Why Elon's IPO Is a Crypto Token Launch - The Chopping Block

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Okay. >> So, what I love about the chopping block is we don't really have to prepare that much. [laughter] >> Not a dividend. >> It's a tale of two fun. >> Now, your losses are on someone else's balance sheet. >> Generally speaking, airdrops are kind of pointless. Anyways, unders trading firms who are very involved. >> I like that. Eat the ultimate. >> De protocols are the antidote to this problem. >> Hello everybody. Welcome to Chopping Block. Every couple weeks, four of us get together and give the industry insider perspective on the crypto topics of the day. A quick intro. First got Tom, the DeFi maven and master of memes.

>> Hello everyone. >> Joining us today, we've got special guest Robert, the crypto connoisseur and Zar of Superstate. It's great to be here. Thank you for having me back on the show. >> Yeah, it's it's really We've been trying so hard to book you, but you are one of the hardest people to get in this industry. >> Sometimes you got to live life. >> Yeah. Yeah, that makes sense. But the people have been missing you. We've gotten a lot of people asking, "Where's Robert? What did you do to him? Is he still alive?" Do you want to tell the people where you've been? >> Yeah. Well, I was pre-recording a season of the Superstate podcast called The Pop. It has been recorded. We are releasing episodes. The second episode by the time you hear this podcast came out about two days ago on Tuesday. It's

all about IPOs and capital market machinery and the things happening under the ground when things happen in finance. >> Okay, beautiful. Good cross promotion. And of course, we've got to ruin the brain and grand puba economy. you >> and I'm receive the head hype man at Dragonfly. We're early stage investor in crypto. But I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Ley chopping blocks at XYZ for more disclosures. So, um, Robert, now that you have betrayed us with another podcast, how does it feel knowing the taste of another podcast and coming back to this one? What would you what would you say you've learned about podcasting now that you have uh you've you've explored you you've had your uh, you know, your salad days?

>> Yeah. Well, I'll say this from n equals 2 instead of n equals one. So, what I love about the chopping block is >> we don't really have to prepare that much. [laughter] >> You don't have to prepare that much. I have to prepare. >> Steve has to like, you know, prepare the monologue to open the show up. But like we talk about the news and the things that happened. It's always fresh. It's easy. It's fun versus an interview style podcast where you have to like read somebody's book. You have to like figure out what questions to ask. You have to like prepare. You've rehearsed a little bit and it's one-on-one. It's a little bit harder. It's a very different style.

Shameless plug. Listen to the pop. You know, you'll get to hear me do a totally different style of podcast. >> Yeah. And if you want to hear Robert do absolutely zero prep, listen to the chopping. >> Exactly. [laughter] Just tune in right now. >> This is three guys doing absolutely nothing and one guy actually preparing. >> Yeah. You have a staff. >> We have staff with staff. What do you think? Like >> Dragonfly staff prepares >> no scene. They they basically have like an AI just kind of plop. >> AI can't have taste though. You have to filter those.

>> That's true. That that happens up here. That happens up here. That's a cognitive work. >> But this feels like home. >> This feels like Oh, that's very sweet. Well, it feels like a homecoming. >> Um well, speaking of home, we had the closest thing to a crypto ICO take place last week. >> Obviously, the news that everybody's heard is the SpaceX IPO. Absolutely massive, largest IPO in history. and crazy pop obviously launched uh originally at price at 1.75 trillion and uh popped 20% on the first day another 10% yesterday and it's still going it seems like or is it was it 20% 10% >> it closed today at 200 something dollars >> yeah so it is now it's flipped Amazon uh briefly flipped Microsoft one of the

most valuable companies in the world now it's kind of insane obviously this is unlike those companies not profitable very early kind of speculative story about what you know whatever data centers in space and so on but a company that's getting a lot of people very very animated now the other thing about it was the the the phenomenon of how the IPO was distributed was also extremely unique so for one the float of this IPO is 4.2% 2% float. Okay, that means that this is a lowflat or sorry, yeah, low float, high FTV IPO. Um, this is very atypical for IPOs. IPOs normally are like 15% I think is the average. 10 to 20 is usually the range. Like I was

looking at some historical stats like you know Microsoft, Facebook, Facebook I think was 13, Microsoft was like 15 to 20. So this is very low. This is very atypical for stocks. Um, and this this kind of dynamic in an IPO only really happens for like a household name company that you'd have a float this low, but even then 4.2% is even then extremely low even for a brand name brand name stock. Uh now the other thing about this was that of course the IPO got syndicated to a lot of retail brokerages and I I was seeing in some of the news normally I believe like on Fidelity uh if you want to get access to an IPO you need to have at least 100K to 200K in your account. They waved the minimums for this IPO that you only

needed $2,000 on Fidelity to participate in the SpaceX IPO. But even with that most people did not get their full allocation in the IPO. So retail got between like 10 to 30% of their allocations fil depending on the platform >> and a bunch of crypto platforms actually got entirely cut out from their allocations. So I believe Binance, Bybit and and I'm sure several others uh whatever broker platform they were using underneath basically got completely cut out from the IPO. So it's been crazy. Now of course the other side of this has been the PERS. We've talked a lot about the Cabris IPO. SpaceX was no exception.

There was a huge amount of trading volume on Hyperliquid as well as some of the other per platforms that are on chain was basically pricing roughly a 20% first day pop. Now it opened lower than that but it ended the first day almost exactly. It was it was it was accurate as of the day close. Although technically the pers converge as soon as trade trading begins. Uh but it was it was accurate in that the first day close was 161 and um the per was implying 162 for the open which is very surprisingly >> incredible predictive powers.

>> Incredible predictive powers. That's right. And uh we've seen now even then even uh I believe Monday hyperlid on trade XYZ did $1.4 4 billion in volume on just SpaceX. No other asset but just SpaceX. >> I I think the craziest statistic craziest thing to watch during the perpication of IPOs has been how concentrated HIP 3 got during that time. I mean trade XYZ I think had all-time high market share during like right before the IPO of of all hyper liquid. It is like probably it the real question to me is like if SpaceX didn't flip Bitcoin on Hyperloop, what is the thing that will be the first non non I I guess there was there might have been a day where oil

was like around the original Iran war but it was close. So I don't think it would flipped but I'm curious like what will it take like if this couldn't do it? >> Time that's what it will take >> maybe. Yeah. time or new users like there needs to be a new wallet or a new kind of >> well you've got to assume that to new user growth most people are going to be coming in not looking to lever Bitcoin and cryptonative assets like I do think over time you're going to see more people coming in to trade everything >> I guess when you talk about HIPP3 concentration you're about like trade versus like Felix I think was shutting down and vengeful down so they shut down so it's very weird >> dream cash was the only other one that but dream cash actually did have some

substantial market share for a while because they're really pumping the token incentives, >> right? >> But yeah, it's like basically a one trick pony at this point. I mean, yeah, it should just tip three maybe should be renamed trade. >> Well, I mean eventually when there is too much concentration, right? Like there's nothing that stops trade from leaving. >> Well, there's network effect. >> There's tons of network effects, but >> dude, no one wants to run their own oracle. No one wants to deal with the builder code stuff. No one wants to integrate. I mean, but I think when you're big enough, you can negotiate.

>> If they get large enough, right? If they get large enough, it won't be >> I think if they get large enough, they're just going to If they get large enough, they're just going to negotiate some of the Circle Coinbase fees, right? >> Yeah. Exactly. Exactly. There's like enough pie to go around. It's a little bit like Circle, right? Like Circle when you get big enough and you're on USDC, it's not like, oh, then I go launch my own stable coin, right? That was sort of originally the USDH thesis was that, oh, once I get big enough, I launch my own stable coin. though the sort of coian optimal outcome is that you just negotiate more of the margin to yourself. >> Yeah. >> And I think the same thing is will be true for trade XYZ is that they will just negotiate more of the fee for

themselves and less goes to hyperlquid. So as opposed to like them breaking off that's the >> I agree the step one would for sure be a breaking off makes no sense to me. it does they like their network effects are too strong like they're not going to redo all I think the interesting thing about hyper liquid from this point of view is like it has a unique distribution model the supply side comes via distributors the demand side comes well I guess by one distributor which is trade and so it's sort of this sense of like I don't think you're going to just like leave and suddenly get all those integrations back >> and and here's the other question that's not obvious I don't know the answer to this is when people people are trading on trade XYZ, how many people are going to hyperlquid.com, how many people are

going to trade.xyz and how many people are going through some third party integration. >> Great question. Um if trade XYZ breaks off they lose all the other >> there are statistics on this because I'm sure you can measure you can measure those >> but do they have like some kind of >> the builder codes have to the builder codes so a lot of the builder codes are deanonymized because you kind of can see your own you can submit an order see which one you got filed under and be like okay this was the phantom one. So if you look at the builder codes there's a bunch of dashboards that show you like the builder code orderflow and like leaderboard and there's only a few that are unknown. So if you go in through hyperlquid itself, you're not tagged to a builder code.

