The Two Biggest Issues In Crypto Today | Weekly Roundup

Crypto was easy on a relative basis for venture for a long time. You could invest in anything at the early stages and the token would launch or people would sell the token. And this is why there was so much discontent on the timeline about, hey, we don't have opportunities that the venture capitalists do. And now when people are no longer making money, it has to consolidate to the few that are. You're going to see a few funds raise a bunch of money and you're going to see a bunch of other funds, um, kind of at that small niche scale, and everyone else is going to die.

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This is where April 2nd ratings go parabolic.

Dude, you guys tanked the show. You tanked the show.

This is the pivot that we all need coming at a time where the industry is low.

We really needed a moderator. Like Santi and I, we're like ideas guys.

Okay.

We're not, we're not running ourselves in a straight line. Like we're not making sure that we're, you know, on schedule. So we need, we need Jason.

As long as you don't compare me to Jason Calcanis, I will be— I'm happy to be your moderator, but just never make that comparison.

I might've done that during the live, uh, live pod that, um, absolutely nobody listened to or was at.

So I called Mike. I was like, dude, we got to get these live podcasts. By the way, thanks for everyone who attended DAS. It was great. 3,000 of you. Thanks for the 12 of you who came to our Santi, for those, I mean, for those who weren't there, which was, you know, 2,980 of you of the, you know, 3,000. Santi forced all of his employees to come watch them, watch the panel.

100% Inversion was like 10% or 15% of the people in the audience and people kept leaving during the chat. It was bad. State of the industry. I don't think we need to cover macro too much. That just paints the picture of where we are.

So I called Mike, I was like, dude, we can't put these live podcasts at the very— at 4:30 PM on the last day of the conference. I was like, we only had 12 people in the audience. He's, he's like, I had zero for Belkirk. He's like, we did a podcast for no people in the audience, but we sat on stage. So at least Empire's overtaking Belkirk.

But you remember in the early days, we kept people— we kept telling people, like, because we've been through now 5 years in the running, at least when I joined. We've been through a lot and it was like, we're gonna do this every week. Bull or bear, we're gonna keep doing this. Honestly, really rewarding just doing things.

I have a lot of friends and founders and investors who are like, oh, I wanna get into the podcast game. How do I, like, what do I need to do? And I was like, you just need to show up every single week and just even when people, your listeners falls off or you don't have a guest episode, like you just gotta publish the episode. And that, I mean, that's the, yeah, that's the hardest part.

So do you think we're getting better or worse?

I mean, I mean, the numbers, quality of numbers. I mean, you guys skewed the numbers. The numbers tanked without me, obviously.

So, okay, let me ask you a question though. So I started joining full-time in, I guess it was like June or July.

Actually, our engagement, so that you can track how many people listen to the end of an episode since Rob has joined. More people listen to the end of an episode.

There you go. They want to hear the content of the week.

The actual data, because it's, it's, it's, it's not as hard, you know. It's like, how many more people are listening? And Rob, we sympathize because there's a lot of noise you could point to. I know what you're going to say, which is, dude, the market hasn't been great since I joined the podcast. So the fact that—

that's not what I was going to say. That is not what I was going to say. I was going to say clearly the pod did better after I joined until the market tanked. And now it's just a market issue.

No, the real, the real differentiator for Empire, you guys don't realize I did this show by myself for a whole year. And, and no, I wanted to build the How I Built This for crypto. I don't know if you guys ever listened to that podcast, but I was like, all these great stories like Brian Armstrong and Jeremy Allaire, like I want to do the How I Built This. Turns out nobody cared. No, I mean, also, I was just really boring by myself. Incredibly boring by myself, actually. Then Santi joined. And, you know, we were actually debating at one point. I won't share too many details. We were like, should we give this guy a little, like, rev share of this thing? And then Santi joined and the show went—

There was rev share on the table? Was I supposed to get rev share?

At the time, there was, Rob. Back down. Back down. Back down.

Rob, you're still in the probation period.

So like, Rob, we got to get you on the— we got to get you on the— you're not even on the COVID my guy. We got to— you're still auditioning.

How am I still not on the COVID That's not my fault.

Well, you know, you're still in the probation period and we're still gauging if the quality of the conversation's there. And, you know, you know, you keep showing up every week, Rob, and the discourse needs to go up and up.

Yeah.

I'm like the Friedberg over here. So yeah, that's what this—

if you keep investing in inversion, then, you know, we'll put you on the COVID All right, let's, let's get into the topics. We got a lot. Here's what I want to cover this week. We've got the Drift Hack. Um, yeah, we've got the Drift Hack. We've got, uh, so Rob, in your, in your guys's announcement for the fundraise, you called it like a crypto mass extinction. And that was the crypto VC mass extinction. And that was the first time I heard those terms. And I've seen a few other people now tweeting about that. Dudas was tweeting about it. Santi, you're talking about tokens are trading, you know, secondaries for tokens are down 90, 95%. So I want to talk about that. There's this like token-to-equity idea of like, we've got on-chain equities, but now it's, you know, Heart and ACROSS was, you know, saying we're going to flip our token back into equity. There's a few other names I maybe can share that I think are thinking about doing that. There's this whole Canton versus Solana debacle that was on Twitter. And then there's obviously this Google Quantum paper, which, you know, I feel like half the industry is brushing it off and half is like, this is the most important thing that we have to address. So, but maybe we can actually start with none of those, which is, which is stonks, which is the good old, the good old stock market. Santi, you tweeted, after de-risking heavily across the board since Q4, went to cash. I'm now nibbling at names I like and are down 30 to 50%, not jumping out of my seat. Don't think we've bottomed, but I'm not buying tokens, only equities. And to give maybe a little more context, right, Microsoft is down 24% year to date, Google down 20%. Meta is down 17%. Um, Uber, you know, is, uh, you know, you got Ackman saying it's trading at this massive discount to intrinsic value, right? Brookfield, uh, is trading at a huge discount to— like, you've got, you've got these names that are down, right? So how are you thinking about this?

Well, look, I, I'm sort of the opinion that you're never going to time markets, but if you're— if you have a reasonably long time horizon then you start seeing opportunities. Like, it's just incredible edge if you just want to hold stuff for greater than a year. Um, and so there are names in my shopping list that I just track. And, you know, um, you mentioned some that I like, you know, like, you know, Google and the entire software as a service industry. Like, before being crypto full-time, I was an analyst, uh, you know, associate investing in enterprise software. So I think the, the— there is a disconnect between like some of these names like ServiceNow and others are just trading at a pretty down and just multiples-wise, I think are pretty compelling. Obviously, I'm interested in stuff like Western Union, which I've been very vocal about. So I'm not— so like going into Q4, when we started having this, like I started writing more, I obviously went to cash. I was like, look, I just don't think I'm getting paid enough to take this level of risk. Everything's all-time high. And then like, I didn't have the foresight of the war in Iran and all that stuff. I just didn't feel like I was getting paid enough, to be totally honest. I mean, maybe I'm allocated less than 10% of my cash back into the market. I still am not fully compelled, but I'm like accumulating, right? There's names that I like, and as soon as they trade down, um, it's really hard. Like, I think you remember going back to when Solana was going down. I think you were public on the pod when it hit $8. You're like, this is a generational bottom. How many people do you think actually bought at 8? But I think you still would have done well if you bought at 20, and then you bought at 15, and you bought at 12, and then you bought at 8. And then like you sort of accumulate, because it's, you know, we're a tweet away from the market ripping again.

Yeah.

