Joey Krug on Prediction Markets, Crypto Treasuries & the Next Era of On-Chain Finance (Partner at Founders Fund)

[00:00] You dropped out of school and then built what was really this first crypto prediction market called Augur. How did that idea come to you? If you have markets where you can basically bet or speculate on anything, that's the ultimate vision of capitalism. And I was really drawn to this vision as well. If you can have markets on any future state of the world, you can then use that information for lots of other things. We're now seeing ETH treasury companies, Solana treasury companies. How do you think it changes the structure of this market? I think it probably works less well as you go down the list of assets. [00:30] stock can't really issue that much debt. People want to buy Apple bonds or Goldman Sachs bonds. They don't really want to buy the small of the mid cap. We've talked about some of these regulatory changes that have been made under the Trump administration and how much hostility there was under the Biden administration. I think the most absurd thing I remember under the Biden admin for crypto was that the SEC actually tried to take the position at one point that stable coins were a security, even though like if you buy USDC, you can't really make money. [01:01] Prediction markets are having a moment. Over the past two years, these exchanges have gone from curiosities to possibly... [01:08] The Future of Finance. [01:09] Increasingly, platforms like Polymarket attract billions in monthly volume from traders keen to speculate on just about anything. [01:16] from political races to sports events to the number of tweets Elon Musk will post in a given time frame. Today's guest, Joey Krug, saw the opportunity in prediction markets long before the rest of the world. [01:27] building the first decentralized player in 2014,

[01:30] and then backing Polymarket as a partner at Founders Fund nearly a decade later. In this episode, [01:36] Joey unpacks his history with the concept. [01:38] why the moment is finally right for prediction markets to take off, [01:42] and how he expects them to develop. [01:44] We also cover the crypto treasury movement, including Founders Fund's investment in ETH Treasury player Bitmine, [01:51] and finish with Joey's thoughts on the state of the crypto markets. [01:54] As a note, [01:55] Our discussion covers tradable assets. [01:57] So please remember that none of this is financial advice. [02:01] And with that in mind, [02:02] Let's get to the conversation. [02:04] I'm Mario. [02:05] And this is The Generalist. [02:07] Every revolution in AI creates one question that never changes: Can you trust the output? AI for work is incredible, but without trust, it's just leading to faster mistakes. [02:18] The challenge isn't building an AI that can answer questions, it's making sure those answers are right. [02:25] That's where Guru comes in. [02:26] It's the AI source of truth that connects everything your company knows. [02:30] So, every insight, every answer, every recommendation [02:34] is grounded in verified knowledge, not outdated information or hallucinations. [02:39] When your teams and your AIs share one trusted foundation, everything moves faster. [02:45] with fewer redos, fewer blind spots, [02:47] and more confidence in every decision. [02:49] Because in the age of AI, truth isn't just power, it's protection. [02:54] See what Guru is doing for thousands of companies like Spotify, DHL, and Stripe at GetGuru.com.

[03:01] That's getguru.com. [03:03] This episode is brought to you by Auth0. Auth0 is an easy to implement, adaptable authentication and authorization platform. Think easy user logins, social sign-on, MFA, and the user logins. [03:15] and robust role-based access control. [03:18] With over 30 SDKs and quick starts, Auth0 scales with your product at every stage. Auth0 lets you implement secure authentication and authorization for your preferred development environment. [03:29] You can use all your favorite tools and frameworks to manage user logins, roles, and permissions. [03:34] Auth0's new offering, Auth4GenAI, is currently available for developer preview. [03:39] Secure your AI agents and integrate with the GenAI ecosystem using features like user authentication, [03:45] TokenVault, which calls third-party APIs on a user's behalf, [03:49] async authorization, and fine-grain authorization . [03:53] What typically takes 50+ lines of code is reduced to just a few, so you can focus on building the AI apps yourself, [04:00] rather than worrying about how to secure them. If you're a developer looking for an easy and powerful way to secure your applications, get started for free now at a0.2. [04:12] Joey, I'm so excited to have you here. Ever since we met through the Founders Fund piece, I remember being really struck by... [04:20] What a sharp and interesting person you are with a really unique perspective on crypto. And so, yeah, thrilled to have you here. [04:27] Yeah, thanks for having me. Amazing. Well, I'm excited to get into a lot of different pieces today, including some of your story and some of the pieces of the crypto market that you've been involved in. Particularly, I think prediction markets has been a big part of your story, both as a builder and as an investor. But maybe to start out.

[04:45] I wanted to circle back to [04:48] part of your origins, which I remember really struck me when [04:52] we talked back in the day, which is that I think, [04:55] You told me that in your early days as a kid, some of the first quote unquote investing you did was betting on horse races. How did that start? [05:05] Yeah, that's right. So... [05:07] You know, I used to be really, I still am really into horses and horse racing. [05:12] And, you know, when I was a kid, I used to go writing a lot and [05:17] I just remember one year, you know, watching the Kentucky Derby. [05:21] like on TV. [05:23] And, you know, there was a big kind of [05:25] like long shot payout for the for the horse that won, you know, I kind of looked at it. And I was [05:30] I wonder if there's a way you could predict. [05:33] which horses are more likely to win. [05:35] and then you know bet on that to make money. [05:37] Um, [05:38] Which usually is the start of a story where things are about to go south. But in my case, was able to actually, you know, I basically... [05:48] Borrowed $20 from my mom and [05:50] Um, [05:51] started kind of looking into it and built like a really simple basically like linear model system [05:57] literally just in, you know, Excel. [05:59] where I get all this historical data about [06:01] all the horses in a given race, and then I'd look at [06:04] you know, all the races on any, on any given day. And then, [06:07] you know, pick two or three bets to make basically. [06:10] Wow. It's fascinating to me that [06:13] Clearly, the odds were not sharp enough to sort of have done that sort of work. Like, where was the edge in that model out of curiosity? I think one example where there's probably the most extreme edge was like,

[06:24] if you have a track where [06:25] It's like really muddy and really rainy. [06:27] There are some forces that just [06:30] I don't know if it's genetics or just like personality, but some horses really love to run in the rain. [06:34] And so like, [06:35] you know, that's one example where [06:38] there's like massive mispricings because [06:40] There's horses that look really good on paper, but they've only ever read [06:43] Only ever ran on a clear sunny day where the track's super dry and fast. [06:47] Versus there's some horses that just... [06:49] really outperform when the track is like super muddy and filthy like that's one example where like it doesn't happen very often but if you come across that scenario where there's a horse that's really good past performance in the rain [06:58] Like that's a, that's one market dislocation. Another one is like, [07:03] people are really bad [07:04] All this stuff is much more efficient now, but back then people were really bad at like, [07:09] You know, you look at a horse and it's won its last few races. [07:12] But the distance on those races... [07:14] are significantly shorter [07:16] than the race that's about to be run. [07:18] And you have a horse that's maybe gotten [07:20] you know, second, but it has run that long distance before. [07:24] that horse is usually undervalued. [07:26] relative to the one that's going up in distance because it's just like an [07:29] a new thing for the horse and and they tend to underperform stuff like that is sort of what what surfaces. [07:35] I love these sorts of stories because, you know, I think when you're a kid, especially you, you haven't necessarily have your mind, you know, trained or warped or sort of, [07:44] molded into these strict ways. And so you can see just sort of the natural way people's brains work. And so clearly, this was something that, you know, almost congenitally or behaviorally, you're predisposed to look for these opportunities in a way that has certainly served you

[07:59] as an investor today. It sounds like you were, you know, obviously a very [08:03] technical child, so to speak, [08:06] I believe that I read that you started learning, um, Apple soft basic, which is not the, the most common type of code that someone would traditionally learn to, uh, learn to code. How did that happen? Yeah. That's kind of funny. Cause, cause sometimes, you know, [08:23] just like over the years, like in, in business, you know, I'll come across people that are, you know, in their, in their like fifties or sixties and, [08:30] you know, somehow the subject of like, how did you start programming comes up? And often they will have started programming on the Apple soft, you know, basic, right. And, and they're surprised that when, you know, I'm like, yeah, me too. For me, that was just, [08:43] um when i was in middle school my dad got me an old [08:46] an old Apple II computer that he just bought on eBay. [08:50] Um, [08:51] and [08:52] you know, it's like, hey, like, you should, you know, learn to learn to program on this, like, and, [08:56] you know, it got me like one or two books about basic and, [08:59] I just started writing, you know, really, really simple programs. [09:03] Um, [09:04] which is kind of a good way to start, um, [09:07] you know, because there's not... [09:09] there's not that much you can do. Like, [09:11] you're basically just using like a command prompt or terminal [09:14] um and writing you know text-based programs there's not really [09:18] Like in theory, I think you can... [09:21] write a server in AppleSoft Basic, but that's not the kind of stuff most people did. It was just mostly local programs running on the machine. So it's a pretty contained way to start programming, which I think is actually pretty, was a pretty good way to start.

