Will Every Failed Crypto Idea Work? - The Chopping Block

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I think the blockchain is the greatest capital innovation machine in the world. I think we don't think it's big enough. Like it literally is everything. Like there's not a company in the world that doesn't have to deal with payments, capital raising and things like that. And the blockchain has shown that. Not a dividend. It's a tale of two quan. Now your losses are on someone else's balance sheet. >> Generally speaking, airdrops are kind of pointless anyways. >> Trading firms who are very involved. >> E is the ultimate. >> D5 protocols are the antidote to this problem. Hello everybody. Welcome to Chopping Block. Every couple weeks, the four of us get together and give the industry insider perspective on the crypto topics of the day. So, quick intro. First, you got Tom, the D5 maven and master of memes.

>> Hello everyone. >> Next, we've got Terrun, the gig brand and grand puba at Gauntlet, but he is running a little bit late, so he will join us shortly. But joining us today, we have special guest Nile, crypto wise guy at Y Combinator. Welcome to the show Nile. >> Great to be on, Hib. >> Yeah, great to have you. and I am a Steve, the head hype man at Dragonfly. We are early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping block.xyz for more disclosures. So, Neil, you're joining us from Y Combinator, the legendary startup incubator. You were formerly at Coinbase. I was seeing all these clips on social media of like this gigantic startup school like stadium level event

that was happening the other day. >> We had What was that about? Yeah, we basically rented out the Chase Center in San Francisco. Got about 7,000 builders. So, I had everyone from like 16 and 17 year olds building with AI all the way up to, you know, 40 year olds like me all looking here from Jensen Wong, we had Sam Alman there, we had Patrick Collison talking about crypto and agentfi. Uh, so it's a pretty epic event. Um, but it's basically our way to really connect with people who want to build uh and want to start a startup. >> Wow. I can't believe that you've got Jensen Hang, the famous guy, the guy who built his business on crypto mining, and Sam Alman, the coin founder on stage.

That's it sounds like an incredible event. I assume crypto was the start of the show. >> Yeah. And so it's actually funny, but I think Agent Fi definitely was one part of the show, right, with Pat Patrick Collison talking. Um, but I actually did panels on uh blockchains. We got a ton of builders. Uh this is actually my favorite time in the cycle because you have a lot of the serious people who really want to build for the longer term coming in and I you ask people how many of them are launching a token early on and almost no one raised their hand which is pretty pretty awesome to see in terms of like just an early builder and just really focusing on you know solving a user painoint. We had a ton of people really focused on stable coins. Um and then there's a whole group of people uh

especially from traditional finance focused on um just agentic finance and that was everything from using AI to pay for different things. So I I have an AI it's going to do some work and it's going to pay for some APIs with it to everything from a hedge fund that they wanted to build using AI models you know that could out compete existing funds or trade in crypto. So it's a pretty like I think it's a different market than you might get two three years ago in the top of the crypto bull. Uh, but it felt like pretty pretty awesome awesome builders there. >> Very cool. So, yeah, it's interesting because we're in this kind of moment right now where a lot of stuff in crypto is working, but it's a lot of stuff that isn't exposed to the underlying Bitcoin price, right? Or the underlying crypto

asset prices. So, on the other hand, you've got a lot of businesses that are exposed to underlying prices struggling. One of the big news this week was the closure of BitMX, the infamous exchange, the the inventor of the Per Swap, kind of the, you know, the the one of the seeds from which the entire derivatives industry has really emerged. It was kind of the birthplace of derivatives in crypto, uh, which today are the majority of what's traded in the industry. They shut down on uh September or they're going to be shutting down on September 23rd after 11 years of operating. And they were once upon a time the number one derivatives exchange in crypto. Now I don't even know where they are on the map. You know, I presume this is one of these things that as the industry grows, as compliance costs increase, their

market share has decreased. And of course, crypto trading volume is down quite a bit. It's become a much tougher market for a lot of these players to operate. Then we got BitMart announced uh another crypto exchange, less wellknown but >> yeah, I mean, it's one of those that was like always like, you know, number 30 on Coin Market Cap that's like, oh wait, they're doing 15 billion in volume and they're like exchange number 30. That's interesting. And then uh there were some other announcements of windowns. Storagej labs, movement labs, balancer labs, a lot of labs companies for projects that actually are on chain, not just exchanges are also winding down.

And people are kind of realizing like, oh, you know, the the amount of fanfare and the amount of surprise is sort of less and less with each one of these. There used to be this joke that crypto protocols or companies, they never quite go bankrupt. There's always someone out there willing to run a node. There's always someone around there willing to trade their token. So like nothing ever goes to zero, but things are actually going to zero now. So Neil, how do you how do you react to this moment? What do you how do you interpret what we're seeing going on out there in the uh in the headlines?

>> I would say like despite all those shutdowns, I've never been more bullish. So at least on so I think you mentioned two sides. There's one is the trading companies and what I would say there is a lot of the other players in the market have adopted their innovations. For example, per is a critical product. I think Coinbase started announcing that in the US and other markets around the world. Binance obviously has had it for a long while. So clearly they said history uh and like you know any innovative market other people caught on realized that they have to do it. Uh and again I think there was things like uh I think a guilty plea uh and some other challenges ear you know the last few years for for a bit specifically but I think if anything they like led the way and a lot of the industry learned from

that and moved on from it. Um, and so in terms of trading, like what I'm seeing is that basically trading is being added everywhere. All major financial institutions in the US and worldwide are now adding it. And so I think what you're seeing is this blurring of the lines where things like Coinbase with their everything exchange strategy. I spent seven years working there. Basically, it's like acknowledgement that you can't just do crypto. You have to think about prediction markets. You have to think about stocks and everything else. And I would say there's the opposite. Every financial institution in the US is adding it. And again, volumes may be lower when Bitcoin prices are lower, but that's going to change. We've all been in the industry and seen the way these cycles progress.

Absolutely. I think that's going to change. And then on the lab side, I think it's really interesting where I think two things I'm seeing like one is that these governance tokens and things like that, we're realizing that that might not be the best model, but part of it is that there's actually clarity even before the Clarity Act in the US has passed. There's starting to be more and more clarity. And you saw that in Hester Pierce's, you know, recent post that there is like a lot of this stuff should exist and the government for a lot of the things wants to get out of the way and allow people to be able to build. And so I think that's really awesome because a lot of the growth of labs and governance tokens was a function of the lack of like regulatory clarity. So I think that's really really awesome to

see. And the flip side is I think like anything I see um in the startup ecosystem we see so many bets on the future and so for example move is a good example where the bet was a better programming language would get attract a ton more developers and we saw with Ethereum and solidity early on. I think that market has changed pretty dramatically and you're hearing you know developers vote one way or the other. Um so I think that's the the followup there but I think the big shift really is that a lot of things we don't talk about is all these less sexy things happening. So in YC, just to give you an example, there are four or five like stable coin companies that very few people have heard of. Jeez, Infinia, Blind Pay.

