Solana: The Big Crypto Bet with Joe McCann

27:19We'll be right back.

27:23the next phase for me was seeing the compressed nft technology thinking you know my thesis had been nfts at any contract in the world and humans are organized by contracts whether they're social contracts written contracts whatever and i was thinking okay now you can do contracts cheaply so therefore you can scout at tickets is what goes into my head immediately you know all forms of ticketing is basically can be an NFT. It's just a contract. And it couldn't be done on Ethereum at the time. So that was like, okay, that's really interesting. And then I was at Masari Mainnet and Helene from Preven was speaking and Tolly afterwards.

28:06And they both talked about Fire Dancer. I didn't know anything about it. And again, it was one of those moments where I walked away and I was on my way back to Cambridge. I thought, what the fuck were they talking about? And Tony had kind of mentioned this potential 1 million TPS. And I'm like, it kind of sat in my head. And I thought, OK, I need to look into this. So I got back. And I came actually over to my house in Little Cayman because I was writing Global Macro Investor. And I start thinking it through, thinking, OK, well, this sounds like the entire financial system can go onto this, right?

28:42This is high-frequency trading, jump trading. So I go down the whole jump rabbit hole, start list to all the podcasts, anything. There's very little. I then go on to Twitter and ask, hey, who knows anything about Fire Dancer? Almost zero. And then I'm like, does anybody even know when it's coming out? And Tolly responded, yeah, I think it's going to be Q4, we'll get test nut. I'm like, fucking hell. The fastest, maybe the largest breakthrough in the speed equation for blockchains is about to happen and nobody even knows about it. That's right. And then I just did the usual thing, which was start looking at the chart of Solana versus ETH, Solana versus Bitcoin.

29:20I'm like, OK. And I went, I mean, literally all in, because this was all I needed. That's right. What do you think about Firedance? I mean, it sounds like I was just looking at Tolly's tweets. It feels like it's, what, is it going to go on mainnet soon? Or is it finalizing on testnet? Where do you think we are? Yeah. So a couple of things. One, I think any software developer that has been around long enough knows that the expected date to ship software is soon. That's the correct answer. I do think that it would be poetic to have a Q4 date, but it actually shows up at breakpoint in September, you know, under problems overdelivered.

30:06I have no insight as to whether or not when this will or will not ship. When I first spoke to Tully about it, he said probably by the summer. But then it's kind of been walked back to potentially Q4, which is the right thing. You give a nice vague direction of travel. Sounds like Q3. Tully and I are the same age, and we've been writing software for about as long as each other has. And he's certainly better than me. But yes, he's no dummy. He's not going to put a date on it. And frankly, it's Jumps kind of baby. It's an open source project. But look, I mean, for Fire Dancer, the importance here, I think, cannot be underscored enough.

30:45You have arguably the world's greatest, if not one of the greatest, you know, high-frequency trading market-making shops on Earth that not only has some of the best systems and distributed systems engineers on the planet, they have the best hardware engineers, right? So a lot of people don't understand Jump is a vertically integrated shop. They create FPGAs, which are very specific forms of hardware to enhance and improve the speed and performance of their trading. These guys are giga brains, as they like to say, right? Incredibly talented engineers. And you should ask yourself, if Jump is applying this level of intellectual horsepower to something like Solana, Do you think they're doing that because they think it's not going to be around and making a difference as it relates to trading tokenized anything?

31:37What do they do? They make markets. Where do they make markets? Or how do they make money on the spreads? Well, if they can not only build the fastest validator client to be running on Solana and also then potentially have their own custom hardware for that, guess who's going to be the fastest, right? I mean, I'm speculating here, but it's not that hard to see. what John does. When you go through some of the interviews, I can't remember the guy who was building it, the tech guy. He was an incredible guy. Yeah. I'm drawing a blank on his name. I think it's Kevin something. I'm drawing a blank on his name.

32:10Simple guys that are - And he just said very clearly, he goes, look, our job is the speed of light. Because anybody who understands high frequency trading understands that the shortest distance and the fattest cables gives the fastest speed of execution. It's as simple as that. And when John starts talking about that, you understand what they're trying to do, which is, okay, this is disruptive to the entire financial system because you can have high frequency trading, which you couldn't do in any other format. Now, we don't know yet what the latency is going to be and some of these elements that are going to be very important to this, but it's certainly within sight.

32:45And that changes everything because as you said earlier on, the TAM of the financial market fucking dwarfs everything else. Exactly. Right. And look, I mean, And one other thing to consider here is like in traditional finance, you know, I remember when I was at Passport, I spoke with a quant in Stanford, Connecticut, and he was trying to kind of figure out crypto. Very smart guy, PhD, all that good stuff. And he said, yeah, so when you build your program, what's the exchange that you kind of co-locate in? And I'm like, well, there's N number of exchanges. And he's like, well, what do you mean?

33:19I'm like, well, there's, it's not a speed of light problem. It's a distributed systems problem. And so the traditional kind of high-frequency trading mindset or quant has to kind of invert their thinking as it relates to blockchains, particularly something like Solana or anything, because it's globally distributed. The speed of light could also depend on where the validator is that you're trying to execute the transaction with, right? So it's not just a speed of light problem. It's a distributed systems problem. And so I think by having something like Fire Dancer, number one, yes, it's a million TPS is the kind of theoretical bound on commodity hardware.

33:57Just to be super clear, this is not super amped up boxes that this is going to be running on, right? This is commodity hardware. The other thing, though, and this is a key distinction and it's very, very important, Ethereum actually has done a good job of this, is that we're expanding what we call the validator kind of diversity set of clients that are running. So right now, primarily, there's the Solana Labs validator client. And if there's a bug in that code, guess what? The network has reliability issues. Now, there's a new team called Anza, which has spun out of Solana Labs. They're working on their own validator client.

