Crypto's Next Big Thing: How Bitcoin and Meme Coins Disrupt and Define New Financial Landscapes with Omid Malekan

29:33So you're making$20 ,000 a year, and then you're like, oh, but I'm going to give$3 ,000 of that to JP Morgan for doing nothing other than issuing your credit card. I hate to become moralistic on this because ultimately, business is business. But that to me is an absurd and indefensible way to run an economy. And there are a lot of interesting questions as to why it is that way. But nevertheless, one of the reasons is that the big financial firms previously owned the networks. So credit card companies own networks. Banks have their own payment infrastructure. But we're now entering a world where we have public infrastructure in the form of a blockchain that could be used as a network for anything, including sending dollars.

30:21Right. And the financial system. OK, so now they have competition. So you can ask, will they make things better? Will they try to make things better? And I mean, look, the swift wiring system has been around since the early 70s. So that's 50 years. It's not like they've made much of an effort to improve things over time. And like banks just make things harder and harder. Like it's getting more difficult than ever to do any kind of transactions with the bank. Yeah. I mean, if you, there's no competition in banking and the big banks only get bigger and then like they screw up and get bailed out.

30:55So they have negative incentives to change anything. And I, you even mentioned Goldman Sachs. I am deeply skeptical that anything, what, you know, in Wall Street, there's the buy side and the sell side. Yeah. Let's describe that. Like the buy side, or describe it. The buy side tends to be institutions that are deploying their own capital. So if you think about like a pension fund, an insurance company. Mutual fund. Mutual fund, even like private equity funds. The sell side tends to be the service providers, like big banks and brokers who cater to them. So Goldman Sachs. Now, it's become blurred now, obviously, because everybody does a little bit of everything.

31:43But like a Goldman Sachs is a lot more on the sell side, even though they have an asset management business. And a BlackRock is on the buy side, even though they might have certain brokerage-like offerings. I have this provocative thesis that I need to hash out more. But I think crypto will mean the end of the sell side as we know it. I think, okay, this is so interesting because this goes along with other things I've been thinking. and this is almost like a little bit of an aside from crypto although it's related but the sell side's kind of been disappearing since 2000 since the internet boom because back then you had you had the goldman sachs morgan stanley you know the big three banks but then there were a lot of good mid-sized banks that dealt with mid-sized companies or smaller companies and And they were decent.

32:35I don't want to say any of these companies were great, all-American companies, but they were decent. They provided services for small companies. That whole middle layer disappeared. And we're just left with basically the Goldman Sachs in their ilk and really crappy small banks that were just schlocky doing illegal stuff on small companies. And I feel like banking has disappeared for small companies, which is why a lot of decent small companies, unless you're a trillion dollars, don't want to IPO. And I think what's been replacing them over time has been, uh, you know, kind of reggae crowdfunding, uh, newsletters that provide better analysis than, you know, a stock analyst, like the idea that, Oh, we're going to take a company public and then write an article analyzing this company is so stupid.

33:29Like, of course they're going to, they're not going to be biased. Of course, they're going to be biased. Like, they're not, oh, we just brought this company public. You should sell it right away. It sucks. They're not going to tell you that. They're never going to be honest with you. But now you have newsletters and independent sources of financial information. And I'm not talking about the Wall Street Journal, which is also owned by the banks. They get all their revenues from advertising from the banks. So you have independent newsletters that don't have this bias. And meanwhile, those newsletters are working with, let's say, reggae platforms or crowdfunding platforms or other things.

34:07And there's kind of an underground banking system happening. Yeah. And actually, it's much more advanced outside the U.S. than in the U.S. because unfortunately here our financial regulators think that it's kind of their job to like preserve the too big to fail institutions. And they've even been trying to do this to stable coins. Like the Fed has come out and said like, stable coins have to get banking licenses and be regulated by us and blah, blah, blah. Even though there are state financial regulators like the New York one that have done good work on this topic And they started regulating stablecoin issuers years ago and are much more sophisticated than the Fed on this topic.

34:49But the Fed wants everything to be like five too-big-to-fail institutions that the Fed then totally controls. But to your point, so the internet eliminated a lot of information asymmetries because we all know that was the other thing that made the sell side super profitable back in the day is that they controlled the flow of information. and it also in some ways made access asymmetries go away but i think crypto will just blow the access thing completely out of the water and we'll live in a world where like anybody could issue a token or even start a decentralized finance protocol that does anything and that's going to be highly disruptive.

35:34And while I wish them luck in trying, I am deeply, deeply, deeply skeptical that some of these super entrenched financial institutions like the too big to fail banks will be able to adapt.

36:04yeah and let's let's get into some specific like i want to know which cryptos you think are going to be used and used to the multi-billion or trillion dollar level over the next few years like let's take ethereum people are still arguing bitcoin ethereum but now they're also arguing Ethereum, Solana. And just to describe, Bitcoin kind of, whether it is or not, sort of says, hey, we're a currency, we're a store of value, whatever that is, and so on. But Ethereum is sort of like, we're saying, we're a programming language. There's going to be, as you've been describing, Oman, there's going to be this whole financial infrastructure that's going to be rebuilt.