[09:32] Really interesting. [09:34] And so you sort of, you know, were obviously interested in computers and you had sort of this, uh, [09:39] investor sensibilities, whether you would have thought of it that way or not at the time. When did sort of crypto enter the picture? Was this, you know, [09:46] somehow discovering the Bitcoin white paper and finding that fascinating? Was it something that happened a little later? Yeah, I mean, crypto I first came across through gaming. I used to play a lot of video games. [10:00] when I was a kid and, [10:01] I had this computer that had to, um, [10:04] to like AMD Radeon 6870 GPUs and [10:08] I used to be into overclocking it, making it run faster than stock. And [10:12] there was this form where someone had basically posted like, [10:16] hey, there's this software that if you run it, [10:18] you can earn money kind of like out of thin air with your graphics card. [10:23] And... [10:24] And I came across that as like, that sounds like a scam, but also... [10:27] you know, this is a really popular thread, so [10:30] you know, maybe there's something here. And it turns out it was like, [10:34] I think the program was GPU miner and you know, it's for mining Bitcoin on your, on your GPU and, [10:39] That's sort of how I first came across it. And then I didn't read the white paper until like, [10:43] maybe a month later, [10:44] because I had some of these Bitcoins that are mined and I was like, should I sell this or? [10:49] Or is there something real here? Like, is this a scam or not? And that's when I actually read the paper and, [10:54] Kind of thought it was a cool idea. [10:55] Wow, that's amazing. So you were, I assume, like in high school or even, I don't know, sort of mining Bitcoin in your in your room on your on your GPUs effectively.

[11:05] Yep, yeah, that's right. [11:07] Wow. And so then you read the white paper, you know, you go to college, study computer science before sort of dropping out. Was the white paper sort of a moment where you're like, hey, actually, you know, the way that I see computer science is going to be through this paradigm? Or how did it sort of go from maybe this curiosity to a thing where you're saying, hey, I'm actually going to step out of school and try and build something in this space? I've always been really interested in. [11:32] Um, [11:33] in medicine as well for a bunch of other reasons that, [11:36] you can get to at some point if you want. But basically, I was interested in medicine. And, but I always thought that, like, you know, if you're really interesting, you know, if you were like a doctor who could also program, I thought that would be, [11:47] maybe there was something interesting you could build if you did that. [11:50] Um, [11:51] then went to school, [11:52] And then... [11:54] you know, kind of two things happened. One, I sort of thought about, you know, I love school, but I also thought about, you know, become a doctor, you need to do another four years, plus probably another four and like residency, you know, kind of at the same time, [12:06] The price of Bitcoin was rising. [12:08] There's all this interesting stuff happening in crypto. [12:10] Um, [12:11] The Ethereum white paper kind of just came out. [12:14] And. [12:15] like none of the professors were teaching courses on on crypto anyways i mean now you can take courses about it at stanford where you can like [12:22] you know, write smart contracts and, you know, [12:25] do stuff with zero knowledge proofs but back at the time especially in undergrad like that didn't exist [12:29] And so I found myself just reading lots of papers about crypto and, and, [12:34] buying and selling crypto and sort of kind of thought that like, I may as well just leave school and build something in the space.

[12:40] as opposed to spending another three years there [12:44] Um, [12:45] and not really learning anything about crypto anyways, beyond what I was doing on my free time. So I may as well just do that, do that full time was sort of the, [12:51] the high-level logic. [12:53] You had an amazing breadcrumb that I can't help but follow, which is that you have this interest also in health care and this idea of a doctor who can code. [13:01] I think would have been, [13:02] really prescient if you look at some of the stuff with computational biology, biotech, all of these things that have also grown in sophistication in the time period since. Where did that interest originate from? And to the extent that you have the latitude to explore that interest, [13:19] today how does it uh yeah how does it influence how you think yeah i mean we're we're a regenerator [13:24] was kind of way, way back. [13:26] Um, [13:27] also when I was in middle school, like, [13:29] roughly fifth grade. My brother got this really, really rare disease called, uh, [13:34] called atypical hemolytic uremic syndrome. It's basically a kidney disorder, [13:39] where your red blood cells basically um basically like destroy themselves uh it's called hemolysis and i ended up just spending a ton of time actually dropped dropped out of school for the first for the first time then just homeschool myself for a year and [13:54] so I could spend time in the hospital with him and [13:57] And also research like [13:58] any potential treatment for it. [14:00] eventually came across this drug called Solaris, which is... [14:05] used for this other blood disorder called PNH, but it's sort of, [14:08] if if you give a patient who has

[14:11] ASUS to [14:12] to not have to say the whole mouthful every time. If you get a patient with HUS, it's hilarious. [14:18] it also basically... [14:20] effectively treats them and makes them 100% normal. [14:23] And so... [14:24] We basically, it's a really long story, but basically we got my brother to this doctorate at the University of Iowa who was doing... [14:31] like the first trial with like five patients, [14:34] with his disease, with this drug. [14:37] um and the company is called alexion pharmaceuticals and in hindsight i should have bought this in the stock as well um yeah but i didn't didn't think about that back then but you know he's on he's on it now there's actually a newer version that's longer lasting and [14:49] Um, [14:50] and you know 100 normal versus it was a disease that had [14:54] you know, [14:55] like I'm 95%. [14:56] you know, five to seven year mortality rate prior to this drug existing. [15:00] Um, [15:01] That's what got me into medicine. Cause I was like, there's just all this like, [15:04] really interesting stuff you can do [15:07] I think the other thing that [15:08] kind of maybe interested in it was like, [15:10] there's kind of just this like wide disparity between what certain doctors were aware of as well. I think AI is like narrowing that, but like, [15:17] He was at Wash U in St. Louis, the doctors there, [15:20] basically didn't believe this drug would work. And we're like, yeah, there's nothing we can do versus, you know, this, [15:26] random doctor at Iowa. [15:28] is running this trial that [15:30] you know, worked and, [15:31] made them basically 100% better within... [15:35] you know, six months. And so that's sort of how I first [15:38] first got interested in it. [15:40] That is an astonishing story. I mean, it's sort of...

[15:45] wild to me because it's clear that, you know, even as a kid, you must have been [15:50] one, you know, extremely high openness that you're like, you know, I can, you know, I'm open to the idea of this new kind of money. And also I'm open this to this, you know, different type of drug, but also, you know, I'm at risk of using. [16:02] jargon that is too tech jargony, but very high agency that you're, you know, you were, you know, as a kid thinking about these solutions and, and able to sort of broker these things. So, um, yeah, wow. I mean, it, uh, [16:15] It's really remarkable. Yeah, do you find yourself [16:18] spending time on that in your sort of nights and weekends. I feel like everyone sort of needs a place very different from their work life to go, you know, almost think about something totally different. [16:30] Yeah, I mean, my nights and weekends are basically two things. Yeah, one is, [16:34] you know, [16:35] kind of looking into what's going on in medicine or biotech. [16:40] just always been interested in it kind of sparked from, from that story. But then, [16:45] I've also spent some [16:46] a bit of time on like Sean Liu and I at Founders Fund are looking at some companies in the space as well. Probably spend more time, you know, over the years there. [16:54] But I think the other area is... [16:57] trading. I do a lot of trading in public markets, which is a good way to stay sharp and also has a [17:04] a faster feedback loop than [17:07] then, [17:07] you know, VC, but also [17:09] informs your worldview for investing in privates. And so that's the other nights and weekends thing that I do. I love it. That's a great yin and yang. To sort of come back to

[17:20] you know, some of these early formative crypto experiences, I'm going to jump around a little bit because there are pieces that I really want to dig into that I think are especially relevant to [17:30] the way the markets are today, the place the market is in today, but to sort of [17:35] Jump back in where we left off. You dropped out of school and then built... [17:38] what was really the sort of, [17:40] I think the first crypto prediction market called Augur, how did that idea [17:44] come to you because it's, uh, [17:47] one that has really found its place in the sun, you know, maybe a decade later. [17:51] It was one of the first use cases talked about after Ethereum kind of came out. [17:56] It was one of the use cases, you know, first, [17:58] first mentioned the Ethereum white paper, even like Vitalik wrote about it. I didn't know that. Wrote a couple of blog posts. [18:04] Yeah. So it wasn't, it wasn't like a novel idea, but it was sort of, [18:07] an idea I was interested in, [18:09] kind of, [18:10] dating probably back to the to the horse racing you know betting stuff um [18:15] where I sort of thought that... [18:18] Back then, you couldn't really bet on horse racing in the US. You had to use these offshore places where it was just like you're betting against the bookie, right? And I always thought that that should be a market. So that's one reason I was interested in it. [18:31] But then the other reason was that I thought that, um, [18:33] like Shane from Polymarket talks about all this all the time, but [18:36] we both kind of read some of the same papers from like Hayek and [18:39] And there's also like these two economists, Arrow and Dubrow, that had this idea of like complete markets or complete securities where, [18:46] If you have markets where you can basically bet or speculate on anything,

[18:50] Um, [18:51] That's sort of like the ultimate... [18:53] you know, at least in their view, ultimate vision of capitalism and [18:56] I was really drawn to this vision as well. Because it's like, if you can have markets on... [19:01] any future state of the world. [19:03] you can then use that information to, for lots of other things. Um, [19:07] So that's sort of like the intellectual reasons why I was interested in it. [19:11] Super interesting. You know, I think probably the vast majority of listeners will have heard of prediction markets, but if for some reason someone hasn't, I think you encapsulated it so well there, this idea that, yeah, betting on anything, it can be a presidential election, a mayoral election. It can be, you know, what the Fed rates are going to be in a certain period of time. It can be if China's going to invade Taiwan and being able to [19:33] you know, do that. [19:35] in a sort of centralized location where there's lots of liquidity, hopefully, and a sort of robust system of resolution. It's interesting to me because I think there's a lot of people who actually came to crypto sort of nerd sniped by what you were doing with [19:49] auger and prediction markets in general like i um i remember talking to dan romero from farcaster and he he mentioned that that was like something that really got him excited about crypto in general um what do you think it is about that concept that like [20:04] seems to really intrigue smart people. I think, you know, where I go back to is like, okay, if you look at Bitcoin, [20:10] you know, the thing that intrigues people about it is it's like this first, you know, [20:14] whether you call it a monetary or gold-like asset that's, you know, kind of digital and independent of any government.

