Charles Hoskinson on Cardano's Future, Ethereum's Mistakes, and Crypto's Missing Safety Net

I like looking at it like Anthropic to OpenAI and Google. So Google initially had the big lead and then OpenAI had the big lead and then somehow this Anthropic thing came out and they were able to just leapfrog everybody. Well, they didn't fundamentally change. They just had the right mindset. They started with an AI constitution, you know, and they had a very clear line of sight to how they wanted to build Claude and these other models and it wasn't very sexy and a lot of people ignored them. But now they're kind of on the other side and they're the leader of the pack because that philosophy turned out to be the right one for how to build an agent like that. Much the same way with Cardano. I think people are starting to wake up especially in the age of AI hacking where everything is getting broken that speed the market's not necessarily the most desirable thing.

It's great to be on, Jen. How you been?

It's been a lot of fun. Uh, you know, we had a bridge hack on Monday on the Binance Cardano side and a bunch of Knight got stolen and dumped. So that was the case in the Mondays, but you know, we're powering through. We're getting things done. And you know, the networks are strong and resilient. And overall, actually, I'm pretty optimistic about the second half of the year. The first half was pretty garbagey, and you know, I think things are finally picking up and moving forward.

Well, I mean, one of the reasons we built Midnight was to stop these things. And this particular bridge was built by a Chinese company. It was one chain and it's a legacy bridge. And I came on your show before and you know we said hey Fable and Mythic are here, Soyl's here, and these AI models are going to be used to hack everything and it's not just crypto. There are more vulnerabilities in the last two months that have been discovered with the Linux kernel than the last two years. So it gives you a sense of just all software is under this enormous assault. So Cardano and other systems that were built with high assurance, we fare better, but that's like being 90% resistant to a deadly disease. If you're exposed to it enough, eventually you still catch the disease and it's no solace. You still die of it. So we have fundamentally changed the way that we do things. And when you look at things like ZK systems like Midnight, you move from trust a bridge operator or trust a multisig or trust some software to trust a zero knowledge proof and you're getting back to that trust the math as opposed to trust people. So you need to get there. The other two things is that when bad things happen, we need better mitigation systems to try to figure out who how to get money back to the people who were victimized. So how do you prove you own things? So we have Midnight Passport. You pair identity with, you know, a cryptocurrency and then you can do selective disclosure for these things. So you know it's Jen's wallet or Charles's wallet. So you can actually have non-repudiation. And then finally, we need insurance, you know, for these systems. And it's been a long-standing thing for both wallets and bridges. They get hacked and there's nothing you can do about it. And if you have billions of people and you know trillions of interactions per year, at least one thing is going to break every year for a variety of reasons. Insider threat notwithstanding. So you need some form of recovery system where you know once you've identified people you can pay a policy out. So we're almost there. I was in Bermuda for SALT earlier and the premier invited us and lovely to be there but it's a huge insurance market and actually the BMA and others this was one of the topics they were talking about is how do we create wallet insurance and how do we create insurance for AI agents and how do we create insurance for bridges and other things. So my hope is to see these products come on market and you know whenever I see stuff like this it just reinvigorates me a bit for the recent desire of stuff like Midnight that we desperately need it as an industry because ultimately the alternative is just 15 years of the same thing where it's like oh well you lost all your money too bad move on. It's like we're never going to be a mainstream product and we're never going to be respected and we're never going to be something that everyday people can trust if that's the mentality and attitude. You need financial systems with rule of law and checks and balances and the ability to get restitution when bad things happen. So, as unfortunate as this is, it's an example of the need for maturing and it's really invigorated the team a little bit to continue building the technology as quickly as we can and we're hitting all of our KPIs. So, we'll just keep doing it.

