E233: Why Stablecoins Could Rewrite Global Finance — Faster Than Anyone Thinks

24:38So it's an interesting backdoor kind of theory. In this specific case, and I think you saw this with media companies, for example, right? Like YouTube being able to back into the music industry. Like, you know, a huge percentage of global music listening happens through YouTube, which is if you have a profit center in one place that generates a bunch of revenue and you have some sort of technological advantage, you can leverage those things to create new value. So it's not even, I'm not saying you were saying this, but some people might say, hey, investment making is zero sum. And I think what you could say is actually, there is going to be a something like$5 trillion global capital market on chain.

25:14There's about$250 billion in stablecoins today. There will be, in my opinion, at least$2.5 trillion, if not$5 trillion worth of dollars on chain. That's an entirely new group of people that can't buy U.S. equities today, right? So if what Coinbase is doing, if you're an IPO issuer, when Coinbase came to you and said, hey, look, we can do all the stuff that the old guys do. We'll take you to Wall Street. We'll get you in front of the banks. You can buy the pop, whatever. We'll also tokenize your stuff and put it on chain. And by the way, there's an extra$2 trillion worth of demand, which otherwise can't buy equities.

25:41And now those guys are going to bid you up, which means that the banks over here all have to pay more. And so now your market cap just went up because you have a new pool of capital. That's a strategic advantage, right? So it's, yes, you have to buy the talent. Yes, you have to have the relationships and all those things. But I think there's an argument that the right to win here might be the global capital markets that are on chain, which you could bring to bear into legacy markets. And if you have the pipeline to those, this is why I think Coinbase doing something like Base, this L2 that they built, Robinhood is now also doing L2, Kraken has done an L2.

26:12All these companies are doing this because what they really want is those global capital flows. They want all of those dollars sitting in their ecosystem because that gives them this fire hose that they can redirect into products. And that gives them leverage, not in a financial sense leverage, but strategic leverage to go in and win in new markets because they can bring an extra trillion dollars of capital markets to bear that Wall Street doesn't know how to access. As are many people, I'm concerned about the political unrest and the amount of fake news on both the right and the left and the amount of misinformation in the market.

26:45Is crypto looking at any kind of incentive mechanism to solve the number of fake information in the market? Yeah, I mean, the sort of hand-wavy answer here would be prediction market, right? It's like, well, if you really believe a thing, then you should be able to put some money behind it. So let's use a concrete example. Like, who's the next Fed governor going to be? Maybe there's some fake news that gets leaked that it's so-and-so. And maybe that's true, maybe it's not. But probably there are people out there that know that it's not true, whether it's the person who wrote the article or somebody who gave that fake news or somebody who knows what the real answer is.

27:19And so what you end up having is these market participants that say, hey, wait, I think I actually might know the answer, or I believe that that's fake news. And so I'm willing to bet that it's somebody else. And so they're putting money behind some other Fed governor. And so prediction markets actually can be a really interesting source of truth. We saw this with, we've seen this now with multiple elections, for example, where the sort of real signal seems to be in that in that zone. You're seeing this with AI models where people will create markets that are like, which company will have the best foundational model based on whatever benchmark scoring mechanisms, evalive mechanisms you want to use by October 1st.

28:01and you'll see after OpenAI launched GPT-5, very temporarily it spiked on those prediction markets that OpenAI would have the best by October 1st and then it actually crashed and Google ran up big time, suggesting that people who knew what the Google model was that was coming knew after playing with GPT-5 for a couple hours, they were like, oh, Google's is going to be way better than this. I already know Google's is better. And so you could see the market kind of flip, right? Like in real time, like in a couple hours it flipped and Google's was number one. And so prediction markets, I think, are actually potentially a really interesting mechanism for this.

28:34Yeah, I love this idea of policy via prediction markets. So the president wants to enact a policy. You could throw it up on the prediction markets and then people could, with their money, bet on it. And then they'll kind of take you to the ground truth on the policy versus kind of just having the different talking heads, essentially actors on TV throwing around different narratives with no skin in the game. Yeah, the hard part ends up being how do you adjudicate this? What is the oracle that you're going to use to say, yes, this is true or not? So we'll use a concrete example here. We just had this sort of like, does Tylenol cause increase the rates of autism?