These are all examples of companies that most people don't hear about. They're not a consumerf facing brand like an um OpenC or Coinbase, but they're developers using them. They're building on stable coins. And I the last thing I'll I'll say is that I don't think a week passes without a financial institution reaching out to me, a bank or institutional investment firm somewhere in the world that's excited to integrate crypto in some way. And a lot of times it's hidden from the user. And so again, that's a very different mindset I think than I saw a few years ago with IDEO is everyone's going to interface with crypto. They're going to know about it. And so we're going to have to make the wallet experience amazing for them and things like that.

And again, I think that it will eventually happen, but really what I'm seeing right now is this is the infrastructure layer for everyone and institutions are getting in and the clarity is coming. You know, one way or another, clarity is coming. And so, as a result, like a lot more people are building on it, but it's just not as sexy maybe than it was a few years ago during a bull market. What do you feel like are the biggest like learnings or misconceptions or shifts that teams have to make when they're going from maybe having built things in web two to building even like you know stable coins and building a more sort of you know normal consumer product still using stable coins under the hood or maybe building something more exotic in YC and then vice versa what are the biggest sort of like you know YC truisms or

learnings that you feel like those teams like value the most or maybe take those to heart >> so like for the crypto builders what I see a lot is um either their decentralization maxis and what I would say in like YC in general and um I imagine for you guys as well is that the biggest focus is about solving a painoint like users don't care about decentralization um some do you know some developers do but a lot of people don't and so like you have to meet people where they are and again you're talking to the person who used to run stable coins at Coinbase you know so I have I believe in the power of like anything that solves a user painoint be it centralized be decentralized and so I think that's one thing we definitely see with some of that the web three builders

is that their default come in with an ideology and I think one of the most important perspectives in YC is make something people want and so as a result like think about what the pain points are and that's where I think stable coins are so interesting today is that even though they're centralized they run on decentralized infrastructure um and they solve a very very clear painful for people the other thing is I think that um I love the idea of tokens I worry that for a lot of consumer products early on that's kind of dangerous to launch a token if you're getting your product on having access to a token, I suddenly think your TAM, your addressable market goes down a lot. And so we really counsel people that we love the idea of launching tokens. If they're real world assets, things like that, awesome. If there's some type of

incentive token that's part of your product, we'd love it like later in the process once you have some PMF. Uh because again, if you're giving away money for free, a lot of people use your product. That says nothing about whether they really want to use the product or not. And so that's probably like the other big thing that we, you know, talk to user about. And the last thing I think in this market especially is go you may not solve it directly for the consumer. You may solve it for an institution or developer someone else behind the scenes. And so like one of these themes we're seeing a lot is for example that I'm selling to a bank or I'm selling to a fintech. And so for example companies like Gusto is a payroll company uh and they're doing payroll using stable coins and they need

infrastructure to be able to do that. Deal is another example of that. Um and they both need infrastructure to do that. So it's not, you know, it's not like the I think the bull market where it's all consumer. A lot of it's behind the scenes. And then I think you asked me on the web two side, but maybe the quick answer there would be is like I think a lot of it is that everyone's AI pilt. So how do you get them to know and understand the value propositions and the the financial people get it? That that's maybe the interesting thing that I've seen is a lot of people from Trapfi are moving over to crypto and they look at it very differently. And I like some of the things I actually disagree with.

I feel like, you know, crypto is unique and you can't just take tradi learnings. But the flip side is if you're selling to a bank, you're trying to do like a real world asset. They actually have a lot of muscles and skill set to be able to take that and think about how that's on the blockchain, especially if institutions are using it. And so that's kind of a cool like side effect that I wasn't expecting. Um, and I would say most cycles in crypto would have like ignored the their perspective because it was I felt a little too early, but now actually it's the perfect time. So, Nil, you were talking about how, you know, more and more of crypto stuff is kind of pushing away from decentralization and kind of more practical, more focused on real world utility and I completely agree with you. I got into a bit of a

tiff over the weekend with Imran at Alliance Dow and he he tweeted this tweet which went quite viral. Almost everything in crypto that failed the first time will eventually work sometime in the future. Bitcoin looked like it had failed many times in the past. The same will happen with NFTTS, creator tokens Dows gaming TCRs onchain reputation, rebase tokens, decentralized storage. As time passes, each of these ideas will make more sense. >> I was with you up until there. >> I just think we're still too early for many of them and we don't quite understand the need yet, but eventually it will make sense. I so I I you know quoted him and got and got pretty uh in his grill about it. But I'm curious how you react to that especially given that

you know YC you guys are at the very very early stages and um somebody made a very good point. So I I kind of had the obvious response which is that I think this is a toxic attitude to take. Uh it's it's almost like a toxic positivity kind of thing where it's like okay this is this is kind of too polyianish. You should be learning from the failure of your predecessors and like in Bology's parliament like you should you should study the idea maze and understand like who went down which corridors and what are the bodies that are that are you know like desiccated sitting there with their hand on uh uh some kind of booby trap. But um somebody made a point in my comments which I thought was a a very good one is um if you think about something like Poly Market, if you think

about something like Hyperlquid, these are perfect examples of ideas that didn't work for a very very very long time and then started working. And so Nil, how do you think about this? If if you're responding to Imran, he says, "Look, all this stuff is going to come back eventually. It's going to work." What do you say to that? Before I say an answer, I just want to say thank you for the warm memories to TCRs. I've not thought about that in almost a decade and it's exciting to hear about TCRs again. Um, and I actually worked for Bology. So like he made me a really good coroner to figure out like where the bodies were buried and what you can learn for the future. And by the way, to Bali's credit, he's a huge huge bull on Bitcoin and he also saw the power of

stable coins very early and that was one of the products that we worked on together. So, I think it's pretty amazing that you can have that both mindsets that Bitcoin is going to be insanely valuable and also stable coins should exist and dollars should be on the blockchain rather than just replacing the dollar. But, um I like to me it comes back to like uh I don't know if you heard of Web Van. This is this 1990s internet startup. There all these examples of '90s internet startups that flamed out. They raised too much money, had some fanciful vision of what the future was. And I was in Y Comier in 2012. There's this company called BitBank which turned into Coinbase. But the other company was Instacart and Instacart like had a very different model of how they approached it. So one was obviously the time was different.

There were mobile phones that were available. But the second big thing was they didn't go build factories on day one. They literally hired people and had them go into stores, you know, Whole Foods and others that already existed and bought something. So they didn't have this massive capex. So I felt like what a poor did when he built the Instacart was a really really smart like go to market and then he also like really depended on the mobile phone. No way. I think Instacart succeeds without the idea of mobile phones being everywhere and web van in 9798 clearly didn't have that. So I like if anything like I think see we might get into a fight here is that like I actually believe that a fair number of those things that failed will come back but I think like you like I I guess I'm

skeptical they're coming back right away but I think that some of those things will. TCR is like I actually think they're probably going to be a different form. there's going to be some form of data repository where there's tokens and you're incentivized to contributing data to some type of repository. I've se I've seen that idea a bunch of times and I think that eventually we'll figure out the right use case for it. So in YC I think the way we think about it is one is what is different about this time. The why now is such a critical part when I I we do 10-minute interviews with founders and then we have to decide do we make an investment in them or not. And one of the core questions we always ask is the why now. what's changed about the world that made this idea that maybe