And the Strait of Hormuz opening up. And so I know, I'm just of the opinion that if you're well capitalized, like I'm not jumping out of my seat yet, but I am willing to put some trades in and buy stuff that I just want to hold long term. Like Google, I feel really comfortable owning for multi-year periods because it's a monopoly. Like, I don't think they're going to be unseated.

So yeah, what names do you like other than Google?

So I mean, I do have a position in Google. I have a position in Western Union, obviously. Uh, I have a position in ServiceNow. Um, and that's really it, like specific names. Other things that I'm tracking beyond like the broader market, right? Like the S&P. Um, in the shortlist of companies that I'm tracking is this theme that I have, which is crypto-enabled businesses. Like, in that bucket is Klarna, Robinhood, Figure. Those three names, um, I'm monitoring just because it fits in. I want to understand how they can transform their business with stablecoins and tokenization. And then there's like Better Homes, for instance. I don't have a position. I don't know much about it. It's just interesting that they have a facility with Sky and Framework guys invested in that. So these are businesses that I'm tracking that I like. But it takes time to do work on these names. So I, you know, it's Western Union. I've just spent so much time in the remittance space that I'm willing to take a small position in it. Figure is another company that we've done a lot of work. So it just, just bodes well with what I'm seeing. I don't have a position in FIGUR yet, but I'm just monitoring it.

Yeah. Rob, what are you thinking during the situation? Yeah.

I don't know if it's as easy as Santi is making it out to be. I mean, we've, I mean, Santi and I talked about this too when, when you weren't here, Jason, and like everything is just downstream from macro right now and has been all year. Right. And there's obviously like crypto-specific issues and crypto-specific concerns around the token specifically and, you know, whether value accrual and, you know, uh, all of the things that we've— we're going to continue to talk about. But I don't think it's so simple right now as, uh, you know, President Trump comes out and says, hey, listen, we're— the war's over. The, you know, the— I think, uh, Iran's been very clear that, you know, they are gonna— they're happy to go the distance. Like, there's a lot of conversation right now about negotiation, but there's actually no negotiation going on. We're passing some, you know, the messages back and forth through, uh, the, uh, the Pakistanis, but there's, there's literally no direct engagement whatsoever at the moment. Um, I don't know if you guys listened to the, the press conference last night, but, you know, I got no confidence whatsoever in that press conference that one, this is likely to end anytime soon. I mean, it was very, uh, I think amorphous around, you know, timeframe, but two, You pretty much got nothing from it around like how it would get resolved either, you know, what we would do if the Strait of Hormuz would open, what that would mean for oil going forward. I think oil's back up over almost $120. The futures are down, you know, call it a point and a half, maybe 2 points. I think you haven't quite seen capitulation yet from the equity market. So we've definitely— there's some conversation, I think, in the news that, oh, maybe we've seen capitulation at the end of last week because we had a couple of really bad trading days. And then we, you know, kind of— we were up a point and a half yesterday, or maybe two. We were up two points a day before. And there was like, you know, the market very clearly wanted to rush back in, uh, on any sign of good news potentially. And that means to me that people still expect that there's some possibility that this ends quickly. And even if it does end quickly, we're at the point now where we're going to have a supply shock. We're going to continue to have inflation work its way through the market. It's going to mean bad things for potential rate cuts. And so I think macro is going to continue to be challenged for the rest of the year, to be honest. And so that means that it's not as easy as, hey, listen, their annual war is over and everything rips for, you know, some extended period of time. I'm sure we'll get a relief rally. But, um, I think all of that to be said, what's he's talking about, which is like finding names that you want to hold for the next few years who have secular tailwinds, like, that is absolutely like what you should be doing right now. But if you're trading the short-term market right now, I, I don't think you can be, you know, I, I don't think you can be in the market at all at the moment.

I mean, you get paid, you get paid, you know, 4.25, 4.5 to, to sit on Treasuries. Every time there's like a massive leg down, I think you're supposed to be buying the names that you like, just adding to the position, not, not like buy 100% of, of your bet, you know, rotate. But, um, I totally agree with what you said. Like, I just don't think— I think it was Index Ventures that sent a memo to their portfolio companies a couple— a month ago or so. And it's like, look guys, if you're a startup, factor in the fact that it's going to cost you way more for everything that you're buying right now. Have enough runway. Um, so it's kind of like the Sequoia memo. I think Index are really smart investors too. They've done very well. Uh, we had Josh Wolf, right, on the podcast, Yano, talking about nuclear, uh, a year or so ago. Nuclear's done really well.

Um, he's not Index, is he not? He's Lux. He's Lux.

Lux, sorry, sorry.

He's Lux.

I think it was Lux. Maybe I'm confused, but anyways, it was one of those two guys that sent out of the memo. Was pretty good.

Oh, it was Lux. Lux sent it out to that.

I think it was Lux.

Yeah, Lux sent it out.

But anyways, I think like if you're a— if you're listening and you're a startup, I think you should probably bake a lot lot more conservatism in how you run your business because capital markets, like, they're not going to be open as much. I mean, they certainly aren't as open in crypto. Rob, you guys are one of the few that actually have capital out there to deploy, but are you, uh, really excited to jump out of your seat and, you know, fund? Hey, I don't think the quality is there, and we've talked about this here, um, but you're not like jumping out of your seat to deploy?

Listen, we've been slow. I'll tell you.

Um, are you slow because you, you just, you just got the capital, like you just raised this fund or you've had it for a while?

So the way venture funding works is that you do—

yeah.

So, so you do like a first close and then, you know, you do some number of closes after that, you know, usually it's anywhere from 2 to 4 total closes. And then you announce the fund at the end of the final close. And so we've had capital or been deploying out of this fund for, you know, call it a little over a year, 14 months. So, you know, it took us about 12 months start to finish to raise the full, the full fund, which is very typical. That's like a, that's like actually above median in terms of how quickly venture funds actually raise. And so we're, you know, we've deployed some of the funds, but we've, we actually last year we were not that slow. We didn't do. As high a number of deals as we have done in the past in a year. But we put a lot of money to work because we really, you know, leaned into the things that we knew were working. And that feels to me right now like the lesson, which is that it is easier than ever to be an entrepreneur. It is easier ever to vibe code something. It's easier to ever— to also get disrupted really quickly. It's harder than ever to get a moat. In anything in software. And then the day crypto is mostly just software. And so, you know, finding things that you see kind of running away with it and piling into that is where we've, we've kind of decided that the opportunity lies right now. And I think what's happened is because of the pace of which people can build and the pace of which people can build their moats, that once you see someone pulling away, they pull away that much quicker. Right, the way Ramp has pulled away from the rest of the markets and just left Brex behind, the way Rain is pulling away from everybody else who's doing the same thing that they are doing. And we were talking about a little bit before the pod started, but their, you know, their month-on-month growth continues to accelerate even at, you know, at the size they are at now, which is just a very, very big business. And so what we've done is we've said, okay, well, let's identify those, let's wait, you know, and see where there's opportunity and then really pile in. And we've done that. So we've put tens of millions of dollars into a few different companies that we know are really working. Polymarket, we've talked about a bunch. I think it doesn't mean that we're not continuing to look at all seed deals, we're not going to continue to invest in seed, but I think seed has gotten harder than it's ever been at my time doing venture investing.

Yeah, I actually think, Rob, that's an extremely important point that signals this way bigger change in the industry that's happening right now, which is for 15 years, everyone is excited about the new thing, new thing, new thing, new thing, new thing. And now, and I've said it way too many times on the podcast, but last year was this line in the sand moment. And I think we've moved into the phase of the big companies will— the winner, there are winners and the winners are going to win really big. And I'm seeing that in the, in the venture space right now is, yeah, I mean, it's not just Dragonfly, right? It's people are instead of betting on the new L1 or the new L2 or the new DeFi app, it's like, Hey, I think we've actually got like 3 to 5 winners in our portfolio. Let's just put $100 million into each of them or $50 or $20. So, um, yeah, it's interesting. And you're seeing it behind the scenes too, like major, I mean, a lot of companies talking about going public and a lot of M&A, um, and a lot of Series A, seed, even some Series B being like, I think it's time to sell this thing. Let me, let me exit this business because there's just no way I can compete with them.

