The Chopping Block: Has Crypto Lost Its Soul? Cypherpunk Nostalgia, Prediction Markets, & Permissionless Perps

0:00And the most cypherpunk thing that you can do is not to have no connection to the real world. The most cypherpunk thing you can do is to fucking survive and to allow anybody to be able to use it. Not as dividend as a tale of two puns. Now, your losses are on someone else's knowledge. Generally speaking, air drops are kind of pointless anyways. I manage trading firms who are very involved. I like to eat those the ultimate puns. DeFi protocols are the antidote to this problem. Hello, everybody. Welcome to the chopping block. I'll pick up a few weeks before I get together and give the industry insight of perspective on the cryptotopics of the day. So quick intro is racing at Tom the DeFi maven and master of memes. Hello, everyone. As you get to ruin the gigabrain and grand puba and gauntlet. You. And joining us today, we've got special guest jazz, the perpetually online pundit of purps. Welcome to the show, jazz. Yes, glad to be here. Wow, that was one of the best ones you've made. There you go. All me. And I received the head height man at dragonfly and the head screenwriter. We are the same investment crypto, but I want to caveat that nothing we say here is investment advice,

1:03little advice, or even life advice, please see chopping block that XYZ for more disclosures. So, jazz, my understanding is that this is a reunion for you between you and Taroon. You were telling us just before the show started that Taroon was the first guy you met in crypto. Yeah, the first person that I met in real life. So I sort of, you know, I came, there's a very good article. Why the ugly elite hate Bitcoin? I sort of came from that circle. Everyone from MIT, everyone in my roles at quant finance, sort of like hated crypto. So I was sort of on this island. I had a lot of internet friends, but no one sort of like in real life that I could talk to about this topic. In 2021, sort of at the peak of it all, everything was very frothy. I had in mind this old image from the Wall Street Journal, where it's like everyone is getting filthy rich and you're not. And those guys were in the Bitcoin and the Ethereum sweatshirt. And I had never been to one of those events. And so things were frothy in 21. And I was like, I want to go experience one of these events and parties in real life, you know, before the cycle ends. And there was a crypto punks, Christie's auction viewing party.

2:06That I got a photographer named Justin Oversano was hosting in New York. I was like, all right, this seems like a good one. I have a couple punks. And I walked into the venue. And the first, like I get in, it's kind of like this dark room. And there's a guy in front of me with like colored hair and colorful glasses. And I'm like, this guy looks interesting to talk to. And so I think me and we both went to the same school. We had we had a bunch of similar background. And you were like, surely there's a get up for the crib. Like he doesn't actually want to go. Yeah, yeah, exactly. Exactly. I'm glad you wanted to wearing tennis shirts of people like tennis. Yeah. What's going on? What's going on? Yeah. It's just like a shirt of people playing tennis. It's like a prediction. Oh, it's literally a shirt that is literally a people playing tennis. I thought you meant like a tennis shirt like that people wear. It is a tennis shirt, but also a tennis shirt of people playing tennis. Okay. Wow. Yeah. So Taroon was the very first person that I met. I think we talked for like 45 minutes. I then went and met them. And you said you were like, I've never come back.

3:07No, it was amazing. I turned around. I ran into, you know, Jamie's rest in peace and a bunch of the pleaser guys and people pleaser. And they kind of became a bunch of my friends as well. So it was sort of like one of those things where, you know, sort of just show up. Yeah. You can just do things, make friends. That was a moment in time. A lot of people now on the timeline of lamenting that crypto feels really different. I mean, Jess, how do you feel about that? We've been talking about it on the show for the last few weeks. What's your, what's your sense of it? I would completely agree that for a lot of things outside of a very few subset of successful vertical niches that the dream is dead. I've told this story before where in 2021, when I fumbled my Uniswap spot position, I like cried. Because I was like, my dream was to rent seek global finance. I was going to stake my Uniswap and get like a percentage of all, you know, financial transactions that were going to happen in swap. And I was like, you know, I was, I was sort of like in shambles that like, I'd lost what I had thought was an important part of my dream.

4:09And now like, who's ever crying over like a misposition in this market? It's just sort of like, oh, you know, you miss whatever L2 trade. Like, either there'll be another one or you don't really feel like it was a moment in time. Maybe for special projects like hype, where there still is really belief. But I think in general, sort of like the asset diaspora that we had, NFTs to some extent, like certainly started it and out proliferate it. Memcoins, I'm going to like name as sort of like the obvious detractor here. But there's too many assets and people don't believe in the assets as they're buying them. And there's no long term belief for most things. And I think of that. And there's opportunity. It's that the idealism is gone. Yeah. The sense that there's like this one. One megatrain that's going to save you. If you look at the demographic of crypto participants in like certainly like 2017. It's a lot of like a punk and are like an archo punk technologists who really believe that like this technology is going to change the world.

5:10And they're investing like their entire networks into it because they believe that this is like, you know, the future. I think if you look at a large set, I'll call out Solana for I think having cultivated a bad culture here, but a large set of just general crypto. I think today is much more short term. It's much more about, you know, how can it's always been about how can I make money? Like let's not lie here. Like that's always been like a very underlying strong product market fit. But I think, you know, rugging a pool even two, three years ago was like, you know, red mark on ether scan and completely like blacklisted from the community. If people remember, um, who's the guy that did bald on base? Um, uh, he was a big do IDX basis trader. It's embarrassing right now that I can't, it'll come back to me. But he got shunned out of all the communities because he rug the ball to token on base. And now on Sol, it's just like, if you don't rug, people will kind of look down on you as like, you're not playing the game optimally. So certainly the tools themselves and the protocols have made it one click.

6:13And whereas like before you had to think a little bit. Now it's like encouraged and like in the UX. It's even more crazy. So I would say it's just a, it's a different participant set. And that's sort of a lot of the follow on effects that we're seeing are coming from. Is it a different participant set or is it just that the participants who are still around. Have hardened, you know, like there are, there are hearts of black end with age and like. You know, it's kind of like the idealism has gotten beaten out of them. Like I don't know that like it is the same generation, right? Like there was a big onboarding event in 21, 22. A lot of those people fell out when the NFT market collapsed. And then there was another onboarding event in like 23, 24, 25 coming into the meme coin cycle and like the Trump NFT, the Trump meme coin. And I think for those people, it does feel like every subsequent generation of crypto is less idealistic than the one before. The meme coin generation, they came in literally under the philosophy of financial nihilism, right? The NFT people, like they weren't cypherpunks, but they believe like, oh, we're all going to make it together.