36:47The way it's rebuilt is through a quote-unquote programming language like ethereum which also is a cryptocurrency which is sometimes confusing to people but what's your take on on this these these you know layer ones layer twos whatever uh so with the uh usual caveat that this is not investment advice um i think bitcoin has clearly established itself as what i consider a form of monetary insurance and people focus too much on the fact that it has limited inflation and they make these poor analogies to gold and call it digital gold. I think Bitcoin is far more sophisticated at that. Bitcoin is, because of the way the infrastructure works, the kind of money that you want to have at least some of when the other kinds of money are not working.

37:40And not working doesn't just mean, oh, there's high inflation. It could literally mean that the government or a bank is not letting you access the traditional fiat money. So I think that's very important. It's world-changing. Everybody will want a little bit of it. By everyone, I mean governments, corporations, individuals, investors, whatever. But then it's not actually that exciting in some ways because there's not much else you can do with it. Insurance is awesome, but it's not exciting. It's actually a trillion-dollar industry in the U.S. that employs a lot of people and is some notable percentage of GDP, but nobody grows up being like, when I grow up, I want to work in insurance.

38:21Except for Warren Buffett. Yeah, but that's because he uses the insurance business to have free cash flow to finance his other investments, right? Well, he does the same thing the banks do. Sure, you had an accident. We'll send you money tomorrow or maybe the day after tomorrow. He wants that extra day of interest. That's his whole business. It's the float business. God bless him. Anyway, so beyond that, I think smart contract platforms like Ethereum and Solana are just a lot more exciting because this is like a blank design space now. And they have these very unique features, like the fact that they run around the clock.

39:02Almost nothing in the financial system runs around the clock. They are global. Almost nothing in the financial system is global. They're what we call censorship resistant, which means anybody can access them. The financial industry, as I said earlier, is like the opposite of that. They are made up term by me, omni asset, which means like you could have a dollar and an ETH and a meme coin. And the deed to your house and shares of stock in Apple all live on the same infrastructure. which is actually earth shattering because in traditional finance, literally nothing works that way. Dollars and euros and property deeds and equities and that every single one of these assets has its own infrastructure, its own network that it lives inside of them.

39:57And that's problematic for a lot of reasons. It's very inefficient. It's very expensive. It's very dangerous because what ends up happening is that when you're trying to move from one to the other, you have to go through one of these financial intermediaries and then they become too big to fail. This is actually one of the untold stories of the 2008 financial crisis, why the bailouts were so aggressive, where the powers that be literally felt, you know, like their entire countries that are going to become inaccessible to other countries financially if this particular bank is allowed to fail. But with an Ethereum or a Solana, you could put everything in one place, which is, by the way, how the internet works, right?

40:42Like it's all data is in one network. This is such a great point because the fact that all these assets, like you say, shares of McDonald's, the deed to your house, a dollar, a Bitcoin, you know, shares in a piece of art. The fact that they could all live on one, an insurance contract, the fact that they could all live on one platform is, I think, the most important concept of, it's going to be the story of crypto in the next one to five years, because this leads to tokenization, which I think is going to completely take over the entire world. Agreed. And this is actually a point that I find common cause with, with a lot of people who are financial experts, but say they're not too excited by whatever Bitcoin represents.

41:34When I tell them about the potential of tokenization of every asset on one platform and how you can use smart contracts to create these cryptographic guarantees that like, if I'm buying ETH with a stable coin, the smart contract effectively guarantees that I only send my stable coin if I also get the ETH. This is like one of the toughest problems in economics. Settlement risk, finance nerds, you can look up Herstat risk. And the fact that we can now do this trivially on a blockchain with even a decentralized finance protocol like a Uniswap is a huge thing. So I think going back to your original question, other than stable coins, another very exciting thing with regulatory clarity is that the decentralized finance ecosystem is really going to be allowed to flourish.

42:35And for those who don't know, there are already some very interesting things going on in DeFi, like Uniswap, which is one of the biggest decentralized exchanges, earlier this year passed the point of having done over$2 trillion of volume in its history, which sounds interesting. But to me, what's even more interesting is that there's something like 100 ,000 or more than 100 ,000 different markets in Uniswap, trading pairs of what you can buy and sell. I don't know. It's probably bigger than all of the world's equity exchanges combined, possibly. Then you have these decentralized lending solutions where some people deposit tokens to earn interest and other people borrow them.

43:22A few of them are already massive. Like they have balance sheets in the billions of dollars and they make revenues in the tens, if not hundreds of millions of dollars. So I think with regulatory clarity, they're going to grow and they're going to increasingly include all sorts of other assets, like the tokenized assets that you're referring to. And that's all happening in the long run. Right now, there's a gazillion blockchains. because everybody wants to get rich. I think in the long run, there's going to be a lot of consolidation. I think Ethereum is here to stay. I think Solana is here to stay.

44:05Then there's an interesting debate to be had about the philosophical differences between how they work, which we can get into if you like. But then I think every other layer one smart contract blockchain that's being launched right now, it's too late. yeah i mean there's i mean and there's a lot too right but everything i mean like and you see though there's some success from things like polygon and hedera i mean you know some are currencies and games i i don't know for sure it wasn't polygon behind polymarket and and powering that polygon is where polymarket lives polygon what was is also a uh what we call an ethereum sidechain.