So, you'd have an opt-in system. So, you'd have to first separate custodial from non-custodial. So, on the non-custodial case, you'd have an opt-in system and you would pay either a monthly fee like you do for fire insurance or you'd pay some transaction fee or something. It would pay into a pool as an RWA and then people would provide collateral on the other side like Bitcoin or whatever. And as long as the policy doesn't trigger, they get the premium. And then if the policy triggers, then you know pays out. So what's nice about this is it would force a maturing of the industry because the only way to get insured is to have a wallet that meets best practices or a bridge that meets best practices. So we'd have to define what best practices are in terms of governance oversight, the operational overhead, the software level of formalism, these types of things. Just like when you say I have a warehouse. Oh well do you have fences and security guards and cameras? Can't write you a policy until you get those things. So it would kind of force software to get better and then you also have to be able to identify people. So if you have something like a Midnight Passport with selective disclosure then you can prove that you own that wallet. What's really nice about selective disclosure is it means you don't have to do it in the custodial sense like you go through a KYC. You can just link things together and then if a bad event happens, you can show up out of the woodwork and prove you're the owner of the system. This also covers the case of the dead man switch. You die or you lose access to your wallet for some reason. You could authorize a sweep so the funds get swept after a period of time to a custodian or somewhere else and then you can go through a KYC process and recover the funds. Really important because you don't think you're ever going to lose your phone or ever lose access to things, but stuff happens. What if you get arrested in Thailand or something, you know, and they throw you in prison for 10 years and you come back and like where's your phone? Where's your wallet? Any of these types of things. So, it's nice to have the ability to fall back. So, this is the great maturing of the industry. And when you start insuring things, you get very very serious about safety standards, best practices, and everybody has an incentive to work together. The other thing is you create another RWA product. You know, when you think about returns, when you have insurance products, these are in the trillions of dollars. These are not billion dollar markets. And so, we say, well, where's the yield going to come from? How do we get more DeFi products into the cryptocurrency space with reliable, sustainable yields? That's an example of one of them. So, some of the frontier insurance companies are thinking about these types of things, and I think it's going to be an essential component. They're just waiting for the privacy components. They're waiting for legal elements to come in. They're waiting for selective disclosure of these types of things. The other thing that's really cool is the American Arbitration Association just announced a legal context protocol with some of their partners and we've been talking to them because they don't have a privacy standard for it yet, but basically gives you the ability to embed into a transaction or into a wallet the legal understanding. So you can put it in and there's a reference point like why are you doing this and what contract is this under and how are you going to do the dispute resolution. Well when you add a privacy standard in there then you can prove properties about a wallet or a transaction without revealing the underlying contractual intent parties. So that's essential for some other things like what happens when a white hat comes in and tries to recover money before a black hat takes it. Under what legal authority are they doing that? So under these structures, you could pre-commit to a white hat rescue if it follows some sort of white hat license or something like that. And it solves one of the biggest legal gray areas that our industry has. Because oftentimes when an attack is underway, the attacker can't steal everything all at once. And the people who built the infrastructure are typically in a better place to take the money before the attacker does. So they many times do that, but actually many cases they don't have the legal authority to do that. They're just doing it because they say it's better us than the hacker. And then they have to spend this long multi-month, multi-year process to try to give the funds back. And they're not even sure who to give them to because there's no identity. So they end up actually getting themselves into a really bad situation because these are typically non-custodial instead of custodial. Custodial have KYC. So getting to know who the people are.