Every month I get at least 5 to 10 crypto venture-backed businesses like, hey, do you guys want to buy us from Inversion? I said, well, what am I buying here?

Yeah.

Like, if you built a business and you haven't gotten traction, like, I mean, I'm not kidding.

I think 80% of the crypto data companies have tried to sell in the last, in the last month or in the last year or two.

Yeah. Of course, we've seen a lot of businesses get acquired for the equity and the token just gets deprecated, like Tensor and a few others. Yeah, it's, uh, there's the whole cohort of companies that have raised over the last 4 years that are— their cash position is, is low and they're shutting down or trying to find— like, even today I just got 2 companies that I invested in like 4 or 5 years ago, they're just closing shop. They just couldn't find product-market fit. Um, yeah, but there's no—

by the way, like, this is not normal. Yeah, this is not specific to crypto. I mean, we're seeing in the traditional market too, everybody Like every single fund in the world has exposure to a foundational model now, like one of the 3 or 4 big models, right? And they've had to pile into there and they piled a bunch of money in and, you know, that is everybody's AUM. That's what they've seen increasing. I was talking to, um, you know, we, we've been talking to some IR candidates and one of the people we were talking to, a fund they were at went from $4 billion to $26 billion over like a 5-year span. And you dig into why that is. It's literally a single investment that they were in early that is one of the big companies that's going to IPO this year and is going to, you know, do a trillion-dollar-plus IPO. And so it's like that, that's been just like pile in, pile in, pile in. And that's what we've done. And that's what we've seen work. And I think broadly, the biggest outcomes are getting bigger. The, uh, amount of competition at the earlier stages getting tougher. And breaking out of that early stage, that seed, Series A, lol, is harder than ever. But the ones who do are going to win big. And so that's why I think it's— you've seen a lot of people like us spend a little bit more time there. But the interesting thing for me, and I was having this discussion with, um, somebody yesterday, which is that it doesn't actually change my job that much. Because to be good and to win against, you know, you know, we're seeing like Lightspeed and Ribbit and like all of these like traditional funds want to come and, you know, be in, in that space, especially in stablecoins or neobanks or tokenization, etc. But to be good and to compete against those guys, um, I still have to spend as much time as I was before with the seed companies so that I know early which ones are actually going to win in the future and that you're able to be on top of that early. And so it, it's changed a little bit the way we write checks, but I don't know if it's changed the way we engage with founders, uh, at the moment.

Um, so I track like, uh, religiously kind of my hit rate, my failure rate, like by cohort, like as professional, as systematized as it gets. Like, of course, on the venture side, I want to— you would— it's just important to put it into context. Like, um, is the failure rate higher than other cohorts? Like, are companies failing more? Maybe it's a skill issue. But I do think, like, I— while I agree that, like, outcomes are getting larger, like, you have, like, uh, SpaceX is gonna IPO at a trillion plus, like, right?

Two, like, that type Oh yeah, $1.5 trillion probably.

OpenAI just raised the largest venture round in history, like $100— what is it, $110, $120 billion?

$122.

$120. By the way, on the back—

first ever $100 billion.

If you were on the timeline, you would have gotten all the negativity that Claude is pulling away and OpenAI is dead and, you know, has a whole host of issues internally. And lo and behold, it just pulled off the greatest thing. So it's an important— it's just important to like zoom out and say like, What you hear in the timeline is very different than what's actually happening. So don't believe—

timeline is like a negative signal these days.

But not— that hasn't changed. Like, social media is always skewed negative. So I think it's important if you want to be a good investor, just like separate the noise because there's a lot of noise. Uh, and I don't think—

I think the timeline is more wrong than it's ever been. Like, like objectively like wrong.

And well, because now everyone's a content creator because you can, you know, you have Claude whip out or You know, Chad, whip out a nice post, uh, which to round this out, I think active management is only going to get more valuable because, you know, I don't buy this where most people are just putting their money in index funds and are passive. You should be paying that smart guy to like do research for you because that I think is like— and you're seeing in crypto this too, like if you're an investor in hyper liquid or Bitcoin, um, or I guess, I don't know what else you meaningfully underperformed, but there's a few funds that are really pulled away and are doing a really good job. But if you're not in 3, 4 names or RAIN or Poly— if you're an investor in a prediction market, uh, in hyper liquid, you should be looking at yourself and questioning, like, am I really—

I mean, it was either, it was either prediction markets, perps, or stablecoins.

Well, one perp, one perp, really.

Yeah.

Yeah.

Because all the rest—

I mean, like, like We're in LIDR and, you know, it certainly hasn't performed as well as Hyperliquid yet. And I do, I think Vlad is great and I think LIDR is going to do well and continue to do well. But there's, I mean, there's a, it's still worth $800 million. So there's a lot of people who are in that investment who, you know, are up a lot on that investment.

Should we, should we talk about secondaries? Because I think, yeah, yeah.

I want to make one, one last point on this specifically is I do think the failure rate in crypto is getting a lot higher. In terms of, you know, companies going bankrupt earlier, tokens not coming out of the gate, you know, particularly well, then trading down very quickly. And I think the venture capitalist hit rates are getting a lot lower as well because crypto was easy on a relative basis for venture for a long time. You could invest in anything at the early stages and the token would launch or people would sell the token. And this is why there was so much discontent on the timeline about Hey, we don't have opportunities. That's the venture capitalists do. And now it's becoming much harder, but it's becoming much more like traditional venture, right? So it's not like it's, you know, getting harder than traditional venture. It is just not that big of an industry. It's getting much harder. And that means only a few funds will survive. And this is why on that, um, you know, in that, that article you talked about, Jono, and I think other people have said it. You know, there's been some talk about, okay, well, crypto investors, VCs, liquid funds going through a mass extinction event. I think that's true because there was a miss. There was too much capital for a space that's not that big. And now when people are no longer making money, it has to consolidate to the few that are right. And that is what we're going to see. And it's going to look more like traditional venture that way, in the same way that, you know, it's obviously going to be a different scale, but that Andreessen is raising, you know, $15, $18 billion now. You're going to see a few funds raise a bunch of money and you're going to see a bunch of other funds, um, kind of at that small niche scale and everyone else is going to die.

What I will say is like valuations in the seed stage are now sensible. Like I did one investment the other day, um, and it was like a $20, $25 million. That would have been probably $40, $50, uh, a year or two ago. Um, which is like, if you're a smart team, you're raising at that level.

But even that, like it's bifurcation among the team and the idea, right? There's a, um, there's an AI crypto crossover deal getting done right now, which it's really kind of a seed investment. Maybe they're calling it an A, you know, something like that. But it's getting done in the hundreds of millions of dollars because it's like got this like hot topic, but there's no fundamental investment that would say it was worth anything more than like $50, $60 million. But it's like, oh, it's this hot topic and people are doing it. And I see some of that in the stablecoin side as well. Um, you know, we, we, there's probably a few deals I've seen get done in the last, you know, few months where, you know, pre-revenue, seed, pre-seed getting done in, you know, $50 to $100. And like, you know, and then the second round pre-revenue getting done at over $100. There's one happening right now. I know of that doing that. And these things are like, people see the things that are working. And so they're, they're trying to kind of really get some sort of exposure to that if they don't have it already. Stablecoins, you know, being one of them. Prediction markets being, being another. And I think there's— so there's still this bifurcation. There was actually, I believe it was Carta data, which said something like the top 10% of seed deals, the median of the top 10% is now $120 million valuation. It was like $125 million valuation. That's the median of the top 10%, which is up like 2.5x in the last year. And it's because this thing is happening, like what I talked about earlier, where everyone's piling into the things that they think are going to win, and they're just all— and they're ignoring everything else.