44:48It was sort of like an independent blockchain that somewhat tied its security to Ethereum. But it's now migrating to being an Ethereum layer two. And this goes back to that philosophical divide that I was pointing to. Because the one thing everybody in crypto agrees on is that there's not nearly enough capacity right now for all of the future stable coins, tokenization, DeFi, NFTs, decision markets, whatever people want to do on-chain. So then the interesting debate is how do you scale a blockchain? The Solana approach is we just have to make the one blockchain better and faster all the time. I don't think that's going to work.

45:32The Ethereum approach is we become more of a tiered system where we have these layer twos and layer threes that derive some or most of their security from Ethereum. but then can offer far more capacity and transaction fees with trade-offs. So what do you mean, like around a specific use case? I think there's a lot of confusion, layer two, layer three, what these things are. And again, what's the difference between Solana and Ethereum? So it is very confusing. And it's also very fragmented, which is a very legitimate critique of this approach to making blockchains cheaper and faster. so the appeal of something like solana today is everything is on one blockchain you can use one wallet one token and then you can have soul you can have stable coins you can have meme coins in the future we'll have tokenized real estate whatever you want one blockchain one network one everything so on the surface that's very appealing for its simplicity both narrative wise and in terms of the user experience.

46:39I think the problem with it is that there's no way in hell a single blockchain could ever keep up with the demand as more and more activity and assets go on chain. And what will end up happening is in order to try to accommodate it, you'll have to make so many sacrifices that you just won't be decentralized anymore, which is kind of like the whole point of all of this. So you're saying like with Ethereum, there's Ethereum, but then someone wants to make their own blockchain, make their own kind of software changes to the blockchain. They can base it on Ethereum and Ethereum will work on them, but they kind of evolve into their own thing.

47:20Yeah, let's use a specific example. So Coinbase has its own Ethereum layer too called Base. It derives a lot of the security that Ethereum provides, but not all of it. And it's not as decentralized because Coinbase has say on how it runs. Technologically, it currently happens to be the same, like it uses the same Ethereum virtual machine and programming language and smart contracts. It doesn't have to. so what I think the reason why ultimately I think the the layer two layer three approach as confusing and fragmenting as it is is the only way forward is because two things one if we ask the question like what is the valuable thing that a blockchain provides and then we oversimplify and say security I want to send money to you we want that to be a secure irreversible instant transaction.

48:25The problem with the Solana approach is it basically wants to give the same amount of security to everything because it's all going to be on one network. So in the future state, a billion dollar payment on Solana and a 10 cent payment on Solana will get the same exact amount of security. I think that's very economically inefficient. It's convenient. I mean, like it'd great if we could always send everything to each other through the post office for 50 cents, regardless of whether it was like a postcard or if I'm, I don't know, mailing you a$10 million painting. But like in practice, when you've got to send someone a$10 million painting, you're going to hire an armored car and dudes with guns.

49:09If you're sending them a postcard, 50 cents at the post office, it's not the most secure or reliable, but who cares? So on Ethereum, I think in the future, we'll have layer twos that specialize in like, hey, you can use us to do the 10 cent thing. It's not as secure, but who cares? It's a 10 cent thing. It's fast and cheap and reliable. You can use the layer one to do the billion dollar thing. And so I think from a security decentralization perspective, that's just more efficient. And so if you're using, let's say, the base blockchain, which again is sort of literally based on Ethereum, does Ethereum benefit?

49:50Like does one have to, every time you're buying like the Arrow token, which works on top of base, is Ethereum baked into that? Yes. This is the part of the point of contention, though, which is that Ethereum will never benefit as much if something happens on a base as if it happened on the layer one. Of course, I don't know about this arrow token, but most of the activity that's happening on base couldn't happen on the layer one anyway because it's too slow and fees are too high. But as Coinbase runs this layer two, there's literally a smart contract on Ethereum that enables it. And if people want to send, like if I have ETH and I want to send it to base, I'm going to bridge it through the layer one.

50:36But then Coinbase has to both write these, I'm oversimplifying it, but they have to write cryptographic proofs. Like what's basically happening is in any given second, a bunch of transactions happen on base. And then every 12 seconds, Coinbase condenses them, summarizes them, and like writes proofs that all this happened on the layer one. This is what links them together. So, and Coinbase has to pay for that. So they send the transaction ultimately to the Ethereum blockchain? They sent sort of like a summary and a proof of it. Okay, so some record of it is on the Ethereum blockchain. Yes. And importantly, one of the biggest roles that the Ethereum blockchain provides, once these Layer 2s are a bit more mature, will be that if at any point you're unhappy with what's happening on the Layer 2, maybe it's down.

51:31Maybe whoever is updating it decides to do something bad. Maybe you're being cheated, whatever. You can always leave and go to the layer one. So the layer one serves as a very important escape hatch, which you hope to never use, but it's going to keep all of these different layer two operators honest. And that's the direction that things are headed in. Ironically. So like Polymarket, the betting market, built on top of Polygon, but ultimately Ethereum is underneath Polygon, right? Let's say eventually it will be. I don't want to bother the listeners with the nuances of what's happening, but eventually it's like you're going to use Polymarket on a polygon layer two.