Yeah. And it's the maturing of the market. So I don't see it necessarily as a completely separate thing. We call it the web 2.5 space. You take legacy web 2 stuff and you blend it with web 3 stuff. And the big lynch pin there is privacy and identity. You need to have those things. And then you have to wrap them with abstraction. And to make them productizable and consumer friendly, you need AI. So if you combine agents, abstraction, compliance and identity, and privacy together what this gives you is a workable system where you actually have a very simple easy to use thing like you send money to Jen at Midnight and then somehow it can go anywhere like Hyperliquid or Ethereum or Solana and then you the consumer can decide the level of protections and safeguards that you want to have and you're always at the driver's seat in terms of how much custodial control you have in this because we were always offered kind of like one of two worlds in the legacy crypto world. It was non-custodial or custodial. Custodial, you lose everything, not your keys, not your wallet. You completely hope to God that that entity is going to treat you right and do you right. Whereas non-custodial, it's buyer beware. Anything that happens, including a software failure that's not your fault, you lose all your money. And both of these are completely untenable for like 95% of consumer use cases. You can't take a system where there's already checks and balances, insurance and safeguards and other things and then tell consumers to migrate off of that system to another system that's more volatile, more expensive and has less safeguards. Only markets that will do that are emerging markets, criminal markets, or highly speculative markets. You won't do that for traditional finance. So these next generation technologies, they allow us to get all the benefits of the legacy world, but keep the benefits that Satoshi gave us. You know, you're still in control of your own wallet. You're still in control of your own keys. And also, nobody has a god mode to your system and can freeze your funds or, you know, steal your identity or things like that. So, you know, we've been working on Midnight for about six years specifically for this reason. And we kind of predicted that these things were only going to get worse, not better. You know, we said we knew we saw the DAO hack obviously back way back in the day and then we started seeing bridge failures and things like that with Wormhole and others and we said, well, it's not their fault. It's just these are highly complex systems and if your goal is to make everything interoperable like a hundred different blockchains at the same time, what's the probability at least one of them is going to have some problem? Probably close to one. You're going to have a very high likelihood. So if every single time that happens it's a total loss that's catastrophic to the model. So you need a fundamentally different way of thinking about bridge technology and thinking about how these markets work. And so we started working in the ZK space in that angle. And I think that's the big differentiator for Midnight over these other ZK projects. They're usually focused either on scalability like let's do rollups and make them work really well or they're focused on just privacy along one dimension. But it's useless unless you mix it with other things like agents and abstraction and compliance tools and also many different dimensions of the privacy like trusted execution environments and multi-party signatures, multi-party computation, because when you put those things together then you have a much more holistic framework to reason about how could you add in consumer protections or how can you add in disclosure regimes or regulated subnets or other things for RWAs that allow people to use crypto safely or in a compliant way. So, it's exciting to work on, but it's deeply frustrating because we're almost there. And then you see these things happen with legacy software and you're like, well, it proves why we did what we did. But it's no solace to the people that lost money on these hacks. They're just upset and they say, oh, see, my parents and friends told me cryptocurrencies are a scam and I just lost my money. So, yeah, I guess cryptocurrencies are a scam and it's permanent brand damage in those circles.