[20:21] And then if you look at smart contracts, you know, they enable you to basically [20:24] do that for anything in the financial system. [20:26] And then so the next kind of level of logic is like, well, okay, [20:30] he has smart contracts, what's kind of the most logical thing to do? [20:34] Well, it's to create a financial market that's independent of the traditional financial institutions. [20:39] where you can basically speculate on [20:42] anything you could possibly want to speculate on. [20:44] And not only that, but [20:47] you can create these markets fairly quickly in a matter of minutes. [20:51] Um, [20:52] And it basically kind of, [20:53] democratizes like you know most people have seen like the big short if you remember the scene where they're going around getting all these is the agreements in place with you know the big banks take on the specific bets they want to make [21:04] Um. [21:05] In theory, like you could get a really informed counterparty who's willing to let you speculate millions of dollars on almost anything. [21:11] and fit it under a swap agreement, right? [21:14] in practice you know if you go to jp morkan and say hey i'd like to bet 10 million dollars that you know russia invades ukraine or whatever yes um they're gonna be like what do you what are you talking about um yeah and so i think people are interested in prediction markets because [21:29] It allows you to basically take the same kind of intellectual underpinnings of things like Bitcoin and smart contracts. [21:35] and then apply them to [21:36] any financial market where it's just like a pure free market where anyone [21:42] um you know globally can trade them and so i think that's sort of why people got excited about this idea [21:47] And also just even for folks that [21:50] you know, maybe don't see themselves as

[21:52] the speculator themselves, there is just this value of having [21:56] this crowd wisdom or, you know, what, you know, there's probably better ways to really describe it, but getting to. [22:03] to see the odds or the, you know, the prognostications of a group of people that are actually [22:08] putting some amount of asset at risk to justify their opinions. It gets you closer to [22:15] truth, hopefully, or at least the perceptions people have of that moment, which I think is [22:20] you know, now extremely valuable. I find myself going to the Polymarket and Calci and looking and saying, you know, [22:28] okay, what are the odds in this race? Or, you know, what are the sort of the view of the world right now? So there's this sort of informational aspect that is really valuable. [22:36] Yeah, I think I think that's totally right. Like I go to polymarket multiple times a week just to inform [22:41] my view of the world and [22:43] Often there's like interesting trades you can do around that too. Like, [22:47] what one like one small example you know for for someone who's like skeptical of this idea right like one one small example right now is like you go to polymarket [22:55] And, [22:56] there's a greater than 50% chance that the United States does a military action in Venezuela by the end of the year. [23:02] Lucky the ass. [23:03] most people on the street, they would probably say it's below that, right? You know, like, wanting to, like, I'm, I'm, I'm buying a couple stocks that are exposed to Venezuela right now, because I think, like, it's probably mispriced. [23:12] There's a bunch of different things like that. If you go back to the tariff stuff earlier in the year where prediction markets were super, super useful to understand what's actually going on.

[23:23] So, you know, to come back to what you were doing with Augur, why was it structurally that crypto was such an unlock for this idea? You've sort of mentioned parts of it there. But yeah, well, you know, if you sort of put yourself back into your your teenage self there, what were the sort of theses that you were operating under? The unlock for crypto for prediction markets is and it's sort of similar for for. [23:46] you know, why crypto is useful for other things as well is one, [23:49] It's, um, [23:50] It's inherently a sort of global market. So... [23:54] You just need an internet connection and a way to access... [23:57] you know, [23:58] Back with Augur, you needed ETH to bet. Now you can use stablecoins. [24:01] And then the second thing you... [24:04] that it does is [24:05] And this is probably kind of a bit more slept on thing, but [24:08] If you look at sportsbooks, [24:10] Part of the reason their fees are so high [24:12] is one they're taking the other side of every bet so it's not a market [24:15] But I think the other reason that people don't think about as much is, [24:18] is a lot of payment methods are reversible. So there's the risks that you, you know, that $500 on the Yankees game. [24:27] And then charge it back and say, oh, actually, I didn't make that bet. Someone must have stolen my card. And so you have to price that in. Crypto doesn't have that problem because it's, you know, once you send it, it's, [24:36] it's settled and there's no way to kind of reverse like a stablecoin transaction [24:41] with the exception of some [24:43] obscure education, like if you're a terrorist or something. [24:46] Um, [24:48] And, [24:49] So I think that's another reason. And I think the third reason is that, [24:52] it's sort of just the most efficient way to, to, to,

[24:55] operate or run financial markets. [24:57] Like if you think about [24:59] how you would create [25:01] something like this and and [25:03] you know, kind of the traditional finance landscape. [25:05] Like you can, you can do it, but it's just a lot clunkier and [25:10] it's a lot harder to kind of share the liquidity pool. [25:13] you know, in countries outside the U.S., [25:15] And, [25:17] you end up having some of the same, you know, [25:19] chargeback risks that the sports books have. [25:22] And so I think back when I was working on Augur, the main unlocks were just like it's global 24/7. [25:29] Um, [25:30] And, [25:31] Yeah, you can create these these financial markets. [25:34] pretty easily versus having to go through [25:36] a lot of steps and [25:38] paperwork and stuff like that that you have to do in that traditional system. And in terms of the sort of reasons that Augur didn't ultimately work, it feels like a lot of that was just sort of [25:48] Hamstrung by. [25:49] the state of crypto infrastructure at the time. You know, the speed of these transactions, the cost of the transactions, [25:56] What were the pieces that you feel like [25:58] Even if we'd had, let's say, 100% perfect execution, we would have really hit a wall because of XYZ. There's a few reasons. I think some of them were things, you know... [26:08] in our control and some of them were things not in our control. I think if you look at [26:13] you know, [26:13] Back then, [26:15] um for most of that period the government was especially under biden the government was quite hostile to crypto yeah true um [26:22] There was even like a speech given by, you know, one of the CFTC commissioners at the time,

[26:27] that like, [26:28] I haven't talked about this before, so this is maybe new to some people, but it's basically like, [26:33] clearly like 100% [26:35] about Augur. [26:37] Oh, really? And saying that, [26:38] Yeah, and it's about prediction markets. We were the only prediction market in crypto back then. [26:44] and it was saying that you know developers of smart contracts should be held liable [26:49] for the actions that take place using those smart contracts. [26:52] which is sort of, [26:53] sort of like saying that, you know, Microsoft should be held liable. Someone writes a ransom note with, with word it's, [26:59] really absurd. [27:00] But also a lot of the legal stuff, you know, hamstrung us because we, [27:05] we were trying to build it with kind of, [27:06] you know, [27:07] one and a half arms behind her back, so to speak, [27:10] where [27:11] There's a million things we could have done to make it so much easier and faster and quicker to use. [27:16] but we just took the maximally decentralized approach. [27:19] Because the thing we were optimizing was that like, [27:21] if the government ever did sue us and it went to court. [27:24] we wanted to win, which meant that we did almost nothing. We didn't create the markets on Augur. We never traded in them. We never market made in them. [27:31] We never resolve them ourselves. [27:33] We didn't even host the website. [27:36] And so it's like, you know, there's a million reasons why it was just so hard to use. [27:41] Hey, Hank. [27:42] you know, like if you, [27:43] He went back and looked in. [27:45] like the auger discord is public a lot of those chats are public you can see you know it's almost always a legal reason why we took [27:51] something that was clunkier or harder to use as opposed to like a, [27:55] UX recent [27:57] I think that was a big part of it.

[27:59] And I think another big part of it, even if [28:01] even if we took all the legal risk [28:04] and [28:04] I think the second piece was just that [28:07] the the kind of like tech and infrastructure wasn't ready like when augur started [28:11] Eventually, these got built by companies like Alchemy, but when Augur started, there weren't even like, [28:17] you know, Ethereum node RPC endpoints where you could talk to an Ethereum node. You had to spin up your own node to use auger day one. Also transactions were very expensive, you know, on Ethereum, [28:27] uh, [28:28] inaugural was kind of [28:29] fairly gas and efficient as well. Like doing a trade in Augur would cost like $50. You know, no one wants to pay $50 to do [28:36] a $500 bet or whatever. And so there are kind of all these reasons that, you know, that's kind of gotten solved by layer twos. The infrastructure is a lot better, faster and cheaper. And, [28:44] stablecoins are a lot more widespread, a lot easier to on ramp into crypto. [28:48] And so I think even if we took all the legal risk, it probably wouldn't have taken off. Like the timing was just wrong. [28:52] We're way too early. [28:54] But, you know, [28:55] Hopefully we inspired some people to... [28:59] to build in the space. So... [29:03] Yeah, that's sort of my like, [29:06] sort of my read of it is like maybe [29:09] maybe Augur's Napster and [29:11] Highmark, Spotify or something like that. I love that. Yeah, an idea ahead of its time and that certainly did inspire a lot of people and I think brought a lot of people [29:20] into crypto and intrigued a lot of people to sort of, you know, go forward in your career a little bit, you know, after Augur, [29:27] You became sort of co-CIO of Pantera Capital, which I only in researching this episode did I learn that it's a Tiger Cup, which, you know, sort of a I didn't necessarily expect that from a really early crypto fund. Yeah.

