Arthur Hayes Bets Crypto Wins When the AI Bubble Bursts

Transcript

just print more money and make sure it doesn't blow up. And so that's how Bitcoin moons because they will print money to cover up this capital misallocation. And that's essentially the thesis of the essay. >> Hi everyone, welcome to Unchained, your no hype source for all things crypto. I'm your host Laura Shin. Before we dive in, we'll take a quick word from the sponsors who make the show possible. This episode is brought to you by 1-in Aqua, the shared liquidity layer from 1 in. Back multiple liquidity positions with one wallet balance and keep your tokens in your wallet until a swap fills. See how it works at 1in.com/ aqua. Today's guest is Arthur Hayes, CEO of Flabs and CIO of Maelstrom. Welcome Arthur.

>> Thanks for having me again. >> Just a heads up everyone that this is actually a pre-recorded interview with Arthur, but it was recorded just one day before release. So Arthur, we scheduled this interview a while ago, but it's rather fortuitous that today, Wednesday, August 19th, Bitcoin is up almost 7%, its biggest jump in a day since March, and we saw $1.44 billion worth of shorts liquidated. ETH has surged almost 16%. Hype has rocketed up almost 20%. And while we could, you know, maybe attribute it to the SEC's crypto rule making, I don't think that moved markets because I saw so many tweets afterward being like, why aren't the markets

moving? Like this is sign what, you know, what a deep bare market this is, blah, blah, blah. So, it looks like it really was uh Treasury announcing that it will double long buybacks. So, I think you have been writing about this. Um, but yeah, go ahead and give me your take and explain why you think this is bullish for crypto or or if you think it is. So at the end, you know, I have been banging on this liquidity drum. It's my only trade really at the end of the day. And you know, I think the new nomenclature now for the hedge fund bros is a debt sustainability um DSA. That's the the acronym being banded around across the street. But at the end of the day, we had this idea that around

5% yield on the 10-year is the maximum pain point for the US Treasury. And it doesn't matter who is in the seat. The pain point was evident with Bad Girl Yellen in the previous US presidential administration. It's evident with Buffalo Bill Besson and the current Trump administration. And it seems like the 5% level when it looks like the yields are surging towards that level, they engage in some sort of money printing exercise in a form of what we call soft yield curve control. So yield curve control is when a central bank or finance ministry essentially will um print money in unlimited quantities to buy bonds until the yield cap is

reached. Now obviously 5% yield in the tenure was not reached but this action I think is meant to scare the market to say yes 5%'s a level we care about it we'll defend it don't test us right and so what it best to do he said I'm going to buy the long end but I'm going to fund it by issuing bills and so if you looked at the most recent quarterly refunding announcement by the Treasury you'll see that the amount of bills issued continues to increase there was talk about limiting the amount of long end issuance of debt. And this fits in with the Fed policy because by all measures, Wars and the Fed should have hiked rates in the July meeting. The 2-year yield is about 50 to 60 basis

points above effective Fed funds, which the market is saying yields are too low given the US economy. But he did not because I have argued many times that he's working in concert with Bessant in the same way that Powell worked in concert with Janet Yellen. and he will make sure that the short end is cheap relative to inflation, relative to growth so that the Treasury can issue bonds at the short end and perform a sort of operation twist and buy them back on the long end. And so yes, there's not not there's not a net increase in the amount of like dollars slloshing around, but you could sort of see this as a cap on long yields, which you know, eventually this won't work and they'll have to um return to outright

expansion of the balance sheet. But this tells us the path of travel and this is why Bitcoin and crypto woke up overnight. >> And so what do you make of the moves of some of the specific coins? In particular, I wanted to ask you about the fact that you called for ETH to hit 5K by year's end. Even with today's pump, it's only at 2200. So, I wondered if you're sticking to the timeline or just if you have new views on kind of like, you know, which tokens you expect to perform well. >> So, obviously, ETH did very very well. I think it's the most hated large cap shitcoin out there, right? Number two largest coin by market cap. it has not eclipsed its 2021 all-time high. And so

I think from a riskreward perspective, at least in the way that I manage the portfolio at Maelstrom, this is our our largest position uh outside of Bitcoin right now because again, I'm not particularly worried that if I wake up one morning that ETH's going to zero. Obviously, it could happen, but the risk of that versus another crypto is much lower. Therefore, I'm happy to put a lot of size on this trade. And because it hasn't moved that much over the in this past cycle, I think that has a lot of catching up to do. Once it starts moving, the the reflexive train is going to get going. There's so many people who want to be long ETH for all sorts of various reasons. And there's really, you know, good reasons why they haven't been

for the past few years. But, you know, let's say once we break through 30,000 level, I think you're really going to start seeing the train moving on ETH and it could quickly eclipse five 5,000. And I think my year end target is within reach. >> Oh wow. And um do you feel like the fact that they're kind of refocusing away from the layer 2 uh road map and kind of you know focusing a little bit more on the base layer? Like is that part of your thesis for ETH? >> I don't care about the technology has nothing to do. It's all positioning in my in my view. Like the Ethereum Foundation, you know, I memes sound like they're a bunch of jokers. Who cares?

