Interview with Zee Prime Capital, Part 1 - with Su Zhu and Hasu

Transcript

welcome to uncommon core where we explore the big ideas in crypto from first principles this show is hosted by suzu the ceo and chief investment officer of three hours capital and me hasu a crypto researcher and writer today sue and i are sitting down with mati and viscantis of the prime capital these two have consistently been among my favorite people to follow on crypto twitter so i'm very glad that they agreed to have this conversation with us in fact we ended up talking for so long that we have to release the episode in two parts in this first half we covered the value

of crypto twitter in finding and spreading ideas z prime's unique investment thesis and how it is to be an outsider in the vc space how mimetics and reflexivity shape the crypto markets and whether this current cryptocycle will be the last i hope you enjoyed this conversation i know i did i came across you guys because of your twitter account you both so became my some of my favorite people on twitter in 2020 and i had no idea that you work for vc

or that you even work at the same firm right because you you didn't even have that in your bio and like just from reading your twitter it would never have occurred to me that you work for a bc because you don't take yourself too seriously like you post a ton of memes but also great analysis it seems like you're not really concerned with leaking your thesis that you have for different projects and also criticize stuff about others so i respect that a lot especially you you really understand like how ideas spread in markets and um on social media and we'll get into that later so would you would you mind giving us a quick intro of yourself and z prime thanks house it was a it was a very nice intro from you

um so yeah i'm i'm mati um i've co-founded z prime and i'm also helping to to build hydra dx and i'm also engaged in other kind of side projects that we run within within z prime um yeah so i guess that's the that's the short uh short story about me viscante is here um i used to play poker professionally for a couple of years same as yuhasu so i i don't even think of myself as vc i'm much closer to this like d5 crypto degen culture because you know poker was a bit similar and i i grew up there with all the poker players

doing crazy bets a lot of stuff and um you know it kind of went naturally in crypto for me to kind of build this uh let's say persona um so i have this you know i have this conflicting um kind of personality where one part of me is abc i want to be deep down in projects um kind of help the team but the other part of me is also about you know um you know running a portfolio of liquid bets kind of you know digging into farms and and doing all this fun and crazy stuff that defy allows now um even like some short-term things like playing some algo stable coins even though i don't really think that they are

many of them are not here to stay but you know i still play them because it's funny it's a game it has some rules and you can figure out how the how the game works and how to exploit it so this is what i do so and this is this is where you know where i draw joy from but uh at the end of the day you know the space is growing quite fast and you can meet a lot of crazy and smart people who are building the future of finance or future of france how the me goes uh so yeah i love both aspects of the space and that's why i joined z prime because they allow me to kind of go deeper into projects and and and understand the tech and the founders

the teams behind the projects a bit more not just ape into their farms and just you know play with their stuff so yeah so i i want to go back to your twitter account briefly because i'm like so still so amazed by i mean usually people use their twitter if they're also big investors they use twitter to to generate deal flow and leads for their fund but you guys don't even mention the fund in your twitter i think so what do you use twitter for like why do you use it what do you try to get out of it um some from my end i mean i i don't mention it now i had it there briefly um i kind of start to see value in having a pseudonymous account or like close to anon

despite i'm not really on people if really want to people can really like dig down and just find find my real name and stuff so i'm not really like too like focused on that but i find value and and freedom in in having this kind of no strings attached account that can speak freely and doesn't uh post as some representative of some other entity or something like that so that's why i decided to experiment with this i mean i may i may even put it back later but i'm part of z prime but everyone who follows me already kind of knows that or or they know that i invest and actually despite me not having it like in my bo i retweet stuff from z prime i i act sometimes i i

kind of act as as vc as well on twitter so we actually get a fair amount of deal flow uh via this wire this way um i i had i myself had a couple of uh early founders uh getting in in touch with me because of something i wrote about stable coins or about synthetics and and we made couple of very interesting and successful investments based on my activity despite me not really posing as as a vc um so so yeah so it it's actually it it's and also you know there is this uh right now there is this meme which i i think is misguided but there is this meme of like vc bet right so so this is this my persona is more close to

standard d5 crypto user and and that's why maybe some people uh find it more likable than some big name ivory tower we see who pretends he's like on top of everything all the time so myself the i mean my twitter account like it wasn't very followed until very recently i think i think it was the first kind of um writings that i published i think it was it was my rebuttal to to to berniska's uh essay that he wrote and i think it was it was sue who um retweeted it or something like that and and then it started for me uh as in like getting the following on on twitter i i wasn't really productive on twitter

before that and i still am not tweeting as much as as fisky does um and then it was here the um the uh there a bit inside uh also um so i kind of um my my essays helped me to to build this following and and and obviously reflexivity kicked in i became more productive and but i still don't feel like tweeting too often i feel like you have to kind of earn that um instead of balance it with with with work that you do outside of twitter um so i still feel like uh i have to kind of uh i don't want to feel entitled uh or anything like that so i think it's

a great tool um and twitter itself um is i think it's it's replacing these um hubs like um geographic hubs in a way so i think 2017 i mean there was a crypto twitter and 2016 and even before that right but i think it's becoming sort of um more dominant um and it's dominating now over over physical physical locations so you don't have to be in san francisco anymore you don't have to be in new york you can be you can be anywhere and and you know uh we are sort of a proof of that so how do you feel about um like your use