Well, I mean we have had a multi-year, actually decade long agenda to properly build a cryptocurrency. So it started in a federated and static sense and this was the Byron era back in 2017 where we launched Cardano and then we moved to a decentralized network with Shelley and so operators had control over it but there was still federated governance and so then we added smart contracts and then added decentralized governance. So we're about two years into the decentralized governance and a big milestone of that is recursive self-improvement. So the network is the ability to vote on its own priorities and fix itself and upgrade itself. So this hard fork was one of the first where that was actually done completely end to end by an onchain vote and then the community as a whole and it brought a lot of quality of life improvements, some bug fixes, some security fixes but the biggest thing is it added a lot of ZK infrastructure. So now we can verify Groth16 proofs on Cardano and it opened up the world for a lot of bridge capabilities and optimizations for getting Cardano to be more interoperable and also some infrastructure for our big scalability push. So the next big upgrade is going to be Leios and that's going to make Cardano about 60 times faster. And so this is a super important hard fork to enable that and just long awaited quality of life. But more importantly got us into this flow where Cardano in a completely decentralized way can come together, decide on a roadmap, fund the roadmap and then vote on it and then implement it and get it in. So it means that effectively Input Output can completely disappear and Cardano will continue to recursively self-improve. So it's a truly decentralized ecosystem. Case in point actually we've been gradually over the last two years slowly moving our dev capability into many different companies. So it started with having great specifications written in a formal language called Agda. It's called Project Blueprint. So you have like an architect with blueprints. You have exacting blueprints for what is Cardano and they're implementation agnostic. So you can write them in any programming language and then node diversity. So in addition to the Haskell node of Cardano, there's a Rust and Go node being built and a JavaScript node being built. So that gives you a lot of different options. And then what we've been doing is with our developers over the next 9 months spinning them out into a collection of different firms and turning the Haskell node into kind of a federated open-source project similar to how the Linux kernel is being developed. So we also had to build membership based organizations to facilitate that. So two were created, one in Wyoming called Intersect and another one I think in Switzerland, an association there called Pragma. And so now there's diversity on the open source governance side, diversity on the node side and diversity on the onchain governance. And so it really is a very decentralized, very resilient ecosystem. And so the next challenge after that is going to be executive function. So getting a proper executive branch and you know governments typically have a judicial, legislative and executive branch. We've done a real good job with the judicial and legislative but now we need to figure out how to introduce that and that's our last milestone because you don't want your executive function to get too powerful because that becomes a king or a dictator. So you need checks and balances in the system. So we've been kind of over the last two years building up a corpus to get to an effective executive function and that solves some of the things like how do we do marketing and how do we do adoption and commercialization. All these people come in and say oh just do more marketing. It's like well you need a roadmap and goals and these things and you need an executive function to set those things and if you put it in too soon then you have beneficent dictator for life or you know like a Vitalik to Ethereum where there's a figurehead and they basically decide everything. It's not really decentralized at that point. So it's a long road. It's a hard road but it's what Cardano always does. It's like the blue chip. It's always here. No matter what you do it'll be lurking.

Well, after Executive Function comes in, which is the next major challenge because we've proven a technology, we can do what we do. I mean, even Ethereum is starting to adopt some of our things.

They can't mention Cardano, but then when they say, 'Hey, we should do some UTXO stuff.' It's like, you don't say. So we can win on the technology side. That's never been an issue for us. The big issue is growing the base, getting the DeFi where it needs to be, playing nice with other ecosystems, and this requires coordinating function. You require entities to negotiate with entities. So we started that with the pentad structure last year and we were able to get Circle and USDCX and in layer zero and Pyth and a lot of much-needed integrations into the Cardano ecosystem. So that's just a taste of what executive function can do. But once it's formed, then you set up your growth KPIs and you say realistically speaking, how quickly can we grow TVL and transaction volume and the DeFi game and what's the strategy to do that? And then how do you market into that for adoption? And there's huge competitive advantages for some of the decisions we've made in the ecosystem. So you have to talk about those competitive advantages. Cardano needs a narrative reset. It's got a little bit of a stigma because it reached number three on coin market cap in 2021 and there's a perception it failed to launch and failed to overtake Ethereum and then Solana overtook it on the DeFi side and so people say well, it's a dying project. Meanwhile, the people haven't gone anywhere. The passion hasn't gone anywhere and it has unique capabilities that no one else has. That's a marketing branding issue more than it is an ecosystem issue. Executive function gives you the ability to do that. So that's a big priority.

The rest of this year and next year as we kind of get Laos in and Paris in and we get the finality and throughput characteristics we need to compete, we need to really focus aggressively on it. And there's partners like Alpha Growth came in and they're one of the best in the business. They did a lot of the liquidity for things like Uniswap and others. And they can definitely grow the TVL and Draper came in. They're a great VC and they set up the Orion fund. So there's a lot of capital inflow and open capabilities for DeFi. And we have unique differentiators like Bitcoin DeFi. You can mirror Bitcoin on Cardano in a non-custodial trustless way, in a tax-neutral way. Can't do that on Ethereum. It's just structurally not possible when you go from a UTXO to account. You can do it UTXO to extended UTXO. And then opening that up through Midnight subtraction. You can have private Bitcoin lending and private Bitcoin DeFi. That's a huge advantage for a lot of people who are holders and they don't really care to show on-chain that they own that Bitcoin or they're making those particular yields. So that we think is going to be strong.

