Everything Is Market: How Crypto Is Expanding Finance Into Culture | Jesse Walden

Transcript

Many of the founders who come in that we that we work with in the portfolio, many founders who come in and pitch us, they're all working towards one northstar KPI, which is um daily active traders, right? Like that they want to see more people trading every day. And you know, today we're we're I would say we're somewhere on the path. We're not quite there, but we're definely on the path to there being a billion traders, daily active traders. That's I'm I'm intentionally being hyperbolic, but that's the goal of many of these companies. This episode is sponsored by Canton, the only public permissionless blockchain built for institutional finance. We'll hear more from Canton later in the episode.

Blockworks Digital Asset Summit is back in New York March 24th through 26th. We'll have top speakers from leading asset managers, financial institutions, DeFi protocols, crypto companies, and policy makers all under one roof. Think Black Rockck, Coinbase, Robin Hood, and more. Follow the link in today's show notes to buy tickets and make sure to use code bell 200 for $200 off at checkout. See you there. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or

projects discussed. All right, everyone. Welcome back to another episode of Bell Curve. Today I'm joined by Jesse Walden of Variant. Jesse, welcome back to the pod. >> Thanks for having me again. Great to be back. >> Yeah, this is fun. We um we're going to take a break. Belurve has been a little bit of an AI uh pod recently, but we're going to rediscover our roots and uh talk about crypto. And uh Jesse, you've you wrote something really interesting um you know uh a week or so ago. Um, and the the title of this blog, this this tugs at my own kind of uh nerd snipe heartstrings here, which is um everything is market. Um, and I love that title. Uh, and it really addresses one of the core debates of crypto at the moment, which is is like these promises

of web 3 and kind of some of the early um original nerd snipes about crypto being this coordination layer and building all types of apps. Are we going towards that world the kind of Chris Dixon side of things or is every is crypto mainly suited for fin you know financials and being an asset ledger and better financial rails? I love the way that you framed this year. Talk us through the the kind of opening inspiration for this piece. >> Yeah. So I I guess the backstory is like I I got into crypto over a decade ago as a founder and I started this company called Media Chain and the goal was you know you know to bring every piece of media a different type of digital asset onto a public blockchain help creators make more money. So you know I would I would say I was very inspired by a lot

of the kind of more expansive possibilities of what blockchains could enable you know for digital media for creators for you know thing things that I guess would typically be associated with web 3. Um and um you know today I or I guess back even back then one of the big lessons from that startup was um that markets drive new standards. So if you want to have a new standard for digital media assets or you know digital media monetization you need a market to pull that standard forward. So that that's that's a lesson I kind of learned the hard way through the startup. Um and fast forward to today this piece everything is market um it it sort of uh puts forward the view that um both the the kind of web 3 vision and um the view

that blockchains are are just for finance are correct um in that blockchains are enabling many more markets to proliferate and so the definition of what finance is is going to be a lot more expansive than most people realize. >> Yeah. I uh I reference this post often, but one of the inspirational posts for me when I was first getting into crypto was a post called markets are eating the world by Taylor Pearson. I think you you also know and yeah, I just love this idea of markets as a coordination layer and by if you know you reduce the friction for spinning up markets, you make them global. Um, and I I really love I want to dive into, you know, some

of the particular innovations uh that you see in crypto. And I really love this idea that you have of markets being an API endpoint and a potential input into other products that could get built on top. But I think this idea of markets just coordinating an increasing amount of activity um people people kind of grasp the significance of that, but it's you know I I think there's so much white space that's left to >> Yeah. Yeah. So, so like in the piece basically I I go through like three different angles on this idea that everything everything is market and and and um so so the first driver that I go over is that this idea that um mass accessibility and participation in markets um enabled by crypto, enabled by

the fact that you can just spin up a market for anything um from like you know derivatives to memes um means that finance is increasingly intertwined with called. Um second idea I I cover is the the idea that um markets that are permissionless can function as these change agents in that basically you know kind of twist the hand of regulators and institutions um to en enable new behaviors and and that's closely related to culture and and consumer behavior change. And then third is this idea that once you have many more markets and and changes in

what's you know behavior and what's possible um you start to turn markets into infrastructure that increasingly you know intelligent agents can consume as inputs um you know to to to to what they're capable of. Um, and so these are kind of like three like me I guess mega trends that I see in in crypto um that are all rooted in this idea that finance is becoming a lot more expressive and and a lot sort of wider of a domain than it's been historically. So h happy to go and cover any of those.

>> Yeah, maybe we could maybe we could tackle um just lowering the friction of uh spinning up new markets here. And you know, I'm interested to maybe go one click deeper and do you think that there are, you know, if you if we if we were having this podcast 10 years from now, you know, when I hear um lowering the friction to spin up new markets, in my head I'm mostly thinking of prediction markets uh today, but we've also seen the creation of, >> you know, markets for things like NFTTS um for memes and they've kind of risen and fallen and and I'm curious in your mind when you think about um lowering the friction to spin up new markets, do you think of that, you know, what chunk of that is prediction markets today? Do you see that kind of eating some of the

the new markets that crypto has spun up or do you think that this is just the beginning of a phenomenon of lowering the friction and creating many many new types of markets that you know we'll continue to see in the future? >> Good. It's a great question. I think I think my answer is like both. I think yeah, prediction markets I think are really good example of the phenomenon I'm describing where you can literally spin up a market you know with a binary outcome for anything. And and so that's case in point example of of markets becoming a lot more expressive, finance becoming a lot more expensive. Um but but also yes like memecoins, NFTTS um are examples of the same thing, right?

