ETH, Tokenization, and the Future of Wall Street

22:11And maybe we'll have some token incentives, go do something with it. Whereas if you treat them much more like these are places to create businesses, to create opportunity using this infrastructure, then I think you end up with things that look like Coinbase's base, which seem to work well.

22:26Raoul Pal:Yeah, because not everything has to be a token in terms of a tradable token. It doesn't need to accrue value that way because if you vertically integrate it within your business, it's part of your business infrastructure of which you can generate unique applications and other things. And a lot of people miss that point. So I think it's a very clever, very interesting experiment that's being run. But my mind is like that feels like it's going to be the bigger answer, not the entire answer because there's room for everything in all of this.

22:58Raoul Pal:so Vivek when you go and speak to banks most of them have been into this space for a while right I mean Goldman was there since 2015 I mean everyone's been there but quietly or asset managers where is everybody right now what is and where is the where's the pushback coming from when you say you know how can we help you with this where's the pushback so it's been five years of pitching and speaking to banks and asset managers honestly i view blockchain i view ethereum as the most positive sum pitch ever so i love pitching it because there's something for everybody there's it's increased revenue cut it's not a difficult sell yeah it's it it really shouldn't be a difficult sell or so i thought for four years but the reason um put etherealize together is because if all the tailwinds um finally lined up so every every objection I got for the first four years turned into a tailwind.

23:55And so there isn't that much of a pushback. Like, I don't want to sell some space age brand new technology. Like you said, the banks have been in blockchain since 2015. They know this is coming. They know that blockchains are the future. They're just constrained by regulatory parameters. So they couldn't use public chain. So everyone had an Ethereum clone running in the background. I mean, J.P. Morgan had an Ethereum clone running. We see Hyperledger, Bessu. So again, this isn't new. the real unlock and i saw this at the early stage of etherealize was no one could touch public chains and then genius happened and so that's like the that's the shout around the world for ethereum once genius happened public chains are now enshrined in law stable coins are now enshrined in the law the biggest product mark initial product market fit for blockchains are now in law when we got called in front of congress to testify about the clarity act and we're like wait there's actually more legislation coming that's when the tone started to shift and it went from banks and And I'm just understanding this is a good tech, but not being able to adopt it to just complete FOMO.

24:52So I think we are in that FOMO stage of we need to, just like banks had to all adopt an AI strategy ASAP, they now have to adopt the blockchain strategy. And the gaps that remain are, can they do it fast enough? And can they build the right architecture and infrastructure? And that's how we stepped in. Like Danny said, we identified there's a lot to build. And there's a lot of infrastructure layers from tokenization to privacy to customization all on Ethereum. So we said, OK, let's build it so we can help accelerate this. But there's no pushback anymore. It's just how fast can we go and how many assets?

25:24Raoul Pal:Yeah, I mean, I'll come on to the areas that I know are sticking points for these guys. But stablecoins is obviously the pointy end of the stick. It's the easy way in now, right? Because everyone realizes that they have to do this. But importantly, what the Genius Act did... So previously, it was like public blockchains felt illegal or felt like they might become illegal. What the Genius Act did is said, you can do a legal thing. We made this legal thing with stable ones. You can do it on public chains. And so thus banks and financial institutions are like, well, there's all sorts of legal things that we do.

25:57And we can do it on this infrastructure because that infrastructure implicitly is legal because of the Genius Act. So let's do legal things on that. That doesn't mean you can do wild west DeFi with all of your classic assets. And we're going to need to see SEC regulation changes. We're going to see laws continue to evolve to handle this infrastructure. but I can do, I can take the legal world of things that I can do and I can do it in a public chain now. And so that was, that was the big like opening for them. And yes, stable coins are an obvious like place that some of them are playing in, but largely I think what they're really interested in was like, how do we upgrade our processes?

26:32How do we upgrade back office operations? How do we encode the rules of assets on chain and not have to do all sorts of manual reconciliation?

26:39Raoul Pal:therein therein lies the problem because the banks all operate in small conglomerates around certain things right yeah and so you need to get everybody to agree to change the standards there is the hard part yeah that's yeah because they're all stuck on software that was built 20 years ago with a particular but they all talk to each other yeah yeah and and the it's a it's a the coordination problems are than the technical. Yeah, I agree. But that's, I think we're going to solve the coordination problem. I think, I think that there is enough industry-wide push. And also, so I'm half our team is seasoned Wall Street veterans saying that, okay, we actually can get to a point where, again, it's not a difficult sell anymore.

27:24It's more saying that we've had this era where you've had a lot of different intranets and everyone ran their own intranet and everyone saw how that went. But there needs to be a moment where you plug into the public internet with your assets to actually unlock all the operational benefits. And people get that. And they are constrained from a regulatory perspective. But I do think it's the moment to bring a lot of the industry together and say, let's connect to that public internet. And Ethereum is that public internet.

