Energy: The New Bottleneck for Crypto and AI?

Transcript

Hi everyone. Uh good day. Uh welcome to another episode of Bits and Bips the interview. My name is Steve Ehrlich, head of research at Sharplink and also your host. Uh we've got a terrific show for you today, but before we dive in, let's take a very brief break to hear from some of the sponsors who make the show possible. Multichain Advisors is an emerging technology growth firm that has helped create 50 plus billion dollars in enterprise value for 80 plus clients over the past 4 years. They're the partner to help navigate markets. Build real traction today at multichainadv.com.

Quick note before we get into today's episode. Bits and Bips now has its [music] dedicated feed. We're spinning off from the Unchained feed and moving to a new podcast and YouTube channel. So if you want to keep up with our weekly live streams and [music] macro meets crypto breakdowns, make sure to subscribe to Bits and Bips directly. We won't publish there until March, [music] but subscribe today so you can be ready for launch. Be sure to subscribe to the new feeds at unchainedcrypto.com/bitsandbips. All right, welcome back. So like I said, we've got a a a really interesting and and timely episode today. I have with me Shaun Murray, the head of special projects and crypto lead at Fuse Energy, a 5 billion dollar UK based energy company, full stack

energy company that really sits at the I guess the convergence of um decentralized infrastructure, crypto, and energy. And uh we've been speaking for for weeks now about how crypto and macro are colliding. That's what we do on the show. Uh in particular uh in relation to the volatility in energy prices. And uh Shaun's business is being directly impacted by by all of this. And they've come up with a really uh ingenious way to try to I guess mute out some of that volatility and and grow a sustainable business that's largely based on renewable energy, something that we can all get behind. Um so welcome Shaun.

Thanks for having me on, Steve. Great to be here. So I I want to just level set here and I want to make sure that uh we're going to get into all these issues, but but Fuse, it's a bit of a complicated company and unlike many show unlike many projects that I highlight on the show, um your origins did not start in crypto. Uh the the firm actually was created by a few early employees of Revolut, the Europe's I I believe largest or most valuable fintech startup. So they know how to grow a business and and you've already built a a pretty successful company before you even got into crypto. So just very briefly, can you please uh uh explain what Fuse does?

Yeah, sure, Steve. And thanks. Um And understandably, we're building probably about 10 different businesses at once right now. So um there's a lot going on, but in in summary, we're a verticalized energy company. So it means we operate across the energy stock. Everything from generating energy from our own generation plants like solar and wind farms that we acquire and manage to a big in-house kind of trading operation on wholesale power markets to then ultimately supplying, you know, homes and soon businesses with energy and billing them every month for it. And that's kind of on top of kind of an installation and an R&D unit as well that we do for kind of distributed energy devices that ultimately, you know, we'll be looking to uh launch our kind of, you know, crypto native product into. So that's broadly what we're doing. We're doing about half

a billion in revenue right now annually. Um mostly based in Europe and the UK, but looking to kind of expand over the next year or two to uh you know, North America and a bunch of other countries. Yeah. And I I know I know one I guess big feather in your cap is a no-action letter you got from the SEC I I believe last year. And we'll get into that and and and what it means for your business. Um but but first, I I I really want to talk about what's happening in energy markets today. Uh I I don't have to tell anyone listening or watching that they're volatile. Oil's still about above $100. Uh and given I think some of the the saber-rattling statements from President Trump in the US and and um responses from the Iranians, uh it's very unclear what's going to happen

next. Uh how is this impacting the energy markets in Europe versus versus the US, which I believe is a little more uh self um reliant? And what like what are some of the big changes or or how's this impacting your business? Yeah, a great very obviously topical question. Um the kind of differences between the UK and Europe and the US are pretty pretty stark, which, you know, you can kind of see it manifest itself in the charts right now. Um I think one of the big things that, you know, we look at broadly is if you think about kind of oil and gas prices, obviously they're they're incredibly, you know, um the the price of oil and gas on markets is incredibly related to the supply. And, you know, most most of that comes through the Gulf

um for you for Europe especially. Um in the US naturally, you know, with the kind of recent shale revolution, the US is is somewhat self-sufficient especially when it comes to to to gas. But I think, you know, one of the big things that we look at is when we're looking at and how it's kind of affecting our business is that the price of oil actually doesn't really affect, you know, the price that ultimately people pay for their energy, that homes, businesses, data centers, etc. pay for their energy. Um you know, obviously it it affects what people pay at the pump, but um it's it's more through secondary effects that oil has these knock-on effects on on the kind of energy economy. Um and, you know, it's loosely correlated with gas and that's typically due to, you know, it's kind of a replacement in

