What about this? What if we rename the show The Chopping Block?
No, no, no. But The Chopping Block has the view of like a guillotine, right? It's like you're dead in one kill. Where The Chipping Block is like, I'm just like slowly beating you up.
I mean, that sounds like the show. We've been doing this for years. We're slowly... principles are getting chipped away at. That's The Chipping Block.
Not a dividend. It's a tale of two quants. Now your losses are on someone else's balance sheet.
Generally speaking, airdrops are kind of pointless anyways.
Unnamed trading firms who are very involved.
DeFi protocols are the antidote to this problem.
Hello everybody. Welcome to The Chopping Block. Every couple weeks the four of us get together and give the industry insiders' perspective on the crypto topics of the day. Quick intro. First we got Tom, the DeFi maven and master of memes.
Next we got Tarun, the gigabrain and grand puba at Gauntlet.
And we've got Robert, the crypto connoisseur and czar of Superstate.
And I have Ab, the head hype man at Dragonfly. We are early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see choppingblock.xyz for more disclosures. So, boys, I am back. I assume you all miss me. I can feel how desperately you guys wanted me back.
Thank you. That's... how was it over there?
Uh, it was weird. It was weird. I was not the host, so I was just guessing it up. And I realize how nice it is to not have to run the show and like keep everything on track. It's... I envy you guys.
Listen, I keep everything on track. Take all the credit you want, please.
You know, one thing... Rob was great. One thing Rob did which maybe we should do is he said the frontier topics of the day. The frontier topics. You did say that.
I mean, look, I feel like we got to own who we are. And this is... it's The Chopping Block. It's on Unchained. We talk mostly about crypto. We do talk about other stuff. So obviously there's stuff in here increasingly about AI and you know, we're going to be talking about the midterms obviously, which is expanding beyond crypto. And so I kind of feel like it's... there's a sort of free association that's happening within crypto and around crypto. So we will cover other topics, but Frontier... it's like, I mean look, we're not going to be talking about nuclear.
Yeah, I was just joking. Just okay.
Yeah. I think the only time we can use that word legally is if Chris Dixon is a guest on the show.
True. We did not talk about that, did we? Did we do a16z crypto or...
I think we ran out of time.
I think... No, I thought we did. We sort of...
Oh, maybe we didn't really talk about it.
For anyone who missed the news two weeks ago, a16z is no longer a16z crypto. They are a16z Frontier.
Well, to be clear, a16z crypto, not a16z. a16z crypto became a16z Frontier.
Yes. It seems like the way in which they expanded their mandate is that it's not just crypto, but it still includes crypto, but will now include things like new computing paradigms, agent-to-agent, something something something. So it's kind of like the grab bag of cool futuristic stuff that falls through the cracks at the other a16z funds. That's my understanding. But they do have an AI infrastructure fund. They do have a biotech fund. So presumably it's not supposed to be infra or biotech, but another way to look at it, it's whatever Chris Dixon wants to do. So that's...
Sounds like you're giving like a divorce talk. It's still going to include you, but it's going to include, you know, other people that daddy wants to meet and, you know, it should be fun. It's going to be a big group.
Yeah. It hits a little close to home, I have to say.
I... sorry. Wow. That was... that was like... I was like...
Chris Dixon, you know, it's... I mean, how did you guys feel? Not... okay, analyzing what it means for Chris, the industry. How did you feel inside seeing that happen?
I think it's a sign of the times, right? Do you remember when Paradigm two years ago or so decided to...
That was '22. That was 2022 when they did that.
Right after FTX. Right. After FTX they did that, right? Which by the way, ahead of the times. Okay.
Incredible timing that we bullied them out of.
It would have just absolutely nailed any AI investments in that vintage.
And they were booed off stage. For anyone who doesn't remember the history and the lore, Paradigm dipped their toe in the water and said, 'We are no longer a crypto firm. We are a crypto and AI firm.' And Twitter lost its mind. Relentlessly and mercilessly bullied them. And then they said, 'Okay, we're a crypto firm.' And when I compare the a16z crypto announcement, that's my frame of reference was Paradigm getting mercilessly bullied. And when a16z crypto did it three years later, no bullying, no jokes, everybody said, sign of the times.
