Stripe Bid $53B for PayPal: Who Actually Wins Stablecoin Payments?

Transcript

There's a a cloud business directly indexed to OpenAI. It's called Oracle. Oracle has got a big contract backlog where they face off with OpenAI and their stock price dropped 4% today. It's plumbing new lows as we speak, down 50% in the year. So, it's not going to lower demand for semiconductors. still need semiconductors but it is uh creating credit risk if you face off with open AAI who signed up a trillion dollars in these revenue obligations. That's why Oracle is feeling the pain here. Uh there was a bit of an own goal here. The the founder of that company is a Carnegie Melon University graduate. So you know we lost this amazing talent to

a geopolitical competitor which is unfortunate. Hey everyone, welcome to Bits and Bibs where we explore [music] how crypto and macro collide one basis point at a time. We're here to discuss the latest stories in the worlds of crypto and macro. And as a quick market snapshot of the day, Bitcoin's around 65K as I'm reading this, ETH around 1890, Saul around 77.5. Hype is back to 62. WTI is at 83. Brents at 89, SpaceX at 120, Circle at 65.5.

However, before we begin, a quick commercial [music] break. >> This episode is brought to you by Cape, America's privacy first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location, and your data actually stay yours. Get 33% off 6 months at cape.co. co/unchained. Heads up everyone. We've now fully transitioned Bits and Bips [music] to its new dedicated channels. So if you're not yet subscribed to the new Bits and [music] Bips channels on X, YouTube, Spotify, Apple Podcast, or wherever you get your podcast, go there and subscribe now. For the next few weeks, we'll play segments of the full interviews on

Unchained as a reminder. But for now, you'll only hear those short segments [music] of bits and bips on Unchained. No more full episodes. You can get links to all of the dedicated channels with the full episodes at unchainedcrypto.com/bits [music] and bips spelled bits. Thanks again. [music] All right, everybody. Welcome back. As always, I'm your host Austin Campbell, high scholar of Zero Knowledge Group. I'm here with my usual two co-hosts, Rahm Alawalia, Maester of Wealth, [music] Leader of Lumi, and Chris Perkins, the golden hand of Franklin Crypto. But today, we have a very special guest for our opening segment,

Alex Wilson, founder of Cyclops, previously head of crypto at Payments Giant Shift 4, co-founder of the Giving Block. And before we begin, a quick reminder that Bits and Bips has its own channels now separate from Unchained. If you're not subscribed here, you're going to stop seeing these episodes. So if you hate us, stay off. But otherwise, don't lose your regular dose of The Sharpest Takes in Crypto. So you can subscribe on X, YouTube, Spotify, Apple Podcasts, or wherever you're watching so every show keeps showing up in your feed. Now, today we're going to talk about stable coins first, but Alex, as somebody who's

been an operator in the space and a guest on the show, could you give us a little background as to what you've done and orient our uh listeners as to why you're here? >> Yeah, thanks for having me on, guys. And um yeah, I mean, Austin, your your intro was a good starting point. So, this is actually my my second stab at things starting Cyclops. um back in 2018 started the giving block where we helped charities accept crypto and stable coin donations. And you can imagine in 2018 telling charities uh to pay attention to crypto wasn't wasn't that easy. Um but we stuck with it and we ended up working with you know most of the biggest charities and had really dominant 80 90% market share. Um that business really took off and we sold it to Shift 4 about four years ago. Um, when Shift 4

acquired us, that was really their first foray into crypto and stable coins and I became the head of crypto and stable coins there. Uh, we stuck around for four years, which is actually, I think, longer than we probably would have expected to because we really were learning a lot and really enjoyed it there. And so we built these different products for stable coin settlement, for payins and payouts, um, for the hundreds of thousands of merchants at Shift 4. And then just about a year ago um we started Cyclops because we were pretty unhappy with all the solutions in the market and we really wanted to build a company that was purpose-built for the payment space. So that's a quick overview.

>> Awesome. Thank you. So then let's start with some news in stable coins payment space and let's just lead with the big one. So, Stripe and Advent have launched a bid for PayPal. Uh, where essentially they valued PayPal at about 53 billion. I think that's about a 28% premium over the close at the time, though PayPal has traded up from there. Um, and this is Stripe's second run at PayPal. Really, the first serious one here. Um, PayPal's board, as boards always do in these things, says the offer is inadequate and undervalues PayPal.

You will never once as a listener hear a board be like, you know, honestly, that's too much money. You have overvalued us. This is always what they say. And where we are is looking at this from the perspective really of distribution. PayPal has 400 million plus active accounts. Branded Checkout is just a cash cow for them. It processed 1.8 trillion in 2025. If you bolt that onto Stripe's merchant network, they have a much more two-sided platform. So, it's not a surprise this bid came out.

At the same time this is going on, Visa is launching support for the Visa stablecoin platform, OpenUSD, support for USDC and USDG that allegedly is going to reach 200 million merchants and 15,000 FIS. Visa settles like I don't know 15 trillion annually. So let me start with the PayPal and Stripe dance. Um what do we make of that? What do we think of what Stripe is doing here and what this says about where the payment space is going as stable coins put pressure on it?

