The Future of Crypto vs The Future of AI

Transcript

Appreciate everybody coming. Um, super excited for this chat. Uh, Santiago is someone that needs no introduction. A really tight knit in the industry. So, looking forward to chatting all things crypto and all things AI. >> It's like any other day. Logan and I Logan is probably the person that I talked to the most. He uh for anyone that doesn't know Logan, he was the guy that convinced me to sell all my ETH and go long Solana when Solana was 20 bucks.

He's uh probably the best person in the industry to compile technical into actually investable bites. And that's really hard and actually has become probably the biggest differentiator in a world where there's a lot of garbage in crypto and a lot of jargon. Uh, but it's one thing to understand the technology, it's another to really understand how to make an investment thesis out of that and Logan we'll talk about it here, but he has been instrumental in my understanding of how to form an opinion and an investable case in AI, not just in crypto. And I think that's really rare. Like like good investor can do it in one industry and I think a lot of people in crypto that were early, I certainly have it an imposter syndrome of like, how do you know you're actually good in this game?

Cuz there's a lot of luck. And I think a lot of stuff in this industry is most people think they're really good investors and then rates go up and they're terrible investors. A lot of the stuff in crypto hasn't really worked out and I think you're seeing a lot of really concentrated return dispersion, which is good. And the best part about the markets now is you really have to be [ __ ] good now cuz the game is just harder. >> And I I I think to that point, one thing that I love that you told me is you have no obligation to be the same person as you were yesterday. And if you're interested in one technology, you can also have other interests.

>> Absolutely. Yeah, you know, I I think as an investor you sometimes like I used to think too much like what is my edge in investing? In crypto it felt like you had an edge because you were early. And that no longer is the case, even though we reasonably could say that we're early, but I think I've totally removed that thinking and said, "Okay, my edge is just to be curious. And if I'm curious, then I think you can position yourself to be successful in any industry." So, first and foremost, you're an investor, but you happen to invest in crypto, but in that order. And I think a lot of my conversations you're different in that regard, but I think a lot of people that have been crypto investors have resisted venturing out into other asset classes

because they don't think they have an edge. And look, the game is really tough. It's more competitive, but I do think that if you're sitting there in your desk saying, "I can't I can't outperform, I can't be successful in traditional markets." I would highly encourage you to remove yourself from that thinking and just apply yourself. So, where should we start? >> Should we talk about crypto? Should we talk about the future of AI? Let's just talk about Alpha. >> Let's do it. >> Which is any other conversation you and I have every other day. >> That is true. So, maybe on the AI side, uh we you and I got very interested in it in early this year.

Um I think the big moment was really around Opus 4.5 where you started to shift in primarily from these subscription-based models to really API-based, which really caused this explosion in revenue. Um and that was a huge wake-up call for in broad strokes the AI industry. a lot of CapEx has really gone into the ground building out these large data centers. And obviously a lot of the equities market has started to reprice on the AI side. And so, you and I have been spending more time really going zero to one on where that market is going to go. And we got very interested in memory. I've been

talking about that on Empire Pod and we've had some really awesome chats there. >> Yeah. Yeah, I remember you called me earlier this year and said, "Look, do not open the chart. I'm going to talk to you about what is an interesting component of the AI trade and you talk about memory and of course the first thing I do is I look at the chart and it's absolutely parabolic. Uh but it's a good lesson because I think in crypto, you know, I remember you know, in different moments like you would have looked at the price of Bitcoin when it ran from a dollar to 50 and you that was 2012 and I started looking at crypto and it was like, "Oh, I've totally missed this trade."

And um you know, similarly with AI, I think you know, you can you can look at the chart and be totally jaded by it um or you can say from first principles which is like, "Okay, what is the actual trend here and what is the fundamental case um for something like memory?" And um there's a lot of parallels. I think you do a good job of like maybe we can talk about like if you have been in crypto, you've had to understand the physics of it which I think you're very good at. Like what is the throughput uh of something like Solana versus uh Ethereum? Um how does that lead to value accrual? What is the actual physical bottleneck of decentralized databases if you think about financial use cases? And I think a

lot of there there's certain parallels. >> We don't want to reason by analogy um but but there are certain parallels that I think are highly applicable to how we think about um just viewing the world through that lens. >> Yeah, 100% and maybe for all those in the audience and that eventually will watch this uh later, I think the interesting part of crypto really up until this point has been how do you scale the industry? I mean, a lot of you were probably around in 2017 and 2021, uh it was very expensive to actually transact on a blockchain. So, really one of the main use cases was how do you actually scale these different