29:13Yes or no? How would you determine that? Because everybody agreeing on what the adjudication mechanism is, is it like a particular judge says it? Is it that a particular medical journal says it? Is it like, how do you know? What is the final answer here? And agreeing on that, actually, I think ends up being the hard part. The prediction market mechanisms, I think, are fine and easy. It's like, what is the precise mechanism by which we determine the answer is yes or no? That sort of ends up being tricky, I think, in a lot of these cases. So you believe that crypto will be baked into the economy by 2030.

29:47What does that mean? And maybe give me one use case where that happens. What it means is that if you take something like Polymarket and the prediction market world, people don't even think of it as a crypto product. Or, you know, this idea of stable coins, it's just money moving around. People don't think about that as a as a crypto product. And so the, you know, what happens with technology is once it becomes sufficiently useful and sufficiently accessible, it sort of disappears. Like you don't think about it. It just sort of exists. And, you know, this is part of the reason we named the firm Electric, actually, is inspired in part by Electrum, which was the first coined money in the Lydian Empire.

30:23And so it was a technological breakthrough to have denominations of money rather than like, here's a chunk of gold. And now we have to wait and figure out if it's real. But it's also inspired by electricity, which is electricity just baked in everything. We don't think about it. You don't call things like electrical appliances, right? Things just sort of that term is sort of an an acronymistic term at this point. There's a time at which that made sense. because everything's battery-powered. Everything's going to be enabled by electricity. And so our belief was crypto would be that way. I think stablecoins are probably the first place where people will sort of experience this, where money movement just becomes 24-7.

31:02It becomes real-time. It becomes integrated into every application. The yield profile can change now that we have some regulatory clarity in the U.S., where you as a mobile phone app user, could make 4 % because that's the treasury rate, you know, it's north of 4%. So somebody can hold US dollar coins on their phone in their wallet and actually earn yield on it, which, you know, if you go to most banks, you can't, you're going to get, you know, 0.1 % in your savings account. You're kind of getting fleeced by the banks because they turn around and lend it for 7 % to mortgages, you know, or buy treasuries with it.

31:37And so that's their business model. Now, all of a sudden that yield just passes to the end consumer. So these kinds of things, I think, well, you know, you're already seeing on the ground. I mean, Tether has, you know, 100 billion plus. There are some very interesting wallet products out there that have lots of deposits and are passing through yield. Are you bullish on Circle, Tether, stablecoins? Do you think new players will enter? How do you look at that market? Stablecoins are going to be a big unlock for all the global capital markets. Specific companies is tough because there's macro stuff rolled in.

32:07So much of the business model today for a Circle or a Tether is what is the yield on treasuries because they're just sort of sitting on that float. And so as those come down, obviously, that's trickier. At the same time, these are really smart people running these companies. And so Jeremy at Circle, they're building out additional business units. Paulo at Tether has already done that as well. So they're building their own chains. They're building infrastructure. They're building developer platforms. They're investing in other companies. And so do the companies do well? TBD. They're smart guys.

32:37And so they're sort of figuring that out. It reminds me a little bit of back in 17, 18, 19, people used to talk about how Coinbase's margins on the retail side would have to compress. There's no way people would keep paying 1 % to 2 % transaction fees if you compare that to$0 fees on equities or something in a lot of brokerages. And they were right, those fees have compressed over time to a degree. But what Coinbase was able to do was spin up a bunch of other business units using all that revenue. And so the business today is worth 10x what it was worth five years ago. And so the market will be what it will be.

33:10But it's entirely possible, actually, that Circle and Tether figure out what to do here. And they're smart guys, so they very well will. But stablecoins, I think, has a big unlock. It's just all the capital markets will move in this direction. This is why, for example, you're seeing Stripe recently announced they're going to launch their own Layer 1. And they're going to try to rerun, I think, effectively the Libra playbook, which Facebook tried to do this several years ago. And sort of build a consortium of people to come in and sort of snap to a standard around how to move this money around.