>> On my side. I mean, I think it's funny because I think the last time Rahm, we talked and I was on your other show, we were talking about private versus public valuations. Exactly. And that's of course a big driver of this. So, I think Stripe is taking advantage of their their private valuation being a lot stronger than the multiples we're seeing in the public markets. And ultimately, it's a it's a good idea. Um, I mean, ROM can probably talk more numbers on why it's a good idea from a valuation perspective and things like that, but I do think it makes sense, right? right? For as long as they can have such a premium in the private markets, they might as well buy up payments companies um that are trading at, you know, historically very cheap valuations right now.

>> Yeah, I think you got it exactly right. I mean, the funny thing is normally you see uh liquid public markets firms using their currency to acquire private companies, which is exactly what happened with with you in the Shiffor acquisition, but now you're seeing the reverse because VCs are trying to avoid marktomarket. they can enjoy the management from that and you know Stripe has maintained an elevation on its valuation despite public markets firms in the payments category correcting so they're taking that private markets kind of funny money currency and using that to drive acquisitions of real businesses that have lots of free cash flow I agree it's a smart move on on Stripe's part >> so from the integration perspective um

what have we seen over and over again in stable coins it's uh distribut in any business frankly distribution's king um and you know Austin how are you thinking about the integration with tempo with the potential distribution that were we the distribution potentials with PayPal I mean PYUSD never really got off the ground um and really never had that material product market fit I always wondered why they came to the table with distribution and I think I don't know maybe some of their public compliance held them back. Maybe they moved a little bit slower than others.

Um but but I guess you know why didn't that distribution work for them and how is it going to work for uh Tempo? So I think the first part I'll start with some thoughts on PayPal because this also relates to how they got here and why they're being targeted at this valuation. I think PYUSD has been a failure from a distribution perspective because PayPal didn't choose to make it succeed, right? And what I mean by that is you have a platform where you're holding an immense amount of user funds. You have them on your legacy ledger and you could have had you embraced stable coins had the second or third largest stable coin

overnight by actually embracing them and they refused to do so. The other interesting part is until recently, which is when you started to see some degree of growth in PYUSD, they were only offering it to the people who least needed PYUSD, which was in the United States and at relatively small values. So, not really usable for institutional trading. You could mint like thousands to tens of thousands, which if you're, I don't know, Cumberland or Winterbute and you need hundreds of millions to crypto trade, like what are you going to do?

wait a year to ramp that up at those limits. So, I think PayPal very much did the classic, call it early innovation thing of quote unquote taking the newspaper and putting it on the internet by which they literally took their current product framework and put it on a blockchain. And that doesn't work on a blockchain. The blockchain demands are different, the needs are different, the customer types are different, the market opportunities are different. Like Alex, I'll throw that over to you after I finish what I'm saying here. But I think what happened is PayPal chose to fail, as weird as that sounds, by just not evolving or iterating and kind of putting the old

thing up there in the way that they were used to, Chris. Like that was not really innovation in the meaningful sense. And that I think is the missed opportunity. I do know there were voices at PayPal who wanted to do significantly more. I don't know if it was the CEO, I don't know if it was the board, I don't know if it was risk and compliance, but clearly they could not get over the hurdle to actually do those things. And so when I look at this from Stripe perspective, given that they've already integrated Bridge and they're starting to work on stuff out in the wild, I wonder if they're seeing the exact same thing I'm saying like here and being like, well, we'll just do that.

>> Yeah. I mean, it's it's interesting you say that because it's exactly what we see at a lot of these other big payments companies we're working with where they they often get so frustrated, I think, these crypto teams internally that they can't get much done and so they'll take sort of whatever they can get and often that's something that's really easy or easy for the leadership to wrap their head around when they're not super crypto or stable coin native. So, they look for something really simple, but it's you're kind of set up for failure from the beginning. Um, and for us, like the biggest opportunities are much more B2B, like high large transaction value rather than, like you're saying, these small sort of consumer amounts. Um, but so often we hear from them like, oh, we want to start with something really

simple like a pay with crypto feature at checkout, even if we tell them like, you know, it's kind of a novelty. That's not where you're going to really see the traction and the benefit of adopting stable coins, but so many of them want to start there anyway. And then you're you're kind of stuck, right? because then there's there's not great traction and they don't want to do anything else. >> When you have a legacy business model, it's often times very difficult to adapt it um and move into a new space that's very uncomfortable for you. I think part of the challenge with PYUSD is its lack of like international accessibility and and DeFi accessibility.

And I think some of that was probably driven by some of the lawyers and the compliance folks who said, you know what, we got to protect the mother ship, guys. like we we can't take this kind of risk and bring this kind of scrutiny and that was the last um you know that was the last cycle. I feel like things are different now and I feel like it's different now because I'm seeing companies be much more aggressive in saying no no no no like we have risk for if we're not in this space which is a lot different. It could have been a timing issue as well. Um and of course execution. So part of what's the right way to say that? I do think there was a timing issue. I do think there was an execution issue. I think you've identified both of

those correctly. But I think Alex is right that there's an element of the innovator's dilemma here, right? That is to say, if we do these things, we risk disrupting our own business. So our teams don't want to do it. So we instead take the things we can get and instead you just sit there while other people disrupt your business. And by the way, if you don't think that's happening to PayPal, go look at their stock price from like the early 2020s to present. And so you end up in this world where by not doing it yourself, you let other people do it for you. I may have said at a couple of meetings at previous stops I was at, we should either do the whole thing or not do this at all. Like actually the worst thing to do is the halfass thing because then