some industrial applications. Um and obviously oil and gas are sourced near one another. But the main effect of oil on kind of power markets and energy markets in general is is secondary due to, you know, inflationary effects on on logistics. Um and obviously that's been, you know, hugely impacted with the the recent developments in in the Middle East. Um the kind of more kind of pertinent thing around energy markets, you know, for us and our business is is the price of gas. And it's a totally different story because gas directly influences the price of electricity that people pay.

It's the kind of primary fuel that goes into your combined gas turbines, which makes up a third of the fuel mix in both the UK and the US. And the way that energy markets are structured uh and the the kind of price discovery mechanism on uh energy markets is very heavily indexed towards the gas price. So what that means is when there's supply disruptions to um the the LNG around the world, what you see is a direct impact immediately almost on uh the the price of on power markets. And in terms of the kind of US versus Europe UK comparison, the Europe is very is a heavy importer of of gas. Um and typically what happens is

that you have seasons where there is injections into gas storage facilities. That typically happens over the summer. And then you've got seasons of withdrawal from those storage facilities. And obviously naturally, you know, during the injection season, which is now coming up, the the the price kind of, you know, worldwide of gas um heavily influences, you know, ultimately the costs that Europe is paying. On the flip side, US is with the recent shale revolution fairly insulated as we've kind of seen a little bit um on on the gas side of things. And that is going to be something to watch over the next few years though.

And the reason for that is when you look at there there's a certain decoupling between the Henry Hub price, which is the price that the kind of standard price of gas in the in the US, and the kind of the the price of TTF, which is the kind of European UK index. Those are somewhat decoupled because um you the US because it's such a recent market is slowly still ramping up its export capacity. Which means that right now there's this decoupling, but we do expect that decoupling to actually decrease over time.

Um and the kind of consequence of that is right now there's quite a quite a lot of insulation for the US market, um but not at all for the for the UK market. But that decoupling, you know, as a kind of said, we'll look to to compare it over time. But um yeah, ultimately when it comes down to our business, it's it's the price of gas and the flows and the kind of status of the storage facilities around Europe because that's where we're operating right now is what really influences what we're paying and then ultimately what customers are paying down the line. Got you. And and maybe just to sort of again um paint a picture for everyone watching and listening, uh a $100 barrel for oil sounds moderately scary. $150

um is very worrisome. $200 is is downright terrifying and and that could lead us into stagflation territory. Um could you um sort of put natural gas prices in in in those terms? And and I know I mean just I'm I'm not an energy expert, but uh it's easy to remember especially during the Russian invasion of Ukraine from 2022 on, um sanctions put on on Russian energy exports. And and nowadays people are talking about the the closure of the Strait of Hormuz. And and while some um like oil processing plants have been shut down, it might take months for them to start up if and when this conflict ends, um the Strait could reopen immediately theoretically. Whereas uh Iran's attack on on uh Qatar's like big processing and export facility, I

believe knocked off 20% of its total capacity. And and Qatar is a huge um LNG exporter. Uh that could have much more permanent effects from from what I could tell. So how does that like again, put a pic kind of a long question, but like what are the prices right now and how is that actually directly impacting customers? And and and then again, like because of this like big attack on the infrastructure, um what challenges will that present moving into the future? Yeah, so I mean right now the the price of gas is basically about um 50% above 50 to 70% above the kind of usual um price that was kind of we would expect um around this this kind of year. And, you know, ultimately that is down to,

you know, the it disruption to the Strait of Hormuz. And you know, when we kind of look at it like beyond just crude and LNG, you've got like disruption further to you know, not just gas prices, but a bunch of other prices as well, right? So, for instance, 30% 34% of global fertilizers come through the Strait, right? There's also effects. So, that's that ultimately affects food. Um and then also, you know, kerosene is mostly sourced out of Qatar and Strait as well. So, that obviously influences the price we pay for jet fuel. Um further effects on that is like there's about a a quarter of the world's sulfuric acid comes through the Gulf.