Is that, is that Carta data just crypto or just as a whole?

Uh, it's every— it's everything. So it's obviously skewed by the big AI.

Is that, is that median or average? Because that— I think it was median.

It was median. Yeah.

Okay.

Yeah, you have to look at median. And, and yeah, AI is just pulling it because you have one or two companies raising at like billion-dollar valuations because they come out of OpenAI or, or, you know, I, I just put money personally into a thing that raised at $4 billion for their first round.

Let, let Let's talk about secondaries because that's, um, Santi, you tweeted discount on vast majority of crypto secondaries is average 90%. And we've seen this before, right? Every bear market there's usually these 50, 60, 70%, you know, drop-downs in secondaries. I've never really seen 90%. Um, I'd love to hear, yeah, what, what—

so, so just so people understand, when I say 90%, these are tokens that have launched. Say that they get the, the token launched within a year and they haven't had the first unlock for investors. Because most of the time the vesting schedule is such that the token launches, airdrop, people get an airdrop or liquid. So you have some price discovery, like 10 to 50%, 20% of the float. And then you have the team and the investors are locked for a year, and then you vest over, you know, 3 to 4 year period, you know. And so when I'm saying 90% discounts, 90% discount on spot And spot, by the way, is like down and below the last round, or even below the Series A round. So spot is not— spot is pretty low already. So when retail complains they actually don't have access, I'm like, well, you can go and buy stuff in the public, a liquid token right now that is below the last round, or maybe the Series A or the seed round. Now, of course, the obvious answer is, well, that last round was overvalued, which is true. Uh, clearly the market agrees with that. But I have never seen that big of a discount. And, and a lot of times when you're, when you're looking to buy or sell OTC, like secondary, some people get a bit more nuanced. Like, they'll buy the first year strip, and then they don't buy the full lot of like the full position. Some teams don't allow it. Some people do allow reassignment, but by and large it was pretty— I like to just get a pulse of what that discount is to understand sentiment in the market. And that, as I said, you know, I don't— I've never seen it like across the board quality names that Rob and I have invested in. And like everything is basically bucketed in. Maybe there's a 80, 90, like one is at 80, 82% discount, the other one's 90% discount.

Yeah.

And then there's no bid for like the no venture-backed, just like absolute—

What about the secondaries on non-token companies? Crypto? Yeah, just like a crypto equity business.

In this case, I didn't, I didn't, I didn't ask for that. I can come back to you guys in the next part, but I was just simply focusing on the tokens.

Yeah.

And there's no bid. And by the way, like people will quote you this crazy number and then there's literally, when you look at the volume, like how people transacted.

Because I'm seeing a less, less of a discount on the secondaries in equity businesses, right? So I know someone who's raising, who raised, uh, basically around $4, $4.5 billion valuation, but their secondaries are now around like $2.5, $2.6, $2.7. So what is that? 40%-ish discount. So this I think this is a story of crypto companies struggling, but also I think just like pure hatred towards tokens. And I think people— hatred—

I just think— I don't think there's hatred. I think it's just—

oh, I think there's hatred. Yeah.

I mean, I don't know.

I think people have completely written off—

I don't have hatred against token. I just simply think most of them are very, very broken.

I think people have written off tokens as an investable asset class right now. The long— except for maybe 10 of them. Most people, most funds would say, I do not invest in crypto tokens right now.

Well, if that were true, then the market wouldn't be at, you know, a trillion X Bitcoin. Your total market cap is $2.3 trillion, and then if you exclude Bitcoin, you still have Ethereum at $250 billion.

Yeah, take out, take out Bitcoin. What's the market cap, Sans?

You know, no, no, that's the same. Bitcoin is, as we are recording, $1.3 trillion. The total crypto market cap of liquid stuff is $2.3 trillion. Not fully diluted, it's just circulating. So you still have like a trillion dollars and $100 billion that gets traded every single day. 24-hour volume is $107 billion. There are people out there that are willing buyers and sellers of these things.

There are people that are willing to buy and sell this. I, I think there's two, there's two different things happening here. So one is a lot of the crypto traders, a lot of the trading in crypto is quantitative in nature, right? There are tons of tons of people, all of the big, you know, kind of quantitative funds that you know are all trading a bunch of crypto right now, and they're trading kind of short-term vol, or they're trading, you know, some sort of— maybe they're still trading basis in certain tokens, like, etc. I think what, what Yano is talking about is like fundamental long-oriented buy-and-hold investors, and I absolutely believe there's no buy-and-hold investors in crypto, man.

Some people just kidding. I'm holding for 3 months, I'm a long-term investor. No, you're not.

There's definitely been at times, and there was at times last year, unlock the perps.

No, no, what I'm saying, if you look at— no, we should get an OTC guy here because, uh, the Higgs guys or the Second Line guys, the volume is way down.

Perp volume is down 60% since October. Like, like, there's clearly—

even if people are hedging, even if people are hedging, they're still long, long— I mean, for years there, and there still are.

I'm not— here's why I don't hate— like, I, I've been critical about valuations and the structure of tokens versus equity. I'm just paying more attention to a business-like figure that I can actually see in real-time on-chain data that Wall Street doesn't look at on-chain data. That's an edge, right?

Nobody said you hate tokens, Santi.

I don't, by the way, I don't hate tokens in the sense I think they're overvalued structurally. They're inferior to equity, but I can appreciate why certain people want to have a tokenized Uh, like, like the, you know, on Hyperliquid, you want to trade oil over the weekend, like, that is a valuable instrument. Um, but it is alarming that at 90% discount, and where I'm not going to do the math here well, but historically the discount of 60% for the lot was like your sound of someone that is likely going to do something on perps and hedge that, and come like almost categorically like not be very unlikely that they lose money. Um, at 90%, yeah, I like— I'm not trying to be picky here, like, there is still people that believe in it. Uh, but if you're buying something at 90%, you're almost, you're almost saying, I don't even want to buy this thing, I think it goes to zero. Historically, tokens just don't go to zero. Um, I'd actually take the other side, like, I would actually be buying something at 90% discount. 95% discount, I'll buy that thing. Like, like, at that point, it's like price is the single determinant of returns.

All right, so if we're at the point— you've— I mean, you've— for a year you've been like, I will flip.

That's what I'm saying. I'm flipping. I'm now a buyer at that level of certain—

you're not a buyer of token— of—

I mean, I, I don't spend that much time doing it. I just pause people to understand. But at that level, if I know the team, I don't think—

I don't think 90% is a number that is like actively happening in most of the names that Santi and I want to, want to own.

Right. Uh, you're an investor in 4 out of the 10 that I got quotes from.

Uh, I, I, I got, cause we should chat about it offline on the exact names, but, uh, I, I'm certain that I'm almost certain depending on who those names are, that I can sell them for a lot less of a discount than 90%. I'm certain of that. So the, well, you mark, you mark your stuff, whatever you want. And regardless, regardless, I mean, aggressively.

You get Omar, the, you know, Winter Mutes of the world.