we're going to get stuck, right? like either truly transform yourself with stable coins or actually skate away from them as far as you can. Now, Alex, you mentioned the B2B angle where it might be easier to get traction there and you've been in the payment space significantly. How would you view a combined Stripe plus PayPal from a B2B and like business side angle of that platform? >> Yeah. Well, I think first of all like Stripe out of all the payments companies doing the best job when it comes to crypto and stable coins, right? That's pretty obvious I think for all of us. I don't know how much of the PayPal stable coin and crypto business they would even necessarily want to keep, right? I I

think they would stick to the newer things they've done with Bridge and Privy and the other acquisitions. um and they would just refocus the priorities probably more around things like stable coin settlement rather than some of that say the consumer checkout products um at least when it comes to stable coins for the broader business I mean I think it's just more merchants that they can sell these stable coins products and rails to Rahm how would you look all right so say you're a PayPal shareholder right now you've got Stripe coming I agreed to some extent with the public private stock divergence, but I think it's also pretty clear that Stripe cannot buy PayPal with stock like how would you

look at this from a markets perspective? If you're like voting on a merger, what is going to move you one way or another? >> Number one consideration is price. At a certain price, there's a willing buyer and there's a willing seller. PayPal has free cash flow that is attractive and Stripe needs to show growth in free cash. You know, PayPal's free cash flow yield is around 11%. As an aside, I'm not sure why you'd want to own sovereign debt when you find assets like this yielding 11%. And that's true for a lot of payments companies, by the way, that are on sale.

So, you know, Stripe can take PayPal's earnings, which are fetching a low multiple at 10 and a half times, and Stripe can apply its higher multiple and cause a rerate in their future stock price. just by wrapping that earning stream. So, it makes sense for Stripe. I think PayPal's just playing a bit hard to get. They've had a lot of headaches around this thing. Like a board member stepped in in the in the CEO role. Uh payments in the the payments competition is intensifying. It's an incredibly difficult category. Um I think they're holding out for a reasonable price, but there's a transaction to get done at the right price.

>> Okay. So I want to move slightly on let's call it from just specifically talking about the PayPal angle here and think about the distribution battleground in general. Open standard is coming. Um Missouo has cut Circle to underperform with all of the competition. JCB uh Japan's largest card network signed anou with circle. Um, other places have started to build on this. Pix has of course integrated a few things. And what I want to ask here is as we're looking at the landscape right now, as we see the PayPal stripe dance, as we see Visa, Mastercard, as we think

about what banks are going to do, Alex, I want to start with you because you've had a viewpoint here. What do you see as the emerging winners and losers the more this dance goes on? Um, I mean it's [clears throat] circle stands to lose the most really, right? Um, but whether it's O USD or some of these other consortiums or newer ones that aren't even out yet, I mean it's really hard to know which one's going to be the winner. Um, or even a serious competitor, it's still just so early for for OSD and a lot of these other sort of bankled consortiums which do a lot of innovation theater I would say, right?

they have a fancy announcement, a lot of names, and then you really don't know for six months, 12 months what's going to actually happen. Um, but I do think at least the group they've assembled for OSD is is certainly threatening to Circle and and certainly interesting, but it's going to be hard still. I mean, Circle's still got a lot of market share and they're they're pretty deep in a lot of these relationships. It's not going to be easy to disrupt them. Um, I mean they might have some new competition with O USD, but I don't I don't think it's so certain that they're really going to get disrupted very quickly. >> What about your alma moater Austin USDG?

Didn't mention that. >> So, I think USDG is going to be a fascinating like test case of what happens if you show up with your own installed user base in the first place, right? Because Circle, as we know, is not really deeply retail facing. They use Coinbase for that. that's been a majority of their distribution. But USDG just showed up with a small company that has a handful of users called Robin Hood attached to it. And I think that is a game we have not seen played in the stable coin space before, right? Which is to say a company coming with a large user base and pushing stable coins to those users. Essentially, Robin Hood

appears to be doing what PayPal probably should have done, which is just take every single user they can get their hands on and offer them USDG at certain terms. Now, they also, of course, Chris, this is more complicated. They launch their own blockchain. They have integrations with a lot of like the major DeFi people like the unis swaps of the world building on there. They have a whole earn product, right, where they're giving a call it promotional 7% yield right now. So they've got a whole ecosystem push behind this to try to solve that circle problem of like what do you do with the thing and the answer is well they brought you the whole meal.