7:15Like that was literally the wag me was this big aphorism that everybody used. And then before that, like in 2017, that was the era where people genuinely believe that we were changing the world, not because we're all going to make money, but changing the world in the sense of disrupting traditional political systems and financial systems. Every subsequent generation, like the ambition is getting narrower, you know? It's more about, you know, like, I don't know, we were just chatting before the show about like these Pokemon card platforms, which is like, now the ambition is like even, you know, it's like, it's like a sort of pinpoint ambition that like, yeah, we're going to disrupt gotcha games, you know? And like, now you can buy a Pokemon card directly in Solana instead of going to the local grocery store and buying it there. Yeah, I think even if no matter how we decide on the demographics, I think if you look at where the capital has aggregated, the capital has certainly aggregated to the more cynical and short term mainly because those have been the successful trades for the most part.

8:15I talk about, there was a phenomenon in NFTs where all the floors, all the NFT rarities compressed floor. Part of that was the air drops that like made all the NFTs kind of fungible in terms of the amount of tokens that they got. But part of it was because pretty much everyone who really cared about like NFT rarity died in art blocks because they bought a bunch of rare art blocks. And those things went illiquid and they didn't have the capital anymore. And so that sort of like market pressure of like rarity hunting that maybe started with punks and some of the other on chain NFTs really lost a lot of effect after those people like they made their preferences on chain with art blocks, they were wrong with their capital. And so they're like future voting power with their money was diminished. So a lot of people have been talking about this need for crypto to return to its cyberpunk roots. So if guinea from winter mute who famously controls the prices of everything. He wrote this article recently that he felt that like, hey, okay, maybe tradfi is embracing crypto, maybe Bitcoin is now gotten subsumed by the traditional financial system.

9:22But the idea that this is what it looks like to win is a betrayal of the core values of crypto. And that we need to go back to our roots, which is that look if crypto is not a fundamental challenge, if it's not subversive in this deeper way, then we failed. And I think Gabriel Shapiro also wrote recently something very similar about Ethereum. I'm curious to get the response from you guys to this, I feel like this. This kind of philosophy is gaining steam among a lot of OGs were still in the space that like somehow we've silently failed something. Then there are voices, you know, I've been one of these voices that says like actually no things are going great. Like, okay, maybe the mean coin traders are down bad, but like when, you know, I don't know, that's happened so many times in so many previous cycles that the ICO traders are down bad, the NFT traders are down bad. That's not the barometer success, the barometer success is like, are we doing the thing that we set out to do 10 years ago when this all started. And my view has been like, yeah, things are working prediction markets were a paragraph in the Ethereum white paper.

10:23And now they're taking over the world, you know, stable coins were also a paragraph in the Ethereum white paper. Now they're 300 billion like DeFi is going crazy purpose are going nuts like we're going to talk about how much this stuff is taking over the world and actually creating permission in this finance. So my view has been like actually no, this is this is what it looks like to win Tom to run jazz. How do you guys? How do you guys respond to that that that that charge that many people are making? I think there was like I think in 2021 right where like Web 3 ownership economy was supposed to be like every industry every kind of walk of life would be illuminated by our holy Lord and Savior the NFT. And it's derived assets and protocols and stuff right like that kind of led the decentralized social network decentralized. Whatever I mean like you started getting like the Uber on the blockchain pitches again right and I think there was a pitch that was much bigger than finance from 2017 to 2022 that was like every industry is going to be left behind and vanquished if they don't adopt crypto on some way.

11:31And right now you see that AI is doing that and it has lived up to the promises that were made whereas like in crypto I feel like the finance stuff you could have seen those promises in 2014 right like realistically most of the concepts that of all the things you're talking about. Be it in prediction markets and getting implemented being stable because like they didn't reach their final form they need to have a lot of other things to work like they needed defy for liquidity to make it more feasible they needed like infrastructure for bridging they needed dot dot right like totally fine but like the concept was there. And that it feels more like the 2014 and 2015 vision of crypto succeeded but it feels like the 2017 through 2022 let's say vision completely failed and has been used for AI and there's no way back that's sort of how it was 2017 vision of crypto. Everything on the blockchain. I don't think anyone's serious like wanted to Uber on the blockchain or like blog posts on the on the blockchain maybe that some people I don't know I don't know do you remember the social network Justin son took over what was that what was that thing called.

12:41See it right. I kind of also by the way I thought his attack was based that was like kind of funny you just showed how useless. I find myself in this paradigm a lot where I was like genuinely excited about a lot of the financial stuff like always thought like I remember in 2017 reading like a bunch of the supply chain white papers and I'm like well this is dumb like if you trust coach you trust them to like run their own cryptographic database that you can like why is this a public rent seeking. And but then dealing with everyone else's disappointment when these dumb narratives false through is always like yeah well that was dumb why did you guys even get excited about it but then dealing with their disappointment and the falling like sort of like whether it's enthusiasm or price on the back and always sort of sets. I think might take on sort of like whether it's disappointment on the art that crypto has gone for the most part comes from getting overshadowed by the speculation and sort of like gamba product market fit like when I look at like the core things like us dt on tron is like actually working for millions of people stable coins in general are actually working.

13:46DeFi over collateralized is actually working and then when I look at like okay well what cyberpunk and like what's disrupting like perps are massively cyberpunk to the rest of the tradfi if you're NASDAQ or if you're you know NYSE perps are this like kind of like vigilante like like kind of terrifying market structure thing that's coming in your lunch. So I think like the core spirit of the disruption and the punk is there but then you know I understand how you can get the solution when you're in it for like debanking and then everyone else is buying Joe boat and I'm so on or something. I am the speculation I mean that's honestly like I feel like that's been there since like day one you know people are doing like you know it's a tertiary dice and you're doing colored coins are like okay that is a human it's kind of like like something very deep within our monkey brains you know you give them you give us something we're just like we're going to find a way to speculate on this thing and I think it's very true I think I mean I agree like the original vision of the space or of Bitcoin at least and why a lot of people down the space was like yes there should be an internet additional native money.

