What Comes After Stablecoins?

Transcript

When we think about an economic operating system [music] that runs on the internet, which goes way beyond payment, every kind of financial contract and economic contract and governance decisions, if you want that to be something that's internet [music] scale, it has to have geoeconomic and geopolitical diversity. How are you thinking about your moat? On the one side, you've got AI now makes it so much easier to code up software. And then on the other hand, you have legacy financial institutions coming on board with new sorts of products of their own. The most widely used interoperability protocol in the world right now on all blockchain networks is Circle's crosschain transfer protocol [music] CCTP. We mint and redeem $150 billion a quarter of this and that liquidity that exists [music] on a primary basis on a secondary basis in onchain markets and

onchain protocols. That's very powerful. >> 5 years from now what has changed about the global financial system as a result [music] of the convergence of these new technologies? We're going to go through a shift towards [music] Okay, so I'll kick things off. Why does the world need another blockchain? What is missing from the infrastructure we already have? And what's made possible by launching a new one? I'm Robert Hackett. This is the A16Z Crypto Show. And joining me are Jeremy Aair, co-founder and CEO of Circle, which just brought a chain of its own to mainet called ARC. And Chris Dixon, founder and managing partner of A6Z Crypto. Thanks guys for being on.

>> Awesome. Thank you here. >> So Jeremy, you and I, we go back to my days when I was a journalist at Fortune. I've covered Circle through many of its iterations, its journey from the Bitcoin consumer business to Circle Pay, the Venmoike product. You had a trading business, bought an exchange. Ultimately, you guys struck gold with one of the world's most dominant stable coins today, USDC, and now you're following that up with ARC. Tell me, what did you learn along the way that made you say you need to build your own blockchain?

>> So, I guess maybe stepping back a couple things. It actually goes back to like when we started Circle and in 2013, late 2012, uh 2013 when we were getting started. I think the thing that drew me to this whole space was uh sort of this idea of programmable money and this idea of these networks uh at the time they're you know there's blockchain network uh etc or the Bitcoin network excuse me but these networks actually becoming you know computers that you could run applications on and the the founding vision of the company was you know what I think that these networks are going to become like new distributed comput engines. I think that they're going to

they're they're very purpose-built for things where you want to have like assured data and transactions and compute. That's the problem that they can solve that hasn't been solved, but doing that in a public environment where you have a essentially a public computer and that you could issue, you know, things on top of that. You could issue a digital dollar. We we at the time we we we always use the phrase digital currency. We never said cryptocurrency, but you could have a dollar digital currency. And the idea was first you could build like a protocol for dollars on the internet like an HTTP for money.

And that protocol in order to do that you needed these computer these computer networks to actually let you build protocols stuff that you know Chris and I go way back in terms of the internet protocols. But it's like you need to be able to build these you know these higher level protocols on these computers and then you need to be able to scale them and and make them user friendly and all this stuff. And so >> yeah, in a former life you were you were working on video on the internet, right? I mean that was >> I mean I worked on early web protocols. I worked on web 2 protocols. I worked on video protocols, communications protocols, programming languages, virtual machines, like all the infrastructury stuff of of the first and second generation of the internet. And so to me this was like this is the next

logical infrastructure layer of the internet. And you know at the time our view was well you know what Bitcoin has early mover advantage. it's a good open source project. Let's get involved with that open source community and like let's let's add the things that let this be more capable. Let's add more programming language capabilities. Let's let's let's add the things that let us realize our vision. Well, that didn't work out very well because it became a very a very uh kind of closed community in the sense of tightly controlled the open source community like the contributors. It was it was more narrow in terms of what it was trying to do and there was a lot of ideological battles about that etc. and we were on on on one side of that and there were others on the other side of that and we don't need

to repeat all that history but I think Sean and I were always thinking like should we build should we just build one of these computer networks ourselves um and it and you know given the other stuff we had going on as you just noted like we've had a lot of stuff has gone on in our history um it never it never felt right you know interestingly when when the second generation of these computer networks came out Ethereum a lot of those ideas programmability a virtual machine um issuing assets like it actually worked and you know I think you could be skeptical of it technically because if you looked at as a technical purist you'd say wow this is like gum and bailing wire I don't know what this solidity thing is like this is like it's not it's it's not like an enterprisegrade thing or however you you

want to characterize it by 2016 like it was clear to us it was good enough and so as you recall and probably wrote about like we abandoned the kind of layer of moving dollars over Bitcoin and instead said let's let's actually build a protocol for dollars that runs on Ethereum. And that's that led us to the development and launch of USDC. And so basically like by 2017 2018, we were like, okay, we can now do this. We can do that that that that layer. And it wasn't again wasn't clear to us like we should we should build our own computer network and our own operating system.