We mark our book very aggressively. We do discounted for locked tokens and lack of marketability. We also do a bunch of other stuff. Um, but I'm certain that of anyone that you're talking about that is like liquid and that people actually have a positive outlook on, that there's buyers at 60% discounts for most of these things. Because people, to your point, if they're liquid, we'll just hedge them out in perps, right? So you see that all the time. But regardless, I think the bigger point that was being made here, and to, to Yano's question around the equity, is there is definitely for the right names in equity more of a bid today than there is for most of the right names and, and tokens, right? So other than like probably 2 or 3, you know, call it tokens that like people, um, or maybe, maybe, maybe 5 to 10 tokens that people like really, really like, there's another group of them that people are constructive on at the right price over the right time. Maybe that's another 10 to 20 tokens. After you get past 30 tokens, there's probably not a buyer for, for the vast majority of those today. There will be in a bull market.

So what— so when we— when you say the tokens that people like, I think when you're coming out is the institutional perspective.

Uh, now historically, I mean, I mean, the marginal buyer in crypto is a retail user still.

So that's what I'm saying.

If we look at volume as a proxy for what stuff people like, Volume is not a good proxy for what people like though, because most volume is market maker quantitative volume.

But okay, so explain to me the rationale for a market maker. It's, it's like a loop, right? If market makers are going to participate in markets that retail likes, because markets that have like—

there's like a market maker correlation, soft, soft flow. That's absolutely true. But you also have people who are going to participate on something they think might have soft flow in the future, even if they're sharp flow today. At times. You see a lot of that happening on a lot of hyper-liquid markets where there is definitely at times sharp flow depending on the market. You also see a lot of people trading, you know, quantitatively, right? Whether it's, you know, call it they're trading vol or whether they're trading basis or whether they're hedging out, um, or they're doing like cross-chain arb, like, or cross, uh, cross-venue arb. Like, you— that's the vast majority of volume in crypto. That's always been true. Like, crypto is the single best place to do delta neutral today. Like, it has, and it has been the single best place to do delta neutral for years. And so like, that has always been the vast majority of the volume on these places. The marginal buyer of that has made price go up, that is directional, is retail. But that's not a good pro— volume is not a good proxy for that necessarily because the nothing's going up right now.

I mean, but like, you're a market maker, other strategies. Isn't it true that if you're a market maker, you're going to play the perps, right? The funding rate. You're looking at the funding rate, and, and retail really drives that. And so it's like, if you're in a poker table, you always want— if you're—

there's a base funding rate. Base funding rates are 10.95%, right? And like, if the market is neither bullish nor bearish on a specific token, like, the base funding rate still exists. The—

so you're dis— we disagree. I actually—

I'm moving us forward. I'm moving, I'm moving us forward.

We're not going to get the bottom of that.

I'm moving us forward. All right, there's a bunch of other topics. This is why I need a mod.

Yeah, can I make one last point on this though, which is that on the equity piece, it's the same thing that's happening in traditional markets where there's, there's a few names on the equity side that trade at premiums to the last round valuation and that there's basically insatiable demand for in the secondary markets. And then there's a bunch of names that, you know, people are kind of okay with, and then nobody cares about anything else, even if it's a good company. Right. And you're seeing the same thing in traditional equity.

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All right, let's talk about the Drift hack. So I'm guessing most people know Drift, but if you don't, it's a Perps DEX on Solana. It's one of the biggest. They had like half a billion of TVL going into the day. Yeah. So we're recording this on Thursday. It was on Wednesday, April 1st. 200 and I'm going to get— I'm going to get hopefully most of this information right. This is how I understand it. It was like 270, 280, 285 was drained in like 10 minutes, 11 minutes, 12 minutes, 12 minutes. So here's how I understand it. Maybe you guys can correct me because I'm sure I'll get this wrong. So basically, the attacker created this really worthless— created a completely worthless token. It was called CVT, and they seeded a liquidity pool with like, you know, a couple hundred bucks, and they wash traded it until the price oracles started treating it as actual collateral. And Solana has this feature called— this is where I'm like getting a little out of my skis— but durable nonce. And so normally a Solana transaction expires in a couple of minutes if you don't submit it. But this durable nonce transaction can be pre-signed and held indefinitely. So what the attacker did is they staged all these things in advance, every withdrawal, every parameter change, and they pre-signed everything, like, ready to go at the click of a button. And so when they pulled the trigger, these 30+ transactions executed immediately in sequence, and, you know, $280 million was wiped out before anyone could really respond. Um, and the problem here, kind of what allowed this to happen again, as I understand it, is a couple of weeks ago, Drift's security council multisig had been changed from a higher threshold down to a, I think it was 2 of 5 signers.

2 of 5. Yeah.

Yeah. With no time lock. And what that means is that anyone can go through instantly with just 2 people signing off. So the attacker got 2 of the 5 keys. I don't think we know how they— but they compromised.

I think what, what happened most likely was that one person got, um, got hacked, essentially, most likely. And then somebody else blind-signed because I was like, some of this person did, and that's fine, right?

So they probably— so they compromised one of the keys, someone blind-signed. Um, so I think it's similar to the Bybit playbook, what happened last year, where this malicious—

a little bit different because there was a— the Bybit playbook was there was an actual hack at AWS. And so then the— they were able to surface a fake UI at— oh, right, right.

So here, I think the— to close the loop on this, and I want to hear you guys' take, is Drift basically, once they had these two keys, they changed the admin key entirely, locked the original team out. Drift couldn't freeze anything. They couldn't stop it. And there had been two security audits had passed this protocol. Like, no one caught this. Nobody you know, people let the 2-of-5 multisig happen. And I think the big question for me is like, I mean, my take, I think this is a huge deal, actually. I know we have hacks all the time, but like, all right, this is coming on the back of a Resolve. I'm trying to remember how much the Resolve hack was for, but it's coming on the back of the Resolve Labs hack in like a week ago or 2 weeks ago, right, where the hacker compromise the AWS environment. And yeah, they received 50 million USR stablecoins back in return. So you've got the Resolve hack, you've got Stable Steakhouse. There was basically a phone social engineering thing where their front end, their front end pointed to a wallet drainer. That was 2 days ago. And then yesterday's Drift, like, this is, this is, this is bad. Like, you know, how do you use DeFi after something like this. And I was— it's just, um, I mean, I think the three of us are the people who would be power users of this stuff. I'm like, I'm not keeping any money on DeFi right now. I'm just not. Like, why? It's just not worth the risk.

I mean, I still have a bunch of money in DeFi, so I, um, you know, I—

it's—

I've still got a lot.

Where do you keep it though?

Like, why, why, why do you take that risk?

The rates are lower in AAVE than they are T-Bills. Like, I am getting—

I'm getting better rates in the DeFi that I am in than I would be getting elsewhere.

And you're willing to take the risk? Like, if you were getting better rates?

Yeah, what's the— the math that I've done for a while is I am not paid enough to take that level of risk because I just—

listen, here's what I would say. The vast majority of hacks happening today are social engineering, right? And like, that has been true for a lot, right?

They're no longer smart contract, uh, there's, there's, there's There's oracle issues that have happened time and time again.