[29:42] Anyway, you went to Pantera and then landed a Founders Fund. And this is sort of where the [29:47] I feel like the prediction market story comes full circle. [29:50] which is that Founders Fund led the Series A and has become a [29:54] a very large investor in poly market, [29:58] How did Polymarket first come up on your radar? [30:02] The first time I came across it was a long time ago where back when I was doing Augur, Shane had sent me an email and [30:09] kind of a list of like, [30:10] It was a good email. It's like a list of all the [30:12] UI UX stuff that was wrong with it. [30:15] um and you know i i sort of agreed with like 90 of it um but a lot of we just couldn't couldn't do due to kind of all this [30:24] stuff I just kind of went through. [30:27] And, um, [30:28] And then I think maybe a year later, I forget the exact timing on it. But a year later, he was just like, you know, decided to create Polymarket and build a prediction market and wanted to... [30:38] basically kind of build a vision that he thought made sense for it. [30:42] And, [30:44] we sort of stayed in touch like in loose touch off and on over the years [30:48] And then... [30:49] The thing I kind of always told them was like, if you get to [30:53] if you get to like clear kind of product market fit, [30:56] you know, I will invest. [30:58] was basically what I said. And I was like, you know, [31:02] Prediction markets is probably like the hardest idea to build because so many people have tried it. [31:06] It's so intellectually interesting. [31:09] Everyone wants it to exist. [31:10] you know, but it's still just really, really tough. I guess it's probably the hardest digital idea. Like, like fusion is probably the real world, you know, thing that's harder. Yes, yes. But yeah.

[31:19] That's sort of why I said, and then [31:21] you know, I kind of gave him a benchmark where I was like, you know, if you get to like, [31:24] four or $5 million in volume a week. [31:26] And it's sort of repeatable. [31:28] That seems like real enough to me that I would, I would take a bet on it. [31:32] And then he called me, you know, late 2023 and said, Hey, we, [31:35] we hit the number. Do you want to, do you want to invest in, [31:39] I said, you know, let's, [31:41] Let's talk about it and [31:42] It's also looped. [31:43] Napoleon in because he's also interested in prediction markets and in betting. [31:47] Um, [31:48] And we ended up [31:50] you know, agreeing to invest pretty quickly. And so that's sort of how it started. [31:54] That's amazing. It's funny, you mentioned the Napster Spotify example, but it really has that echo even from the connection to Founders Fund, right? Obviously, Sean Parker goes to Founders Fund and finds Spotify after founding Napster. So there's a fun symmetry there. Had you looked at a bunch of these other... [32:15] prediction markets sort of along the way and considered investing in them? Like, was it really just [32:21] hey, this is the one that seems to be breaking out. And so, you know, this is the one to bet on. [32:25] Yeah, I looked at ones over the years because given the auger history, you know, I'm, [32:31] I'm kind of one of the first people that people think to pitch [32:33] you know, when it comes to prediction markets. [32:36] Um, [32:37] But none of them really had the right founder market fit that Polymarket had. [32:41] And then... [32:44] I think the other thing that I really liked about Polymarket relative to, you know, anyone else I ever talked to was sort of the...

[32:51] the crazy kind of relentless focus on like, [32:54] the UI UX and the user and [32:56] And... [32:57] like why... [32:58] why Shane is building it and those sorts of founder reasons that are relevant to why founders fund likes to invest in stuff. I think it was very clearly, I think even in the memo we sent out [33:10] to the rest of the Founders Fund team, [33:12] I think there was a line there that was something like, you know, [33:15] If anybody can do it, it's this team. [33:18] If they don't do it, [33:19] It's probably not going to work for another five to 10 years was sort of the Ralph mental model. [33:23] What were the sort of founder market fit pieces that really [33:28] spiked in terms of Shane and, and when you looked at the team that made you think, okay, this is, this is the folks that if anyone's going to do it, it's going to be these guys. [33:36] I think the way I would describe it is like, [33:38] If you look at Shane, he's basically super, super obsessed about just like there being more efficient markets. [33:45] and there being a way to basically get [33:48] data about kind of anything in the real world that people care about. You know, I think, [33:53] one of the kind of frequently used lines is like, if it's on the front page of the New York Times, like there should probably be, [33:58] a probability on it for how real it is. [34:00] Polymarket's the best place to go to get that. The other founder thing is the sort of [34:05] extremely strong perseverance and relentlessness. [34:08] you know he he did take the the legal risks that that we didn't and there there was kind of the first cftc settlement and then after [34:16] after Biden lost, there was the FBI raid. [34:19] And I think, you know, a lot of people,

[34:23] like reasonably probably would have just like, you know, folded, like, [34:26] Um, [34:27] and not wanted to take on the extreme risk. [34:30] Bye. [34:32] you know he sort of had this extremely high conviction that [34:35] This needed to exist. It was right. [34:38] you know, [34:39] the government was wrong to be going after them. [34:42] and, [34:43] that he wanted to build it anyway. [34:45] And I think that [34:47] That is just sort of, [34:48] it's impossible to fake. And then it's also really good for rallying people like, [34:53] around you [34:54] to your cause. And if you think about like, [34:56] what's important for a founder to be able to do is be able to [34:59] have a clear compelling vision. [35:01] and then get other people to support that, whether that's investors, people on the team, partners of the business. [35:07] And yeah, I think [35:09] He really spiked on all those things. [35:12] And then the second piece that I kind of alluded to earlier is just like this really high obsession about [35:17] about product. [35:18] And, [35:19] having like wanted to have the product for himself, you know, sort of, sort of thing, I think is really, [35:23] It's really a big part of that as well. [35:26] You mentioned sort of the... [35:27] interests of the CFTC and the FBI, right, for folks that, you know, maybe didn't [35:31] chart that story what was sort of the the pricey of of of what happened and and how he was you know able to sort of manage that process so so the the short story of it is basically [35:43] you know, the first version of Polymarket, [35:45] completely glove all. [35:46] Um, [35:47] based on smart contracts. They didn't block USIPs or anything. [35:51] Um, [35:52] I think it was under the Biden admin. They had to settle to CFTC and basically block.

[35:56] US IPs for very obscure reasons, the US government. [36:00] says that prediction markets are swaps. [36:03] And, uh, [36:04] There's kind of a great Matt Legean piece, which is like everything is a swap. If you Google that, it's kind of interesting to read. And then if you fast forward, it's like 22-ish, something like that. [36:14] And then if 2022-ish, and then if you fast forward, [36:16] right after [36:18] Polymarket predicted the Trump election win, [36:21] And Biden lost. [36:23] roughly a few days, maybe a week, [36:26] after the election, the FBI raided Shane's apartment, [36:30] took all his electronics and phone and everything. [36:32] It's kind of... [36:33] sort of unclear exactly what's the [36:35] thing they're trying to get out or go after was I don't like it after really [36:40] kind of fully got explained, but [36:43] And eventually ended up getting [36:45] you know, basically draft [36:47] earlier this year. [36:49] But... [36:50] that's sort of what i was referring to is you know they they burst into his apartment at like 8 a.m or whatever and the um [36:56] and you know took all took all his stuff and and uh [37:00] he didn't give up. Like I spoke to him [37:03] you know like a day or two after and [37:05] He seemed as good as spirits as [37:07] as usual, um, [37:10] which is [37:11] just crazy, crazy impressive and, and, [37:14] yeah, it's hard. It's, it's, it's like, I, I would be pretty sad if the FBI raided me. Yes, to maintain your focus. Yeah. Uh, but, [37:21] you know, he stayed focused and on track and, and, [37:25] you know, they've,

[37:26] I think they just did more volume than the election month last month. So it's [37:31] It's crazy where... [37:33] Again, another situation where like, [37:36] If you look at what Polymarket's done over the last year, [37:39] You think for a majority of that, [37:41] you know, they were again fighting with one hand behind their back because the government was [37:45] incorrectly trying to go after them. [37:47] Now that they're not, you know, [37:49] imagine what they'll do with like 100 full focus is sort of [37:52] how I think about it. [37:54] Yeah, I mean, also just from the perspective of your investment, it feels like it was [37:58] astonishingly well-timed and that you guys first invested ahead of the election cycle. And I think there were probably a lot of folks that were... [38:08] questioning, you know, OK, maybe it works during an election period, but [38:12] It's going to cool off and this is going to crater to, I don't know, 5% volume, 1% volume, however bearish I suppose you want to be. And while there obviously has been [38:23] a correction, it seemed that [38:25] There has been still this sort of [38:26] growing variety of use cases and sort of a higher base, you know, naturally there are these spikes. But was that something that you... [38:35] felt confident about at the time that you were making your better? Was that sort of one of the pieces that that felt like an unknown even to you? The way I think about this stuff is always like, [38:44] what what's the market pricing versus what what are v pricing right [38:48] And I think, um, [38:49] You know, [38:50] In this case, the way I thought about it was like, [38:53] the market was pricing that there would be like a 90% decrease in volume. You know, that was, she squalled Twitter, that was the common sentiment. We thought that was wrong. You know, our view is sort of that like, or at least my view is sort of that,