of twitter i don't think we have ever talked about this on air but you for the longest time you had no twitter contract only in 2018 like mid-2018 or something very late you you made yours so then kind of skyrocketed from there right yeah i think previously i would talk more on discord or on telegram groups but kind of just saw all the stuff people saying on twitter and just felt like um like it's kind of a it's a good way to meet people and it's like a good way to just get your message out there whatever it is and and i think too that like i had always been more provocative in telegram groups and like and then i realized like it's more fun to provoke a large amount of people than

a smaller amount of people so that kind of fed my ego a little bit i think i think kyle then saw me tweet and then when he saw me get to 20 000 followers he's like all right like i'm missing out like i gotta get in on this action so he he kind of uh he got into the mix there as well but you know like i've met the best contacts in crypto from twitter like arthur xerox he when i had a thousand followers he had followed me and he just messed he dm me at that time my dm's were open and he dm'd me and said let's just get coffee sometime i'm writing research in an incubator right now like i've got this 30 page report on a project called snx it's uh two cents i think it can go to two dollars and i obviously brush them off whatever

it's like this young kid or whatever but you know we did have coffee and then a few months later i'm like wow you're you know you're actually smart so i think twitter is like one of the best ways to meet people because it's just it's just like people can find you you can find them and the ideas are all out there um but i do agree with viscontis too in the sense that like it's difficult at some point to separate the persona from the beliefs from like the need to project a persona and like to to be a character so like sometimes like i feel like you know i'm just playing a character at this point like as opposed to being able to say the things that i might want to say in a certain situation so i think it's always tough to balance that

so i might make an alt one day uh but one but we'll see yeah that might be one of the the problems right when it's really fun to provoke and build a character that has like these cartoonish elements like especially when it comes like bullish posting and so on but then it it can become like a trap yeah it's very hard to get out of that yeah you get you get forced into a persona then because um because you get rewards right in terms of like in in form of likes retweets and etc and it kind of rewards this particular behavior of yours and then you feel like you need to kind of um replicate it and uh and get more likes so

it's it's yeah it it can be a trap and it's uh and for some people um it is a trap i think that uh people have you know they even do like these breaks from twitter like that they have to take a break because they they're not handling it well probably yeah it's exactly what you said right you said um for the people who wanted to hear your previous content right if you got to 20k with like posting bullish memes then you have a lot of followers who want to hear bullish memes and if you then post something else then it can get very difficult right it's also about consistency like if you if you are consistently uh bullish about ethereum um then it's very hard to kind of uh break out of that loop and and

like be bearish or like criticize it because a lot of your followers will like not take it lightly right so this is actually something that i'm often like i try to exercise that i i try to provide even opinions that i may not necessarily fully agree with but i just put it out there just you know to kind of see what the response is how the how the market and the community feels about stuff and and yeah i even have a disclaimer that not everything that i that they uh write about i mean really seriously and i try to have fun and yeah maybe that's the reason one of the reasons i don't still have 20k followers because i'm often so inconsistent i would say um i i try to have fun more than like

follow an agenda so yeah i think with with this it's similar to like becoming a particular asset maximalist so you fall into this hole that keeps on giving so i think that many bitcoiners like why they don't look beyond this because they stumbled upon bitcoin and it rewarded uh it has rewarded them with so much sort of um cash and wealth that um you know it's a very comfy hole and you don't want to get out of it because you feel like you're you're cheating on it or something like that and you just um and you just keep on um keep on being stuck and uh it's a very comfy hole um and the same goes for ethereum and the same goes for

for your sort of identity that is being rewarded online or on twitter so it's a very similar mechanism for me the one example i can provide was i mean i was super bullish on synthetics early on you know despite it has many design flaws i still saw that there is much more potential and the team is like in a beast mode building fast and growing um and the community was great but my my most uh popular article was actually criticism on on synthetics and and how it is getting wrecked by by various uh design exploits uh such as oracle frontrunning and you know at that time i was actually

one of the one of the sn experts i would say um i got a lot of followers who were fans of synthetics but it's it worked out well like everyone was was taking it uh very seriously that this is actually happening there was no like uh you know backlash from the community that's you know i'm i dare to fart their backs so this was pleasant surprise from for me at least we already got like a glimpse at your investment style and how you think about different projects but so listen i can really get an idea of what kind of zpc does as a firm so how would you describe your investment style and what like what are some of your proudest bets so i think that maybe i could

sort of tell you the story of z prime or maybe like you know how it kind of evolved um yes that's you know the best way to get an idea so we don't really have like a uh fancy pieces but we do have fancy memes though i think um so i i left the previous crypto fund uh because i you know i thought that it was that was the end of 2018 and uh um i thought that the industry is changing and and it requires this kind of like new type of of mindset so and and that is one that is not so much based on the process but on something that i would call substance and um it was it was sort of convenient to

believe that of course because you know i have an unconventional background for an investor like in terms of nationality location etc so so when i say substance i mean like this this one of thing so um you know the process is based on like pattern recognition um but substance is this like abstract spur of the moment thing um something that people uh say computer computers cannot do so i think that um you know investor processing crypto or vc is you know you need to be in san francisco new york you have to speak a certain way um you have to wear a patagonia vest or something you know like perhaps this is a caricature but

you get the the gist um it works right so you know you're you're copying these uh surface attributes and i think the substance cannot be imitated so you know i felt like i want to do things differently i know it's a cliche thing to say but this is how it was and i was lucky that a friend of mine uh michael approached me um so everybody's from from the university days um and we started investing together and you know later on um jacob joined and and and fisky and and you know this is how z prime sort of came to be and you know the very brand um the website etc it had this like non-serious look um i really felt like um i don't want to