We're also going to be a big leader in emergent finance. We have a great product called Realfly that's coming out of testnet and it's going to have a lot of microfinance loans coming in and we think that's going to add several billion dollars of TVL over the next few years to the Cardano ecosystem and obviously the partner chains model we think is going to be our biggest long-term area of growth. Midnight added a lot of value to the ecosystem and the success and existence of Bitnight means a lot of followers will come on and every time they launch airdrops come to ADA holders and staking produces more yield because you get not just ADA but you get the partner chain portfolio as well. I mean if you held Ether and you got all the L2s on Ethereum you get like 30 tokens every time you're staking paid out. That's a big differentiator between us and Ethereum. They have a parasitic L2 ecosystem. We have a partnered L2 ecosystem. So we thought about a lot of things.

It just we had to figure out the execution side and we had to figure out how to do things the right way in a structured way. And I like looking at it like Anthropic to OpenAI and Google. So Google initially had the big lead and then OpenAI had the big lead and then somehow this Anthropic thing came out and they were able to just leapfrog everybody. Well, they didn't fundamentally change. They just had the right mindset. They started with an AI constitution, and they had a very clear line of sight to how they wanted to build Claude and these other models and it wasn't very sexy and a lot of people ignored them, but now they're kind of on the other side and they're the leader of the pack. Because that philosophy turned out to be the right one for how to build an agent like that. So much the same way with Cardano, I think people are starting to wake up, especially in the age of AI hacking where everything is getting broken that speed to market is not necessarily the most desirable thing. The recent A thing and Kelp thing, it shows how quickly you can lose your TVL and how quickly you can lose your customer base. So it works until it doesn't and then when it doesn't, it's catastrophic for the ecosystem. People want stability and stability only comes when you have a clear governance system, a clear software development system and really good ideas about how to evolve your roadmap in a sustainable way over time that leaves no one behind. So it took us a long time to get here.

A lot of mistakes were made and I own the lion share of them as the leader. But ultimately I'm very happy with where we sit and I think we're going to grow very strongly over the next 12 months to 24 months. Just going to take some time. Overall there's just a lot of fatigue too and we're not going to grow with the traditional crypto base. They've become misanthropic cynical monsters. Everybody is allergic to good news. Anytime anything good happens they're just sitting there and saying it's like that Debbie Downer on SNL was like, 'Ah, life is so terrible.' You're not going to grow with crypto people. We have to bring in new people into the ecosystem that are unmolested by the last 10 years of ups and downs and memecoin mania and winter mute stuff and so forth. And the only way you're going to do that is through innovation and embracing new things like Agentic Finance and Agentic Trading, stuff like Midnight Passport that blends identity and wallets together, insurance, good recovery products, and ultimately getting it to work on a cell phone and making it just one click to do all the stuff and integrating it into workflows that they already have. Less speculative and more consumer growth-oriented, but I think that's the only way we're going to be able to do that and no one has done that yet. Solana's done some good work in that respect, but it's still a vastly open market. Less than 5% of the world has adopted this. So, we're still on the left side of the Gartner hype curve.

Well, they've done everything wrong and they keep doing things wrong. And they don't give a damn about my statement, so you take it with a grain of salt. But here's the thing. We have an on-chain treasury and even at our massively reduced valuation at $6 billion, we're able to pay more than a hundred million a year for the ecosystem's growth and development and attract partners like an Alpha Growth or Draper. The Ethereum ecosystem, if it was to just take 5% of the protocol revenue and give it to the Ethereum Foundation, they'd have $390 million a year to work with, but they have nothing. And so, they're laying their people off and they're begging for money. And there's a tragedy of the commons problem. So, I think we're fundamentally right about the need to have a blockchain-based treasury.