27:49Raoul Pal:Yeah, but most Wall Street banks are dicks. And there's so much ego. There's so much issue with JP Morgan. There's so much ego on Wall Street. Sorry. It's staggering. It's staggering. I'm used to it. You're used to it. It's fine. Yeah, but it just makes the coordination problem, which should be simple, actually quite hard. It's really hard to go, come on, guys, JP Morgan, Goldman, get together with this. They're like, well, no, we think we're smarter and we want to do it this way. Because I've seen it a thousand times because Wall Street's got this coordination problem always in everything it does.

28:28Raoul Pal:You know, how do you settle derivatives? How do you do this? it's always been the same problem and it's really hard. When I was at Goldman, the amount of times you saw these kind of industry groups trying to get together to solve a particular problem, I would suggest 80 % of them failed. Well, that's where the L2 use case comes in. It's how do we give someone their own customization, their own business upside, especially as ZK infiltrates the entire, not just blockchain, but AI stack journey. It's the most exponential technology that's slept in, I think. But as that happens, every firm can run their own L2.

29:05You can have groups of people running their own L2s. They can all talk to each other. They can all connect to L1 if you want that sort of security. L2s kind of let you have your kick and eat it too. So the coordination problem becomes a little bit more palatable when you have this Ethereum architecture where you can have different layers. But you're right. It's the Microsoft solution. we have to find the right domino and we're that's right we're close but I think once one market upgrades you know it's going to be like when commodities went digital with ice in the 90s it's just like there's no way everyone else is going to stay in the pit and so you know that's our job we're trying to find the right end build the right tech get people so fucking excited about this thing and how much money they're going to save or how much money they're going to make, but they can't help to jump in.

29:55And then I think the rest of the markets are going to fall.

29:57Raoul Pal:Yeah. But I mean, generally, generally the state of the universe is always goes towards more intelligence. So you're, you're kind of, for me, how I think about the world is the universe solves for units of intelligence per unit of energy, right? So what is always happening is you're always solving efficiency at scale and it always flows to efficiency so faster better cheaper is the way of the world it always has been and always will be as long as you're not having local maximas a lot of the time yeah you do but eventually it it folds you know the coordination problem solves itself because it has to because if there's a group of people who coordinate and they have increased profitability for example everyone else has to follow then they have to follow suit so it does happen it takes time and then you've got the other problem is you've got these um very large moats in the middle of all of this like dtcc like nasdaq like you know name them all there's hundreds of them and they're all basically monopolies or duopolies for a given market when we're thinking about you know how do you upgrade that market from first principles you know it's the first it's like how does the market work and the second question is who's vested interest is it for this market to not change and those answers are large and profound almost every market you look at Wall Street's all based on incentives so as long as we can get the incentive in the right place anyone will move and the good part is blockchains are incentive mechanisms as well as and coordination mechanisms as well as technology and so I mean you're seeing it the DTC is adopting they understand they have to tokenize their stock so they're adopting blockchain nasdaq is plugging into blockchain so all everyone's moving in this direction and the bet we're making is the only place that you have all these large ego players the only place you can have all the large ego players coordinate is a neutral playing ground and so that that's where ethereum comes in it's it's it's no one wants to use anyone else's platform i think you've said this i think jake and warren doesn't want to use golden's platform and and someone doesn't want to use dtc's platform but okay, the world lives on the internet.

32:08What's the most neutral platform that's sort of the most accessible to everyone? That's Ethereum. And so that's why it's funny that that could actually...

32:15Raoul Pal:And as you guys both said, the layer two is actually playing to favor of this because it gives them somewhat a feeling of control because they can spin up their own chain, but it's within the ecosystem using the security of Ethereum. It gets them a lot closer to getting across the line. Sure. I mean, it's getting more and more golden pitch. I mean, it's getting easier and easier and it's just it's getting momentum. So I absolutely agree with that. We might be able to use some crypto native ways. Here's a here's a layer to infrastructure for a new market. The more you use this this infrastructure for real use cases over the next X period of time, the more you own the infrastructure, you know, and you just design mechanism design for incentives.

32:55But that's not going to just work in a vacuum. But, you know, there are crypto native ways to think about solving some of these coordination problems. And also, people have forgotten.

33:07Raoul Pal:When I worked at Goldman, we were hiring more nuclear scientists and atomic physicists into derivatives than the entire outside world. That's why Goldman's got it. The talent density in finance is staggering. Why? Because it's the closest to the money. Yeah. It drifted to Silicon Valley in the end because Silicon Valley came closer to the money. But really, there were some very smart people there. So it's not like it's a bunch of pinstriped English bankers with bowler hats. You know, these are some serious people. And I think, Danny, your approach of first principles actually will appeal to quite a lot of these people.