52:16And what gives you confidence that the polygon layer two is going to do right by you are the ways that it tethers itself to Ethereum. I see. That's very interesting. And so again, so you see Bitcoin sticking around. Obviously, you see Ethereum sticking around. what do you see exciting among the smaller tokens out there well what's what the market right now is excited about meme coins and because it's excited about meme coins it's very excited about solana because many most of the the high-flying ones are on solana and solana's economics currently are through the roof in terms of fee generation and whatnot um the beyond that and stable coins, I think there are many different crypto projects whose token could be returning more value to the token holder.

53:16So Uniswap is a perfect example. And full disclosure, I own some of its uni. Uniswap has a governance token where you can vote on important updates and developments on how the protocol, the exchange is run. And in the smart contract for Uniswap is a switch where the people who hold that token could vote to earn a little bit of the economics of it. So usually in Uniswap, you have traders paying fees to liquidity providers, but they're like the market makers. But there's a switch that says, hey, a little bit of that will go to these people who are helping run the thing because we have to compensate them for making good decisions.

53:58That switch has not been turned down for fear of what would happen if it was under a Gensler SEC. In fact, Uniswap is being investigated anyway, which is ironic. So there are many projects like that where in a situation where in America we have more regulatory clarity and you don't think the government's going to raid the founders' home at 6 in the morning. they just did with the founder of Polymarket, actually, just for the community voting to hit a fee switch.

54:34So if that happens, I think - Did he get in trouble or anything, by the way, the Polymarket guy? Was there any reason why they investigated him? We don't know. The speculation is that Polymarket made a settlement with federal regulators a couple of years ago that they would block U.S.-based users. This is the great irony of how terrible the regulatory situation in America has been, where the biggest impact of it is that there are really cool things that Americans can't use, even if they're founded by Americans. And then also, as I was saying with the fees, which is like, oh, and someone's going to make a lot of money from this, but the U.S.

55:17government just made sure that Americans can't. tether is the perfect example of this by the way quick segue um the u.s government there was a competitor to tether that was issued by a new york-based company regulated by the new york regulator that was taking significant market share from tether and that meant that the income from that stable coin was in america it was going to american employees american shareholders paying American taxes. And then the U.S. government decided to kill it. So all of that market share went to tether. So it's like, oh, even though all of the income for stable coins come from the U.S.

55:55government in the form of treasuries, we just made sure none of it goes to Americans. We'd rather foreigners get it who don't pay American taxes. Anyway, rant over. With Polymarket, the speculation is that they did not do enough to ban Americans from using it, which is hard to do in crypto because we don't have what we call KYC. It's not like a bank where you give them your name and address. It's all based on wallets. People use VPNs, blah, blah, blah. I will just note that a couple of weeks before the Polymarket founders' home was raided by the FBI at 6 a.m. The U.S. government settled with TD Bank for allowing endless billions of money laundering for many years, and yet not a single bank executive's home was raided.

56:47Of course not. Make up that way you will. Of course not. Yeah.

57:06you know i'm always curious about like you have all these blockchains out there and then there are kind of like these tokens that are almost like picks and shovels they facilitate extra activity among the blockchain so like for instance take chain link which takes you know outside blockchain information and brings it into the blockchain in ways that are i guess confirmed or verified. So is this useful for unlocking insurance contracts, for instance, and other things? Are these just good ideas or are they things that are going to actually be used and make money and be a part of the financial infrastructure?

57:47All of it. It's just the hard part now, James, is this being brand new primitives and new ways of doing finance. we don't know what's going to work ahead of time. So it's always very tempting. There have been so many crypto projects that have completely crashed and burned. Right, and good ideas. Yeah, I mean, even the interesting thing about Polymarket is that there were multiple attempts in the last five years to do blockchain-based decision markets. And a few of them raised a lot of money, and they just never worked. But it would have been a mistake at that time to turn around and be like, oh, well, decision markets using blockchain are a bad idea.

58:32It's just you have to go through that process of exploration and experimentation to see what works and what doesn't. Unfortunately, in recent years, that process has been thwarted by the regulatory situation. But now that we can look forward to that being resolved, and actually, by the way, a lot of people like me want regulation. Like we want good regulation that prevents scams and fraud. And so when that happens, I think, one, there's going to be a lot more experimentation of new and different things. And then we'll see. I have been chronically wrong in my many years in crypto about how long things will take to actually reach a point of mainstream adoption.

59:24So even with stable coins, whose volumes are significant, if you asked me five years ago, I would have told you that they would have been a lot more impactful for day to day payments than they are. So I'm trying to refrain from saying that like, oh, by next year or two years from now, this or that will happen. But I am hopeful that we're going to see more and more breakout successes. And like, do you see, how do you see tokenization playing out? Like, what do you think are going to be kind of the killer apps that make tokenization a thing? So what's funny about tokenization is I think back to when you and I were working together.

1:00:04And you remember back then, like, electronification was a controversial thing. Like, you'd get into debates with people whether markets are going to be all electronic or not. Right. Right? And now, like, everything's electronic, and we don't call it electronic markets anymore. We just call them markets. Right. So when people ask me, like, what do you think is the future of asset tokenization? I say, well, I think in the future, all assets will be tokenized, at which point we'll just call them assets. Right. It's just they now use new infrastructure. There will be new assets that didn't exist before.