[39:04] maybe there'd be like a 50% decrease and then it would kind of take a while to rebound. But [39:08] there wouldn't be this 90% drop. [39:12] And the reason behind that was like, if you looked, [39:14] Polymer gets volume. [39:16] I think the percentage was like 50, maybe 60% elections. Like there was still this chunk that was not... [39:22] not elections. And so to think it would drop a ton. [39:24] you had to believe that [39:26] all the users that came in for the election. [39:29] would just leave and not trade anything else. [39:31] But that wasn't really... [39:32] what it looked like from the underlying data, which is all on chain and you can verify it. [39:37] And so, [39:39] You know, I think, [39:40] It's probably... [39:41] the volumes have performed probably better than [39:44] we thought they would have a year ago. [39:46] Bye. [39:47] you know, we sort of priced in, [39:49] them doing better than the market did which i think is like you think about edge as an investor you know you don't have to predict everything 100 precisely you just have to [39:57] you know, the delta between you and what the market thinks just has to be wide enough to be right. When I sort of looked at some of the data over the past year, it's clear that, you know, Polymarket has seen the most volume of any of the prediction markets, but that it is sort of, you know, [40:11] I don't know if you would say it's closing or it's quite close with with Calci in particular. When you look at sort of the. [40:18] the way this space shakes out. [40:21] How do you, yeah, how do you see it progressing? Is this a winner takes all space or, you know, are certain parts of it sort of cordoned off to in a winner takes all dynamic? [40:30] If you look at financial markets in general, [40:33] Historically, anyways, they tend to be

[40:36] you know, basically duopolies. So, [40:38] you have Coinbase and Binance, you have [40:41] you know, [40:43] CME and CBOE, you have... [40:46] New York Stock Exchange and NASDAQ. [40:47] That's one lens. Maybe there's a duopoly thing. [40:51] Why do you think that is out of curiosity? I think it depends on each. Like if you look at the Binance and Coinbase one, that's a clear split of just like international versus, you know, predominantly Western US markets. [41:01] Um, [41:02] If you look at [41:04] If you look at the, like, [41:06] options in futures markets like CME, CBOE. [41:09] I think that one was probably more of like a [41:12] Product type split. [41:13] in the fact that they've just been around for so long that [41:16] it's sort of naturally developed where there's one place you trade grain futures, another one where you predominantly trade oil futures, you know, so on and so forth. And the liquidity kind of concentrated. [41:25] Um, [41:26] I don't have a good explanation for New York Stock Exchange and NASDAQ. [41:29] I'm sure there is one. I just haven't looked into that too much. If you tie this back to like Polymarket and Calci and other, other people trying to compete, [41:37] I think, um, [41:38] you know, the US versus international lens, I think, you know, probably markets the clear winner internationally. [41:44] and then they're about to launch in the US. [41:48] I guess in terms of the market categories, you know, if you look at, [41:51] Um, [41:52] Again, Polymark, it's roughly [41:54] I think sports is like 40-something percent. [41:57] And the rest is other things. Cal, she's like 90% sports. [42:00] which is another interesting lens. [42:02] But I guess to more directly answer the question, I do think it'll end up being...

[42:07] a bit more of a lopsided duopolies in the [42:10] than the other stock exchanges like my number model is closer to [42:14] Uber versus Lyft. [42:16] than [42:17] you know, Nisey versus Nasdaq. There's a bunch of different like vectors upon which the competition will be fought. But [42:23] um, [42:24] I think when it comes to like, [42:26] product i'm i'm pretty bullish on on polymarket [42:29] being able to ship like the best consumer product. [42:32] which I think is where most that, [42:34] most of the value capture will... [42:36] will end up kind of long run here. [42:38] You mentioned that this, you know, Shane has maybe this product sensibility and this sense of what the UX should be back to even, you know, emailing you at Augur and saying, here's what you should be doing. [42:49] When you look at it today, what are the pieces of the Polymarket product that you think [42:53] hey, it's actually really important that [42:56] this thing that maybe doesn't look that significant, [42:58] is done in an XYZ way or is represented this way. [43:02] I think for the for the non US product, [43:06] I think part of it is like, [43:07] I do think crypto is like the ideal [43:10] market structure for something like this. [43:13] where [43:14] If you're having to have like a decentralized system, [43:17] You know, you look like Uniswap as an example. [43:20] If Uniswap was instead a centralized exchange where [43:24] you know, they had to KYC people from like 150 countries. Yeah. I think the liquidity pool would just be a lot, a lot less deep. [43:31] Another interesting factor on the product side is, um, [43:35] you look at kind of the different [43:37] players in this space.

[43:38] There's [43:40] sort of a split, I think, in terms of like, do you view prediction markets as, [43:45] as [43:46] of [43:48] a betting exchange like in like [43:50] the sense that like Betfair is a betting exchange. [43:53] Or do you view them as like a financial exchange? [43:56] And, [43:57] A lot of people would probably like meme that sentence on Twitter and say, you know, it's just sports betting or whatever. But to concretize it and make it something that's actually like. [44:06] Um, [44:07] something that you can discuss and it's not just qualitative. [44:10] If you look at Betfair, they take 50% of the winnings of the market makers on the platform. [44:14] 50% of their profits. [44:16] If you look at some of the other players in the prediction market space, you know, like [44:20] the fees are quite high. You're talking multiple percents. [44:24] If you look at most financial exchanges, the fees are very low. You know, we're talking basis points. [44:29] And so... [44:30] One lens is like, [44:32] do you view this as an actually as actually as an exchange? Yes. Or do you in the financial market sense? Or do you view it more as like, like betting? [44:39] And I think, um, [44:41] the Polymarket ethos is closer to the financial market exchange. [44:45] And I think as a result, [44:46] especially once they launch in the US. I think the volumes are just going to skyrocket. [44:51] um because it will be like the most efficient most liquid place to trade [44:55] Um, [44:57] I think that's one... [44:58] Ethos difference. [44:59] and then i think um i probably can't talk about the us product but it should launch you know maybe by the time this is this podcast is out you know in a few weeks and [45:07] I think the user experience on that is just so much slicker than

[45:11] than anything else that I've, that I've seen in this space. Like, [45:14] It's something where... [45:16] you know, once it's out, I look very forward, much, much, [45:19] very forward to using it myself. [45:22] Probably probably. [45:23] multiple times a week. I think it'll be really, really cool. [45:25] One of the, you know, things that has, has maybe been tricky for some of these, uh, [45:31] these markets and Polymarket has had issues with this in the past is like how you manage resolution. And sometimes you think these things will be straightforward and they end up being more complicated than you might ordinarily imagine. The example that I think comes to mind most is the [45:47] Is Zelensky wearing a suit at XYZ event? And... [45:51] He sort of is, he sort of isn't. And that's when there start to be these questions about [45:56] How manipulatable are these different markets, etc., etc.? [46:01] how do you sort of like get comfortable with the constraints and, and the different trade-offs that, that, [46:07] you know, these [46:09] companies make and particularly the ones that Polymarket makes. [46:13] Yeah. [46:14] I mean, I think, um, [46:16] This is a problem that I thought a crazy amount, probably too much about when I was building Augur. We spent all this time on the resolution system and... [46:26] I think in terms of outcomes, it worked pretty well, but in terms of speed, it was just, you know, horrendously slow. [46:31] um and so that was wrong trade-off um [46:36] I think... [46:36] If you look at kind of the state of things today, [46:39] Yeah, I think one... [46:40] one lens is that you know nobody has as perfect even the big sports books sometimes according to the betters you know will pay it pay things out wrong it's so it's a problem for the industry writ

[46:52] Um, [46:53] I think the suit thing, you know, is one where there's an incentive for, you know, competitors to create, you know, FUD around this stuff. Like, if you read the... [47:02] If you read what the actual designer posted, [47:05] you know, he says that it was like, [47:08] cut from separate fabric, which [47:10] According to some of my friends and, and, [47:13] in sort of the fashion space that that means it's not a suit but ignoring the [47:17] ignoring like the specifics of that market. I think it is a, [47:20] a kind of thing that needs to be addressed for at large. I think the best way that I can think of to, [47:25] to addressing this is probably actually to utilize like AI in terms of like, [47:29] writing the market descriptions. [47:31] you know, [47:32] I think, [47:33] I think they may be doing this to some extent already, but... [47:36] You know, I hate the companies in the space. You're basically... [47:39] provide like their draft, you know, description to like, [47:42] you know, DPT 5 Pro or whatever. Yeah. And have it analyze it like, [47:47] a really icky lawyer would. [47:50] and just try to cover as many edge cases as possible. [47:55] The one caveat is that you still want, like you want to cover all the edge cases. [47:58] But you also want a huge, like, [48:00] what is the common sense person's understanding of what happened. [48:04] you also want to cover edge cases of like, [48:07] you know, if, [48:08] I think like technically there's, there's some types of like pajamas that are very technically are a suit because they're cut from the same cloth, right? Like you don't want Zelensky to wear pajamas and then be like, Oh yeah, it was a suit, you know, [48:19] Um, [48:20] And so... [48:21] There's a lot of these edge cases, but I think,