take myself too seriously but doesn't mean that you know we don't take our work seriously and you know i was very happy with that like um we did not define the investment pieces like we didn't write like a you know long paper or anything like that we just we just say like crypto and crypto related so um that was kind of the beginning and um our first like one of our first investments was was hyped.1 um so i was friend with magik uh the founder of hyderabad one i don't know if you guys know hype but probably uh husky i think that you know it um yeah i use it a lot yeah so and and for a long time believe it or not like no one wanted to invest in and and hive because it has a rather complicated vision

um and we joined the founder on his like us roto um you know when he was meeting with investors and we sort of uh we were we were present at the meetings in new york and san francisco and and and and there i really felt like a total outsider so one would think that vcs especially crypto vcs would be like very open and inclusive uh but you know i could tell that we did not fit this pattern um for those guys and they looked at us like with a suspicion um and and there's an actually funny story so we had an event in in san francisco it was like a panel discussion um and um after the event i talked to a founder

and i don't remember what his project was but he was starting a company and we had a good chat and and he asked me if i would be interested to invest because he knew that i was investing and i said that that sure like i i want to hear more and he asked like where our office was in san francisco so that he could come pitch and um when he learned that we're not local he was like well you know i'm looking for someone local to invest you know so kind of it it was yeah for me it was astonishing so so anyhow like we learned a lesson there and i realized that this like process-based circle jerk cannot be something that will change the world um i so i do not believe that the next big thing will

have a private seat round with those regular names in it so i think that would be too easy um i mean you know most big name vcs um missed out on ethereum but ate into ethereum killers right so um i wanted to be as far from those uh type of investors as i could so again you know it's convenient because e prime was an outsider so it's easy to sort of bet on being an outsider uh we were not let in um so i'm not saying that these guys are not smart they're probably in some instances much smarter than than i am um but this is the uh sort of the memetic aspect of the prime of the of

the diagram maybe we should actually maybe we should actually talk about the okay the diagram just describe it to the to the people because a while ago um fisky posted something on twitter right that may may have been a meme but it stuck with me nonetheless and it shows a venn diagram with three sets and um a z prime in the middle right and one one venn diagram is reflexivity and it says mimetics and markets as mirrors and it has george soros i think it's peter thiel and renee girard right and the second set is optionality with an assimtal app and it says risk asymmetry anti-fragility and uncertainty and then

the third set is free markets the art of the dao and creative destruction and it says on the outside of austrian economics and it's i think mises hayek and milton friedman so what do what do you mean by that you know just let me briefly say that um yesterday i got an email from like a uh thunderfund the crypto fund of fund and um he asked me like send some dogs on z prime i sent the tweetstorm yeah so i yeah i said the three storm so um i mean this beam i mean it was uh i don't even remember when i actually did this but yeah so i think that um it's more meme than like uh something that is

really fundamental um but it's kind of a good mix of things that you know we often discuss and and we might believe in um so as i mentioned before like there's this mimetic aspect so we want to be aware of of of mimicism and always try to assess the reflexivity potential and try to understand the markets you know even when we live in a sort of distorted world one could say um and yeah and and then the talib side is is is definitely uh more conventional like be aware that you're always operating under uncertainty and make you know bets that are asymmetric to the upside but

i mean that's generally uh sort of vc portfolio building um but this meme represents like this kind of resentment of process i'd say um so the fact that i put it in a meme and not you know written about it i think it's um kind of more defining and um and then there's a um there's a part i think it was it might be being uh fooled by randomness and uh by now seemed to love where where he wrote that he took a lesson from soros that every time he was starting meeting and like with with investors uh in in the shop um he he was he was making sure like the first thing that he made sure is that uh

letting them know that um you know they're a bunch of idiots that don't know anything and they're and they're mistake prone uh but they're sort of endowed with this with this real rare privilege of actually knowing that they don't know anything so that's that's kind of the message i'd say behind this um if it makes sense but it's actually it's uh it's also something that uh that kind of reflects on on the practice of how z prime invests uh for example i am more in the camp of of being a d5 digger and slash farmer and and i always argue with mati that we should farm more that we have a lot of i don't know btc a lot of capital that just sits idly and i'm like you know we should we should just you

know put it into yield farms and just earn like additional income on it and and he always argues that it's actually concave strategy that you either win i don't know 10 20 30 40 a year um or you ape into something really crazy but you know then the risk is higher or you can lose it all uh if the smart contract is buggy or if there is some exploit or if something happens on the on the layer that secures it so um so z prime is it's not like we are not farming we are providing liquidity we are we are running nodes and stuff like that but uh we definitely keep in mind that we don't want to get into game of picking up pennies before the steam steamroller

um so we we try to like we try to aim for bets that have much more upside than they have downside and like lot of d5 is not like this even though it seems like it's like endless endless money rain but you know the music may stop someday on some big protocols or d5 platforms and we don't want to get caught naked you know when the tide is off yeah so that sums it up like we generally have a very sort of ad hoc mode of of operation um our thesis is flexible and i would say that each one of us has like a different pieces and even those keep evolving um so we don't agree on many things but

uh we're able to to remain mostly respectful in these disagreements oh we argue like crazy sometimes though yeah but i think that this is this is this is what helps us and and to be honest like um i mean i was plenty wrong like like since since since the beginning i like you know before we had this synthetics moment we were pretty i don't want to say uh bearish but we were unsure about tokens right and we we didn't see a sustainable model so i call it like for myself the synthetics moment it's a credit credit to the team i i actually actually realized okay like we can build these tokenized networks that