And at the all-time high, the Cardano treasury was worth $4.5 billion. So there's a sustainability and an assurity that the lights will be kept on, the core entities will be around and development can be multi-year and make multi-year commitments when you have an on-chain treasury. And they don't have that and there's no way to implement or institute that. So, they're going to be perpetually living by charity. And there's this thing called the golden rule. Those who have the gold make the rules. So if there's some collection of core entities that are paying for development, they have 100% say ultimately in the EIPs that get developed and the ones that don't get developed. So there's an oligarchy and a plutarchy that's basically forming.

When you have an on-chain treasury that's controlled by an on-chain voting process, the holders actually get to decide on the direction of the network. So there's no on-chain treasury, there's no on-chain voting process. So whatever fiction they're playing about decentralization, let's be clear, the masters are going to be the largest companies who will make the decisions on behalf of the ether holders of what they think is best. The problem is that the largest companies build business models where they want to build moats. That's what Wall Street did. They weaponize compliance and regulation to prevent new people from entering the market so that the big banks can just get bigger. That's what the tech companies do where they weaponize standards and other things to benefit Microsoft and Apple and Google and others at the expense of small companies. So that is going to play out in real time and is playing out in real time in the Ethereum ecosystem and the Bitcoin ecosystem. The only antidote to that is some form of democratic process where you the people hold the tokens can vote in their best interest as opposed to a small group of companies controlling everything. So I don't really care about the fiction that they have.

There's fundamental flaws in the approach that they've taken. And this has been a debate I've had with them since 2014. And Vitalik has written extensively how he thinks on-chain governance is bullshit. Well, I put my money and my time where my mouth is. It's hard. It slows you down. It's deeply frustrating when people you've never met, you have no relationship to vote against things that you're proposing and in bad faith. But that's the nature of democracy and the alternative is oligarchy or dictatorship. And that never results in a good outcome. The best case scenario it's a status quo preservation mechanism. The worst case scenario becomes a captured product that perpetuates the will of a dictator. And so in both cases it makes no sense. And I've never seen a counterexample in technology or government. You either care about decentralization or you don't. And the same way that you can decentralize the governance of the ledger, the actual making of blocks with a consensus algorithm, you can decentralize the decision-making inside the system, but that requires you to build an on-chain voting system. And it took us several years to do this. And it's still not perfect. There's a lot of upgrades we have to add in. We started with legislative and judicial and got a constitution written, had a constitutional convention, and now we have to put executive function in. I'm getting old, Jen. I'm going to have a lot more white hair and lose a lot more hair on my head by the time that's done. But once it's done, it's the model.

And then of course, they'll write a blog post about how great that model is and they invented it, not reference Cardano at all. And then tell everybody in the market how on-chain governance is the next big thing. I mean, it's almost comical at this point. When they say UTXO is something they should start investigating and I read their EIPs, there's not a single reference to Cardano, though we've been working on this for 12 years, it's just insulting at some point. So, that's the nature of their ecosystem and this is who these people are and at some point people will wake up to it and realize they don't really know what they're doing and they're chasing their tail. It was with Plasma when they said that was going to be the solution. That it was with Casper and they spent years in this proof-of-stake boondoggle and trying to shard the chain and they realized that wasn't right. It was with the layer 2 mania before they became parasitic and problematic and now it's with their whole ZK agenda where they've chosen a road to nowhere with hash-based crypto doesn't have any good algebraic properties. So they're going to be post-quantum in one dimension but then have to use elliptic curves which aren't sufficient to do all the stuff they're doing today until they go to lattices which we're already on with Midnight. We've already started pursuing that agenda and Algorand is too. So they've just been wrong and they also have a custodial non-liquid consensus algorithm.