[48:23] this is probably one of the, [48:25] one of the things in the space like AI probably is actually uniquely suited at, at, [48:29] helping with. [48:30] Really interesting. OK, well, I'd like to maybe move on to one other part of, you know, the crypto landscape that I know you've been involved in and that I think feels like a big. [48:40] big part of the market today, which is really [48:42] the sort of, uh, [48:44] emergence of crypto treasury companies. I feel like that's been something that [48:49] has really gathered a ton of steam over the past 18 months. And Founders Fund is involved with one of the sort of [48:57] front running, [48:58] ETH treasury companies. How did you first get involved with Bitmine? [49:03] Yeah, he had, you know, each position then [49:06] bullish on ETH for a while. It's sort of been a tough cycle for ETH. But when we came across Bitmine, [49:13] Um, [49:15] Yeah, that was sort of, [49:17] kind of [49:18] two or three things kind of converging at once once was that [49:21] this sort of treasury narrative thing had started to happen. [49:24] Two was that we knew... [49:27] one one of the kind of creators of it is is this guy shen from this fund called mosaics and [49:32] He was actually one of the founders of WorkRise, which is one of our portfolio companies. [49:38] So we knew him, there was some level of trust there. And then [49:41] Tom Lee, I'd known a bit, you know, off and on over the years or passed across a little bit. [49:47] And, [49:49] If you look at what these vehicles do, you know, in my mind, it's basically they...

[49:54] our way to accumulate an asset, [49:58] popularized by Michael Saylor with Michael Stratusky. [50:00] In this case, it was with Eve. [50:03] BitMind sort of launched at a time when [50:05] ETH was pretty, you know, in my opinion, oversold. I think it was like the low 2K range. They had kind of a combination of two things that I think is really important to make this work. One is like the capital markets expertise with Shen. Mosaics is a hedge fund. He ended up starting a hedge fund. [50:20] and then tom lee also with the capital markets expertise but also like the [50:24] branding and marketing and awareness building that he's really good at. That combination of things is why we decided to invest. And I think that [50:32] The ETH ones have some [50:34] kind of interesting elements to them that make sense for them to trade it. [50:38] not a crazy premium, but still maybe a slight premium. [50:41] which is like, [50:42] If you look at ETH staking... [50:44] The ETFs, since they can be minted and redeemed, won't be able to stake 100% of their ETH even when the SEC approves it. [50:50] And so if you have a capital structure where [50:52] the corporation to basically stake the ETH [50:55] One, you can stake 100% of the ETH. [50:57] and then two, the other interesting dynamic, [50:59] is that you basically get [51:01] capital gains treatment. [51:03] because, [51:04] the, [51:05] the company is the one paying the tax on the staking yield [51:08] versus it being directly income to you as a shareholder. [51:13] which is like somewhat interesting. And I think there'll probably be some demand for that from capital markets. Those are kind of like the longer term reasons why it's interesting. [51:20] um is in the more shorter term like why we invested or kind of tied to the

[51:24] to the people, like almost, you know, anything else we do, that's sort of where it starts. You know, that's such an interesting point on the sort of, [51:33] difference between an ETH treasury company and a Bitcoin treasury company. There are these quirks to it. [51:39] For folks that maybe haven't really followed this as a trend in the crypto markets, what is the value of someone who's... [51:48] at least in theory, investing in MicroStrategy, which is a Bitcoin treasury company versus an ETF versus the underlying asset. Let's start with the underlying first. [51:58] the underlying benefits of that are [52:02] It's traded 24/7. You can just set it to any exchange that you have an account with and you can trade it there. [52:08] you know, it's self-custodial of [52:10] If you're, [52:11] if you're really, really libertarian and, you know, think that, [52:14] the government's going to seize your Bitcoin or something. I don't think that. But, you know, if you were paranoid about that, you know, purely self-dustodial spot is a good way to go. [52:24] And, [52:25] And there are people who live in countries where that is actually a valid concern, right? [52:29] And then if you go kind of, [52:31] you know, one step up, you have the ETS, [52:33] For the ETF, I think the benefit there is just convenience. [52:37] Like if you buy, you know, a Bitcoin or ETF in your interactive brokers account, even if your computer gets hacked or whatever, like. [52:44] you kind of have the legacy financial rails to protect you there like [52:48] Um, [52:49] It's not like you're going to wake up one day and all your Ether Bitcoin is stolen. [52:53] Um...

[52:55] And then... [52:56] And then I think when it comes to the treasury companies, [52:59] These are sort of more like a higher beta kind of supercharged version of the underlying asset where... [53:04] They own Ether Bitcoin. [53:07] there's sort of a couple of reasons why one might be willing to pay a premium for that. Think about a company like Apple or Tesla or Facebook. [53:16] There's like debt for it that you can trade. [53:18] It gives you some exposure to it. It's higher yield than treasuries. [53:21] but you don't really have the same downsides you have as investing in underlying [53:26] Meta stock as an example. [53:28] for Bitcoin and Ethereum, [53:31] prior to Sailor that didn't really exist. [53:33] Um, [53:34] And so he basically created this way for people to buy, you know, convertible bonds. [53:38] where it's collateralized by Bitcoin. [53:40] There's some sort of capital stack. [53:42] They get some amount of upside if Bitcoin does well, but they're able to invest in [53:47] out of, you know, via debt structure and its lower downside. [53:52] And there are people who want to invest in that or who can only invest in those sorts of vehicles that do want exposure to crypto. They can't buy the underlying. So there's like this interesting financial instrument that he created as a result. [54:02] that has some value. And then you can debate around the margins like, [54:06] you know, what is the premium of buying MicroTrategy stock that it's worth in exchange for him providing that service? [54:11] eat on it. And I think like, [54:12] My idea is that [54:13] The answer isn't zero. [54:15] Probably not three acts either. You know, it's, it's, it's, [54:19] But I think that's sort of the notion of, [54:21] why you would buy it because [54:23] He's basically selling this service. [54:25] And as an equity holder,

[54:26] you know, you're basically getting the [54:28] monetization of that service or the benefits of it sort of the high-level way that i would [54:32] Think about it. [54:34] And the fact that we're now seeing, you know, [54:37] ETH treasury companies, Solana treasury companies, you know, other ones coming up the pike. [54:43] Do you see that as... [54:45] I don't know, simply mimetic behavior? Is it [54:48] telling us something about the maturation of this market and the players in it. How do you think it changes the structure of this market? [54:56] Yeah. [54:57] I mean, it's definitely memetic. Like we, we've, [54:59] Napoleon and Peter, I've talked about that to some degree as well. Yeah, in some ways, I'm like, you guys must have had an alarm bell going off in making this investment because there is such a mimetic quality in a way. Right. Yeah. So there's some mimetic element to it. [55:13] which I think like if you think about financial markets, if you're early to a mimetic phenomenon, that's good. That's kind of the classic Soros. [55:20] argument um if you're late to it it's bad one thing that i think people kind of over complicate [55:25] it's like you sometimes, especially last year, you see on Twitter all you see people talking about, [55:29] "Oh, Michael Saylor is buying all the Bitcoin. There's not any real demand." [55:34] And it's like, well, if you zoom out, [55:35] one layer more of the draft from that. [55:37] It's like, why is Michael Saylor buying the Bitcoin? [55:40] It's because people are buying a stock. They want Bitcoin exposure. [55:42] That's really, there's still someone who's like, [55:45] you know, pressing the buy button. Yes. There's then triggering that inflow. It's not like, [55:49] sailor is just magically you know printing all this money out of thin air even like the stock issuance he does that then buys bitcoin someone is buying that stock which is really

[55:59] you know, in a world without Michael Saylor, I think that money would have eventually found its way to crypto. [56:04] Um, but he's created a way for people to buy it that, [56:07] for whatever reason. [56:09] like the idea of maybe getting some extra you know beta on this like bond trade that we talked about [56:15] Or maybe they just can't buy spot or ETFs for some reason, like, [56:18] there are certain asset managers that can only trade underlying stocks. And so, [56:22] a hacky way to buy bitcoin is or or yeast is to just buy one of the treasury companies right yeah and then to answer your question about the medic [56:29] or the mimesis of other companies. [56:32] doing this. [56:34] I think it probably works less well as you go down the list of assets. [56:38] And the same reason that like, [56:40] you know, a small micro cap stock. [56:42] can't really issue that much debt. [56:45] um you know it's like people want to buy [56:48] Apple bonds or Goldman Sachs bonds. [56:51] they don't really want to buy like, [56:53] The small, the mid cap. [56:55] Yeah, hymns is maybe sufficiently large. That's not a potshot at hymns, but just that sort of comes to mind. [57:01] But yeah, like three years ago, they wouldn't have wanted to buy Hemsbonds as an example. [57:05] Taking a step back, [57:06] And reminding listeners that none of this is financial advice, as I'm sure they know. What is your view on the state of the crypto markets today? Where does it feel like we are today? [57:18] in the cycle. [57:19] There hasn't really been any sort of euphoria this cycle. [57:23] Um, [57:24] you know, [57:25] In prior cycles, there was... [57:27] There are points where it got super, super crazy.