that make sense maybe let's zoom into one of the sets uh the reflexivity because that's um that's how i found you the first time and it was your article that kind of sue made the connection right between you and derebit insights and then you sent in your article on reflexivity and imitation and then i i i read it and thought it was an amazing article i still think it's definitely in my top three articles that we published um on variable insights in the last year it was such so good everyone should read it for sure i would have to talk talk about that article a little bit so um what what are memes uh or mimetic imitation and um and how does it

affect reflexivity you know memes you can look at it from um as the you know meme on on the internet the find the um and then their memes and uh um as in like the unit of of of imitation um so these are like uh cultural units of imitation i would define them probably um and reflexivity is kind of i mean do we have to define reflexivity i think people understand the flywheel um and and i mean in order to to get a flywheel going you have to put something on the flywheel in a way right and um and this is and and and memes either you

know there's funny pictures with are sort of related to to to the keynesian memes um they are the things that can sort of start this because they they reduce nuance and they enable us to kind of um to rally um and in a way they might be creating a shelling point but the they are the basic units that allow us to to to kind of communicate uh without really communicating um for me i mean uh i kind of uh partially disagree um that memes always reduce nuance when you create a meme you usually go to a meme template right and

the meme template itself it provides some meta position or meta information and what kind of emotion or or information we want to convey but then you know you treat it as a canvas you have this template that gives it some structure but then you can put anything on it so it can go from simple jokes that go viral because it's just simply funny to very deep insights into some sort of a subconscious of the internet or some particular um community or or like uh some you know it gives you a zeitgeist sometimes and in crypto naturally when markets are going down you see a lot of memes with pink vojacks you know bleeding from the rice

when markets are going up you see all these happy green pepper frogs and and it's really simple and then you know that people are happy that you know number up and people are said when number down but then but beneath that sometimes you see some more nuanced information you see you see how you know how people think about various stuff and you don't need to read like long articles you don't need to kind of uh you know go deep to understand it you just see a couple of memes and you know okay so this is this is how the uh current uh tight turned today you can i mean it's not always the case sometimes it's just random random jokes but sometimes you really can uh have a glimpse into this subconscious and and like crypto community is still

pretty um pretty small and like pretty unified in a lot of ways so you can see it like see it flowing uh with the memes which i'm not sure if it can provide you with some like actionable insight like you know i should invest in this or that but it definitely helps to understand the space and how it is going and you know what are its values and like the philosophy it i mean it always captures an emotion right and it's and it's an emotion is a it's a powerful thing um and and then your sort of primitive brain takes over but it's it's it's funny because um i was creating like this design brief uh for for a designer

uh for for hydro dx actually um to um you know to create some kind of you know design things for us and and this is a guy that is totally outside of crypto and i was like trying to explain defy and and and as i was explaining it and and putting like different like memes in i realized how how weird it must be for someone who's who's not like from the group and that he's just looking at it right now and i'm and i'm and i'm describing these these anon you know and on person who who is like a thought leader within or whatever you want to call it um and and i realized that that you know you kind of you almost create a a unique language that if you're if you're an outsider you

you cannot really comprehend um so memes are um i mean first they're two different things um like memes on the as pictures and meme as a as the unit of imitation but um i think they're becoming very powerful these days and uh this is how reflectivity is kind of connected because with this um i know that um fisky disagrees with the nuance production but i think that it's connected to something going viral i think it was i saw video it was it was it was bezos discussing it right that if you want something to go viral

you need to reduce the nuance and add emotion right and this is exactly what these memes are doing um so yeah uh and there and they will become more powerful i think well um i i i'm not saying i disagree completely but partially um you know there is this youtube channel it's pretty small it's called meme analysis and and this guy analyzes various memes and you know he probably has some psychology degree or something like that so he goes very deep and it's it's kind of interesting there is this one meme called are you winning some you know with with the diet uh coming into the room and the sun is playing on computer or something and he goes really deep into explaining how how the meme can turn from a simple

joke which makes fun of you know this generational gap uh into like complete like you know the collective sadness of present kids who are stuck behind their computers and the only way they can communicate is by a computer and it goes even deeper it's like it was almost depressive so i'm just saying that sometimes you know the emotion you can convey is actually pretty nuanced and it goes much deeper than just you know happy or sad or funny or whatever yeah i i definitely agree with that as well and um i i'm actually convinced that like the way we analyze like 15th century paintings right there are people who do that today i think like in another 500 years we will

analyze people will analyze the memes of of like the 21st century in order to understand that that zeitgeist in a way that you cannot understand any different way because these memes convey like such fine information and mood swings um i think that that you just don't pick up anywhere else yeah and then and they also when you think about it they they protect the secret of the tribe because again if you if you do not understand the language um of the tribe these are totally meaningless to you like i just i um i just like created a a meme a couple of minutes ago before this um

just as a response you think and and if i show it to someone like even if i show it to my girlfriend like you wouldn't understand at all so it's definitely an interesting thing interesting phenomena so you have created some of the most memorable memes i mean how are you so good at this like the reason that we size house and preferring wealth and like i mean how do you how do you do it right it's it feel like like how do you make such viral memes well first of all thank you i appreciate that uh but i i do agree with you that i think memes they are you know like in the old days when you read a english