1:00:37Like obviously, Bitcoin and ETH and Sol are that. Well, what do you think of things like, will tokenization create new markets? So for instance, I can take 10 % of my house, turn them into tokens, and start selling them on DeFi exchanges. And there could be a whole business of home real estate exchange. Ah, well, going back to the evolution of my thinking, five years ago, I would have told you that's a great idea and likely to happen sooner. Now I think it might be a bad idea, but even if it's a good idea, it'll be like one of the last things to happen because the classic mistake I made was to look at how the world is today and to just project them forward.

1:01:24So a common thing a lot of people with tokenization would talk about is like, oh, there are a lot of illiquid assets. If we tokenize them, they'll be liquid. Real estate, private equity, LPs, so forth and so on. Lots of people have tried that. None of it has really gained adoption. Could be because it's too early. But maybe there's a reason why these things are illiquid. Maybe you don't want there to be a market where the value of your house is fluctuating on a daily basis. I see. But meanwhile, the things that are already popular asset classes, those are the most likely candidates for tokenization.

1:02:05For instance, Larry Finkett, BlackRock has tokenized$10 billion worth of treasury bills this year. Boom. Exactly. And this is the epiphany I had in the last year was, ironically, if you said, where has tokenization taken off? It was with stablecoins. And it's ironic because the dollar is like the most liquid thing on the planet. The dollar does not have a liquidity problem. But stablecoins gain traction because they extended access to this very liquid thing. And same thing now we're seeing with BlackRock's doing, Franklin Templeton, these different tokenized treasury funds. It's like the U.S. Treasury bond is one of the most liquid things on earth, but it's just that like not everyone has access to them for 100 bucks.

1:02:49Right. That's the whole thing. Like I don't even know how to buy a Treasury bill really. Like, but it seems like tokenization. Oh, I could buy, you know, these things that yield, you know, 5 % and they act like Treasury bills and I don't have to call some weird broker to get them and pay some enormous, you know, enormous fee. this is great. Yeah. So I think we're going to see more of that. I'm actually curious to see what, there's already over a billion dollars in tokenized gold. Why would I buy tokenized gold when I can buy like a gold ETF? Because you're somebody who can't buy the gold ETF. Like who?

1:03:28Like most people on the planet. Yeah. All right. Good point. This is to get back to what you and I take for granted. Yes. I actually own the gold ETF in my brokerage account. But the average Each person does not have access to a U.S. brokerage account that they can own a gold ETF. And not only that, you can trade it 24-7, 24 hours a day, seven days a week. You can trade it 24-7. And as these decentralized finance solutions grow, you can integrate it in a way that like, what if today you want to, you know, gold has been very strong lately, made it an all time high not that long ago. You want to keep your gold, but you want to borrow some dollars against it.

1:04:09and then you want to use the results to invest in ETH. I don't know if you can do it right now, but soon enough, you'll literally be able to do that with one click in a DeFi protocol, where I don't even know what the process would be in traditional finance. And of course, I'm not the target market for this. Neither are you. It's really like there are hedge funds that do things like I own a lot of gold. I want to lever up and diversify by investing in a cryptocurrency. the ability to do this all in one infrastructure and pool liquidity is going to be huge. Particularly, again, I hate to be a broken record.

1:04:48Today, even if that was an option on a blockchain, you would not have 99 % of hedge funds want to do it because of the regulatory uncertainty. If you have regulatory clarity, then they're like, oh, OK, I can do this. And then they will also have more and more of the kinds of service providers. I'm talking about like custodians and research firms and even brokers who they prefer to work with who are going to help them do that. That's interesting. So so just really short term now. OK, we know Trump's getting inaugurated, presumably January 20th. Gensler is leaving. We don't know when, but some point soon.

1:05:30and there is going to be a little bit more freedom and sense of exuberance among people working on crypto projects and companies what are some very short-term like where do you see bitcoin going where do you see ethereum are there any other tokens that really fascinate you what are some short-term things you see happening i i'm not good at this um so i can tell you what i personally own now is that there's some coins that I like that have not rallied as much as Bitcoin has, for example, and ETH is one of them. So in recent months, I've actually been selling some of my Bitcoin as it's gone higher to buy more ETH.

1:06:09Ironically, as much as I criticize him, when it comes to my crypto investments, I take almost like a Warren Buffett type of approach, which is that I look for margin of safety. Is that what he calls it? Yeah. You literally wrote the book on this. Yeah. So I want things that have product market fit, traction, and positive economics. And ETH actually has positive real yields because you could stake it and it has very low inflation. And then I also, what is that, his other line, which is be greedy when other people are fearful and fearful when other people are greedy. I would be fearful right now if I held meme coins or even Bitcoin and Sol because they've had a big run.

1:06:50but I want to be greedy. There's some things that people just hate and don't want to own, even within crypto. You always have to make sure it's useful. So let's say McDonald's stock crashes for whatever reason, because the market's crashing, so McDonald's crashes. But we know the same number of people are going to eat at McDonald's tomorrow as today. So that's where you could be greedy when everyone else is fearful. But for instance, if some, let's say, I'm just going to pick a random coin like the graph GRT. If that tanks, it could be because maybe no one's using it. Yeah. And the other piece of advice I would give is it's very tempting with crypto when it's like, oh, every week there's some new coin that goes up 2x, 5x, 10x to fall into this trap of trying to chase the next hot thing.