33:47I think blockchains are spectacular because they're an engineer's dream in that there's so many amazing things to tackle in the supply. It's just been incredible seeing the engineering come to Etherealize, but there's zero knowledge proofs, there's cryptography, there's coordination, there's mechanism design. but the most important thing that also clicks for a lot of banks and asset managers it's the only place where you can put digitized assets and money in the same place and that's never existed before so now that allows for transactions to be atomic that's what allows for like it's crazy but a database where you can have money and assets is mind-blowing and so that's the upgrade so yeah we are getting as close to the money as you possibly can it's going to let Wall Street take back the narrative from Silicon Valley and auctions are going to be the way in It's crazy.

34:38Raoul Pal:It's got to be weird for you because we spent our early days all fighting Wall Street and wanting to upend the banking system. And you kind of have to partner with them, even though you are creating change. It depends on the estimate, but it's like something like$110 trillion of the$200 trillion of investable assets in the world are managed by financial institutions. it's like i think i think we gotta have to crack that nut if we're going to make the impact in the world um and i you know there's when you're thinking about upgrading markets it's like you can make the markets more efficient that's good you can make the markets uh you know have have potentially more access that's good you know and that that's that's in line with my values it's like more people having access to financial intervention and, you know, both in the U.S.

35:34and globally. Very good. You can have, you know, more interesting products layer on top. There's all sorts of stuff that like they're not the black and white like crypto anarchy answers in terms of the extreme versions of the values, but like moving the world's markets to be more open, to be more fair, to be more globally accessible, to be more programmable, to be more You know, those are all like, I think, extremely positive outcomes. And they're really hard to get there. But I think with Ethereum and working, you know, from the inside out on financial markets, we're going to get there.

36:10Raoul Pal:So a quick break in your regular programming. If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible. And this guide will help you navigate what's coming. The link is in the description. Download it now. And also how I've always argued this is whatever gets built on it, however gigantic the scale of blockchain is in the future, however big Ethereum is, because there is the token that exists and it's fractionalizable, every single person on earth can participate in the economic wealth that's generated from building the system out.

36:50Raoul Pal:and that's the big difference it doesn't accrue to a private person it doesn't accrue to a company where only some people can own shares in it and i'm talking even public shares you know you try and buy tesla shares from nigeria it's not bloody easy but by the time but with something like blockchain and having the e-token i mean that's a huge thing yeah no that's very interesting like assuming re-architecting and moving global finance onto Ethereum has a value-accrual mechanism to ETH, then everyone has access to that potential upside. That's right. It's very egalitarian in a weird way. Even though you're driving capitalism, what you're actually also doing is allowing everybody to participate in it.

37:35If it works, everybody can make money.

37:38Raoul Pal:That's never happened before. It's like the internet, but we couldn't own shares in it. it's it's one of my favorite it's the reason why i think eat is such a convex asset and such a has has such incredible properties because it's a it's a store of value um b it's productive you can use it in the ethereum economy it has a yield on it um and c it has this embedded call option in it that as this system scales and becomes the base layer for finance and becomes the financial internet you can own a piece of that too so a productive asset with a call option to become the universal platform and to own the next internet that's pretty attractive so i think i always say all roads flow through eith in the end and in the end eith is the only blockchain where there is a currency that is used and goods are priced in that currency which is digital art i mean everything i buy is priced in eith i don't think of it in dollars I only think of it in ETH.

38:37Raoul Pal:And I'm very comfortable. The whole market is pretty comfortable with that. And that's amazing, right? That's a moneyness that nothing else has. It's a productive market. I'm not sure exactly where it stands, but I think the most liquid markets for AMMs are the ETH trading pair against most tokens, which it kind of functionally is pricing the exchange of assets on top of Ethereum and ETH. I think one point on it being the trading pair, you know the FX markets well. And in terms of global trust, if the world's assets are going to be tokenized, which I think is actually an inevitability at this point, like you can't put tokenization back into the box, then most tokenized assets have some sort of root in some regulatory jurisdiction or some geographic jurisdiction.

39:28but there's only one asset that is truly sovereign and truly independent and truly trustless. And that's ETH. So there is actually a world, and this is sort of my hyperbole case for ETH, is where it is the trading pair for coordinating across global economies. It's the only trustless global collateral. And so therefore, it's the best money out of any asset out there. And so it could be the trading pair for all tokenized assets. And that's where it becomes like the real collateral and has a real exponential offset.