So I think that's a business model we haven't seen. It's a reason why I'm actually optimistic about some of these broker dealers getting in where if they really choose to do it, they have the product, they have the architecture off the shelf. You know, another good example, we haven't seen exactly where they're going yet, would be Fidelity with their stable coin. >> Yeah, I I think the USD DG story is fascinating. If you want to come to my arcade, you got to use my token. The question that I want to see is, can I use that token at everyone else's arcade as well? And we'll see. Um, very familiar. This is a little bit different than the payments use case that we were talking about earlier. These worlds blend. Um, but for the big exchanges, the big clearing houses, stable coins

are now your net interest income, which is a core core core part of your business model. Um, and I think everyone's looking at at a stable coin as, hey, that's my net net interest income. Um, and and it's just a fascinating place to be. Now, does USDG transcend itself into a payment stable coin? Will you see a difference between net interest income collateral on my exchange float whatever versus payments uh use cases the same asset really they're gen you know at some point they'll be genius compliant you can use them for everything I personally think you're going to see massive consolidation um anytime you have regulated industries you will see consolidation because the the the takes going to get squeezed more and more and

more and then it's just about scale and size don't know who those two or three are going to Don't know if it's going to be regionalized. Yes, I think there's going to be certain cases where if you come into my arcade, you got to use my token and people want to come to the arcade. Um, I don't know. We're at the beginning of the story, fellas. >> Alex, who do you think's got a better shot? JP Morgan with their stable coin or a Tempo offering for from Stripe or like a nish specialized stable coin provider? [sighs] >> It's a good question. I I mean, out of all the ones out there, I would think something like an OSD has the best chance of at least appearing more neutral than a lot of the other ones. I think it's going to depend on how the governance really works for something

like OSD. Um, but I I I don't know. We've seen a lot of these bank related ones for a long time now, and they've never really gone anywhere, and they haven't really played nice with the outside world. Um, so if they if they are willing to go in the direction of being more like a public blockchain and have some better interoperability, then maybe they have a chance, but until then, I I'm pretty skeptical of the bankled ones. >> And what's your view on Stripe and where it stands today? You know, they've got a blockchain play. They're doing more M&A. Uh, they were uh priced really richly in 2021. Like what's your overall assessment on where Stripe is? Do they have more to lose, more to gain from where they are today?

Yeah, I think they're they're just a different stage than they they were, right? They're they're just a more mature business than they were a few years ago. So, that's why they're looking at new areas of growth, I think, right? Whether it's M&A, going deeper into stable coins and crypto. But, I mean, I I can really just speak to their crypto and stable coin plans. Like, they're doing the best job by far out of any payments company. They're the only ones who I think are taking a shot at really trying to disrupt themselves before someone else disrupts them. Um, and you got to give them credit for that. Um, but I think they they see where things are heading and and good for them for really making some serious bets there.

>> That's the right answer to get an acquisition offer, sir. Acquisition offer from Stripe. So, congrats there. I think [laughter] >> that's all right. They gota they're gonna have to wait a wait a few more years before we're open to that. >> So, I'll I'll close out. Uh, Alex, I know you need to step off here, but we appreciate you taking the time. And everybody listening, please pay attention to what Alex just said. disrupt yourself before others do it to you. Like this is the key to getting out of the innovator's dilemma. Spoken by somebody who's done this once already and is now doing it again. So, Alex, thank you for joining us here. For everybody else, we're going to take a quick commercial break and we'll be right back.

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at unchainedcrypto.com/bitsandbbits spelled Bips. Thanks again. [music] >> All right, everybody, welcome back. Uh, let's talk about stocks. So, there has been record US equity issuance, which is often a late cycle tell. And the SpaceX IPO, is that the roundtrip poster child? It's already back below its 135 IPO price.

Uh, it's trading slightly under 120 the last time I checked before this show, meaning about one trillion of market value is gone from the peak where it had traded up significantly right in the first days after the IPO. What's going on underneath here? The AI capex boom is soaking up cash that companies, excuse me, that companies would otherwise use to buy back their own stock. And we've been seeing call it a structural drag on US equities as a result of this. So 2026 uh Q2 was a record quarter for US equity issuance from Goldman. Um the Wall Street Journal framed this as running near the 2021 peak. It's one of the

highest levels on record. The last comparable extremes were 21 and then 2000. So SpaceX did the round trip that we just talked about. Securitize had originally jumped and now has fallen down from there as well. So Rahm, I want to start with you on this. We're seeing record issuance. We're seeing buybacks being crowded out. Are we seeing late cycle top signals here? What is going on? >> This isn't late cycle top signal. This is what happens after you have a couple events. One of which you pointed out was which was a SpaceX IPO. We had other events that were taking place also. The bicesentennial is one of these mini euphoric moments. People get really

excited and then they get less excited afterwards. Same thing happened after Trump's inauguration. If you remember, he's talking about nuclear space, rockets to the moon. You had this little mini euphoria and then some weakness after. Uh you also had Kevin Worsh uh which had his first press conference uh and he led with a more hawkish tone which he has to to instill credibility. Um so you had a lot of things going at the same time and the other which really popped the bubble was Micron earnings like one day after Micron's earnings you started to see deflation in the semiconductor category which had an extraordinary momentum runup on the issuance. It's not

excessive yet. Like the pace of issuance is still considerably less than what we saw in 2021 with all the spaxs and the IPOs. You still have reasonable deal underwriting. Like I'm not going to go buy SpaceX stock. It is overvalued. It's still low float though, so it hasn't unlocked onto the market yet. So that can't be the driver. I think it's all of these events together. And then of course you've got the post July seasonality that's showing up now. You are seeing rallies in quality stocks like ICE uh which I own in Broadidge which I just bought today. Insurance companies are making a comeback. So it's