34:30And of course, you've got jumps. So when you start to have three different validator clients for Solana's network, you are reducing that kind of single point of failure in the network because the odds of a, you know, call it a P0 or super critical bug to exist in all three code bases is possible, but highly unlikely. And so not only do we get the boost of say a million TPS discounted by 50%, half a million TPS, whatever it is, you also have now strengthened the reliability of the network by adding additional clients to build a more diverse client set. So this is a one-two punch that, again, to your point, I don't think people are really paying attention to, which is as we start to ramp up into what we believe will be tokenized trading of damn near anything at this point, it's going to happen on a chain like Solana.

35:27It's going to be using clients like Fired Answer from John. Yeah, but it also feels that this cycle will be the hype for that. So let's say Firedancer's out towards the end of the year. 2025 is the hype about what they're going to use Firedancer for. But as you know, the securities industry takes a very long time to get going. They've all looked at it, right? NASDAQ, London StocksJet, all of the groups have looked at it. But the issue is, it just takes time for them to do it. And they're fearful over their own business models. So let's see whether the centralized exchanges in crypto do it first, it feels that, yes, there might be some implementation next year.

36:03One thing to note, and I agree with you, the incumbents like the London Stock Exchange, NASDAQ, et cetera, will probably take longer to start to adopt this technology. That makes total sense. They're incumbents with less upside, if you will, in adopting a new technology. And the centralized exchanges are doing the dance between regulators and maintaining happiness with them and harmony, if you will. But there's this whole other section of crypto, particularly in Solana, that isn't beholden to either of those things. And that's the things that are truly decentralized. So for example, I'm friends with the founder of Jupiter, which is a decentralized exchange on Solana.

36:47He has and is building a plan to enable trading of literally anything on Jupiter, on Solana. And so whether it's the London Stock Exchange, the NASDAQ, etc., whether it's your Coinbase's and sort of Krakens of the world, or it's things that are happening in a decentralized on-chain version, this is the direction of where this stuff is heading. And we're already seeing some folks with the dipping the toe in the waters of tokenizing real-world assets to some extent here and there. And I'm non-consensus here. I think the banks are probably going to win that game. But as it relates to something that's happening with like what Jupiter and their ambitious plans of, you know, really trying to bring any asset to be tradable on Solana on chain, like that's happening.

37:33And irrespective of what happens in the regulatory environment or incumbents that kind of have, you know, an advantage. If users and traders start moving flow to something like Jupiter to be trading tokenized stocks, tokenized bonds, whatever it may be, I think people are going to have to pay attention a lot sooner than later. RAOUL PAL Before we get on to the more cultural stuff and memes and other bits and pieces, I want just to put your brains on other layer twos, layer ones, Cosmos, move stuff. Somebody is going to be another breakout of this market, right? It's going to be, remember last time around, it was Solana, Avalanche, Polygon, right?

38:15I don't know, who's your money on or who are you observing from that race? It doesn't necessarily need to be your bet. It's too early, I think, to take that bet. You don't really see yet, but what are you thinking? Yeah, I mean, look, so we have an investment in an application-specific chain called SEI, S-E-I. One of the reasons we did the investment is it's a chain that is literally designed for trading. We're traders. We're like, this seems like a no-brainer, right? Now, it uses Tendermint, which is kind of Cosmos related, if you will. But it's a very specific chain. So you have to bridge over.

38:55There's all these other kind of UX challenges. How do they bring liquidity to the chain, etc.? But the point with something like Say is it follows a similar pattern as it relates to Solana. It's parallelized. And they, in fact, ship the first parallelized EVM client. so folks can run their code, their EVM code on, say, in a parallelized fashion. The challenge with a lot of the parallelized EVM bets, if you will, that are coming out, I know Monad is another one that's a super smart team, ex-jump trading guys. I think they'll be successful. But I think one of the challenges, genuinely misunderstood here, is that there's this kind of optimistic versus deterministic parallelism.

39:44And let me break that down in normal terms for what that means. So in Solana, for example, as an application developer, I have to identify in advance, a priori, as a developer, what parts of the global state do I need to change when a transaction is executed against my application, aka program? That is a form of determinism. You know, deterministically, these are the things that need to be touched in the global state. So let's parallelize the ones that we can. And the other ones need to be serial. That's fine. In parallelized EVM world, the best case scenario can only be as good as deterministic.

40:24And let me break down what I mean. What happens at the application level, the developer doesn't determine in advance what parts of the state need to be touched. It's the virtual machine, the engine, if you will, of the chain. right? And what it does is it goes, hey, I'm going to kind of guess that these three things don't need to touch each other's states so they can be parallelized. And if that guess is correct, awesome. You're as good as deterministic parallelization like Solana. But in the case that you're wrong, guess what? You have to start all over again. So part of the challenge that I see with a lot of the kind of parallelized EVM narrative is that yes, you could probably add some boost to existing Ethereum applications.

41:11And I think that's great, candidly, but it will never be as good as deterministic parallelization. Now, that aside, let's talk about the move language chains like Aptos and Suite. These are heavily financially backed L1s. Move is a programming language literally designed for smart contract and scarce assets and transfers, this type of thing. And so a lot of the... We call them in programming foot guns or traps that you can fall into with writing certain smart contract code. They tend to alleviate just at the programming language level. And that's very powerful, right? The problem or challenge, I should say, not a problem, is that in technology with developers, and again, this just goes back to some of my experience tracking these communities, developers rarely like to shift to a new programming language as like their full-time job, right?