And then you kind of fast forward to like 2020, 2021, it was really clear that the infrastructure model of these networks was not adequate. Like Ethereum itself was slow. It was it was expensive. The gas fees were really a problem. And so a lot of people started saying there's an opportunity to like have a clean room and build like denovo networks. and and we started to say, well, let's let's align with those cuz we need them to realize our vision of like scaled applications and programmability and velocity of money like we need those. So, we partnered with the Salana team in 2020. We partnered with other L1s that were emerging and then we started to work with the L2s and so then our our philosophy really became like well let's

just make sure that digital dollars that we make and the protocols that support them run everywhere. I kind of make it akin like USDC is like Spotify or Netflix like you just buy a device you know it works. We want to make sure that if you have a blockchain like you have these digital dollars and they work and you can you can integrate them and then we built the interoperability layer to connect it all so that you can safely move them around. Through all of this like I think our our view was like these networks keep improving um and you know solving for different things. But about 2 and a half years ago, I think we started to see a couple things happen. I think one was major institutions were starting to say, "Hey, actually, we might use this this technology for actual money, actual securities, like

there's real promise here." And what what changed from the early days that suddenly got institutions on board and and seeing this as a viable path forward for them? >> You know, when I think about it, like something like USDC was really important. stable coins was like a thing that people were like, "Oh, wow. This actually that seems to solve a problem for moving money." And so people started to look at like I could I could actually, you know, I could actually start to really move money better with this. And that's when we really started to see growth in non-speculative uses of this, right? And and that that that was important. And then I think the other change was you know regulators actually started to to to sort of look at this and and say you know hey if like the world's financial institutions are going

to connect to blockchains we expect certain things of those blockchains we we expect them to be kind of meet certain standards and without boring you there are standards for infrastructure in the financial system and and those standards are actually enforced and they're enforced by like central banks they're enforced by the regulators that oversee our capital markets and those are those are those are infrastructure standards. And so we started hearing that and we started meeting with more and more of these institutions who are interested in in stable coins and the applications of stable coins. And what we really found was that there were not blockchain networks and computers that were purpose-built for that what we saw as like a new era that was coming, this

mainstream era. And um and so we took the decision to denovo build a new a new a new operating system and a new network with ARC. And I think we designed it in a in a model which you know I think it inherits a lot from what we've learned from how blockchain networks are incentivized grown and governed. It inherits a lot from other big platform ecosystem initiatives that we've seen historically like Google with Android. It inherits a lot from open source and we've tried to bring those together in a way where this is a network that is owned by a really broad set of stakeholders ultimately the users on the network as well but that the

infrastructure can can actually be held to standards that like the world central banks would say yeah you're good to go with putting real money and real investment contracts to perform on this thing and then I think the last thing I'll say and we can move off this is we really saw uh you know as we were building this that the primary actors that were going to be using these new types of operating systems were increasingly going to be machines. Um we always thought that like for a long time we always thought that that kind of you know autonomous software running on the internet could do this stuff. no idea about generative AI obviously when we thought about that a long time ago but then it became very clear that the

primary users the primary deployers of software and the primary you know entities that were going to be running on this was was going to was going to very likely be AI and you know we started to think about a lot of the issues that go into that and and we continue to as well it's like a very central set of design features for what we're doing is this shift shift to this agentic economy as well. But anyway, that's like the backdrop. That's the long-winded backdrop. >> I want to drill down on some of those design decisions you made. But before we do, Chris, you've seen a lot of pitches for new blockchains. We've backed a number of them. What convinced you that there's room for yet another?

>> Yeah. I think um I mean, look, a big part of this for us is is I've known Jeremy a long time and been incredibly impressed by what he's built. And so you know a lot of our most of the kind of the most important thing we make in investment is the team and also the team he's built around this. I share his sort of vision I guess of um of you know that that this is a and I've you know written and talked about this extensively but this is a new type of computer a global kind of finance computer that has all sorts of uh platform possibilities new applications and so forth. Blockchains are funny, right? Because there's an aspect in which they're kind of a, you know, they're sort of a social social community around them, but also they're computers and you want people who who

think deeply about, you know, sort of operating system and programming language design and so forth. Um, I also think and maybe Jeremy can talk about this, he has a unusually uh uh deep uh view on the kind of regulatory side and on the on the international side. Money has the most obvious network effect. USDC is extremely popular. Uh, dollars are extremely popular around the world. I think we have an opportunity to have a system like ARC be uh you know kind of a global money layer which is a kind of critical idea. So that's one thing I would I would love to hear from you about on Jeremy is just sort of the I guess the kind of international angle and particularly with all the complexity of the different governments and regulatory bodies. Obviously, one of the things that's a little bit different about ARC is that in order to operate