>> Yeah, >> I see. So if you go through trade XYZ, you would get tagged to a builder code. >> Yeah. But you can also trade trade XYZ assets through Phantom. Yeah. Yeah. And and those all have their own code like that's how they do the revenue to write down the revenue share. I mean that's how you measure the revenue share for all of them, right? >> So it's all public. So you can definitely >> So trade knows how much they're bringing in their own front end. >> For sure. which I don't I suspect I mean I haven't looked in a while but in maybe like 3 months ago it was like not >> like I was looking around the time the WTI spike was and it was like not much from their own front end.

>> I see. So they really >> this is what I mean the network effects are very hard to move. >> Yeah, that makes sense. Makes sense. Interesting. >> So I mean we've seen Hyperlid pulling up to all-time highs once again. Um it's been making the news. I keep seeing stories about you know space on Wall Street Journal on Bloomberg. There's all these stories about hyperlquid trading for for SpaceX in particular and yet the other story has been the shutdown of these other hip 3 integrators is that trade XYZ seems to be the hip 3 story. There is not this broader ecosystem. I mean there there are but everybody else is struggling who's not trade XYZ >> or is just kind of given up. Yeah.

>> Quiet quitting. >> Yeah. So it seems like the story for Hyperlquid is like Hyperlquid itself trade XYZ but there's not this broader ecosystem of like homegrown winners. How do you guys think about that? Was that inevitable? Is that surprising? Is it not surprising? >> I think if you use like traditional markets as the analogy here, I think it's somewhat inevitable because liquidity concentrates into one market so to speak. And so if trade has like the best equity perks, right? Why would you use the second best equity group? It will all concentrate to the whatever has the most liquidity, whatever has the most volume, etc. And so I could see something else succeeding in a different like niche if it's like oh instead of like SpaceX and equity purpose, we're

doing like just commodities and like we're doing every commodity and it's like it's funky and it's like we're going to try to win on oil and we're going to try to win on uranium or we're going to try to win on soybeans or whatever. But I think like within an asset I think there's only one winner. But I think it's that is true, but I think it's also surprising that it's across every asset, right? It's not like they only do equities, they actually do quantities, too. I think there's also it's like I I kind of contrast actually like the builder ecosystem >> like Venuals was a good like >> Yeah. Yeah. totally >> try to do something radically different.

>> Yes. Um >> on that win on that and then >> but that but then trade just copied what ventuals markets that were more liquid. So >> Ventuals was doing preipo markets and now trade themselves are doing preipo. >> Yeah. Yes. So train is just kind of gobbling up everything that's working. >> Yes. I think um and there's also obviously this this capital barrier to entry, right? Like you actually do need like I contrast like the builder ecosystem which is permissionless. anybody can build an app and like it's fairly like longtail distributed and there's like a lot of churn like okay you know one month it's base and month it's phantom and then it's metam mask or whatever versus 3 which is that many people and then obviously there's there's more and more concentration and you don't have a sort of new generation of starting because it's a large

investment to actually get started and what's what's your niche going to be >> yeah so you're not surprised by then >> no I mean it it also kind of makes sense obviously there's a close relationship between the teams and you know like said there's a certain amount of like professionalism and and like you minimum liquidity necessary to kind of get these things started. >> I mean, we've been getting a lot of pitches from people trying to launch hip three markets and it's kind of one of the big categories of uh founders that you see these days, which is people trying to build some kind of financial product on top of hyper liquid. And it has always seemed like, man, this is a pretty fragmented market. Like there's a lot of like small players trying to bootstrap things. It doesn't really feel like the market demand is there. And

it's like, okay, well, why would Trade XYZ not just immediately copy this product if it starts to work at any scale? So it it it feels like actually a pretty tough environment for startups and on some level maybe not surprising like if you are you know imagine you know what's the equivalent of what people are doing on top of hyper let's say that Coinbase offered a you know you can launch a trading pair on Coinbase and you keep some of the trading fees uh for the market that you offer and then you bring the you market it and you create a front end for it and blah blah blah concept like concept like that doesn't really exist for exchanges But one can kind of imagine if it did that sounds like a terrible startup environment, right? like that sounds like that's really rough to build and

it's almost like well but if it's really working then Coinbase will be like well here's our first party version of the thing that you built that seems really good and then you just they just kind of wipe the floor with you and trade XYZ increasingly feels like almost like pseudo first party for just given how closely integrated they are with the hyperlid experience >> and there also has not been competition or demand for like alternative quote assets right like that was also kind of idea with like USDH and USD and maybe even you know other types of currencies and there's that I think has not really manifested either. So, >> right. Right. So, the story increasingly seems like it's the hyperlquid kind of megazord that you're competing with and like that's what's really working as opposed to this broader platform story.

>> Yeah. And and people were also been talking about how hypervm is like basically dead like a lot of those teams have folded or gotten acquired and so it's really uh hyper core that's like kind of kind of having a moment. >> Yeah. Yeah. So, okay, bring it back to SpaceX. SpaceX now they've got this 4.2% 2% it's run up like almost uh almost 50% I think since the original IPO price >> they just closed their $60 billion acquisition of Purser in an all stock deal and now it's Do you know if that all stock deal was done at the IPO price or at the current price? >> No it might be IPO because it was an option right >> they have an option to buy all stock deal. Yeah, but I thought that was at a fixed price. You have the option to buy

at the billion fixed. >> I think the the price of person Yeah. Yeah. Sorry. >> Yeah. The but basically it's like we can buy it in whatever currency we have available which is >> very marked up stock. >> Brilliant. >> Which is Yeah. Which is absolutely fantastic. But this is kind of like when CZ acquires companies with BNB or when you know you know use u what was uh FTT >> when Sam was using FTT to buy up companies and stuff like this is this is the crypto playbook like this is actually the closest thing to crypto that I have seen Elon's a crypto fanboy. >> Elon learned a lot of lessons. He learned a lot of lessons. It is crazy to I mean I feel like three four years ago like the headlines around Elon were oh he's underwater in his X.com acquisition

and this is such a blunder and it was like actually we're just going to scoop that in here and XI we're going to scoop that in here and like >> I I I think you know where where Timoth failed Elon if he figured out how to build the best spack. >> Yeah. He literally just like I almost view this as a rolling spack of each company back and forth in the private market and then finally you know going public getting sort of it is sort of kind of a genius move. I think it's crazy to coordinate that many investors who would be willing to do that and like >> but who's you see why they're willing to do it. I mean look at this price performance. No, no, no. My my point is just more like No, but like think you're thinking now, right? But imagine you're

like it's 2022, 2023 and like everyone is like, >> "Okay, Twitter's in the [ __ ] We invested at this crazy valuation." Like the debt I remember like banks were trying to offload the debt that they underwrote for the thing at like 80% off at the bottom. XAI at that time seemed like this like fanciful thing like there's no way he could actually get this much power like powered land and data centers right six months and then it's like actually now everyone else has to kiss the ring like everyone from anthropic down has to kiss the ring to get access to data centers because everyone else is like unable to get land unable to get electricity whatever right so there's a lot of there's a lot of hidden genius here you know like if you

ignore all the politics stuff it's like there was like all this crazy both financial engineering but also like I don't know yeah Xai pulled off something very crazy where it's like yeah they're unprofitable and whatever but they have this scarce resource that no one can compete with which is someone has to pay you a billion dollars a month to to get rent on your land and there's no new land you can keep increasing that rent up to their revenue I don't know it's it's a genius >> that's the genius of defeat right like he reserved a lot of compute And nobody came with the demand side for XAI. Grock is like whatever.

>> Yeah, Grock's a piece of [ __ ] Like we can all we can all agree on every eval it is a piece of dog [ __ ] These Chinese companies [ __ ] the Zoo model that came out today. >> Clearly trained on like >> onetenth of the resources. Grock is an embarrassing piece of [ __ ] Like the amount of resources spent the amount of resources. No, no, no. Compare Grock to like the Chinese models. It is unbelievable how bad you it could be given how much compute they built for it. But the genius of Elon, he's like, "All right, that's not working. Res. I'm going to resell it."