42:11Like it's the 10x user improvement thing, right? If I go to work every day and I write JavaScript or I write C++, like that's what I do. Until my paycheck depends on it. I'm not really learning a new programming language. I want to go to my kid's soccer game at nights and get my bonus at the end of the year, right? Move is a brand new programming language, just like Solidity for Ethereum was a brand new programming language. Now you have to have developers learn a new language. That's not that difficult. But more importantly, you have to build tooling, best practices, all of the kind of infrastructure to support these developers.

42:45that's a lot of work. And so one of the challenges that I see with a lot of these newer L1s that have amazing performance characteristics is what's your developer go to market? Because what you're saying is, hey, you're a Rust developer. You've been a Rust developer for years. You can write on Solana. No, no, come over here and learn this new programming language that's untested, that doesn't have nearly the tooling and infrastructure that's existed for 15 years and build on our chain. and there is a path to improving that. I just don't see it currently. Is there a solvable problem? Absolutely.

43:20Do you solve it with money? No. And I think this is another problem that a lot of these projects make. They think, oh, we raise a ton of money from VCs. We issue a token. We have all this money in the treasury. We'll just issue grants. Guess what? The largest software company on the planet did this during the mobile boom. They're called Microsoft. They paid developers to build mobile phone, Windows mobile phone apps. How many of those apps are being used today? Zero, right? And so when you pay to play a developer, you're not tapping into the incentives that actually drive them. What drives developers is they want to build stuff.

43:54That's actually what drives most developers. It's rarely a financial outcome. Getting paid well is good. Developers are probably the highest paid people on the planet right now, right? So they're going to get that anyway. I do think that if the Movelang chains or these other L1s that are bringing high throughput and highly performant characteristics to blockchain can improve their developer go to market, then they actually have a shot at kind of getting some of that developer mindshare and people building breakout applications on their chains. Yeah, for me, it's a wait and see. You just need to see it's too early.

44:29That's what I said before. It's too early to make that real bet. You have to wait and see where traction comes, whether it's developer traction or user traction, or in the best case scenario, both. Well, and even looking at it from a relative value perspective, right? Like if you look at, say, the fully diluted valuation of, say, SWE, just as an example, relative to something like Solana, relative to Ethereum, which one has a better liquidity profile if you want to trade size, which one has potentially higher return profile relative to the other ones? If SWE trades beta to Solana, well, maybe you say, well, maybe I should long SWE here against Solana.

45:11But then you bump into the fundamental issues that I've outlined. And so if I look at purely from an RD perspective, I look at Solana and ETH and go, it's kind of obvious, right? Yeah. Yeah, that makes total sense to me. The other big thing that happened in Solana, there's always something in a cycle that kind of takes everybody by surprise. It was probably NFTs last time around. And this time, it was memes. I think most of us understood that culture was going to get tokenized. At first, I thought it would come out of the music industry. At first, I thought it was going to come in different ways.

45:47And I was looking at social tokens. That was my big focus in the previous cycle. And here, we've got a different adaptation of social tokens, which is memes, but not based around existing communities like Taylor Swift, but out of fucking nothing, just culture. And it also plays into this idea that people are shut out of the financial system. They can basically go to Vegas with terrible odds. They can play the lottery, but they're shut out of VC. They're shut out of most things. And the government's trying to shut them out of most of crypto. And here's something that is kind of unregulated and gives them the ability to generate some wealth in a casino kind of atmosphere.

46:40But I could say casino in the right way. Like, you know, there's a probabilistic outcome here. And it just has been massive. Did you see this? I mean, you're wearing a Bonk shirt. You saw this coming from Bonk? Or was it still? Because Doge, I mean, people forget that Doge is like a cockroach, right? It is 40 ,000%. It outperformed Ethereum most of the time over the longer run. It's outperformed Bitcoin in certain various points in the cycle significantly. So culture is here to stay. So yeah, talk me through your whole cultural thesis. Yeah, yeah. I will try not to victory lap this too much. But yes, we have the receipts.

47:23We wrote about this many, many months before, before VCs started bloviating about their intellectual views on meme coins. We are not that kind of shop. So look, there's a number of things that you touched on that I think are critically important to understand as it relates to investing in meme coins, trading meme coins. Why are they even relevant? Why do they matter? First, let's talk about speculation. I wrote about this in my last market update. It's on our website. You can go subscribe for free if you want to check it out. speculation has been around forever. It's never going to stop. And speculation is a necessary and sufficient condition for any new market or industry to exist.

47:59And it turns out that when you start off with speculation as the primary use case, eventually you can evolve into new use cases. So for example, it is surprising to most people to know that last year on the Las Vegas Strip, the majority, three out of every$4 that they made in revenue at casinos was non gambling revenue. So the speculative use case of gambling at casinos was their primary revenue driver, obviously so right. But now it's expanded to clubs and shops and bars and shows and restaurants. And that's actually the big revenue driver. So I want to underscore that because a lot of people tend to look at speculation or casino style gambling as a net negative.

48:43And I don't see it that way. I see it as a, the beginning of a path towards real use cases, if you will, because you've actually built up a market that's strong enough. That's one aspect. Second, you pointed out the thing that my buddy, Travis Kling wrote about this on Twitter a while ago, this concept of financial nihilism. I don't know if he coined the phrase or somebody else did, but in essence, talk to any Zoomer millennial on average, unless they have a trust fund or something. I think Yellen came out today and said it's like the worst time ever to try to buy, to be a first-time home buyer or something, right?