33:35because if you've ever dealt with the guts of payment systems, it's pretty gnarly, globally speaking. There's all these edge cases. It's a bunch of it was code written in the 70s and 80s. And sometimes there's bugs that are, in some of these payment systems, there are bugs that actually everybody expects the bug. So actually, if you return the non-buggy answer from your code, people will be upset because it'll break their code. Legacy systems, you end up in really gnarly situations like that. And so this can be like a wholesale rip out of, let's just get rid of the old system and finally, 50 years later, fix it.

34:08People may or may not experience that directly, but I think you're going to see a lot of companies running at this. This is like a plumbing, infrastructure, enterprise, business kind of place to start, I think. In the U.S. at least. Globally speaking, dollar use case is clear. People want dollars. I always joke, we do these brand surveys, like, oh, what's the most well-known brand in the world or most respected brand in the world or most valuable brand in the world. And it's like Apple or Google or something. But I actually think it should be the US dollar because the US, the dollar, like even if you hate the United States of America, you want dollars.

34:45Like, and it doesn't matter where you're in the world, you know dollars. Because the entire world is denominated in dollars. And so anybody that lives in another country that has experienced inflation relative to the dollar would much rather have dollars. It's kind of funny, right? Like stable coins will be this retail phenomenon, I think, globally speaking. and domestically in the United States, very likely it's an enterprise infrastructure business phenomenon more than it is a retail phenomenon, at least to start.

35:12Another thought experiment that a lot of people in crypto play is that the US dollar has gone down 75 % against Bitcoin over the last several years, 50 % against gold. People like to think in one Bitcoin. One Bitcoin equals one Bitcoin. Yeah. Tell me about the usefulness of that framework. And also, is it just a thought experiment? Is it really how investors should be thinking about it? And how should non crypto investors, so let's say you're an institutional investor, you're University of Michigan, and you're trying to get the alpha from that way of thinking, just double click on that and unpack this thought experiment.

35:53Yeah, I mean, I think it's a big mental shift, or at least it was for me, you know, 10 years ago when I first got my head around it, which is, it's not that my assets are necessarily worth more, it's that dollars are worth less. And, and between sort of, you know, money printing and between the fiscal situation in the United States in terms of how much how much money the government needs effectively to operate, therefore creates money printing effectively. money creation, money supply creation. I think it's very much true. I mean, it's empirically true. The dollar is worth far less every year.

36:24And I think, actually, I was looking at some data recently. I think this year may be relative. If you look at the Dixie, the dollar relative to other currencies or other assets, I think maybe one of the worst years on record over the last 70 years. It's a pretty terrible year now. You might argue it was at a high a year ago, yada, yada. But I think people are starting to get their heads around this, that a government that runs 7 % debt load, twice what the socialist countries of the EU are, is unsustainable. And so people are sort of getting their heads around this idea, especially I think post-21.

36:58It sort of clicked for a lot of people that this is an unsustainable path. And I think people are starting to realize it in other sort of intuitive ways, like not even capital allocators, but your average person is saying, wait a second, how can I be making$30 an hour now, but I still feel poor? like I can't buy the stuff that I thought I should be able to buy when I was a kid my parents made$30 an hour and we could go to Disneyland and we could buy a house and my dad didn't have to work overtime all the time like wait a second what's going on and so like the intuitive light bulb I think has gone off for a lot of people um over the last 20 you know 20 years or so I think especially in the last five or six years because the rate of inflation the you know the people's ability to perceive it sort of kicked in um because the rate of inflation that we had And so from an allocator's perspective, I think it's if you if you don't understand that it's actually the dollars are depreciating, then, you know, I think I think you're in, you know, in for some tough times.

37:53I think what that ultimately means, if you buy this sort of, hey, look, where we are is in a fiscally untenable position. I think we have to think is what are the paths forward? I think there's four paths forward. Path one is you somehow fix the spending, right? You cut entitlements, you change the retirement age, you somehow fix Medicare and Medicaid. And the reality is it's really hard to do that. And you have to pick some winners and losers. And I don't think there's any political will to actually do that. It's just that it's not politically tenable to actually cut spending. Option two is that you somehow raise taxes to cover these deficits and the debt.