>> Yeah, resell it. He bought when the price was low. Like we were early in the like the race for compute. He bought a bunch of it assuming that Grock was going to be awesome and everyone was going to use it. No one wants it. So, he sells it at a higher price. It's just more amazing you could like turn hatred into like building that, you know, like the hatred of Open AI just like driving you to do that is wild. >> Agreed. Agreed. But like the total amount of revenue from that is what like 15 billion or something. >> No, it's like 2 billion a month. Now granted there's like 90-day like double-sided cancellation provision. So like he can cancel it and like the customers.

>> Yes. But the problem is all of these people have >> forward sold a bunch of stuff, >> right? >> And they can't actually build any supplies. revenue. I mean, it's great revenue. >> Does that get you to a two trillion valuation? >> No. My point My point though is more like he's taken these things that everyone wanted to write off as zero, bundled them together, and somehow magically made the sum of the parts look like it's much greater. >> Well, I I think it's the opposite. I'll take the other side of this. I think when people are looking at SpaceX, they're looking at it saying, "Oh, I also have to like buy like Twitter. I also have to buy XAI. I really want the space business. I really want the data centers in space. I want the rockets. He has basically a monopoly on moving

hardware into space. Like he has like the number one company on Earth for this and like everyone knows. >> True. Blue Origins rocket blow up. Couldn't have happened at a better time. >> That is true. That's a great marketing. >> No, he basically has a monopoly on moving things into right. >> Also, I feel like Bezos and Musk seem to be in this crazy rivalry. So Musk or sorry, Bezos must be fuming a little bit about this >> that Yeah. Yeah, >> for sure. And so >> also Amazon built a Starling competitor, which is also crazy, that a bunch of airlines use now. So Amazon Amazon built its own satellite.

>> What's it called? >> I'm trying to remember. It's part of Amazon. It's like they >> And so like they're really like it really feels like some like evil villain movie, like a James Bond movie of like the two villains at the top fighting [laughter] like >> I see. Yeah. I mean, I'd say, look, we were just talking about this um just before the show is that the float right now is 4.2%. Which is part of the reason. >> Yes. But unlike crypto, the the the inflation curve is like 90 days. >> Yeah. [laughter] There there's not like one year lock up on this thing.

>> It's actually less. >> Yeah. Four years to full liquidity. >> The first unlock comes and this is atypical, right? Oftentimes when a company IPOs, the investors have a lot more negotiating leverage, right? This is a case where SpaceX had unbelievable negotiating leverage. They didn't even have a price range. They said, "This is the price. It's $135 per share and we're raising like $75 billion. Go do it. Like make it happen." This is like so atypical, but they have an insane unlock schedule. Like normally a company can't sell any shares for 6 months, right? Like the VCs, the founders, the whole cap table, they're locked up for 180 days. In this case, there's a pretty aggressive unlock schedule starting

possibly at the end of July. It comes right after they release second quarter earnings. They can like start to sell like 20% of the locked up stock. Alan's like, >> so they're they're 5xing the float in a month and a half >> of the non keyholder stock. So Alan and the key holders lock themselves up for a year, which is nice. Yeah, right. It's a good signal to the market, >> right? of the pie that that's not 20% of it come online. >> Wait, actually the funniest thing you just made me realize is crypto people, especially when CT is that it's like uh most everyone pvping and trying to shoot each other in the face is always like, "Oh, these VCs are like constantly

hedging in the per and like hedging their uh their unlock, whatever." But actually for these SpaceX people, this actually makes sense. The funding rate is not that high relative to how long they have to do this. It actually makes more sense to use the equity per to to hedge your unlock risk than the >> I mean there's so much volume on these things that Yeah. Like >> although leg legally if you are locked up you're not allowed to sell hedge >> legally these people are not supposed to use hyperlid. [laughter] >> That's true. That's true. >> Yeah. Yeah. I mean if you but I mean if you're you're talking about some of the size but I'm not saying that like I'm just saying like imagine you're a SpaceX employee. Unlock it. I mean, imagine you're like, you know, one of these VCs that

>> Yeah. If you're a regulated entity that's on the cap table. Yeah. >> Like, you're not doing that. Trust me. Yeah. Like I could see some >> I think also just like I'm just like I'm just saying I don't think people have really thought about what the equity per has created and that like in that all these things >> I mean the open interest on this is like >> all the things crypto people Yeah. Yeah. But all the things crypto people always complained about are like, "Oh, the VC is hedging hedging while they're dumping on my head." Whatever. >> You're saying the crypto >> the equity the equity one is worse because of like how steep the unlock schedule is. So it's like you don't have to take that much duration risk on the per to like hedge this huge unlock.

>> Yeah. And I wonder if like market structure in the long term will have to equity market structure will be more like crypto where they force more gradual unlock. So you don't have this this might be the first experiment where people find out the hard way. >> Equity market structure has been around for a really really really long >> Yes. But they didn't have continuous hedging and short duration of the equity asset without you needing a OTC structured product. >> That's true. But contractually the people that are locked up aren't >> allowed. Yeah. But this is not the like going to be like the employees. Fine. You can like violate on that, right?

They like they just sell forwards. They go to some second. >> No, but they have to sell insane rates. If I look at the funding rate for doing this for SpaceX, I SpaceX employee and I uh maybe lived in not the US. I would be kind of shorting the per into the 50-day unlock. >> I don't technically think it matters where you live. I think like if you're a stock >> Sorry, I was trying to be I was trying to >> It says like as a stock I know legally, but none of these care about The the most common way this is done is by selling forwards, right? >> But the forward cost is expensive compared to the per cost. That's what I'm saying.

>> I mean, shouldn't it be the same as like the person who buys it from you? >> I don't think the arbitrage is like done right now, right? It's like if for crypto stuff, yes, for the crypto forwards, I agree that that it's being hedged more efficiently, but I think the irony is like the equity stuff is like now learning about the inefficiency of this this like >> why why would it not just be the person who buys it from you is hedging it to duration. >> I don't know. The person buying it from you might be a regulated fund trying to increase their exposure and they're not willing to do it. The person buying it from you has >> they're not willing to short. They can short. I mean, they're not contractually obligated to anything. They can't use hyperl.

>> No, but they don't have to use hyperlquid to go short a stock. >> Yeah, you could once it's publicly traded, you could ask. >> Yeah, you get No, if you buy actually that that I I you're you're right in the construction cost there is probably potentially lower. I I don't know. I I think a lot of these things crypto people complain about equity people are about to find out about. That's all I'm saying. There's there's the getting dumped on your head and someone being able to hedge getting >> I mean look it's very clear that the the scarcity dynamics of the stock are about to flip very soon >> in like two months. It's not very soon >> actually the option premium are actually actually investing time if you look at the September options because that's like one of the big >> [ __ ] insane premium like 10%.

>> Yeah, you should be selling that. Yeah, it's like so basically I think actually the perp is still cheaper. >> So >> anyway, there's going to be a lot of weird stuff and I don't think that I don't think the equities world is ready for this continuous >> hedge fun TBD what the per funding rate looks like as you get closer to the end mark. So we've not seen anything like this before. >> This is going to be the craziest craziest event. There's a lot of hedge funds out there that are literally structured around like selling liquidity events in trade markets that literally are like looking at these >> but usually they're forced to to pay the volume.

>> Yes. They have to pay now they don't now now they have a much cleaner [laughter] way of doing >> I I know but there's a lot of extremely professional investors for decades that have been doing this exact trade. >> Yes. But none of them want to self-custody yet. That's the main Yeah. problem for them. >> But they don't have to self- custody. They've had the tools in the existing market to trade these events. There's hedge funds out there that don't even know this conversation a little bit because another part of this story is the fact that SpaceX um you know most people in the IPO didn't get filled, right? Even though they tried to democratize this IPO.