technologies? And we started to experiment with a lot of different designs. We had Ethereum come along, make smart contracts. You had uh L2s, you had L3s, you had different technologies to kind of shard, to increase the total throughput. And then you also had kind of high-throughput blockchains like Solana, Aptos, Monad kind of broadly appear. And I I think to me that was really an important part for crypto to mature and now get to really what is the next kind of iteration of crypto, which is financial markets. Um and I I think you really had to kind of

graduate and scale so that we could go from NFTs to memes, which were even more liquid, to now really very tight spreads with generally one to five bips of um execution. And now you're starting to see blockchains move into the equity markets. And so, there was a lot of like zero to one work that had to be done, but if you kind of look at it more from this engineering lens, I do think it is very applicable to AI as you look at data centers, there's different throughput issues.

one of the reasons why we started getting very interested in memory is because or even just broadly tokens as you look at kind of a server with an Iraq, there's 72 GPUs, they're trying to expand that, but there's a lot of networking issues even within Iraq within the data center. Um how do you keep token throughput very high where you go from something like a Grok or Cerebras that have 1,500 tokens per second, but uh very limited capacity. Um and so, I think if you start to look at it more from an engineering lens, and for you that are not engineers, just ask uh some of these very smart LLMs, they'll help

you kind of parse these things apart. Uh you can start removing a lot of the things that I'd say surface-level investors do. Um and you can really get to the heart of how these things will eventually scale, and I think make some interesting investment decisions from that. >> Yeah. Let's talk about the like I guess you guys came here to think about what is the future of crypto, if there is one, and what is the future of AI. A couple of things that are top of mind. One, uh some of larger Bitcoin miners have totally transitioned to being focused on AI. And that just tells you the opportunity cost for them is, you know, compute is the scarcest resource, and they're going to apply that to uh intelligence, and that has been AI.

If you look at Core Scientific, uh you know, Core uh Coreweave, um you know, Crusoe, all of them now, if you're provisioning compute, which is the scarcest resource, you're going to go and do that for AI, cuz there's just much higher ROI. Um so that's like top of mind in terms of how I think most of the flows, most of the attention is certainly going in AI. And rightfully so, I mean, it's it's it's incredibly I'll tell you from our perspective conversion, I started it thinking, hey, I'm I'm as a holding company, let's go buy businesses, let's implement technology. Most of that was initially the focus was crypto, like stablecoins and tokenization.

We spent like 9 months in that, and you know, the conclusion of that was crypto's good piece of technology, but it doesn't lead to that much value generation. To I'm in the business of uh like releasing value, not just proving to the world that we can implement stablecoins. I think we're far along in that journey. but AI is very from at least from my perspective in the way I run my business, it's very tangible. And and it feels very early. I think we've all seen that chart of like um I think A16Z put it out. It's like, you know, there's still less than 5% of the world's population is using AI.

If you were to survey people what AI means to them, most of them talk about being a chatbot, not like, you know, Claude code. So, like, the way I think about it is, you know, you talk about Opus 5. Like, first it was a chatbot, which was like everyone had a tutor that would never tell you you're stupid and would make it I think it's the first piece of technology that has made fun like learning quite fun. Um and the interaction, the dialogue that you have, yes, it could lead to psychosis, but it's actually quite quite novel when you think about applying that to education and just self-learning. And if there's going to be labor displacement, you want to retrain people. I think like, you know, that that is hugely impactful. Then you have like an engineer.

And for someone that is not technical, I mean, that's just the Claude code is number one Anthropic is the fastest largest like the the the fastest scaling company to ever go to like 100 million of recurring revenue. I mean, take Salesforce. Like, Salesforce is not even there and it's like 10 years in. It's kind of crazy when you think about that like um we were talking backstage about as an investor I think we always think about like what is the relative opportunity cost. And at least from my perspective, I think we're very early in that transition.

Um and we talk about the specific numbers like, you know, and I think we're entering a really interesting inflection point of AI where people start using it with agents and you know, basically have all these employees at their disposal. It feels earlier than crypto in many ways. Like the understanding of of AI and what that means and it's controversial in the same way that crypto has been controversial like data centers and people have like a negative perception of AI, so that all bows really interesting in my opinion of I'm I'm candidly like less interested in the future of crypto.