really a weakness in these year-to-day high momentum categories which sucked up so much capital and attention and now that's released and flowing into other categories. I saw an article in the Wall Street Journal today about this 19-year-old kid who said he sold Microsoft and Nvidia and he wanted to buy quote unquote aggressive quote unquote high growth stocks names like in Quantum and Space. Like that's what's happening. That kid's probably not making the best decision now. I expect we're going to see dramatic cloud business growth from Google and Microsoft and Amazon. They've been left out in the cold. I I expect their capex decisions are in fact productive and there are opportunities in the quality

parts of the market. >> Another interesting one I've seen on that angle has been the recent performance of Apple. Right? Is one of the companies that essentially did not burn a bunch of cash on AI and instead can just you know continue buying back stock. they seem to have let everybody turn right and continue like going down that road and just continued on the path they were staying on. What do you make of that? >> You're correct. I would say this, you know, Apple's navigated it quite well. I mean, you know, Tim Cook who's handed the wheel and his job was not to mess it up. He bought back stock, had good capital allocation. He actually cut capex by scrapping Apple Car. He didn't

blow a lot of capital on building the super AI Avengers team like Meta. Then spent a bunch of money on data centers. They did a deal with Google Gemini uh around how to reinvigorate Apple Siri product. So they did it in a capital efficient way. It's very very thoughtful approach. I would say this on Apple is that uh it's now at a 35 time 4p. The last time we saw this uh was at August 2020 is the it's it's rarely been this pricey now. Um I doubt there's much upside left in Apple for from where we stand.

>> We we've seen the same theme in the crypto space for for a very long time. How how often have you seen TGES or even IPOs with the crypto companies that we've seen of late um spike on the narrative and then ultimately um come down materially? I think investors are starting to realize that the narrative works until it doesn't. And I think you're seeing some some just um cyclical factors now where you believe and you believe and you believe and then all of a sudden it's like okay that that press release was amazing. I love the storyline but let's get down to brass tax. Ultimately investors need to focus on fundamentals and that's what will prevail uh longer term. Look, the economy is doing pretty good right now.

We saw um much softer CPI last week, softer PPI. Um despite the fact that it looks like the war is starting to heat up again. Oil hasn't gone to 200 overnight. Um it feels like we're we're f you know the war is the war. You can have uncertainty up or down, but it seems like that uncertainty level is like the markets are getting used to this war. Um and and so it feels very constructive. I know have said that for a while now. Um because again between macro and some of the fundamental projects that we're seeing in you know across our space stay focused on fundamentals not narrative. Um and that's the play.

>> So I guess as a final point on this one what I'm trying to keep an eye on is Rahm your point on valuations like Apple. Usually when valuations are this high at a forward basis, things don't look great in the United States, but we'll see where it goes. I'm not 100% certain that's the end state here. So, time will tell. But speaking of things that have been disruptive for markets, let's talk a little bit about AI. So, Beijing's Moonshot dropped Kimmy K3, an openweight coding model, and we saw AI and chip stocks sold off across Asia and the US. Excuse me. The real drama. Okay, this is the second case of cheap

openweight Chinese models pressuring the US labs modes. We all remember deepseek questioning the scarcity thesis given all the hundreds of billions of AI capex. Is there going to be a rotation out of mega cap AI? And there are nation state level concerns here. On one level, there are a lot of contested points around this, right? the benchmarking story. Allegedly, they topped Enthropic and OpenAI on one leaderboard, but also K3 lands behind on many general tests. Did they optimize it for a specific test or specific benchmark? So, we'll have to find out. Full public release for the models weights are set for July 27.

Anyone can download it, anyone can run it, and we'll see what happens there. There's also a debate around Moten compute. So, Chinese labs have figured out with equally great talents and cheaper access to usage data, they've been able to make similarly powerful models. I'm expecting a lot of competition from this playbook from Qua Yin. Apologies if I've butchered that. Uh, and then Peter Fenton was saying, "Caper open models are bullish for the infrastructure layer. It's almost a thermonuclear battle to provide the compute." Um, on the other hand, Gavin Baker via CoinDesk, K3 may be an important

inflection point, potentially negative for anthropic and open AI while being net positive for essentially every other company in the world. So, Chris, we saw this with Deep Seek and Capex and markets kept climbing. We also know the level of nation state concerns here has been rising exponentially as models have improved in quality. What are you making of what's going on here? >> First been kind of blown away by the acceleration of uh innovation and and the outputs that we're seeing. Um every time there's a new model release, it's for a while they're just leaprogging each other. But when you step back and see where these models and their outputs were a year ago, a year and a half ago,

the the pace and acceleration, we're in the middle of an arms race in certain ways. That's really I mean the techn is improving very very fast. Um, as a free markets person, you you like to see competition. Of course, to the extent state actors are involved, sometimes it's always not clean competition. Um, I I think it's just fascinating how that the Chinese have gone open source, which is not normally they're attacked, and they're doing so because they have to. And the fact that they're able to create innovation in in in an environment where they don't have the compute tends to result in outputs that are highly optimized for what they're good at. And so I think there's a lot to learn. Um look, and I think America across corporations,

they're grappling. They're like, damn it, these token costs are so so expensive. I mean, I'm I'm seeing that in real time across the companies I deal with. It's unsustainable. And so to the extent that this puts pressure to to optimize like this is not a usable technology if it if it blows through uh your your tech budgets, you you just you we're already seeing rationing in many places because of the expenses here. So hopefully in time these expenses go down, the utility goes up, the deflationary impacts in the economy are are realized. Um very interesting volatile moment. Um, and you know, I can't wait to see how this plays out.