[57:30] I think maybe the craziest this cycle got was some of the meme coin stuff on Solana. [57:35] But even then, that didn't get really that crazy. It was more of like... [57:39] it was more of like a new version of like batting or gambling almost because like, [57:44] with a small exception, there's a few that did actually persist. Most of these traded way up and then traded way down versus in prior crypto cycles. [57:51] you had assets that for years traded really like way, way up. Maybe that's like too many people got burned last cycle. Maybe it's that like more money is flowing into like sports betting and prediction markets and stuff. [58:03] Um, [58:04] Maybe it's just that we've kind of been through [58:07] like this like rolling consumer recession kind of thing in the us where like the vibes are bad like the kylos gamelon thing like i think that's real like [58:16] If you look at the Michigan consumer sentiment, [58:19] been kind of negative recently. [58:21] Maybe that's why retail hasn't come in. [58:23] But then I hit on this left side, [58:25] you do have a lot more [58:26] a lot more institutional inflows. [58:28] And, you know, people that are just kind of, [58:31] fairly long-term investors that buy Bitcoin wreath and kind of just hold it and sit on it. [58:35] as a small percentage of their portfolio, but their portfolio is very large. So it ends up making for a good amount of net inflows. [58:42] Yeah, I think you kind of combine those things. [58:45] It sort of feels... [58:48] Like you look at prices today, I don't know. It doesn't really feel like anything's like, [58:51] crazy expensive or crazy undervalued it kind of just feels [58:55] Like we're in this interregnum period or [58:59] you know, purgatory or whatever. And, um, I, I think,

[59:03] I tend to be [59:05] pretty bullish. You know, there's a lot of fundamental catalysts coming over the next couple months, you have [59:10] Yeah, you have the next... [59:12] East hard fork, you know, upgrade. [59:14] Um, [59:16] which I think is positive because if they, if they ship it, you know, that'll be two in a single year, which kind of, [59:21] means they have reverted to a faster shipping cadence. [59:24] you have [59:25] know the the clary act which i think will be a huge deal because it basically legalizes [59:30] It's already legal, but it makes it official that it's legal, the kind of overall crypto market structure in the United States. [59:36] And then I think that'll be big for kind of more institutional inflows. [59:41] And then you have kind of some macro... [59:44] positivity with continued rate cuts and [59:47] the Fed ending quantitative tightening. [59:50] Wish. [59:51] If you look at alts, they tend to really [59:53] not do very well. [59:55] when the Fed is still tightening. And then you have the government shutdown, which I think, you know, hopefully gets resolved for the next week or two. Yes. And- [1:00:02] I don't really have the mechanism why, but crypto historically has underperformed. [1:00:06] in government shutdowns for whatever reason. It's kind of ironic, but... Yeah, it is. [1:00:11] uh maybe it maybe it just goes back to like the vibes thing um where people are just like not bullish because they just feel like stuff is broken or something i don't know yeah you're not you're not in the mood to take new risk in that in that way for whatever reason maybe i sort of remember covering this in the founders fund series that we published in the generalist that you guys made a [1:00:30] a pretty remarkable and prescient investment into Bitcoin and ETH primarily in the summer of 2023 when

[1:00:38] I think the first buys were somewhere around like 30K for Bitcoin. And I remember hearing, I think that, [1:00:45] You guys had basically exited the Bitcoin position, but we're maybe still holding ETH. What is your... [1:00:51] What is your sort of model for ETH and what needs to happen and why it's maybe still worth [1:00:56] hanging on to, um, [1:00:59] given that you've maybe made a different call [1:01:01] with with bitcoin i think the hot the high level logic there is basically that [1:01:05] you know, ETH, [1:01:06] ETH tends to kind of [1:01:08] run and outperform kind of later in the cycle. [1:01:11] often after Bitcoin has topped. [1:01:15] because people sort of rotate into it. [1:01:18] And then... [1:01:19] You know, I think, [1:01:22] And so I think that's sort of part of it. [1:01:24] And then I think part of it is that [1:01:27] you know, it's sort of got, the narrative got so oversold, especially during April, [1:01:32] where [1:01:33] you know there's kind of this narrative that like solana is everything and east just going away and [1:01:39] Yeah, it was a real bummer vibe on X. Yeah, exactly. And the Ethereum Foundation can't ship and all this stuff. And... [1:01:47] i think you know sort of the the new leadership at the ef seems pretty strong they do look like they're going to ship you know this upcoming hard fork in early december and so i think sort of holding on to the eth is more kind of like a i think there's probably some [1:01:59] mean version and repricing that [1:02:02] that will take place. [1:02:03] Because also, if you look at [1:02:05] you know, kind of fundamental usage. It's still the number one platform for stablecoins. Polymarkets on Polygon and Ethereum layer two,

[1:02:12] or investors in this other company called Leiter, which is [1:02:15] you know, one of the, you know, top couple, [1:02:18] perpetual decentralized exchanges. They're also an Ethereum layer too. [1:02:22] And I think they've proven that [1:02:25] you can actually get a really smooth onboarding experience as, as an E-flayer too. It's pretty easy to deposit and withdraw funds. Like I do some of my own trading there now at this, at this point, um, [1:02:35] And so, yeah, I think sort of like, [1:02:38] kind of got way oversold and [1:02:39] became very contrarian this spring, and I think there's probably [1:02:43] There's probably some room to go on ETH is sort of, [1:02:45] minus a model, [1:02:47] alongside these catalysts like the Clarity Act where [1:02:51] you know, [1:02:52] basically clarifying that DeFi is legal. [1:02:54] ETH is like the number one beneficiary of that. And so similar to kind of all the mania you saw around stable coins in the summer. [1:03:00] I think the same thing happens around the Clarity Act, you know, whenever that, [1:03:04] passes over the next couple of months. [1:03:06] We've talked about some of these regulatory changes that have been made under the Trump administration and how much hostility there was under the Biden administration. [1:03:16] You... [1:03:17] You shared, I think you'll have to remind me where you were on stage. Maybe it was ETH Denver talking about some of the pieces of Operation Chokepoint that you sort of got to see, maybe not firsthand, but heard from folks that went through it firsthand. Yeah, I'd be curious. [1:03:34] to hear that story and maybe you know a few months later if [1:03:38] if folks came out of the woodwork after you gave that speech and shared that, and maybe even more of those sort of horror stories came to light. On the Operation Choke Point stuff, you know, where you basically have, you know, had all the banks kind of cracking down on crypto.

[1:03:56] People have definitely shared that more. I think after that talk, I made it. [1:04:00] a tweet about it where I was like, you know, retweet this if you had a bank account shut down, [1:04:04] as a result of being in crypto and is kind of one of the more one of the more viral tweets i've i've had [1:04:10] And, [1:04:11] The Trump admin has definitely kind of reversed all that stuff. [1:04:15] you know, a lot of the banks that, you know, [1:04:18] wouldn't, wouldn't bank me or some of them have, have, you know, reached out now, you know, offering me to, you know, join their private wealth management. And I've ignored all those because you didn't want me back in the day. Yeah. Yeah. It's like, um, so I think, um, [1:04:33] That stuff seems to have gotten fixed. [1:04:36] I think the other thing is just [1:04:37] that's been even a bigger deal has been kind of all the [1:04:41] all the regulatory stuff, like, [1:04:43] you know, under the [1:04:44] under the Biden MN, [1:04:46] There was this thing, you know, the SEC, which was infuriating, you know, they would say, come in and talk to us. [1:04:51] But... [1:04:52] Um, [1:04:53] probably like 95% of the founders I know who tried to get a meeting [1:04:57] you know, they wouldn't meet with them. And then the very few that did get a meeting, you know, [1:05:01] Um, [1:05:02] just to see what kind of just listen. [1:05:04] and then you know usually later use anything they said against them um in some you know bs lawsuit i think like the [1:05:12] most absurd thing. [1:05:14] I remember under the Biden admin for [1:05:16] for crypto. [1:05:17] was that the SEC actually tried to take the position at one point. [1:05:21] that stable coins were a security. [1:05:23] even though like if you buy usdc like you can't really make money um you know it's pegged to a dollar that's the entire point um

[1:05:32] And, you know, there are, [1:05:34] there are some like very obscure legal arguments you can use to say that it is but like it [1:05:38] everybody knows it's not like in practice it's not it's like trying to say this guy is is [1:05:43] you know, [1:05:44] green or something. It's just like, it doesn't [1:05:47] have any real logic to it but yeah so i think the trump admin is basically [1:05:51] fixed, you know, essentially all that stuff. The new SEC chair seems really good. The new person that they're [1:05:58] Hopefully getting confirmed soon for the CFTC seems really positive. [1:06:02] So I think that's taken a complete 180. What, you know, taking clarity as, as red. [1:06:09] let's say, what are the sort of [1:06:10] other pieces that maybe feel like they're they're still missing or you would still like to see [1:06:17] you know, further action on. [1:06:19] I think the other area that [1:06:22] you know, [1:06:23] probably doesn't get into the clarity arc that, [1:06:26] I think would be good is, [1:06:27] you know, there's kind of these like regulatory exemptions for like, [1:06:30] spot exchanges that are decentralized, like Uniswap and things like that. [1:06:35] it's kind of unclear whether they're going to exempt and probably not, you know, things like decentralized perpetual exchanges. [1:06:41] things like hyperliquid and lighter and stuff like that. [1:06:45] Um, [1:06:46] You know, the same thing for prediction markets. [1:06:50] Like, [1:06:51] Anyone in financial markets, you know, would. [1:06:54] would clearly tell you that a global liquidity book is just [1:06:57] going to be far more liquid and better. [1:06:59] then [1:07:00] where polymarkets currently happen to end up, which is you have