That is needed for things like explosives, which is obviously very hot and topical right now. And also, you know, refining things like copper, which is a central input to many things including a lot of inputs in the energy industry. So, as a consequence, essentially right now what we're looking at is gas prices are you know, quite like like fairly elevated. Probably not as aggressively elevated as as what we've seen with with with oil. Um and not quite as aggressively elevated as what we've seen through the Russia-Ukraine crisis. And that is in part because, you know, especially in Europe, there's been a lot of measures taken since the 2021 crisis to kind of you know, obviously mitigate the the serious effects that that crisis had

in causing you know, kind of the disruption to the energy markets and back back in 2021. Um so, that said, like essentially what we're seeing is right now we've seen an increase but not as aggressive what we've seen in the past. But, however, one of the big issues that you know, uh that probably a lot of our listeners have seen is that um you know, this this disruption and this attack on the facilities themselves. These are multi-billion dollar facilities that take decades to build and a very long time to repair. So, the the the the long-term destruction is something that I feel like isn't fully being factored in right now. And people, you know, view that okay, look, this is a short-term

thing. We'll see a taco and then you know, prices will return to normal. But, in fact, you know, what we what we're not really recognizing what I kind of think that you know, a lot of markets aren't really recognizing is that there's these really severe long-term effects on global supply. That that they're going to percolate and last for quite a few years. Got you. I think that probably leads me into my next good question, which is again, you guys are I think like a I think you describe yourselves as a full stack power plant or a full stack power company.

You do help generate for your customers renewables, but you're also from what I can tell a wholesale energy purchaser and and supplier. So, you you you sell LNG and that type of fuel or you sell electricity generated from like those types of sources to your to your customers as well. Uh how are you Yeah, how are you hedging uh prices in this particular environment especially given what you just said that you think uh you think people are sort of underestimating the longer-term impact. Uh and I'm also this is all also happening right in the middle of an explosion in in prediction markets where I mean, um oil derivative contracts on places

like Hyperliquid are are seeing massive volume to the extent that it the second biggest market outside of Bitcoin. So, what are you seeing? How are are you hedging especially in a world where well, maybe it's ideal at some point to generate almost all of your energy from renewables, that's not really practical at this point. Yeah, of course. Yeah. A couple of things there. So, I guess first maybe just to give like a quick little bit of background on like the the structure and the price discovery mechanism in in in power markets. So, and even if your even if your fuel mix or what you use to generate your power in a given region or country is like let's say predominantly renewables, in most competitive markets

actually the price of gas ends up setting the the price that everybody pays for for energy. And the reason is essentially demand is fairly fixed. Um so, let's say Steve, you and I are buying power for an hour tomorrow starting at noon. The the the demand for power in that hour is fairly inelastic, which is actually a big issue that we're looking to solve. Um and what happens is you you have your generators will bid in and and those bids will be price ranked. And essentially, the the most expensive um bid that meets what the demand requirement is sets the price across the market. So, even if renewables make up 90% of your kind of generation mix, often it is the price of gas that the

gas that fills the gaps and it is the price of gas that then sets the market-wide price. So, often when we're thinking about hedging and looking forward, we are looking at you know, actually okay, there's going to be there's actually extreme sensitivity in power markets to the price of gas. Even when you look at a cost basis, gas actually doesn't make up a large cost produce the energy in the first place, which is you know, you can have a separate debate on like if that's the right market structure or not. But, so when we're thinking about this, when we're thinking about our kind of trading operations, um generally we we operate a very neutral long or like slightly long desk. And our kind of trading operation is is has a modus

operandi of de-risking. So, how it works essentially is we have for a given day in the future, you have a certain amount of demand um and you know, our delivery obligation is actually, you know, unknown I suppose or forecasted unlike you know, maybe. And that's kind of a difference to energy markets and maybe traditional >> Oh, you're you're a growing company as opposed to a mature like utility that like has >> Yeah, exactly. And then also, you don't actually know how much people are going to use um when you're looking at you know, like if you ask me how much energy you know, my customer base is going to use in 3 months time, I can only give you an estimate of that cuz it's highly dependent mostly on temperature um which you can't you cannot forecast that far in advance. So, what happens is we

essentially buy these kind of fairly like flat blocks and we kind of DCA into those over a couple of months and we slowly build out the box to essentially what we think the kind of customer demand profile is going to be. It's generally bimodal. You've got a peak in the morning and then a peak in the evening when people are home. I'm sorry, just to interrupt. When you're buying these blocks, you're buying these from energy producers? You're buying them from Yeah, generally on power exchanges. Power exchanges, okay. >> Yeah. So, essentially, you're kind of like slowly essentially hedging out your exposure to that that demand profile that you've forecasted.