literature from the 19th century they have tons of these greek and latin illusions and they have these biblical illusions right like everything has all these and it's sort of a way to tie information from the past present future and it's also a way to communicate that you know there's some assumed body of knowledge right and it can be as deep as you want it to be or as shallow as you wanted to be like when dante wrote the inferno right like the genius of it too is that it was both commentary on contemporary florentine politics as well as a commentary on so many other things at the same time and so i i see memes as similar to this where it's like you know when you know when i mean about like the bottom being

and i think things like that like i also think people understand like like when i have my over-the-top prefer wealth memes too i think people understand that it's both a caricature of this but it's also like like it's it's also real right it's also like the fact that uh this is how you get a group of people to really believe in what they're doing and what they're holding right because if you if you don't then when you're up 10x when you're up 50x 100x you're just going to press the sell button and then buy a house right that's all you're going to do but but if you if you need a house if you understand that your house needs to be sized proportionately then then you have to think about it a bit more so i think i think for for me it's just like i want

my followers to do well and to kind of embody the and to kind of get how they should be thinking about crypto like i'm i'm firmly believer that this is the last cycle that you're not going to be able to acutely just buy an 85 down and then do another cycle all over again and i think a lot of people don't realize that still they think like oh yeah we're just gonna like go into some backgroudation like buy some bitcoin at 20k and then maybe 15k and then do it all over again you know like if the things we do matter in crypto then this is the time that they matter so i just think um that's kind of my general message and i kind of try to come convey it as like simply as possible i guess so i love that commentary i think it's like

it conveys a level of urgency that many people in the space don't have yeah that they should have i also agree that this is like the last cycle i mean we talked about this um in private that uh if bitcoin goes 250k or something then half of the world's billionaires are going to be from from crypto and it's just such an insane statistic to wrap your head around i mean that alone shows that there couldn't possibly be another cycle after that right unless we get into the territory of actual way of creation instead of wave redistribution as i would argue we are in right now i mean maybe the maybe the thing is that we still measure wealth in dollars but you know you can still i mean we can have multiple bubbles if the

let's say if fiat will be like getting less and less valuable than you know if we measure everything in it then the bubbles are infinite right there is like there's nothing stopping it from from going higher just because you know the base is uh is smaller the base unit is is getting closer and less valuable so um so i mean like nobody wants to hold fiat but everybody wants to measure their wealth and fiat because it makes them feel like they are more wealthy and the world is being created and accumulated by them yeah it's like a global leaderboard right i mean there might be a next another global leaderboard where people can compare themselves with others in the future but right now it's the it's the only leader what we have and

these leaderboards have like insane network effect it's very hard to move to something else and finally as sue was discussing the uh this parama bubble or the the ultimate bull run um i i haven't stumbled upon anyone that would actually be able to to argue that um i was surprised to um i mean that that too i mean we also kind of chatted about it just briefly um but i think that um a lot of crypto ogs whatever you want to call them they have this btsd um from from all the years um that you know they're calling the top um this is gonna be again one of those

more and i mean um i i i understand that but you know there are alternative scenarios to to that one as well and um i think that it's interesting to entertain this kind of perma bubble idea or maybe it's not bubble because i think that you know when sometimes collective hallucinations can be can be more powerful than reality um and i think that we've seen it outside of you know crypto markets um and um this is not anything new and uh i we should definitely talk about talk about it more um and i don't see many people actually being being able to even

you know think about it and that makes me so kind of interested in a very idea um because it's i don't want to say it's contrarian it's not really contrary and it's it's it's pretty independent i think and it's pretty risky as well right well i i created this gif uh which shows all the bitcoin bubbles um if you want to call them and it's like what six of them already and each one was like order of magnitude bigger than the last one so after like five or six times people kind of learn this pattern and they expect it to occur again so when when sue says that you know now the pattern will be broken is actually pretty bold claim and people are getting ready for another like bear market you know for another

minus 80 because they already seen it in the past couple of times um so so when you are betting against that you are betting not just against like it um objectively happening but against the narrative as well because when people expect it to happen it can become a self-fulfilling prophecy which you know if enough people wait for it to happen then you know when bitcoin will grow high enough you know some people may just you know make it happen by having itchy uh trigger finger and just you know sell the load so it's actually very hard to bet against this narrative not not the objective reality that makes sense that crypto is here to stay and to

change the world in a meaningful way but the narrative is still very strong among many even big bag holders that may turn the tide um just by you know selling yeah you're you're betting against a very powerful ironic meme of this time is different right yes right that actually brings us back to like the kind of narrative investing and reflexivity right just because people believe something will happen that can make it happen and that's kind of that's one thing that i actually took away from your article as well and that i also strongly believe in like kind of the bubble theory of money right bitcoin is or like money is the bubble that never pops right it just it keeps growing as a bubble and then like when it's large enough then

it doesn't need to pop because it has become useful right because it actually is liquid and and is a network of people to to transact right um so what do you think we can learn from um this analysis of memes and reflexivity and narrative um about investing in the crypto markets so now it's as i said before it's very hard to take any actionable advice just seeing a meme and then investing in something um what i would say we can learn is that like reality is largely negotiable and you know the let's say there are like two types of fundamentals one are these hard fundamentals that

people learn at school like how to value a company you know how to how to do accounting and how to then invest based on that and then there is other type of which i also believe it's fundamental uh but it's like this uh it's it's much less it's much less a science and much more an art the fundamental you know perception of reality by by crowds and by by communities and like yeah now even amplified by social media the best example which like i believe we all agree on is elon musk who became richest man on the earth uh not by having the most successful car company because you know it's not