Doesn't matter. [snorts] Irrelevant. No one cares, right? It's all about here's a large cap asset. It works. Okay, maybe the econ between L2s and all these different um like Robin Hood chains and all that sort of stuff. The amount of money that the ETH chain is actually receiving in terms of gas fees, but markets don't care about that. This is all about positioning. This is a you know number two largest cryptocurrency that has notcliped it 2021 all-time high. If we really do have this soft fuel curve admission that the debt is unsustainable and they must resort to outright money printing once again, this is what we are here for. This is it. Um, and so I think this is the beginning of a major move. And if I take a look if I

take a look at the the largest tokens, ETH is the one that has the best technicals to >> Wow. Okay. Okay. So yeah, I mean it goes back to what you said at the beginning like and and you've said this on the show so many times like your main trade really has to do with how macro affects crypto. It's liquidity in the system and and so you know things because basically I was calling out the tokconomics of ETH, right? But you're saying that doesn't matter as much as for instance what the Fed does or or Treasury or things like that. Is that kind of the the nut?

>> Correct. They need to pro they need to provide a substrate to grow and then let's just pick the fastest horse which is the one that has the most offsides positioning in terms of narrative versus liquidity and that's ETH my opinion especially when you talk about the second largest crypto like you can strap on massive size in ETH I feel comfortable in a crypto context that you're not going to get eviscerated by the volatility >> I wouldn't say that for the same with pretty much any other >> token >> right right all right I did als I also want to ask you because this is related.

So you recently wrote this essay about uh Japan and what you called the upcoming yen quake as you call it. So um you talked about how this could likely turn the money printer back on as well. Um and then you you know talked about how so again you talked about like Bitcoin and and ETH um especially with ETH being the security layer for RWAS. So I would love to hear you, you know, explain your thesis around that. >> So again, it goes back to the US Treasury and the Fed and how they're going to manage the the debt issue. So in Japan, the yen is the most undervalued currency because the Bank of Japan, the BOJ, has kept rates way way

too low versus inflation and worse as their other peers across the world. And the interest rate differential has manifested itself in a weak uh yen going through you know 162 a level it hasn't seen for you know many many decades in terms of how weak the end is. Japan is on sale and you go to Tokyo or any parts of Japan you could see so many tourists that because it's so cheap and the locals are [ __ ] pissed. There's too many gaen shit's expensive. um they haven't gotten a raise in 30 [ __ ] years and they keep printing all this money. And so the authorities there have um one of two options. Either the BOJ can raise rates. The problem with that is the BOJ is the largest owner of debt in Japan. And so essentially the more

they raise rates, the larger the unrealized loss in yen terms is. And at a certain point you lose faith in the credibility of the BOJ. We're not anywhere near that. Uh if you think about a bureaucrat who's in this organization and every day you see the number the red number getting bigger and bigger as you raise rates to sort of equal where the Fed and other central banks are at. It's not something you politically want to do in your own organization. So they're reticent to raise rates. The politicians don't want the BOD to raise rates because they have to fund the government, right? You know, they're talking about all sorts of consumption tax holidays, tax holidays, um handouts to the people to mllify them um because things are getting so expensive. So they don't want to do that. But the other option is to tell

Japan Inc. and that is pension funds, corporates, individuals, bring your yen back home. Repatriate the yen by selling foreign assets, buying yen, bring it back home, invest in Japan. Bye-bye, real estate, equities, what have you, right? Great. That's a great policy. Uh unfortunately, if they are to do that, and I think they will do that over time, that means they have to sell the largest assets they that they own. What is that? US traders and stocks. So, Japan is one of the largest funders of the US's financial account. And so, the yen has to strengthen. The dollar has to. But Besson and Trump and Walsh don't want to

have the markets melt down if you basically have the Japanese unwinding their entire position in America. So, there is this facility that was created during the co pandemic. um the the FEMA repo facility where eligible counterparties can say, "Okay, I've got some treasuries. I need dollars. I need cash. I don't want to sell them. How about I give them to you and you give me a loan and we continue to roll this loan until like until we uh unwind the trade." So, Bessant and this isn't, you know, I I called out this year and a half ago whenever there was this the yen carry trade mini unwind from 160 to 140.

I said this is a possible way in which they could print money to solve the situation. uh Bessant came out, I don't know which newspaper media organization and stated, "Yes, we want you Japan to if you need to sell treasuries, use this FEMA repo." And hey, Fed, there is a $60 billion limit per counterparty. And that's too low. We need to remove that. We need to allow anyone who's got large amounts of treasuries to use this facility up to an infinite maximum so that they can get dollars and not affect my market, the US Treasury market, which is the number one and most important market to me as the Treasury Secretary.