Like it's literally you know cost zero dollars to to launch a memecoin today. Um but I think it's it's also the going to be the case for other types of value going forward. So you know a classic Dixonism, you know, next big thing starts up looking like a toy. some you know meme coins are kind of a toy in 10 years will they be a major asset class I think the asset class will be bigger than it is today but also you know we'll we'll start to see and we're already seeing this today you had Stan on recently talking about you know tokenizing solar um framework guys yesterday announced they're they're tokenizing mortgages um so so the cost of doing this like you know bringing assets into this economy is going down by cutting out many many intermediaries

um and and so it's the same trend line of you know the the the cost to making assets permissionless, programmable and global um is gone to zero. >> I so I I agree with that as well and I one thing maybe to bookmark and we can do this podcast again in a year or something and and understand this but I'm very interested I'm sure you saw the news this week of Meta launching their stable coin and I'm very interested to see some of these markets that looked like collectibles or toys. It's unlikely that Meta is going to be getting into the memecoin game, but I am very, you know, I know that both of us are fans of Jacob and Zora and uh yeah, I'm very curious to see what happens potentially

with, you know, creatorcoin type content when you have Yeah. like Instagram and Instagram getting into stable coin payments. Like maybe that opens up the door for very new types of markets >> potentially. Yeah, I think I I mean that I think that today those things are probably unrelated, but but yeah, you know, on a longer time rise and could there be an intersection? Absolutely. Let's talk about the the second component of that as well. And I guess maybe more of a a question to you around the implications. Um I think that the reason I I really like this point is this is an maybe an extension of a principle that people have known for a while at least politically. You know, there's this great I forget if it's James or Carville or uh Bill Clinton who

said, "If I could come back as one thing, I'd come back as the bond market." Right? This is famously a very large market that is pushed around even US presidents in the past. Um so I I really like this idea and it makes a lot of sense as markets get more global and potentially deeper and more liquid that that trend should essentially continue. I guess, you know, I'd love you to maybe unpack um one or two levels deeper on, you know, how maybe zooming into crypto, how have crypto been some of the new crypto markets been change agents? Um and how do you see that trend continuing?

>> Yeah. So I guess um you know one one my my background before I started in crypto a long long time ago um I was really into piracy and um you know like many teenagers were in the early 2000s you know piracy was was happening on uh permissionless protocols like FTP and Bit Torrent and um and so like that experience I think was formative in that um you Bit Torren in particular was this kind of breakthrough protocol innovation and what it enabled was streaming because it you know the protocol enabled you to get all the packets of a file you know in in in uh

parts so you could start playback almost immediately and um you know that was a pretty profound experience at the time um when there was no YouTube there was no Spotify one of the people who saw that was Daniel E founder of Spotify who at that time was founder of the biggest Bittor client and um and uh he had the the the great idea to hey say we're going to productize this make it more accessible and so you know little known fact is is that Spotify actually used Bit Torrent under the hood in in their early um product and and so I think this is a really good example of something that we see happening in crypto repeatedly which is protocols first enable um developers and

and users to kind um uh express new behavior. So with you know with Bit Torrent it was um you know we want access to instant access to all the world's media at our fingertips that's streaming and and then later once that behavior is kind of proven out at scale which in the case of of uh piracy bit torrent was like a third of all internet traffic at its peak once that's proven out at scale then um you know the rules change and you know pragmatist founders come along and productize the new behavior. So you know in the case of again with piracy um you know what what Daniel did is he went and got agreements done with all the record labels um you know who ultimately had to acquies and change their rules to enable this

product and and then Spotify won right so so the example there's many examples of this in crypto um I think you know stable coins are are really good ones stable coins started on offshore exchanges um that you know total brain market enterprise um got big enough you know enough demand where you know in the US we just passed legislation to codify you know the rules for stables and now that the market is exploding um same thing with prediction markets you know poly market was offshore for years before they um launched in the US um and you know interestingly their app that they launched in the US doesn't even function on cryptos today Spotify doesn't function on Bit Torrent either

Um so that that that one's actually a little up is kind of a nuanced rabbit hole. It's you know again the the pattern is like the protocol enables users and developers to break the rules prove new demand and and then pragmatist founders come along and and productize it and sometimes the productization doesn't imply it using the same rails. Now, I'm I'm I'm pretty high conviction that crypto will ultimately prove to be the right routes for many of these markets because, you know, permissionless, programmable, it's just the cheapest, best way to do it. Um, so that that that's where the analogy may break in in the mid to long term. Um, but there's a lot of similarities there.

So, so the the TLDDR on this is is that um you know because crypto is permissionless programmable global um censorship resistant, we get to break the rules on many more markets and prove out demand for new things and and ultimately change the rule and change, you know, consumer behavior. Um and and that's how we'll continue to get new products in the space. >> Do you see? So, one pattern maybe to draw out on the history of how markets develop is they, you know, prediction markets and stable coins are a really great example of they tend to crop up in kind of a gray or less regulated area than they get big enough and then eventually they do get regulated. And I think we're in this era of crypto where Binance is another good example of this.