39:56Raoul Pal:Yeah. But the most important point is that doesn't matter. For ETH to be successful, none of that needs to happen. It just needs to do its job and let people build on it. And we don't have to have the war, that ridiculous war that the Bitcoin maximalists have with everybody else. It's like, it doesn't matter. It's technology in the end. It's just a very good technology of which we can all participate in. And it's a big world out there and it'll be a multi-chain world and we're all going to have to learn to speak with each other. That'll be great. And you guys play an incredibly important role in the space because Ethereum is so big versus everything else.

40:34Raoul Pal:But if I look at where smart contracts over time are going to go, it's only going to get larger because it's not just about finance. We haven't talked about it. I mean, the other thing you're going to have to learn is insurance because that whole industry is basically derivative contracts or contracts, right? That all has to be tokenized because it's much more efficient for the insurance industry. That's gigantic. The whole commodity industry is the same. That needs to do. I mean, there's a bunch of them are already doing this. That needs to all happen. Then we've got the whole digital ID side of the entire planet as well that has to happen.

41:08Raoul Pal:And we haven't even got into the AI and the rise of the agents either. So, I mean, it's a staggeringly big thing that has to happen here. And kind of everybody needs to play their role in getting it across. Danny, one of the questions I want to ask you before we move into some of the bigger picture stuff is privacy is a big problem or privacy with banks and dark pools and who does what. Because, you know, there's a very fair and if you guys follow Mertz, you know, from Helios, he makes the point which is like not every transaction should be transparent. And the banks certainly don't want it. You know, if Fidelity is settling for a program trade with Goldman, people don't want to know that that's happened.

41:54Right. No, I mean, we can't we can't even think we can't think about upgrading markets to use blockchains if we don't can't have as good of it's not better privacy. Right. Like markets don't work. You know, there might be a market where you and I are going to make a trade. Some affiliated agency gets to see the trade, but maybe not the price. And then no one else gets to see it. And you can't you can't think about upgrading and that market onto a blockchain. if you can't preserve those same things. I think very fortunately for Ethereum, we, maybe I said this earlier, but put literally billions of dollars into Applied ZK because Applied ZK brings us massive scalability gains with ZK rollups.

42:38But it turns out the same technology allows you to hide information and programmatically hide information, you know, reveal what you want to reveal, hide what you want to hide. And so we now have efficient, high-level constructions to write privacy applications in. You know, we have ZKVMs, we have ZKEVMs, we have bespoke languages like Noir, we have lower-level languages like Sircom. And increasingly, I think this is going to be how we, with math, embed privacy into public blockchains, rather than, you know, there's many other types of constructions that I think people like to play with. But the ZK and the applied cryptographic constructions, I think ultimately they're just, they are the winner.

43:24You know, so a lot of what we're doing at Etherealize is what is the right stack to program private institutional workloads onto Ethereum? And largely that looks like ZK. Largely that looks like some of the high level languages that have come out in the past few years. and we and many other people across the ecosystem are leveraging these tools to do exactly what we need to do. And I think one of the biggest myths on Wall Street when people are talking about Ethereum is, well, Ethereum's not private. Well, it's not. It's a public coordination layer. And you can write public contracts that have very explicit logic that everyone can read.

44:03But you can also write public contracts that commit to private realities and commit to private logics that you can embed on these chains. And so I think a year ago, two years ago, the answer was, well, we're pretty much there. I mean, the answer now today is we're there and we're building it and we're going to see people adopting private workloads on Hupbethereum more and more.

44:31Raoul Pal:So when we talk about pushback that you get, we talked about the coordination problem. We've just talked about privacy, which is another one that I've written down because I know that comes up a lot. Quantum will be the other, just like how safe is this? In fact, I might as well ask Danny. Danny, where are we with quantum now? Because I know that's the other hot topic. There was a paper release yesterday or the day before, and it turns out we're closer than we... There were some speed-ups in some of the classic algorithms, which, interestingly, they didn't reveal the full algorithm for the speed-up.

45:04They did a ZK proof that they had it, which is kind of cool. They wanted to hide it either for safety or maybe proprietary reasons. Nonetheless, one of the big design considerations for Ethereum over the past decade has been not necessarily to use a quantum safe component for every component, but that every component needs to have a quantum safe analog. So even though we might be using non-quantum safe cryptography for component X, we know that there exists, maybe it's not production ready yet, five, six years ago, but we know it exists in a theoretical standpoint and we can swap it in when we need to.

45:44And so a lot of the big effort of the Ethereum Foundation over the past 12 months has been, oh, yeah, quantum's coming. It's coming faster than we thought. We need to expect it to continue our timeline estimates to continue to accelerate because of AI. And all of those quantum analogs that we knew about, we need to actually have like a very robust plan to execute. You can go to like pqpostquantum.etherium.org and there's a very robust plan. and some of the smartest people in the world working on figuring out how to roll that over the next three years. So I'm not terribly worried about it. Now is the time though.