So they had to create a synthetic asset to create liquidity, Lido, with their custodial non-liquid staking mechanism. It's just a tragedy of errors and they worship the ground that Vitalik walks on. He can never make a mistake and he's a genius. Why? Because the market cap's high. The minute the market cap starts falling, the minute that the adoption starts falling, then suddenly they're stupid people. I was a smart guy, too, when Cardano was number three and everybody thought I was the greatest entrepreneur ever. And now they all pile on me. Why? Because the price is down. In this industry, we've fetishized and become addicted to where you sit on the market cap. And your entire worth as a human being, the quality of your ideas and other things is completely indexed to where you sit on coin market cap. If you're high up, you're a big guy. If you're low down, your ideas don't matter. Meanwhile, when you're objective about it, most of the good ideas are coming from the top 50 or top 100 or top 200. Look at Ilia with Near, brilliant guy. He basically created the playbook for abstraction. Or look at Macaulay with the Algorand ecosystem or Arthur Breitman with the Tezos ecosystem, who's one of the early pioneers with on-chain governance. All the good ideas are not coming from the top 10 right now. They're actually coming from the smaller guys doing very interesting things, but they're mostly ignored because of the market dynamics and waiting. So there's a humongous difference that's given to Vitalik Buterin and his cohort and they've just been wrong for over 10 years. And being wrong means more centralization, more hacks, more brand damage to the ecosystem and then ultimately captured by Wall Street. So that's why there's stakes here and why it's offensive to me because it's my life's work and I don't want to see the industry get captured.

When you take a look at the snapshot on the market as a whole, it's what you'd expect when you're close to the bottom of a bear market. So, the crypto fear and greed index, I think, is like 24 or something like that. And when you look at a lot of these indicators, whether they be like the off-chain infrastructure, for example, the ETF AUM, it's about 80 billion, but there's been four and a half billion of net outflows from the ETF. So, there's a softening of consumer appetite for Bitcoin. The Mike Sandler predictions and my own predictions about Bitcoin hitting 250 and beyond didn't happen. So that's creating some heartburn there. And when you look at a rolling index like coin 50, everything is kind of down. So when things are down the psychology is extra down and Warren Buffett likes to say the best time to buy is when there's blood in the streets. So it's actually a great buying opportunity right now.

We're kind of not going to go much more down in the market. So we've had wars like the Strait of Hormuz. We've had massive issues. We've survived huge regulatory events. We survived both the attack and embrace of the US government. It's both sides can create all kinds of issues. So I'm optimistic that we can build back up, but you can't build back up with the old narrative

I've been through this multiple cycles 2013 to 2014, with the gen one to gen two narrative where it was everything was a copy of a copy of a copy with Bitcoin. Then we came out with Ethereum and smart contracts. It brought a new thing and then gen two to gen three narrative as we moved into scalability, interoperability, on-chain governance. Now we have new narrative coming and that narrative is the blending of web 2 and web 3. If you look at the growth, the only growth has really been in the web 2.5 space. Canton and Ripple and Circle and Tether and Binance and others. They're all kind of web 2.5. They have a regulated company connected to a blockchain product that people use. And when you add these things up and you look at them over the last three years, they've like 10x'd in terms of their AUM in value that they have. And that's the peak. That's the tip of the iceberg. When you actually look at where that goes in three to five years, there are going to be 10-plus trillion dollars of RWAs that are going to be brought into the space. So the next infrastructure wave is going to be the facilitators of that onboarding

And those are going to bring with them probably 1 to 2 billion new users into the ecosystem. So, I'm very bullish in the long term. It's just who has the vision of how to put these pieces together and they're very different playbook than the traditional crypto playbook of higher throughput or higher finality. No one gives a crap about that. You have to look at the holism of all of it. How does it work with the legal contracts? How does it work with the compliance? How do we do abstraction so we can upgrade and change things and swap infrastructure out? How do you seamlessly move between jurisdictions and change regulations under the hood without the consumer noticing or seeing and then ultimately how do you make it safe for people as billions of people come in and unfortunately our industry doesn't realize the best actors at that are silently entering the space like the Googles and the JP Morgans and these others who already have armies of people who worry about this every day. So as we squabble and fight each other, Solana versus Ethereum and Cardano versus these, giants are slowly sneaking their way in and they're having a huge amount of influence, especially JP Morgan with Kexus and these other things. So, that's the real competition and that's what keeps me up at night.