1:07:38And I've fallen into that trap at some points over the years myself. Yeah. Don't. unless you're actually a professional trader. If you're a professional trader, day trader, hedge fund manager, whatever, then that's your job. God bless. Good luck to you. You don't care what I say. But if you're just an individual trying to invest, that is a very dangerous game to play. And I've known many people, some of them my friends, who were amazingly good at it until the day they lost it all. Yeah, we've both known a lot. That was the, we used to see that every day in our business. Yeah, but in crypto, it's just, it's uniquely destructive because you could literally like, it's not just that you could buy a meme coin today that's worth 10 times as much a month from now.

1:08:26It's that, you know, three people who did that already. And now you have FOMO and you're like, I want to be rich like they are. And they're telling you what the next hot thing is. No, I agree. I think one thing I do as due diligence is, let's say someone tells me, oh, this is XYZ is a coin that is a blockchain that's going to help major companies track logistics and supply chain and so on. I have to actually see that it's actually being used by real people and real companies and there are good developers and there's a reason why big companies are using it and so on. And still, it's difficult to understand the economics of why one should buy the token.

1:09:08But that's a starting point. Yeah. And I will, as a final word, we are on the frontier here. And there are a lot of unknowns. So one of the reasons why Solana, the sole token, has performed better than ETH is because a lot of people are increasingly confident that Solana's approach to scaling is better. um i disagree but i could be wrong what about ethereum's upgrades that they have planned though won't that solve a lot of the scalability and and you know all these issues that solana supposedly solves yeah upgrades on ethereum and then as the roll-ups get more sophisticated and people build better kinds of interoperability i also think i think the other thing that will be very transformative for Ethereum is that.

1:09:56So the other flaw with the single chain approach is you go in on a single idea and a single tech stack. This is our programming language. Here's how we're going to do things. The nice thing about rollups is anybody can do anything. So there's going to be like a lot of crazy rollups that are very, very different from Ethereum itself. I also think I I have a hunch that you're going to in the next year, you're going to see a lot of established companies and brands and businesses launch their own roll ups and L2s. You know, obviously, every crypto company is going to do it because Coinbase is making a killing off of base.

1:10:34But I think you're going to see tech firms and fintechs and consumer apps. And I have no insider knowledge on any of this, but I could see a future where Facebook decides to launch an L2 for WhatsApp and maybe integrates a stablecoin into it. So it'll be like Libra 2.0. I could see a future where Disney decides to do its own L2. And what would they do with such an L2? Top to them. For WhatsApp, the original dream of Libra was to replicate how things work in Asia, where you have these super apps that began as chat apps, but turned into finance apps for payments, for investing and everything. Well, one way to do that is to launch an L2.

1:11:19And then you partner with a stablecoin issuer. And now everybody who uses WhatsApp would one click, create a wallet, get dollars, send dollars to anybody else they do this, they chat with. But then you can go to merchants and be like, hey, you can issue tokenized rewards on the WhatsApp L2s. And the key thing here is, I think, for crypto to go mainstream for consumer applications, most of the crypto stuff has to be abstracted away. Yes, I agree. So all these key phrases, seed phrases, paying gas fees per transactions, Facebook has the wherewithal to say, you know what? Use WhatsApp. There's an L2 on the back end.

1:12:01You will pay no fees. You don't have to back up your private key. We'll take care of that for you. so the consumer experience will actually be a lot more like a web 2 experience but you get to do all these cool web 3 type of things i mean don't you think elon musk is planning to do this with x like he's already hinted that he wants to do this yeah i mean he might i don't know he might decide to do his own blockchain who knows but i think the the simplest thing going forward will be hey you they're literally roll up as a service companies or layer two as a service companies on your thing where you push a button and you get your own layer too.

1:12:36And then you can go on down a menu. I want it to be like this. I want the virtual machine to be like this, the programming language to be that, the fees to be yada, yada, yada. So I think the ease of doing that and the fact that you could tell your users, look, we're inheriting Ethereum security. This isn't just a blockchain that me as X or Facebook or Disney gets to decide everything. It is tethered to this global decentralized network in ways that's going to force me to be honest and could have certain kinds of interoperability with the Disney one or the BlackRock one or the Coinbase one. I think the value prop of that is going to be very irresistible.

1:13:21And if I'm right, there's this thing people say in crypto is like, well, how do we onboard the next billion users? If I'm right, Facebook will onboard the next billion users. Yeah, I think that's very interesting. I think this is going to be true. And then what coins will benefit from that or are they just completely create their own coins just using blockchain technology? Or not. Base doesn't have a coin. Coinbase just, literally, Coinbase charges some minimal fees for people who use Base and then pays something to post on Ethereum. And the difference at this moment in time is very profitable.