46:23If your blockchain is not working on post-quantum, contact your local core dev and say, this is definitely a problem you should be working on.

46:34Raoul Pal:So Vivek, what other pushbacks are you getting outside of just the coordination and just working through the machine. These are big machines, these banks and financial institutions and all of that. Anything else we're missing still? You always get the regulatory question, especially around not just privacy, but ZK. But the very inspiring part is we're not just saying ZK is the future because it's the right technology and it's a very, very far-spanning technology, again, it's going to go beyond just blockchains, but because the regulators are asking about that. Like we were talking to Congress recently and educating them on what's possible with ZK.

47:17Our general counsel, Stevie Alderman, did a panel in December with the SEC on ZK privacy. So a lot of the technological aspects of privacy and the regulatory aspects of privacy were blockers before. And as Danny said, the headwinds are not becoming tailwinds where they're saying okay we there's there's multiple ways to do privacy some are just keep trust in the system and don't use math and that's like saying don't use ai when ai is inevitable so um no that that head with that was one headwind that's not becoming a tailwind otherwise it's more just how do we upgrade the system in a way that we're not left with the system that's worse and so that's that's the real pushback because if everyone just runs their own internal experiment is actually more costly and doesn't actually create benefits.

48:03And that's why, I mean, you saw Larry Fink earlier this year come out at Davos and say, this experiment kind of all has to happen in one common blockchain ecosystem. And so that's the solution that we're bringing pragmatically is saying you want interoperability, you want liquidity in one place. We have one internet, and so we have one blockchain ecosystem. So that's part of the pushback that was there before is that everyone's just running their own experiments, comes back to your coordination problem. I think that's starting to call us round one winner.

48:31Raoul Pal:I think there's another problem that you're unlikely to be underestimating, but I think it's a bigger problem, actually, is the speed of technological development right now is fucking staggering, right? We're not in Metcalfe's law. We're now in Reid's law, which is Metcalfe's law squared. We're seeing it in every chart, right? On a log chart when it goes vertical. that's very difficult for a bank or even you guys to plant a flag in what we're building because if you're building the dtcc from scratch you would build it very differently to to work in a world for 10 years time where it's entirely agentically run than what they've got and that's a really hard thing because a lot of the institutions at the core of this are not technologists they're monopolists and we've got a huge problem because everything is going vertical i mean none of us have lived through anything like that humanity's never lived through anything like this and we somehow have to navigate it how the hell do we do that i don't know and i spend a lot of my time racking my brain around that was a good answer that was the right answer i don't yeah no i mean we're at the like i i we stand at or inside the event horizon and if you if someone says they know what it looks like in 12 months and especially because they say they know what it looks like in three years they're wrong they're fucking wrong like and you know i i think i think a lot about like what is the value that we can bring here what is the and and what are the things that remain in the world that's going to change massively and i think the answer is agent of finance is going to take over the world faster than we think agents speak protocols as their What is a financial institution once you've got, you can break it down to coordinated agents that self-coordinate?

50:18Raoul Pal:It becomes actually a much more intellectually interesting thing than what currently exists. And it can happen at a speed that we don't really understand. Yeah, and secure agentic finance that can handle$10 billion workflows is one of the most important things I think we can work on when we're thinking about upgrading for the future. And when we're thinking about what are agents going to do? They're going to want to come to agreements with each other, interact with each other. They're not going to send you the asset and then send you a funding memo for you to send the wire after. They're going to want atomic swaps.

50:52They're going to want agreements. They're going to want to coordinate not only in the US, but globally. And so a neutral infrastructure, you know, like when we're talking to banks in the EU, you know, they were pitched on putting a stable coin in the salon. They're like, hell no. Like, of course, we're not going to do that because they see it as like this US entity. And so agents, it's only going to be more. You don't want this global swarm of agents coordinating over protocols. And they're going to coordinate over liquid protocols. You and I, or two agents could just spin up their own protocol to communicate with each other, but they're going to want to go where the assets are.

51:26And the only reason they're not going to make their own protocol on demand every time is because of liquidity. and liquidity i think is going to be one of the liquidity and probably like security the lindiness of security it's like that's the moat that's the moat in the ai future and i institutional finance or not like ethereum is the only answer which is really exciting like

51:48Raoul Pal:a couple of years ago yeah you know whether ethereum is the only answer or not but i don't probably agree with that but i would say that at a base layer you know if you talk about the base currency kind of makes total sense. Now, the other thing is, Rebecca, if you think about, I've been thinking about this a lot. If you think about a business like Millennium, right? Gigantic hedge fund. What do they do? They allocate capital to a bunch of pods, which are internal teams that run capital, right? That's a very expensive process of which most of those in the next three years will be replaceable entirely by agents.

