Inside Solana's Plan to Replace Wall Street | Anatoly Yakovenko, Solana

25:13It's like almost thinking, okay, I have the idea for reusable rockets, right? It's going to take an infinite amount of failure to get it to work. So I had the idea for the reusable rocket blockchain, like a really fast blockchain. Everybody had that idea. The fact that I thought my idea was unique gave me the kind of internal drive to go do it. But that idea in itself was not the core piece that made it work.

25:43Turner Novak:So the existing blockchains were slow? Or what was the issue? Yeah, this was 2017. Bitcoin had kind of hit its first big cycle. And transactions were$70 per person because it got so congested. Same thing with Ethereum. Like you had like CryptoKitties, you had like the first semblance of an app with any users. made the fees on Ethereum hit these astronomical numbers. And I spent my entire career prior to that point working on performance optimizations, virtual machines, operating systems. And I was at Qualcomm for most of that career. And if you remember old school, if you remember your physics class, radio waves interfere, right?

26:32Two waves at the same frequency that transmit at the same time. Will they knock each other out? They collide. You can't tell what information is being passed. So the first protocol people build for cellular networks was called time division multiple access, where they give each transmitter a clock. And you're only allowed to transmit during your slot. And FCC goons will drive their truck to your tower and shut it down if it's out of sync.

27:01Turner Novak:Really? And this is because you're messing up other people's commercial activity of generating business and shooting their wave out so people can use their product. Yeah. So in blockchain, you have a similar problem. Two Bitcoin miners make a block at the same time. The network is in a noisy state because now you have two paths and it has to resolve and it takes like 10, 20 minutes. Really? What's going on? Like it's just all electronic. It should be instant, shouldn't it? Well, the problem is This idea of Byzantine fault tolerance. How do you resolve this noise without FCC goons? How do you not rely on a trusted third party to go make sure that everybody can agree on what the final state is?

27:50So that was the knot that Nakamoto consensus solved and what made Bitcoin so trustless and scalable globally and kind of gave it that. if you have to rely on a trusted third party, you're picking a layer in that eight-layer brokerage cake that you're relying on to resolve that part. Why Bitcoin was so revolutionary is that it used purely math and cryptography and algorithms to where if I transfer you Bitcoin to my neighbor here and you receive it, you know that you can get that same Bitcoin anywhere in the world without ever relying on any trusted third party. So you don't need any of these rules and regulators.

28:35And this was like the big, why it worked as money and why it has any chance of working as a store value alternative to gold is because of this property that you never have to rely on a third party to guarantee that your Bitcoin always works. But the way that it solved it has a 10 minute wait time, which is... 10 ,000 times faster than moving a box of brokerage socks from closet A to closet B.

29:08Turner Novak:But still, that's 10 minutes. That can be kind of annoying. You're trying to do something and you're sitting waiting. It's like, did this work? Did it go through? But you as a user, you never have to deal with that because the brokerage deals with that after they accept your trade and tell you that it's done. So you as a user, you're not aware that actually things take like a week later to clear out. and they're bashed and that's what makes that system scalable to 300 million people. But Bitcoin solved that problem but has no way of solving the user-to-user normal peer-to-peer problem.

29:43But this idea of time was kind of through my osmosis like Qualcomm kind of popped into my head and I thought, okay, there's a way to do it in a way that bars a lot from existing solutions to similar problems and scales it up to where in my back of the end world calculation was like 10 ,000 times faster.

30:03Turner Novak:So what are you actually doing? What was the thing when you're like, here's what I'm building into the code? Was it some kind of timestamp that went to the millionth degree and it's like, this is the exact time this thing occurred and this is who got it first? So we forced the block producers to alternate by time without relying on a trusted third-party clock. So we use this data structure. So that data structure that I came up with called the verifiable delay function, that's what you can Google for now. I didn't know what to Google for. It basically uses, like it loops over and generates data in a cryptographic manner that when I send you this data, you can tell that it took real time to generate because you cannot predict the next output.

30:54Does that make sense? So there's no way for you to cheat the math problem and get ahead of it, no matter how much computer power you have. What you can do is, and the limit there is because the best manufacturing firms can only make chips so fast. They're limited by their two nanometer process. Even if you super cool it, that's as fast as it goes. So I know that when you generate this piece of data, it took you at least 400 milliseconds to generate. Okay.

31:27Turner Novak:So I think you called it proof of time or something like that? Proof of history, yeah. Oh, proof of history. Okay. So it shows the length of time period that it took to do something versus making it up or lying about it? Yeah, how do you prevent somebody from transmitting data or saying that it's my turn to make a block and then making it? And there's a bunch of different protocols to do it. And Bitcoin does this 10 minute back off thing with the proof of work, which is really slow. You had more traditional Byzantine fault tolerance where the entire network has to agree, okay, okay, Turner just spoke and he's done speaking.