38:34And the reality is there's no political will to do that. option three is what we have been doing which is basically print your way out of it just currency debasement that's actually politically the most palatable because no no one person has to take the fall for it and it kind of feels good because the stock market kind of keeps printing all-time highs and so the number is going up so people feel good but it's it's politically palatable but it's actually like long-term has real consequences this exacerbates wealth inequality for example because if you have assets you're doing fine if you don't have assets you're kind of screwed um so that's option three and then option four is you grow your way out of it which is you know you you hope that ai productivity happens and all this infrastructure spending actually turns into something real and so if you assume that like there's no political will to actually solve these problems meaningfully then really option three and option four are the only paths forward from here and if you believe that as a capital allocator i think you have to do two things you have to say look i need to allocate a significant portion of my assets towards things that are fixed supply, that are hard to replicate, that the government will have a difficult time creating more of, that is hard to seize.

39:41And that pushes you towards things like gold, that pushes you towards Bitcoin and Ethereum, that pushes you towards the California coastline. The government can't create more California coastline. It's just there's a fixed supply there. So I think it sort of reshifts how people think about their assets. And then in category four, it's what are the high growth things? What are things that can have a yield and have a return profile compounding return profile that outstrips all this inflation and debasement and the potential significant inflation that's downstream of all these things. And so you have to be in high growth tech.

40:15That's the only thing that can grow 30, 40, 50 % a year plus. And so at a portfolio level, you can compound at a rate that you can outstrip all of this stuff. And so I think you end up in a very barbell situation. Like I think you end up with a lot of fixed supply assets and I think you end up with a lot of high growth tech. I think a lot of other stuff just gets crushed. I think government debt, government bonds, a lot of private credit, a lot of private equity that's not high growth, things that are compounding 15 % a year. That's just not enough, in my opinion, to really be high growth. So I think it actually, for people who understand what's happening on the backdrop, I think most capital allocators, I suspect, are very under-allocated to these fixed supply assets, especially the novel ones.

41:02where most of the capital markets have not figured out that they need exposure. And they're probably under-allocated high-growth tech. I'll also throw some things. Commodities, equities, as you mentioned, real estate, whether California coastline. I have a whole thesis on Miami high-end real estate and Miami Beach high-end real estate. I think that's kind of almost an index to billionaires. You also have sports teams, which are these essentially NFTs for billionaires. which essentially has played out over the last 10 years. One thing that I'm still trying to swear, frankly, and I've had some high-profile guests, I've pushed them on this inflation and they keep on basically pushing me towards the CPI.

41:46So CPI last 12 months, 2.9%. If you take away food and energy, 3.1%. But if you look in terms of ground truth, what is getting more expensive? That is more or less reflective of goods. Now you could say real estate and other assets have grown faster. But how do you reconcile the purchasing power only going down by 3 % versus what people in crypto will say, true inflation is 7 % or 10 %? Reconcile that for me. Yeah. Well, there's a thing I learned in product development, doing startups and working at Google and Meta, which is sometimes what you'll have is you'll have all your metrics will say one thing.

42:27and then if you go talk to a bunch of users, they'll say something different, right? And so if all of your metrics say, oh yeah, our users really, really trust us and then you go talk to 100 users and all of them say, yeah, we don't really trust you, the answer is not that the users are wrong. The answer is that you're not measuring the right thing. And I think that's basically what's happening with inflation. Like, yeah, you can look at some CPI metrics, you can argue over the minutia of when we changed how these things are measured in the 70s or 80s or whatever that we changed it. That's all minutia.

42:59I look at, wait a second, what are people on the ground saying? And if a lot of people on the ground are saying, I can't afford the quality of life that my parents had, I can't buy a house, I'm choosing not to have kids. Like that is the data point that the users are telling you that you're measuring the wrong thing. So I think we're just measuring the wrong things. And the kinds of things we should be measuring are like, you know, what percentage of people under 30 are married? What percentage of people under 30 own homes? You know, what is the debt load that we put on our young people? You know, who is doing the spending?

43:36So like you were talking about the, you know, Miami Real Estate Billionaire Index. I saw some data that showed that like half of consumer spending is now the top 10 % of Americans, right? Which is really bad. That means like there's a lot of people who can't afford to spend anything right now. And or the people who have a lot of money can afford to spend a lot and everybody else can't keep up. So there are all these other measures that I think you'd look at that sort of map to the lived experience of a lot of people, which suggests to me that we need to be measuring other things. And so I sort of fall into the camp of, I think we're probably measuring the wrong things.