52:34Raoul Pal:By agents. I mean, look, a lot of us who are hedge fund managers have egos and think we can't be replaced, but that's not true. So that's all gone, right? So that's one side of the cost equation. Then the mothership of millennium, which is coordination of finance, regulation, capital raising, allocation of capital, and risk, that's all solvable by AI. So I'm not sure what financial institutions exist. It's a really interesting point because I know this industry really well. I know both industries really well. I don't see how any of this exists. I get to, beyond about 2030, the kind of understanding of what is finance crumbles.

53:17Our understanding of agents are going to...

53:20Raoul Pal:I talked about mean coins in the beginning. Agents are going to be able to run businesses, and they will coordinate capital via a token of which that opportunity, that business opportunity could be one month. And then it collapses afterwards, but it captures the opportunity and people get to participate in it or lend capital into it, which is not possible in a regulatory, I need to hire humans and build this thing. All of this goes, right? Velocity of capital goes wild and it's not really meant for us any longer we we just have no place in it yeah and i have no place here on please go for it uh then there's a lot here it's that's the fun feature go for it i just uh i i i'm only i'm drinking from the virus i'm learning a ton about financial institutions and part of me the part of my discovery the past few months are like the thesis here is defy protocolized finance on the outside and hope like the world just came and joined and like our thesis is no we have to protocolize finance from the inside out and but when i look at ai i'm like agents are going to protocolize finance no matter what so maybe maybe the thesis is wrong maybe they're just like they're native defy users um but when we think about where is the capital the capital is being managed the capital is allocated the capital is in places we're also looking at like 30-year credit agreements like these don't they don't can just disappear and go into this other void overnight um you know and and i guess my answer is these financial institutions are going to at least become way thinner right they're going to become the people that hold the capital and allocate the capital and utilize the world of agents and protocols protocols underneath the hood um but a lot of you say that tomorrow say that but AGI is there or thereabouts, in which case we're all inferior allocators of that capital.

55:22Raoul Pal:Oh, yeah. So you get to that quite quickly. People that own it, own the capital maybe? Maybe, I don't know. Does capital exist? Like if you actually have a super intelligent swarm of beings in a data center,

55:39does the economy work like we even know and think? I don't know if the answer, I don't think the answer is yes.

55:50Raoul Pal:It's just fascinating, right? Who thinks that these will be normal conversations? But they are because this is happening so fast. I mean, don't forget, we had almost zero agents before November and now they've gone the fastest scaling of GitHub in history and accumulation of GitHub stars in history. And now nobody knows how many agents there are. a friend of mine is non-technical i made him an agent on a vps he has like a swarm of agents every night that dynamically bet on basketball games on polymarket and it's and he's a non-technical user and just like had it comb academic research spin up different types of models and he's he's making money he has an edge right now for some reason but like and that's just that's a toy that's a toy and he and he like snapped his fingers in like two hours had a swarm of agentic finance.

56:42It's blowing my mind.

56:44Raoul Pal:And then I had another interesting conversation. Have you guys read the piece from Mickey Malka from Ribbit about token factories? I urge you both to read it. It's a fantastic article. It's quite long form. It's on the Ribbit capsule website. Now, Mickey is a good friend of mine. He's one of the greatest, if not the greatest fintech investors of all time. But And what he talked about or what the paper talks about was that we use the word tokenization. We sit through our angle, right? But tokenization is also what we're using for AI. What we're doing is creating packets of machine-readable data.

57:20Raoul Pal:That's all tokenization is, essentially. And some have value and some don't.

57:28Raoul Pal:But over time, this becomes more valuable because if you think about what AI has to do, it has to absorb more information, right? It needs to move from AGI to ASI is a staggering power of whatever more data that needs to go into this. So all data is going to be stripped and tokenized. So that's every privately held piece of data on earth eventually ends up getting tokenized into something that can be tradable or accessible. All of this is going to be agent run, and it's going to dwarf the marketplaces we know today, and it's going to be completely invisible to us. Because the agents will be going to get data, the big AI companies, all of this will happen agentically.

58:12Raoul Pal:There's no marketplace, there's no people, there's no employees, there's no offices on Wall Street, there's no fancy, you know, whatever, there's none of it. It just all happens at scale, and people get to monetize data. That, I think, is also where the entire system is going, which is another big thing. And you also get to the understanding that I got to is like, we're all so wrong about the TAM of all of this. The TAM is infinity because of the agents. If they actually create economic value themselves, the TAM is infinity. If they don't, okay, they're just moving our capital around. If they create capital, capital formation, then the TAM of the entire thing is infinity.