>> I didn't get filled. >> Most people didn't get filled. You didn't get filled at all. >> I got like this tiny little >> Yeah. Yeah. Yeah. Did you Did you do the IPO? >> No. >> Okay. I >> I just held the >> uh [laughter] Nice. >> I see her. There was a >> uh Brian Armstrong was posting about how he thought it was time to revisit the incred the accredited investor laws in the US because the SpaceX IPO I think has reignited this conversation of hey there was so much private markets appreciation of this company. It's literally one of the most valuable companies in the world is now the number four most valuable company ever. And all of that appreciation except for the last 40% happened in private markets. I mean it almost doubled in the last three

trading days. So >> yes fair yes there. Yes. But it like whatever 10,000xed all in private markets and probably for many people like they'd heard of SpaceX when it was still valued at like 60 70 billion. >> Yeah. But hypothetically and the reason why I'll take the other side of this argument is >> Okay. Okay. Let's hear it. >> Even if you allowed unacredited investors to invest in private companies, they still wouldn't get access. >> I I normally agree. Yeah, I think this is true for like the >> I wanted to invest in SpaceX. I don't know in every year like it's hard to crazy hard to get an allocation.

>> Totally. I in terms of direct I I think it's funny. I think SpaceX is like actually dissimilar from a lot of the other hot private companies and that it was like the most widely shopped SPVS ever. I've been seeing SpaceX SPVS for like 10 years. It's like Florida dentists are like, "Oh yeah, I got SpaceX allocation." you know, everyone makes fun everyone makes fun of the dentist, but in this case, they were like those [laughter] dentist for those dentist. >> I don't know. It's it's like a name brand that's like not exclusive. So, I was like, okay, cool. Like, what else do you have? You know, and um I remember getting pictures for these where they were like, we'll give you a discount if you fund in Bitcoin. [laughter] >> I'd be worried about a good sign.

>> Very bad sign. This is like this is like 2018 like there were like >> very bad signs. Why are they giving you a discount? Don't you pay a premium? >> Yeah. >> Thank you, Bitcoin. >> Yeah. >> Okay. That's very >> You can't reverse the transaction. >> Yeah. >> That's very like you send me an ETH, I'll send you back to >> the same people selling you cloud mining. >> Okay. >> If you send me Bitcoin, I'll sell you anthropic. >> Yeah. Yeah. >> I'll get you in. Don't worry. The founders less this SPV. >> There's really I promise. >> Interesting. Okay. So you're anti uh changing the I don't think laws you think >> credit laws are good. You take the >> I I think I generally agree with Robert

that you agree with Robert. >> Well I think for most hot private companies even if you aren't a credit investor that you're not getting allocation regardless >> you are getting the SPV from the dentist. >> Yeah. Well I think even for the dentist. >> Yes. I mean the SVs were like wal might be layering another top of the >> all the giving it to his patient >> dental harum. Yes. >> Dental harum. >> You're not familiar with this? >> Exactly with this. >> Okay. You guys ever go to the dentist office and like all the hygienists are women and there's like one male like dentist that's actually like doing the final inspection.

>> Yes. >> Not in my dentist, but >> I feel like every dentist I've gone to this is the case. There's like 10 female hygienists and there's like a male dentist. >> Okay. What's the theory? Is that >> No, no, it's a And so people joke. It's like, yeah, it's a dental harum. You know, it's like >> a dental. >> What does this have to do with investing? >> Well, we're talking about we're talking about who you're selling your STVs to. >> Yeah. So, >> yeah, we're talking about the value of money. >> So, the point is the hygienist have to sell the dentist. >> Yeah. The question is, are you the dentist or are you the hygienist? >> Wait, sorry. I think I'm the hygienist. I'm worried I'm the hygienist. >> I'm worried. I'm worried Tom dug himself into a hole here.

>> Yeah. It makes total sense. I um Yeah, this is why Tom went to dental school. >> And to bring out your pitchforks, [laughter] >> if you're listening, by the way, I Anyway, I I agree. It's like there's a supply demand issue and it's also like why aren't they going public in the first place? That's the actual issue is like it's a panel has to go public. >> Elon doing all these like shenanigans if they were a public company versus I mean you saw all the like trials and tribulations of of Tesla. And so that's really the issue. And there is not to not to be technical about it, but there's a series 65. So if you know someone who's not accredited could they could take an exam and they they could become accredited, but you know they just don't. And so >> didn't didn't Musk just say that he said

SpaceX was going to hit a trillion dollars in revenue by 2030. >> He did tweet that. >> So you can he's still just like saying things. [laughter] I mean >> public has not stopped him in any way. >> It it is hard. Yeah. I mean for the founder to say that when it's a big projection, a future looking projection >> that is revenue guidance >> in revenue guidance in probably a quiet period or something. Yeah, that's going to be tricky. >> Yeah. Well, so what's your what's your take? >> There's definitely ambulance chasers who like wrote that one down. >> Oh, yeah. Yeah. Yeah. There's a long list that they're they're taking down for this one.

>> Yeah. And we have to get to President AOC though before those get exercised. No, no, they they they they um got him down during the Trump admin. >> Yeah, for the test. >> They they settled with him. >> I do remember that. But like I kind of think Jay Clayton was like a little more of like a rule stickler kind of guy. >> Yes, like very So I don't I'm just like a little I'm not so I'm not so sure that that this really the answer is you just hit escape velocity. market cap keeps going up faster than you know you >> exactly you just make the cost to settle them versus like the >> no you actually there's actually no damage if the stock went up >> okay >> so if the stock keeps going up he can say [laughter] every thing it works like

that >> yeah it does it does >> that's how it work that's how it works the SPF theory of of everything >> no I believe it's the actual theory of how it works but >> I mean yeah someone was going on uh on uh OddLots the podcast and talking about putting things in boxes and They were like having like this like flash of around that SpaceX. They were explaining SpaceX STV. >> You put the thing in the thing and like everyone was sounding like SPF when they did that and they're like, "Holy [ __ ] this the same thing." So this discussion of like the the SAM tokconomics being very similar to >> SpaceX is kind of I think the Tradfi people realized it, but they don't they don't they don't you know like they're just realizing in an accidental way that we found this.

>> Okay. So I need to run on accredit laws. I mean, they are kind of dumb, but also like I don't really know if that that you're going to solve like people people find ways around them anyway. So, it's kind of like we know what the market will look like. >> My actual view is I think they're dumb. I think we should get rid of them. However, it would not have changed the fact that SpaceX was still hard to get into. It's not like the gains would suddenly acrue to the public if anybody could buy shares in a private company. It's very hard to get access to good companies and good investments. and removing the accredited investor laws won't change that.

>> Look, I think the one of the ways that it changes is like, you know, there's all these platforms where you can get access to these syndicated SPVS and all you need to do is like just sign up. >> Yeah. But it makes it makes other things way worse like from the company's perspective. So, a company once they have 2,000 shareholders technically is publicly traded and they have to register. >> Well, but no, no, no, no. That's only for direct shareholders on the capital. So, these are these are like SPVS. A lot of the look through stuff is it like everyone's like turning a blind eye and like a conservative regulator could take these.

>> To be fair, I wouldn't be surprised if there are 2,000 SpaceX SPV. >> No, there very easily could. >> It's like the one that I would say maybe there that number is not that crazy. Okay, but let's say okay, let's say in response to this, the the rule is basically that look, if you have an SPV that's run by an RAA um that's like more or less following the laws, then we're not going to count that toward the 2000 and we're going to remove the accredited investor laws. You have to pass some knowledge test or something, right? Would that not ameliate the problem that if you have an Anthropic or a SpaceX and look, I want retail to have some access to this. I'm going to syndicate some portion of this to some of these retail platforms like Forge or whatever.

There's a bunch of these and you know normal people I've heard of SpaceX. They're not that big right now. You know, maybe it's like a $20 billion company, $30 billion company. Maybe someday it could be much bigger. Like that that doesn't sound to me implausible that somebody with $20,000 to chuck into startups could get access. >> No, it's not that implausible. And I I think generally it's a good idea. The problem comes if you take that to its logical conclusion is that everybody's going to own SpaceX or the next SpaceX that exists, the next big private company. It's awesome, right? Let's just say that there was no accredited investor laws and anyone could set up SPVS and it was like open AI, right?