It kind of existed, you know, there was a period of time was like where does CZ even live? Does he have this office in Shanghai or not? and he was kind of bouncing all over the place. But now Binance is trying to get regulated and move into the US market. Um, same thing with uh Poly Market and it seems like we're in a a maturation phase. One thing that might be a little bit different about crypto is that it's global by nature. And so, you know, when these markets when we talk about these markets having rules, it's kind of like, well, whose rules are we talking about here? And I'm also curious because kind of the ethos of crypto and you know in a lot of places in in like true DeFi today that has been less regulated and there isn't aren't things like KYC AML and things

like that. So I'm curious, you know, if part of the destiny of markets to become change agents is they become regulated, how do you see that evolving in a very complicated global world? >> Yeah. So I mean yeah I I agree with the point that you know cryp crypto is um is unique because the base the base of it is in theory permissionless decentralized um but you know that what what the end users are facing often is not right they're often facing you know front end interface controlled by a c centralized party um and and so they're like you know you got to get regulated in the markets where where your users are. Um, I think probably the best end state of this is that you are able to

kind of unbundle the end user interface and the underlying market kind of infrastructure. Um, so Jake Shinsky, you know, who's the chief was the chief legal officer at Variant up until very very recently is now an adviser to the firm. Um, he just went off to start the hyperlquid policy center. And, you know, this is one of the things that that he's got his sight set on, right? is like let's figure out a way to scale decentralized exchange hyper you know the hyperlquid core but also find a way to um for hyperlquid to be able to enter the US market and face users which today are not allowed to to access the platform. Um, so yeah, that that that's what I think the end state looks like and and that is going to be the result hope, you know, hopefully of smart

people like Jake going and doing the work to help educate regulators in in these markets about the difference between the the base functionality and the end user product. Um, and you know, it's it it I would say that um the historical analogy back to like piracy for example, it's it's not all that dissimilar like Bit Torren still exists, right? like Bit Torren itself, >> is not regulated because it's a peer-to-p peer protocol. >> Same as the internet protocol. The internet itself is not regulated, >> but the products on top, you know, that face end users are and and Spotify has to go get copyright licenses in every country that they deliver the service in. So, you know, that's I think like that would be a good place to end up is the underlying protocols end up unregulated, but but we have these um

this layer on top and that layer gets kind of bullied around a little bit by the demand that's proven out by the permissionless base layer. Before we get back into the episode, here's a quick word from our sponsor, Canton. The only public permissionless blockchain built for institutional finance. >> Tradfi wasn't built for 24/7 markets. DeFi wasn't built for regulated institutions, but Canton is where the power of finance meets the promise of blockchain. The only public blockchain with institutional-grade privacy, true composability, real assets, real markets.

Why reinvent finance when Canton makes it work the way it should? Canton, where finance flows. that also just makes sense from a specialization standpoint as well. But um all right, let's talk about this this third angle and I think this is the most uh interesting point that you bring up as well in the piece is kind of using this idea of um markets being an API endpoint that can be an input into other products. So like just help unpack that. This is a yeah, this is a particular interest of mine too. So I'm happy to would love to get into unpacking this concept with you.

>> Yeah. So, so the I guess the section of the piece is called markets or APIs or markets as APIs. Uh, and the idea is that um, you know, in short that um, like financial markets historically I would say you know like trady markets are these kind of like discrete venues. They do produce a lot of data and the data is consumed um, uh, and and and used in many ways today. But as we get this like explosion of new markets, like that's probably going to expand quite a lot too. And it's at a really interesting time where um increasingly we have these, you know, agents that are able to consume all the world's information in vast quantities. Um and markets are this unique type of information that is very

hard to fake and or generate, right? Because it's costly to do so. Um and almost by definition, it's information that the agents can't already, right? because markets are producing new information every single tick, right? And and you can have an LM that's out there crawling the internet like you know pulling in all the information in the world, but markets are consistently every tick producing new information that um that is that is costly to fake. And so like that's that in my view is like a you know exciting new terrain for agents to to pull from. And so if you take this to the logical extreme, we may happen end up in a world where like there's all the information, you know, that's knowable is already inside of an LLM and all the information that's not already knowable is inside of a market

somewhere. Um and and so that that's I would say like the core the core of the idea and and um this struck me like random stories that struck me as like I was going to bed one night plugged in my iPhone and um I I got this message on the phone that says uh your your iPhone will complete charging at like 4 a.m. 6 hours. Um and I was like what's what's going on here? like how is Apple kind of just making this decision about, you know, when to slow charge my phone. So, I looked it up and what's going on is Apple's pinging an API and that API is aggregating a bunch of data on the energy market and making a prediction about when it's

going to be kind of, you know, cheapest, most energy efficient um time to charge in my location. Um, so that that's not on chain today. Um, but you know, as we bring more energy assets on chain, it very well could be in the future, but it's a really good example, kind of a mainstream example of like a market serving as an endpoint for an API that enables this this product feature. Um, and you know, and I I I think there was like there's another a number of other examples I can talk about, but that was sort of the inspiration for this is like, well, if we're we're getting this explosion of expressive markets because of crypto, and we're getting this explosion of intelligence in agents, um, you know, probably it's the case there's going to be a collision course where agents are consuming information from