14:49And that is seems like the natural successor to this kind of experiment that we've been we've been having and like that feels like like like less true that feels like that hasn't really manifested and I think it's it's one I mean this is I think every technology goes to this like commercialization phase where you know these sort of pioneers are very idealistic into this big vision and then you know yeah then everyone gets used net and then like your mom's on it and then you know then it's a lot less like you're it's more likely that there's going to be their themselves and not like you know oh yes we should totally revolt against you know the US dollar and do everything in Bitcoin like obviously that that's not going to happen on day one and so I think there is a lot of sort of fertile ground left in that like we it's sort of like the spacious feels very vulcanized right now where it's like there are very commercial applications that are working but isn't feel part of like one kind of cohesive vision of what the future of finance going to be but but that said I think you know we've seen time and time again like these ideas that didn't work at one point at some point the other right ingredients are there in this kind of primordial soup and they they kind of

15:49end up end up happening and I think when I zoom out I'm like that still feels like it's going to happen I think like when the last kind of fiat currency has has breath breath I think crypto is still going to be there and I think you've asked me like 100 years from now what is more likely that also seems more likely and I don't know I um I still think like I don't know long enough time horizon this stuff is all going to happen but like the path I guess that we've we've taken is maybe not what people thought was going to happen 10 years ago I was going to say I want to just bring up one really cool uh thing that I've been thinking about in terms of like you know you putting the piece of together and maybe just the time wasn't right and if you know as long as the foundation is there at some point in the future like I remember micro transactions from way back in like 2017 and I remember back in 2017 being like that's dumb like you know you can just do batch like you know I just pay for a batch rather than like dealing with the individual micro but now that we have agents like I can credibly see why agent micro transactions might actually be a real service and so things that like you know maybe didn't have PMF before some other technology and something yeah I guess part of the reason why I resist

16:49this story that like oh crypto is fallen and it's kind of unfulfilled it's vision I guess a couple of reasons for it one I feel like it's it is a bit revisionist right like in 2017 what was the vision in 2017 that's what I first got into crypto so I remember very well what the stories I was being told and the stories basically WS around no it was mostly around like IOT stuff like that was what I was getting a lot of stuff about IOT and like yeah yeah there was there you know it was like so much stuff about like swarms of cars that were going to be orchestrated by blockchains and like auditing blockchain for auditing and for like just stuff like that like you know it's basically authenticated databases for like business use cases and I was like this is obviously not interesting this is not where the big story is the big story is about disrupting money and that was very obvious to me but when I first came into the industry obviously there were a lot of Bitcoin Maxis that was when the Bitcoin block size war was happening and I remember the time telling people when I came in the industry I don't think everyone's going to be paying each other in Bitcoin in 10 years I don't I don't believe that I

17:50think that people are probably going to use stablecoins they're going to use something tied to the US dollar but I think the way in which it's going to happen is going to be inflected by blockchains like there's no way the way we pay money pay people it dollars 20 years in the future is the way that we did 20 years ago now this technology exists I was literally telling LPs that in our first fund so that's why for me like this is actually the vision that I have always had I didn't I never believed that we were all going to live in the fucking metaverse and like that story was largely promulgated in 2021 it didn't exist before then like that was when meta renamed itself from Facebook to meta and like all this metaverse stuff started in this idea that like oh we're all going to live in cyberspace and NFTs are going to be our front ends that was all in 2021 you know if you were around crypto before then this was not a concept of what crypto is supposed to be used for or why it was supposed to be valuable so now that being said I don't want to dismiss it obviously of most people in the world who were introduced to crypto were introduced to it then and that was their first impression is that oh this is supposed

18:52to be a like cyberspace 2.0 that is run on blockchains or whatever you know I don't know it is obviously very hard for people to understand exactly what it was but they got the vibe you know of it's like drawn not drawn the movie not drawn the the blockchain but I think at this point like nobody really believes that anymore you know like and to the extent that people who came into the space in 2024 that's not the story they were told so I think on some level like it's hard for me to look at that is like okay this is a betrayal of what crypto is about and I agree with Jez on the part that the whole idea that crypto creates is like shadow financial system that lives in a box that anybody from anywhere in the world can plug into the internet and have the financial system that happened it exists now it's real it's a big part of the reason why people are talking about neo finance and all these neo banks and stable coin cards and all this stuff that's why it's all happening is because we actually built that it actually works and it's gaining

19:53adoption it does but I think it is slightly superficial when you compare to I think to the original vision like I think even look at like maker versus the new maker which is we have this stable coin but it's collateralized by this internet native stuff and its censorship resistance and it's truly like self-running versus the new maker which is like yeah it's a bunch of RWA stuff and we stick it on chain I think that that is maybe more than disconnect like yes we do have permissionless exchanges and permissionless lending and permissionless you know derivatives and that's all cool but I think the point is like it's still sort of like you know we're sort of in this city of people that have like the gray flannel vesson and and that's kind of maybe tartening it's like it works but like not so many compromises me which which is fine like which of course this should be like how do you think I think that was pumping the prices into these things right every time you use usdc instead of rye we helped encourage you to compromise this

20:53yeah I'm gonna fight this I'm gonna fight this I'm gonna fight this because like the the ultimate answer of like what did we actually want to achieve it was not that we are this like tiny priesthood living in some monastery in the Czech Republic you know keeping a flame alive right they don't read the topic weeks from the last two weeks if you find yes but the promises that actually this is globally accessible and globally scalable and like look go try to shut down one of the maker trusts and see what happens like we actually have learned a lot we actually have improved on these things and the most cipher punk thing that you can do is not to have no connection to the real world the most cipher punk thing you can do is to fucking survive and to allow anybody to be able to use it and that I think to the great credit of these things that are not fully like you know so the the maker of today or sky as it's now called sky of today yes it has corporeal entities it has trust in the real world that take control of these assets and issues some the connections to the real world