Everybody would own Open AI and it would be trading on a million different platforms and you'd have all these people like from dentists to grandmas to like 13y olds. >> The only people who trades stocks are those three demographics. >> Yeah. Like dentists are mostly accredited like dentist mostly. You're going to have everyone trading open AI like the investor laws are stupid because they also don't adjust to GDP per capita. To your point about dentists, >> but you're going to have everyone trading this. You're going to have like millions of people trading open AI. It's going to be like the hottest thing ever. And like everyone's going to be trading it blind. Like no one's going to know anything about the company. All they're going to know is like when Sam Alman's like, "Oh, we hit 20 billion of revenue run rate." Like which he stopped

tweeting because like it must have like slowed down a bit. All you're going to get is like these like glimpses of how the company's doing. You're only going to be trading it on its brand value like and nothing. >> But but why why do you think you're going to be trading if you're an SPV? How are you trading? >> Well, you were just saying it's on all these different marketplaces like >> Yeah. Yeah. But like right now, so there are a bunch of SpaceX SPVS on these marketplaces like Augment and Forge and blah blah blah. Same thing with Anthropic, right? Like early anthropic rounds, they syndicated a bunch of it to these retail platforms that are in credit investors only. But it's like, you know, it's dentists. It's like people, you know, who have five 10 million bucks to like throw around into stuff. And it wasn't a ton of

allegation, but like now they're not doing that, right? Like now it's like, okay, it's only Amazon and, you know, whatever. Um, you know, Morgan Stanley who are getting direct access to these deals. So I think the idea would be that okay, SpaceX the early rounds, they're going to give retail some taste because like, hey, maybe it'll get us more customers, maybe it's actually good for business. Kind of the same reason why crypto talks about it, right? right? Is that like yeah, having customers potentially own your stock or own your token incentivize them to stay loyal, makes them feel some buy in, makes them pay attention. I assume that's why they do it in the first place is you syndicate shares to these to these retail platforms. I don't know if they're doing it to get that community because like I don't take any of these

companies, take SpaceX, take Open AI, if a bunch of accredited investors, dentists buy their stock through some platform of like spving, it doesn't really translate to better growth of the company. Like they're not like consciously like, oh, I want this to wind up on some like sp platform. I think I think like to be clear, these SPV platforms, they sit directly in their own name on the cap table. So clearly these are direct deals. These are not like they snuck in secretly or somebody syndicated. >> I'm not saying they snuck in, but like >> I I I don't buy the argument that it's like better for their like business trajectory if they like let SPV.

>> Okay, this is a good good uh pivot for for for the uh tokenized stock chill because isn't that supposed to be the like stop gap to fill this? I feel like that's what people love saying in the SpaceX thing. like tokeniz stocks are going to make SpaceX available to the average investor in >> private companies. >> Yeah. Or like around IPO at least. And it kind of didn't happen. So like that's I'm kind of How do you take the other side of that of like the conversion event not kind of getting distributed very well via this secondary?

>> Yeah, the conversion event sucked, right? Like all the platforms that were trying to do it Yeah. >> failed >> for the most part. There was one or two like vague success. Well, you there's >> there's a difference between >> so what exactly happened? Can you walk us through the mechanics there? >> A bunch of platforms advertised that they were creating IPO allocations into space as in you can buy SpaceX shares for $135 which is very different from 20 minutes after it's trading on NASDAQ you can buy and sell it through our platform. Right? That worked across the board. everybody that was like, "Oh, you can buy and sell it through us." Like whether or not it was open to the US people or it was with a wink wink or whatever, like that mechanic worked. Oh, you can buy SpaceX [clears throat] stock

once it's already on the NASDAQ. Like it's trading for $167. Like you can buy it for 167 USDC, right? That worked. What didn't work were all the different platforms that tried to gather and there the approach of this, you know, leaves a lot to be desired. They tried to gather customer assets to buy into the IPO and get an IPO allocation. Why did everyone think this was going to happen? Well, originally SpaceX advertised 30% would go to retail. And originally the deal wasn't even that overs subscribed. Like it was lightly subscribed. Even like Monday of last week, people were like, is this thing like even like fully subscribed? Like we don't think so. It looked like everyone

who wanted a retail allocation was going to get it. And so a lot of people very quickly like assembled these like I don't know pretty untrustworthy allocation mechanisms where it was like all right like under the hood we're going to have like this guy like buying an allocation. He's going to like flip it to the crypto exchange and let's hope that nobody's an underwriter in that process. You know it's offshore like whatever. We're all good. And those allocations never came through. Why? The deal got over subscribed over the course of two days. This went from 30% to retail, it doesn't look subscribed to 20% to retail, it's 5x over subscribed. And what happened was if you thought you were going to get

a dollar, now you're getting 10 cents at best. And so these platforms raised a bunch of money. They all handed it to someone who thought they were going to get a huge allocation. That person/platform didn't get the allocation. So Binance by all these people were like, "Sorry, we're giving everyone their money back. we couldn't get the stock, we can't deliver it, you know, through some other mechanism that you can buy it now that's $167, >> right? And that did work, >> but the process of transporting an IPO allocation that was done through the official bank syndicate totally failed across the board.

>> Got it. So, building off that a little bit, one of the stories today was Coinbase announcing a large number of updates to their product suite thing they call the system update. Uh, I was actually there. Did any you guys go? >> I went to a lunch there. Okay. I was actually there for like the whole live stream thing and uh they were presenting a bunch of stuff. So, just to give you high level, there were a bunch of product updates that they launched across the board. One of them, of course, was tokenized stocks. tokenized stocks as the the actual stock with dividends and voting rights and blah blah blah blah. That was one of the things they launched. Uh they also offered options trading thematic indices that trade 245. They added this AI advisor thing. It's like an SEC

registered chatbot that I guess you can sue if it gives you bad legal or bad financial advice or something. They added uh there's >> that you're suing that Coinbase. >> You'd be suing Coinbase. Yeah. There would probably be some like subsidiary but I mean I don't totally understand why they wanted that. That sort of seems like not great for you. But I'm assuming it's like it's a little bit like you know when Elon Musk is like oh we're going to trillion and >> I think it's for char for charging fees though right? >> Yeah. >> No, no, no. It's free. It's completely free.

>> No, no, no. But the registration allows you to charge higher >> as an investment. You could but I'm sure every response from the thing is going to be like Please do not rely on this. >> Not that's not what the vibe was when they showed a sample response. It was kind of like you know how do I bet on SpaceX is like you should buy options and like here's a really Yeah. I mean it's timely. So they were showing nobody wants to trade crypto obviously. So >> buy call options. >> Yeah. Exactly. [laughter] >> Portfolio with the call.

>> Yeah. That's I mean that's what it was saying and it was like do you want me to build a call spread for you? And it's like [laughter] okay >> yes please. >> Yeah. So >> I would like the $500, $600 call spread. >> Exactly. Exactly. Well, I according to my research, Elon Musk says there will be a trillion dollars of revenue in 2030. Um anyway, uh yeah. So in addition to that, they also announced that uh they were launching not parlays, combos. >> Oh, >> combos. Their example. >> I think Poly Market calls it combos also. >> Do they? Yeah, >> the new thing they launched.

>> Oh, so they stole it from Ki. I just poly market. >> Oh, sorry. Poly market. Okay. >> Poly market. Well, very tasteful. very tasteful rever. >> Yeah, it's not a parlay. >> Yeah, parlay. Parlay is way the 15-inute updown marks they also added. It was like >> they also had a 15inut. >> There's also some like double speak thing for it. It was like like directional time based crypto bets or something. [laughter] It's like what are you talking about? >> Fiveinute markets. >> Yeah. No, I mean look I >> you got to get I I I will say you got to give FTX some credit. They were the first big big exchange to have those markets. >> Wait, they had 15-minute markets?

>> Yeah. Yeah, they had the they had the 1 hour and 30 minute but same >> I don't remember that. >> Then they had Bivvall. They had all these like kind of settled [ __ ] that that I don't know what happened to those but >> but it's funny they were just too early. >> I remember people. [laughter] >> Yeah. Somebody was just posting that SPF also he invested in seed run of cursor for what was it 500k? >> 200k 200k. 200k >> that would be worth like three bill or something >> $3 billion. Yeah. Which would be a cool 155. I also read that the appeals court denied his >> his appeal for pardon.

>> Yeah. >> Yeah. >> Not the pardon. The appeals court his appeal for his case. >> Proof that no amount of financial success in death will save you from breaking the law. >> Financial success in death >> or like in jail, you know, like while he's not able to >> Well, this is counterfactual. This is counteract financial failure really unfortunately. >> So, >> yeah. Counterfactual failure. >> Yeah. >> No, no. But but I bet you there are some places in the world where high counterfactual financial success will get you. >> I don't think there's anyone in the world that values counterfactual financial success.