Um, and I think there are probably interesting things that we should dispel. Like people talk about like there's just intersection of crypto and AI. And I'm not sure it's there, to be honest. >> Yeah, and I think maybe to your broad point, I think the hard part with crypto and really up until the more recently has been uh we had a lot of experimentation in 2021, and in large part the industry said it was web two and then web three, but web three never really materialized from like a product or revenue perspective.

And you chat again on this quite a bit at um Empire. It's like, where is the opportunity? But I think the more kind of meta question is, where are the revenues being generated that you can actually underwrite from a pure business standpoint? And when you look at crypto, it really in my mind is this kind of next evolution of fintech, the next evolution of capital markets, and it really that's happening at a global stage. So, if you look at the opportunities within crypto that are making revenue and kind of don't just launch a token and sell the token, but actually make more durable businesses, in large part that's finance. Uh you see exchanges doing fairly well. You see

stable coins doing well. Um perpetual products obviously doing well. But that's because crypto is really more of a a financial infrastructure than anything else. And I think on the flip side with AI, you are seeing obviously these businesses start to make a good amount of money as well. Um and from that standpoint, I think the opportunity cost is really what are the durable businesses? >> I mean, great question. I I I find it as someone that has been very active on the venture side, um, in crypto, I've noticed like a couple of trends.

Like I went from, you know, for the last five years investing like over 160 projects in crypto. Like every other week I was investing in one or two projects. I think the quality of founders was interesting. Um, you started to see more people leave traditional Wall Street jobs say, "Hey, there's something real here. There's like infrastructure, whether it's Solana or something like hyper liquid." They're super interesting primitives. Don't get me wrong. I mean, financial markets are massive. Um, I think it's a good thing that we're narrowing that scope. Um, AI just captures way more opportunity in my opinion. And a testament to that is just Anthropic and OpenAI both have like reached basically 100 million ARR.

And you're still at a point where like you're not even fully you're basically super early in the enterprise adoption. And so again, like in investing it's it's I don't have to I can love the technology, I can hate the price. And I think a lot of the conversations that happen in these conferences are people that are their their sole mandate is to invest in crypto. So so of course they're going to compare one crypto project to the other or one L1 to the other. But I you know, I think like if if you actually like a lot of the times it's like would you rather own, um, you know, for instance like Ethereum at like 300 billion or you know, AI lab at like the same valuation. I think

most people would say, "Yeah, I would definitely buy the AI." Like you mean? Like nine nine out of 10 times or 10 out of 10 times privately they'll tell you, "For sure I would buy the same asset, you know, at and I think that that really just sharpens the conversation of where you actually see the relative potential. >> Yeah, and I think like crypto in the past was store of value kind of in large part I think the store of value for most assets is kind of a farce, but you told yourself that these were store of values because if you tried to do a discounted cash flow based off revenues, these things made absolutely zero sense.

So, I do think if you separate them from crypto as finance and start underwriting them as financial products that do have the capability to make revenue, that is very interesting. But also on the AI side, it is becoming almost as most people put it, kind of water and it's being integrated into more and more things over time. Um that is also going to be a very important technology and I think it's okay to also learn about both. And so, yeah, it's it's an interesting time. Uh crypto markets are definitely evolving.

It's much different than it was in 2017 or even 2021 and I think we've kind of explored the design maze, so to speak, and I think it's a good thing that crypto is really landing on kind of the financial rail side. But maybe to your question earlier, uh is there an overlap between crypto and AI? Because I think it's a good question. Um one thing that I have broadly observed trying to find these different companies at Frictionless Capital to invest in is in large part the companies that have achieved product market fit, if you look at News Research, for example, they originally started out at doing decentralized training, but over time they found that it was hard to scale

that business and then pivoted to the Hermes agent, which is now I believe the top um agent harness on OpenRouter and doing fairly well. Um another example is uh Together AI, originally started doing distributed inference, but has really pivoted to an EO cloud. And so, I think at least for the products again, if you look not at the token, but ones that are actually producing revenue within the crypto AI field. In large part, those businesses that started at the intersection have moved completely to AI alone. And so, I think to me, trying to be a student of

the capital markets, you kind of have to see where the founders are going, and the overlap today looks relatively minimal. >> One One of the things you'll constantly hear is people say that agents need stable coins to transact, which is largely untrue. And one of the things I've changed my mind on recently is this idea that like instant settlement, like for what exactly? Cuz I think you you hear like the properties of decentralized finance, stable coins, instant settlement. And yes, you reduce counterparty risk, but like I think it the nuance there is for what?