Rahm, what are your thoughts? Bo, >> I agree with nodding my head all the way through. Uh, it is a war with China for the next technology that is transformational. Uh, and China is playing warfare by offering these lowcost models like uh this model, a 2.8 8 trillion parameter model uh 1 million token context window which rivals Google Gemini uh and it's priced at a hundth of what open AI is so it is significantly negative for the equity of openthropic there's a a cloud business directly indexed to open AI it's called Oracle Oracle's got a big contract backlog

where they face off with open AAI and their stock price dropped 4% % today. It's plumbing new lows as we speak, down 50% in the year. Uh so it's not going to lower demand for semiconductors though. We still need semiconductors, but it is uh creating credit risk if you face off with OpenAI who signed up a trillion dollars in these revenue obligations. That's why Oracle is feeling the pain here. Uh there was a bit of an own goal here. the the founder of that company is a Carnegie Melon University graduate.

So, you know, we lost this amazing talent to a geopolitical competitor, which is unfortunate. But I do agree with Gavin Baker's take. You know, the cost of intelligence is dropping. That's a good thing. We need more intelligence. My wife would be the first to tell you that we need it in our household everywhere >> with the real world. you know the next mission with AI is going beyond intelligence and touching workflows. Uh so overall it's a great development for humanity but there are local costs uh at these frontier labs that are going to face the brunt of greater competition.

[clears throat] So let me go to something that I have been observing here and sort of provoke a few more questions out of this hopefully. If it is true that openweight models are going to become highly performant and we can run them locally, what does that ultimately say about where the value capture in AI is? From an investment thesis perspective, where are the companies that created value not just for the world because I think all of us agree that AI models have created value for the world, but like capturable long-term value for themselves. I'll I'll throw an idea out there like everyone knows semis are a direct

beneficiary of capex spend. That's that kind of capex receiver thesis but they've rerated. They're fully priced now. They're coming back down to earth. I believe the next leg will be the AI beneficiaries leg. Companies that can demonstrate strong productivity growth through the use of AI. Within that financial services stand to benefit and healthcare. There's so many use cases in financial services. We're going to see an AI native bank that's built front to back from customer acquisition to customer servicing to underwriting to loan documentation, execution.

That's going to happen. That company doesn't exist. And you're going to see that in healthcare around diagnostics and sharing of information, proactive guidance to the patient. uh we haven't seen that take hold yet. The chachi PT moment was in Q4 2022 and we've still mostly been in the packs and the picks and shovels a part of the investment thesis as opposed to AI beneficiaries. >> So in in crypto speak you're talking about the app layer.

>> Yes. >> Right. That that is the value acrruel. You know in crypto land we had the fat protocol thesis where there's value acrruel to these blockchains. It's kind of like you know it rhymes here. Uh and I I agree Rahm the the value ultimately acrru to the app layer and I think you're going to see some interesting differentiation on top you know and and it's not going to be dissimilar to quantum ultimately you're going to have these massive expensive potentially statec controlled quantum stacks and guess what apps are and they'll probably be highly controlled um by sovereigns who eventually launch them and again it's going to be the apps that that end up um driving that value. So it's kind of a similar thesis when you look at apps on blockchains, apps on AI stacks,

ultimately apps on on quantum stacks. >> So I think one interesting point about the AI adoption thing is I wonder how much of this is going to start happening because they will be pulled along by consumers. And I say that specifically, Rahm, because you raised health care. I know tons of people who are now taking things their doctors say to them or like conditions that they have and putting it into AI and trying to get a first cut not just from the perspective of like hey AI diagnose me but before I go to a doctor I want to understand more of what's going on here and have a vastly more informed conversation with the

doctor than I would otherwise have. I think there's also been a lot of testing of doctor's claims in ways that maybe were not there in the past. And you know, essentially my doctor thinks this, but let me put it into AI. Let me shop for a second doctor if I don't like it or don't think they're right. So I'm wondering, and I don't have an answer to this, if that behavior is already observable in the health care space or if we're too early in the AI adoption curve to really see the impact here. But to me there is a possibility industries will be forced to start adopting things because part of what I'm seeing in healthcare in particular and like you

know I I as you can tell from my hair was a mathematician by training originally and so if nobody was paying attention during the World Cup apparently anthropics claude fable 5 solved the Jacobian conjecture which is for non-mathematicians I'm going to make this real simple It's a roughly 90y old problem in algebraic geometry. It was proposed by Keller and it basically was talking about how spaces behave. And what Claude was able to do was provide a counter example to the conjecture. like it actually came up with a specific knowable computable counter example to

the conjecture saying this cannot possibly be true in general because here I found a specific time where it's not true and that is a huge result. This is one of the 25 most important problems hanging out there unsolved in mathematics right now. How long until we're seeing that with the quality of these models with regard to like health care, you know, good example, if I got cancer right now, I'm probably going to try to get it sequenced to go slam it into one of these things and be like, "Okay, what do I do about this?" Like, we may already be very close. And so, I guess I'm asking the question of what is the pull function to increase the rate of adoption here?