And then what happens is when you get And then essentially, what we do is we we look to kind of close with a flat a fairly flat block block every day. And that's you know, more so especially in the current environment. And then what happens is you know, kind of day ahead when you've a lot more information about you know, the the the particular shape of what your customer's kind of demand profile is going to be and the energy that you need to provide them, you buy more refined blocks then. So, you buy the kind of hourly blocks that you use to kind of shape out the demand, which is very temperature dependent. That's interesting. So, you're So, you're buying these on almost like a hourly or daily time horizon.

You're not >> Daily time horizon. You're not like a farmer who's who's who's selling a futures contract 6 months out so that you can kind of guarantee a price for your harvest. This is much more short-term duration. How much How much more expensive is it to to I guess hedge exposure to engage in this type of um engage in these activities given the heightened volatility for you? So, it is Yeah, right now it's much more expensive. Um and typically what happens is that what if you're like hedging on on under a kind of you know, fairly market standard approach, typically any of the kind of customer you know, price um protections and stuff will reflect that by the time you actually get to delivery. So, you're not kind of

breaking regulations around you know, um pricing your your energy too high. But, you know, one of the other things we kind of love to do then is um we look to kind of buy essentially you know, a couple of other products that you know, hedge our exposure to further increases in generally volume and price. Um so, that's kind of like our exposure kind of varies quite non-linearly with both you know, temperature um which affects both price and demand, right? Um so, typically you know, you you build out these kind of hedging blocks and then you shape them as you get closer to delivery. And then for you know, specific you know, either macro events or you know, cold snaps or that kind of thing, um we'll buy kind of more

sophisticated kind of options or temperature dependent swap options um that essentially allow us to ramp up or ramp down exposure depending on the conditions at the time. Um And I guess to your point around like energy prediction markets, obviously become a huge hugely relevant right now. Um and you know, one of the things that we're kind of interested in you know, long-term is seeing you know, does this have you know, institutional viability? Right now, the markets aren't liquid really enough. Um also, the kind of products that we would be looking to buy as a kind of institution are quite complex. So, like I kind of said like I kind of mentioned,

um with the kind of non-linear effects especially on temperature on your exposure because it affects both the price of energy and the demand that your customers are are going to use, um we typically like buy these quite complex bespoke products um that that essentially scale up or scale down with the the the temperature. And then there's also you know, kind of things like to to consider like basis risk between what the measured temperature is and the temperature that your customers are actually using, which is ultimately what actually affects things. And so, these are the kind of issues that we're thinking about solving or would love for somebody to solve um as we think about, you know, okay, how do we, you know, potentially bring more energy products

on chain. Yeah. It's interesting. Um I mean, the um like the derivative contracts on somewhere like Hyperliquid, I mean, they're they're cash settled. I mean, people are really just betting on the price. I I would imagine you're actually taking physically delivered uh products if that's if that's what you're you're buying. >> typically, you you've got financial or physical products that you can trade. And so, generally, like the the products that you would see being like traded proprietarily um would be financial products. You're not actually expecting delivery of the of the commodity itself. Yeah. But but but you are. I I I mean, yeah, you yeah, you are where versus Hyperliquid, you're not. You're just literally trying to leverage the volatility to put on a market position

or or or something like that. And in in in that case, temperature and those types of things don't don't really matter. Whereas for you, I mean, you have to be able to deliver this. So, um you have to make sure that the goods that are that arrive are sellable. I mean, it's it's very akin to almost like a refriger- a refrigerated container for produce that gets sent to a supermarket or something where like you have to make sure that the products don't spoil on the way that the transport. That's I think that's kind of how I'm trying to interpret it. Yeah, it's a good analogy, yeah. Okay. All right. So, uh we're going to talk a lot more. We're going to get into um sort of your movement into the DePIN economy and um the launch of a of a token-based network. But before we do,

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You can also find us by searching Bits N' Bips on YouTube, [music] Apple Podcasts, Spotify, or wherever you listen. Okay. Um so, we're back. Actually, before we continue, um I I need to um do a bit of quick homework I I forgot to do in the beginning. Um this episode, as all episodes are, um is strictly for informational and educational purposes. Nothing that you hear is financial or investment advice. For full disclosures, please see unchainedcrypto.com/bitsnbips.