they're not producing nearly enough cars to be to be the biggest one but by selling the narrative you know like combined narrative of this new um uh new type of car that is like much better and you know also connecting it to this other dream which is colonizing mars and and people are just you know jumping on that narrative bandwagon more than they are jumping on the future cash flows of tesla the company um so so this is the best example of like all the financial analysts i know uh even my good friends from like traditional finance who are like investing in stock markets for a long time you know they were shorting tesla or they were like at least skeptically like bashing it uh saying that you know i don't want to

short it but i don't think it's sustainable or anything but you know if if you if you invest according to hard fundamentals only according to dcf or and like value investing principles you probably won't lose too much money but you also will miss the biggest opportunities you can you can find during any timeline not only this timeline but like i believe any timeline had had some uh hidden opportunities that were so outside of the box of like traditional fundamental thinking that they were like unreachable to most of the educated crowd and that's why like pepe defrocks and and needs uh uh became linked marines and made it because they understood that it's not it's not about the token being like

value accredited it's about the narrative um and this is something that i'm i mean i don't i don't want people to just you know abandon the like the hard fundamentals and just disregard like stuff that maybe matters in an economic sense but just you know don't take it for granted that this is the way to think about the world because it clearly isn't and we have many examples of it's not being the best way to think about the world um because you asked about um what we can take from it and what we can what we can learn from it what's the lesson i think that um we should look at value investing uh warren buffett as a meme as well and um and then try to try to look at new

memes uh that will help to redefine the fundamentals because i think the fundamentals can be defined only um exposed um in like this a you know a paradigm shift or whatever you want to call it so i think that's that's the lesson and and the best stories in history are those that are being told all over again right so that is also a lesson that's such a good way to put it i think where you know there's definitely this school of thought which thinks that rush like value investors are the rational ones and then anything that is not value is therefore a bubble or it's like gonna pop or it's gonna and you know like if you just think about it this is nothing new right i mean when when apple like was going to make the iphone like

there had been smartphones for years in japan there had been all this stuff before they they they just sold the vision they had the community they had the memes right and like memes are fundamentals i think in in a sense there's sort of no there's no distinction right where you know you think about a different world where palm pilots were were had a much better community had a much better meme they were just designed in a different way we'd be all using palm right now probably and you know it's it's it's these are all things that i think you can't separate out and it's why i think like especially for value messages when they come into crypto they they expect a lot of things to look the same as they do

when they go and buy like a cash-on-cash business and what they don't recognize that the internet is a new is a new medium right and and you should look at what would look like fundamentals on this new medium what would that be right so i think that's kind of what you're getting at as well i feel like we discussed a lot of takeaways actually for investors in the crypto space i mean like way more than you predicted right in the beginning and i think that i like i fully agree i was on board with this before that um crypto is actually all about the narrative i mean um crypto is a and like bootstrapping a new money and bootstrapping new networks is a form of coordination game

and the memes are coordination mechanism and the fundamentals like the tech is also a coordination mechanism in the sense so if the tech doesn't work then um [Music] the memes they sort of take a hit right and and kind of the the coordination takes the hit because it it can't really play out and that's also that's why you often i feel like you see projects do better before they actually release anything tangible to that people can actually try because at that point like before that point where they actually release their product then the optionality in the minds of investors is still so big that they can project anything like any meme can project it on a project that doesn't exist yet but um when the project actually exists

and has to meet the expectations of investors in the real world then kind of the meme can often die um and then kind of the whole like narrative and equilibrium will reset like before the show started we talked about how is it possible that something like cardano or iota how is it possible that they are still in the top 20 like these projects are like so like to put a frank they have like nothing going for them but they have the community they have the memes and they have not ever had to face a reality check in the real world right they don't have a product but i think this is this offers like one explanation for why they can stick around simply because they they never had to fulfill the investors

expectations yet yeah this is something i wrote a while ago on twitter as well that when the project is in like a pre-launch stage you know the optionality is endless it is shapeless it can become basically anything it wants and and investors are kind of pricing it in in a way that they are you know betting on it being a new internet or whatever once the project becomes like tangible one once it starts doing anything like outside once it starts getting real traction which you can measure which you can like you know evaluate you know you can you can have hard metrics on stuff like fees and and like

unique addresses then it's you know the optionality optionality slowly disappears and the reality kicks in but for these projects that never get to that point of actually being used in the real world like iota you know this never happens so the story can can go on without reality checks so yeah i agree that as long as they don't you know start doing anything real they can they can really go ahead with with the narrative and with every bull market it kind of resurrects because there are new people coming in and they are enamored by the by the narrative the project tells yeah the investors buy the narrative right they don't buy something that they

actually intend to use or that even someone else intends to use and that's why it works that actually brings us to another article that you wrote mati um which is kind of the scapegoat mechanism so um jira argued that kind of whenever there's conflict right between like different people or groups of people then you need a way to defuse that and and one way to diffuse it is kind of the skate that this they find a common scapegoat right and then they sacrifice the skateboard and then the friction is resolved um and you like link that to crypto which i thought was amazing and um applied it to the d5 bubble quote-unquote right and that we

can't even remember anymore because it was it didn't like the the the d5 bear market didn't last for very long so you argued that kind of wi-fi and andre cronier was sacrificed by the community so so d5 could live yeah i think that um i i felt that um i actually wrote like the very first draft of this um sometime in 2018 uh when i saw so much hate uh on you know towards ethereum and vitalik um during the dump um and i was like this is the scapegoat for for this cycle uh