44:08Like, I think CPI is probably not an accurate measure of what's actually the lived experience of most people. And it's sort of a wonky economist like, oh, but it does. And my take on that is no. If you go talk to 128-year-olds and they're telling you that something is broken, then probably something is broken and we need to be changing what we measure. That's what any good product company would do. Any good product manager who's built products would tell you that if that is the experience, you're talking to users and the users are saying something is broken, I'm not happy. And all of your metrics say, well, my metrics say you should be happy.

44:44That means you're not measuring. the finance equivalent. It's not in the spreadsheets. I think there's elements to that too, which are really hard to quantify. And you're starting to see it play out, which is it's hard to know what's moving it, but you can feel it. I'll give you a concrete example. If you have a lot of people on the ground, if you have young people saying, I'm not going to get married, I'm not going to have kids, I can't afford to buy a house, then something upstream is broken. And so the question I would have for the economist or the Fed or whoever is like, what should we be measuring?

45:18If we're seeing the output, like what the question here really is like, what are the inputs? Because we know what the outputs are. And the outputs are people having fewer kids, we know that the outputs are fewer young people own homes, we know that the debt load on young people has gone up. And so like, if those are the outputs, what are the inputs that would tell us that these things that we think are important, right, people getting married and having kids and owning homes and feeling stable and feeling optimistic about the future, like all of these things, you know, are the outputs. And so what are the inputs that we should be measuring?

45:43Because it's probably not what we're measuring right now. I've given a lot of thoughts to this because I hear both perspectives. And just to steel man, the economist side is there's a lot of independent agencies. There's different universities. It definitely is not this global conspiracy where there's these 10 people at a table deciding that CPI to price it low. There are independent actors, so there's no conspiracy there. But I think it's, if you look at spend and housing is a big spend, and I think it really just comes down to real estate has appreciated higher than wages and interest rates are high.

46:21So you can't really, you know, borrow your way into it. I think that's kind of the back of the napkin explanation. Then all the other expenses beyond real estate are kind of maybe they're growing at this 3%, but real estate is, that's kind of my best explanation. It's not very scientific, but I think there's some confluence of factors that are driving. And also I think people want to live in cities. They don't want to live in the suburbs where the prices might be a fifth of a price and they could actually afford to have their home. I think there's all sorts of things being confluence of factors going into that.

46:53The real estate thing is a big thing. I think the move towards cities is a thing because then you need enough housing for those people. That is sort of a downstream effect, I think, of economic and tax policy, right? It's like, where have we enabled job creation? Now that we're 30 years into the creation of the internet, how are we not given more thought to how to take some of that and make sure that it's not just, you know, 10 zip codes in the Bay Area, the benefit? How do we really make sure that those benefits are, you know, available in other places? How do we make sure that, you know, high skill manufacturing doesn't leave the United States because those jobs would be created in some of these other places that have a lot of land that's cheap and build up big factories?

47:32I think housing is a big part of it. I think there are other sort of like economic policy and geopolitical things that have been just abject failures for the last 30 years. I think there are like tax policy things that have been just abject failures for 30 years. I think there is this sort of, you know, lie that we told a bunch of people that you should go to college and just get any degree, which has not been true for, you know, 20 years. And so all these people took on a bunch of debt. And, you know, the sort of the way that government financing worked on these, you sort of gave these people a bunch of debt, which is really bad.

48:04So just like poor economic decision making, planning and guidance being given to a bunch of people and market forces taking over at that point with low quality education. I think you're right. I think it's a big part of it. I think there are other things that are big parts of it, too, which lead to the intangible. So that's, you know, it's hard to measure that. It's like, what is it? I'll give, I'll give you a, there's, there's a, I grew up in the Midwest. I grew up in Kentucky and Ohio. And so what I think about is if you do the back of the envelope math, right? Let's say you were born in 1982 to 18 in the year 2000.