the infrastructure of the network and and to run ultimately what will be like staking validation nodes on the network, you actually have to you have to meet a high bar of of operating standards that are operational and information security and compliance and other stuff. And by knowing that the people doing that are meeting those standards and upholding them and have service level agreements and other things, part of that actually allows the network to, you know, to to deliver what we call deterministic settlement finality in, you know, a fraction of a second. And that's that's actually very very important with real money. But the other thing about that is that when we think about an economic operating system that runs on the internet that is that can support the

full vernacular of economic activity which goes way beyond payments like the every every kind of financial contract and economic contract and governance decisions and all this. If you want that to be something that's internet scale, it has to have geoeconomic and geopolitical diversity. It actually needs to be something that is credibly neutral visav the the stakeholders that run the infrastructure and that and that ultimately govern the infrastructure. That's one of the kind of covenants that we've made and it shows up in how this has stood up. There are quite a few of the largest global players in capital markets, in asset management, in payments, as well as many global banks

that cover huge amounts of international markets, Asian markets, European markets, US markets. And so we've we've started and this is really just the very beginning by trying to get this very diverse set of infrastructure stakeholders so that if I'm an entity in a market in the world I understand that this is run in in this way and I think we we we would like to see that go much much further. We would like to see kind of every major geoeconomic block in the world running the infrastructure, having significant economic stake in the infrastructure, having their local champions in their markets using the infrastructure. And that's critical. If if you don't have that, it's going to be

very very hard to get internet scale if it's an American thing or or or what have you. And so blockchain networks and distributed governance and all these things give us some really interesting tools for that. And so that's a big motivation. And again, we're early in in that. Like we had the first 10 or 11 folks like launch a few weeks ago with us with with mainnet that'll obviously grow. Ultimately, there can be like 40 slots on the network. And so we really think about that. And then ultimately those uh staking validators and operators will will vote in elections on the expansion of of the membership of the infrastructure partners from around the world. But I think we're trying to steer it from the start to have that that strong basis behind it.

>> Jeremy, how are you thinking about your moat and and the points of defensibility that you have? You could look at what's going on from two directions. On the one side, you've got AI now makes it so much easier to code up software from nothing. You can create software that's competitive with incumbent software. And then on the other hand, you have uh legacy financial institutions coming on board with new sorts of products of their own. We're seeing coalitions come together around uh their own sorts of stable coins. O USDcoin and city and Goldman have something coming out perhaps next year along with a number of other banks and and partners. How are you how are you thinking about the defensibility of what circle is doing in terms of USDC but also this new infrastructure that you

created? >> There's sort of like three pillars across what we're doing. There's the stablecoin network which is which is you know our USDC and also our euro stablecoin and other digital assets that we issue. We have a tokenized bitcoin product. We have the digital euro. We have the largest I believe currently uh tokenized treasury and money market product. And so there's like a whole the whole family there. But USDC is obviously the central actor in that group. And you know stablecoin networks themselves their platform and network affects businesses. the more applications that are connected to the network, the more utility that the network has, which means that the the next developer that comes along and says, "Hey, what network am I going to support? Oh, I should support this because everyone else supports it." You

you you have this really powerful utility flywheel. And that's that's there. You also have very powerful liquidity flywheels. And that's something unique to currencies and certainly unique to to digital asset markets and market infrastructure is the liquidity is a huge thing. And so primary liquidity, the ability to seamlessly kind of move this in markets globally and financial market centers globally is huge. So we we mint and redeem, you know, $150 billion a quarter of this and it's plugged into all of these banking systems globally and and that liquidity that exists on a primary basis, on a secondary basis in onchain markets and onchain protocols, that's very powerful. The fact that Binance and Coinbase and Hyperliquid, just as a few

examples, have such deep deep fundamental liquidity on it means that its capital efficiency is greater and therefore other products that need the most efficient capital benefit from that as well. So you have utility network effects and you have liquidity network effects and then you also have like these you know what I'll broadly call like infrastructure modes which is to say um you know we've we've built regulated infrastructure in all these parts of the world which is non-trivial uh it's a it's a major undertaking to become the sort of approved infrastructure in these markets and we generally have been first in in that and then there's actual infrastructure infrastructure which is interoperability infraure structure for example. So the

most widely used interoperability protocol in the world right now on all blockchain networks across all assets is circle's crosschain transfer protocol CCTP and that protocol is the most widely used because USDC is the most transferred digital currency across these networks. And so >> last I checked it accounts for about half of all value that's um moved between chains. >> Yeah. And that bounces around. It's it's sort of been as high as 70% in recent quarters. And so it it's significant, right? And and one of actually it ties back to ARC. One of the big things that we we've done with ARC is if you issue an asset on ARC, a tokenized equity or a stable coin or a tokenized credit product or whatever it is, your asset

actually becomes eligible to run on the payload of CCTP. And so in a sense like we built the highways to move value around all these networks and the only car that could drive on the highway was USDC until now. Now anyone that issues an asset. So if you're an asset issuer, you can ride those same highways and get that interoperability, liquidity, distribution that flows. So that's really powerful. So the stablecoin network has those attributes. And I think um we what we like to say is like the stablecoin market sort of a winner take most market structure, not a winner take all market structure. And there's going to be, you know, over over time as this goes from several hundred billion to hopefully several trillion, there's going to be multiple networks, right?