21:56and once upon a time it was all computer in the sky stuff and there was no physical entities anywhere and that stuff didn't scale didn't have a tight peg could never compete with you and now it can I agree I mean it's it's practically this has created much more utility than the other path I think people were optimistic or maybe idealistic that like the other path would just end up getting really big and everyone would get kind of get converted and there would be this big kind of like I don't know global religious awakening around around money and like I think that that was unlikely to happen but it also like it's it's more of a results-based kind of focus of like when I zoom out like we still don't really have permissionless internet money which is kind of what people really wanted in the first place I mean it still don't really have a permissionless financial system the same way did they wait people wanted right like we have court orders forcing people to like swap out contracts to like go steal their funds and like I think I think that was a large part of the original vision like the stuff is not really extranational it's it's or private it's yeah or or private which I think it's a part of people's yes yes I think that is actually maybe

23:01a large part of the thing but I think it's it's not that things are bad today or like we didn't succeed it's just not in the way that people maybe imagined or kind of hoped it would like not everyone's running their own jabber server and like chatting with their friends through using WhatsApp and like remember when you're supposed to run a full node on your mobile phone that was 2017 still people pitching me on that that was a part of it actually still exists but but okay one last thing I'll say and then I you know we can I can stop being annoying about this but no honestly I was we haven't had an argument like this in a while so it's kind of good no I know I know I know it's a good it's a good moment to like to like relitigate the kind of basics but I guess look the last thing I'll say is that like it's certainly true that we live in a world now that crypto is largely intermediated it's intermediated by exchanges the vast majority of crypto users use exchanges they don't they're not operating directly on chain we have things like you know websites with people DNS blocks and IP blocks and you know there's all you know there's

24:02there's block builders who obey off-pack restrictions and blah blah blah all that stuff yes I granted it all exists you're totally right this is not the great untarnished vision that once we had once upon a time but here's my claim is that those two things coexist and that's actually what the dream was the dream was never that the regulated intermediate version doesn't exist if anybody had that dream they were they were they were high that is an absurd dream it's never going to happen that no intermediaries will perform that no middlemen will ever form of course they will middlemen exist for a reason which is that people want them they want middlemen they want intermediaries because it's fucking scary and weird and hard to use the blockchain directly right so yeah they want the coinbase they want the Binance sitting in between but although these things exist although black rock does this although the ETFs exist you don't need to use them and the people who do live in cyberspace the people who are completely anonymous they have totally unperturbed access to everything that we have built there's not a single thing I can think of that if you are a non you cannot use

25:05in crypto I mean maybe maybe courtyard or something like that right but like almost everything else that we've discussed so far on the show almost every single one of them you can still use despite being you know some somebody from you know Mongolia or Iran or whatever who's totally in on and has no connection to any of these services directly totally I think the worrying thing is like they may be more the trend you know it's like today that is that is true I don't think in five years there will not be something where it's like you can't use it if you're a non like I think the gates will slowly come down and again that overall it increases like the tan and the size and like in some ways that is okay if that's the claim you're making that like there's an inevitable closing of the gates right so like you made the point about jabber obviously a lot of people use WhatsApp and WhatsApp is intermediated and centralized you know okay you're trusting Facebook or meta or whatever but like okay if they ever shut it off which they have in certain countries right like you know when countries sensors the internet or whatever then people find something else they use uh I can't remember what's the what's the Bluetooth one that people use like fire something

26:08oh yeah yeah yeah yeah yeah yeah so like there are these sort of decentralized alternatives that people use in times of genuine crisis when the centralized intermediaries get shut off so if your claim is that well that's going to happen it hasn't happened yet but it's going to happen we're on an inevitable road to the properties that we have today of crypto that it is genuinely permissionless decentralized for those who want it that is going to end then I think okay if you're right about that you have a point I don't think you're right about that I don't think there's a good reason to believe because what have we seen that happen too so far the answer is like really nothing I mean you can still look at the internet I mean in crypto no I'm saying I think the technologies are very similar and following a very similar path and the worry is that like oh you know just it just one sweet green you know what's wrong with with my neighborhood and it's like dude the rent is about to go up there's about to be you know hello people coming in the neighborhood and it's going to change pretty dramatically and you're going to be the minority and it was going to give a fuck what

27:09you think and I think the internet is very much going down this path and the worry is like well maybe we're seeing ourselves ten years in the future can we kind of like steer a little bit to try to make sure it's not the exact same path I think to me I the the worry that I have is like in the deficit of having done clean activities and having like entered the fed like let's say there's like an on-chain fed zone where you're like whatever you posted a ZK proof or whatever this is like like fed chain the worry is that as that grows maybe rightfully maybe just through convenience everything outside of that subset gets automatically labeled dirty in the same way that like all of tornado right now it's labeled dirty because there's such a large clean set of outside of tornado that anything in it is just dirty by default that's the sort of thing I think about like like in 20 years has is the only like crypto stablecoins that say haven't like off-boarded the dirty ones and you who just held like naturally get lumped in through no fall to

28:10your own if your claim is that my government will eventually close the door on me being able to legal use this stuff no doubt already many governments have right you go to China you're not allowed to use this stuff you go to you go to many countries in Africa you're not allowed to use this stuff that is a a matter between you and your government right it's like any individual does not have the guarantee absent their own civil engagement that they're going to have the right to do whatever the fuck they want absent turning anyone else right but the question is whether crypto will exist and crypto is an international thing like whatever the US does they're not going to be able to bend Bitcoin they're not going to be able to bend Ethereum they may bend stablecoins and say that like hey stablecoins are going to KYC only you have to you know you have to have some identity with circle in order to hold a stablecoin now I don't think they will do that I think they'll actually will explicitly never do that because the point of the stablecoin is to internationalize the dollar and the reason why best and the same the stablecoins are so important is because of all the Chinese people and Russian people who are against the wishes of their government holding dollars