48:36Right. And you did what you were raised to do. Like as a good Midwestern American, you know, young man, like, let's say you did the right thing. you went to church every weekend you like you're a good member of your community 9-11 happens so you signed up for the military so what do we do we like ship you off to like iraq and afghanistan you know who knows what you had to do there maybe you learned some skills maybe picked up some ptsd you come back and uh you didn't go to college yet right you're like 18 or 19 when you shipped off maybe 20 and so maybe try to go to college for a few years pick up some skills or or maybe you go work in construction for a few years after you're back from your four-year tour duty and like two or three years into that you get 2008 so you get a crash and so now all the construction jobs are gone and uh you didn't finish your education if you try to get an education get out maybe the job market kind of sucked for a few years and so now it's you know you're you know in 2012 ish like the market's been kind of up and down for you don't you didn't accrue any assets you didn't have any money you didn't get to participate in the stock market boom after the internet came back in 2005 because you were too young and so now now you're like 30 maybe you have a kid what are you going to do?

49:41Like, you're going to go back to school? How are you going to like, who's paying for the childcare? Who's taking care of your kid or your kids? Um, and your spouse is probably in a similar situation. And so now those people are like 40 or 42, 44. Like, what do you do with this entire generation of people that basically did what they were supposed to do, right? They went to high school, they like tried to get a college education, they signed up for the military and got shipped off for four year tour duty and like good upstanding people. But now they're 40 and they don't have any assets. And this is like a non-trivial portion of the population.

50:10And so even if you fixed housing, like I don't think you would capture the fact that a lot of what the social contract was for these people, the government kind of broke the contract. Like society kind of broke the contract with those people. And those are the people that I worry about. Like even if you fixed housing, I think there's like 10, 20 % of the population that's now stuck in this situation. and we don't really have a plan to get those people out of that situation we haven't for the last 20 years right it's not this is like not a new thing it's like even if we built all the housing we wanted like what gets those people out of that situation and so that's why i think you need the like okay well what is like the economic plan what is what is like the strategic plan to get high-skilled manufacturing or to have solar manufacturing in the states or to have battery tech back or have you know robots or whatever it's going to be like i think without that it's um And you're going to, I think maybe a succinct way to put it is I think if you fix the housing thing, I think you would help a lot of people.

51:07Undoubtedly, I worry it doesn't fix the problem for another 10 to 20 percent of the people. And those are actually we need to bring those people along, too. It's a big part of the doom loop that we're in if we don't fix it, which is because then those are the people that are on Medicare and Medicaid. Right. Because they got messed up in Iraq and, you know, they're on disability. or you know those those are unfortunately people that if you got the PTSD then like some company was pushing opioids on you and so you ended up with like an opioid addiction and now you're fucked for the last you know 10 years and so now you're on you know disability and so all these things I think are like very very tied as a country I think we let a lot of people down and so we let a lot of hard-working middle-class kinds of people down with with the housing situation that we put a lot of young people into and i think we let a lot of um what what would have been otherwise middle class people down because we we took away the blue collar path to the middle class and we kind of fucked those people for the last 20 years um and that that's you know that's like now the undercurrent because that's what creates the fiscal spending right it's like if you have all these people on government programs like that's what's creating the problem and so i don't think we can like fix the government spending fiscal situation that we're in and the money printing situation we're in without like addressing the underlying thing which goes back to what you were talking about which is like well if everybody's saying i have a problem and and the inflation is not showing that we have a problem do we have a problem and my assertion would be like the inflation doesn't capture any of that the inflation doesn't capture the fact that we put all you know got all these people on opioids and we put all these people into a war situation and came back with ptsd and now all these people are 40 and so like what do we do with that population people and i don't think that none of that in my opinion is captured in the cpi metrics yeah that's heavy what are some policy prescriptions ai might be the way out right between ai and robotics we have a shot um we need to build like giant energy plants we got to get like you know nuclear reactors built we got to figure out how to like build you know data centers in all these places we got to figure out how to get robots so that we can actually as all these people get old we'll have robots to help take care of people and everybody can have a personal doctor right and so there's there's a lot of building to do we need like a proper national strategic plan to go do these things because these are the kinds of things that a good government could do and these are sort of beyond the scope of any one capital allocator like i think we can all kind of do our part and say hey look high growth tech if done well means everybody gets a teacher everybody gets a doctor everybody gets a robot in their home to help them you know as they age this will be awesome and so like as a vc i can invest in that stuff um but without like a comprehensive of government plan to think about how to incentivize the right sorts of behaviors, it's very hard.