58:53Raoul Pal:like the time of the internet is infinity and that's a weird world again who owns it who owns the team i don't even know and this is why i get to you know i have these conversations a lot and i get to the simple conclusion is you need to own crypto just tokens because that's the only thing we've got that will allow us to economically participate in this system. So it's a kind of a, it's a serious thing to me. It's like, if I go beyond 2030, 2035, we have no idea what the world is, what money is, what abundance, we know nothing, what value is. So, you know, the bet I've taken is like, sure, you can own some equity in technology companies, but what is equity?

59:41Raoul Pal:What are financial markets in the end right because right now there's inefficiencies based on humans or inefficient knowledge all of that goes away but at least the token will value the underlying value of the network right so it's kind of like okay that's pretty straightforward i can deal with that that's the cleanest neck half law and that's the other that's exactly what i got to and then the other one is why do i own so much digital art because to humans we kind of want something and Culture is the most important thing we have. It's the most human thing that we have. And digital art represents the culture of our times, yet it's also built on blockchain.

1:00:17Raoul Pal:So you get the double convexity because the value of art goes up over time and it goes up versus the currency. And the currency in this case would be ETH. So you get ETH's gain plus the gain of the asset itself because it becomes valuable to us. So I've kind of thought through a lot of this world and that's all I could get to. I couldn't get to a simpler answer than you just need to own tokens. you've called for the exponential era bro i'm sure it's accelerating way faster than you thought but no agents agents could be the one that end up buying your i like danny's face he's sitting there thinking about all of this now i'm like i don't have any digital art what am i doing

1:00:59Raoul Pal:yeah i know i got honestly i've played through this high-end real estate it's going to matter to humans not high-end but special places right nature experiences but culture is it it's what gives us humanness and relevance and storytelling right storytelling is what we do as humans it's the ai doesn't do it's anything it doesn't do it can make art but it can't feel something because it doesn't have qualia and we have qualia anyway that's an assumption that is an assumption for now yeah yeah i mean in the i think i think the ai actually is starting to have a culture you know i think moltbook was one of the first examples of distributed evolutionary kind of ai culture terminal terminal of truths that's when i went down the consciousness rabbit hole when i saw andy ellie uh putting those the the ones together and they come up with Goatsy, which ends up launching a coin.

1:01:58Raoul Pal:It's like, who actually launched the coins? Was that them? You're hyper-stitioning the coin into existence and manifesting it? Or what the hell happened there? But that was the start of it for me. It was like, that was wild. And Mark Andresen sending him a Bitcoin as well because of the whole thing. Vivek's now looking at us thinking we're weird. I love it. No, I'm so hardwired from the way things were on wall street that it just it is worth going back to first principles and saying what does everything look like and it it probably will not it probably will not be the same as i look like before so just upgrading processes certainly it's gonna be yeah so what's up but we're future proofing that that's the coolest part you can you can either integrate it fast and be ready for that or resist change it kind of feels that the role that you guys play at the theorized in the ecosystem almost has to be split into two which is this world and that world because if you don't have this world and that world we can miss the whole thing and it's kind of that world is as important to build out for the future of everything as this world is to fix because really what we're doing is fixing the existing world but the issue is is the new world is is but i think the existing world for for the way the world exists today it is not ready for the way the world exists in two years no so then we've got the same problem all over again i i think i think we have to move these markets to be more like protocols because i think that's the only like a protocol protocol is finance in the future because agentic finance is the future and so the way Wall Street moves and upgrades to the future is like every single thing needs to be encoded, all of the rules of the markets need to be encoded in smart contracts the middlemen need to not exist sorry and these things need to the entirety of Wall Street and traditional finance is going to look it has to look like DeFi but with the privacy with the regulatory, with the whatever it's going to look more and more and more like that And if not, I don't know what happens.

1:04:16Raoul Pal:And, you know, it's really interesting when you go to the Middle East, talk to Abu Dhabi and all of the others, they kind of basically put the entire bet on two technologies, which is blockchain and AI. And so, Vivek, when you're going around speaking to the banks and the other participants, that's a lot for them to deal with is two technologies at once, right? i always say this was highly disruptive the most disruptive thing they've ever seen i always say the chat gpt moment was mind-blowing for all incumbents and now people are saying hey this is going to be a thing banks saying this is going to be a thing we have to all just adopt claude and chat gpt getting hit with two chat gpt moments at the same time it's it's mind-blowing it is it is mind-blowing and i think that that's the thing where the paradigm has to shift and You phrased it exactly correctly.