29:10so I actually think it's the opposite I think that the reason like it's a feature not a bug of this technology that it is open and permissionless and that we don't know who's using it if we did know who's using it maybe the government wouldn't have the stomach to allow stablecoins to be open as they are so I think a more optimist if you like I feel like Tom and Jess is Tom's view in particular sort of the one that got me and to crypto crypto time is like okay yeah it's platform risk thing and like it concentrating and then coming a wild garden has like definitely ruined the quality of internet usage obviously that's only increased exponentially since then but I think there is this interesting question of like if we take the middleman who most people using crypto rely on and we assume that the middleman gets replaced by an agent that you have enough control over what they're doing like maybe you do kind of go back to like the more ideal state if you really can can trust your agent doing actions on your behalf as your middleman without

30:11it being like a company that's your middleman someone else their keys is a middleman dot dot right like obviously there's a lot you have to get right on the cryptography side security side etc like interpretability making sure it's like you can fit you know you say an intent you actually get executed that way but there is a version of the world you could imagine like to to jesus point earlier like everyone in 2013 Bitcoin all the fuck anyone would talk about is like micro loans and how there's going to be millions of people on the internet doing one dollar loans to each other and like that seems idiotic in that and that even when I at that time when people were saying this I would like go to like these like Bitcoin core dev meetups and I just would be like are you guys crazy like who the fuck would want to do this like yeah exactly exactly but there's kind of a weird thing we're like yeah it kind of sucks because the intermediary you can't source stuff you can't pull stuff efficiently right like Bitcoin people weren't never thinking about pulling together assets and lending them out or doing all the stuff you do in defy right but fast forward to like post defy

31:15post stable coins now we have these agents managing that could actually optimize on that level it's like doesn't seem like such a crazy idea and so maybe the hope is that the middlemen were just the blueprint that you can give your agent per year to do all those actions without you having to know them while still having some sovereignty but like that's sort of the like there's a little canyon of optimism like you know like the jet has to like fly through right it could very easily crash and then all of these things are gone but to me that like canyon that little slit is like the thing you're really hoping that like we steer to open this soft landing and that's also dependent on open source AI right like if if if Tom's thesis is true that the walls are closing in and over the next five years governments are going to become increasingly or our government the US government is going to become increasingly draconian toward crypto the thing that saves you is the is having the ability to control the intermediary if you have to use open AI's models and open AI says

32:18oh I'm sorry I'm not allowed to use defy it's illegal and you know I was like oh you know your government has instructed me not to do this or the Department of War has you know it's against my regulations it's been requisitioned yeah yeah exactly speaking of which maybe this is uh yeah maybe maybe this is a good transition point to talk about some of the new topics this week which we did tend to get to so obviously the big thing happening in the world is the attack in Iran so the joint US and Israeli war that is now being waged in Iran has caused huge amounts of disruption in financial markets and this attack took place I believe Friday night in the US or Saturday morning in the US and uh this caused huge volatility in commodities markets and turns out the only place where you could trade these were in defy so this may be going exactly to the point about the permission list kind of scary uh finance that's happening uh the the cypherpunk stuff that we're still seeing um so you saw huge amounts of trading volume on both hyper liquid and lighter uh I think the silver contracts on on hyper liquid did over 220 million

33:23uh gold did 170 million similar numbers took place on lighter huge amounts of spot volume traded on uh x a ut and on paxa g tokenized gold so we saw an enormous amounts of price discovery at a time when you know everybody in traditional finance was saying oh man you you wonder what's going to happen when markets open on monday and um the answer was that the price discovery was happening in defy uh and I think this is a trend we're increasingly going to be seeing over the next few years any thoughts jazz I know that you're very deep in the perpetrating world and especially with rw a's thoughts on what you saw over the weekend this is sort of the most exciting thing to me now one thing I want to point out is like I think um the 24-7 is really good uh to bring to people's attention like it's something that doesn't really exist in the traditional finance market right now so by that's absence this like stands out but to me like the benefit is much more around like liquidity aggregation in a part market than it is around like the fact that you can trade it off hours um in Nasdaq and I think like in general if the desire to trade it off hours was like the

34:25main feature of this thing you would actually seem like more elevated per like trading generally after hours as market makers switched over but you actually see less because most of the volume is like whether it's harbing or like like staying in line so generally like I think super super exciting um I think perps like this has been one of the longest and in thesis of mine I've got tweets from like 2021 and 2022 I remember going up to Brett Harrison at the FTX e-roll party in New York and being like SVX perps are gonna eat the world and he's just like who are you like get it get it like I don't know well that's what he's doing now so one down one yeah exactly but uh yeah I mean when I when you think about it whether it's uh futures sort of having confusing naming conventions confusing pricing conventions uh very high lift in terms of like getting access to as a retail options are just the wrong instrument despite having like fairly easy access your trading volatility which is just the wrong instrument it just happens to be the best way for most people to get short-term delta leverage um and then when you're talking about like spot margin leverage

35:25you're usually kept up like 1.5 or 2.5 X through like Robin Hood or Scott Trade um and so perps are just like the most efficient most fungible most agatable way for retails to express retail or or even market makers like you you find in tradify most market maker swaps most market maker trades happen through swaps of like an institutional desk to a market maker which is essentially a perps trade like just put the swap like Oracle in the background and so um markets over time have consistently found that this is just the best form factor the fact that we're finally seeing a takeover is what's allowing for like the 24-7 part is just the fact that it's such a good um form factor is what's letting people then go ahead trade but I would point out like people have tried to do overnight trading before just on worse instruments whether like tokenized stocks or wrapped stocks or something but without the perps form factor it doesn't work well it's I think it's worth throwing here a little bit which is that like obviously for for for for what what defy offers

36:28a lot of times what defy offers really shines in moments of crisis what's happening with the war in Iran is fucking awful I mean depending on what what's that you're sitting it's awful for different reasons uh and it's extremely disruptive to everybody who's in the region I mean we know a bunch of founders who are in Dubai who are in the UAE uh or or just neighboring countries I have family that are in some of these neighboring countries it's genuinely uh it's it's a fucking war zone it's like actually a war zone to anybody who's in the region because you know anybody who's in one of these countries just catching strays from Iran that being said it's same thing happened in the Ukraine war was that in a way like crypto kind of shows its power in these moments of crisis which is that because these are permissionless 24 seven markets they allow people who need to price risk who need to have an understanding of what's actually happening by looking at these financial markets to be able to express that through through finance that's reason why finance is so fucking important so something similar was happening in polymarket and also on call sheet so um on on polymarket and call sheet there were markets on the the basically the the uh tenure of the