53:49You're swimming against the current. We saw this with digital assets. Between 2020 and 2024, it was just swimming against the current. And it's so much easier now that the SEC is like, okay, let's be reasonable about this. And the CFTC is saying, okay, let's be reasonable about this. It's just night and day in terms of company formation, founders. Do you think that created anti-fragility? Did that make that wave of companies stronger, having to deal with Gary Gensler and the previous SEC. Do you think that made them better? Yeah, it's an interesting thing. I think it did, but it had some other consequences, so it certainly did.

54:21I think Coinbase is a much stronger company as a result of having to deal with that. But what it also did was it pushed a bunch of jobs overseas because there was too much risk to being in the United States. It created the FTX situation because what you got was people who moved to the Bahamas and there was no U.S. oversight. And so all of a sudden, you had all these people who looked like they were an American company back to your sort of opening around trust. A lot of people trusted FTX because it looked like an American company, but they didn't realize it wasn't an American company. There's no American oversight, right?

54:49It was in the Bahamas. And so what you get are these like systemic issues where you've actually like hidden a bunch of risk. You know, you're actually gambling with your trust and the brand of the United States. You pushed a bunch of technical development overseas. So essentially you're subsidizing technical development in other markets because of this policy. so it did make companies that survived stronger but but net net i think it was negative because you all these other externalities right like like as a vc let's say i give money to a company right and that company in this space says okay i'm a really talented founder i have a phd from stanford in cryptography i'm gonna start a company but if they take half those dollars and hire a bunch of people in in southeast asia because they're worried that the government here is going to try to shut them off and they need resilience in their business and business doesn't get shut down what you essentially just did was took millions of dollars and trained a bunch of people in Southeast Asia how to become really good cryptographers, right?

55:42Which is like the opposite of what a good economic policy would do. A good economic policy would say, wait a second, this is like important technological development. Let's not subsidize the creation of expertise overseas. We should be creating that expertise domestically, right? And so I think the externalities actually outweighed the sort of anti-fragility. going back to 2018 you start out with a 15 million dollar fund you now have over a billion AUM what is one piece of advice that you would have given the younger version of yourself in 2018 that would have either accelerated your success or helped you avoid mistakes that's a good question i i don't know if there's it's sort of two forms of that question you know one one from the question is like what are the mistakes that you could have avoided.

56:32And I think there are relatively few mistakes that we could have avoided knowing what we knew at the time. You know, it's sort of like a bad mistake is like, if you knew everything you knew at the time, and you should have made a different decision, then that's a bad mistake. If you sort of like given all the information you had, you probably would have made the same call, then that was the right mistake. That was an okay mistake. You can learn from it. I think probably the biggest one is to just be patient. I think the hard part, especially when you're early in the investment career development is, you know, these theses can take years to play out.

57:04And so you can be directionally right. And it's kind of working. And it just will take a couple of years to really fully prove out. And if you're willing to be patient, then you can make really long term minded decisions. It's a sort of a luxury now that we have that we have a brand and people know us, we have a great LP base that trusts us and so on, that we can just say no to a bunch of stuff. um and i think you know it's easier it's just because because you know if um you're willing to be patient you have you have the luxury of willing to be patient um whereas i think when i go back to like 1920 21 i think there was a lot of sort of fomoing going on and i think we ended up investing mostly in very good companies we just ended up paying too much for some of them.

57:48And so as a result, in retrospect, I think we could have said, hey, we just won't make some of these investments. And it'll be really painful because we won't be involved with some good stuff. But from an investment perspective, we won't overpay. Unpack why it's easier to be patient. So you have higher status, you have more management fees, you have less scarcity and more reputation. Or why is it easier to be patient today? All of the above. I think for venture, in particular, I think a big part of it is that you can't be out of the game for long enough. Like if you're not in the flow, if you're not in the conversation, if you're not top of mind, then when the market does turn, whenever that may be, you're not going to be one of the ones that people are coming to because you didn't do the last four investments or the last six times that those founders came to you, you just keep saying no.