And and so we assume that like we don't assume like this is a 90% market, right? It's it's it's a winner or take most. And then I think the other piece is we have CPN which is our our our circle payments network. That's also a network model. It's built for financial institutions. It is a a network not dissimilar from like a visa or a swift meaning fi's join and then they can use it to move value around globally using stablecoin rails and blockchains as the as the coordination mechanism for all that value exchange that's growing really fast. We keep reporting every quarter how that's growing and we've got almost a couple hundred financial institutions on it. That in turn also supports demand for the stablecoin network. But at at the level of arc I

what I would say is it relates to where I started here which is in this conversation which is um you know we think we're go we're going into a new chapter in this space and in my mind um and I think this will resonate for both of you hopefully but you know we went like we went through different eras in the internet's development and you know one one era was the mobile era and we all think of the mobile era as like iPhones and Androids but the reality is the mobile era started like 15 or 20 years before that and there was an unbelievable number of attempts at building the mobile operating systems and mobile platforms that we'd all use and it attracted you know billions and billions of investment from everything

from open source developers to the biggest companies in the world like Microsoft and Compact and so we had the Palm Pilot and we had the Blackberry and we had the Windows phone and we had the Samsung phones and we had Symbian and Nokia and NT and many, many, many others. And we all thought at the time like, "Wow, mobile's big. Look at all this stuff. Look at you can do an app on a phone." And it was all terrible. It actually didn't work for mainstream users. And so, it was only the early adopters that were like leaning in. And there was a lot of money that went in to build apps. Those apps never turned into real businesses. There was a lot of infrastructure that got built. A lot of that infrastructure just is dead. It's in boxes and garbage uh sites all around the world. physical I

mean products etc. But it was like a long journey. It was like 15 years and there was a confluence of things and a convergence of things that actually made it possible to actually create both the right kind of device and the right software operating system and experience and the right set of developer incentives and economic incentives to actually make it really work. And and Apple and Google both kind of arrived there roughly the same time. You could argue about which one really drove it the most, but when I look at blockchain networks, my mental model is these are operating systems. They attract developers. They attract assets. That's they're economic operating systems. And I think we've been in that 15-year journey. And it's very hard to say today

like, oh, there's this is the iOS of that or the Android of that. It's very hard to see that. And it's it's actually I think most of us would agree like most of the apps that we have that sit on these are still not like viable to mainstream users. We're only just starting to see those apps emerge. We're just beginning like FOMO or you know or like these these apps where you don't even know you're using crypto. And same thing with stable coins like you you you've got these money apps, these neo banking apps, right? You don't even know you're using crypto. And AI makes that even easier. So I think my view is like going from early adopter to mainstream scale. Going from the few hundred

million dieards who are there to trade and make money or or because they believe in it to the few billion people where this is just this infrastructure that's behind the scenes powering economic activity that's all still in front of us. And so my view is like this is this is a wide open space. No one has won significant developer mind share. the number of active developers on any of these networks is incredibly small when you think about developer activations in in traditional platforms and so it's super early and so no one has a moat is I guess my point and I think you're exactly right which is that software velocity is increasing extraordinarily fast our own software velocity as a company we're shipping a lot more software than we ever

>> might not need as many developers after all >> I mean it's phenomenal it's phenomenal what we're seeing and so I believe that it is a very wide openen space right now and I think circle as a sponsor on this the institutional credibility the stablecoin network that we bring the stablecoin centricity of the compute layer the gas layer other things and the designing it for this kind of future space but it's also we're we're building this to be you know basically distributed in its ownership and its governance and that's all public and out there you know we've arc token and arc token white papers out there many major firms terms are stakeholders. That will just continue to be the case and that will become much more distributed. And

so this is why I sort of think of like Google's Android. Android is an open source operating system that Google is the primary author of. They bundle apps that most people include, but they don't have to. And then device makers and hardware manufacturers and telephone carriers and retailers and others have a role to play and value to get out of that ecosystem. That's 85% of the market or whatever it is. I believe it's early and I believe the the next you know three to five years will be will will really redefine this and it comes back to the other comment which is the primary actors in all this are going to be you know AI AI creating the software maybe there's people behind the AI creating the software but it'll also be