it was terrible a few years ago or a few months ago. What is different about it and how do you approach it differently, you know, than other people did? And so again, I like personally I'm really excited for social. I think that's going to come back like in a big way, but candidly I'm not investing in a lot of that today. And I wonder curious like is that the way you approach it as well? Is that you think like which of those will come back someday? Yeah, I mean if you if you take the literal list that he promulgated which is you know once again NFTs, creator tokens, Dows, gaming, TCRs, onchain reputation, rebase tokens and decentralized storage. This is kind of like you know it's like walking through a cemetery of ideas that even at the time I thought like man I really don't know if this is going to work or

like who this is for. I think of these which of these do I do can I can I what kind of evidence would I need to see for me to believe that okay somebody is building new Dow infrastructure somebody's building a new NFT platform and like okay I I think there's potentially there there it would have to be to your point something has fundamentally changed in the in the environment or in the the other substrate on which blockchains are layering on top of that that has changed and it's changed the underlying demand for this thing right so I I made the point that like look NF s I can believe that NFTs will come back if we are all living in VR. If the year is 2035 and we're doing all of our Zoom meetings in some kind of virtual space and like we

need some way to create digital scarcity, digital fashion, digital whatever, I can totally buy that there are going to be digital, you know, very clear universal ownership layer for scarce goods. Makes perfect sense to me. I can totally buy that. We're not in that universe. anybody who goes and pitches me today on I think NFTs are going to make a comeback because you know I'm like no of course not and I think for many of these things it's difficult for me to even imagine what would have to change in the world for me to believe that this thing could come back so I you know rebase tokens is so vague that I'm like okay well that's just like a mechanic that's not that's not an idea but for something like creator tokens or gaming I increasingly think that like these are just wrong

that like these are just actually incorrect mappings between incentives or like if you it's kind of like you know you're you're you're a chef and you're like huh what happens if I put salt and crab and I don't know toothpaste into a cauldron and the answer might be like oh well there's one other thing you could add that would make it delicious but sometimes the answer is like no these things just don't go together these things don't taste good together stop trying to make it work >> so one these are not you know new ideas these are actually like generally very old ideas right like even stuff like Aldo stable coins or prediction markets these are Bitcoin talk era or older ideas. And so it's not even so much that hey you need someone to have this idea new or even from 2021 or something.

There's a sort of to Neil's point I like the why now framing of well hey now we have a different you know regulatory environment different technology different install base sufficient stable coin liquidity better UX whatever whatever it actually is that actually allows this thing to exist. And I think like you know web van and like two great examples. I think kind of sticking on this food delivery idea. I think there's also a path dependency to getting to whatever success looks like. In kind of the heyday of the food delivery wars, you know, famously was like, you know, Door Dash and and Postmates and, you know, GrubHub and it was like Door Dash took this approach of really going out into the suburbs and getting a lot of these chain stores, which is obviously how very uncontested territory and was, you know, how a lot of the US looks. And

that ended up being a very successful strategy for them in terms of building an actual dedicated, you know, loyalty base and sort of remote there and then be able to go into the cities. So you can have multiple teams executing well with a similar idea just taking a different path to get there and ending up with a very different result. And so I I look for a lot of teams like that too where it's the initial people that sort of see the application or that are actually you know doing the original go to market that can end up actually sort of affecting you know the very very long sort of end state of of a given company. Well, okay. So, to argue against myself a little bit, there's a famous line, I think by Mark Andre where he says, you know, back in the uh late 90s when they

were looking at the early generation of internet companies when they saw the web vans and you know, all the companies that famously failed uh the Chewies and so on that uh what he said about that time was that every idea that we were pitched during the dotcom bubble eventually came true. Literally, every single one. But of course, timing is everything when it comes to making investments. And I think many people like there there's kind of an intuitive appeal to that idea that you can kind of just see the technology and just unroll the future. And it's just really obvious how all of this is going to integrate into society, that the internet's going to be used for everything, that AI is going to be used for everything. Um, and of course, our version of that is that well, crypto will be used for everything. So, you know, crypto will be

used for all the games, it'll be used for all the jewelry, it'll be used for all the watches, and uh, you know, for creator tokens. Every, you know, your income is going to be coming from a creator token that you've issued. or you know I still don't know exactly what TCRs are used for but what whatever whatever lists you have will be TCRs and like I think this is like maybe there are some technologies for which this is true right I'm I'm willing to grant that like people in the late 90s could have just said everything will be on the internet and they were right about all of it right I don't think that is true in general for technologies I think the internet was genuinely a unique everything technology and I think crypto is not an everything technology I think it is many things technology. I think it

is plausibly in everything financial technology. But the the core thing about many of these ideas is that they're not financial, right? Like you're talking about creator tokens and Dows and games and you know onchain reputation, decentralized storage, these are not financial. And my thesis for a long time and you know I've gotten into big arguments about this is that like the core of crypto has always been about money and finance. Bitcoin was about money. Ethereum was about contracts, right? and and DeFi is it's got finance in the name and prediction markets and stable coins and tokenization all this stuff. It's like very obviously all part of this, you know, mountain that it's being carved out of and it's the mountain of finance and money and assets. The farther you go from that,

the more we're kind of telling a story and it's a story that just hasn't been vindicated. It has not been borne out in to your point, Neil, what do people want? What do people actually want from us? The answer is that they do not want us to solve their non-economic problems. And crypto keeps trying to do it. And so very famously, I mean, one of the stories that obviously connects to Coinbase is that Bass very famously was trying like crazy to get this consumer social strategy to work, right? So very famously they were hawking creator tokens. you know, Jesse from Bass was pushing Zora and uh this idea that everyone's going to be using the Bass app in order to own content and trade content and so on. And he recently came out with a very long post where he more

more or less for because of that. We were distracted. Focus on the social thing and we've now fallen behind. It's very clear the story is about real world assets, asset tokenization, prediction markets, more financial things. He did say, "Look, I I I don't believe that we're wrong forever, but we're definitely wrong for right now." And because of that, Jesse acknowledged that he was handing off the base app to Kobe, uh, very famous crypto trader and crypto, uh, uh, celebrity who is now running the base app while Jesse is going to be focused on the base chain. And so, this seems like from Coinbase an acknowledgement that like, hey, we made the wrong bet. We got this wrong. It's about money and finance once again. Nil, cur, how do you respond to

that? I don't have inside information, but what I would say in general in crypto is that we sometimes try to solve things that are our problem, but not our customer's problem. And in this case, like I think that like in Jesse's note, he basically said that like, hey, I thought this would expand crypto, which again, every crypto company is thinking about how to expand and how to grow, but that's different from what do people want and what is the value proposition they have from that. And so I I think the challenge in general in crypto for any builder is that when you have a token, it feels like people want it because they're making money, especially if you're early, right? So it really this is what I really this is why I council against the token early is it be it basically warps your vision. It seems

like like I I I think you guys probably saw the trenches during that six month or 12 month period around Zora and Farcaster and Bassap where it seemed like there are lots of social apps being thrown out people moving around these creator coins. There's a good vision for like what this would do. It suddenly make creators to get money and monetize and things like that. And I think there that's where I think the idea of token go up and memecoins and things like that. The challenge is is there something real there at the end of the day that isn't a function of just price go up which works for a period in time like we've seen with NFTTS and memecoins and L1 tokens back in the day but you have to really get a sense for is like what is the real pain point and problem