58:40And so you're sort of swimming against the current a little bit if you sort of sit it out for too long. And so you have to be really careful about where you're still in the game. Maybe to reframe that beta during frothy markets is the price you pay for alpha in good markets? I think there's some truth to that. I think there's also a how do you call the top question? There are people who have been calling the top since 2012. They're like, oh, it's over. It's over. Tech is frothy. Every two years, there's an article about how Facebook is overvalued and Google is overvalued and it's all going to crash.

59:12If you took that approach rather than a, you know what, I don't know when the top is, I don't know when the bottom is. There's good companies all the time. And if you get the NVIDIA of that cycle, nothing else matters. And so I'm just going to be slow and steady. If you try to time it, then you may have sat out 2012 to 2020, which was like an epic, epic window to be investing. Even though for many years, 16, 17, 18, 19, 20, people were calling tops. They're like, this is zero interest rates, ZERP, bad, bad, bad, bad. But actually, there's some great companies created between 16 and 20 in the ZERP So I've been spending my time more with politicians, not because I'm getting more political.

59:47I just think that it's underpriced. So I don't think macro investors do a good job pricing in politics. One of the things that's very obvious to lobbyists, politicians, all these people, is how the power of incumbency. So something like 95 % of incumbents win in Congress every single two years. And the reason for that is they make these policies that make it easier for incumbents, Democrats and Republicans to win. And one of those gauges is the stock market. So there's this interesting idea that incumbents will never allow the stock market to be down for more than a two-year cycle. Essentially, the negative aspect is they're going to inflate that away.

1:00:26It's not only the Fed that has the Fed, but it's also the government and the president that's buttressing these assets. You want to ride the up wave, and also when there's a down wave, there's a good chance it'll be temporary because of this kind of pressure from incumbents to buoy the market. Yeah, I agree with that. Hence the money printing, hence the debasement of currency. Because the politically expedient thing to do, unfortunately, is to not have a five-year, let's fix the market. And then to gaslight the public into their perception that things are getting more expensive. It's just the way the election cycles work.

1:01:03It's just that's not the politically viable option. And so that's not what's going to happen. And so, yeah, you know, and I think the other thing I worry about with that, too, is, you know, it's true until it's not. Right. And so at what point does that does that break? And hopefully it doesn't break. Hopefully, you know, we have a long, long way to go and we can manage it. And hopefully we can grow our way out of it. You know, like all these problems go away if you can grow your GDP at three and a half percent a year. If you can manage to grow 3 % a year instead of 1.5 % a year, most of these problems just kind of go away, in my opinion.

1:01:35You can actually pay your debts, you can service the cost, you can pay for your old people, everything that works. The most bullish factor I see in AI specifically is that it's not just that the early adopters are lowering down their costs. You have this kind of seed-strapping idea where at Henry Shee, who runs the AI startup leaderboard, where you have these two, three-people teams making it to unicorns. You have that. But it's also on the revenue side. So a lot of people think it's just lowering costs. But now if your three salespeople could do the work of 30 sales people, you're also able to scale more on the revenue side.

1:02:08So you're both lowering costs, increasing revenue. So it's a pretty bullish, at least early signal. And it doesn't seem like AI is limited to technology in any way. It seems nobody has really found a limit to AI, even within the commodity space in terms of like order flow and all these things that's disrupting and helping that. So that is my bullish case. Yeah, I think we have a real shot. The fact that, you know, so many of the world's leading researchers and leading foundational models are all based in the United States. You know, the Chinese ecosystem is doing some great work, too. But yeah, the U.S.

1:02:46has a real shot here. And, you know, there's a lot of building to do. I think even if you said it's just a pure software layer, it's just the infrastructure spend that's going to be required to build data centers and power and just the plumbing to make all this stuff work, I think is a potential economic boom. I think if we could rejuvenate some of these communities that have been left behind, I think you might fix a lot of these problems. Growth is the best way out. Well, Avichal, we only got to a third of my questions. We've got to run this back soon. Thanks so much. Really enjoyed it. Looking forward to continuing this conversation live.

1:03:18Likewise. Thank you. Thanks, Avichal. Thanks for listening to my conversation. If you enjoyed this episode, please share with a friend. This helps us grow. Also provides the very best feedback when we review the episode's analytics. Thank you for your support.