Yes, yes, there's oracle issues in terms of like, you know, some of the, the, um, people kind of causing liquidations or minting new tokens, etc. But the end of the day, most of what has happened— and, and this is, this is true of things that are happening outside of crypto as well— is social engineering is actually the biggest issue right now, because that is actually what Lazarus primarily does. That's what most of the North Korean hackers do. And so they're there is this issue right now where it's just that much harder to stop yourself from making a mistake to get social engineered. And so your operational security needs to be at all-time highs. And there are people that I trust that have significantly better operational security than others. And so there are DeFi founders that I would absolutely trust to have as good operational security, uh, as, you know, Uh, and in people off-chain as well. And so there are places where I would keep my money. I'm very thoughtful about what that, where that is though. Um, that said, I think in, in this case and in others, like there is just a sense of, oh, well, like, you know, it's kind of annoying to do these different things and to have a bunch of signers. And maybe we have too many signers. We can't respond to something as quickly and we move a little bit more slowly. And it causes people to get lulled into kind of a sense of security, and then they get socially engineered and something like this happens and it's terrible. And so I think the— I think there is something to be said around needing to do more work on operational security. And this was true of Bybit as well, right? You know, the hack was actually at AWS and then through their Gnosis front end. But there are still not the right controls in place of checking the pathways and where the actual smart contracts, uh, were sending the capital to. And so there was an operational issue, and the biggest hacks have been that. And so I'm— I have a general concern around security related to AI, and we've seen these supply chain hacks happen outside of crypto as well. And the attack vector and the surface area is much higher than it's ever been. It's much easier to find issues. On the same side, you need to be using AI on the security, and so that should also make theoretically more robust security. But we continue to have, in my mind, the biggest issue be social engineering.

So I was just, um, looking at DeFi hacks, excluding Bybit. Bybit's— but like, just DeFi protocols, if you're going to use on-chain stuff, my quant says 2025, you had, uh, roughly $1.1 billion in DeFi protocol losses. That excludes Bybit. Um, and so there's 6 hacks that are, you know, only 6 hacks that were like $50 million plus. One of them was Balancer, and then there was a few others. Um, this quarter alone, we've had, including Drift, now 350 million. Um, so it's not necessarily going up, but this idea of Lindy, like there's, there's more protocols. So like the surface area, to your point, Rob, keeps expanding. Um, do I feel marginally better putting my money in AAVE than like a random protocol? Yes. But the rates in AAVE, like my point is the rates in the protocols that have more Lindy and you feel comfortable and are pretty battle-tested are fairly low. And if you want to go out of the risk spectrum and like, you know, chase the higher yield, there's like a lot of risk.

Yeah. And so, Robby. Yeah.

Yeah. So my point, Yana, like as we were recording DAS, like the number is just alarming. Let me ask you a question. Do you, in your conversations with like DAS participants, like, is this a topic that keeps coming up? Like, like vaults were all the rage, right? So, okay, well, let's talk about vaults, but like the value proposition of a vault.

Yeah, so this is where it starts to be okay. So, so we've got this token transparency framework and we rate these tokens, right? And, you know, we're building this big disclosures framework for the industry. The thing that I didn't realize that a lot of people wanted, and this came up at DAS and like, you know, our meetings with people, is that they want us to rate RWAs. And we don't need to rate our RWA. Like, we're not trying to compete with Moody's. We're not going to rate bonds or You know, we're not going to rate the underlying equity here, but they want to know the smart contract risk, or they want to know what vaults the RWAs are held in. And so I think that is— and actually it was Hasu who tweeted out, you know, every DeFi protocol should have circuit breakers for deposits and withdrawals, time locks for any change, and security councils that can shut down things immediately. I don't think you actually need to impact the— a lot of people were saying you have to, you should change the UI and the, or the UX of, for the front end, you know, for the front end consumer. I don't think you need to do that, but you do need to take better precautions as security precautions as a team. And Rob, you're saying a lot of these are social engineering. It's like Drift had a time lock and then they removed it. I like, I'd love to know why, why did that decision get made? Like, why did you move down to a 2-of-5 multisig? Why did you remove the time lock? I just, I just don't, yeah, don't really get that decision.

It makes no sense. Like, this is a Taleb Turkey. Like, why would you do that? Like, slow, like, if you're already securing that amount of money, like, why would you put your, like, also, I think audit your ops, like, not, not like in, there's no, I get like moving fast and making, but that going down in size to reach quorum, there's no I don't know who recommended that. There's—

there's— you've had a security audit of yourself, like, Santi, I'm sure you've probably done this before. They don't test your— the code of your bank. What I realize is we have all these audit firms that cover code and they audit the code, but nobody really audits the ops of teams. And it's just like when you do a security audit, it's like they're not auditing I don't know, the code of your bank account. They're auditing like, hey, like if somebody like sends you a picture of your kid, SMS verification, do you have a password manager?

Do you have like—

Right. And I think we need to like— I'm curious what it would look like to start auditing the ops of these teams because Rob, you know, the DeFi founders, you're like, I know the DeFi founders who are where I can put my money. I mean, you know, because you're in a unique spot and you're— you can, you can talk to these guys, but we got to audit the ops.

I think it's like, there are firms who do very in-depth security work around social engineering, around your operational security, and people do not take it seriously enough. And yet that is the— I mean, everyone knows of Lazarus, they know North Korea. They're like, oh, these guys are terrible. They're, you know, the largest hackers in the world and the most sophisticated. And I don't think people realize the vast majority of the things they do are social engineering. The vast majority of things they do are not that they've, they've, you know, found some flaw in your smart contract and they're, they're, you know, smarter than you, and maybe they are, but the master— what they're doing is they're getting you to click on an email that you shouldn't have, or click on a button that you shouldn't have, or spoofing a, a, a front end through, you know, some other service provider that then gives them access to your computer or to your wallets, right? Like, that is the vast majority of what they're doing, and that is where the things have gone the most wrong. And so there's no reason not to be taking this incredibly, incredibly serious.

So, so, Rob, the issue that you have— like, yeah, you trust some teams more than others. Like, say you trust Morpho as an example because you see Apollo get in the fold and, you know, has a track record. The issue though is that DeFi has high contagion risk. Composability is a beautiful thing, but you're only as secure as your weakest link. If you're a vault manager and you're interacting with a number of protocols, there's a lot of fragility in the system if one of those components, protocols that you're using goes down. And you saw that, right? Morpho had bad debt, I think, with the Resolve hack last month, right? You have Morpho, Euler, and Polygon.

You're talking about a different thing though. You're talking about bad debt because you took on some sort of risk in a structured product that, you know, but That's what I'm saying.

Like, like, my point is, if you go in AAVE, the yield on AAVE for stables is less than treasuries right now.

Sure.

So there's no, there's no way that we can agree that there's less risk there than going direct and buying from the government. Like, there's none, right? There's no smart—

but if I, if I go and buy a private credit fund, like, you might be taking 10% losses right now on the private credit fund.

It's an unfair comparison. I don't disagree with you. Like, if I made the point in the RWA summit at ECC, which is the human risk of them gating you and not like promising that it's a liquid instrument and then saying, oh no, sorry guys, it's not. It's like Terra, same issue. There's like there's an asset liability mismatch. They just kind of characterize it and they just gated it. You still are in if you're underwriting a vault, if you're underwriting Blackstone, like you're underwriting their the manager's ability to underwrite and, you know, make sure that it's extending credit correctly. I think the quality of Apollo is higher than, uh, and Sixth Street is higher than, uh, you know, your, your, your typical crypto vault manager.

Personally, sure, I agree with that.

Yeah, like, I don't think a lot of the— I don't think a lot of the private credit stuff is dislocated right now because you have more redemptions than there are ability to, to, to honor them. But I think the underlying quality is quite high. And so anyways, but like Morpho, for instance, you can get paid 5 to 9%. That's definitely higher than Treasuries. So like if you have your wealth in crypto and stables, like fine. A lot of this is I think just people don't have access to maybe buying Treasuries or their bank account doesn't pay them or they just don't know. So it's the convenience factor of moving your stables quickly between farm and farm and/or vault is high. And I think there's a reason why there's like a lot of volume on-chain. Um, but to me it's a head-scratcher. I personally don't think that these APYs are reflective of the amount of risk that is hidden in DeFi because of composability. Because if you're looping and you're interacting with many different protocols, I think you should be paying 30% APY, not 10 or 8. And that's where to me the calculus is just not— the risk-reward trade payoff is not compelling enough for me to come on-chain. And I, you know, I just don't see it. Uh, I'm more worried about capital preservation and impairment than maybe someone that just has like less of a bet, like a, you know, hey, do you have, I don't know, for me it's, I think my view is more representative of institutional capital. Like Rob, maybe let me ask you a question. You personally might have stuff on DeFi. How much of Dragonfly's funds are— I know you call capital and whatever, and maybe you're recycling. Are you guys like going out and buying a, you know, putting your money in a vault?