49:17These are folks that have grown up with the internet, have grown up with, in most cases, a zero interest rate policy, but also fewer job opportunities, their earnings being inflated away, et cetera, et cetera. And they look at things like a 401k or a country club membership or a home and go, that's fantasy, that's fantasy. I'm not going to do that. I'm not going to be able to obtain that, right? And that's, you know, I think sad, but it's the reality for a lot of people, certainly in the United States. Don't forget, the entire US culture is built on the American dream. If you take the American dream, the fabric of society breaks down because then it becomes to the point of, why do I do this?

49:56Exactly. Europeans don't have that culture, but they don't have the, I think of Europeans as call spread buyers and Americans as call option buyers, right? Yes, that's a great way. Yeah, yeah. I would agree with that. Yeah. And so if you take away the American dream, then what's the purpose? Exactly. This is why I think that the label nihilism is associated with it, whether it's, you know, technically correct or not, is that if you look at what has happened in just the past few years, and this again, we wrote about this post pandemic, you know, people were, you know, doing TikTok videos and we're doing Zoom calls, but guess what else that they were doing?

50:33They were gambling. They were betting on sports. And we saw now, I think 38 states, including Washington, DC have legalized sports gambling in some capacity. We have seen 1200 % increase over the past year in bookies, like your DraftKings and FanDuel of the world. And guess what happened right when the Superbowl ended? Well, people could no longer do three team parlay bets and prop player bets on football games. Guess what they started betting on? meme coins. So if you look at actually spot volumes in March, they were the highest they had been in almost three years, primarily driven by retail trading meme coins.

51:08Why? This is part of this gambling mentality, but it's also entertainment, right? So people go to the gas stations here in the United States, they buy scratch off tickets. They know probabilistically and statistically they're not going to win. I can't remember what the number is. It's like 300 million chance. That's right. It's huge. People know, but this is what they do. And this is why I think the bridge here to meme coins is not that difficult to ascertain, right? People buy a lottery ticket and they know I'm one out of 300 million, like, come on, the odds are so stacked against me. But you know what they do?

51:48They envisage a world where they win. They envisage a world of being a millionaire or whatever that thing may actually be to help them escape poverty. Guess what meme coins do? They introduce a thing called unit bias. Why is it that bonk is 0.000000 whatever, right? Or all these meme coins with a few exceptions. That's called unit bias because you can spend 50 bucks and own 10 million bonk, right? Or whatever, not at the current prices, but you get the drip, the gist here, right? You can feel, you can see the path to being a millionaire. If this thing goes to$1, I'll have 50 million bucks, right?

52:24Or whatever. We know that that's in FinTestam's small chance of actually happening, but it doesn't matter because that's what draws people in from an entertainment value and a community value. And it has happened to Doge and Shiba Inu. So people see those and think, the next one is going to be mine. That's exactly right. And look, and this is what we wrote about. So we were very early to bonk. And I would say the kind of meme coin move in general, we expressed our view through some positions we took on in late October, early November last year. I wrote about this in our early December piece, which literally pointed out at the peak in 2021, Dogecoin was an$85 billion market cap.

53:06Try getting a business school professor in Chicago to explain that to you. It doesn't make any sense. It makes no sense. Guess what? It happened. And guess what Shiba Inu went to? Roughly, I think,$48.5 billion, something to that extent. At the time, Bonk was, I don't know, a couple hundred million dollar market cap. So if you just look at that and go, wait, well, there's precedence here. This thing went to$85 billion. Like, even if it goes to one tenth of that, do the math, right? Like it just, and so it becomes almost like this self-fulfilling prophecy. But I think the other thing, and this is the third piece as it relates to meme coins that I, you know, I kind of, I joke with the business school stuff a little bit here, but I'm actually kind of being serious.

53:48like there is no course that teaches you understanding the fundamentals of a meme coin. And the reason is business school doesn't teach you about culture. And it's hard to teach culture. You know, the way that I've historically described it is similar to the Supreme Court justice case identifying pornography. They're like, I don't know how to describe it, but I know when I see it. It's kind of like that for internet culture. There's going to be a meme that takes off for some reason. A dog, you know, the pick your random gift that shows up all of the time, right? Or something that's topical. You could have something like the presidential election.

54:26You could have sports like the World Cup or the Super Bowl or the Grammys. All of these culturally significant events that happen throughout the year, there's stuff propagating on the internet through mimetic culture that initially was just like an image or a video or whatever. now you can have a token associated with it. And so the way that I kind of try to explain meme coins is almost it's the first time you've had a derivatives contract associated with internet culture. You've never had a financial contract tied to something that is ephemeral or nebulous or abstract. And now we do. And Dogecoin was the first.

55:05It was a literal joke that became an$85 billion market cap coin, right? That has outperformed loads of other highly intellectualized investments. Why? Because you're tapping into the viral nature of the internet. And of course, Elon Musk tweeting about it, the meme lord himself, certainly helps. There is no scenario where internet culture is going to slow down in the coming years as I see it. And this is why I think we're starting to see this kind of mass shift towards, wait a second, meme coins are actually something. that, yeah, fundamentally, they don't make sense. They're definitely not a security.

55:45It would never pass the Howey test. So why wouldn't we continue to have 20 ,000 of these created a day on Solana? I don't see this slowing down. And so, yes, there's going to be huge run-ups and massive liquidation cascades on these things. These are the most highly volatile assets, I think, in crypto. But there's also an argument to be made that if you construct your portfolio appropriately, which we do, if you have proper concentration risk policies and other risk frameworks in place, adding this type of an investment to your portfolio, certainly as a crypto fund investor, makes a ton of sense.