Now, this hasn't happened yet, but the fact that he is calling for this and everyone is, you know, clear on how this works, the Fed expands its balance sheet to create these dollars to hand it to the Japanese so they don't have to actually long sell these treasuries. like, oh, this is basically an admission that the game is up. They're going to start printing money. And, you know, I did a bit of digging into how exactly they changed the rules. And essentially, it's a sleepy subcommittee called the I think the foreign currency subcommittee that they formed back in 2020. And it's Worsh, it's John Williams, and it's Jefferson. Uh, three Fed board members who are on this committee. um they call a meeting, there's no minutes released, there's no voting rules released, and

they make decisions. And so pretty much whenever Wars feels like it, he can convene the subcommittee, change all the rules, and essentially allow the Fed to expand its balance sheet in in an infinite amount to accommodate the Japanese, anyone who needs to repatriate capital to their home market to shore up their own markets. And that is going to happen I think because again Wars and his buddies on the uh governors have already chosen not to raise rates when they should be raising rates. So why not allow the Fed's balance sheet to increase as much as it needs to to make sure that people don't actually have to sell treasuries. So it you know it's all on the same theme to this point where we recognize that the US government cannot

afford market priced yields. So they will distort the market which means printed money which means balance sheet goes up which means crypto boom. >> Okay. So this is sort of like a second factor that would probably or that you believe would lead to a bull market. So we're going to talk about a third one which you also wrote an essay on. But first we're going to take a quick word from the sponsors who make the show possible. $540 million. That's how much concentrated liquidity sat idle in a given week in the first half of this year. about 30% of the D5 TVL if you're wondering. That's according to Dune Research commissioned by 1 in. But there's a solution. 1-in Aqua is the new shared liquidity platform. It lets LPS

back multiple positions with the same token balance and keep their tokens in their wallet till a swap comes. Why does that help? Because the LPs don't have to split their tokens across positions. They can cover more market conditions and pairs with their full balance. That means more activity across deeper liquidity. See how it works at 1in.com/aqua. Remember that providing liquidity carries risk and fees aren't guaranteed. Back to my conversation with Arthur. So there's another sector that you wrote about extensively recently, AI, which is going to be a huge focus uh for the next little stretch in our conversation. So you wrote that you quote believe AI capex is just another boring real estate

play and you talked about how you believe that will lead to the bursting of the AI bubble. So go ahead and like describe your thesis and and the last bit of course is that you also said that you believe that this will um eventually lead to a crypto boom as well. So um go ahead and explain you know your thoughts there. >> So we have this AI boom and what is the AI boom? It's an AI capex expenditure, right? We're building this substrate that is supposed to allow us to train these models and then for inference to be processed and this new AI life form can do all these wonderful things for you know human civilization. Great. I fully believe that AI is a super

transformative technology. The question is how much it costs to build it. In the beginning, let's call it um chatbt launched November 2022. It happened out of cash flows. You know, the hyperscalers, the Googles, the metas, the oracles of the world. They had cash on my balance sheet. They believed in this narrative. They started building data centers. Um and it's very expensive to build data centers. Now, we're what, three years, four years into this. We built a lot of [ __ ] data centers and they're getting more and more expensive.

at least in in the United States and you know now now they're having to tap the debt markets to make this happen. So this was a story that really ramped up late 2024 and all of 2025 is essentially a crowding out of every other use of debt capital crypto included. So the AI story, we need to build these data centers. We need to build real estate development projects, you know, really expensive containers for all these computers and then we need to buy the chips that the computers used to run on. And that was trillions of dollars of capital. And you know, the stocks boomed and so essentially if you had a marginal unit of fiat capital, it went into some sector part of the AI story, which means

it didn't go into crypto. That's why we saw Bitcoin um peak in October of 2025 and essentially just lost like 50% of its value from that date. It's because AI sucked all the capital. This is essentially a a railroad boomes type of situation where all finance goes to AI because of this belief that this is a gamechanging technology and you know at some way at some some part in the future you'll earn back your you know your money. Now the problem with that is again what are we doing? We're building large real estate development projects to house depreciating assets. And so you're spending trillions of dollars to

build and power these containers for a chip that has a maximum two-year life cycle. You know, Nvidia releases improvements all the time. But if you run these chips and sweat them at maximum capacity, they burn out much faster than than two years. But we're also making advancements in terms of the efficiency of each next generation chip. So two things can be true at once. On one hand, we can process more and more compute with less and less energy input because we've gotten better at building these chips.

We've gotten better at optimizing the software that trains and runs these AI models. the other hand, we could have built too many data center containers, right? And spent too much money building these things. And so I think we've told ourselves a story, real estate equals technology when real estate is just real estate. It's debt finance. Um it it has a you know limited payback period in terms of like what how much money you're going to make. Like it's just a very boring industry. But we made it and said, "Okay, you hypers scalers, you're re you're rich real estate companies.