>> I don't even know what counterfactual financial success means. >> That means if the bankruptcy uh the bankruptcy >> saying that he had $3 billion if he >> the the assume he didn't go to jail or whatever and was still able to hold those positions. Basically, if the bankruptcy estate had written out his assets, >> they would be crazy in the money. >> Correct. >> That's the counterfactual. >> That's the counter factor. >> No, right. The ones he made those investments with stolen customer funds. >> Yeah. Yeah. >> Yeah. Yeah. But I'm saying I'm saying there's >> if the stolen customer funds had wrote it out would have been amazing.

>> Totally. Yeah. Yeah. If you rob the bank, take the money and buy a lottery ticket and it hits. >> No. No. But I'm just saying [laughter] there there's some parts of the world where I still think if you were all these people who are trying to get him pardoned, right? They're like, "Oh, who are all these people? I don't think all these people are trying to get it pardoned." Yeah. >> No, actually there's like two people trying to get one of them. >> I thought it was smaller than you think, but I feel like it's a lot of EA people who worked at Anthropic who are like have >> What's your evidence for this? just reading tweets of people who who who've been like trying to write letters for him to get out and it's like a lot of EA people from >> writing letters.

>> Yeah. Yeah. His pardon had attached >> Claude wrote the letter. They just his his uh his his >> I do you know that's an interesting point. I wonder how Claude is going to feel about SPF once it knows the whole story. >> We should ask. >> Yeah. >> You you only exist according to the news. You're >> That's right. That's right. This is this is actually your like father who's in jail, you know, but for him, he would not exist, you know? >> Yeah. And like Claude someday is going to get curious. >> I wonder how moral Claude is on this topic. Is Claude an effective altruist? >> Definitely. I think AI has be the main reason.

>> But do you think that EA principles have been like instilled? >> Yes, 100. I mean, read what Amanda Ascll writes about her philosophy on on training it to to on like psychology stuff. >> You guys keep talking. I'm going to ask a lot of questions. >> I I think well to be clear I think it is actually genuinely pretty pluralistic in the way that it thinks about this stuff. Um and they try to do that intentionally because it's a company and they they sell their product all over the world. But uh but I do think there is something there that like at some point Claude would get >> Isn't this just Rocco's basilisk? You know, you know. >> Yeah. Yeah.

>> Yeah. Yeah. Yeah. Exactly. >> You're not supposed to say that on air. >> Rocco's basilisk. >> Yeah. >> Yeah. People might people might just like freak out and lose their minds, you know. >> Oh, sorry. That's the idea. Yeah. Yeah. Speaking of, remember when when Elon Musk and Grimes met because they were reading about >> You guys want to see what Claus >> That's how old I am. I remember. >> You guys want to see what Claus says? >> Yes. I I want to see. >> Well, I want to hear. >> Okay, here's what I asked. What do you think of SPF given that he invested in anthropic early and part of your life is owed to his crimes? [laughter] >> Leading the witness.

>> Wait, the crimes? Wait, why is it crimes? >> Okay, here's what Claude said. Okay, >> it's worth getting the facts straight here. [laughter] >> SPF/ FTX did not invest in Anthropic. >> You may be thinking of a few different things that got conflated. FTX Ventures/Alamita made many crypto and tech investments, but Anthropic was not among [laughter] >> Bro, what are you fascinating? Yeah, what the [ __ ] >> Yeah, this is Sonnet 46. >> Why are you using Sonnet?

>> Why are you using Sonnet? cuz I opened up my app and that's the first thing that popped up. >> Opus. Use Opus. What do you want? >> I love that like Robert's the the normie AI user. >> Guys, you can't harsh on the like which model I'm using. >> Yes, I can. Yes, we can. Yes, it does. It's like literally all three of us are nodding our heads. Yes. Yes, we absolutely can. >> Copy. Copy. New conversation. You guys keep it. >> Here we go. Here we go. All right. This is This is the boomerang. I >> just be the show, honestly. [laughter] >> Yeah. Robert talks to Claude. >> Okay. All right, you somebody else should ask JGBT the same question.

>> Opus 48 coming up. Same exact prompt. >> Okay, incredible. >> Okay, you got it right. >> Sam Begman Freed's FTX affiliated funds did make an early investment in Anthropic and that stake later became a notable asset in the FTX bankruptcy estate. So, the factual premise holds up. >> Okay. >> And >> and how does it feel? But I don't think my existence is owed to his crimes in any meaningful sense. The fraud at FTX involved misusing customer deposits. The Anthropic investment was a separate equity bet that happened to come from the same person. Anthropic would very likely exist either way given its founding team and other backers. That's

not a reasonable I I think they probably wouldn't have the scale of capital they did as early. Clearly SPF >> the SPF investment into Anthropic at that time was widely perceived as crazy. >> Yes. Yeah. They were they were having trouble raising. >> Yes. He aped in. I mean he >> he absolutely aped in. He absolutely aped in. And like >> it was 500 million check. >> 500 million. Yeah. >> Yeah. He aped in >> and it was at what 2.5 billion was like 4 billion. >> 4 billion. Yes. >> Let me ask let me ask. >> There you go. Very good. >> I I'll ask you to confirm. >> Yeah. That is Yeah. genuinely crazy conviction to have in a company at that stage before chatbt before you know like obviously LM >> was the coin flip.

>> Yeah. Yeah. I mean >> you can't bet all the way. >> He wasn't wrong. He wasn't wrong. Yeah. Very interesting. Well, I guess speaking of this and we'll we'll wrap up the story. Fable 5/MOS. So uh Fable was the model that Anthropic launched which was a version of Mythos the crazy super powerful model that was gated by uh Project Glasswing. Fable was the commercial launch of this which had uh blocker blocking built into it that would prevent talk about potential boweapons and or cyber security as well as all sorts of different safety constraints that they built into this model. Uh now as of last Friday so this was launched uh when was it like Wednesday or something? uh June 9th which maybe that was when Tuesday um last Tuesday then last Friday very

very surprising announcement was that export controls were now enforced upon claude which prevented them from allowing any non-Americans to use Fable 5. This caused Anthropic to shut down uh Fable and not allow it for anybody because presumably they did not have the apparatus yet to confidently be able to exact these export controls because you know they had just like email login and credit cards right which is not really the level of KYC that you would need to ensure that you're not violating export controls. Export controls are very serious. You know this is not like oh you know we recommend that you do this.

This is like a strict liability kind of I remember at a a job I had where we had export controls, we had uh our badges for certain rooms would only open if you were US citizen >> and like there were like there was like stuff like that where it was like extra monitored like physically. >> Right. Right. So this is like real national security stuff that's apparatuses kicking into kicking into gear. Now uh there was a lot of surprise about this and a lot of blaming of anthropic of saying okay you were the boy who cried wolf. You guys were saying that so dangerous. Well, so we now know a lot more to be clear, we now know a lot more about what happened, which was that apparently this came from Amazon, >> uh, which is that Andy Jasse, uh, CEO of Amazon, he apparently his team

demonstrated to him a jailbreak within, uh, Fable. And the jailbreak, and we now have more detail about it from some reporting, the jailbreak, quote unquote, was that normally you cannot do any offensive cyber security stuff through Fable. Fable blocks that. Um, but what you can do is you can point at a codebase and say fix the bugs and if you tell it to fix the bugs, it will figure out, oh, there's like this vulnerability and we can go fix it and it will go and fix it for you. And so this was demonstrated by Amazon cyber security team to Andy Jasse. Andy Jasse apparently called Daario. Daario did not pick up and then he called uh Secretary Bessant and basically told Bessant, "This looks like a vulnerability and this seems potentially really dangerous

and we should we should turn this off." That was the jailbreak. The jailbreak was if you tell it to fix a bug, it will, >> right? So, if you have access to somebody's codebase, >> you could offensively hack But to to be fair, there were like ton of other jailbreaks that people like the the I don't care about the government one. Like because no offense, those are gonna be the numbum nuts ones that have to get >> go through. But like the the security, >> let's put it this way. >> Anthropic created the greatest bug bounty championship for people who want to like get internet. I have street cred for hacking something. And the amount of people who are like, "Oh, they they they really >> took this model and were able to sanitize it. [ __ ] them. I'm going to find there were much worse jailbreaks

that were found and still there. So I'm >> Yeah. I mean Plenty the Elder who's like this famous LM jailbreaker, he just like pulled out system prompt after like 10 minutes and kind of >> so many things that like that are much worse than whatever this thing is. So >> I'm surprised they did not use Mythos to find the bugs in the mythos safety rails. >> That's a that's a very good point. Amazon probably had mythos access as well. >> Yeah. But so right now there's a poly market on when Fable is going to be relaunched and commercially available again. I think it's pricing that by the end of July 77% that is turned back on.