AI creating its own software and it's going to be AI intermediating and interacting and performing the economic work and in fact cognitive labor is economic work And so the cognitive labor itself will get performed and manifest and coordinated and and exchanged on these networks as well. >> Things are going to get weird. Um, and as you say, you're you're drawing these comps to what has happened in earlier internet history and particularly the the mobile revolution. You know, a point Chris that I know you like to make is even with the launch of the iPhone, it was kind of crappy at first. Like the first model actually wasn't even very good. And people forget this. They think the iPhone came out and boom, the whole

world changed overnight. But there was this whole uh stopand go sort of um you know development in the in the early stages of all of this to get to this kind of mobile first world that we all live in and enjoy today. >> Yeah. I used to carry two phones around when the iPhone first came out cuz it it dropped calls so much. >> I had I had Yeah. Or like just a feature phone or whatever. But um >> Okay. And it wasn't until it was like I think iPhone was 2007 and then I think it was 2012 that Facebook did their mobile pivot which was sort of symbolic of Silicon Valley realizing this is a really big deal >> which people questioned whether they could pull off. There were so many doubts.

>> I mean I think you know it was still people were still anchored on the framing that the phone is a is the side gadget not the primary gadget. Um and it took a long time for people to kind of realize that. Yeah. No, I think I mean I agree with everything Jeremy said. I think I think it's an interesting time in in crypto because on the one hand you have some kind of the OGs who seem, you know, a little bit downcast, I guess. Some sort of some of the more ideological actors maybe aren't as excited, but at the same time, just empirically, there's far more traction in use cases than there ever has been before. I mean the the level of adoption on I mean Jeremy maybe I don't know what you could talk about but like the uh level of adoption from financial

institutions it's just a lot of this is regulation genius passing I think just sort of instantly normalized stable coins in the technology world and you see these companies like Stripe and others who you know are not who who are very pragmatic and they're picking the best technology and they're they're using blockchains right so we're seeing that across the board um and I think just the combination of yeah of the fact that crypto's been around a you know, gone through cycles, all of the focus on AI right now. I think to in my mind, it's sort of an overlooked uh important trend and well, as Jeremy says, we'll converge with AI. I think it's, you know, we're going to we're still relatively early in the AI revolution. Um, you know, if you look at the data, there's like 2% enterprise adoption. You know, things like agents

have very low consumer adoption so far. Obviously, that will grow. that will put pressure on existing internet business models as an example and you'll need new ones. So I think there's sort of this you know 10 to 20 year period where you're going to sort of reconfigure the digital economic landscape and that's dovetailing I think timing wise very nicely with the with the rise of highly performant blockchains like ARC. I I always think too like that you know at first what you see is I I like this framing of like skuorphic and native. At first you see sort of people, you know, when you have a sort of breakthrough technology, you see people kind of taking existing use cases, so like trading and payments and things and human payments and and putting them on

on the platform. But then over time, to me, the really exciting part of these of these kinds of waves is when developers get creative and start, you know, Jeremy of course remembers this in the in the internet. So the '9s was all kind of skumorphic people making cataloges and essentially brochure wear. And then the 2000s you had this whole new wave of creative you know social media and so forth. So I don't know when that will happen like that you know the kind of the I expect a couple of years I don't know what you think Jeremy we'll see kind of more you know taking existing things and making them more performant and and global and so forth programmable but then I think at some point I think we'll people will start to really kind of >> you know dig in and get creative. I

totally agree with that and I I I like I like to say like you know you want to create something where developers and entrepreneurs can can go do stuff and when you create like these new open platforms with new primitives and in this case these are like money primitives financial contract primitives other you know other software primitives that are there like the creativity of the developers is what's going to ultimately show us the way and so people say like what are going to be the the the most important apps it's very easy to go to our priors and say, "Oh, it's going to be you're going to be able to do crossber money movement better or you're going to be able to like pledge your stock as collateral more easily and borrow against it in more places." And like it's very it's very easy to take

your priors and just say, "Yeah, it's going to be better, faster, cheaper, but it's going to be over here, right?" Which which is probably also very true. You know, I use the example of credit and and I think like credit is something where the combination of these new network operating systems, blockchain network operating systems and you know this new base layer of like fully reserved, you know, digital dollar money and AI like these things combined are going to allow us to create completely new types of credit instruments with people who supply money and people who demand money and machines that supply and demand money and are going to be able to create credit marketplaces that probably look more like AdWords than