And with that, um we're we're back with with Sean. And really excited to talk to you because uh you're launching a a a kind of a token-based DePIN network. DePIN, for anyone who doesn't know, stands for uh decentralized physical infrastructure. It has been a buzzword uh throughout crypto for for years. Uh but to be perfectly frank, I'm yet to really find a project that has successfully kind of gotten that escape velocity. You guys might be a little different because you've built from uh as we discussed before um a very promising and lucrative business before even getting into DePIN. So, talk to me a little bit about sort of the thought process behind um behind launching this network and kind

of Yeah, I mean, how do why do you think you're going to succeed when a lot of other DePIN projects have have failed to sort of get off the launchpad? Yeah, very fair. Um so, I think historically, there's a lot of DePIN projects um that are somewhat of a solution looking in in search of a problem. And are often demand constrained. And what we've seen is you know, we've been wanting to to build something on chain since day one, since, you know, 3 4 years ago that we started this.

And we've identified one problem that is really, you know, not talked about enough that persists across the energy stack, no matter which layer you're building on. And that's grid capacity. So, right now, we've got these surging like production facilities, generation facilities, and then a lot more consumption, you know, data centers, robotics, manufacturing facilities than we really ever envisioned um on the on our kind of grid networks. You know, our grid networks were built 150 years ago.

Um Edison era never envisioned to support the the loads that we're putting on it in the 21st century. And that has manifested itself in quite a few issues. If you're trying to build anything on the grid, you know, be it a a new generation plant like a new wind farm or solar farm or, you know, a data center, um you can have the permitting, you can have the planning, you can be ready for kind of engineering, procurement, construction. But when you ask the grid, can I plug in here and either put power in or take power out, the the response from the grid is often, you can't do that because we haven't got capacity for you.

And often, what we're seeing now is decade-long delays for grid reinforcements in order to be able to plug in where you want to. And that's obviously got huge downstream effects on, you know, economic progress and development and also just lowering energy prices for the economy in general. Then when you're looking at energy markets, you've got constrained grid capacity, which often means that sometimes you've got a lot of, let's say, renewable power in a certain region when it's particularly sunny or windy, for instance, in that region.

And you've got demand centers separated from that. And, you know, this fine capacity line that often results in not being able to move that power from where we have it to where we need it. So, when you're looking at kind of like the statistics from that, like we kind of estimate that over 70 billion um in the last kind of 5 years or so worth of, you know, renewable clean low-cost power has essentially been shedded because we can't move it across the grid to where it's needed. Obviously, that's got huge downstream effects on the costs of energy. And then finally, obviously, you know, ultimately, who who foots the bill for this? It's ultimately consumers, people who pay energy every month.

So, the analogy I actually like to use is that grid networks are suffering from congestion issues very similar to how legacy L1s um suffered from congestion issues. You've got limited network capacity, peak demand, and as a consequence, you know, network congestion, high gas prices um during during those times. And ultimately, it's a scalability problem. Yeah. So, what we're looking to fix as part of this is essentially use these demand centers and coordinate essentially making demand more elastic to to grid conditions. And what that actually means, you know, in practice is

we want to connect to devices that are in homes already. So, these are like smart devices like smart thermostats, EVs chargers batteries solar that kind of thing. And then programmatically have them respond in when they're using energy to the conditions of network congestion on the grid. And effectively, what that means is if we can leverage all of these millions of devices that are already just sitting in homes like unused right now, there's gigawatts of capacity there. If we can use those to actually respond to the grid conditions in real time, we can significantly reduce congestion on the grid, which has tons of knock-on effects into the kind of, you know, both the energy system and the global and the kind of

economy as well in terms of being able to build stuff on the grid faster, being able to build manufacturing facilities faster, having less volatility on the energy market, so it means we need less provisions for reliability, which ultimately means lower costs of energy for everyone, so we can do things faster. So, that's basically essentially the core of what the kind of Energy Network, which is the kind of DePIN project that we're looking to to to release is is going to do. I'm happy to talk about, you know, kind of our kind of further reservations about being, you know, put in the DePIN category, but uh yeah, I'll I'll pause there. Uh yeah, and then we're going to get into that. But I just want to ask a couple of, I guess, clarifying questions. One, I I believe you mentioned something like these devices are holding energy that that's