Yeah. Everybody was like, 'It makes sense. I'd probably do it too if I had.'
Smart move. Good for them.
You may as well dabble in the frontier.
That's right. That's right. Well, the big change in the frontier of course has been the blue wave that we saw during the midterms.
Tsunami, sorry, mega tsunami. Actually, there's a categorization of... there's like a market for was it a mega tsunami and the market ended up resolving yes. So, we saw just a total shellacking of Republicans in the midterms, largely anticipated by both polling and by prediction markets. I was just looking at some stats...
...but by one much earlier than the other.
Yes. So if you look at, Polymarket published some stats, of course we're investors of Polymarket. Polymarket published that 419 of 426 races the favorite on Polymarket ended up winning. Basically by 7:00 p.m. on midterm night they called it 99% that there was going to be total control of Congress. Tom, go ahead.
Yeah, I was going to say like, I had a journalist friend text me last night at like 8 o'clock was like, 'Are you watching the midterms? Are you glued to the results?' I'm like, 'What results? It's over. Like if you're watching the prediction market, like it's over. There's no more information to consume. It was basically done at like 8:24.'
Only thing everyone [__] up was Mississippi, but honestly that vote isn't still fully tallied and it's like 50 votes delta. So it's like I don't know. It was kind of a... that one I feel like was one of the ones that like all these people like, 'Oh, prediction markets, they weren't so good, they couldn't predict Mississippi.' And I'm like, it was an election won by 50 votes. Like it's like kind of hard to hold. I don't think anything is quite at that precision for a human behavioral thing.
Yeah. So it was a fine night for prediction markets. I think I saw many people saying like, 'Wow, prediction markets called it.' Everybody who was hand-wringing about, 'Oh, polling error, blah blah blah blah, you know, maybe the markets can't be trusted.'
Well, there was polling error. Trust me, there was polling error. The polls all had Democrats forecast for a very good night. The polls did not anticipate mega tsunami. Right. The polls did not indicate that the Democrats would take deep, deep, deep, deep red Senate seats. So, the polls were off tremendously and they underweighted the Democrats. There was a lot of talk about, 'Oh, the polls are bogus. They're going to overweight the Democrats.' No, they underweighted the Democrats. The polls were significantly off. Yet again, I think the prediction markets were fortunate that the direction of the polling error was in the direction of where the polls would have had people predicting. Like if you took the polls at face value, you would have been like, 'Oh, the Democrats have a pretty good chance to sweep, right? Oh, this Senate race, pretty good chance for the Democrats.' Most of the Senate seats were like, you know, 70 to 80% odds for the Democrats going into it. So there wasn't a prediction market error because it was aligned with the polls, but the polls, the magnitude was way off still, and therefore I also think the prediction markets underpriced the true odds in that case because they were quite well aligned with the polls.
Yes. Well, so I push back a little bit because it's like, okay, the true odds according to what information, right? Was this information somewhere accessible that you could have known that the margin would be this deep, or was this in fact the best picture of all the information that was available to everybody, including people with private polling data?
Not to derail this too much, but I think obviously for US midterms markets saw a lot of volume, liquidity is pretty good. I think the other election recently that was strange was obviously the Brazilian election, where prediction markets as well as just like the public market was like very strongly pricing in Bolsonaro winning and then Lula won by like 3%. And so I think a lot of people were like saying, 'Oh, you're supposed to win 20% of the time if it's a 20% chance.' But like that felt like a scenario where like it was a huge swing where it wasn't like scraping by like a few pips. It was like a 3% margin. And obviously the public markets also, you know, reacting in terms of like how Brazilian stocks and banks were sort of trading. And so I don't know, that was kind of a strange one for me where I think we've seen globally predictive markets be really good in different regional elections. Like a lot of the same kind of patterns apply and so it was surprising to me that was so off for this particular election.