1:13:57So it's possible some of these will never have a coin. You know, the main reason people want a coin is to get rich. Sadly, there are very legitimate reasons like Bitcoin, Ethereum, Solana, DeFi projects cannot exist without a coin. But you could have a roll up that doesn't have a coin on day one for sure. But think about this. Here, here's my pitch. If there's anybody from Facebook meta listening, here's what you should do. First, you launch an L2 that you run. Then you go and pop. Like a base or like your own blockchain. Yeah, yeah. But it's an Ethereum roll-up called Meta or WhatsApp, whatever you want, Insta, whatever you want to call it.

1:14:35Then you partner with different stablecoin issuers that they'll be the exclusive stablecoin to your 2 billion, 3 billion users. You make a deal with them that they give you a percentage of the interest income or all of it or whatever you want. Let me give them a billion customers. You have a lot of negotiating power. You use the income from that to have stacked away any blockchain fees, gas fees, whatever. So your users can make free transactions all day long. And then you build from there. Yeah. So who benefits from that? The users benefit. the business has been that you know if you're a merchant that's going to issue except we going back to the beginning of our conversation if you're a merchant you tell people hey pay me via whatsapp stable coins and i'll give you a one percent discount because you're saving me credit card fees i i'm surprised rewards programs have not taken hold a little a little more you know like frequent flyer miles that are fungible it seems like that would be a huge use case for crypto and i'm surprised that hasn't happened yet yeah i think the me too but the problem with rewards might be like the airlines don't want them to be fungible i get it right right so this is always like there are many things i've been on here before we've talked about ticketing on the blockchain and how it makes so so much sense but of course like ticketmaster and stub hub don't want that to happen and they kind of corner the market right now so it's those things are going to take time yeah so ticket master could do an ethereum layer too and that way they're like oh we'll still keep dominant market share while still doing nft tickets yeah it seems like it seems like the more open a market is in this sense the more the first players will benefit and that's what they've got to realize is kind of take that leap yeah and and for now it's going to be like with stable coins It's sort of like the long tail of people who just have no option, who gains adoption first, as opposed to the people that have a very popular option, but there might be something more efficient.

1:16:43Seems like it would be very attractive in that sense. If you assume your market is the 6 billion people who live outside the US, then tokenize, let's say, the NASDAQ 100 stocks. And yeah, don't trade them if you're a US citizen. That will not be regulated. But here it is for everybody else who want to benefit on American innovation and the wealth in America. You can now, if you're from Malaysia, buy Facebook stock or NVIDIA stock through this tokenized environment. Yeah, I'm with you. I'm actually very curious to see if maybe beyond dollars and treasuries, that becomes the next big breakout tokenized asset.

1:17:24I mean, there's tokens like SNX and UMA that initially wanted to do that. Now they're on to other projects, but they were attractive tokens that people were thinking would do that, but they didn't do it. Right. And there are some exchanges that on the exchange you have tokenized. But look, maybe Robinhood does this. I'm pretty sure the Robinhoods of the world will all eventually do their own L2s. And maybe one of the things that Robinhood offers on its L2 is tokenized version of some of the stocks that trade on its platform. Again, need regulatory clarity to do that, but optimistic will get it.

1:18:02So, Omid, I always appreciate when you come on. You're always so thoughtful and intelligent about all these issues. Have you lost any friends since the election?

1:18:15Not that I can think of, but I am blessed. Well, I have a lot of people have in my life have a lot of different opinions on a lot of other things. But because I'm generally not judgmental, then they don't hold disagreement against me. Why? Have you? No, because I also have been, you know, on this podcast, I have Democrats, I have Republicans. You know, I try to give a home for all issues. and I think just common sense. Sure, I believe in a lot of the policies that Donald Trump is saying. I probably believed in fewer policies that Kamala Harris was saying, but I still believe in some of them. And I don't believe it should be person-driven and it should be more policy-driven, but then people go crazy even then.

1:19:08Like, you know, you have to agree with 100 % of what's on one menu, 100 % what's on another, and I don't give those people the gratification of telling them which menu I prefer. so i'm gonna have to use that um yes well the one thing i was very excited about the election was um i don't know if you've talked about us on the podcast but the validation of decision markets like polymarket no and i wish i i mean i've spoken about it a little bit i but i was fascinated like i've been a fan of predict i've had the predicted guys on this podcast before and i've been fascinated by prediction markets since the beginning.

1:19:46It's a viable financial asset class. People say, oh no, it's gambling. Guess what? So is the stock market. It is 100 % gambling. You know, you think about stocks. The value of a stock is supposed to equal the value of all of the, you know, discounted cash flows you will receive personally from that company during its lifetime. Guess what? 99 % of companies do not give a dividend. So that makes it all gambling. yeah and there's always no real financial value of any company that doesn't give a dividend which is almost all of them and there's a joke that people on like twitter have all the time they're like oh this stock fell 20 today i can't believe the discounted cash flow fluctuating so much in a single day yeah but the other i mean sports betting sports betting is the most massive decision market it's just those it's not as consequential it's just pure entertainment but there is a strong economics argument that the signaling you get from decision markets are very valuable.

1:20:46Like if you were a business in America, even a crypto business or a financial business, you really cared a month ago as to who you thought would win the election. And you might have actually made decisions as a leader based on your expectation of which party will win. And so decision markets gave you some information. And then the hope is if they get big and liquid enough that you can literally hedge. Like, you know, the question is, there's got to be enough volume in there that it's not spurious. So for instance, there was all these theories that maybe the election markets were being manipulated.