If you're doing trading, yes, cuz you want to minimize counterparty risk. If I'm trading with you or you or you, it I I want to do instant settlement because you can you can there's finality, you know, you don't have to do T+2, you don't have the you remove counterparty risk. So, that's really valuable for a trading application, but if you're booking a flight, doesn't matter. So, I I I think there's I I'd caution people when they think about, you know, this yes, stable coins are great primitives, they're quite useful, um but that doesn't mean that that a an agent will use maybe the agent will reason and say there's actually a lot of smart contract risk.

Cuz the thing that of course has hindered crypto is, you know, North Koreans have gotten really good at um hacking crypto. And and so, I think with the there's there's I I would argue less Lindy now with AI in some of these crypto systems. Uh cuz you can apply just a whole bunch of compute and intelligence to hack through um some of these systems. And so, I think um you know, even simple flows like if with a credit card, you know, you you have the reversibility of a credit card transaction, um you know, chargebacks and some of these components are important primitives. And I think some of the biggest mistakes I've done in investing is just thinking that because the technology is so advanced that will change how humans actually interact. And

that's just not true. And I think I've lost most money like like going against human You know what I mean? And I think that's sort of the the temptation when you're you're trying to wrap your head around the thesis like how how does stable coins in circulation go up like 100x from here? And I think it's certainly possible. But it will likely come from some of the stuff you and I were talking about this morning, which is mostly in like financial use cases. and you know, there's interesting stuff like on the margin there, but some of the things that you in the crypto industry because we're a bit defensive, we have to just make these very hyperbolic statements of how this technology will just be applied to absolutely everything. And sometimes going faster

is not a good thing. >> Yeah. I I think I mean, even playing around with more recent models like Astra, they've gotten very good at computer use. Uh you can tell the model to go do something on your behalf. And you don't even need an API connection or MCP connection. It can literally take over your computer and click with a mouse or kind of keyboard, so to speak, and type. And this is like a pretty profound innovation. Um I I recently restarted my podcast and I used to have this uh software called AutoPod where it would essentially edit the podcast for me

uh based off whichever speaker is talking. But more recently, I can have Claude or Astra go in, do computer use without any connection, and it edit the entire podcast. And you kind of think about it, this is the worst it's really going to be. It's only going to get better. And so maybe you like high-level, I I think the thing that we're broadly excited about, if you kind of think about where AI is going on the extreme side of thing, is just kind of digital co-workers and really kind of being part of your team, which is generally got us excited about kind of memory and kind of the AI kind of capex that's going into the ground. You look at how much data centers cost are 50 to

70 billion dollars generally. Um, how many new gigawatts are coming online? You can kind of do the back of the envelope math as you shift from pre-training to inference. Pre-training mostly GPU bound. As you switch to inference, it's a lot more memory bound. And there's a lot of interesting things as an investor that I think you can parse apart. And so, I think as we always chat, like, you got to stay curious and interested in learning about these things because there is a lot of opportunity and the world is always very dynamic.

>> I mean, just put it this way, there's a trillion dollars of capex that are going to be deployed in AI next year. That's basically half of crypto's market cap. You always want to be riding the biggest wave. Crypto's no longer the biggest wave and attention has shifted dramatically to AI. It doesn't mean there's not opportunity in crypto. It's just this is a sheer magnitude of this re-industrialization and you know, for a while I thought crypto was like a really interesting socio-economic experiment because, you know, a piece of technology like Ethereum created the most amount of millionaires ever. Uh, and across a wide variety of people.

It's open. There's a something we haven't talked about in in in AI that is becoming more and more of a topic of conversation is this idea of open-source models versus closed-source models. Um, I think again, this is goes back to the point of you've been in crypto, you've seen this evolution of like open-source versus closed-source and generally, you know, you you have a greater appreciation for open-source. Uh, it's not as simple as all the closed-source models are going to go to zero and everything's going to shift to open-source, right? Um, but but yeah, I I think it's it's it's it's it's just kind of impressive to to look at the deployment of AI and and and from that standpoint, you always talk about writing big waves. There is no greater wave than AI.

>> Yeah. And how how we really think about it at Frictionless Capital is that as you kind of started with the dollar really being kind of the main product or tokenization of the dollar. Uh, originally the United States was not super excited about stable coins and then it realized that it was buying treasuries and they were like, okay, this is actually great for us. And now I think you're starting to see that within the equities market and you're exporting the US capital markets, but you're also importing other jurisdictions around the world where you can have their equities.