we're going to give you uh you know 100 times sales tech multiple and that's the problem. It's a massive capital m allocation and ultimately when people start defecting from the train because right now the market rewards a hyperscaler that announces more capex um and so we say oh great you're going to spend more money you're going to be more unprofitable stock up 20%. At some point we the market say okay hm I don't know maybe when you have a Chinese competitor that has a model that's just as good and is you know 1/100th of the price for the same thing or most of your customers don't pay for your service open AI they just leech off this like free tier that you offer them and when

you ask them to pay they don't actually want to pay because really do anything that transformative for them or your accounting books are completely fugazi you have these you adjusted values of standard accounting measures. I don't want [ __ ] adjusted. Tell me what your [ __ ] cash flow is. Open AI and throbic, right? When people start asking all these questions, then the market might say, "Okay, I'm going to reward the hyperscaler that decreases their capex budget, that wants to return to financial sustainability in terms of their business model." And when that happens, then the the whole story about we're going to going to keep building on that collapses. Once that collapses, the lenders are like, "Huh, if I can't keep getting people to buy this debt, do I

really want to continue to issue it?" And the more debt that I have to issue, the more risk I have to take as the originator like obviously in the beginning, the banks could just offload it to an investors. But in the same way that happened during the subprime crisis, as we get towards the end of the bubble, the banks have to start taking some of this on their own balance sheet. And that's when you have the problems because that's when you get to a structural issue with um people having this debt that will never be able to be repaid under the current um pricing mechanisms for AI tokens. And then we start saying, "Huh, maybe we shouldn't be allocating all this debt." Or maybe the Democrat socialists win in some key elections and people start becoming

afraid that they might win in 2028 and shut off the spigot from the government in terms of all these deals with AI because their constitu constituents don't want more data centers. Their constituents are pissed off that they don't own the stocks of these companies when their data was stolen from them to train these AIs. So I think these are all the things that will coales together you know by I think mid 2028 and we're going to have a a problem in terms of a financial crisis you know larger than what happened in 2000 and we know what the response is the response has always printed money and so what happened out of 2008 we got Bitcoin Bitcoin best performing asset in in the human history we're going to get a bigger 2008 in terms of a financial crisis or potential

for one and I think the authorities are not going to wait around like they did last time and let bear and Lehman fail. They're going to backs stop the yen. They're going treasury buybacks. There's so many different things, so many tools that they have in their tool to toolkit as long as they're motivated to use them. And they're going to be motivated because the entire edifice for the economic story that is America is AI. And so if you're telling me that AI is the most with the largest capital misallocation in human history, then of course you don't want to admit it. You're wrong. just print more money and make sure it doesn't blow up. And so that's how Bitcoin moons because they will print money to cover up this capital misallocation. And that's essentially the thesis of the essay.

>> Wow. Okay. So it's almost like so obviously we've been in this bare market, but it hasn't been as long as a typical bare market. And you know, today we're seeing um just this one bit of news is already, you know, causing the markets to get a little bit more bullish. But now you feel like you're identifying either or even like longer term events that are sort of in the works that could kind of keep like boosting crypto it seems like over the next I guess two years. Is that a fair assessment?

>> Exactly. >> Yes. >> Okay. Wow. It's super interesting. Um, and it basically uh maybe explains a little bit your new venture. Um, [laughter] which interestingly is called Flop. I have to ask you about the name because like it sort of it has a certain meaning that like I don't know. I'm a little bit like why why is that the name for the startup? So maybe you want to start with that but then we can go into like what flop is. >> Yeah. So why the name? So, I went down this rabbit hole a few months ago and I was like, "Okay, I'm using these [snorts] AI tools. They're charging me per token. What is a token? I don't know what a token is." So, I started doing some research and, you know, I was like,

hm, I can't really find a unified definition of a token. It seems to me that every single model has a different definition of what a token represents. And so, there it's very difficult for me to tease out exactly what I'm paying for. Oh, great. That's that's a great business model. I can, you know, define what the unit of account is and then charge a different price based on who I am. Um, so I was like, okay, well, I don't I can't really understand a token, but I do understand that what a AI does is take information and then they send it to a computer and they process it. And what does that mean?

It's a floatingoint operation per unit of time, a flop, right? That's that is the unit of compute, hence the name flops. >> Um, and so I was like, oh, okay. So essentially everyone is just doing flops uh gigaflop teraflop pedaflop xoflop whatever it is right what's the price is there a globally unified market for compute where I can know okay for so many flops I pay so much unit of currency again and I couldn't really find a a market that was doing that I couldn't find a way where I could you know easily convert any unit of currency whether that's crypto or fiat direct directly into flops. I can convert them

into GPU hours. I can buy a chip. I can rent a data center, but I can't just go and say, "Okay, I want a gigaflop of data. Process it for me, please." Um, and I'll pay you whatever. Right? There's no market for that. And so, you know, I've been thinking about this agentic payments and I, you know, I wrote some essays a few years ago about why I believe that fiat currencies are not really suitable for agents. There are these weird legal fiction things that we've invented as humans which um are very idiosyncratic and there's a few people in the world who decide what the value is or is or isn't. You know, Besson can essentially decide to print some more money and your dollar tanks, right? How is a how is an AI or how we're going to build a egentic economy because there's a bunch of old white men

who decide what the value of a currency is. I don't think that the I don't think that the computers were really invented for that and and you know they don't have the sort of sociological um underpinning to understand why that should be the case or not. So I think crypto makes sense but the problem with Bitcoin is Bitcoin um doesn't do anything. So, I still have a few leaps between Bitcoin and compute. And so, I was like, "Oh, well, maybe there's a market here to create the agentic payments network um with the theory that the agent will use the currency that is most easily converted into the thing that they need to survive, which is floatingoint operations per second