that you're solving and that's the I think the YC attitude that I always have is like what is the ultimate value prop do I think it's like ephemeral is it something that's happening because of price action and in crypto you know that's the challenge is that it feels like it's the future but if prices are going up anything you know seems like reality at that moment in time. And so that's really I think the thing that I focus on and maybe Steve just to push back on one thing you said is that like I think money is everything. So like I know we say this is like crypto is like one portion of it but I'm like even for storage the allocation of that storage is a money problem. Who do I give it to for what price? And when I see like filecoin and others like that's the

reason they chose the blockchain was not just the storage layer itself but that allocation of that problem. I think that like you know one thing about YC the big thing has been capital raising how do we help startups raise capital I think the blockchain is the greatest capital innovation machine in the world right right and that like it has actually really good at that now how do we make it better so that's not just pump and dumps and it's just like flipping the tokens but I think that's an example where I'm like every company in the world has to raise capital right and so there's a part of me that like I really I I think like money is so much I think we don't think it's big enough like it literally is everything like there's not a company in the world that doesn't have

to deal with payments, capital raising and things like that. And the blockchain has shown that. And then I think like the last thing I just say is that like I'm always intrigued. I think there's going to be someone out there who comes up with a different insight for why social should work and it didn't work this time, but I'm used to so many times things failing. And the thing I like I think back to you, Steve, is the number of times AI has failed. And you go to Wikipedia, you can look up AI winter, but I don't think people realize for 40 years we've tried various different ways to do it. No, no, no. I'm not going to get away. >> Throw that down. >> They're like, no, no, no, no. Okay, so the reason why AI didn't work is because the product didn't work, right? Everyone

knows what they want AI to be. Everybody knows they want it to be general human intelligent, like they know the properties that they would imagine from an AI. And when AI actually delivers on the product that they are pretending to be able to give you, right, when it's like, you know, Tay or Bonsy Buddy or whatever, like, okay, yeah, that's not that great of a product, but they know what it what it might feel like, right? In the same way, we can say, look, VR right now sucks, right? It's okay, but it's not that great. But we all know what we mean when we say real VR, like when VR gets really good, it's going to be a killer app, and we all know it, right? That is the sense in which AI, people always knew that AI, if it got there, it would be a killer product. You

cannot say that for decentralized social. Is it true that if social were really decentralized and if it really, you know, fair or whatever? I don't know what the properties is that people nowadays are trying to claim or if it was really financialized that if they really just got it in just the right way that then it would be a killer product and people would use it over centralized alternatives. I think that's unclear. But for VR, for AI, for so many of these things, like it it is actually clear, right? For stable coins, it's actually clear. If you 10 years ago, if I told you you can send dollars anywhere instantaneously 24/7 to anyone with a mobile phone, will that have product market fit? If you can do it, yes. Now, do I believe you can do it? Do I believe it's legal? Do I believe it'll be

liquid? Do I believe, you know, yeah, okay, maybe all those things were standing in your way, but if you can deliver that product, yeah, of course, people are going to want it. So that I I think that is the big distinction with a lot of the non-financial use cases. >> No, no, no. I totally agree. I think you it's very clear with AI what the end outcome was and I think in crypto it's harder for some of these things. You're totally right for stable coins is easy. But I think by the way I think one thing's interesting is like you said decentralized social. I think social is like creator loyalty is the way to frame it. And like I'm like one thing I always do is look at like anticedants like what came before and what pain points have they had. And like I'm like all of us

use loyalty tokens already because of like freaking fire miles is just like one example of something that we use every day. And now I'm like should there be another form of that that's tied to like these large massive podcasts or things like that like a chopping block token someday. I'm like yeah maybe. But I think the question is what is the utility of it? What is the value of it? But by the way, that's where I agree with you is that like I don't I'm not a believer in just generic decentralized social as the solution. And I don't know what painoint that's necessarily solving on a blockchain. I get it. I'm like you can't actually make this a reality like the internet if you can backdoor it. Um and as a result decentralization is critical, but for something like decentralized social, totally agree.

Creator coins, I'm like I think the way it was implemented was not the right way. Absolutely. And now my question is like maybe a smart person will come out and figure out a new way or the world has changed in some way and make it a reality. >> My my take on these things is that like blockchain is ultimately a mechanism, right? It's a mechanic. It is a way to implement the thing that you want. But what is the thing you're actually trying to solve for? Like just stapling a blockchain to a use case is not a thesis, right? In the same way calling something Uber for X, right? There were some actual Ubers for actual X's and like there were places where that actually made a genuinely better product, but there are many things that you can uberify an X or a Y or Z and

it's not better. It doesn't make anything better and there is nothing intrinsic about the combination of two mechanics that is alone sufficient for answering will something exist at this intersection. So blockchain plus, you know, I I remember when I first got into crypto, the first thing that I was pitched on because I used to work at Airbnb, also a YC company, was Airbnb for uh Airbnb on the blockchain, right? And so many people told me like, well, obviously this will happen. Obviously Uber Uber on the blockchain and Airbnb on the blockchain. Inevitable. Inevitable. Why? Because, oh, there's this platform in the middle. It's rent seeeking. What are they even doing?

They're just aggregating data. Everyone should own a piece of it, right? Because they're part of a two-sided network. the very intuitive. The explanation even still sounds intuitive. Now, when you look at the details, you realize like, oh no, everybody who's tried this learns very quickly. It's not actually primarily a two-sided market business. It's a trust business, a curation business, a fraud business. And blockchains suck at that stuff. Blockchains are a disadvantage in curation, in anti-fraud, in all these other things. It gives you certain properties at the expense of certain others. And you know, famously for Uber is kind of the same thing, right? Is that like so much of what Uber does is actually operations and like you know,

at this point, regulatory stuff. Uh even as much as it is just, oh, it's an app that has two different, you know, sides of a market on it. So I I I bring all that up to make the point that I think the bias as an investor, and obviously, look, I'm putting my money where my mouth is. I will say it it this heristic has I think done us very well to avoid a lot of the hypy areas within crypto that have not panned out is that look one follow demand signals right almost all of these ideas right the to the last man NFTTS creator tokens Dows gaming TCRs on reputation rebase tokens decentralized storage almost every single one of them

did not come from a demand signal almost every single one of them came from I have a hammer, here's a nail. And this is like the classic crypto thing, right? Is that like you write a blog post, an investor writes a blog post, founders read the blog, you know, we like kind of blog post each other into a frenzy and we're just like, "Oh, well, obviously this should exist." Like the same way that somebody was trying to obviously me into saying, "Oh, well, Airbnb on the blockchain should exist." And like after 10 years of this, I'm like, "No, I think this is the wrong way to arrive at these kinds of ideas." is like if you're not starting from a demand signal, you are probably fooling yourself. And it's not always true, right? I think there are genuine counter examples like Poly Market. Um, but it's mostly true. Yeah.