>> Well, a doctor's using AI now for diagnostics. Doctors can got the skill level of like house now, right? So, it has powerful diagnostics capabilities. So, I think that that's there, but we still have so much more to go. Like the promise is still ahead of reality. Even now with the latest models, there's still opportunities for these models to improve. And the Jacobian conjecture, it's a great accomplishment for math. But what real world impact does it have? real world impact is we found a way to target this cancer or here's a way you design a fusion reactor that produces net energy um or here's a way you keep your

telmerous you know longer for Asian we still haven't seen that kind of impact which is actually what matters in the world >> I mean have we not found some of those impacts I now I'm shooting from the hip here but haven't we had various results in like healthare They are already found by AI like >> there's some incredible protein folding you know >> great >> what's the consequence so we've had novel stories the guy with Australia and his dog there's another guy who diagnosed something for with his daughter like there's some novel stories that are emerging and they have some nice local impacts um but you know we still have more to do >> always tons more to do but I I think the

acceleration is is profound I across the board, every single discipline is being impacted. >> I also wonder how much of that what is the right way to say this is adoptionbased. Like doctors, I'm not trying to insult you guys. I have a lot of doctors and nurses in my family, but doctors are old. And so I'm wondering how much of this is just an adoption question because I do think some of these impacts are large to like the alpha thing which is what Chris is talking about.

>> Rom for you what it does is allows faster cheap molecule design novel proteins and specific like custom therapies for various diseases and mutations. So the impact is real. The problem is we've got to do all the studies or get emergency authorization to use these things. It seems like it's more the bureaucracy holding that up. >> I I think the adoption is self- financing because if you're using AI, you have an unnatural competitive advantage. For example, Eli Lilly is using ANI AI and they're driving results. I know we're using AI in a lot of what we do that drives productivity.

So if you are using AI, you're going to grow and take market share. And if you're not using AI, you're going to get competed out. So that's going to force adoption. >> It's also evident on the battlefield. Just ask Dario. >> Yeah. And I mean, not just there. I uh as I've been observing this right like the battlefield iteration as we start looking at the nature of warfare if you look at what's going on with the front lines with Ukraine pushing Russia back largely using almost entirely a dronebased strategy some of which are human piloted some of which are probably AI like piloted even if only over short

frames right now I think we're seeing more and more of that iteration like today all right it's a cartoon So, let's not get over excited here, but did either of you guys see the Anderil ad that dropped >> on X today? >> Not yet. >> All right. So, we've got self-flying like helicopter drones that are now engaging in like both target interception and like disabling anti-air defenses to protect like manned US military craft. These things, I think, are coming pretty rapidly as people adopt. So, I'm going to bring this all the way back to where we started. And Chris, this one's for you to start.

>> Oh, go ahead. >> If you're looking at what's going on in the frontier model space, and you've seen the special pleading from Open AI and Anthropic to like restrict these things and keep them out of people's hands, but then China just drops an openweight model that will do it all. How are you thinking about this from a national security perspective? It's it's tricky. Um that there are we're in a national race. Rahm said it beautifully earlier. We have to be a leader in this technology. Full stop. Um and we also have to build in the controls and the you know the end of the day your technology reflects your ideals

and we need to make sure that it powers our ideals and doesn't isn't used to to change our ideals or or go in the opposite direction of ideals. So look, we have to accelerate. We have to be able to outperform our adversaries on the battlefield. There's a massive race going on. Talk to talk to anyone in the defense space. And again, it's not only just AI. Um, you know, I think crypto has important national security aspects. And there's also an arms race going on in the quantum side. Why? Because AI is accelerating all this stuff. So, you got to own it. Um, you know, how do you how do you defend it? I don't know. Like Ukraine is a big laboratory. Everybody knows that. Um lessons are being learned every day and

um and it's a very very dangerous world, but we have to we have to really accelerate these technologies to understand them and and to win. >> Rahm, what do you think? >> Yeah. No, I agree. I think you just need policies um to embrace and advance AI. uh you know there's a a post by I think one of the members of the all-in podcast who works for the admin is highlighting the regulatory constraints on AI adoption and he's a part of the administration so you know you have to have the right policy in in place to you know accelerate adoption China is very serious about this opportunity like you know we have the [clears throat] United

States has the edge on capabilities um but uh there's a lot to And as we discussed earlier like the promise is significant. The potential for human impact is significant and possible. >> In finance we found that lit predictable regulated markets attract a lot more liquidity um because there's controls there's a common set of rules and that's where we found the most success in finance. Uh in AI you know there's a lot of concerns about sharing your information with with some of these Chinese models. you know if they you know is regulation going to be important yes the right type of principlebased regulation will be because if you have models ultimately that you can't trust

or hallucinate or you know you you know you can't trust your data I do think a thoughtfully regulated principles-based industry wins um that that's based on my lessons in finance but it's a different industry maybe I'm wrong >> so I'll give a point here on how this is so complicated pulling up some quotes from David Saxs right now on Twitter One, Kimmy K3 just fixed 15 critical security bugs that Codeex and Fable refused because of quote cyber guard rails. There's no reason to limit American models on tasks that Chinese models handle without issue. We're only making ourselves less competitive.