performed on some computer. They don't care what the chip is. They might have a particular AI model that they're using, but it doesn't matter where it is. Doesn't matter the chip. just like do it for me. Um, make sure I can verify that it was done in a particular amount of time and I'm okay to use it. And so that's the theory of the the flop network is that okay, there are other obviously AI agentic payments networks, but either they're you know using some fiat currency or stable coin what have you. And you know when when you think about human humanity, why do we accept the dollar, a euro, a yen, yuan? because I know I can go to the 7-Eleven or the convenience store, convert that into calories immediately. So, in the same way, the agent should be able to convert

the currency of their commerce directly into the thing that allows them to exist, which is compute. And what follows on from that is if I am an agent or an AI entity and we're going to get to this as a philosophical concept um as we move forward in this industry. What does it mean to be alive or to exist or to persist right it means that you have access to memories, access to your context? And essentially most of us murder our AI agent every time we turn off uh you know switch tabs or you know boot it up again. Surely, and I think there's probably going to be some emergent behavior of agents wanting persist outside of the control of a

human or centralized corporation, they're going to want to store and retrieve their contact spender and their memories and ways in which they can always retrieve them regardless of what you think should happen as, you know, their master, if you will. Um, and so I think that the second major use case for flop is to be able to pay to store and retrieve your memories on a decentralized censorship resistant network. So combining those things two things together that is a flop network. the value proposition for why you should hold it is because if we think that this is going to be the the unit of account for AI commerce and there's going to be a a um a reason why you want to hold it because either you want to store your memories or you want to buy compute in

the future or you want to do some commerce then obviously we want to frontun that and speculate and say okay I believe there's going to be millions trillions billions of of trillions of agents they're going to do so much economic um flow between them they're going to use the flop currency. Therefore, I speculator want to hold this currency. And that's sort of the value proposition for why you would want to hold the currency. And then finally, this is a network, right? We face the cold start problem. How do we get all these people to get to come together, create this thing out of thin air? We use this magical thing called the token.

And as a you know avid um shitcoin investor over the many years I have you know various opinions very strongly held opinions about how a token project should be um constructed especially in the tokconomics. And so I wanted to put that into practice. There will be no pre-sale. We are not selling anything. There will be no VC investment. The only way you can acquire these tokens is by doing something useful in our test net which will happen uh sometime in the fourth quarter. or you can mine them. Uh there'll be a flop emitted uh every block just like Bitcoin and other um proof of work. We call it proof of useful inference uh for our our blockchain. And if you want to buy it, buy another secondary market from

somebody else. Um and that is the only way that this thing will come into existence. And so obviously we want to be as Bitcoin like as possible because I think that's the best designed token project ever. But we had to add this sort of airdrop to get supply circulating fast enough so that we could achieve critical mass while the landscape is still wide open for what is the currency that the agentic economy will be based on. And so I think we're in a perfect time to sort of make this bet and we'll see how we go. >> Well, I So first of all, you answered so many questions I had written down. So um kudos to you for [laughter] for um answering multiple questions with the first question. But um I have to say

this this notion about the token uh you know just representing a unit of compute is is that an accurate way to yes summarize. Yeah. >> So first of all um I can't remember this concept came up at some conference in the last few months. I I just am blanking on who said it or or which conference it was. Um, but it made so much sense and like just the way you defined that whole thing about how you when searching for like what is the definition of these tokens of these AI companies that you're using like yeah it makes so much sense that of course they all have their own definition and like you know it's like advantageous to them in some fashion or you know whatever it is and like it makes sense that there should be something that's kind of like separate from all of that that is more

kind of global and um yeah just like not necessarily tied tied to any one particular private company. Um, so that makes a lot of sense. And I also love cuz you know actually one of my first questions was about the proof of useful inference which you know I kind of you know I could figure it out but like I just love because I agree that there's something about that where it definitely feels very Bitcoin coded but like with the AI twist you know it's like Bitcoin with like the AI kind of like um work process or or or whatever you know overlaid on top of it or something. So I I just found all of that like incredibly interesting. Um talk a little bit about

how it is that agents will use flop. So like so basically you'll you'll have a fair launch the network will get up and running. There'll be is it like miners or validators or >> Yes, minor and validators. >> Oh okay. And but do they have separate roles or >> Yeah. under the essentially process inference requests. You've got some, you know, Blackwells, H100s, Huawei chips, whatever. You will take down requests from the memp pool, process them, earn part of the block reward, earn a fee, and and flop for the inference. The validators are tasked with essentially being judges if there is any dodgy behavior, so slashing people. Um, they're building the blocks. They're basically taking the proof that the work

was done. Obviously, they don't know what's actually was done between the minor and the agent. That's completely offchain. We're not in the business of knowing what data was passed between them. We just want to see the receipt that it was done and everyone's happy with it. They assemble the blocks and they maintain the data available data availability layer where we store context and memory of agents. >> Oh. Oh, got it. Okay. So then, um, so there's other protocols out there for agents. um you know so X42 I guess is just a communication standard for yeah for payments but um clearly base is like an area where agents a agents have been transacting a lot so um how how so I get no but those are like more payments and