going unused. Uh I I just want to make sure I'm understanding that versus sort of maybe devices that uh when I was reading about your company before to prepare for the interview, uh it's more like trying to figure out a way to um increase demand during times like perhaps in the middle of the night when like you're cooking obviously has to be done in a certain period of time, but there might be times when other things can be done where there's less demand versus like these devices having energy that they could perhaps return to the grid. I just want to clarify that. And then two, um just to kind of frame reference for for readers, I mean, we hear about insatiable data demands for these new AI centers. I mean, anyone in crypto, and we've covered like the conversion of Bitcoin miners into like AI HPC centers

and and kind of how there was a gold rush for these because they have all this infrastructure and they're already plugged into the power grid. Um, like they take gargantuan sums of energy. Uh, you serve I I forget how many, I guess, hundreds of thousands or or 250,000 plus. >> Yeah. So, I mean, I know growing company but like is at what size do you have enough to really perhaps be able to offset the demand um from these insatiable data centers that are continuing to to build. Yeah, great question. So, I guess maybe we should disambiguate the the kind of the wasting energy versus the kind of devices and scaling. Um, when you have limited grid capacity and you have wind farms or solar farms, these are

big, you know, utility scale sites that are over producing. Often they're actually told to turn off because the grid can't move the energy where it's needed. That's a huge waste. It's a huge opportunity cost on the system, right? And that's a consequence of, you know, grid capacity. And the other side of things and what the solution we're looking to do is when the grid is congested let's say there's a lot of demand on the grid right now, it's super congested. We're shedding, let's say, renewable loads. If we can get devices um and coordinate them to turn down we can essentially reduce the load on the system to allow it to flow more efficiently.

So, that's kind of there it's it's called demand response. We're making essentially we're coordinating the the consumer demand base to be more reactive and intelligent in responding to the condition the real-time conditions in the grid. So, that's kind of essentially what we're looking to do with the kind of energy network and the coordination system. That's kind of all incentivized with the kind of energy dollar token that we're will be releasing. Okay. And then in terms of like what how much is actually needed. So, right now, you know, you can look at like a smart thermostat, which is, you know, probably got like a kilowatt or two. Depends on like the house and the heating system.

And that's kind of got a kilowatt or two of, you know, like flexibility that you can ramp up or ramp down on demand. Similarly with batteries, you can go up to like kind of standards around 10 kilowatts that you can kind of ramp up or ramp down. And then, you know, similarly with EVs and and solar panels. So, if you can like it's actually the the threshold of devices that you need to kind of make a difference and start, you know, kind of playing in things like power flexibility markets and kind of actually starting to kind of earn for load shifting. It's actually quite low. It's only about 0.1 megawatts. So, it's we're talking about, you know, 100 homes with with um uh we're talking about 100 homes with smart thermostats or, you know, you know, 10, 20 with with batteries that,

you know, can we can start participating in power markets. Then when you're talking about like data centers themselves, you know, they go into the, you know, tens, hundreds of megawatts generally. So, what we're talking about is, you know, tens of thousands of homes to kind of offset a typical uh data center. Okay. And yeah, so I think like in terms of like the economics, it's actually it actually kind of makes sense because a lot of these devices are actually already there in homes already. They're just unused. So, you could be, you know, you you you could have a a smart thermostat at home that you're just using for your for your temperature when you could actually be contributing to the grid, providing services to the grid, and earning for that as well.

Okay, interesting. So, let's get a little bit more into the specifics of of your token and the energy network uh uh I believe it's either I guess Q1 is just about over. Um, so I'm I'm guessing you're going to try to to launch in in Q2. Um, can you give us an update on that? And uh uh I believe there's going to be a 10 billion token supply and you have some um uh there's different distributions for for um users versus investors versus uh the company and uh plan burns, etc. So, just briefly kind of walk us through the setup um the tokenomics, how this is how this is going to work. And um what is the utility of these tokens? Because you

because you um you got a no-action letter from the SEC, um which really only comes when they believe that this token is going to actually have utility and not just be a tool for speculation. Exactly. And that's something we've emphasized from the very start. You know we're regulated in two different industries, heavily so, you know, energy and crypto. So, everything we've done has been with with an with a a gear an ear towards compliance and ensuring that we, you know, release something that's actually useful or not just a, you know, an investment vehicle or a speculation vehicle, basically. Um, so what how how the kind of token works is very simple for the user. Um, you know, user kind of logs on to our kind of Fuse app. Um, they kind of have to be, you know, provided being provided energy by us.