Well, at least for the midterms, I mean we have a lot of independent events that we can calibrate the midterms on with a lot of betting volume amongst each of them. And I think the answer is at least for US politics it came out very, very resoundingly in favor of prediction markets being very good at being able to anticipate what happens in these elections. And to your point, Tom, I tweeted out I think like at 6:30 or like 7 p.m. prediction markets were already showing 99% that it was going to be a clean sweep. And you know, you read the New York Times, you read the Wall Street Journal, you read like any of the mainstream news still going...
It was 80% clean sweep for like a week and a half before.
High 70s are like... Yeah.
And by the way, individual like Senate races underpriced it, right? So like there was a number of races where like the Democrats were at... like Mississippi, like Mississippi was at like, you know, 7% right before going to 100%. Right. There was a number of races that the prediction markets were off just because no one thought the wave was going to be this big. Right.
On the aggregate, the prediction markets were actually very accurate. Right. In the aggregate. And when you said like, okay, at a national level, was it close? Like, yeah, it was very close. Like, the prediction markets seemed convinced that there was going to be a wave, the prediction markets seemed convinced that the Democrats would take the House and the Senate. If you looked at the microstructure of it though, like individual races and like deep red states, like, of course, they didn't predict Mississippi going to the Democrats.
Yeah. I mean, it's crazy because I grew up in Texas, so seeing Texas go completely blue is really bizarre. Almost every single race in Texas came up blue, which I think it's like 40 years or something since that has happened. It's just like a completely different map in a way that you see in the same way that Democrats are reckoning with what happened in '24 as being like an existential party-level moment of like, what do we do? How do we reposition ourselves among the electorate? It feels like suddenly last night was that for Republicans.
Yeah. And by the way, I don't think the Democrats really repositioned themselves. I think Trump dragged down the Republican ballot into the nether regions of hell. I mean, I will say I was pretty... I thought it... we're talking about all of this, but then if you read the... that JV Dance, sorry, JD Vance, I have the spoonerism from all these jokes I kept reading about...
JV Dance. Yeah, that was what I think AOC called him on the campaign trail. But he basically... he had this thing where he's like, all the data we saw told us like... I don't know if you read his tweet, all the data as of yesterday. All the data of... and I'm like, we're talking about this prediction market. It's like the prediction market [__] said this like for months. Like man, like what are you talking about? Like there was... there's a little bit of like people just like suddenly realizing they lived in like, as I saw in another meme or another tweet, a chud bubble and like they just had to get out of it.
It seemed like that message was clearly him positioning for '28, which is that he now realizes and everybody in the Republican party is dawning on them now that Trump is toxic. His brand is only going to drag them down. Every single candidate he handpicked lost pretty resoundingly. And of course, just you know, down ballot, you've had all these races that really should not have gone to Republicans or sorry, gone to Democrats that went blue, many for the first time in many, many decades. So this is very clearly an ultimatum on Trump, on the Iran war, on inflation, and it felt like almost less of an embrace of Democrats. I was reading a bunch of polling, exit polling saying that people still don't like the Democratic party that much, but they really felt like this was a response to Trump and to Trumpism and anybody who cowed out to Trump, they were like, 'Screw you. That is not what we want to see.' And now we're going to have a very combative legislature against Trump. Now for us... go ahead, Robert.
I was gonna say this is a crypto show. The one thing I judge Trump on is did he make America the crypto capital of the world?
And the answer is not really.
Not really. Okay. Well...
If he didn't launch Trumpcoin, I think there was a much higher chance. Like I think that's... the meme coins basically [__] everything.
Well, corruption was one of the leading issues in exit polls. Yeah.
Which again is also surprising because corruption does not rank... Also announced in the first 100-day, 100-hour policy of the Democrats that they put out today was like one of the top five issues, things was going out just subpoenaing all the Trump...
And they're already talking about the legislative side of this. Like Maxine Waters is already floating new draft legislative text for a revamped version of crypto regulatory clarity, whatever you want to call it. It'll come back as the AML bill, like recrypto, but it's still on the conversational agenda. Whether that's a good or a bad thing, unclear, but Trump, his involvement in crypto, the unfinished business of the last session, all of that like continues into the next session, which is going to be dominated by the Democrats.
