you've seen a wave of non-crypto venture and non-crypto fintech investors really will start to wake up to d5 i mean part of it is guys like naval talking for you know extended periods of time on clubhouse and introducing investors to this kind of idea

but i think it's also that people are you know the the the traditional finance fintech system is they're they're kind of running up against the limits right they're they're kind of the the users users are sort of breaking through the simulation where they're saying hey we we realized that this is not actually free that we are actually you know the product and we are actually um harvested uh for gains and and so they're imagining a better system they're also imagining uh themselves as the owners uh small as they are and i think that that energy has nowhere to go except for crypto and i think investors now when they look at the fintech space you know starting from the seed perspective it suddenly now looks far appealing to

see the d5 project than it does to seed a fintech project because fintech not only are you now competing with the banks but and competing with the incumbents but now you're also competing with crypto to offer the same thing and you're also competing to figure out what your revenue model may be and what your you know market fit may be and so that that that whole pressure i think people have always known that traditional finance is very inefficient that there's ways to disrupt it but everything seems always like 2x better or 3x better 5x better right because it's still operating the same rails so instead of you know citadel market making on on bats it's market making direct to client via the broker it's doing these very like at the end of the day it's still the same three firms at the end of it

it's still the same market structure um and and i think now market structure is getting seriously questioned by the users and therefore also by the investors in these kind of trends and that that energy will only continue as long as people um continue to question um you know what what should be the role of the individual in financial markets is it to be the profit the the revenue of a large professional firm or is it something else right is it something different altogether that that question is is in my opinion the real question

is an internet user you know talking about web three thesis of crypto is an internet user fundamentally someone who's using free to you know free-to-play products um but who is uh essentially harvested in a sort of rather insidious way via his attention as well as via his uh identity and by uh you know his overall his overall being his overall content right is that the structure of the internet that people ultimately want or is that because that's not it's that's not written in stone right i mean this is this is how it's been so far but it doesn't it may not be how it is in the future you know there's you know with the whatsapp

uh i think that there's so much social confidence now around crypto where you have now with the whatsapp um privacy stuff where you have you know tons of users going to signal going to telegram and saying you know i now question uh how i use the internet i don't just use the dumbest the easiest thing i question how i might want to use it in the future and yeah and people also underestimate too that we now have a very internet native sophisticated generation right below the millennials the the the you know the zoomers and and these people already question how societies run just by their very nature and they'll be very interested in creating it in their own you know in their own image so so just as sort of

you know working in banking became very popular up until 2007 then you had the great financial crash and then after that silicon valley and you know tech big tech became very popular you now see a big migration out of big tech from talent right it's now seen as like you know if you work at google for two years three years like the longer you stay there's almost a stigma that's coming again where they're saying like why aren't you you know in crypto or why aren't you doing something that you really care about and yeah and i kind of see crypto as that outlet for this mass generation of talent who's interested in both finance and technology yeah i agree it's almost like i've talked to a couple people over the years and

got the impression that especially working at something like google where you spend like months getting people to click 0.1 more on one button like to harvest their attention even better i think that has risen very very rapidly to one of the most soul-sucking jobs in the entire world and people don't stay very long and i think i think it's most people still underestimate ability and willingness for young people to rewrite the world as you say in their image and i agree very strongly that all roads lead to crypto absolutely you