these markets to inform decisions that they're making and enable new products and services. So this is uh you know Block Works you know our history is as a media company and I'll just give an example of how I see media evolving and I have a I've told you this before but I have a long unfinished blog post about this but you know um for a long time I was kind of very confused about what the future of media was going to look like because I could just see news dying as a business. It's a loss leader for everyone. It doesn't make any money. Um there's uh there are all these challenges with the business model. Um, and it started to see prediction markets as a um, you know, one of the functions that news and media has historically done is it surfaces information. That's what, by

the way, the substack generation doesn't do. It's a bunch of context and opinions, but it doesn't do the hard work of surfacing. And I'm actually not a huge believer of citizen journalism because there's not a strong incentive or set of standards to enforce that. Prediction markets do that beautifully. Um, and when you have agents, I kind of my vision of the future is that actually you basically just have prediction markets surfacing facts and then, you know, in a couple years this won't be you and me on a podcast. It'll be an agent uh, you know, ripping ripping a podcast based on a bunch of prediction markets style inputs. But that was the genesis. I didn't put it in the same maybe as as eloquently as you did, but similar thing, right? There's a there's an information source which is prediction markets. It's used as an

endpoint as an input into this whole other business model. And yeah, the Apple example is a super interesting is also super interesting there, which is you're uh and I think it's it's also extremely relevant in this world of AI where I think everyone is kind of thinking through what is the moat here. Um and for me it's proprietary data and distribution and that's what markets have in you know there's no LLM in the world, right, that can get that information. It's a totally discreet separate thing, >> right? Exactly. And so so like I I think to like and few more examples to try to make this a little bit more concrete like so so the most like literal example of this I think we have today in in crypto on crypto rails is the DeFi mallet right where it's like you have

and you know you have the lending marketplace uh which is onchain and is like a dynamic market for for borrow lend and then you've got you know fintech frontends like Coinbase and Kraken and all the these other um kind of you know traditional fintech products that are built on top of the the onchain marketplace and are just, you know, not exposing the dynamics of that market to their user. They're just showing, okay, here's here's the here's your yield if you're if you're lending or borrow. Um, and so that's a very literal literal example. The market is, you know, the morph evolves as an end point and then you're you've got to fund it. Um but you know another example that's a little bit less literal but but still um you know pretty onetoone is the the poly market odds of the glo golden globes where

you're take you're taking the the market data and you're like composing it into an entertainment product essentially. Um, so like so and and then there's the Apple example I gave which is not on chain today, right? Which is like the market is completely abstracted. You don't see it at all. You just get this product that makes your life better. And um and and yeah, so so the the kind of like directional bet and I'll be honest like I don't know exactly I don't know what the next thing um you know looks like exactly but the directional bet is there's going to be many many more markets prediction markets um you know uh creator tokens whatever and and we'll be able to take the price signals of those markets and compose them into interesting new products. Um, so that's

one thing I'm like, you know, I would be thrilled if founders are coming in and pitching me and being like, hey, I'm building a product that's uniquely enabled by the information this market's producing. >> One question that I have for you is when I, again, when I think about the underlying markets that are most likely going to produce these valuable signals, I'm mostly thinking of prediction markets in my head. >> One criticis early criticism of prediction markets is that there's a lot of insider trading. And I I have a difficult time myself um fully thinking about the implications of this because one thing that I think prediction markets do is it surfaces information in a way which is more globally recognized and consumable. So the example would be markets always

produce these types of signals to use your analogy. They were just shittier more confusing API endpoints. So, you know, when bonds sell off at the same time gold goes up and consumer staples like there are 300 hedge fund guys in the world who was like, I know exactly what this means. We're going to war with Iran. You know, but that most people can't see that. But what actually one of the simple innovations that I think prediction markets do is they improve the understandability and the legibility of the API endpoint to be more applicable to a wider audience. the criticism of um and I actually I read a really interesting study because one of the other criticisms of prediction markets is that in lower volume uh is it really accurate? Can you just push it

around? Read this uh this study that actually even in very low liquidity markets the signal is pretty much the same. There's only like about a 1% uh change in accuracy. >> Um and the criticism of that is because there's a lot of insider trading and it's not as regulated. and and I'm just curious how you think about the kind of societal benefits and the potential business benefits of producing this valuable signal uh versus maybe the the uh you know the insider the kind of insider trading aspect of it. >> Yeah. So I I mean I I would say um it's it's it's it's kind of it's it's a very trippy uh subject to tackle because on the one hand like the you know insider

trading is producing useful information for the world and um and and like you know the second order effect of that information being accessible and understood by others um can be good can also be bad depending on what the market is and and and and whether the insiders kind of got control over the outcome and and you know like you get it then you age of things like assassination markets and if somebody's doing insider trading on an assassination market like that's a really bad thing obviously right um so like yeah it's it's it's a nuance topic because there's like I think there's both positive and negative aspects to it like like many you know new technologies um on the whole I I guess where I head out I think I think there's more positive than negative um assuming like um uh like you know really bad um