37:35hominay regime so on call sheet it was so file free did I I mean it was literally I mean just like tenures out as supreme leader of Iran that was that that was the that was the name so it was not it just technically is tenure yeah yeah yeah it was not a proxy company well that's a thing it's like obviously it's ambiguous right it could be that he steps down could be he dies of old age could be that he just you know whatever there obviously there are many reasons and all those get priced into the market right like actuarial tables are part of how you look at an 80s whatever year old I think it was 86 right like he's an 86 year old man so obviously there's a possibility that he just like hey you know I'm getting up there long in the tooth getting dementia and I'll just you know handoff to my son or whatever so they had these markets both on polymarket and on call sheet for quite some time about how long hominay was going to continue to be the supreme leader of Iran now this market unsurprisingly became incredibly contentious because this market resolved well the obvious way to resolve this market is that hominay was out the moment that he was killed um but call sheet being regulated by the cftc and being

38:39a domestic US market has a rule against markets on death this is a rule promulgated by the cftc is a long-standing rule um and so like I think it's death war terrorism you're not allowed to have a markets on these so this market ended up becoming resolved because of a death and because of that call sheet was like we cannot resolve this market to a yes because of death and so they decided that they were going to resolve the market at the last traded price before hominay was killed okay so at the time the hominay was killed I don't remember what maybe like 86 just to name a number let's say 86% chance that hominay is out by the end of March or whatever it is right so it was very likely that hominay is going to be out the door but it's not certain because he's not dead yet so they were like okay we're booking everybody out at this price now this made a bunch of people very very mad because they were like hey you know I bought the market and actually went down I bet that he was going to die in the market I bought it in 90 and it went down 86 and like I lost money even though I bet in the right direction but people got really upset polymarket of course being

39:39off being offshore and being the international global prediction market that's on chain they resolve the market as one would expect which is that he died obviously this is a this resolves to yes hominay is out he has been deposed so now it's still in dispute and they have a dispute resolution process I think with Uma but the expectation is that it's going to resolve to yes obviously he's out and therefore the people who voted yes should get one dollar and everybody else should get zero dollars but there's been a big dispute about this I think Adam Schiff in Congress has called out to say hey there should be investigations about this about these markets and that these markets should not exist it's a tricky problem because it's not obvious ex ante that this is a death market right obviously there are many ways for this to resolve without death and there are many markets that can potentially resolve with death that do not necessarily resolve with death right and so curious to get your guys thoughts obviously you guys have spent a lot of time thinking about prediction markets as well but this is one of those things where permissionless markets intersects with the desire for trying to find the truth yeah I um I find it like a little kind of facetious when

40:46you know how she's oh well it's doing I have a death market but then they're like actively promoting that the market on like social and on the site and it's like this isn't like some random celebrity being assassinated and everyone you know didn't think they were going to die and so obviously they're not going to win the Oscar if they're dead this is like yeah he's like the leader of the nation that is people were rumoring for a long time it's going to be a war I mean the US bomb them you know six months ago so it's like very obviously death was a very likely outcome here and um and so that to still even like list the market but then like not resolve it the way that people anticipate it being resolved I think it's just like very kind of two faced so I understand obviously they have to have you know restrictions based on you know what the CFC can offer but like it is like you know it's like if there's an international manhunt for somebody and you're like oh well you know if they catch him but they don't kill him it doesn't count I'm like like obviously it's a very likely you know scenario and so that should should be baked into you know the market well the other thing I'd say is that unexpected value terms there is really no difference right if like if you freeze the market at a certain point as long as there's no trading after that if you freeze the market at the point at which he dies and you close the market

41:49there like for the people who were trading before that there is effectively no difference right no no I mean you know different boundary condition the problem was with that they announced before the market closed that if he died it would close which means that all of a sudden the market can only really trade like 40 to 60 because as soon as it's on tail it's like you're pretty happy to like take a bunch of money and push it back right so the timing matters right if they pre-announce this is like if he dies we are going to freeze the market at the moment of death and resolve it at that price and in that case it is isomorphic from an expected value perspective no that made it if they hadn't announced it if they did it surprise when he died then if they if they hadn't announced it and they did it surprise it would have been isomorphic them announcing it changed the conditions of the market because now it's just a game of it if I have more money than you I can do yeah I can do it my direction exactly oh I see I see I see the conditional the conditional thing is very because I never get a very dangerous yeah yeah yeah there's no money before the person dies okay I guess it gets weird if you participate the death there's another funny thing too

42:52where like this was all going down you know Saturday morning the US which was the 28th and like there was an expiry for the 28th at like like midnight ET so it's like there's just like right it's like rapidly like like faded king and then it's like oh but then then then they're like okay just Trump announcing it count and the people like no that doesn't count like we need a journalist to I'm like the President the president announced that he's dead like I don't what you know what more do you know well the weird thing was like multiple people announced he's dead and then multiple people were like no he's not dead and then it took like 12 hours or something for Iran to do because he's running up more than I get right so clearly yeah yeah so it was like quite a lot very weird it was a weird yeah it's a weird thing in general if if people are like oh yeah like implicitly it's a death market I mean like yeah I could also say like part of the treasury futures market is a Jerome Powell death market because if he dies and like all of a sudden everyone's expectations of rates are suddenly very different like I don't think you can like really try to be like unless the market is explicitly a death event you can't really try