[1:07:05] you know, US exchange, [1:07:06] And then you have kind of the offshore one, [1:07:09] I think a much better like long term, you know, think over many years. [1:07:14] regulatory structure would be, [1:07:16] Sort of like what, um, [1:07:18] Hester Pierce kind of proposed the SEC back in the day, which is she had this idea that it's like, [1:07:23] DeFi should exist. You should be able to trade on it. It should be legal. [1:07:26] It should not be illegal. [1:07:28] and, [1:07:29] But the one negative of trading on DeFi is that you don't get the regulatory protections if you trade on a regulated platform. And then, [1:07:37] If you want those regulatory protections, [1:07:39] Um, [1:07:40] you can build like a regulated thing on top of it. [1:07:42] And so I think like you look five, 10 years, like the ideal way, [1:07:46] that something like Polymarker should work, [1:07:48] If you have the core platform, [1:07:50] decentralized smart contracts based. The Clarity Book is completely global. [1:07:54] And then in the U.S., you can also trade on that if you want. [1:07:57] But there's also like a thing on top that feeds directly into the same liquidity pool. [1:08:01] And that, you know, has kind of the regular regulatory licenses. If you're, um, [1:08:06] Citadel and you want to bet [1:08:07] you know, [1:08:08] $100 million on on some, you know, Fed action or something. Yes, that's probably what you use, because you want the full regulated financial system. [1:08:17] but you still get the same share of liquidity. [1:08:19] Like that's, [1:08:21] Yeah, that's sort of for like over a five to [redacted address] I hope this stuff goes. [1:08:26] versus right now, you know, kind of feels like we're trying to, [1:08:30] The market structure of having these things be separate doesn't really make sense. And it's very clear that the smart contract based way of doing it is superior.

[1:08:37] And so, [1:08:38] it's just like a matter of time and who knows how long that takes but that's that's sort of the one thing that i think [1:08:43] probably doesn't get done in this admin. [1:08:45] I think there's probably people in the admin who do want it to happen, but it's [1:08:48] that's more like, [1:08:49] you know, with Congress, you got to be practical and [1:08:51] get what you can get done versus trying to... [1:08:54] you know, get everything all at once. [1:08:56] Yes. [1:08:57] Well, before we maybe go into a wrap up question, [1:09:00] One, one final thing that I, [1:09:02] was curious to hear about is maybe how your [1:09:06] investing lens has changed since joining Founders Fund, you know, [1:09:11] Obviously, [1:09:12] When I sort of looked back at your Medium post announcing that you were going to Founders Fund, you talked about [1:09:18] how prescient Peter had been in sort of predicting the contours of cryptocurrency back in the late 90s, and, you know, the value of being part of, [1:09:29] a really high quality generalist investing team and how that can influence [1:09:33] you're thinking positively. So [1:09:35] after, I guess, a couple years of this or maybe longer. Yeah. How has that maybe changed the way you think about your work? A bunch of different ways. You know, I think one of the, [1:09:46] you know, one of the things when I first joined Founders Fund is there's like a [1:09:50] I forget who, someone on the investment team sent me a link, and it's all the historical, you know, annual meeting talks Peter's given. [1:09:56] Um, [1:09:57] And I kind of just flipped through all the slides of them and [1:10:00] One of them is this thing where there's a slide and it's like, [1:10:04] Michael Jordan and it's a slide of him as when he was playing baseball.

[1:10:08] um and then there's another slide you know right after where he's playing basketball and and i forget what the slide says but it's something like you know [1:10:15] Founder market fit is probably like the number one thing. [1:10:19] incredibly important. Michael Jordan was not a very good baseball player, but world-class at basketball. [1:10:25] That's something I think a lot about, um, [1:10:28] you know, it's, [1:10:29] Founders Fund in the name, it's about backing the best founders. [1:10:32] But then I think, [1:10:33] there's this other aspect of like, [1:10:35] Is this the right founder for a given market and product that they're building? [1:10:39] And then I think the other really interesting thing is there was another slide like this. [1:10:44] I've heard Peter talk about this sense as well. It's like this notion that [1:10:48] really great founders. [1:10:50] they're not like this, like, you know, [1:10:52] checklist. In fact, they're really, really great at some things and really, really bad other things. [1:10:57] And I think that's probably true for greatness writ large. And that's a really interesting thing. So then it sort of forces the question when you think about investing, [1:11:05] I think one of the things that we do well at Founders Fund is try to zero in on like [1:11:10] what are the most important one or two questions for whether this will work? [1:11:13] And then also, how do those tie into who the founder is and what they spike at and how [1:11:18] and you know what they're bad at um [1:11:21] And that's probably one area. And then I think the other thing is, [1:11:26] You know, that is, [1:11:27] kind of a fact of the way I invest is just looking at things from [1:11:31] the lens of like if you read like zero to one peter talks about this a lot but it's like you know [1:11:36] people really underestimate the power law. And then there's kind of this notion that like getting to scale matter matters a lot.

[1:11:43] um and [1:11:46] I think if you look at that, [1:11:49] Like one way to apply it to crypto that I've kind of applied it to is if you look at things like Polymarket, [1:11:55] as one example. [1:11:57] We doubled down again in them earlier this summer. [1:12:02] And some of these, I know, thought that that was like a, [1:12:05] too expensive price, you know, and then they raised a way, way higher price, you know, a few months later because, you know, [1:12:10] The traction 4X'd. [1:12:12] And I think it just comes from like, [1:12:14] people tend to really underestimate the power law and how [1:12:18] there's many cases where something that [1:12:20] Um, [1:12:22] you know, feels expensive actually isn't, or something that feels not expensive is actually incredibly expensive. [1:12:27] And I guess the last thing on this question, you know, our growth team recently kind of did this analysis of like, [1:12:33] if you look at companies and how long it took them to get from [1:12:36] of the ones that made it, how long it took them to go from like, you know, 10 billion to 100 billion market cap, and then 100 billion to a trillion. [1:12:43] It's actually. [1:12:44] faster for for [1:12:46] the larger scale. [1:12:48] within tech. [1:12:49] which is kind of surprising. [1:12:51] Now, of course, the hard part is [1:12:53] making sure you're in those companies as opposed to the ones that, that failed, which makes being slack, really selective, really important. [1:13:01] But I think, [1:13:01] Those sorts of lenses are [1:13:04] You know, some of them are things I thought about, but hadn't realized how important they were prior to being at Founders Fund. [1:13:10] And then some of them are just... [1:13:11] you know, like the, [1:13:12] the growth one is kind of counterintuitive.

[1:13:15] but empirically true. [1:13:17] What a thoughtful answer. [1:13:18] I'm going to be mulling that one over for a while, I think. [1:13:22] Well, as a final question, I always like to ask guests, [1:13:26] If you had the power to assign a book to everyone on earth to read and understand, what is the book you'd want to assign people? [1:13:34] I think one of both that's really good, [1:13:38] is there's this book about the history of hedge funds. [1:13:41] A lot of people listening to this have probably heard of the power law on the venture side. [1:13:45] which I actually haven't read. But the same author wrote this book called More Money Than God. And it's a history of, [1:13:52] you know, a lot of history of financial markets and of hedge fund investing and trading. [1:13:56] and, [1:13:58] it's probably the, um, [1:14:00] Probably the most interesting and best teen book I've ever read. [1:14:03] maybe alongside like Soros, the alchemy of money or finance or whatever the title is. [1:14:08] Um, [1:14:09] Because both of them provide like a really insightful window into how like really great investors thought about the investments they were making at the time that they made them. [1:14:18] Um, [1:14:19] versus I think a lot of them, a lot of investing books talk about, you know, [1:14:22] oh, we did this, this, and this, and it was sort of obvious and, you know, we're so great and all this stuff versus these books kind of walk you through like the trades and investments at the time. [1:14:31] you know, nothing's ever as certain as it sounds in hindsight. [1:14:34] but you can see like how people think and there's a lot of interesting stuff that I [1:14:39] kicked out from those books. [1:14:40] That is a great recommendation. I have read The Power Law, but I have not read More Money Than Got. So that's a good prompt. Joey, thank you so, so much for taking this time.

[1:14:53] I really enjoyed it. Yeah, me too. Thanks for having me. That's it. Thank you for listening to this episode of The Generalist Podcast. Please subscribe on Apple Podcasts, Spotify, or your preferred podcast app. [1:15:05] Ratings and reviews help others discover these discussions, so if you enjoyed the conversation, [1:15:10] I'd be grateful if you could take a moment to leave one. [1:15:13] For all past episodes and more, [1:15:15] Visit us at thegeneralist.substack.com. [1:15:18] dot com. [1:15:19] See you next time as we continue to explore. [1:15:22] the future. [1:15:24] .