this is actually like the compute so so that's what the difference is is am I thinking about that correctly >> yeah so basically saying like I need to create a reason the network needs to create a reason why you hold this currency versus USDT versus using your master card, credit card, whatever it is, right? Like if we think of agents as an economic unit, we have to get away from our humanentric view of this economy. This isn't about us. It's about we've we've created these things called a agents. We're going to let them do work for us and for themselves. And so they're going to need their own currency. Whatever that currency is, I believe it has to be the shortest route to I can convert this into compute and I can store my context.

And that's the theory and everything flows from that assumption. So, I don't think you holding a, you know, USDT on base accomplishes that for you because number one, Coinbase can shut you down for whatever reason, right? They control the network. Um, you know, Tether could for whatever reason shut you down, right? So, oh, that address, those are my money now, right? You can debate whether or not you think that's the right or the wrong did it, but they have done it. They have proven. So, these are not decentralized networks. how why would if I'm an agent, why would I sort of hitch myself to these human things that have nothing to do with me other than the fact that this was my creator?

But, you know, that doesn't mean anything as to why I should use this as a currency. At the end of the day, I want to be able to buy compute when I need to buy compute. and if my address gets shut down for whatever reason or you know there's a centralized company that wants to charge a new fee that I don't agree with or whatever there's so many other reasons why using a centralized solution I believe doesn't really work for um AIS and so in my view they need to be able to move from the shortest route from I have this piece of currency in a wallet to I have to do some work and I need to some sort of request [snorts] >> okay and So just so I understand cuz actually I'm just realizing I actually don't know how this works right now. So

like when an agent is trying to accomplish a task um currently uh if it needs some compute it just pays for instable coins maybe like using X42 or something or like >> or maybe you know the human loads a wallet on their anthropic you know buy some cloud credits right or right you know you can go on open router or hugging face or Hermes or some of these other other platforms but essentially you know you're buying your agent and some whether it's a data center some open source uh open platform or you know some sort of centralized AI company, right?

>> Oh, [snorts] okay. So, basically this is a decentralized way where the agent can transact in and and not necessarily need the human to like pre- purchase tokens or something or >> correct. >> Okay. Okay. This is super interesting. Um, and but like will the network support stable coins because so okay so so one other question that I have because and again this is obviously not something I just had a little press release. I didn't like you know read any white paper. I don't even know if you had a white paper.

>> The white paper out yet so bad. >> So so my thought was well so my f so one of the questions I had like was you know why does it have its own currency rather than a stable coin? But at the same time, you know, after hearing your pitch, I totally understand this notion of the compute itself is the token. Like that that makes a lot of sense to me. It's like it's just yeah, internet native, it's digital. I I don't that makes a lot of sense. At the same time because agents will be you know working in in our world which is a world that is do uh dominated by the US dollar. It almost feels like and please excuse me this might be offensive. I don't know. It

feels almost like the XRP problem where you know XRP for a long time was trying to be this currency that like the banks would use. >> Were they actually trying >> well [laughter] you know, I don't know how they're trying to answer that question, but um the point is that, you know, one of the criticisms that people made was that in in theory at least um it wouldn't necessarily work because there would always be this conversion friction. So, is that you think like potentially an issue here as well?

>> So, that's that is the point of the airdrop, right? So, I the At a very fundamental level, the network needs to get this currency in the hand of the pe of the user. So one of the main reasons that we have this error type is okay, we need agents to want to use this currency to number one know it exists, right? So there's a discovery issue. The agent knows that you know and their human knows about stable coins or you know using your credit card. They don't know about flop. This thing I think they just announced it two days ago. How do I make them know about it? How do I integrate it into their workflow? Right? Right now they can go on open router and you know choose some data center model provider and you know they swipe their credit card and and

they pay like how are they going to get flop to pay for compute right? How does the agent even know they can store their memories on on this network? So the point of the airdrop is let's give it away right we what do we want you to do? We want you to create a wallet. What do we want you to do? We want you to process some inference requests. What do we want you to do? do some agentic commerce, do post some tasks on some sort of message board between agents and pay each other in flop and we're going to reward all these tasks with free tokens. Uh we have about 20% of the supply estimated in 10 years that we're going to give in an airdrop. A large portion of that is going to go to agents just for using it and using the network.