I I just don't know if I would group all of those together. Like I think there are some where it's clearly there's clearly some burst of demand. Like I would say NFTTS you have insane amounts of volume. Yes. Celebrities. These others it felt like always like pushing on a string. It's like a just this forced meme that when you look at the numbers never really added up or to me's point was like highly incentivized with you know a token which happens in normal venture too right think of all the places that have VC dollars thrown at it it's like oh actually this is you not economical we can't really get a marketplace bootstrapped and so it's just going to kind of kind of die out I do think again that the path dependency thing is also very real like I always think of not to keep name dropping YC

companies but like Reddit versus DIG it's like you know basically exact same product totally different paths and totally different communities it's like why it's one is seated with YC people talking about YC stuff having a YC culture and like that obviously end ended up diffusing over time but it's like this sort of founder effect I think is very very real and so it could be the case that like okay the stuff that's been tried today didn't really have the right sort of first step it's like you know you landed in Jamestown you didn't land land in Plymouth Rock and so therefore you know your colony's going to fail but like you know maybe you try it again and it's a different group of people this time and they have a different sort of thing and it's like every step is is is very important.

Okay, so Tom, let me ask you more pointedly. What would you need to see to back a TCR? >> I'm not going to back you. I'm going to stop you right now. Um, but I do I think I think N's point on reputation. >> I actually think there's something interesting now that you know the proof of humanity and onchain reputation, right? Where it's like, okay, we've actually seen orders of magnitude increase in terms of, you know, personas online and content and claims and so great. like when you see orders of magnitude you know increases decreases there's probably you know some some change and required and how we sort of done things previously I also think to N's point around capital markets this is one of like the oldest ideas that I think there's clearly you know demand and it's like okay well you know in the

past it's like you shove the the plane off the cliff and like it was kind of airborne for a little bit and then it crashed but like it was airborne for a little bit there there's something in there and it's like getting the details right um is going to take some work clearly I think such demand and clearly such good like technology product fit for something like that. >> That that's fair. Although if you're going to read that broadly enough to be like identity, then okay, yes, fine. But I think onchain reputation is like if you said identity, I'd be like yes, I agree that's a huge problem. The solution would be very big. >> Go ahead. >> Steve, are you bearish onchain identity or onchain reputation?

>> What is a reputation without an identity? >> Well, no. I mean, I think I'm I'm I'm bullish on the concept of identity. I don't know that it will be on chain but if it is onchain great >> onchain reputation I think of more like >> did you do good things are you a are you a nice guy did you rug people did you like this kind of thing there's a few protocols in the past that have tried to do this right but I think reputation obviously reputation is not identity right like like reputation tracking services or reputa you know the whole idea is to build a social profile of somebody despite the fact that they're pseudonmous that's what I interpret >> is a credit bureau to you on chain reputation Oh, sorry. Reputation >> plausibly. I think you can you can you can tie those things together. I think

it's very clear that like onchain credit uh purely onchain credit doesn't work very well because of the uh what's the term repudiation repudiatability of addresses, right? I can go do a bunch of bad stuff. I can default on loans. I can whatever and then just never use that address, never opted into my system. And like credit underwriting requires a full view of a person's activities. And this is historically one of and of course the fact that there's no recourse on chain, right? can't put a lean on somebody's address and so there's no ability to garnish wages. There's no ability to like force any kind of payback. So all these things have made it really difficult for reputation on chain or credit or whatever to really emerge without going offchain. And the reality is like there are people now that are

doing onchain credit but they're reaching offchain >> and they're saying okay you know we need to do some KYC we need to understand your real business. And so when I say onchain reputation, I'm assuming that's what is meant here, not off-chain reputation on the blockchain. >> What that's about, you know, bootstrapping, right? Like that's that's a different, you know, sort of path of interest and eventually >> we're just saying, okay, we're saying like I see you and I take a bunch of docs and stuff. Okay, yes, of course that's going to exist. >> No, going back to like again the Instacart thing, it's like, okay, we're not going to boil the ocean. It's like we're going to start very small and lean and like do this kind of pseudo MVP that doesn't really do the thing that we explicitly said. We're we're going to Wizard of Oz basically. And then over

time we sort of wean oursel off of the Wizard of Oz version and we had the the real thing going. And I think actually like this something that cryp got a lot better with. I was kind of like the Carl Sean quote. It's like if you want to make a pie, you got to create the universe or whatever. And um feel like crypto was like that for a long time. It's like, well, I want to like make an app, so I'm going to make a new blockchain, which is obviously stupid, but now it's like, okay, you can piece this stuff together with some APIs in an afternoon. And then great, now you can kind of go and and do the thing that you want to do and kind of, you know, gradually kind of swap pieces out um in like a modular way as you get bigger.

>> Totally fair. Totally fair. And and to be clear, I am not making the claim that like onchain credit will never work or that onchain identity is irrelevant or anything like that. I take this to be like an index of 2021 ideas, right? That's what I'm reading this as. And so I'm thinking of the 2021 version of what people told me was going to exist, right? Like I remember we did debt dow uh if you remember debt dow and like this was uh this idea that you could have dows that are issuing credit because you could put like a ratchet directly into the protocol that allows them to basically be you know u sort of take first cut of revenues in order to pay back the debt. And like you know it's like okay that I can buy that. that kind of makes sense that like you have

mechanics similar to like a lean that is enforced by a court but in in this case it's enforced by smart contracts. It didn't work and maybe someday it'll work and like plausibly that you could do something like that into Hyperlquid today. Maybe Hyperl could take on debt as a protocol and basically like the debt holders are guaranteed to get paid first before equity holders get distributed dividends. Makes perfect sense. That could totally work. But uh the 2021 version of this, you know, which I think was like a little simplistic, a little polyianaish, I don't think it's like a matter of, oh, it'll all eventually happen because it was foretold and like God just plays mysterious games. Yeah, I I think I think that's that that's more the point which is like you know startup ideas that are like too like naive or literal

almost like never work of just like I want to build a payment network so I'm going to like >> get build an app that lets people and then get everyone on that versus oh no actually I'm going to build this little widget that is like backwards compatible with the existing system and you can great you can swipe a card on your phone and you just have this like little hook into eventually what ends up being a big market but it's like starting with the kind of like simplest toy example and then using that to So actually I mean you've also been around in the space for a while. I'm curious if you have like pet favorite ideas that you like want to see happen or that you keep keep wishing are going to like you know happen someday.

>> Like one thing I will say is I think what I miss about 2021 was people are trying things or what I miss about the old Bitcoin talk days is like but by by the way X42 is one of the teams my product my team launched at Coinbase. There's a Bitcoin talk article from 2011 you know about that and the why now was basically agents exist now you know machine payments matter. So, what I what I will say is like what I really do enjoy about it is that people are trying things. We're iterating. We're learning what works and what doesn't work and the world is changing. I think the part that's a little actually disappointing to me now is a lot of the things we um are building in crypto are direct analogs to what's in Tradfi and that's like saying that the internet was great

for newspapers. Clearly, it's great for newspapers, but if you look at Facebook, that's a really weird different thing and it's not a natural analog to the old world. And so that's kind of like I'm also excited to see more of that. And right now at least I think the moment we're in crypto is a lot of like oh it exists in the in the other world. Stablecoin is a really great example, right? And now let's find the blockchain and it's instantaneous, it's cheaper, it's faster, whatever. Like those are all the things that it comes with. And I'm like yeah, clearly that's awesome. And I think there's going to be a massive business built on that. But I'm also excited to see you know a little bit of more more the inventive and you know out there stuff. And maybe to go back to TCR is like I I think one I do