56:22So let me give you another way of looking at them as well. I figured out, and obviously written quite a lot about, that Metcalfe's law is the predominant driver of crypto, because these are networks. And the best approximation for Metcalfe's law that I can get to is basically the number of active users and the value transacted over the same period. So it's active users per week, the total value transacted. You chart that, and it basically charts exactly like every token. So we actually price these things according to Metcalfe's law. So what does meme? A meme is a networked idea that gets traction over a period of time.

57:02Some of them last two days on the internet. We see them on Twitter, and it goes. Everyone laughs about it and moves on. Like that guy over the pandemic whose wife had to come in and get the kid. Yeah, yeah. He's the straight-laced guy. That was a meme that lasted a couple of weeks, and then it's gone forever. But what we're doing here is you go back to that formula, number of active users, applications layer. So number of active users for Doge was a lot. It had probably more retail users than anybody else at the time. And so it's a lopsided chain, but it was persistent. And then Elon's kept the story alive.

57:43So it's got persistency. Others like Bonk have started to try and build the other side of Metcalfe's law equation, which is the applications layer. And it's exact. All memes are just a networked idea. And this is a way of tokenizing that networked idea. And like all memes, some of them will last no time at all. Others last forever. That's right. And so this is why it is very powerful. And it's also going to go back to that social tokens business model that I talked about, is that the power of communities based around their own system of value is going to be a very big thing. We may not see it now.

58:27Now, people may think, what the fuck? We're betting on Dogwith Hat. Next time around, it'll be Taylor Swift's tokens. And these things will have astronomical values. If we understood that Taylor Swift moved the entire US economy from her tour, what the hell is a token going to be worth? And what applications can you build on top of that network? Yeah, I mean, we are coming at it from different angles, but ultimately landing at the same thing. I like your model of it being this networked version. There's a couple of things that come to mind. RAOUL PAL It's like religion. All of these memetics are just networked ideas.

59:06But here we can actually - RAOUL PAL Absolutely. RAOUL PAL We could measure them on the internet by seeing how often a meme came up. Now we can create a value to the meme, of course. It makes total sense. RAOUL PAL Exactly. And look, I mean, I was on with Pompliano back in December, and he asked me, or we were talking about meme coins, and he was like, is Bitcoin a meme coin? I know. I was like, of course it is. And like, you know, people can get all up in arms. And I'm like, guys, like Bitcoin's a religion in order for a religion, any religion to survive, you need evangelical crazies out there spreading the gospel memes of sound money and blah, blah, blah, blah, right?

59:40It's fine. It's still propagated through the internet. It's an internet native currency. You can't exist on the internet if people don't talk about it, right? So I think there's even an argument to be made that effectively any token that is still in existence in crypto is, you know, by extension, a meme coin. Now let's categorize this a little bit more closely, right? So Bonk, for example, you know, Dogecoin was a joke, ended up with tons of users, huge market cap. Bonk was airdropped to the developer or a bunch of wallops. It turned out to be a bunch of developers in Solana on Christmas day, 2022, post FTX collapse, right near the lows of Solana.

1:00:17I I was there. I remember it shoving all in at$8 was painful, but I was there. And they kicked off kind of this, um, frankly, a cultural, like reinvigoration of Solana because people, so many people had given up and were so, you know, downtrodden and destitute. And here was this like dog coin that quickly became kind of the mascot for Solana. And I think there's power in that. And I think that's a deeply underappreciated aspect of like, a baseball team has a mascot, a football team has a mascot, like why can't a blockchain or a blockchain community have a mascot? And Bonk embraced this kind of mascot-like quality as a meme coin.

1:01:01But then the team behind it, these early contributors, were building stuff to help shore up Solana's activity and letting, Like, hey, we want to get people like, check out how awesome it is to use this. And that created this very virtuous feedback loop to the extent now that when people say, well, meme coins are just supposed to be a meme about, you know, it's not supposed to mean anything. It's like, well, if you want to have staying power, like my view is you're going to have an infinitely long tail of meme coin tokens for the rest of the internet. Like it's just inevitable at this point. There's going to be a large chunk of what I would call blue chips.

1:01:38These are going to be your ones like your Doge or Shibas and your Bonks. That's it. They're going to control enough of the mindshare associated with the community. But the only way that you can control that or maintain that mindshare is to consistently keep them engaged. Well, how do you keep people engaged? You can constantly create nematic content and funny stuff on the internet. Or you can have them use stuff or earn stuff or make money or trade or do these different types of things. Bonk has done this completely out of thin air and is now the most integrated meme coin or coin in general within the Solana ecosystem.

1:02:15It's almost unheard of now for a project that launches on Solana to not work with Bonk in some capacity. And I think that this is kind of the juxtaposition with meme coins. People say, well, they're not supposed to mean anything, yet there's now like a Doge chain, right? Or Bonk's not supposed to mean anything, but they're generating millions in revenue from BonkBot. There's nothing wrong with that. If you want to be a meme coin that has staying power, you better start shipping stuff. You better start identifying it. That's the other side of the Metcalfe's law equation. You build the applications layer on top.

1:02:50Then you've got real value and staying power. And you capture attention, because this is all an attention game. And if not, you lose attention. But as you say, if you're using it, the reason Doge has got so much attention is there's one day a very high probability Elon will integrate it into X. We all know it. That's right. And we're just waiting for it. Yep. That's right. And so therefore, we know the applications layer could be enormous when it happens. That's right. And look, I mean, eventually, like, look, Dogecoin is on, I don't even know how many exchanges. You can buy it on Coinbase, Robinhood, and et cetera.