And they can connect their devices. So, things like, you know, I want to let's say let's say I connect my Tesla EV charger. So, I sign into my Tesla and I grant permissions to the app. I say I want my Tesla to be charged 20% or 70% by 8:00 a.m. every morning. And then outside of that, I don't care what you do with it. You can kind of use that to provide grid services and optimize grid and reduce grid congestion in the background. And then for that, I provide direct value and I'm generating direct value and contributing to actually the energy system. And for that, I'm getting rewards in in our kind of native token built on Solana, which is uh the energy dollar.

And for those rewards essentially, then what happens is I can I unlock discounts um on goods and services within the Fuse ecosystem. So, let's say later when I want to install a new solar array on my roof, let's say that solar array costs, you know, 15 15 grand. Um, I can actually take the tokens that I've earned, burn them, which reduces the the supply of the tokens. Um, and access, let's say, you know, let's say I burn $1,000 worth of of tokens and I can access a, you know, $2,000 discount on my solar array.

So, that's the kind of idea of essentially how, you know, tokens are are emitted and to users and for providing real utility and real value to the energy system. And then how they're essentially then burned and taken out of supply for um for actually like real utility in terms of, you know, value for the user. More broadly, yeah, so essentially the kind of emissions are kind of aligned with energy transition schedules. So, we we we think very long term. Um, we think that's the only way to build a kind of generational company. So, the kind of emission schedule is out to 2050. Um, and the idea is that we're slowly emitting to users over time as the kind of user base of the network grows. But then also as the network is growing and more

people are redeeming, we're we're burning more and reducing supply. We want to burn about 50% of supply through these customer kind of uh redemptions uh between now and kind of the the end of the emission schedule. Yeah. And that's probably kind of how the uh the kind of token supply works and um I I am curious and and uh I mean, I understand sometimes talking about the SEC, there may be limits to what you can um Sure. share. But uh the token is going to be listed on exchanges. I know Coinbase has already um mentioned that it's on the road map and uh I'm I'm sure that it's going to to show up on on various DEXes as well.

Uh so, there is an opportunity to to to get liquidity for the token. The only your options beyond just uh redeeming it for discounts then burning it. Uh did the SEC have any concerns about like the types of exchanges it would list on or how many or was it really the focus just as long as there actually is concrete utility and it's not being marketed as a security that that was sufficient to get the no-action status? Yeah, I think like the that like the the SEC letter was huge for us. Um, so it was and it was the product of months of like very constructive engagement with the with the commission. So, essentially their their main focus was, yeah, around the utility and the fundamental mechanics of the token as opposed to

like where it would be listed. Okay. The idea is, yeah, um essentially like they they what they cared about was, you know, is there really like a consumptive utility to the token in the sense that like people actually, you know, use the token and and burn it and extinguish it for like actual, you know, consumptive value, which is like, you know, buying something. Um, that that that they're looking to to to acquire. And that was that was the main kind of focus for them. Um, and ultimately there was a lot of back and forth. Um, but for on the secondary market side of things, like the the idea for the secondary market is to, you know, to facilitate um facilitate exchange between, you know,

net buyers and net sellers of the token. Um, that was ultimately like exactly how we do that, you know, is as long as it's, you know, compliant and in the and in line with the kind of details presented in the SEC letter, there wasn't much further kind of, yeah, discussion around around exchanges where we list or, you know, the particular venues. Got you. And I I saw I I believe I read somewhere that you're not going to be uh having any sort of airdrop, which uh is is interesting and and from my opinion, I I believe uh if that's true, it's a good choice because it kind of could limit the chances of just a big surge in usage from airdrop farmers that could then lead to a a massive withdrawal whenever the airdrops end.