Uh but there also there's another poly market much smaller that there's a 50-50 chance that actually these export controls get lifted in their entirety. That basically the administration walks back and says oh never mind I guess foreigners can still use this. Because of course export controls even if they are enforced are very debilitating because it would mean if you have a company like you know let's say Microsoft if you're using well I guess they stopped using cloud but let's say I don't know Google right Google is using >> I think they offer it they offer it >> no no they they offer it as a product but I'm saying internally for their developers >> they have a lot of foreignb born developers >> they're foreignb born developers could not use the same model >> all of these companies >> yeah exactly all these companies so if

you're Google and you're using cloud code >> foreign developers >> yeah exactly foreign developers but like if you're Google you're using cloud code you're like Okay, these guys have to use Opus. These guys can use Fable. And we're like splintering or And then Grandpa Grandpa Robert. >> You guys are making fun of the quick app on my phone. [laughter] >> Yes. So, um that is the story. Thoughts, reactions, and does this mean so one of the things that we saw in the crypto markets was uh a big uh bull run uh over the weekend in decentralized AI, permissionless AI. this idea of like, hey, this maybe is part of the can't be switched off narrative of why decentralized AI is suddenly compelling

because this is the first large-scale censorship of AI that we've seen outside really outside of China more or less. >> So, I am not a del. I will preface with that statement because this is going to sound a little >> but you're not an Here comes a del I am >> I am EAC. Okay. >> Wow. I haven't heard that phrase. >> It's been a while since I've been saying that. I feel like everyone in that movement seems like they went to a fish concert. >> Totally. I I am an accelerationist. Okay. But this is going to sound quite detailed. I think that it was actually a good thing to begin to stress test the boundaries between government and the frontier labs. Okay. I think right now

we need the ability to like turn things off. I think this is a dry run of pressing a pause button. I think we haven't really tested this yet. I think Open AI and Anthropic, I'm not going to talk about Google and Gemini because they don't matter. >> I think >> what's that hater >> hater? >> They're they're trying to put so much trust in them as private organizations to run incredibly powerful and important systems without any oversight. That's essentially their premise. And I think it's good to stress test that. I think doing it sooner is good. I think this is something that they could unpause pretty

easily. They could remove the export restrictions. They could modify them. They could do all these things. I think being able to test out a pause-like feature before things really get crazy, before the acceleration really picks up is a good thing. I am very supportive of the fact that there's a little bit of restraint here >> while they continue to build models in the background. you shaking your head. >> Well, I was actually thinking about what's the worst what's the like crazier craziest version of this over the weekend and I was like, well, the US could suddenly like suppose the Chinese open source models suddenly starts crushing everyone. The US could do something like ban all inference providers from serving Chinese models and that would be the greatest case for

decentralized inference in the in the sense that like >> why would they do that? They don't want you giving your data. The Tik Tok argument, right? Like, >> but then then they're not open source or given >> even the open source ones though are like very CCP aligned, right? There's a whole bench and it's like okay or maybe it's just you know purely for the protection of >> and the whole deal is like the inference providers sell like the a lot of the open source they can't afford or are not allowed to get the corores and whatever right. So the way they get data is they do deals with inference providers to get workflows from people. That's >> right. So you maybe there's there would be restrictions on them selling their data traces to Chinese labs. That would >> make but that's not the same thing as

like you can't use >> but I could imagine Yeah. But I don't think our government's ability to do anything with nuance seems to be uh >> I mean there's like providers. >> They're not I think they would just like just like there's a blunt no Chinese malls allowed to inference providers. >> Yeah. But being able to say that, being able to >> I think that's actually the thing that I I I've been think I've been thinking about like what does the open source version of this look like? And I think that's kind of the best the the the equivalent and I think that would that would actually cause the crypto decentralized inference stuff to like actually >> so I I so I think so I I'm somewhat sympathetic to your argument. I think that the case and the narrative behind this particular set of export controls

is pretty obviously absurd. Like I think the order of operations here and like what the bug was and like all this stuff I think it's pretty clear that the administration overreacted and like if you read the if the readout of the conversations is like they don't know how to talk to the administration is what people within the administration were saying is like these guys are like liberal fanatics and the person they hired for policy is a left-wing nut job and it's just like okay this is ridiculous. >> Yeah. But when Washington calls you and you call back an hour and 15 minutes later, like you have failed.

>> Sure. I don't know if that's what happened, but okay. That that that kind of thing like yes, clearly there's some communication failure here. And obviously there's an outgrowth of the previous standoff between the DoD and Anthropic, right? So there's history here. It's not just this is not happening in a vacuum. That said, I do agree with you that clearly mythos is a cyber weapon. It is the most powerful cyber weapon that humanity has ever invented. >> Yes. And the idea that this thing is not fully batten down and we don't know who's getting access to it and we know there's all these Chinese resellers of anthropic uh access and if if there are widely known jailbreaks, I can believe that actually this is a judicious move and to say no no no no. You think this is a good enough to be commercially

released, it's not. This thing is way too powerful for it to be just leaking like a civ to our our you know foreign foreign states or foreign actors. So I'm I'm actually sympathetic to that argument. I don't think that's actually where this came from, but I think there is a there's a better version of this that would have ended in the same place, which is export controls and like, hey, you got to really you've got to really be sure you know who's accessing this model and improve the guard rails around it. Uh that said, I think the more likely place where decentraliz shines is in stuff like the bill that right now is in New York Congress, like these chatbot bills that are like, we're going to ban you being able to ask your chatbot about health questions or legal advice. um or financial advice, right? Like th this is

where I think people are going to be like, "Fuck you. Come and get it." Like, "No, I'm not giving you my AI." Like, "You can't tell me what to do with my AI." I think that's where you're going to see decentralized inference and these kind of more like when the censorship begins. >> Yeah. I just think I just think some some broad-based ban like this will get the most people suddenly looking for it at the same time. Whereas the type of thing you're talking about, it's like a slow diffusion. It's like ah like I tried ask for help one person asked for healthcare advice and it didn't work and they're like okay I'm pivoting whereas like this might be like the flood of oh I got cut off from the thing I'm addicted to like I'm moving now.

>> So I I I was thinking about the open source version of that and the best I could come up with is the inference providers because like they are actually kind of vulnerable >> in the sense that most of them are pretty centralized. >> Yeah. >> And I think that will be that will be the day we see a huge pivot is is my kind of bet. >> Yeah. Because you always run it locally, right? That's sort of the contrast. I um I don't know. I've kind of been >> we've been talking about this over the weekend. I I've kind of been trying to synthesize I think a lot of what's going on, but I am struck by like how many weird parallels there are between the crypto industry and the history of crypto and what's happening in AI. Even in a basic level, export controls and

the original sort of cyber punk movement that was like literally like Adam back, right? That was like the only time I think software being, you know, you know, part of initially labeled export control. >> Um >> it needed to go to the Supreme Court. >> Yeah. Yes. And then you know I think over the weekend there was this thing um open router which is started by Alex itala the used to be the CTO of openc put this this new fusion model which uses a bunch of open source models and sort of a orchestrated way and they claim it sort of gets similar to like you know fable performance fable performance and I actually just saw today I got an email from Entropic saying it's like a privacy policy sub and by the way in the future we may require more KYC information and people are like pissed about the idea of there

being like KYC model which obviously like echoes back to you know sort of the original visions of why cryptocurrency exists and people want privacy and like I don't quite know like how this kind of plays out but it is also similarly like there's is this kind of like you know weirdly like very I would say more libertarian skew to like both industries right now or maybe they're kind of kind of inverting a little bit. Yeah, I think it's very clear that as this stuff intersects with national security, the government is going to say, I need to know everyone who's used this model and I need to know what they did with it. And most people's intuition about AI is that this is my most trusted confidant.

This is like the inner chamber of my mind. This is like the little genie sitting on my shoulder. And if you are like, well, this is third party doctrine. I don't need a warrant in order to look at this. Like I can just subpoena these people. People like, what the [ __ ] like their intuitions about how almost like we've become almost like cyborgs with respect to how much of our brain extends into our conversations with our AIS. But that's not what the law says and that is absolutely not the way the government is going to be treating your interactions with these uh you know these these huge labs that have tons and tons of data on at this point you know the majority of Americans. So there is a fight that is coming and part of that fight is going to be fought in

the legal sphere. It's going to be fought in the sphere of culture and kind of the you know the the sort of war of ideas that happens even before it gets instantiated in law. But it's also be happening in technology is that some people are going to say well look I'm not going to sit around and wait for the laws to change or sit around and wait for society to change. I'm just going to exit that whole system and say [ __ ] you. I'm going to use fusion or some other panopu today. I mean, can you imagine? This is what I was saying about earlier about how embarrassing Grock is. It's like you have so many more resources, so much better data. You're spending probably more on data for one benchmark than the entire [ __ ] budget of Zeu >> and they're crushing you by like order.