Okay. So let's zoom out and just get a sense of what this means for crypto specifically, at least in the legislature. So Stand With Crypto, which rates candidates on their crypto friendliness, they saw, you know, all the turnover in the House and the Senate. 226 pro-crypto candidates came into the House, 106 anti-crypto. It's actually a very good margin that is pro-crypto in the House composition. For the Senate, 19 pro-crypto, 8 anti-crypto. So again, basically a 2-to-1 margin in terms of crypto friendliness both in the House and the Senate. Now Sherrod Brown, who is a very famous enemy of the crypto industry, he was pushed out previously by Fairshake. Back, he ended up winning an election where Fairshake spent tens of millions of dollars to try to oust him and prevent him. So I think it was double that.
I think in this cycle it was like 40 million.
Okay. Yeah. They spent a lot to try to beat him. Sorry. Yeah. 40 million is what I'm seeing. And he ended up getting back in. And everyone... opponent...
And so, you know, crypto spent a lot of money... Stevens.
Sorry, that was a slightly delayed joke, but...
Okay, so we have some wins in terms of what the composition of the legislature looks like, and I think the reality is that the legislature is now younger. I think it's more technology-oriented, and there's a lot of pro-crypto people who have come into this new Congress. So I don't think we should focus entirely on Trump. There is going to be a post-Trump era where, you know, it's not going to be entirely about corruption and the Trump family and so on. But it's very clear next two years the main theme is going to be Trump corruption, World Liberty Financial, Trumpcoin, all this stuff is going to be repeatedly blaring through TV and through hearings. So Robert, let me start with you. How do you think this plays out when on the one side a relatively good fact pattern in terms of what this new Congress looks like with respect to their crypto friendliness, other side is that like Trump corruption rates and it's going to rate for the next two years?
Yeah, I agree. I mean, in the aggregate, the silver lining for the industry, right, is as you said, a lot of pro-crypto members of the House and Senate were elected, right? Why is that the case? Because it was such a ginormous, insane level of blue tsunami, right? In all of the red districts, they were running moderates for the most part, right? Because like why even throw a far-left candidate in the mix if you know it's going to be like a red district? It's like no, you run someone closer to the center. So there's a lot of candidates much closer to the center who are much more moderate on the whole pro... like pro-crypto. I mean, Ted Cruz is pro-crypto. He's like a Bitcoin guy, right? Like there's a lot of people that would surprise you who made it through, right? So this is not... there's a lot less far-left seats as a proportion of the electorate than you might guess from last night's election. There's a lot of moderates who have come in.
Oh yeah, I forgot. Ted Cruz voted on the Bitcoin reserve. Yeah. In Texas. Yeah.
He was like, 'Yeah, that's right.'
So, like I actually think this is like going to be like potentially once you get past the dirty laundry and all of that, like this is potentially a really pragmatic Congress. Yes, there's still unfinished business with the Clarity Act. You know, Maxine Waters wants crypto. Elizabeth Warren wants a crypto bill that regulates crypto into obsolescence, right? Like I assume Trump will veto any legislation that somehow gets approved, right? The next two years I think is going to be a lot of posturing. It's going to be like trying to identify the contours of the electorate, the contours of the legislative body, positioning for 2028. I don't think anything's getting signed into law. I think the chances that we get any legislation, basically zero. I hope that they can work on bipartisan things. Trump has said, like, 'I'd love to work on Democrats with certain things,' but like let's see. That being said, there are a number of presidents who have gotten completely shellacked. You know, I was listening to a historian this morning while I was at the gym on the treadmill. There have been a number of presidents that have gotten completely shellacked prior to the last two years of their term. Clinton, Obama, right? This happens. Presidents who were in the 30 range of approval ratings at temporary lows in their presidency and who listened and who got the message and who course corrected. And like when Clinton and Obama left their terms, they were almost at all-time high approval ratings. They basically said, 'I messed up. Messed up bad. That's not what America wants. Let's pivot hard.' Right? There's a chance that Trump pivots hard and says, 'You know what? Sure, ethics provisions in a crypto bill. Let's do it.' Like...