1:05:09We have the luxury of being able to fix the existing system and work to make it very positive some with how it works, but also imagine what the futures look like. And that's kind of how Danny and I split up our day-to-day and how we think about things, and it's very complementary. But, yeah, it's a lot. It's a lot for them to take on. And the banks and action managers don't want to become dinosaurs, so they have to move very, very quickly. And there's an uncertainty.

1:05:34Raoul Pal:But they're slow by nature. Some parts are really fast. As I said, there's really smart people there who can spin up a business really fast if there's a profit motive. But getting a whole system to change is really slow. Well, I think when you think about blockchain and AI, they're thinking about blockchain and they're thinking about AI. But I don't think that they're thinking about the impact of these two things together yet. And that's definitely one of our goals over the next years. I mean, you know, just start, you know. Yeah, I mean, Vivek, when you go and actually break apart all of these institutions, what are they?

1:06:10Raoul Pal:Almost all of them, insurance companies, all of this stuff can just be entirely replaced by agents and AI. And it's like, wow, okay, I hadn't really kind of understood that. You kind of think people get more efficient and developers get more efficient and we don't need as many and blah, blah, blah. But when you actually think of businesses, the whole nature of, you know, what is a corporation? You know, corporation makes it, gives it that kind of legality of being the same as a human, hence the name corporation. But none of that needs to happen any longer. And it's kind of like, because of the programmability as well, you don't need the legal system in the same way.

1:06:47Raoul Pal:It's kind of, okay, it gets weird. It gets weird. And also when people start to realize that legal system is based on a lot of judgment and you can now codify judgment. and you can now codify contracts. That's the, I mean, yeah, lawyers are, again, that's another field that we haven't even talked about. They either have to adopt AI in a big way, and, I mean, contracts can self-execute on blockchain, so these two technologies are very teed up for them, but, you know, why do they need so many people? Why do they need junior lawyers? It's just, say goodbye. But the point being is you keep going through this, and you kind of think, why do we need any of it?

1:07:28Raoul Pal:that's that's the point i keep getting to is like you give it a small amount of thought and you sound smart it's like well we don't need this many lawyers and all of that and then you start thinking do we actually need a legal system yeah yeah no i mean i i spend my time i spend a lot of time with agent coding and things to wrap supercharge the business think about agent finance all sorts of stuff and like right now it's i have all this agency i'm like i i know what i want to build i know what i want to do it but i'm like in in three months or max like 12 months like me telling it what to do seems like i'm just going to be getting in the way yeah because you're the worst decision maker yeah you're the idiot in the room soon right exactly and and and like you said like the legal system might be the idiot in the room the financial system might be the idiot in the room you know rather than just the humans well yeah it will be anyway guys look fantastic conversation uh love what you're doing um i think it's you know it's important but even just talking today it's like i don't even know where this is gonna go i don't even know how we're gonna do it but it's gonna have to happen because we need block in the end if you break it down to first principles we can't do any of this without blockchain so whatever format is doesn't matter the same principle of what you guys are doing your generalize.

1:08:51Raoul Pal:You need the global coordination layer. Yeah, maybe in the US you have a consortium and everyone's fine with that. But if you really are thinking globally, you have to have a neutral blockchain. Yeah, you need a coordination layer because none of this works without it. They're the most complementary technologies ever, AI and blockchain, and when people get that, it's going to be mind-blowing. Well, it's kind of people have now started to say things, and it doesn't feel silly in the end, which is that, you It felt like blockchain wasn't built for us. Yeah. We were the beta users. Really, it's built for this.

1:09:25Raoul Pal:Exactly. We're the meme coins. You know, we're just the test. Fabulous. Guys, great to chat. Really enjoyed it. Great to meet you finally. Yeah, we'll see you somewhere. I think I'm at Consensus in May or whatever. I don't know where you guys are, but hopefully we'll catch up in person somewhere. In person. It's the only thing left. Otherwise, we'll see our agents. It's true. It's true. And digital art. Yeah, and digital art. I'm going to buy some right now. Yeah, get your crypto punk. That's the point. All right, guys. So as you can see, great conversation, lovely guys, really smart. And you can see how that thesis that I've had for a while about Ethereum, it's really quite likely to play out.

1:10:13Raoul Pal:And that's even without the agents coming, because they're coming too. So we've got the entire financial system, the investment or the asset management industry, and then we've got the AI industry all coming for these rails. Blockchain was purposely built for it all. All we need to do is just hold on to the tokens and wait it out, because these things take time. But over time, the trend is your friend. See you next time. Today's episode is brought to you by Abra. Abra provides high net worth individuals and institutions with a competitive edge in trading, investing and collateralized borrowing while maintaining full control through segregated account infrastructure.

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