Following tweet, here's another example. Hugging Face tried to use American Frontier models to analyze an AI powered cyber attack, but the guardrails blocked requests containing real exploit payloads. So they switched to GLM 5.2 running locally. The guardrails actually impaired defensive security. And I think this gets to the point that both of you are raising, which is there's no way out of this race. It's going. You could choose not to run, but that doesn't mean the race isn't happening. The race is still happening. You just chose not to be involved.

>> Yeah. >> All right. So, to get to our final topic where people also may or may not be choosing to not be involved, the Clarity Act. So, Chris, >> all right. >> You and I have both been hearing things about Clarity today. I think let's start with the framing. Senate is on the clock. They go into recess first week of August. They need to get things moving if they want to get anything done. Once people get back from recess, I'm skeptical anything happens because of timing. Must pass bills and the fact that a lot of them are going to be campaigning.

>> So, it's hard to get the votes. >> We I think we agree this is the critical window. >> So, I'll ask you where do you see the bill right now? [clears throat] >> I think we're going to get one shot on goal. Um, and what I'm hoping to see is a vote >> hearing very like prediction markets are pretty much given up at this point. I think they're in the 30s at this point. I mean, maybe even dropped closer to 30. Um, they've given up, but I don't know. I feel like there may be a comeback on the horizon. I I remain hopeful uh because it's the right thing for the country and a lot of these politicians will, you know, things get weird towards the end. We all know that. And I hope in the end, like even Senator Warner, who's a Democrat, had some generally positive

things to say recently. So, ethics is where it's at. And will ethics ever be good enough for the Democrats visa v the president? No. They're going to continue to want to push it. But I'm very hopeful that we get something that's palatable. Um because do you really want to be an individual who's heading into a very very very tight midterm race? Um and you're on the wrong and and and you you vote against something that sets fair shake and the crypto folks off. If you if you're Schumer right now, you've got one thing on your mind and that's how do I get a majority? How do I rest back control? And it all comes down to that electoral calculus. Um, that's why if we get something to the floor, we get a

vote on the books. That's where that electoral calculus comes into play. That's what I want to see. That's our best shot for succeeding. There were a couple of paths where we would have had a couple shots on goal. I think we're down to one. >> Uh, I want to see it come to the floor. >> So, I'll say I agree on the one shot on goal framing. we're going to get one good chance at this and that's really all we're going to get given the timing. That's certainly true. I think you're right that ethics is where the rubber meets the road. I want to be clear and say the following. I think the BRCA there's a place to get to yes from the Democrats on a bill that is actually good. I think as they've gotten more up to speed on it, they've realized some of

the lines they were being fed were probably not totally accurate. If you look closely at things like tornado cash and the DOJ and fins literally disagreeing with each other, we do need clarity on how these things work. Pun not intended. So I think that's solvable. I think on the yield compromise, if I'm being honest, the big banks have alienated so many people now. They've just moved on. Like that's over, >> dude. They haven't moved on. They they want clarity. They they want clarity badly. Well, now they want clarity because they've realized if they don't get it, they're stuck with genius, which is even more permissive than what they were.

>> More than that, though, Austin, they want clarity because of federal preeemption. They do not operate well in state regulated things. >> See, see Illinois slapping a transfer tax that doesn't work on crypto, right? >> They want federal preeemption. They're going to they're going to press the throttle down. We get this bill, you're going to see banks come in. We get this bill, you're going to see Basel start looking better. And then once we have bank liquidity, it's a brand new world for crypto. Um, >> and and to the to the electoral math, I actually think one of the things that could be helping the bill that people have not thought about is how badly the Democrats seem to be doing picking functional candidates in Maine and Michigan. By which I mean, if the

Republicans are looking at it and being like, "We like the territory. We're going to play offense, not defense." they may force a vote for that exact reason. I think the key to getting it through is going to be can we get an ethics provision that is stiff enough that the administration probably doesn't like it that the Democrats will vote for but is not so stiff that somebody is going to throw their body in front of it to stop it. There is some sort of pivot point there. And to me, Chris, you tell me if you disagree. think that efficient balance is probably forcing the Trump family out of their crypto endeavors, but without punishing them for things they did before the ethics guard rails were in place.

>> I I haven't seen the text. Uh I know blind trust will have something to do with it. Um >> y >> you know, you hate to have individuals specifically targeted for any political reason whatsoever. It needs to apply to both sides. I hope they compromise. And then if we have something good on the ethics side, well, let's adopt it for every other market. U because we have equal problems there. >> I was going to say that may be the other playback from the Democrats that I do think would be helpful is, you know, if Congress people can't run individual like crypto projects, why are they trading individual stocks?

>> All right. >> Yes, sir. So on that note, we will know in a couple of weeks whether clarity is going to move or not. But for this week, today we are out of time. So thank you as always for joining us for Bits and Bips. One last reminder before you go. Bits and Bips has its own channels now. The old feed won't carry these episodes anymore. Subscribe so you don't miss a single one. Now, thank you for joining us. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. Until then everyone, thank you for watching and hope you enjoyed this episode of Bits and Bips. Just remember, nothing we say here is investment advice. And please check unchainedcrypto.com/bitsandbips

for more [music] disclosures. Oaw. Hey,