Well, we've never done that. That's not our fund and that's not what our LPs allow. So we, it hasn't mattered when, you know, DeFi farming was paying you 60% or either because, uh, well, we're investing.

You used to have one, right? You used to have a strategy.

We had a liquid fund of which that was part of what they would do, but we spun that out. Years ago now. It's almost 4 years ago at this point because we, we just, that wasn't what we wanted to focus on. We found and focus on the core of the VC side.

Yeah, I think this is a classic Taleb turkey though. Like, I don't, even if I struggle institutions to, to do and saying, okay, maybe I'm clipping like 400 or 500 bps more in a vault, but the risk of impairment is there. And it's greater than 5%, and the expected value though at that point is negative versus going to private credit.

I think this is just very, very situation context specific. I, I think there's absolutely risk involved with every financial product. I think in some cases you're getting paid for risk, and a lot of cases, to your point, if you're just lending stables on AAVE, you're, you're probably not, right? And so I think it's very, very situation specific. I think this, like, it feels a little bit like this whole pod has been like you being like the death of crypto and like that, and like Santi believes crypto is dead. And like, I think that's like a very— maybe that's like a bottom signal because it feels very myopic relative to like the things that are happening.

No, I'm simply— I think—

let me summarize this section.

I'm just being critical. I mean, I wouldn't be in this industry, I would just be chilling and playing with AI.

Let me use Mike's tweet to summarize this whole— this maybe the last 50 minutes of this conversation. Then I do want to talk about the quantum thing because I'm curious to get your take. Maybe we wrap on that. Mike tweeted out yesterday or this morning, he said the two biggest issues in crypto today are transparency around security and transparency around tokens. He said, I still think we're 12 to 18 months away from solving both, but it's clear capital won't come back until we do. Investors won't risk their entire principal for 4% yields. That's the second half of this conversation. Or ape an asset class down 80% over the first, you know, over the last 5 years. That's the first half of this conversation. And I mean, the good thing is these are very solvable problems, right? We can, we can bring shareholder rights back to tokens. We can fix a lot of the security. But like, I do think it's— yeah, maybe it's a bottom signal, Santi calling this stuff, but I do think it's important to call out what I think are the two biggest issues in the industry. Maybe that's the title of this episode, the two biggest issues in crypto today. Like, that's— I do think it's, you know, we can, we can have other episodes where we highlight You know, Polymarket and Rain for Rob. And, uh, but you know, that's every, that's every episode. That's every episode. Let's talk, let's talk Quantum because I want to maybe wrap on that. I think it's, you know, we're running up on time and it's important to get to that.

Yeah. I do think just to wrap that up though, is like the, um, like tokens being down is not like an inherent issue with crypto. The issue with crypto is something else that has caused tokens to be down, obviously. But yeah, I think generally people don't make money, then yeah, they don't want to, they don't want to participate in that asset class. And that's always going to be true. Of any asset.

The, the thing I'll— before we go to quantum, I mean, I don't think that this is a problem that I have in industry, because as soon as you're critical, people say you're a bear and you're like a heretic. If we're going to advance the industries, if we call out these things, like there's structural mispricing in DeFi yields, like I don't think anyone can disagree with that.

I don't, you know, uh, yeah, but that's a different statement than saying I can't put money into DeFi any— ever anywhere.

Like I just said, it's not there. The, the yields are not like— I'm not— I don't think I'm being hyperbolic.

There are places where there, there are yields that you can get that are above the risk-free rate.

Yes, not enough. My point is not enough. You're not getting paid enough to take that amount of risk not owning tokens, not putting money in DeFi to capture yield. Not right now.

Yeah, I would, I would disagree on that, on that piece.

But you disagree, but you're not putting all your Give me a size.

Okay. So let me ask you.

All right.

We're moving on.

We're moving on.

Okay. Let's move on.

All right.

We're moving on.

Now I see what's happened to the podcast. Jesus.

All right.

So these two papers dropped this week within hours of each other and they kind of move the goalposts of quantum, I would say, is the— I mean, look, a lot of this I'm just kind of taking from people on Twitter because I'm, you know, I've spent a lot of hours watching videos and reading papers about quantum stuff and I'm I'm still trying to wrap my head around it. So take all this with a massive grain of salt. Maybe you two are much smarter than me here, but one was this Google paper and one was a Caltech paper. So the Google paper, as I understand it, is the one getting most of the attention. So Google's Quantum AI team, which is— people think they're one of the best in the world, showed that kind of the implication of what they showed is that Bitcoin and breaking Bitcoin and Ethereum's cryptography, specifically the elliptic curve signatures that protect like basically every wallet, requires far fewer resources than anyone previously thought. I think previous estimates said you'd need roughly— I think the number was 10 million physical qubits, and Google's number now puts it at 500,000, which is a 20x reduction. So on a really fast supercomputing or superconducting quantum computer, they calculated that one of these keys could be cracked in I think it was 8 or 9 or 10 minutes. Bitcoin's block confirmation is like 10 minutes, meaning an attacker could theoretically intercept a transaction mid-flight, you know, before the block gets finalized. And then the Caltech paper is newer and less vetted, but I think it was potentially more alarming is what people said. So there's this startup called Aura, Aura, Aura Atomic, I think it is. It's ex-Google researchers and Caltech faculty. and they took these Google improvements, applied them to a different type of quantum computer, which is, uh, neutral. It's the first time I'd ever heard about this neutral atom architecture. And their estimate is 26,000 physical qubits, which is, you know, obviously much bigger reduction than the Google 500,000 physical qubits. And the trade-off here is speed. Neutral atom machines are much slower. So you're looking at like 10 days to crack one key rather than 9, 9 minutes. Anyways, I don't fully understand that one, but implications seem big. You've got like, you know, CZ came out and said, you know, saw some people panicking about quantum computing's impact on crypto at a high level. All crypto has, all crypto has to do is to upgrade to quantum-resistant post-quantum algorithm. So no need to public. But you also get Brian Armstrong coming out saying, you know, I'm going to start spending a lot more time on this personally. Seems like this is an issue that we all need to solve. Sooner rather than later. So I'd love to— yeah, I don't know if you guys have takes here, if you guys understand quantum better than me, hopefully.

But can I ask maybe a question more so than a comment? Because I am not an expert by any stretch of the imagination. Um, what, um, when someone says we can upgrade a quantum resistance, do we have the soft— like, do we have that today? And if not, what stops you from doing it now? Is it because you just don't know what the attack— so like, why wouldn't you upgrade now in advance of something that you feel like is coming or is around the corner?