outcomes like assassination markets and things are are uh limited and and maybe that happens at more so at the front end. Um and and so there there's pro there probably has to be some there has to be content moderation. These are like these these markets are new media type um new new data type and like some moderation is is going to be necessary to mitigate this problem. But I I don't know that the answer is like eliminate all insider trading because then you're eliminating a lot of information signal that the markets produce. Um slightly like related to to this thread is um the idea that uh agents in addition to being consumers of that you know the information that these

markets produce or you know consumers of markets as APIs um agents can also be participants in the markets. Um, and essentially like if the cost of running inference is one penny less than the value to be gained from making a bet in a prediction market, you can you can assume that agents are going to do that eventually, right? They're they're going to make the bet if the you know the gain is a penny more than um than the inference costs. So, um, to your point like you, you know, earlier that you can have these very very kind of small markets and they're still somewhat accurate. Um, I I think that's that's probably right and it's probably going to accelerate a lot and we'll get kind of prediction markets on very very

longtail subjects where it wouldn't be worth it for, you know, a human to to spend their time and energy participating in a in a market where there's not a whole lot at stake or a lot to be won. But for an agent if if you can pay for your own inference cost and make a you know a tiny edge on that you know agents will will do that. Um so the net of that is like much more information in the world. Um and maybe the inverse of the the title of the section is you know markets as APIs is or agents sorry markets as API agents as participants in these markets producing more information and and and that's kind of a flywheel right where like we're we're getting many many more markets more information and that information is then being composed kind of reflexively into their second order things that um

that agents can make decisions on. Everyone in crypto loves to talk about transparency, but would any serious business publish its payroll for the world to see or hand competitors its contracts? That's not a feature. That's a bug. And it's why most financial institutions can't operate on today's public rails. Canton network is different. It's the only public permissionless layer 1 blockchain built with privacy at its core, sharing data only on a need to- know basis. That's why Goldman Sachs, NASDAQ, and Broadridge are already building on the network. Only Canton delivers the network effects of a public chain with the privacy and control real finance demands. Learn more about Canton by following the link in today's show notes.

So that kind of segus into my next line of questioning here, which is how do you see the proliferation of agents impacting the business model of markets? And I mean it's one thing that um you know one thing that's been pointed out quite a bit is that agents might have different preferences from humans. Um and so it might there's a lot of stuff you know I'm kind of thinking about this myself in um you know when you look at like the morphos of the world and the borrow lend type uh uh protocols where you kind of have these money markets that are um being created on chain. No one's really built the equivalent of a credit agency, a credit ratings agency like a Moody's in in the real world. Uh

who pays for if you want to issue bonds or something like that, the uh the issuer pays. Um and it's just kind of a human preference style there. But I could actually see that model flipping in the world of agents where agents uh because there's because the what they need to overcome at the moment is trust and security. I can actually see a like agents pinging um and paying like per API call essentially to consume that number and the whole relationship flips and it's the demand side that actually pays for the credit rate. Like I'm I'm just curious looking at the business model of markets. Um you know how you see agents impacting that.

>> Yes. I I mean it's it I to be honest I don't have like a super prescriptive view on it. I think like you know there there was the Catrini note this week that you know basically said agents are going to like you know spin up a Door Dash competitor and then other agents are going to like you know choose the Door Dash competitor that has like zero margin um because it's just cheaper. Um and I was I was as I was reading this I was thinking you know a lot of a lot of similar things have been said about crypto protocols right where um essentially like you know the core idea there is like well we can just agents can just fork anything you can you can fork and rep like you can fork Door Dash and and replicate the same exact service at zero marginal cost and and and

therefore like the new agent is going to you know hit that endpoint as opposed to the original Door Dash and and so Door Dash margin is going to zero. I I've been deeply skeptical of that view in crypto because you know where the same thing has been said for example about um you know we're going to there's a zillion unis swap forks right and like you know each of them are are are going to not turn on the fe therefore unis swap um will not be able to turn on the switch well I think that's basically been debunked now that unis swap has turned on the switch and and so like what what why did that work why were they able to turn on the switch even though there were there were in fact like a zillion forks of unis swap. Um, and I think the answer is that like the

world is just not perfectly efficient. Um, and and and yes, agents might make us marginally more efficient, but I tend to think that agents will also come to weight the things that humans wait like brand and and trust, right? Like people I think a big part of the reason unis swap was able to turn home fees is people just trust the smart contracts because they've been there for a long time. um and they have integrations with third parties that that have like built on top and those integrations are fairly sticky and and like the result of those integrations is they have better liquidity. So there's all there's all these kind of like you know sticky network effects that in a in a perfectly efficient world wouldn't hold true and and yeah like maybe the agents um

compromise some of those things but on the other hand maybe the agents just stick to the things that that you know are entrenched um because they know that humans have preference for that and and humans prefer trust and safety. >> Yes. So by the way there's an analog here. There's a proxy that you could very easily use to predict how these behaviors are going to evolve in a world of agents, which is there are some people that have EAs. And that's a pretty good proxy for people that have EAs. Do you just send your EA out and hey, just uh make a bunch of rational calc like I saw in the Catrini piece, he was like a human doesn't have time to compare your favorite five brands of protein bars or something like that. Um but agents will. And I was like, will they though? I find it much more