it was it was so transparent and uh and yet i mean there's a unique kind of property of of of you know even bitcoin like being resurrected in a different narrative um yeah so with bitcoin it's yeah um it's always something else um it still works for and any three of the same thing so um i think it kind of works in crypto too um but probably um it's sort of accelerating so um so the cycles may be even shorter i mean we might not even notice that it was a cycle and there will be like a constant stream of of scapegoats that get resurrected into something else possibly um yeah that's why i wanted to actually bring up the article because since we

talked about narratives and like how narratives are fundamentals i think it's important to understand what happens when one narrative dies like how can it actually be replaced by another like what is the mechanism there i think one problematic narrative that i see um as like all throughout like since since the since bitcoin it's the sort of narrative of of of equality um and i'm afraid that that's a very kind of red herring narrative like we think that it's gonna solve worlds equality inequality problems and um i i truly think that this is this is wrong it would be nice if it was

like that but um a crypto is like internet is a leverage but crypto is even more powerful leverage and i don't think this solves the problem of the little people or whatever you want to call it crypto will not help to solve inequality it will create generation wealth for people with particular skills but i don't think this will change i mean you know um there's this saying that i always keep repeating like the the more things change the more they remain the same and uh like this is the kind of the the meta narrative like not only within crypto but since

like the french revolution probably before that right that keeps on playing again and again and again and um we always fail to to kind of reach it so so i think that um this is very sort of uh potentially destructive narrative um if that plays out wrong um you know um the kind of the conflict and the violence can um cannot be sustained to markets um and can be sort of spread outside of mars and this is always bad when the sort of pneumatic conflicts uh conflict sort of escapes the market by the way mati actually predicted uh what happened with yarn and andre he started to wrote write

the article even before it really happened he's just you know he's just reluctant to publish a lot of his writings up front um but yeah i i have to give give him a lot of credit for for this particular um idea that mata realized pretty quickly um on the other hand i i'm a bit more optimistic in this you know crypto is not like a solution to all problems but you know as in history you know there are there is a conflict and then there is a resolution of that conflict but you know we are getting better over time in many areas it's not like we are stuck in like any particular era of of conflict we we are creating new

conflict while resolving the old ones uh we are getting better at coordination um even stuff like um like startups uh the old internet was dominated by a couple of big startups funded from silicon valley and only these people got like asymmetrically rich um right now i'm not saying like everyone will be equal or like equally rich but you know it levels the playing field on on how how can we like get there how can we make it um like startup founders today if they are doing like i don't know some defy project with early liquidity they can cash out partially much sooner than like in eight years in ipo and and other people can join them openly and freely

from all over the world to kind of start building that project with them and like get piece of the pie much earlier than they would if they were like waiting for i know facebook ipo to invest in um or they can you know they can join join the project or the company on github or in discord without really applying for a job so so this coordination i would say that will make some things better um the same way internet made i don't know media let's say better by allowing people to be youtubers instead of uh having to go to tv to kind of broadcast their message so so i'd say this this will help a lot in some areas especially in finance and and in startup

world um at the same time i definitely agree that we won't we won't see any like utopia communism or anything like it that would uh that would like create paradise on earth with everyone being equal or anything like it sure but i think that it's it's overselling this this idea of of inequality solving inequality that can you know create this potential sort of strawmans uh that you know um sort of haters could pick up on like um i i've i've seen a couple of uh journalists uh mentioning like bitcoin genie coefficient and stuff like that and um yeah i just i just think that up to say after a decade we're gonna end up

with like extremely wealthy people um crypto people that might be um very near the top of the um uh well like the very very riches of the world and nothing of the inequality as problem-solving thing doesn't materialize um then we might have a um that might be serious backlash i actually thought that um this radical market movements um that you know that will be picked up by like um sort of um the smarter of the like new york times journalists and all this like kind of left wing um um people in the us

but it didn't because it like the web free narrative it's it's pretty powerful because it fits there like anti anti google and thai fang propaganda um but um i i haven't seen it kind of being picked up by by those guys but i but i saw that isn't this is a cool thing for them to actually it's smarter than just being you know um what they are right now um yeah so um i just think that this is a potential uh very powerful narrative that if not fulfilled can be um can create a strong backlash uh i think this topic is super interesting um just like hearing what you guys think how the

world is going to look in 20 years if kind of the last cryptocycle actually plays out and i also see like two big conflicts there like one you have i think i agree with definitely with you marty that crypto will be massively worth centralizing i think whoever says something different i think i strongly disagree with that like crypto is itself like a large network right it expands the internet like over like even like a wider range of people and geographies and and makes it possible to like conduct um commerce like everywhere from everywhere in the world without using your identity it's like massively leveling the playing field but by doing that it expands the network

and networks offer like extreme leverage one person can reach a billion other people right and and hence many markets will be winner take all and um sort of the best product can can win the whole market right or the best couple products so on the one hand you have this wave centralization where you have a new like class of super elites from these original crypto natives but at the same time i feel like we have people that don't really reflect about the need for government in this world and that's what i would like to talk with you about i have a sort of shorter uh answer to that um so when we kind of bridge it to what uh

to what we were just talking about so i think that potentially i don't know if it's correct but equality of opportunity creates inequality more inequality of outcome possibly uh people do not talk about it a lot but possibly this could be the uh how you know how this plays out and and then obviously with the increased ability um you know to to become free um only certain individuals can become free so then on the other hand you will have to have this compensating role of of government or welfare state or or or ubi or whatever you want to call it that will kind of act as a balancing force to that so on one hand you know