And for a business uh and an industry that's already highly volatile, that's probably something that you're looking to to avoid. So um but like do you have any expectations for how this is going to change the the usage? Um, the growth of your network? Do you have any sense of like what would be an ideal burn rate to get to to the 5 billion? Anything you can share along those lines? Yeah, sure. And I think this is again what kind of distinguishes us from like a typical deep in category project. Like I think I would kind of describe us as energy infrastructure over deep in because historically deep ins are, you know, very supply constrained. They need people to, you know, buy their XYZ proprietary devices and often they give

away a lot of supply in order to try and bootstrap that, right? We don't have that issue at all. We're device agnostic. We have a captive user base of hundreds of thousands of users already that's only going to grow. You know, we're hoping to hit, you know, over a million users over the next over a million kind of homes over the next 12 months. Um so, we're not really under that constraint that we need to like shed a ton of supply in order to get people on board and onto the network and using it. Um we don't need people to buy, you know, our proprietary hardware. They can just connect stuff that they have at home already. Although, we are looking to release proprietary hardware over the next few months, which should be interesting. But, I mean, I think as a consequence, you know, ultimately, I think when I look at

airdrops, I think they're going to be viewed, you know, historically as the most expensive marketing campaigns in history. Um like when you look at like giving away 200 million dollars worth of worth of tokens to often what are like, you know, kind of be, you know, you know, kind of mercenary farmers. Um I think it's just net negative for the projects. And the way we're looking at it is we're going to like consist we're we're going to provide tokens and distribute tokens for, you know, the the fundamental volume that the network is generating and and not for spammy like kind of, you know, quests and that kind of thing. I know against that if you want to do it.

It's a great way to get distribution, but it's not really the way we're looking to approach things and we think, you know, when we're actually looking at, okay, we want this to be still working and usable, you know, in 2050, you know, after you know, 50, 100 years of, you know, Fuse growing and becoming like globally dominant as a energy major. The way we see and, you know, the lens through which we make these decisions um using that, it just felt like giving away a ton of supply to get the like early kind of eyeballs just wasn't quite like our kind of, you know, skin. So, >> Makes sense. that was the idea. Uh one more quick one before we wrap up. Uh do you have any contingency plans uh in case people don't want to trade in these

tokens for discounts, but instead uh even if they're not airdrop farming, they're farming for tokens and they prefer to sell them on the open market, so the supply doesn't doesn't decrease and that flywheel uh I know you didn't use the word term flywheel. I I guess I I am, but if if that momentum doesn't start. Um do you have any sense of what you might do if that situation occurs? I mean, for us, um I think, to be honest, well, A, I think many projects, you can kind of ask that for almost any project. Like, what what happens if the if people don't use the token right?

>> and I have to be to be perfectly honest. >> [laughter] >> But, like, I think I mean, for us, the way we've built this product is incredibly native and seamless with the rest of the product as a whole. So, you know, we're using embedded wallets that, you know, essentially you get you get your tokens kind of dropped for making these activities and it feels very seamless to like the rest of the product that you're using or that you're like using for your energy supply and paying your bills every month on. And the way we're looking at it is that we we're just essentially making it as seamless for the web two or the web three user to use these tokens as possible. Um and like essentially, if I'm getting dropped these tokens and I'm

looking to buy stuff within our ecosystem and these tokens are available and in my wallet and we say we can show you that this is the amount of discount you get when you burn them and extinguish these tokens and reduce the supply. Like, that is a very seamless and integrated experience for the user. Um and it's something that's like it's a direct immediate value to the user that like we think it's going to be like, you know, a no-brainer for them when they when they actually want to when they go to to buy these products. So, we don't we don't view it as, you know, having contingencies in place. I think, you know, especially the kind of I think, you know, we down the line, I think the the kind of buyback and burn mechanism that is touted by a lot of

projects today, which is, you know, very successful ostensibly, um I just I think from a compliance perspective, we weren't totally comfortable with that. Um and so, we're really relying and pushing on, you know, fundamentals and creating value for the network um because we think that's what is going to make this network stand up for decades as opposed to years. Got you. Okay. All right. Well, we're just about at time. Is there anything I I didn't ask you uh anything else that you'd like to leave our listeners and viewers with? I think mainly just, you know, if you want to learn about more about what Fuse are building and uh the energy network, then follow us on Fuse Energy on X. And yeah, stay tuned over the next couple of

weeks. We've got some kind of exciting announcements and, you know, competitions and and events planned and, you know, I'll be you've got TGE coming up. So, um yeah, looking forward to the launch and uh hoping to bring people along the road. Great. All right. Well, Sean, thanks uh so much for joining. Thanks everybody for watching and listening. That'll wrap things up for for Bits and Bips the interview, but stay tuned. Up next, uh Laura is going to be here with an Unchained episode. She's going to be speaking with Noelle Levine, partner A16Z, [music] and Robbie Peterson, a junior partner at Dragonfly, about what the agentic economy might look like in the future.

So, stay tuned.