1:21:24And that might be true. I don't know. uh but at at some point if they're not if the volume is great enough and they're not being manipulated then i think you can like for instance let's say there's a decision market or a betting market on the weather you want to know what the weather is going to be next week because you're planning something and like you say it could be insurance against that i think if that's liquid enough and then there's scientists betting or people who are meteorologists betting then okay that gives me more information than just simply watching the the weather channel and uh because why would someone manipulate oh we're going to make it rain next week like there's no point uh i think that could be very interesting yeah or as my uh my colombia colleague uh rajiv said he was actually one of the foremost experts as an economist on this topic as he always argues like if you're worried about manipulation then you shouldn't want to restrict decision markets you You should want more of them and for them to be much bigger because then it just becomes that much harder to manipulate them.

1:22:27Exactly. Like this is the whole thing with insider trading. Just from a market theory standpoint, there's a very reasonable argument. You want inside information. So this way, the price of an entity really does reflect all the information that exists about that entity as opposed to some people having it who are probably illegally trading anyway. and then suddenly it goes from five to 10 the day it's acquired or whatever. Yeah, and that's even more true for prediction markets because the outcomes are, and whatever odds they indicate are more consequential. So like right now there are prediction markets on various cabinet appointees for Trump.

1:23:10And I would almost expect that there is inside information, that there's an aide or someone who like, it's like, oh, he's leaning towards this person or that person. I'm going to go on Polymarket or Kashi, whatever, place a bet. But if you're the kind of person who actually, for whatever reason, really cares and has something invested in which cabinet members he picks, you want that insider to go place that, quote unquote, unfair bet. Right. Because it makes the signaling more accurate. And by the way, again, like sports betting, this is established, happens all the time. Right. For every market, even the stock market, as you as the common citizen wants all the information possible in the market, you don't want anything hidden, which is why insider trading is such a weird law.

1:23:55It's like, oh, you have to specifically hide some information from Main Street America. Yeah. And look, I'm sympathetic to the argument that it's unfair. But then even then it gets weird. Like I think our mutual former mentor friend, Victor, would talk about this. How like, isn't it weird that if you're just a random investor and you get like some insider info on a company and you invest in the market, you could go to jail. But if you're a random reporter and you get insider info and you break the news, then you get a prize and then you get promoted and make more money. And ultimately, is that fair that you had access to insider?

1:24:35So I don't know. This is sort of above my pay grade. Yeah. It's beyond everyone's, which is why there's no cohesive argument on it. And what else are you doing? So you're teaching at Columbia. What else are you working on? I'm teaching and I do my usual kinds of consulting and thought leadership. I'm actually, personally, one thing I'm excited for is in the last few years, a lot of the consulting work that I've done has been on policy matters and legal matters just because of how fraught the situation was. Really looking forward to moving on from that. It was important work. And at the end of the day, I got bills to pay.

1:25:16um so if somebody wanted to hire me to consult on some potential legislation or lobbying great but it's like that's not intellectually fulfilling for me but i wish you they would use you for like the like let's say the trump administration that could be fulfilling because you see that the policies actually happen oh well uh yeah i guess i don't know if i want to go into politics But I'm very happy to advise the people that are making the decisions. But I think if we're both right and there's just going to be more and more adoption and established firms entering crypto and doing different things, then I think I know I can be valuable for companies to try to figure out what to do, how to do it, how to communicate what they're trying to do.

1:26:06educate executives, so forth and so on. This is going to be a key thing because I think this is the transformation that has to happen in society. It has to be easier. And that will happen over these next four years. So we'll see. But Omid, once again, thank you so much. As usual, you're always welcome back anytime to talk crypto or anything else, really. Come on. We should have you on. You know, I had this Iranian guy on the other day. Not an Iranian guy, but an Iran policy guy. Should have had you on for that one since you're from Iran. Well, thank you. I don't know if I actually have any expertise there that's valuable.

1:26:45It doesn't matter. No one's an expert. Oh, but now I'm anti-expert. Now when I say that, it makes me anti-expert, which makes me a right-wing Republican. Right. You are MAGA now. I just outed myself somehow. You will be appointed to the Trump administration. somewhere well if you were to be appointed to something what would you want to be appointed to oh god i i don't i think something i guess like regulatory related that would affect crypto but that see that's a very smart thing um i i heard about a guy who was debating between being like they were they offered they said you could either be the ambassador to monaco or the secretary of blah, blah, blah.

1:27:31Like I won't say what it was. And I would automatically, without even thinking, ambassador to Monaco. This guy was like, no, I want to do effect change. And he's going to become like the secretary of blah, blah, blah. And that seems like horrible to me. Like I'd rather just be, then for the rest of your life, you're called Mr. Ambassador. It's like, I'd much rather be that. I also would much rather you become the ambassador to Monaco because then I will come and visit you and you'll give me the tour. But I think for the same reason that I never want to work for a big company, I don't want to work in government either.

1:28:10I like to have freedom and not deal with bureaucracy. Yeah, it's awful. All right, Omin, thanks so much. We'll talk to you soon. Bye-bye.

1:28:28We'll be right back.