Less so about can we beat this blockchain or climb up coin market cap. If we do our job right, we will lead and that's not going to be a problem. But I don't want to be the richest guy in a highly regulated market that looks exactly like Wall Street. Then we've failed. We have to grow with principles and the only way to do that is to make fundamental investments into a lot of things that are and preserve the non-custodial nature and the reflexive transitivity and these other things that we look for and so the space, the ability to prove that what you're looking at is right without trusting somebody. And that's the hard part. It's slow, it's methodical and it's painful because a lot of technology has to be invented for it. But if you lead that way, we can have a better market for everybody. So overall optimistic.

I think there's probably another three to six months of heartburn. The big thing is going to be whether clarity passes or not. If it passes, we'll see a huge amount of inflows. And it's like adding a bunch of sugar to young kids. They'll go crazy and run around and have fun for a bit, but it's not nutritious and it's not going to be a long-term sustainability. So then there'll be a dead cat bounce with that. But then as we clear all this nonsense, I think we will get back to where we need to be. Remember we're only about 50% down from the peak. The peak was about 4.4 trillion and we're sitting at about 2.2 trillion right now. Traditionally when we have a bear cycle goes down about 70% to 80%. So the fact that we have kind of a new high low and it's only a 50% drop and we have a lot of things to bring in 10 trillion or more capital when you widen the aperture and you look a 3-5 year horizon there's no way for this not only to return to an all-time high but for the markets as a whole to improve. It's just you have to have realistic expectations about things and also you have to ask where does the value come from and it can't be well I buy at $1 goes up to $10 and somebody shows up to buy the $10 token from me. I just where does the money come from? The other big bugbear is AI. It's one of those things like you talk to one guy, it's the biggest bubble in human history. You talk to another person, it's like, well, it doesn't matter because AI is going to come and replace us all and robots will run everything and it's a new economy. And the truth is probably somewhere in between. But, it's hard to have multiple trillion plus dollar companies enter into the marketplace and then say, well, we're just going to keep like spending 50 billion hundred billion dollars of opex and capex per year and then magically these huge inflows will come. I'm not as pessimistic as the doomers are on that. But it is true that LLMs are getting commoditized. You see that with Kimmy K3 versus Fable? Okay. Is Fable really that much more valuable as an asset if Kimmy K3 is like only 5% less and it's totally free to deploy on your own infrastructure? The falling cost of inference as well. Usually, it's about 3 to 6x per year. So the cost of running these frontier models within two or three years is going to be sufficient that you can run it on very cheap hardware like $10,000 hardware that used to cost a half million dollars. So there's no value in the actual models themselves. It's the harness and the data surrounding the models that has the value and that's the stickiness. The problem is that people like OpenAI and Anthropic, they don't have a strong economic moat there. So they have to build one rapidly. The people who have moats there are Apple and Microsoft and Google because they already have all your data and they already know you and you're already integrated into their products. So, there's going to have to be some reconciliation. This is relevant to crypto because like 8% or 9% now of the entire US economy is connected to this AI rocket ship. So, if there's a bubble burst there, it'll knock us into a 2008 style deep recession. There's no path for crypto to stay stable in that because it's still viewed as a speculative luxury asset as opposed to an essential inelastic good like oil. So if that bursts the floor falls out and the markets could retract dramatically. If that stays somehow going and they can continue the momentum of that, then crypto can decouple and move its way into more high utility things the next 24 to 36 months and then the RWA revolution and the consumerization these other things will hold it up. So crypto won't be correlated to these tech stocks the way that it's historically been. So just food for thought there.

It's a complex puzzle. I'd rather be in crypto than the US dollar in the next five or 10 years, especially as we have to start paying for the excesses we have. But it's still going to be painful for the next 6 months to 12 months. It's just there's no way to get around it and especially the next 3 to 6 months are going to continue being painful. Unless the clarity can pass and if it does, then we'll get a boost, but it's false hope. You'll see a crash down from that rebound.

Thank you so much. It's a lot of fun. Cheers.