And so to us, how we broadly think about it is you're taking all these kind of countries around the world that have these different financial systems and unifying them with kind of one single API, which is the blockchain. And I think if you just look at that, it is a massive market that will broadly continue. I think if you look at the amount of tokenized equities today in terms of AUM and a thousand X that, it's about 6% of just the United States capital markets. So we're still fairly early in kind of this broad tokenization threat trend. But then again, if you look at that intersection of crypto and AI, at least today, it seems relatively limited in the intersection. And then

you look at only AI and as you point, it's a massive wave and I think learning about that both in terms of capex where that's being deployed, also understanding how to go long certain trends, whether that's going long agents, how you ultimately express that in the sense of if you can think about it in the most extreme scenario, what is the most useful thing kind of an LLM can do is kind of act as this digital co-worker until you go physical and then once you're physical then it's kind of robotics which is a separate field. But these three kind of buckets or maybe just broad two buckets which is AI and kind of global tokenization massive

market and then you have AI which is kind of really rethinking a lot of what we have done in the past and as kind of knowledge work. >> Great points. I mean when I think about like mega trends it both crypto and AI and I'll mention some in crypto and then AI. With crypto I think you've have these open markets and capital wants to flow to the most efficient markets. That's just a normal gravitational pull. I think crypto stands a greater chance to become that venue of liquidity and more liquidity begets us it's it's that flywheel that we're in. Um as it relates to AI I think if you have an agent that you trusted with your money I'm not

suggesting you do this but let's just assume that you get you run the simulation you get to a point where an agent there there's a huge level of financial illiteracy in the world and and and the the number one statistic that you should look at is the percentage of money that sits in idle checking accounts that are not earning interest. It is remarkable. Most people don't have financial literacy and so the the the upshot here is in a world where the the agent is administering your money it will make more rational decisions for the vast majority of the population. Most of you might be a bit more sophisticated than the average population but you have to consider in both crypto and AI the the bull cases there's just a huge number of the world's population that does not have access to financial markets or investing

products or capital markets like the US. So that's tokenized stocks on the crypto side. Right? And you have stablecoins that allow you to on-ramp to the dollar and then have access to a dollar denominated financial system that most of the world's population has wanted to get access to but has not had access to. That bodes extremely well for a certain pockets of the crypto economy. And as it relates to AI is just an accelerant to that force because of the agent is saying, "Look, you live in a place like say India or Mexico that you can have access to US capital markets directly through, let's say a brokerage account, uh or you needed to be a high net worth individual.

Um now you can do that with an exchange like, I don't know, Backpack. For instance, you can on-ramp with a stablecoin and you can buy a tokenized stock of SanDisk. And and that just closes a loop and I think um from my standpoint, I think um the financial services industry I I I think the bull case about crypto and to some extent AI cer- certain services of AI is the financial services industry has probably been the industry that has resisted the most amount of innovation. Like your financial experience is terrible relative to anything else in your life. You do not have an Amazon-like experience with your bank, the way you move money, the way you interact. And it's it's difficult, right? And so the re- the result of that is most people don't like to think about money.

But in a world where that is further abstracted away and someone that is can do that for you, you're going to gravitate to rails that are um open, transparent, and efficient. And I think crypto stands, I'm not saying it will be, I'm just saying it stands a greater probability to be that venue. Um and and and that has a whole host of implications in traditional markets where any anyone that has built the model around obfuscation and friction is going to basically go to zero over a long horizon. >> We like things that are frictionless. >> [laughter] >> But maybe to round this out, um I think more of a story in my opinion, we're obviously at a crypto conference, but I think the world is changing and you need to continue to be dynamic. And

kind of wrapping it back, obviously you everybody here is interested in the crypto markets, but you should continue to learn about the world as it's dynamic as it is changing. And make sure that you're also very interested and following the new waves. And obviously AI is really still early at its inflection point and crypto has been the wild wild west for a while. It's now kind of becoming traditional finance. And so I think as you kind of tokenize the world, keep an eye on for interesting things that you can do with AI as it becomes a greater part of our lives.

>> Amen. Both are extremely early and in terms of adoption like less than 5% of the world's population is interactive with crypto and using AI. So >> Perfect. We can wrap it there. Thank you, Santi. >> Thank you.