realistic that a human will just say, "Hey, I really like these RX bars and don't, you know, just get me the RX bars, you know, every Wednesday or something like that." And so I I think there's a difference in in goods here. I think there there might end up being a premium on uh anything that h that the consumer still has a strong brand affinity towards versus actually something like money market funds truly commoditized products or actually financial services where there's been a lot of customer inertia and stickiness I can see that happening far more right whereas like again sticking to the more for example hey um right now you kind of just

deposit your fund, you know, your stable coins in one of several different uh money market funds that's yielding mostly the same thing and you probably don't check every single day and switch out. But I can see setting an agent parameter to like hey monitor these 10 vaults and then whichever one is giving me the best risk adjusted return on date flip it. So I think that it's but the key there the key there is monitor these 10 vaults which are all on the Morco protocol, right? and and so yeah like there there may be some like intravault competition but if the agent wants to switch protocols and instead of you know integrating or or watching these 10 vaults now it's got to watch 10 other on this fork of morpho over here well there's a lot of like costs of doing that integration it's and and I'm not

saying it's it's uh impossible but um but it's just like additional tokens that need to be spent on on spinning up this new thing and and that thing has a bunch of trust assumptions and and and whatever and so it just may prove to be like yeah this is good enough that the the 10 vaults here, you know, there's enough going like competition among them that this one integration works and I'm not going to spend those additional tokens to to do the other thing. >> So, you know, I guess continuing this line of thought, um, one thought experiment I've been asking myself in this world of AI is how is AI let let's say you start from the per uh from the um assumption that the frictional cost of spinning up a product goes to zero.

how what changes in that world. I I I I waffle all the time in between it's totally different versus nothing is different and actually the the lockin for producing software or products in general had nothing to do with at least in the world of software like building the product. It all had to do with distribution um integrations, brand and trust and and I think that that just gets re-emphasized and the importance of brand connection distribution that is just even more important than it historically. Exactly.

And like and and and I think the key is like so pure software businesses that do not have network effects totally at risk but where there is a network effects at play then then it's exactly what you said you need to like you know there's there's the class of cold start problem um and and that's true for any new entrant right so like the you know the mover that solves the cold start problem and builds the network effect has um has a moat the moat would be you know in in the case of like lending which we you know we've been talking about is it it's going to be definitely liquidity for example and like just being able to offer a better rate. Um and and I think that will still prove to be sticky even in a world of zero marginal cost software because you can you can spin up

a new lending marketplace. You can fork unis swap. You can fork morpho all you want but you're not forking the liquidity in the confidence. Um >> agreed. Um, I I also really like the analogy and I I wonder if, you know, I see every day I log on to Twitter and I see these charts, more apps are being created on the app store than ever before, all these revenues, yada yada, and I wonder if there's an analog here to something like 2021 in crypto where you saw an explosion of tokens. You also saw an explosion of underlying metrics that really kind of got people, right?

like uh I went back and looked at just um you know from my own understanding the amount of revenue that was generated on chain and also rev that was generated on protocols like Ethereum it's like 12 billion which is down to 4 billion today um and so yeah at the same time you also had the proliferation of many forks right there was sushi swap and things like that um and I wonder if we're seeing something similar happen in the world of AI and and you know when I think of even when I think about from a Blockworks perspective, how does our world change?

I think the importance of focus is far more important than it's ever been as well. Because again, when the friction of creating new products or features gets reduced to zero, the temptation is to go and do everything. Go in a million directions, do this, create that, it only takes a day. And I think that I think that over time the nuance will be how can I redirect that productivity towards my my one goal that I that I uh you know really care about as opposed to doing a gajillion things and going off in a million directions. And I I I guess we'll understand in a year how um how durable you know the revenue and some of these new essentially forks

really are. I would guess not very >> totally I think that's a very apt analogy where it's like you know you have this explosion in experimentation that similar to 2021 in crypto we're seeing that in AI you know like many of the experiments will not work um some of them will will work uh but it'll be a power law like like everything else um and uh and and so yeah it's it's an interesting question like what what happens with revenue and and and so on and when do we start to see that other side of that um you know that that this like power law idea actually reminds me of one other thing in the piece that we haven't covered yet that that I think is worth talking about and that is um so part of the piece is a reflection on

Varian's founding thesis on on the ownership economy which I I published in 2012 was like kind of the coming out thesis for for the fund um and you know later Dixon published rebr I'd own um which is a very similar idea. Um you know the core ownership economy uh thesis was that users are going to own their identity, their money, their data and a piece of the products and services they use every day. Right? So this was this very expansive view of of what crypto is about. We talked about a little bit like okay yeah crypto is finance but finance is is much more expansive than people are doing credit for. Um the the thing that um that I think you know

so so prompt here was power laws right I think you know five years later reflecting on this thesis I think you know the thesis was generally right but there's a power law on this idea of users owning the products and services um that they use every day that's play that's happened but it's happened in a very narrow set of you know software verticals it's happened in um you know blockchain decentralized blockchains like Bitcoin, Ethereum, Salana and it's happened in financial marketplaces like Hyperliquid and Morpho and Unis swap where users can own a piece of product um it hasn't happened more broadly across all you know verticals of software like SAS and consumer that that hasn't played out and there's a number of reasons why that