Yeah, so the— I'm definitely not a, an expert by any means, but you certainly can't just like flip a switch and upgrade to like quantum resistance today. Um, they're— I mean, even Google says they won't be post-quantum until 2029 or so, right? And they're actively working on their systems for it. Um, the timeline to do an upgrade for Bitcoin probably is going to take like maybe a couple of years, and then there's kind of this generally a Uh, just like all of these people who have, you know, are self-custodying, who, you know, may not actually be part of a— any sort of upgrade, and like what happens to their, um, their tokens in the future. I think the— a lot of the concern has been more than anything like how do you get the Bitcoin community, which is not really centrally operated in the same way other communities are, to upgrade Bitcoin as a whole to post-quantum over the next few years and to move with an agreed-upon action and in the timeframe needed if quantum is going to break current cryptography, um, in, in the near term. And so it's actually, I think, technically supposed to be easier, and it should be easier to upgrade Bitcoin to be quantum resistant than it would be for like a Solana or Ethereum, um, because for a bunch of different reasons around, um, how you would reverse engineer a private key. But there's a, there's just a, a, a really tough conversation around how this very decentralized asset— yeah, to align itself versus—

I would answer that, Santi, in two ways, which Rob— let me summarize Rob's thing. There's two buckets, two reasons this is hard. One is there's no actual post-quantum Bitcoin address format you can switch to now. So if people want to read about it, there's a proposal, BIP-360. And I got dinner with one of the Bitcoin Core devs. Like, this is, this is six months outdated info, but I'm guessing it still kind of stands true today, which is this is really new code. So actually, if you, if you do this stuff too soon, you actually weirdly introduce new bugs. So maybe you could fix the quantum problem, but you might create this catastrophic vulnerability in the same move. So there's like, yeah, we don't actually have the post-quantum resistant wallet formats yet. So that's the technical side. And then there's the, um, you got to hard fork Bitcoin, basically. And that's, um, yeah, like Rob said, like, there's no CEO who can just do this. And I don't know if you guys have been following Nick Carter's tweets. I'm going to go on the record and just say, you know, I think once again, Nick Carter was right. You know, per usual, he's usually 1 or 2 years ahead of a lot of this stuff, um, especially, you know, with regards to Bitcoin. And, um, you know, I think you can see how much, you know, pushback he's gotten from the big— from the hardcore Bitcoiners who are like, we're not upgrading this thing. And he's like, you idiots, like, we, we have to upgrade this. And I, I think he's going to be, be right on this. Um, and if you guys remember 2017, like, I think we are going to— actually, my prediction last year was that there's going to be a a hard fork, a Bitcoin hard fork becomes incredibly contentious. I think I was off by a year. I think it's, I think it's this year a Bitcoin hard fork will become very contentious. And I mean, yes, Santi, you remember 2017, like the, the big blockers versus the small blockers. Like, I'm not saying we get something of that scale here, but because now a hard fork will probably actually get done, will be done because so much of the Bitcoin is held by a lot of the exchange. I think it'll be actually get done faster. But, um, yeah, you've got a coordination problem on our hands.

Yeah, I do think one thing that's worth pointing out here is that the main thing about this, this Google, uh, research paper, it's just the timeline of which it kind of accelerated, or that now it brings up the timeline for which people are concerned. Because the US government had already said, hey, listen, like We have to phase out current types of cryptography by 2035 and be post-quantum by 2035. And then the NSA had kind of said, oh, well, maybe that's as early as 2030 for certain types of systems for that are very, very at risk. And now Google is saying maybe as early as 2029. And so I think the major thing that has people very concerned here is most people, not all Bitcoiners, but most people have understood quantum is a risk at some point in the future. But I think everyone expected that we had a much longer timeframe than 2029. And that's the thing that has people really scared now.

We should, um, we should bring on someone like Jameson Lopp or Nick or a combination of, or like James Preswitch, uh, who's been more at the forefront of like pushing stuff in Bitcoin, like the security budget. James is like a pretty big advocate of that. Um, especially talking about Satoshi coins, like old addresses that have like just are dormant, I think, are more exposed. So we should have someone come in and talk about it other than us, like, prompting Claude and trying to figure out how to articulate this well on a pod. But it does— I agree with you, you know, it's— is the biggest risk you're describing that the Bitcoin community would just— it's just so gridlocked and can't reach consensus fast enough to adapt? And does that mean that other networks are Zcashs of the world are perhaps more going to be ready to migrate and survive. And then the third is like, what happens if an attacker gets access to Satoshi's 1 million Bitcoin? Like, what do you do at that point? People see that those coins move. Do you sell? Do you immediately dump? What do you do?

Yeah, I don't know. Anyways, I think this is, I think this is a, I think Nick was right. I think this is a big problem that people have to solve. So, all right, I gotta jump to a meeting in a few.

Um, let's, anything content of the week?

Content of the week?

We have to do content.

Oh, I know, I didn't know if there's any other topics. All right, let's do content of the week. What do we got?

Dante, you're first. You've been, you've been, you've been going first this whole, the whole pod.

Oh, um, I guess, uh, I want to start, uh, Cochlin.

Yeah, turn around and we can't hear you.

This one, I just picked this up.

Yeah, interesting.

The Koch brothers.

Yeah, Koch Industries, uh, the secret history of Koch Industries and corporate, uh, power in America. Koch Industries is one of the largest private companies in the world— in the US, I think in the world they own, uh, they're just a diversified conglomerate, um, kind of, uh, so I want to read that. I haven't read it, so it's kind of a cop-out answer, but yeah, I'm excited to dig in.

All right, uh, listen, it's Final Four this week, okay? And I'd be remiss if I didn't talk about this UConn-Illinois game. So we've, we've got an My, um, Lori, who you guys know, uh, has won her, her pool at her, her work 2 out of the last 3 years. And if, if, uh, if UConn wins again this year, she'll have won 3 out of the last 4 years and was like probably the single best run in work pool NCAA tournament pool history. So that's a problem for her.

Maybe she should reconsider careers. I mean, there's— she should be raising a hedge fund for Polly Market.

Yeah, she should be. I mean, she's just— she's just running circles around the mid-market private equity.

How'd she do this, Rob? What, uh, what wizardry?

Uh, what the wizardry has been— she is unabashedly extraordinarily bullish on UConn every year. And Yukon just gave money.

Wow, she got lucky there. She got lucky.

No, she didn't get lucky. She just, she picked a horse and she, she ran, she ran with it. So, you know, Yukon is her, is her play market.

Let's go. Love that. Um, I read my first fantasy, or, uh, first fiction book in a long time. Um, there's this author I kept seeing. I asked a bunch of people, like, because, you know, I took, took a little, took a little time off and, you know, been had time to read a fiction book, which was, which was lovely. And everyone was like, you got to read this guy, Patrick Rothfuss, The Kingkiller Chronicle. It's a, it's a trilogy. So I read— you've read it?

Yeah, I've read them. Years ago. Yeah.

Yeah. I'd never— I didn't know about them. So I read The Name of the Wind, which is the first one, is incredible. And now I'm on the second one, which is The Wise Man's Fear. And so people are looking for a fiction book, It was, um, I mean, it's really— it's the first fantasy book I've read since Harry— I mean, you could categorize Harry Potter as a fantasy book, like, it's, uh, you know, Santi, right up your alley. So yeah, it's really, really good book though.

Nice.

Aren't we still waiting for like the— we're still waiting for the third one.

Still waiting for the third one.

Yeah, yeah. This is like a Game of Thrones situation where we're like 12, 15 years later and we still haven't gotten it.

Exactly. So, all right folks, Good to be back with you guys. Thanks for listening. We have a really good episode coming out on Monday with Chad Cascarilla, who's the founder of Paxos. Yeah, he's been building Paxos since 2012. They've raised $540 million and yeah, they got a lot right. They got some things wrong. And he has a real— Chad is a— Chad is one of those people you can ask him pretty much about anything in the world, health or food or meditation or markets or macro or crypto, and he will have a really thoughtful answer on it. So hope you guys enjoy.

That's great.

Yeah.

Good to have you back.

Thanks, folks.