you create this radical uh freedom tools in a column and on the other hand you will you need something that will compensate for it right so um and with covit i actually tweeted about it i think that um yeah like this is this really strengthens the you know the welfare state of welfare state yeah um and uh i'm actually i'm i'm sort of afraid because i see it in my home country that um this is kind of a window of opportunity uh for for certain uh political ideologies and um i've yeah i'm i'm actually um i don't wanna say i'm scared but um

i'm i'm definitely concerned and and and i don't know which is worse because i believe that there's a sort of health crisis out there right but i don't know if if the health crisis is um is worse or the or the potential crisis of epistemics or whatever you want to call it um it's worth so i don't know which one is worse but it definitely um it's it's a problem um yeah it's a hard topic and i'm not i don't feel like i can add too much just just crypto for me is like ability to choose like not even like uh ability to choose to hold bitcoin instead of fiat but also ability to

fork if if i don't like something i still can fork and i know it's hard and and it's hard to fork something with network effects and start anew but but if if there is a system that provides this ability to kind of leave and to have multiple options it's it's always more healthy than if you are stuck in one system um so hopefully i i hope this will be the case i'm not sure crypto will keep offering this this ability to choose within itself as as well as outside of itself um how this translates to physical world where where you still can have borders and armies um i'm not sure but i would say it it helps a lot yeah i would be actually

in interested to to hear from sue because he lives in singapore right and uh if if i'm not mistaken um and it's a unique sort of government right so um what do you think about is like the the role of government there is pretty kind of uh unique i would say right and it's always talked about i mean it's city state so it probably has different sort of in inherent conditions i guess i think singapore kind of shows the maybe a way forward for a lot of broad types of governance where because it's so small they can really set policies um that are a bit heterodox or a bit kind of not they don't have to

have a huge debate about it for several years they can just weigh it and then do this kind of pragmatism uh decide what is correct like when crypto first came around singapore actually had a lot of exchanges and then the the uh after silk road the government decided you know for whatever reason this is just not something we want so they kicked them all out they lost all their banking it bit moved to new york a coin moved to japan a few others had to go overseas and then you know in the past few months and really the past year and a half they they thought wow like you know all these billionaires are getting into it like tech guys are in it like this is this is great now so you know like a lot of the cryptologies have moved to singapore in the past year uh they they've really

supported crypto now so i think like singapore kind of shows an interesting thing where it's like the government is very much just trying to be where it is be where the the whole market is going so it's like um i think for me like crypto is the most sci-fi part of what's happening in the world right now and i generally want to be where the most sci-fi stuff is because that that's most likely what's going to grow the fastest and so i think simple has always been kind of on that forefront and and seen it as sort of you know we don't stand around and say this is good or bad we just say this if this is going to happen then we want to be a part of it so i kind of see government as being very accommodative to crypto

up to a point at least the smaller governments you kind of see that in like estonia or some of these smaller countries like malta as well to some extent um but i do agree with you like i i think that it's going to be a big reckoning uh down the line as you get this extreme inequality from this and i think also that like one of the things that kind of scares me about the us is that i think they're definitely headed toward a more european system of sort of asset taxes where you know like the richest people in the us haven't been paying tax like for many years now right like trump like he's billionaire hasn't paid tax in at least 15 years that we know of uh so possibly more even before that and you know a lot of these big tech companies haven't paid taxes

since ipo so i think you might see like you know like a like a like a short-term phase where probably not in the next few years but maybe in the next 20 30 years you may see a move toward european socialism if you have democratic socialists take power and it'll be really fascinating to see how crypto deals with that narrative because there are some elements of it that those type of folks actually really like about crypto and then on the other hand there's some that they're going to have problems with are they going to try to influence the governance of these crypto networks with their own kind of normative views so i think i think on net like the government reaction to crypto i think in the medium term will be very

dovish because they see it as accommodative like like they it as sci-fi they see it as something that give it a chance to see what happens and then maybe after it happens they you know there's a further like reckoning again and they say was this what we actually wanted to happen or not and then you know if it was then then and these people do rise up to the values and you know make society better in the way that societies that are democratically elected they would think that this is actually better what we've done here this is not worse so i think if crypto does fulfill that kind of economic freedom mandate and and it does make people's lives better and easier on net then i think you know i don't think people have that much to worry about i mean in every kind of epoch

you've had wealth inequality from early adopters from from this kind of thing i don't think that's anything new to crypto and i do think there will be a lot of selling on the way up from ogs so i don't think they'll actually be as risk rich as people think like just thinking back to like like ogs that i knew in 2013 like yeah some of them are rich but a lot of them are actually a lot poorer than you would you would think so i kind of say the same thing and it happened this time i mean i remember talking about ethereum with some folks like was at 100 and people saying yeah it's going to go to 10 000 immediately tons of people sold that 500 saw tons of them sold at a thousand dollars so you know like i i think the whole inequality thing you

know it's it's like these gartner hype cycles a lot of guys sell out their first 5x their first 10x and so there's no difference and it keeps distributing out so that would be kind of the dovish case for crypto inequality where it's not going to be as bad as people think uh it's going to get distributed just from price going up from people being log wealth if i can use that meme uh so in that sense maybe it's extremely good that that it's such a strong meme that there would always be another bear market because if there wasn't like people didn't believe in that that's how we traveled that would be no reason that's how we get their coins that's how we get all right guys hope you enjoyed the

first half of our conversation with mati and fiscantis of z prime please come back next week where we talk about polka dot different layer 2 solutions and the role of ethereum and bitcoin in a world of increasing blockchain interoperability