might be the case um you know I I I think it's very real that like you know regulatory impediments like got in the way of experimentation um but I don't think that's the whole story I think like probably a a better explanation is where it has where it has worked where users have been able to own a piece of the products and services they use every day. The value that the users contribute can be measured quantitatively. So in a blockchain like Bitcoin, it's a hashing function. The miners are you know doing math and you can measure the the you know the amount of hashing power deterministically and whoever has got the most gets the Bitcoin. Same with you know Ethereum Salana in um DeFi

marketplaces it's you know been a function of trading volume or liquidity provision which again you can measure deterministically and in both in in both of these examples it's all about quantity versus quality you the more trading volume the more liquidity the better the more hashing power the better so crypto is really good at rewarding quantity and it's really bad at rewarding quality and you know many protocols have tried to reward quality for example like you know decentralized social projects where you're trying to reward people for posting for example it just ends in in you know crazy civil attacks and and farming and and like the quality goes

off cliff. Um so so that's one reflection is this power law is like yeah we've been able to you know make users owners of products and services they use every day. just played out in this much narrower set of of verticals where the inputs that users are contributing can be measured quantitatively. Um and and and so rolling that back to this broader idea of you know everything is market. Um you know I'm optimistic that as we make many more markets for more things we we can also make users owners of those marketplaces as we've done with with you know lending and and exchange and it's you know the opportunity now is like to do it for more asset classes and more marketplaces that um exist tailored to those those asset classes. Um, but that's that's

that's like I would say it's been um cathartic for me to like revisit this thesis post and come up with a theory of why it's ended up more power logged than than I thought. >> Yeah. I think you know one of the really difficult things to predict and with any new technology it's very difficult but um you know one thing I wanted to maybe related to the power law observation is there is a there's a social component sometimes of new paradigms there's actually one of my um uh there's a the title of this book is something like the structure of scientific revolutions so this is written in like the 1960s by a guy named Daniel And um this is where we get

the title paradigm shift. It actually comes from the an observation on how scientific progress happens. And to oversimplify, there was a previous model of thought where science progressed in this linear way where you accumulate more knowledge and you kind of think about laying bricks in a wall and you eventually get better at laying the bricks and it unlocks new discoveries. And he there this guide um introduced the concept of actually um there being a social component uh to how science developed. And the idea the mental framework shift is there's a paradigm that people operate in. Um so he gives all these examples of like before we knew germ theory there was an explanation of how uh all this stuff

happened and then all these anomalies kind of build up. there's a leapfrog of hey there are these microorganisms called germs and then you kind of operate within that paradigm and by the way the old paradigm fights you on it but literally this is where we get this concept of paradigm shift and what to connect back to what you were saying with power laws and markets one um observation or something that I find myself thinking about a lot when we talk about this uh theory is that there seems like there's a bigger social element and component of markets than almost ever before. Um, and there's this idea and a new potentially a new paradigm of an increasing amount of our life is going to be financialized and traded on

markets. And the social element of this is that some people would point out, hey, when finance advances and you get things like um, you know, central banking or global markets and yada yada, there all these advantages, right? Like lower cost of funding, improvement in um, you know, the lives of everyday people. Some people are like, "Hey, there are actually some really negative impacts of financializing and markets and this is this is part of the push back that you get on things like prediction markets." I'm curious how you would unpack the social component of if your theory ends up playing out, how does this impact the social lives of people?

>> Yeah, totally. So, so the um when many of the founders who come in um that we that we work with in the portfolio, many founders who come in and pitch us, they're all working towards one northstar KPI, which is um daily active traders, right? Like that they want to see more people trading every day. And you know, today we're we're I would say we're somewhere on the path. We're not quite there, but we're definitely on the path to there being a billion traders, daily active traders. That's I'm I'm intentionally being hyperbolic, but that's the goal of many of these companies. Um and um the I think you know

what's going on here, this is actually related to the to what I was just talking about with the ownership economy, right? The the idea was people are going to own their their money, their identity, their data, and the products and services they use every day. It's played out in part, not in full. What we got instead I I wanted to see a billion users owning products, what we got instead is somewhere along the way to a billion traders. And so so whereas like I wanted to see um uh you know users expressing long-term belief in products and services they use by becoming investors, instead like what what's happening today is people are expressing belief in anything that they care about including products and services. But but you know

what's going to happen in the game tomorrow? What's the president going to say in his state of the union? They're expressing views on that and they're getting economic upside and downside in the same way you get from an investment. And and so one of the things that um I I thought about and wrote about this piece is like there's kind of this continuum that I didn't appreciate as much when I I when I initially wrote the ownership economy. And that continuum is um different modes of risk-taking in society. There's gambling, there's trading, there's investment and um you know I wanted you know billion users to become owners.