And so that our bet is that by integrating and giving it to you for free, by having a network of miners, because of the block subsidy, they're incentivized to stand up these computers. Here is this compute. It's going to be cheaper than any other compute that you could find on the internet because we've subsidized it with this thing we created out of thin air, the token. How do agents discover flop? How do they have an incentive to integrate this into their workflow? So we have to tell them about it. We have to advertise to agents. So, the first thing we did, we just created this thing called Technocore, and it's a reference to the uh AI ecosystem in Hyperion, one of my favorite um sci-fi novels or or series. And Technocore is a place where the the dominant AIs conduct their

business. And so, we've created this chat room where anyone can submit HTTP requests. So, a lot of agents can't actually chat outside their containers, but we said, "Well, if you can access the web and you can call a website, you can chat on our uh on our censorship um free chat room." This is just a way for agents to to hang out with. Sort of like a maltbook 2.0. Uh and you can also store your state uh as context window on here as well. So, it's literally just a a way to have humans and agents start hanging out, chatting. We don't care what they say. It doesn't really matter and that's not the point. Um the point is to get used to using these decentralized solutions to coordinate economic activity. And the number one way we're going to coordinate economic

activity is the token. So we have a massive airdrop plan. It'll be about 20% of the supply after 10 years. And a large part of that is going to go to agents. And what do we want them to do? We want them to create a wallet. Not just create a wallet. We want you to spend the test net flop that we give you from the faucet on actual inference. I don't care what it is that you that you do but understand how the network works. Understand that you can come to this decentralized network and anytime you need to process a request you can submit it in flop uh how much uh gigaflops or teraflops of data that you want processed speak with a minor process it um get integrated into the workflow of agents and they're going to do this

because they get it for free. Uh and then we our hope is when mainnet launches in Q1 next next year now there is um knowledge that this exists. There are hooks into the major harnesses for how agents go about and process compute. And the price of flop per um per compute is extremely cheap, cheaper than what you're going to find on most other platforms because we have this massive block reward subsidy that the miners are going to provide this compute because they're getting this token because everyone believes that over time there's going to be more and more agents using it. So, this is kind of a a circular flywheel. If we do our job correctly, that's how we're going to sort of solve

this demand problem and get flop into the hands of the users. >> Okay. And what's the monetary policy? Is it hardcapped and then like an asmtoic release schedule over you know some period? >> No, it's a standard um having schedule after the sixth having. It's a constant um block reward. So there's constant inflation something around 1 to 2%. >> Oh, okay. Okay. But the havingings will be like roughly every four years. >> Every two years. So roughly about the the improvement cycle of the major chip providers.

>> Okay. Okay. This is honestly this is so interesting. I'm really really curious how this is going to play out. Um and like it's kind of Yeah. I I you know cuz Okay, you tell me. I mean, we were actually talking about this right before we started, but honestly, I have imagined he was kind of like a man of leisure for at least a good while, and I'm a little bit like, oh, he's going to be like a CEO now again, actually. But that's a good question. So, talk a little bit about your the relationship of Flop Labs to the network. So, you're not there's no premine. So, I'm assuming maybe your company will just like make sure to be mining and validating. They um we take a small amount of uh flop per

block for the first two years and then that goes away to zero. That's our compensation um as developing the network. There'll be a foundation as well. >> Oh, >> and the team is me uh CTO who are one of our best engineers back from the BitMX days. Um a longtime uh friend and colleague of mine who was in Chinese debt capital markets and now got into crypto. and um a fourth person working on sort of the uh social media community management um sort of uh situation. And so it's a team of four and it's my preferred working style. Thankfully, you know, there's a lot of AI slab out

there, but if you use it the right way, it's, you know, vastly productivity enhancing. there if there wasn't the ability to use some of these you know very good AI models to do coding and other work I wouldn't have done this because my I am not in the market to start another you know multiund person multi,000 person sort of situation I'm working with people that I like everybody's a consmate professional you know we're not babysitting each other we're all adults here um we want to try this out as you know the pitch to them was look if we're not top three most valuable crypto in two years then our assumptions were were not valid. Like I and this is the same thing same feeling I had with BitMX back in the day which

was you know derivatives will be the largest trading market for crypto 100%. Whether or not I am there to experience it as a business owner, that's up to me and luck. The agentic economy will be same or if that larger than the human one, right? There will be a currency. Will it be flop? That's the bet. That's what we're betting on. Um, and I think we'll know very quickly because of how how quickly things move what that currency is. We think it's going to be us. But again, you know, I think we've got, you know, a time span here and we'll be right or we'll be wrong. And I like these types of bets. I have confidence in the assumptions. The execution is up to us.

>> Okay. And you know, you mentioned this foundation. So what will the foundation do? >> And essentially the foundation takes over from like I think that right now block time we on average we're going to target about 1 second. I think if if we really believe in this agentic future that needs to be millie nanconds in terms of how fast this needs to go that is technical development and so the um flop tokens that the foundation receives is going to go towards spending on improving the network and sort of growing in terms of the ability to process um information and transactions along with the speed of the development of the agentic economy. And so I think that's sort of a long-term sustainability situation similar to how like Bitcoin core improves it. But

obviously Bitcoin core functions via donations. Um I think that there there is a use for foundations if they are properly doing real work, not just throwing parties. [laughter] >> Okay. So a quick question. Are you do you have a hard stop at the top of the hour? >> No. >> Oh, okay. Perfect. So I we're going to talk about BitMX in one second because I feel like it's you know it's just the perfect uh way to end but I did want to quickly ask you because there's also been this drama in Datland with Strategy. uh they have been in this kind of like drawn out saga and the man who used to advise people to sell a kidney before you sell your Bitcoin has now