like someone who packages up a bunch of credit and sells it as a bond, right? So, you're going to you're going to end up with really really different market structures, unit economics, distribution models, reach, you know, the longtail thesis which we all know really well applied to financial markets which has never really happened. Uh and and we're we're getting early indicators, early views into this, which is like tokenization of RWAS, opening up, you know, equities to more people and you can do more with those equities. That's like an early view into longtail longtail market participants as opposed to longtail issuers. Well, what if we get longtail issuers of of credit and equity and tokens and and those those economic instruments? So, my my view is yes, I'm very aligned with yours. Uh and

and and I and I think it's going to be very very interesting. And so the two-year thing, I I think that's probably right. I mean, I my my view is um there there are a bunch of different things happening, whether it be like technologies like ARC, like stable coins becoming legal forms of of money that people can kind of depend on and and then people can rely upon. And and actually what's been amazing, I've I've experienced this firsthand because I do a lot of I I I build a lot of stuff with AI now just for fun. software infrastructure and APIs, whether it's a blockchain computer or a software application, like a client application, it's all deterministic. And so AI is able to like learn and implement at an extraordinary pace. And so what that

means is that the creative output that we're going to see in terms of what software people create is just going to blossom like crazy. I'm actually seeing some interesting stuff just in the last like week starting to launch on ARC which are like these crazy games and simulations. They have economic incentives and they have stablecoin money and the user experience for using them is you just show up with USDC. You don't need anything else. And I I have like it's stuff I've never imagined and like I don't know is that going to be is that going to be you know is that going to be the killer apps like we don't we don't know but I think the simplicity with which people can craft experiences and deploy them and make them usable is it's arriving like right now and I think

AI and AI software engineering is accelerating that. So I I actually expect you know we're looking for 2027 just because we'll use round numbers. I actually expect to see a big proliferation in new apps on these computers that violate the prior rule. Like they violate that the skuorphism as as Chris was saying. They they they start to be performing and doing things that were just like wow I I can't believe I I never thought that was possible. So it's an exciting time from that perspective. >> Jeremy, what's the weirdest thing you've seen people build on Arc at this point? >> I mean I just literally like saw this in the last couple days. There's this thing called Fly Brain and >> Oh my god. The Fly Brain. Yeah.

>> Yeah. And so this I don't know who the team is because they're just out there. They basically took all of this neurological information about the brains of flies. Real like the real actual like computational rules of fly brains. They basically converted it into like 16 megabytes of of uh of bite code that runs on ARC. They clearly use AI to create a a a user experience layer where the fly the fly brains they've been set loose and they are actually evolving and and engaging and interacting like in this environment. And so I haven't looked at like the token incentives and

all like I don't know what the deal is like the deal deal like I haven't looked at that but I'm like there's like a computational biology slash you know neuroscience uh experiment that's taking real world stuff and now it's creating simulations and they've got some way for you to I guess participate in the fly world. Um you know but I'm like I mean I don't know I didn't I literally I was like what is this I wrote on Twitter I'm like what is this for? you know, and then there's like these long like explanations of what this could mean for scientific discovery. I'm like, I don't I don't actually fully understand it.

And may maybe it's just a scam. I don't really know, but [laughter] uh but it's sort of like it's indicative of like, you know, what AI combined with these computer networks combined with uh with with economics, people are starting to to try really different things. So um we launched a vibe coding app called Arc Studio which basically like can safely deploy smart contracts. Smart contracts are hard to deploy because they're the safety issues are are real. So we kind of put it we kind of give it like a smart contract publishing rubber room and so that's been interesting too like really good developer engagement and people are building all kinds of stuff.

They're building they're building obvious like financial apps but they're also building like games with economics and other things as well. And so it's been interesting really interesting to watch. It's actually quite shocking how well many smart contracts have held up uh despite all these amazing advances in AI, all these crazy papers coming out and just the abilities constantly improving rapidly. Fly brain network on ARC uh giving a whole new meaning to the to swarms swarms of agents. And going back to something that uh it reminds me very closely of something Chris that you like to say which is that the next big thing starts out looking like a toy. And I'm not saying that flyet is the next big thing, but uh you start seeing all these weird experiments take shape and

you never know what direction they're going to they're going to go in and what actually has something of substance behind it that that people are just writing off because it looks super weird. >> Totally agree. I mean I think Chris you know wrote a lot about this and it's fundamental to your rewrite own thesis which is you know when when you can start to to create economic incentives for participants and applications and those can be kind of globally distributed and the application is itself like an economically incentivized ecosystem like that that model we can really start seeing people bring life to those like and it's not just people who know how to run a self-custody wallet and do like five signatures on a crypto wallet to do a thing to do a vote which is a like you know if you think about

Dows and what that was you know it's now like you you could actually because of these advances in software user experience you could now you can actually like dial it in and so I'm really interested in people who are doing really novel things with governance participation economic contracts much more complex forms of economic arrangements that are running in in these deterministic uh you know systems and so I I feel like We're just because of these advances, we're coming into an era where creativity in that in that arena is going to really flourish.