43:55to be like oh this market doesn't exist like there's there's regulated financial markets that completely change and implicitly are a death market too and so I like kind of don't I think like the the legal argument that these things are should be illegal doesn't really make sense like if you don't grant that then you can just say okay well here's a a market on somebody's heartbeats per minute you know and like okay it's not a death market because your heart could stop without you dying but it's like come on this is a death market like well it's be serious like I think the law allows for some like it's common sense to interpret is this a death market or not I think all of this is a tremendous coup by Kalshi and Pauli market to even be like mentioned in these times especially compared to like the 24-7 markets this is for page news I know but if you look at the actual market it's 120 million lifetime volume on the committee out by February 28th which is like the big market it's 128 mil volume on Pauli market up reported and I've done the research where like you know if you mint if you have a tail

44:57Pauli market position that's point zero like a super tail point zero one cent and you sell it to somebody else who buys it for point zero one cents so two cents or point zero two cents is trade changed hands Pauli market report that has two dollars of volume because you've both traded a one dollar contract so like really highly capped at 120 but like somewhere maybe between like 30 mil and like it's it's not a large amount of volume compared to like actual billions pumping through trade xyz and lighter on these sort of events and so I think they're really fun to talk about I do think that there's genuine societal value to being able to like come to consensus on on a sort of market as as it's happening but I think from a financial perspective these things are like toys and I don't think that they'll necessarily grow out of toys when you could just trade the asset like if you believe that they're going to miss a strike buying oil is the correct like asset trade it's much more liquid it'll move asymmetrically in the direction that you want you can make more than

45:58you know two x or three x your your entry that they're not cat so I agree we don't have a time duration make money I agree with you if you're trying to make money right if you're trying to if you're trying to size a big trade you obviously playing the oil future is going to be a lot better than you know trying to bet on Pauli market if you're trying to move like 20 million dollars but if you're trying to understand what is the likelihood that the supreme leader is dead looking at oil futures will not give you the answer it won't even suggest the answer and like very famously you really care about that yeah and it's also the point is like to sort of disambiguate these right like very famously like SPF predicted the 2016 election and then thought US equities would dump and they actually rallied and so actually like lost money even though we accurately predicted that Trump would win and so here it's like previously yeah you would have looked at oil features gold so get a sense of how much chaos is there in the region but like if I actually want to know is you know come in a dead or not like there's not really a good way to do that versus like yeah I mean I was I was watching this over the weekend because this is way more you know interesting and I think like you know a distilled signal versus like just reading your headlines on Twitter and

47:01it's not perfect there is high volatility like it is you know influenceable in some ways but like if that's what you care about you're just trying to follow the news like this is actually like kind of pure kind of distilled signal I'm just gonna say like the only thing I've realized for the last 10 years of both being crypto and not before that is like the monitoring the situation bros unfortunately can be much more accurate than almost anyone who's like a journalist by like orders of magnitude so it's kind of like all right do I want to aggregate the monitoring the situation bros kind of like that was such as journalists it's like financial aggregates right looking at the price of gold looking at the bonds looking at oil are these like huge aggregates of lots and lots of information that are basically distilled down to a point estimate of like here is what I think the marginal demand for oil is and that is compressing so much information and I'd I'd what I want is not this like huge dimensionality reduction I actually want to know how long do we expect this water to continue and like oil prices just not yield the answer you know like yes okay but look at the oil

48:06futures curve and blah blah blah it's like yeah okay maybe but like there's so much of this about like okay when are they going to open the the straight of hormones and Trump says oh we're I mean the straight up hormones regardless of whether a committee died or not if there were any bombs I hit they still could have closed it right so it means the oil price is on right right exactly which but also like okay well whose the OPEC plus is doing this and then China is doing that and we're tapping strategic reserves all these things get priced into oil which is not to which is not the information I'm looking for so if I if I agree with you that the the primary value from these polymarket and calcium markets is like genuine information like say information density in like like a probability space of like what I'm looking for why are we banning the people with the correct information I agree I think you won't find disagreement here yeah I think it's who are we protecting but like I understand investor security protections because there's like a huge social good to like it distributing capital to these companies that can use the resources

49:07and reinvest it why are we protecting people that are gambling in the act many out well I mean so the rationale obviously behind the CFTC regulation is that we don't want to create incentives to kill people and obviously a market on killing people is effectively a bounty that's the that's the argument and it's not an coherent one and I think there are good reasons I think that like hey we should not have markets there's like a moral outrage reason which is that you know markets on war I think are like not that that's not really a good argument for markets on war I think markets on war a little absurd where it's like oh you know if how could you profit from war that's so evil it's like you know there's a lot of public trading bond trading that country bonds there's obviously nothing illegal about profiting from war there's huge parts of the economy that do it but the there's a moral outrage component to like the war prohibition I think that's absurd but for terrorism and for assassinations or deaths of individual people I think there's a reasonable argument that like the externalities of this market are not worth the information I

50:07think if it's ahead of state especially in like a huge international conflict it's kind of a different story if it's like some random person or some random celebrity it's like okay there's no value to society to know the likelihood that this celebrity dies or this you know regional politician dies but to know the likelihood that like Trump has a heart attack is actually incredibly important right like that's like okay what's the likelihood that like JD Vance has to step in and become the next president so I don't know I think there's nuance that doesn't capture by the laws it's going to be I was actually more more pointing out like Mr. Beasts editor and yeah yeah I was just saying but I agree with you that we should not promote or incentivize people that's directly okay so we want to talk about that so there was there was another story unrelated to the Iran stuff that call she brought the first actions against insider trading in prediction markets so they brought actions against the editor of Mr. Beasts videos one of the editors of Mr. Beasts video I assume he has a team who apparently insider traded on some kind of Mr. Beasts related

51:09market and then they brought another action against some some California gubernatorial candidate who bet on his own candidacy and so these fines were not they were not huge fines I think there was like discouragement of profits which were relatively small and then the fines were like five extra dollars yeah yeah it was like very kind of slap on the wrist it was not like SEC or CFTC kind of fines but obviously this doesn't this doesn't preclude the CFTC from bringing their own charges against these people that's obviously possible in principle we don't know but these were the first cases that we have seen be prosecuted we know that there were many other cases I mean there have to have been there's no way these are the first and it's possible that those are working their way through the call she process or what I don't know whatever you want to call them but these do seem to have been the first shot across the bow for okay there is some enforcement of insider trading that's going to be publicized for these prediction markets so Jazzy was just speaking dad and from my perspective I completely understand why call she and Polly market want to