1:03:24There's Coinbase is launching Dogecoin futures, right? Right. So, you know, if this was just a joke and, and, you know, people that want to kind of push this aside, like, I don't know, you're going to have people trading this stuff. You're going to have people building stuff on top of it. It's probably worth paying attention to. And I have run into this argument as well of like, well, you're just kind of gambling, gambling and speculating. And I'm like, well, look, I don't think zero day to expiry options were set up as a hedging tool, were they? I mean, let's be honest. The majority of those options contracts are traded by retail.

1:04:00And why are they trading them? It's cheap leverage, right? And so I don't want us to kind of get in this disingenuous argument that trading meme coins is somehow building beneath an investment manager or trader. And in fact, it's one of the reasons why you have these kind of outsized returns if you can manage your risk appropriately with them. Would I be launching a meme coin only fund? Absolutely not. Do I want to have it included in my portfolio? Absolutely. So let's look forward a bit. What are you excited? How do you think the cycle plays out where we are? I'm not going to ask for price predictions or any of that shit because I hate it.

1:04:39But just kind of the structure of the cycle to you and what might be the next layer of kindling within this or something unexpected that's going to come along. Yeah, well, I love that you kind of skirted the price target issue because when people ask me that my response is a meme, which is higher. That's always my response to a price target, right? It's always going higher. Yeah, we've never got a crystal ball. So we're just drawing lines on a chart, guessing it. It's like, come on. Right. And so, yeah, we could probably have a whole discussion on price targets and how meaningless they are. But look, I'll put it to you this way, right?

1:05:16So I'm wearing a bonk hoodie. I run a crypto fund. But we are actually a macro shop disguised as a crypto fund. My trading partner has 20 plus year experience. Everything is macro. Exactly. And so he was at Brevin Howard for years, Lehman City, etc. A lot of macro experience in-house. I have some macro experience. He has a ton. And our view really is if you get the macro right, you get the crypto right. In 2022, we were bearish. When we launched the fund, we were bearish. We were pretty dark. And you can read this in our reports back then. We were actually short heading into Q4 and got long in late December and have a long bias now, even with the pullbacks in the markets that we've experienced in April and even the past couple of days here in May, we have a structurally long bias heading into next year.

1:06:06And there's a couple of reasons for that. One is, as we look at the broader macroeconomic picture, we think we do see rate cuts later this year. If you kind of take the inverse correlation of, say, consumer confidence and rate cuts, price, and the curve, they're inversely correlated. Well, if you saw Starbucks' earnings recently, you saw the note from the CEO of McDonald's, the consumer is slowing down. You saw the jolts data today. Job openings are kind of starting to pull back a bit. We see the employment data is actually most important as it relates to when the Fed can actually enable their easing program.

1:06:44Now, they announced that they were dropping 60 to 25 bps in QT starting in June. I don't think that was consensus. I think people expected a schedule, something that stepped down gradually. That's a big shift. That's more than 50 % off the balance sheet of what they were rolling off. That's material from our perspective, right? So look, I think, and we have the election year, so you can put your tinfoil hat on whether you'd like it or not, but it's an election year, right? And so our view continues to be that, we thought Q1 was gonna be a boomer. We saw that, we saw it driven by flows. We saw with the ETF news.

1:07:17Guess what? Past five sessions in a row as we speak today, zero inflows from BlackRock. What happened to Bitcoin's price? Went straight down. Guess what happens when those floats come back, right? It's not that difficult. The second thing that I think we tend to look at as it relates to later this year and how this eventually applies to crypto is global liquidity. So I'm sure you're familiar with the guys at Cross Border Capital. I love those guys. I love the way that they think about global liquidity. It's not just Fed balance sheet. It's the Fed. It's the Chinese bank. It's shadow monetary policy.

1:07:44At Global Macro Investor, we built out a massive suite of stuff. That's what got us the low in 2022, everything, just global liquidity. Exactly. October. All we do, really, for this. Yeah. And so we track global liquidity pretty extensively. And it's been drying up the past month. Well, look what happened, right? And so do we think we're at a cyclical top as it relates to global liquidity? Absolutely not. We don't think that happens until later in 2025. And if liquidity is going to be the thing that continues to drive risk assets, well, what's furthest out on the curve? Crypto. And so as we look at the run-up that we had in Q1, the digestion of the distribution period we're in right now in Q2, Q2 historically is the worst performing quarter for Bitcoin.

1:08:27We've taken a defensive stance. We booked a bunch of profits at the end of Q1, thankfully. We like certain levels that we want to be getting along at. We think that with the election, cuts coming in the second half of the year, as well as an improvement in overall global liquidity that we're going to have a boomer second half of the year, certainly Q4. And so from an investment standpoint, we think crypto does extremely well. Price targets, whatever. You got Evercore to 115K Bitcoin. You've got other folks at 150. It doesn't matter. Pick a number. It's some number higher. And if you have a portfolio constructed beta against that, you should do significantly better than just buy and hold Bitcoin.

1:09:08Now, the key is, well, when is the cycle top? This is the challenge that we've run into. Historically, the four-year cycles, we should be looking at maybe some point in 2025. And a lot of it has to do with the tax loss selling season in Q2 of around the April timeframe. The big this time is different is you've got institutional flow coming in. Imagine the 401ks and 5013Cs start bidding into this stuff. Imagine the asset manager platforms open up Bitcoin ETFs to their client base. Imagine you have, I don't know, Australia and India and other folks enabling their citizens to be purchasing these ETFs.