Like I I'll give you another example of a project coming to ARC which is essentially arbitration uh for for the work of AI and that scales from AI jurors or AI AI arbitrators that kind of scales up into human arbitrators and has a security and staking model attached to it. But it's designed to basically deal with the fact that AI will hire other AI and humans will hire other AI for work and you and you need arbitration and you need mechanisms for the money and the and the release of money around that. And so that's all now there. You can actually start to do these things and so these that kind of thing like automated arbitration of work and economic work and creative work and intellectual property work like that was

inconceivable a few years ago. Now, it's actually very conceivable and and could be very scalable and and and result in some really powerful unlocks for the labor economy and and and work in general. So, I look at things like that and go, "Wow, again, entrepreneurs are starting to work on problems that couldn't be worked on before and and now they're starting to." >> The observation, the next big thing looks like a toy is related to an observation and you know, the most important things in tech tend to have exponential curves under them. Everyone's focused, you know, historically everyone's talked about Moore's law sort of an exponential curve. the import the improvement of performance of chips, price performance of chips. Right now there's you know a lot of focus on AI scaling laws which are very important but there are other exponential processes including network

effects um which blockchains have and also composability which is composability is the idea that you can that blockchains enable uh applications to sort of interoperate like and and be built together like Lego bricks and that's sort of because of these exponential curves things can you know when you're early in the curve it can look toyike you know think about early AI systems or something and then as they get better and the same thing here like maybe you know at First it's uh just a collective of people doing some kind of economic governance thing but you know if it makes sense and it scales it can it can grow very very rapidly because of these underlying exponential forces of composability and network effects.

>> Chris I mean you wrote rewrite own a couple years ago and at that time the AI stuff was very nent. It it was only just kind of getting underway. How has your thinking about the future changed? What would you do differently or how would you say your thesis has has evolved since then? >> Well, I actually talked about AI a lot in the book and had sort of one of the core areas I think and part of the positioning was and look and I at the time you could see the scaling laws and and you know I've written about this before and you know it seemed like it would get much much better and more important. Part of my argument was that that blockchains in some ways can be an antidote to the c what I believe is a centralizing tendency of AI. I think AI

is amazing. you know love AI but it does you know you do there is this potential effect where companies with the most capital and other resources you know can have an advantage um and so part of my argument is part of the policy argument we make too is that it you know that well one open source is very important to counter you know that's open source has been the most democratizing trend in the history of technology if you look at things like Linux and then you know blockchains are like open source they're open services right they provide kind of a level playing field um and you know low fees, global access and so forth for all sorts of developers. So you know part of my core argument is and particularly on the policy side it would be a shame if policymakers didn't allow

this sort of counter counterveilling decentralizing force to flourish alongside what might be the sort of centralizing tendency of AI. Yeah, Jeremy, I mean, one question I have for you is how you navigate how much centralization versus decentralization to have on a network like ARC. You know, obviously there are sort of fully public open blockchains that you referenced, Ethereum, Salana, etc. And this shift now toward more permissioned settings. How do you think about where ARC fits and you know where it is now, where it might go, how much openness can there be on the network or should there be? Well, a couple things I think. The first is Arc is a public and permissionless

network. Anyone in the world can connect to it and build software on it and deploy software on it. It is completely open, public and permissionless. So it it it has those attributes that are that are really really key and obviously it's all open source as well. So you can investigate it, you could hard fork it, you could do whatever whatever you want. So it it meets those set of criteria. I think the the the critical difference though is the actual operators of the validation infrastructure are known. They're not anonymous and they are elected and selected on the basis of who they are and the covenants that they make operationally and legally. So that is different. And so our view is that a if you're going to have an economic

operating system that the world's financial institutions and corporations and ultimately households are going to depend on that actually those operational covenants are actually very important. Now there is a there's a a purist view that says no the operational covenants should just be implicit in the performance of the network and and and the and the and the promise of anonymity and who runs the network is critical. We need to be able to have it be censorship resistant from govern from governments and so anonymous public etc and just using crypto to prove it. But in reality as a layer one we're building something with with a broader a broader set of covenants known infrastructure players which I

think is going to be needed like the the the world's uh governments and central banks because I actually care about them. I want mainstream society running on this and I want the mainstream financial system running on this and I want companies like big public companies putting their contracts and their governance on the internet. I want them to do that and they're going to want covenants around how it's operating. They're going to want to understand what that is and they're going to want to understand the election process and the governance process and that's what we're building. And so it's distributed.