52:12bring this because they want you know gamblers essentially to feel safe on their platform and not to feel like they're getting adversely selected against but I think when I take a step back and you look at like okay well why does society sort of bring enforcement actions against say like market manipulation or insider trading generally it's because you want to protect the sanctity of a marketer you want to protect like a social good that's being provided stock markets have a lot of protections because the capital that the stock market allocates is very useful to society we can sit here and we can debate that are that you know putting a percentage on Trump's like heart attack percentage by end of year has value to society but then why if his doctor came in and said like I know that Trump is like very likely to have a heart attack and would go in bed on that why are we stopping the most informed participant in the market from giving us his information I mean I totally agree like that's the point of these kinds of contracts I mean that's like it's it's risk transfer I think I think also just like practically speaking it's not really possible to enforce this in the way that like you know insider trading on companies is

53:12enforced in SEC because like you don't have to register as an officer of Mr. Beast you know if the register is like a family member of an officer of Mr. Beast it's like you know already I think the SEC has so many issues and weird nuances around what constitutes insider trading and not shadow and trend insider trader whatever but ultimately it is serving this end goal which is good of like protecting capital formation and in capital markets in the US this just feels like yeah I mean I think they want to show that they're doing something because I've been all these sort of high profile cases recently that have been again sort of dealt with outside of the of the of the protocol if you're you know leaking state secrets to Kalshi that you're probably a bigger concerns but I agree like within the protocol like that that is kind of the whole point is like you you want people who have information to reveal it and get get paid for it and you know that you should take that into account when you're when you're trading yeah I do think there is a special case where you are the subject of the market I think that's a unique situation so if you're like the Mr. Beast editing team I think that's or you're the gubernatorial candidate like when you're the subject of the market there is really no positive value okay some might might take against that view in some

54:18ways is that one of the reasons these markets have so little liquidity and trading volume relatively it's like there is this adverse selection cost right it's like almost anyone who's trading on like information that's like a martingale plus a little tiny bit of I read the news versus like someone who's like oh I actually know the truth of the event the former are like the fish in a casino game where like you're losing 70 percent on every round right like it is like kind of negative EV type of thing is it more to providing liquidity than it is for trading itself yeah yeah for sure for but but but arguably like a lot of the the traders I feel like are effectively implicitly we could do providers because like a lot of these markets are so a liquid that known as quoting both sides at all times so they're like placing limit orders and waiting there so they're just kind of like bad market makers in like as you go down on the volume side so I think like there's an argument that the adverse selection cost should be learned by the market participants and like they should be bringing their win rate closer to 50-50 than like 70-30

55:21of loss to win and and and the argument I think from the the social good standpoint is like well maybe that just takes so long that people will just like go bankrupt before they can reach the point of parity to know how to provide liquidity correctly and so I think that's more of the question is like will people learn to adjust to this adverse selection or are they just like is it going to be like meme coins where they are the red pole ever you know they are the adverse selection right like any liquidity provider but putting money into the bonding curve is like becoming the adverse selection right like there is something about these games that is similar whereas I think in the perps case or the spot trading case it's like there's a notion of of realized value that is not there's no notion of any participant who has perfect information right like it just doesn't exist per se because the the asset is an amalgamation of a lot of stuff and I think that's sort of the difference here and that's why people have this emotional reaction because prediction markets are like interpolating between the perps side like the pure there's no perfect answer and

56:26the like meme coin thing where it's like ah yes obviously the deployer red pulling you has perfect information on like right yeah I agree there's like this bimodal distribution of markets where there's like markets that have incredibly complex that are measuring something incredibly complex like what is the likelihood that Iran falls or whatever there's regime change right and like nobody really knows that and then there's like you know when is mrb's going to release his next video and like there's seven people who definitely know that and everybody else doesn't know and so like I think what's that just don't trade that market because yeah I will I mean clearly not a lot of people do right so like it is in a way self-correcting like we just look at where the volume is the volume is mostly on like sports games and like big political questions and like Fed funds rate it's not on you know mrb's videos but mrb's videos scandalize people the most because I mean and here's the other thing is that people's moral intuitions about why insider trading is forbidden is completely opposite from the legal justification for why insider trading

57:30is forbidden the two are not in any way similar right and that breaks down when you have a new modality like prediction markets where it requires basically self-policing because the rules are not yet written and CFTC is not made clear exactly how they're going to be policing this stuff and so the the platform is kind of has to police it themselves in order to win consumer trust and if you have to police yourself in order to win consumer trust you kind of have to do what people's intuitions are and not with the laws right so the law is that okay you can't trade on information that you did not fairly receive that you know your your your your your company your studio confidentiality to the counter you know blah blah there's like all these rules that have nothing to do with oh it's unfair you made money that's not why insider trading is illegal it's totally fair to make money we don't give a fuck in the law whether you unfairly made money but people's intuitions are like well obviously that's why insider trading is illegal is because you didn't earn it and you should earn it if you make money you know or you should get lucky if you made money you should not be guaranteed to make money and that tension I think is the reason why this is going to continue to be really stupid is like the what what call she and probably market US have to project is we have an insider

58:38trading policy that aligns with your intuitions which is not at all with the law demands and if I if I have to straw man like if I had to sit here and be like okay like what are the best rationalists for call sheet prosecuting insider trading that's not just protecting their own gambling wealth guarded fish it's because maybe the market of a bunch of people uninformed guessing is better than like a blown out widespread market that one guy that had formed can barely even cross because the market makers are like fuck you I'm only going to get hit by some extra information so like okay no so they're good okay well we are up on time jazz where can people find you anything you want to plug twitter follow me on twitter I'm fucking around with sorry I shouldn't say that I'm messing around with we cut we cut we cut we cut we cut everyone's fucking around yeah I'm always gone I'm always fucking around I'm always fucking around with open claw lots so keep an eye out so I'm not okay sick sick what's your what's your handle like people find you isabel underscore eat on twitter isabel underscore eat okay jazz it's been real thanks for joining us