I love that you're optimistic that Donald Trump believes in mean reversion.
You know what? I don't know. I am open-minded. I mean, Trump, you're talking about a man... This is not Bill Clinton.
Yeah. It's like if anything he's the mean-reverting president. Who... how many presidents you know have a gap and still serve? All I'm saying is the door is not closed to things happening in this term that will surprise you.
I think he's still talking about the reflecting pool, dude. Like he gave a speech today. He's still talking about [__] White House renovations.
The status quo is that his legacy is going to get worse and worse and worse through the end of the term and his approval rating will sink. But as somebody who does care about how they're perceived very much, I could see him potentially hard pivoting.
I mean, I'd love to believe that. I would absolutely love to believe that, but like the list of things... like crypto isn't even on the list of things he needs to hard pivot on, right? He needs to hard pivot on Iran. He needs to hard pivot on tariffs. He needs to... like there's so many things that come before crypto. Like crypto is not even on the list, you know? And the reality is that he's so incredibly unpopular and so energizing to 2028 that like 2028 they're still going to be running on Trump. You know, even, you know, Trump's gone, it's going to be, you know, Rubio or JD Vance and they're still going to be talking about corruption and the Trump family and blah blah blah because like it's just so... it just... it rates. It's so animating, you know? And like I think what they learned from the midterms is that this is the message for the next two years. Let's see how the last years play out because at this point right now, Trump said he's going to veto everything. There's probably no expectation of legislative progress on any topic. It'll be a lot of posturing. It'll be a lot of investigations of Trump. It'll be a lot of impeachment of Trump. And he's going to continue to wield executive authority. He's going to... I mean, the things that are in his control, right? That are outside of the legislative process. It's like the military. He dictates what happens in Iran. He has a lot of control over how all of the departments are run. He has... there's a lot of things Trump can do for good and for bad in the last two years. I doubt permanent legislation is going to be a part of it. I think there's going to be a lot happening in the courts, offense and defense there, but it's going to be a sight to behold. So, I think crypto is going to be quiet.
You know, it's interesting because the first Trump administration, the last two years when he was a lame duck, I wasn't really paying as close attention to politics. And so I didn't really have a great sense of what he was able and not able to do when he was basically being railroaded by Congress. My sense of Trump is that he has a much better understanding now of how to make things happen.
I mean, you had a pandemic in the last year, so it's a little much hard... it's very hard to assess how well...
Right. Right. But when the impeachment started...
They do Operation Warp Speed, like they did shepherd, they did...
I think that the pandemic also opened the door to a lot more things being on the table and doable because of what an extraordinary time it was. But I think... I guess I don't have a great mental model of how... how much do you think Trump will get slowed by this? He's obviously been very expansive in his reading of his abilities, what he can do with executive orders. I think he's going to be very aggressive with what the marching orders he gives the agencies. But there's now very united government against him, and I think the Republicans are also going to start fraying because they're going to realize that they need to break with Trump in order to have a chance at '28. And so I kind of feel like he's in a worse position now than he was in this second part of his first term.
I mean, that's... yeah, has to be true. I mean, the just... even just pure congressional disadvantages was not as...
Is much deeper now. Yeah. Yeah. It's like potentially veto...
Congressional and state, right? Even the state stuff is like very against.
So, like I don't know, this feels like you need Trump to like have gone to like the equivalent of like, you know, the person who's... who's like everything they're working on blew up and then they went on like a meditation retreat and they come back and they're a totally different new person and suddenly they're like, 'I want to be kinder and I want to like have less insults and like stop talking about guys' asses and like whatever all this [__].'
Well, I don't know. I don't know if that assassination attempt, if you remember that. And then yeah, back to normal.
I feel like the level of aura loss here is so high that it's like unturn... it's like not possible. I think...
Yeah, it's surprising also he hasn't challenged any after seeding all this election integrity stuff.