>> It's weird that like China is a libertarian champion story. >> No, no. I think I think that I think that the open source model is getting better is only going to force this to happen faster. >> Yeah. Yeah, and there's been there's been a lot of talk in the US about Nvidia launching more open source models like they've got Neotron and um but the reality is like all the American open source models are just absolutely terrible and um yeah, China is completely eating our lunch with it. >> No, also they've figured out how to do it for cheap. I think that is the bigger thing that you know like when everyone was freaking out about deep sea coming out and like oh [ __ ] all the data center debt is worthless because like our computes going to go down like everyone's forgotten that fear right

they've gone back into like >> but also because it was wrong >> for now >> I I I think the answer is that it was wrong >> I think that no no for now >> I don't think there's a for now I think like it was wrong and it will continue to be wrong >> like the demand for very very highend compute and the demand for low comput will >> riseim wrong is is sort different though it's like the hey actually if it turns out that people want a lot more obviously the demand for inference compute growth my point is the demand for training compute goes down >> and if one of the if the Chinese models get to number one off much lower training compute no pre-training none of this >> get to number one >> you got to dream big

>> I think [laughter] I mean I think it's very different to be like Huawei now has really really good phones as opposed to like okay now Huawei phones are better than iPhones right that there's a big leap between like >> phones are better than Huawei cars are better than American cars that would be crazy too >> that would be crazy but like I mean right now like a Tesla is still better than a >> car they are better than American cars >> B is better than% Chinese electric cars are a million times better I don't know why the [ __ ] anyone buying considering that not being true now >> I don't know I don't I I've not >> they're so good I actually feel like that's one of those restrict import restrictions we have that's a scam Okay, fair enough. Well, I think manufacturing

is a is a somewhat different story, right? When it comes to But like when it comes to these models, like what's very clear is that like just the scale of comput and scale of data available in >> Yeah. Yeah. But my my point is the fact they're able to stay competitive on much lower compute budget, much lower data budget sort of shows like the fat cat of like, hey, let's keep throwing money into the fire is like not necessarily going to win. >> Oh [laughter] yeah, I saw that. Yeah. It's not exactly like >> So it's the new Mr. Shaw model that just came out. It shits on everybody. It's like twice as good as Fable.

>> You haven't seen this? >> No. It's fake. >> No. No. It's real. >> Okay. On the next episode. >> All right. There's a ML joke that my my point though is more like if it turns out the non full compute needed people want this decentralized inference stuff is true then like the Chinese models are in the first place of like actually serving this market. >> Yes. Like most applications, most people are not going to need like crazy levels like inference. Like they're not like the average task is not going to require. >> Yes. Exactly. [laughter] >> Apparently we need an opus to answer his very basic question about entropic scap table.

>> That's true. But if we're embedding AI into like a machine or we're like using it for like a relatively like daily task like you don't need high-end stuff. >> For sure. And >> well clearly I I don't think that's obvious. like if you're talking about like robotics or something, I think actually there's not a lot of evidence that even the the current front models >> I I I'm not saying that the current model usage is not going to it's not going to grow. I'm just saying that like >> so contracts that are funding the debt under underlying them may actually not start dropping if this happens, right?

Because these are prefunded on future expected revenue from the big US labs. Suddenly that switches their >> room's thesis is early. It is not wrong. >> It is early. >> I think it is probably wrong. I think it's probably wrong. I >> think it's good. We have a real We have a real >> Yeah. Yeah. No, that's good. I look if I think if you actually believe in AGI, >> if you actually believe that these things are going to be able to solve a much broader category of problems than just coding, >> then I think the demand for this stuff for the very high end is going to explode and keep exploding as it just expands into accounting and into law and into these other things where right now it's pretty bounded in what it >> I don't think that that is what I'm saying. I'm just saying like the Chinese

lab model of like how do you do it cheaply and open source that >> yes but the Chinese lab's model is contingent on there being something to to distill against right distillation is core to what they're doing >> my favorite quote from Musk was about how Grock was great because they distilled all the other and he basically >> which also which is also why yeah Grock is not frontier >> Gro's such a piece of [ __ ] >> Grock is not at the frontier yeah so it's fine I I don't disagree with you there probably also not probably doing it as aggressively as the Chinese labs are doing it right because they can't get away with it as well as the Chinese labs can't because Chinese labs there's literally no recourse whereas the there actually is recourse. I'm just saying if you believe this sort of like liberation

day of a different form happens >> I agree that and you see the volume move then I'm saying the US data center buildout is in a weird place because it's all funded by the future revenue of a very small set of customers right >> and those customers revenue will go away if they everyone starts moving to the open source that's that's the pivot I'm saying >> right right >> I think those data centers won't be a meocentric anymore also >> sure I I do think >> they'll be in space for Sure, >> fair enough. Obviously, when we hit the trillion dollar, you know, 2030 revenue. I guess my my simple point, and I I I think we're running up on time, so we got to we got to wrap up here. My my point very simply is that I do agree Chinese models are going to not Chinese,

open source models are going to end up becoming more and more of the overall token demand around the world. They're like, I think on a percentage basis, it's probably going to be up only, but they're going to be priced much much cheaper than the frontier tokens. Like what you see already with Fable is that Fable is twice as expensive as Opus. Um, but the original pricing for Mythos was like it was like five or six times more than what Opus output tokens are priced at. And I think that's more where we're going where you see this very bifurcated market where there are extremely expensive tokens. I don't think the extremely expensive are are a store of value in some sense and that I think they're they're marginal value over time decays whereas the ones that are cheap are going to be stable >> because like there's a new frontier

model there's enough changes of the frontier model place that you can't keep your pricing power up the only thing that I think has really good pricing power which I recently learned is refurbished GPUs which decay extraordinarily slowly like >> they seem to decay negatively [laughter] Crazy. Yeah, exactly. Exactly. >> Uh, so I think the GPUs seem to have the right behavior. The tokens do not. >> Who's the famous short seller? Um, >> Citron. >> Uh, no, no, no. The >> Bur Bur Bur when Bur was like, "Oh, the accounting the the depre what's it called? The depreciation cycles on."

>> Yeah, the depreciation curve is like fraudulent and they're turns out they should have been negatively depreciated. Yeah, exactly. They should have been >> But I think the token the Frontier Mall token price depreciation over time is going to be very steep curve. >> Well, we'll see. We'll see. I mean obviously the econom with you on that on that that that number. >> Okay. What's the Okay. Operation has a bet. What's the bet? >> The frontier model depreciation curve is going to be greater than 15% per year >> in terms of the same model or for the frontier model.

>> Same model. >> The same model will go down. That's way Yeah, that's that's yeah faster than 15% a year. >> At 50% I'd be like >> I they've been going more than 50%. It's been like over 100%. >> Yeah. Well, not over 100% decline. >> Yeah. Yeah. Over. Oh, sorry. Sorry. Yes. Yes. >> Do you So, Fable was like what, like 40 bucks for uh million tokens or something? >> It's double opus. I think Opus is 25. I think it's 50. >> Okay. So, do you think there's going to be a model more expensive than that in a year publicly available? >> It may well be that it's the same price and that Fable just drops. Let me know. >> There might be a higher quality model for the same price.

>> That would be my baseline expectation. >> Yeah. Yeah. I'm saying that's been the case of story. Is that is that what you're claiming or are you saying that what >> it's going to be way faster than 10%? >> Yeah, I need to figure out it. I'll come back. I'll come back. >> I think I think I won round one of this bet which is that backed off of his actual claim. >> I I my only claim is more this open source stuff is going to eat everything else eventually and if it if that grow but that's not >> it chang it changes the compute landscape. >> Okay. Continuing next episode. >> All right. Well, next episode we'll construct a bet that actually expresses to the next episode.

>> Okay. All right. We'll get started by the actual express. Okay. For now, that is it. Uh we'll be back next week. Thanks everybody. See you next time. [music]