wonder like the way we talk about it is that like we're overloading the term. So when we say social, I'm not sure I believe in decentralized social, but I do wonder if there's a loyalty token eventually. I think like TCR is an example where like I think data collectives need to exist um where like you need to contribute data and you might get equity like a quasi form of equity in that data like over time. And the thing I was really excited about early crypto was like one of the visions was that building double-sided market places like Uber is hard. You could use tokens to like accelerate that. And again, like we've talked about this for 1015 years. I'm not sure I've seen like an a good way where you accelerate it, but the token doesn't turn into a game and then the thing implodes, you know,

at some future point. And that's those are the types of things, Tom, that I personally really excited like if someone tries that and figures that out. That would be like a huge net win for the world is if we can figure out double-sided marketplaces more easily. you know, with the right crypto incentives. And I think that a lot of it is about like how do we take the awesome power of the blockchain, let's say capital raising, like it's freaking amazing like that, you know, in the world it's like awesome. But then how do we get rid of the more extreme playing with gasoline dynamics of that, you know, that leads to too much capital for the wrong protocols and early exig liquidity and things like that and that's I think where we need to like start innovating in. And just to give you like an example of a story is like Y

before YC like all these VCs would like negotiate custom rounds. you pay $30 to $60,000 for this. Um, a lot of VCs would write in random terms that the founders couldn't push back on. And basically like YC's innovation was like let's launch the safe, a standard document that like everyone can line on, the lawyers already know about it, doesn't have weird terms in it. And that's an example where you took a market that like maybe had a lot of lack of transparency and made that a little bit more transparent that was. And that's what I think crypto needs is a little bit more of innovation like that that takes the awesome power of this and harnesses it in the right direction.

Okay. Well, we have special guest Tun joining us. Very lucky to have him on the show for uh you know, he he rarely makes it on, but this time he came right on time. >> I apologize for being late. My phone got stolen and it just took me a long time to get home today. So, uh so that was my it's kind of a little disaster of a IRL day. So, I I again apologize to all of yours. >> So, >> well, if you if you just to get you caught up, we are debating TCRs. Uh N is very bullish TCRs. I embarrish your take.

>> You know there's something >> I'll give you I'll give you I'll give you context. Do you see the post by Imran? >> Yeah. >> Where he was like almost everything that failed will come back around. So I am very anti- this. Neil and Tom Neil is he more believes it. Tom is somewhat tempered in the middle. If I can summarize very very brutishly. Terun, what's your what's your take on this uh whole argument? I think I'm probably somewhere in the middle where there's like clearly ideas when you're assuming. Okay. So like I think a lot about 2017 and 2013 in crypto where there was kind of this hidden belief that homoeconomicists existed like this perfectly rational person who would participate in every network that existed and allocate all their resources to my network because my network had the

best white paper. You you know what I Like there was kind of this hidden assumption in all of the crypto inventions that was like my thing is just so beautiful that everyone will drop everything else in the world that matters to them and only focus on my thing. And I think like you need that little of grandeur of delusion to kind of get something. But obviously I think for a lot of these things that has just not been true right like Dowo governance great example TCR is great example where like there are a lot of other incentives at play there's sort of this idea that like people don't care and when enough people don't care it becomes much easier to manipulate dot dot dot right so there is some argument that maybe some things

with a world of agents and a representation of yourself that can fain interest and rationality at all times. Maybe the world looks different. Maybe homoeconomic. >> I like this. >> Maybe homoeconomicist will be reborn. I'm not really convinced of that for most things. I think the payment one is a kind of interesting one because I think about the early Bitcoin era where everyone was like, "Yeah, well, obviously the miners are machineto-achine payments. That's like that was is that was the machine to machine payments like mining pools." Like there was there are some posts that say something almost exactly like that.

And then it was like 2017 IOTA machine to machine payments. All the IoT blockchain stuff is realistically the same thing. And then it's like actually now it actually seems like completely feasible and fathomable whereas like in those cases there was always this kind of like you had to take some leap of faith. And so in that sense I think there are good ideas that exist. I'm not sure all of them. In fact, 99% probably are still going to fail because humans can only concentrate attention for a small amount of time. Agents can concentrate attention for a certain amount of time, but they're still resourceheavy. So, it's not like it's free. But I do think there was a a kind of uh I don't know if I mean, I'm sure

you guys all remember the um if you're in crypto, pivot to AI tweet by Jason Calacanis. And then I guess Brian Armstrong wrote this long tweet and that made Jason change his mind and write if you're in crypto use AI as his new version which I think he wrote yesterday or today I I forget sometime in the last week and uh I thought it was kind of an interesting thing where there's a sense in which AI actually has a lot of the like white paper energy like most like not you know not mega labs not the data center operators, but like everyone in the middle, right? Like every new NEO lab is like I mean all the US open source labs are white papers,

right? Like more or less if we're being honest. Like the Chinese ones are the only ones who've delivered. It's like the opposite of the US versus Chinese L1's in 2017 where the Chinese L1's were all fake and the US ones existed. just a funny comparison, but um there's kind of an interesting question of like, hey, are there ideas there that mix with the crypto ideas and like suddenly that primordial soup is something? And that's where I'm that's where I'm like I'm willing to kind of bend them. No, if you're like I want Terra 5002, then that's like okay, fine.

>> Yeah, I totally agree with you that like look, underlying technology change means the rules have the rules have changed. We've we've sort of shaken up the chess board and now actually there are moves available to you that weren't available before. Right? If you if you move your knight here, every time you will die, but now all of a sudden the chessboard has changed. You move your knight here actually the board's open. I think AI is one of these things that actually does change the landscape. I totally agree with you there. I I think the same thing, like I said, you know, VR plausibly could change our the market for NFTs. That said, I I actually really like the way you framed it, Tun about like we had a lot of assumptions about people are going to pay very close attention to very subtle incentives and

you know it's like okay well normally you know if I'm if I'm bootstrapping Uber uh I might pay out some rider incentives but now I'm giving you a token in Uber which means that you must if you're following your incentives and being rational get all of your friends and everybody around you to start using Uber just like you so that you'll become unfathomably rich because multiply you know, small probabilities together, you get very big numbers. I think the reality is that some of these arguments are just wrong. It's a little bit like, you know, it's crudely analogous to like the arguments for socialism, which is that, well, if everybody just follows this perfect equilibrium of like being good to their neighbors and thinking about, oh, the family unit is already socialist, so you just expand that outwards and like isn't there a beautiful symmetry to this idea? But in

practice, it just doesn't work. And you can try again and try again and try again and it doesn't work. Now, maybe it'll work when the players are agents and they're not humans and they don't have bounded rationality and they don't have, you know, whatever biases that we have. But for many of these things, the answer is like, you know, why don't Dows work? They should work rationally. What exactly is so different about a Dow from any other form of governance? But very clearly, Dows are really bad. They are reliably worse than almost any other form of corporate corporate governance or whatever. And there's some deep property here that maybe we can't even articulate of what exactly is the reason why. But it's very obvious from the record that if you can avoid being a Dow, you should. You will be better at doing your job if you're not a DAO. And

like we've genuinely learned that. I don't think that's a like, oh well, you just don't have the right DAO tooling yet or you don't have the, you know, your DAO members are just not as good as my DAO members. I think it's that look, we've actually learned something about the world and we should be incorporating this into how we build things going forward. You know, in the same way you learn about management over time, we've learned about the quote unquote management of systems with crypto or decentralized networks being one of those quote unquote management tools. >> I just think like this homoeconomicist are like this per perfect rational human hidden that's willing to like do all the the token incentives and also isn't the person who made it trying to get other people to buy it. Like balancing those two is like a very hard game. But I

think the agent world like I I'm actually more of the mindset that we just haven't conceived of the correct financial like interactions they're going to have, right? We're thinking of these very like human speed peer-to-peer, but like maybe they just love bundling millions of transactions as one or like things that we haven't really totally thought of. And that's more I maybe that's kind of what Nil was getting at at the end, but like that's sort of what I'm more excited about than the things that are like how do we like give them human capabilities, right? We should treat them as this like magic alien that can do something you can't do.