1:09:45It's hard to envisage a world where there isn't a persistent bid in some capacity behind Bitcoin. And if that's the case, that kind of puts a floor as it relates to total crypto market cap as well. So we think there's a good shot total crypto market cap goes 9, 10 trillion, 3x what it did last cycle. How fast we get there, probably a function of the broader macro environment. in global liquidity. But suffice it to say, we see this pullback recently as a great opportunity. And I think the thing goes significantly higher in 2025. Yeah, I mean, I totally agree. We put together something called the Everything Code, which is a forecasting analysis based on the repeating business cycle of global liquidity.

1:10:30It's fascinating. Very, very well done. And it gives us a top in liquidity around mid-2025. time. And sometimes, crypto goes past the global liquidity peak, other times it nails it. So you don't really know. And you don't really know whether you're going to have, you know, what you're saying is, playing in my head, most people are now kind of fearful of the short cycle because of PTSD, no other reason. And they haven't been around because they're like, it went too fast too soon. I'm like, look at fucking 2013. These were la la land cycles. This is nothing. There's the kind of normal distribution, middle of the curve stuff, which would be, it goes to 200 grand or whatever Bitcoin, that's pretty normal.

1:11:18But there is another world of a complete bubble cycle, which nobody expects. And we're going to see a lot of liquidity. We have to. There's no way of refinancing the debt. There is zero way. And we've got this massive problem with Japan and their currency. We've got the problem with the Chinese who don't have enough dollars. There needs to be more dollars in the system because the dollar's too strong. Then we've got the candies you have to give out at election time, which is going to be Auntie Janet running down the TGA as much as she can. And James already said, yeah, we're not going to buy any of that stuff either because we're just getting down.

1:11:59Everything is setting up here. And people just don't believe it because everyone's so short term. But if you just step back, it's like, probabilistically speaking, it's going to be a good cycle. I agree. And look, I think actually more people are underweight the right side of the tail here, which is that bubble that you're describing. And we manage risk irrespective of what a bubble may or may not exist. but we do have, you know, we always like to sell vol to fund our wings is like we put it right. And if you can get some absurdly high upside exposure for cheap, it's probably a good idea because in the case that you're right, you're a genius and you're wealthy.

1:12:40In the case you're wrong, maybe punches your P and L 50 bips, right? I think that that side of the distribution is wildly underappreciated. Just need some long dated Solana. We need some long dated Solana options. We need to get a big bear of it. Guess who has the largest Solana options trade in history on right now? It may be asymmetric. It may not be. I don't know. But it's not liquid far out yet. So yeah, totally. Yeah, yeah, yeah. End of year, it's the best you can get typically right now. And you got to have really good relationship with dealers, which by the way, you know, this kind of begets, I think, a lot of what we hope to see TradFi kind of shoring up as it relates to, you know, the products that need to exist in trading crypto is there's a lot of OTC desks out there that have a lot of TradFi experience and other ones that are not, that are cowboys.

1:13:32And so as we can kind of mature that space a bit more, maybe we can end up with leaps as it relates to a lot of options. But until then, you can find other ways of doing it and constructing your portfolio to be not underweight the right tail of the distribution. Yeah. And you don't need to bet the house on that either. There's nice ways of doing it. Final question for you, because this triggered another thought, is I was in Cayman having drinks because everybody in crypto comes through here because all their foundations are here or whatever. And it was one of the, and I I won't name the names, one of the new kind of DeFi restaking whatever protocols.

1:14:13And I listened to the guy talk about these gigantic yields. And I could see him getting excited. I said, you know, what? So where were you working in finance before here? You know, he's like, no, I'm just a developer. I'm like, okay, look, there's a truism that I know, which is there is a reason for yield. Yes. So Ethereum staking yields or Solana staking yields are because you're locking up your money for a period of time to secure the network. That's pretty straightforward, which is why you don't get crazy yields. 5 % seems kind of reasonable, moves a bit about. But if you're getting 40 % yield, and they go, well, it's just because they're selling options and taking the premium and doing the arbitrage.

1:14:58I'm like, if it were that easy, there would be no arbitrage premiums in the world. And it's just like, somebody's going to blow up somewhere here. I don't know where. I don't know where the weak link is. Terrifies the shit out of me. I don't know. What's your thought? I completely agree. So look, I mean, I was mentioned to my trading partner. He was at Lehman Brothers pre and post collapse and was through all that mess. I was trading GFC. We both have extreme levels of PTSD as it relates to embedded credit and counterparty risk, which is one of the reasons why we were very fortunate to get out of the FTX debacle way ahead of anybody else.

1:15:36Look, the interesting thing about what you just described is that he's a developer, right? This person is a developer. And this goes back to your question about like what about what drew to crypto is that you've got this crazy culture clash between software developers and like finance trader people, you know, and typically, like if you go to the investment bank, the software developers that keep them in the basement, all the traders up on the top, right? Like, can we get that? But guess what, guys, the developers kind of run the show now, and they have no concept of what we're talking about, right?

1:16:10This kind of compounded leverage or compounded embedded risk inside a system like this. And what they're taking is, and this is as a trader and as a technologist, I look for these things and go, how can I make a trade on this? Because this is wrong. This is mispriced, right? How can I actually benefit from this? Does it actually introduce systemic risk into the broader system? Well, I hope not. And I think that we've had a number of these tests in the system, particularly in 2022, to suggest that we can survive these kind of exogenous shocks to the system. Do I want them to continue? No. Are they going to?