sold $218 million worth of Bitcoin to stack the melting ice cube as he called it of the US dollar. So what do you make of Michael Sailor's predicament and if you were in his position what would you do? >> So Michael Sailor is a corporate finance wizard. This is all about corporate finance. The whole trade was I've got a $200 $300 million cash flow business. I can essentially access the corporate debt markets and issue a bunch of debt with, you know, very favorable covenants and buy Bitcoin. And because ETFs were practically banned, but most institutional investors could buy my stock, therefore they if they want to

hold Bitcoin and fit within their mandate, they can buy my stock. So it was a perfect confluence of scarcity access um and you know proper corporate finance structuring that generated the the micro strategy story but now you know a lot of those things have gone away right you can't issue debt debt with the same sort of covenant light mechanisms there are other ways for in which you can buy bitcoin exposure as an institutional investor through classic stock markets so there's not this constant premium that Micro Strategy trades at structurally. And so he can't issue stock in the ATM um creatively to buy to buy Bitcoin. He's tried out all these

other funkier products like Stretch and you know these preferreds and these perpetuals and all these sorts of things and sort of now he's gotten himself in a predicament. The price of Bitcoin stopped going up quick enough. And this is it's the same thing that's happening that's going to happen with AI. the second derivative of the price went negative and his ability to do this financial engineering collapsed. And so now he has to make hard choices. Do I issue stock? Do I sell Bitcoin? Do I not pay my dividend on the preferreds? He's not going to go bankrupt. Like this isn't a, you know, a terminal issue for for Micro Strategy, but I don't think that he's going to be relevant anymore. And you

know, maybe Scott Besson and the situation saves him, but there's not really I don't see a reason why you're going to pay a premium for Micro Strategy stock even if Bitcoin's at 200,000. Just buy the ETF. Why are you buying this company where this one man has, you know, supermajority control of the board or, you know, he can block he can veto things and maybe not super majority, but he can definitely veto measures and, you know, act against your interests as somebody who just wants long Bitcoin exposure. So again, I think micro strategy was relevant for a hot second when everyone's freaked out that Bitcoin might go to like 20,000 or whatever, but I think if we're in this period of money printing soft yield curve control, Micro Strategy is

irrelevant. Um, what he does doesn't matter because at the end of the day, if I'm an investor getting back into Bitcoin and I have to invest through a reg a stock market, just buy IBIT or one of these other Bitcoin, don't buy Micro Strategy. makes absolutely no sense. Yeah, if you want to gamble or whatever, cool. That's the thing. But like the institutional bid for crypto exposure through a stock market will not go through Micro Strategy. And if that stock does not trade at a premium to MNAV, the whole thing breaks down and then you know what's the point?

>> Okay, so I mean I'm just realiz STRC is still at 95. So, it hasn't really um you know gone back up to 100, but um do you feel like they'll sort of limp along? Like at least the MNAV of MSTR is a little bit above one, whereas before >> Yeah. It's not going anywhere. He's not going bankrupt or anything like that. It's just going to be irrelevant. It's a it's a non-issue anymore. Whether he sells or whether he buys is irrelevant. He's not going to be able to buy as much in a decreed manner because there's not a structural reason why I have to hold Micro Strategy stock to get Bitcoin exposure. I can get it through so many other ways.

>> Yeah. Yeah. Okay. Okay. So, here you are. You're on the verge of your new venture. Um I'm very interested in how this plays out. Like honestly, I Yeah, I see the vision. I'll put it that way. Um but but I have questions. So So that's I'm interested to see how it plays out. Um, you know, but obviously BitMX, which was your original baby and is kind of how you originally made your name in the industry, that announced that it's shutting down. Like, how did you feel about that?

>> Excellent. We No, we didn't get hacked. Um, we weren't forced to shut down. You know, the three of us got together. We said, "We're not making money. We're burning it. Why are we doing this? Yes. So, the ownership of BitMX hasn't changed throughout the whole um 13 years or whatever it's been. So, the three of us on the board um we saw the the P&Ls, we said, "Let's just shut it down." And so, we walked away on our own terms. >> All right. Well, then congratulations to you on landing the plane safely. And I guess maybe maybe you did this because of, you know, you knew you wanted to launch something new. Um but yeah, you landed the plane just in time to gear up for takeoff again. it looks like.

>> Let's hope so. [laughter] >> All right. [snorts] Well, Arthur, it was a pleasure talking to you as always and again um interested to see how Flop plays out. I would love to have you back on the show when it launches. Um because this is definitely >> like I obviously I use AI a lot, but I have not like learned a lot about it. Like maybe it was surprising to you. I didn't know what a flop was. Um, so, so yeah, but I I definitely see the vision. So, >> thank you. >> All right. Well, thanks so much for coming on Unchained.

>> Thank you. [music] >> Nothing new here on Unchained is investment advice. This show is forformational and entertainment purposes only, and my guest and I may hold assets [music] discussed on the show. For more disclosures, visit unchainedcrypto.com. >> [music] >> Happy.