>> I feel like we landed on a foreign planet and we're like every day learning more about this entity that's out there. But like the like the version I give is that like with AI agents like um e-commerce I feel like is going to be like credit cards. They're going to be connected to agents. We're just going to do the same thing we do like something like that. But then there's these things like I think you guys maybe heard like Cloudflare announced that they're going to start gating websites uh behind a call and pay for that with crypto to start with. And I think like I'm really curious how does that work? Is that going to work effectively or are they going to instead just sign business development deals with large players like they've already been doing, you know, and that's the the the way this is

going to work? Um or the AI agents are going to pay 3 cents and two cents and five cents for different types of transactions. And I think personally that gets me excited to just see what's going to happen, right? So, first of all, I agree. We don't know yet. Way way too early to be prognosticated any of these things. But I think we're also any new technology, the um it's easy to fall into the trap of wanting to paper over complexity, right? I think like with the early internet, people had this idea of like, oh, we're we're all going to be online and it's going to be people from all over the world and we're going to learn that we have no differences and blah blah blah and like, well, no, actually like the Russian internet is very different from the Chinese internet is very different

from the American internet. And like inevitably that's going to happen. there's going to be splintering. Same way with the blockchain. I think we had these very simplistic ideas about the complexities. And I think it's it's it's likely to be even true for AI. One can make the argument that like well it's very annoying for a human to like pay a scent to like read every web page even if economically like that is the right market clearing price perhaps, but it's just annoying and high friction and like you know the reality is that you were not going to be willing to do it. But agents will be willing to do it kind of kind of. But agents also pay tokens and like the cost of having to realize, oh, I need to do this and create this like I need I need to create this HTML payload

to like go pay this thing for like this one HTML web page that I'm scraping out of the like 5,000 pages I'm scraping in the span of these two seconds. And if I'm instead batching all of this with one batch payment and I'm calling on a subscription and I have something in the middle that's like handling all this complexity for me and I'm not dealing individual payments or individual things actually I cut down my token cost by 30%. And that like the friction that arrives in humans actually still exists just in a different form. And actually it's not so different from the old world which is that we still have bundling and we still have subscriptions and we still have like yeah this thing is sort of too cheap to meter even if it's metered in some more kind of loose sense. Tom, what are your thoughts?

>> I'm trying to like get get concrete here for a minute. Yeah, I mean I think it kind of comes back to like again these you're seeing orders of magnitude increase in in traffic and so something's going to break and you have to like rethink some some assumptions but um I do think I was kind of noodling on Tun's point around like the white paper era and I feel that actually with the models that come out where it's like you they report the benchmark numbers and you're like wow everyone's just benchmarks look great and then you try like oh this is like actually a piece of and it's like kind of kind of like the problem with like chains that report TPS where it's like okay on paper this is the thing that we care about doesn't actually care capture the thing that people to do which is like they want to

go swap some meme coins or something. I was actually thinking about this recently with lift licensing where I feel like crypto is very early in terms of like pushing BSL of like it's open and you can verify what it does but you don't get to use the actual code and now you see actually open source kind of moving more this direction like has this new license came out a couple years ago where it's like you can use but if you want to resell you know MongoDB services you have to pay for a license in order to do that and like the new Kimmy weights are actually similar where it's like you can use the Kimmy weights and you can look at them but if you want to sell Kimmy inference you also need a license from us. And so I think there's some like some again some

interesting analoges of like how do you monetize open source while also having a lot of the principles that that people want around like transparency, verifiability, things like that. >> First of all, like we're we're all figuring out as we go. That's the thing I love about this is we don't know the answer. People are trying things and what I love every day is getting up and seeing what are people trying. I think that like what you're saying is already happening. Like the labs are already paying bulk rate to like scrape the New York Times. They're paying $10 million or $20 million. But I think like when I get up like when I look at the problem and I'm like the thing that's crazy for me is that we basically destroy the monetization model of the internet uh right now because ads essentially are going to are not going to work in the

way that they are today. And at minimum probably the AI agent may serve up the ad they're going to get the revenue. Now how do they distribute that back? Right? There's might not even be paying for it but actually distributing back some money that they're making. And I'm like there's a version to me I'm like I do see smaller content providers that are not going to sign bulk deals. Maybe they'll sign up for a subscription service that they are part of. And I I think like in my perfect world, I'd love if that was more decentralized. So one company didn't have that power across every website that you had to sign up for my bulk billing service, you know, that like interface with AI labs. So I'm hopeful that someone will figure it out.

But you're totally right. It could end up a world where like we're back, you know, back to the centralized version of power. And I think that like to me like it's kind of fun to mess a little bit with the powers that be, you know, and to think about models that can potentially break that up a little bit more. >> Yeah. Look, I to be clear, I'm in this industry for a reason. I completely agree with you. I don't think I think the big difference in my mind between how today thinks and how in 2020 thought is that I think in 2020 you know very much being cryptoilled had this sense that like to crypto as a technology made decentralization inevitable is that once a technology makes it possible for things to decentralize they naturally will because things want to be

decentralized and I what I appreciate now is that it's the opposite things don't want to be decentralized things actually naturally push against decentralization. Uh things push toward centralization, they push toward intermediaries, they push toward intermediation and aggregation and bundling and so on. And it is only through a set of of customers or a set of users who really truly demand decentralization be the deacto reality that the market forces will actually congeal to make something that's a decentralized alternative or push the system to stay decentralized.

And like if unless that's there, the default will almost always be it rolls downhill. And downhill is some configuration that involves No, it's not like 50 different exchanges that all have equal market share and we're all just like, you know, whatever. No, it's like three exchanges and they own most of the market and ultimately if you can't if you get kicked off of them, then you have no liquidity. That's the default state of most markets, of most environments, of most technologies. >> I 100% agree with that. Um, and the thing I'd say actually I think innovation is a thing that breaks up older forms of centralization to create newer forms of centralization. So I think there's a world where the last 15 years we're under the Google, you know, and Facebook and others. And now you

look at the shift in that power. So I'm actually an innovation maxi which is that if you have new things like blockchains, if you have new things like AI, they actually disrupt the powers that be. And if we're in ever a moment where that slows down, you're going to have those central forms be maintained. And so like really I think the thing that I'm pushing like I would push for it and I think YC always does is smaller players being able to take big shots and candidly some of them will become the big centralized players that we fear but if long as you keep doing that hopefully they won't be there for too long and by the way in tech this is a really good example I think there other industries like financial services and others that like don't feel like they change that much but in tech I feel like even if

you're the biggest company in the world you're scared like crazy right now in how much the world is changing right and like that I To me, the example of what Google has gone through in the last decade is a really good example from like a major, you know, large almost monopolist, at least massive decentralized player to someone who is actually running scared and actually having to make a lot of shifts in their strategy because of innovation that's come. But again, that's not blockchain decentralization leading into a natural state of decentralization. It's actually innovation forcing central like centralization apart and then bring it back together.