1:16:42Probably. Because some developer is going to ideate and pontificate about some concept that they can build. That doesn't mean they should. And furthermore, they can get funding for this type of stuff. Because the venture capital community, which I am a part of, has huge bags and investments in this space that they have to make it work. And so as things get built out in the spectrum of applications, you're going to see stuff like this over and over again. And I think, you know, I don't want to speak to any, any one protocol lending, uh, restaking or otherwise, but I think people should really get an understanding of what the embedded credit risk is in these systems and how the leverage can actually spill over to have, I don't want to say a Luna style event, but, or a Lehman style event, but you're going to have some style event that you need to actually hedge or protect against.

1:17:37And what are you doing to do that? My favorite thing is when I saw Three Arrows Capital, I thought, I've seen this all before. The entire centralized CeFi system was based on one borrower and nobody knew. And I did long-term capital. I helped them put the book on, unwind the book when I was at Goldman. and I saw that whole thing. And I was on a stag weekend in Ireland and I was with a bunch of mates from the city. And after a few drinks, there's the usual conversation, who's your biggest client? Where I went around, it was long-term capital. And there was the equity derivative guys like me. Then there was the fixed income guys.

1:18:19And by the time we got to the fixed income guys, we'd added up the equity derivatives and it was already just a few of us on the boat that was 10 times the size of the fund. And then the head of bun trading at Deutsche, He goes, oh, we've got at least 100 billion with them. Oh, my God. And I'm like, oh, God, I went back, spoke to the risk managers at NatWest and said, we need to unwrite this book. But that was three arrows. And this is what we don't know. The smart contracts may be great. The programming may be great. Everything may be great. You just don't know who's going to blow. If Derabit blows up, what the hell does that do to the system?

1:18:57That's a big risk that's out there. And I love Derabit. I use it all the time. Terrifying. Because there's one options place. Look, I think the thing that you're putting your finger on is critically important as we bridge from TradFi to call it blockchain or crypto is your counterparty risk or embedded credit risk is no longer another bank or a hedge fund. It's a smart contract. And so it's called smart contract risk. And you say, well, how do you size that risk? Well, you probably need to be able to write code because if you can't read the source code of a smart contract, then you probably don't understand what the credit risk is of, you know, parking assets in that sort of thing.

1:19:41And Ethereum has done an amazing job of this, of ensuring that the contracts that are out there are open source. Solana has a lot of work to do, not Solana Labs, but the Solana projects need to do, I think, a better job in open sourcing a lot more of their Solana programs so that they can actually showcase what it is that you're putting your stuff into. But this requires a different skill set than somebody that can evaluate credit risk, like, say, for a bank or a hedge fund. You actually need to evaluate the credit risk, if you will, of a smart contract, which is a technologist's job. And I don't think that that part of the industry is as robust as it could be.

1:20:16I invested in a company that's, you know, these are acts like NSA, CIA, cyber operatives that are trying to build real-time kind of threat detection on smart contracts. There's automated things that need to be built and done, as well as kind of a cottage industry of experts that can provide this level of insight into these things. Because otherwise, you're going to end up with marketing pushing the story. Hey, you can earn 40 % yield on this thing. Guess what people are going to do? Park their money in it. And until that changes, you're likely going to see these hopefully not systemic blowups, But to some extent, these kind of like smaller idiosyncrasies impact market.

1:20:56Yeah. And I think professional risk takers, you may choose to take the 40 % risk because you can run a diversified book and you'll say, I'm getting overcompensated for the risk. Right. Most people don't understand any of that stuff. Right. Yes, that's true. Joe, listen, fantastic conversation. I will definitely talk with you more about stuff because I think we only scratched at the surface. We could have spoke for hours. But I really enjoyed it. and let's see how it all plays out from here. Yeah, lovely. Thanks for having me. I look forward to coming back. Absolutely. Okay, an absolutely fabulous conversation with Joe.

1:21:29What a great guy. What a brilliant thinker. I just thought that was really, really good. I could have spoken for hours more with Joe and I think I'll probably bring him back at some point to flesh out some more things. For many of you, the crypto journey is one about trying to piece together a conversation like this. something you saw on Twitter, something else you saw. And it's not easy. It's easy to fuck this up. And I tell people endlessly how not to fuck this up. It's pinned to my Twitter, the don't fuck this up mentality. But one thing I could see is people needed something to help. And we launched at Real Vision, Real Vision Crypto.

1:22:11It's a very cheap service. You can pay in crypto, but what it's going to give you, it's going to give you a portfolio to trade along with or just use to stress test your own. Not the idea is not to copy it, but it gives you some idea, talks to you about risk management. It's going to find great ideas for you. There is the brilliant Jamie Cootes, who is our kind of head of crypto analysis. And he does this brilliant nexus between on-chain activity, macro crypto altogether. He's also a technical analyst. We've also got DMARC and other technical analysis indicators to find the great opportunities, what's breaking out, what's not.

1:22:52We've got a great show with Ovi and Mando, two of my great friends. These are TradFi people who are deep crypto. They built the rec guide community. They're meme coin traders, they're crypto traders, but they really understand how the financial system works. Their weekly show is going to be killer. And there'll be AMAs. There'll be all sorts of great stuff. It's there to help you in your crypto journey. It's there to help you not stock this up. So realvision.com forward slash crypto. The link's below. Join up for that. And meanwhile, please click like, put a comment, and subscribe to this channel too.

1:23:29Anyway, see you next time. Thanks. We hope you enjoyed this episode. At Real Vision, we arm you with expert knowledge, time-efficient tools, and a powerful network to help you succeed on your financial journey. Get a taste of financial freedom with our free offer at realvision.com forward slash free. That's realvision.com forward slash free.