Ownership is typically associated with investment. Instead we're we're we're somewhere on in the path of you know billion gamblers or traders. And I started thinking about why why is that the case? And one framework I found useful is Maslo's hierarchy of needs. um you know which which basically describes human nature or that that's the intent is like there's this hierarchy of means that all humans have doesn't change um very much and um essentially like when I thought about it it's like well gambling and trading kind of solve for Mazo's lower runs of of needs which are basic you know safety and security being able to like escape one's kind of an economic

situation you know get to the higher runs like um you know community and things like that and I think for many participants in in in in markets like you know gambling scratches that it edge like it's in part it's entertainment but in part it's like hey maybe I can escape my current situation hit a big lit um and um trading I think is is is somewhere in there as well right it's like you're trying to um make you know a quick 10 bagger in a trade um and but it's a game of skill as opposed to a game of luck um and a good a good trader um potentially can graduate to become a good investor over time if if they make ascend to be able to like you know address the higher rungs of mas

hierarchy um which are things like purpose and and you know self-actualization is is what he calls it so you know owning a house for example the American dream I would tie pretty tightly to Mazo's self-actualization right it's kind of like gives you a sense of purpose you know it's something to aspire to um and I think you know my experience in crypto has been that many of the smartest people in this industry have kind of done some version of of this ascension where they came in like essentially gambling on some coin that their friend told them about and and then you know got humbled by that lost you know lost money and and but then like started to learn more about what was going on and maybe they you know made a good trade

and with proceeds from that ended up taking a long-term view on a project that they had high conviction in. So like there's this I think this spectrum from gambling to trading to investing >> um that I I I think is underappreciated and and so yes like coming back to your question long-winded wind up there's um we're definitely financializing more and more aspects of society that is happening. more and more people are participating in financial markets than ever before. And that's because they're much more accessible to create and to participate in in large part because of crypto and because these markets are change agents and they're making the rules more permissive.

Um and and so yeah like culture is ch is is increasingly wrapped up in that and you know poly market odds are on the golden globes like the market is culture and and culture are market is markets now right so like that that's absolutely happening um but like my kind of positive view of this is that in in the long arc of this we're going to go through this you know this realm of a billion traders and some portion of those, you know, newly converted traders will become investors. And so we may still get to this world where there's a billion owners or billion, you know, users

owning things that they care about. path there just may be through this um you know this period where more participants are active ini financial markets as traders and and and I I see that as like net good if if more participants are able to you know learn and become more sophisticated and ultimately participate in um in capitalism. Um, there's more to I have a lot more of a rant I can go into in into parallels to like the 1920s when there was a a large like retail market for for stocks, but we can we can we could park that for another time.

>> Yeah, that'll be the second podcast. I I mean, honestly, you know, where my mind goes, I've been I've been listening to a lot of um you know, Big History Nerd, and I wonder if there's a connection. you know, some of these really large, well-developed ancient societies like, you know, the Persians famous, they didn't have anything like markets. Um, the Incas didn't even have any, they didn't even have a concept of money. Um, that's, by the way, if anyone wants to nerd out on a crazy story, like look at the conquest of the Incas, which is one of the but 12 million people like these are huge organizations and bodies of people.

I wonder if part of the long-term benefit of markets is while there are I think what the knee-jerk criticism is is that it removes some of the purity of the whatever the thing like whatever the thing is >> exttrinsic incentives crowd on intrinsic incentives right >> exactly but where you see organization that happens without markets even like a more near-term example of Soviet Union it requires like a much more authoritative centralized coordination mechanism for >> which maybe is AI, right? Maybe that's AI and may and so maybe the perfect solution is that you've got AI that's able to coordinate much more information

and you've got many more markets producing information as APIs and the combo of those two actually does enable us to to to like accomplish much more complex, you know, organizational things than we've been able to in the past. I'm I'm pretty optimistic about that that AI may be the the you know the missing a in DAO um decentralized autonomous organization. We actually get these kind of complex organizations where the AI at the center is able to orchestrate them based on information that markets are producing.

>> You know who was early to this idea was Rune at at Sky um who's been talking about this for years. And I got to be honest, I was not a huge believer in this, but the more but yeah, it honestly it's looking better and better by the day. Um, >> I would just I would note that like I wish more founders were thinking about this and and and pitching um ideas along these lines of like how how to use agents at at the center of, you know, organizations that are that are again consuming information from markets to do new things, build new products. Like that's that's one of the themes I'm really really excited about. would love to invest in. Um, and I would love to, you know, I'd love for founders to come in and tell me how they're, you know, tackling that um or what problem they're

tackling with that approach. >> I agree. Um, well, Jesse, this has been this has been phenomenal. Uh, thanks so much for hopping on. If people want to I will link um everything is market in the show notes so people can give it a read. But, uh, I guess also just give us the update on Variant as well. like if folks want to follow you, you know, figure out more about what you're doing at Varant, give us the update on the fund side of things too. >> Yeah, sure. So, so yeah, we're we're actively investing, super, you know, excited about crypto and it's, you know, sentiment is bad. We're we're we're fired up more than ever. Um, and so, yeah, come come, you know, read our writing and and see what we're thinking about on our website, variant.f fun. You know, follow follow on Twitter. Um,

that's where that's where I publish this piece that everything is market. I'm I'm Jessewlddn on Twitter. >> Sweet. All right. Well, Jesse, this is uh a ton of fun. We'll have to do this again very soon. And yeah, I'll uh talk to you soon. >> All right. Thanks for having me.