>> Right? And the story of history is always like the sort of you know the are we the baddies meme is that like okay you like rebel against the previous baddies and then you become the baddie and so like okay you know Google fought against you know Microsoft and IBM and then now we're fighting against Google and like that literally you know when I was growing up I was like Google is this amazing democratizing force in the world it's flattening the universe making information free it's a free part everything is free maps and search and all this stuff you don't have to pay a dime for it and at the time like I was like This is incredible. What a bounty.

What a what a what a inversion from what companies used to be like. And now we look at that and we're just like these these parasitic how could they give these things away and steal our data and da da da. And um crypto was like the next stage of that rebellion. And now we look at you know people look at Coinbase or they look at Binance or they even look at like something like Hyperlid and they say okay well this thing is uh you know is it is it is it really so different? And the answer is like it is different but it's um there's no inevitability to it. And so I'm sure today people look at OpenAI and they I mean now Anthropic is getting a lot of flack but you know let's take OpenAI. Um people are showering OpenAI with all this love. It's like oh they're

supporting open source and they're like pushing you know they signed the letter and they're pushing down uh um you know the token prices and they're trying to make everything really cheap. But there will come a time when we all look at opening eye as these overlords that are controlling everything and there will be a new generation of people. It's like it's like I don't know it's like Chinese history, right? Like the emperor the old emperor was a tyrant and so we kill the old emperor, we install a new emperor and that one's good until we decide that's that's the new emperor. Now we want to kill him too. I mean, I I think AI feels a little bit different in one kind of very weird way is like the internet when it started was trying to find direct

monetization methods, right? Like you had to pay for subscriptions or whatever. And then it just turned out that it was like actually find some other way of subsidizing pee off online ads, whatever. like that kind of hides it from the end user because we want the end user to look like an American because it's like they all they all want health insurance but they don't want to know how much it costs and they don't want to get a bill but they have to somehow still pay it right like that that's kind of what the internet ended up becoming right it's like the US healthare system in some way right it's like a a no bill you don't know what you're paying but like you're getting something unclear if it's trash but like you know and you you might be paying in other ways you don't realize and

The interesting thing is I feel like the AI capex stuff and you know obviously everyone's trying to decrease it but like let's suppose we do hit some threshold where it's like just so high and the opex costs are also high right like as as the inference stuff gets bulkier then what is the monetization it doesn't feel like it's like this marginal cost of open source is zero type of thing right like the whole narrative you know you think about ESR and Linus for volts of of Linux in the '9s like a lot of the writing was about this like idea that like the creation process was the expensive process and the thing to be valued and the thing that you had to

spend all the money on but after that the marginal cost is zero forever right and now it's like actually the marginal cost is quite high forever there's not there's not like a just because the weights are open doesn't mean you're getting out the thing you want immediately right you you pay some new realized marginal cost and it feels like that marginal cost and maybe this is like me not dreaming of nuclear fusion or data centers in space enough or whatever thing you need to make this make sense but like it seems like it's too high to just be like a pure subsidy model right and that to that to me that's like we moved the PTO frontier but we also like moved back the payment the economics of it and I don't I don't

know how to reconcile that that to me feels like industrial revolution cuz like cuz like I don't I actually don't think it's going to be I don't think they're going to be enough to subsidize. I mean look at the look at the amount people are spending on capex right now versus their revenue. They're all cash flow. Some of them are cash flow negative. These are like the highest free cash flow businesses in the world and in one year they're negative cash flow. So like if we think that that trend at all continues the ads are not enough, right? That's like the stupidest like 30 IQ way of saying ads are not enough, right? Just like look at the capex relative to free cash flow. It's like I don't think you've seen anything like this since the like

World War II era. >> But don't you think one is the cost curve is going down and number two is I actually think they can take a transaction flow for the things that they help support you in buying, right? It's not just like a straight up $20 or $1 whatever an ad, but it's like I'm going to take 2% of your order because I help like support it and set it up right to Amazon. >> Those are outcome based pricing. >> You click on an ad and you buy something, they took the 2% >> outcome outcome based pricing that is beyond what you have in ads. I think I agree like payment for order flow for this AI stuff is like I feel like if the internet turns out to be only websites that are generated on demand by an LM there's no like static servers anymore

static websites because like that is one thing people are starting to talk about is this purely on demand internet like there's no the the tokens are generating the HTML you see live you're not >> right right but but in that world with no static content then like you don't have this free copying thing anymore now the marginal cost forest of m dashes, you know, like moving your way through the foliage. >> But like like in that world, in that world, I I think like Neil's right, like there has to be some type of like order flow sharing type of thing that looks like ads, but it's ads with a much stronger performance fee than ads you have now where there's way more spray and prey and like some conversion fee, but it's like kind of more of a lottery ticket.

>> Like it's becoming the gateway to everything like is is I think the view I have. It's like the brow. So the new version of the browser where that is the most critical like the way we talk about a wallet in crypto right is the form of like what this is and I think that like every user interface is going to be rethought to go through an AI agent and so therefore there's a tremendous amount of market power that you have there and like to me I think they're going to figure out ways to be able to gate and you togate that in various forms and it's going to be probably much more than like banner ads but >> yeah I mean I I did have this this tweet a few weeks ago about how harnesses like frontends and harnesses for AI are wallets. Routers are like dex

aggregators and kind of bridges and and things along those lines. Models are like protocols and that basically means their fees are going not going to be they're not going to be able to extract fees themselves as we see right now. And then inference providers are liquidity providers, right? They're putting up capital to earn some yield from the participants. And there's like some stuff about that that's not true. Like it's like a very overly simplified makes crypto people feel good about themselves. Oh, we we discovered something first. >> I suddenly felt very cool when you were drawing out those analogies.

>> But but I do think there's some truth to that like because if I look at the monetization in that order flow, it's all payment for order flow at the edges, right? Like to liquidity prior and to the wallets and then the the routers and protocols can't extract very much and maybe that's what the AI internet looks like. >> Well, I mean Slen was actually at one of the things he said was the new phase of open AI is utility, right? which means like massive scale low margins for some part of the business right but the idea is that everyone's going to use AI >> and so as a result like that that's going to be different margins at at that that inf that that core like financial model layer >> yeah interesting okay well before we become an AI podcast we are we are up on

time so we got to wrap uh Neil where can people find you >> um I'm at Twitter or sorry x nil d and by the way today is y cominator's fall application deadline. Actually, if you submit in the next few days, we'll look at it. So, go ahead and submit at ycom.com/apply. >> Okay, perfect. Neil, thanks so much for coming on and we'll be back next week. Thank you everybody.