It is not fully decentralized. It is open. is open source. It is open and public. It is permissionless to build on and use. We're trying to find, and this is like USDC, what's the happy middle? Um, we're trying to find the happy middle. One could say, you know, it's USDC centralized. It's a centralized issuer. Well, if you want a a safe, actually liquid integrated into the real world financial system, digital dollar, that's actually how you have to do it. And so, we've always been that middle way. Even our Bitcoin product that you remember, Robert, uh, like it was it was compliant. It was KYCed and we actually built a UI where it was like dollars. It wasn't it wasn't like Bitcoin in your face. It was like no, we actually think people want the benefits of this technology, but they want it with dollars and it's going to have to be

compliant and all this stuff. So, I think it's just sort of this next phase, the middle way. What is the middle way? I think we're trying to find that balance and strike that balance. >> Paint a picture for me. 5 years from now, what has changed about the global financial system as a result of the convergence of these new technologies? things like ARC but also in tandem with fly agent swarms. >> The honest answer is no one has any idea uh at this point because the pace in my view the pace of of technology acceleration is is faster than at any point in in human history. If you believe in the compounding laws that are happening in AI right now, which I do, the

capabilities that we'll see uh are are are they're literally unimaginable. It's it's it's even it's difficult for the human brain to reason about when you're talking about something like ASI where the reasoning and and coordination capabilities of ASI just they they actually by definition like go beyond what a human brain can even reason about. So fly brains, we become the fly brains, I guess. The reality is like that that is there and that is happening. And so the result of that is like it it is very very difficult to know. But what what I do think is we're going to go over the over the coming years, we're we're going to we're going to go through a a shift towards just an extraordinary amount of the work

that happens, the creative work and the cognitive work and and and all the economic substance and and exchange like where where that is primarily operated by these AI machines. And I think what that likely means is sort of like in 19, you know, 95 or 1998. I I like to use these old internet analogies like you sort of said like, hey, because of this, you know, the the compounding laws of the internet and Metaf's law and network effects and better bandwidth. If if you had said like the amount of communications in the world is going to be a billion times larger than the amount of communications that we have in the world today. And the amount of information published in the world is going to be a billion times larger than

the amount of information that's currently published. Most people would say like you're out of your mind. Like I don't you you have no idea what you're talking about. It's just not going to happen. It doesn't make any sense. It's just hard to wrap your head around. But that's exactly what happened. Velocity of information, velocity of communications, information output, like these extraordinary curves. And so my view is the velocity of economic activity, the velocity of value exchange, the velocity of the use of of of financial machines, right, will be like these multiple orders of magnitude larger. And so like that, you know, how does that translate? I mean, I I think it sort of goes handinhand with the machine economy uh and this infrastructure. And it should be a world

where the creative output of the economy is significantly larger than the creative output of the economy is today. The amount of the the the volume of of of products and services and other things that are available broadly distributed around the world should be orders of magnitude larger as well. And so that's what I think things look like in five years. >> It's a compelling vision. Chris, let's get your view on this also. But I mean, I've heard you use this phrase machine age networks to to describe what's coming.

>> As Jeremy said very eloquently, I think it's it's some of this will be very hard to kind of imagine, but it's pretty clear where we're headed based on a lot of these trends. And I think to Jeremy's point, it's very plausible that you'll have the vast majority of internet participants will be machines. And it seems natural that those machines would have economic uh components to what they do. And so, you know, that's a it'll be a fascinating interesting kind of uh new world. >> Totally. We've already crossed the uh the the majority of of activity online now is bots. So, the humans are a dwindling dwindling portion of the >> You know, I have a funny story which is very quick, which is I I like vibecoded an app to build on Arc. I won't say what it is. I won't say what the domain was

because I was just playing around and I don't want I don't want to do that. I I I I like built this thing and I shared it inside my company and then I went I went to it about a week later and I asked it to say like can you analyze like the traffic for this thing? Now granted, like I literally never like it it it maybe existed in a who is database or whatever it was and it was like it was getting like 15,000 visits a day from bots who were who are looking for you know environment variable files SSH credentials and crypto >> and like it it basically said like hey you're getting you know there's like all of these bot swarms basically that are just coming looking looking to to find holes and crypto >> bands. I'm like, "Okay, well, I I think

there was one test net user in my company that tried the thing and there's all [laughter] these all these things and so it's just like like the machines are here and they're basically looking over every little poorest little hole everywhere to figure out where the exploits are, which is kind of terrifying as well. >> They're here and we need to give them things to do. Jeremy, uh, it's a pleasure checking in with you and, uh, and hearing about the journey Circle's been on. Always, always keen to learn the latest. So, thank you so much for joining us. >> My pleasure. >> Thank you, Jeremy. Thanks, Robert. [music]