32:16Does everyone agree that he's done speaking? Okay, now it's Anatoly's turn. Okay, now Anatoly, you start speaking. Oh wait, he didn't actually say anything. He timed out. Did we all agree that he timed out? Okay, we all agreed that he's timed out. Right, so you have this like multiple round thing where the entire network has to agree. And these are called practical Byzantine fault tolerance or Tendermint, if you ever heard that term. They were the first to implement that style of protocol. And then I had an idea that didn't require all these extra rounds of communication. And it was able to be fast enough for trading.

32:57And on my back of the envelope, when I saw, okay, this actually works for trading, prior to why I was so interested in trading is because I spent as a side project just for fun. I wrote all these algorithms like trade and like had to connect to interactive brokers. None of them ever made any money. So it was all like for fun. They all lost money. And when I thought I had something working in backtesting, and I saw those opportunities in real markets, the data would take a little longer to arrive and my orders would take a little longer to submit. And it's not even anything to do with that system being malicious.

33:42They were actually front-running and cue-jumping. All these tricks that people were doing were not necessarily out of malice. It's just the incentives were there for you to build your system in a way that would induce this behavior.

33:56Turner Novak:This is like the whole building as close to the exchange as you can to get your data in quicker or whatever? You get the biggest, baddest connection. Once you start rubbing up against physical limits, people fight over the physical bandwidth, the real estate, all of this stuff that creates not even out of malice. It's just like if you do the same, you make more money, even if it creates a worse shelling point for the rest of the market. So the fact that the system was completely open, all the data is purely open, anybody can participate by spinning up Validator. It felt to me that I would at least understand how the black box works.

34:46And I could see where these physical problems arise in an open way. And me as an engineer, I can then decide, do I want to put the resources to go and get to the same level playing field as jump trading or Citadel or not, right? And that's totally fine. But in traditional finance, it's a black box. You have to kind of like, it's all very dark web, I would say. Not dark web. It's just, it's not open, right? It's not open source. It's the opposite of that.

35:14Turner Novak:They're literally called dark pools, kind of, right? These closed pools that they'll do where no one can see what's actually going on. Dark pools are actually trying to avoid that. It's literally just a group of people that trade a lot and decide, okay, we're going to trade on our own pool without going to these systems that we don't have control over. That is kind of the option. It's a solution to that. They're trying to avoid these open lanes that are congested. Okay. So this was in the coffee shop at 4 a.m. You were thinking of all all this stuff, okay. So then what happened? This was at home at 4 a.m.

35:52after the coffee shop, two beers and a coffee, two coffees and a beer, and I just couldn't sleep. Had this unique moment for what later became Provisstree, and then as soon as I decided, okay, I'm gonna go build this, the first thing that I thought of that it could work for us trading, and that it could revolutionize trading because of these cryptographic guarantees a value transfer, you can literally shortcut this entire chain, this eight-letter cake of finance to SpaceX directly issuing tokens on chain that you and I have absolute cryptographic guarantees are real tokens. And to me, that meant that is the end state of finance.

36:37That's internet and finance finally bridging together. And you don't have all these intermediaries and costs for finance go down. Those are the benefits to people at the end of the day.

37:14Turner Novak:onboarding, white glove activation, and get you to value in days, not months. And the product practically runs itself with built-in agents that are always working for you. Start growing your revenue faster with Monaco. Try it now at monaco.com. So what did you do to make it? How did you start building it? And did you click a button and it was live? Everyone started using it? Or how did things go? I mean, since college, I've been working on some dumb idea None of them made money. They all lost money. None of them were taxable about. My wife actually was a Facebook competitor at Columbia, like way back when.

37:57And she told me that we had a child at that time. So basically, I had to pick two, a kid, a job and a side project. The kid's not negotiable. I couldn't do the side projects and the job at the same time. And her advice was that when you have this moment where there's railroad level investment into something, in 2017 it was blockchain, today it's AI, you have this massive capital flowing into something. Before that it was social networks and mobile and internet. We go through these cycles. You have a six month window where capital is relatively easy to get. where people will fund an idea that seems like solves a lot of the current problems that the technology is facing.

38:49And if I waited six months or something like that for a better time before, if I proved out the idea first and did my homework, it would be too late. So the big benefit of being in the Bay Area as a founder is when I went to Dropbox and told them, hey, I'm quitting to go do the startup. They literally told me come back in six months if it doesn't work out. So there's no other place in the world where I think you get the same kind of like many layers of executives and founders and companies understand where the innovation comes from. It's from people taking those dumb risks and failing and allowing for failure and being fine with it.

39:35So that kind of gave me the confidence to give myself six months. I had a kid. We're in a tiny 800 square foot apartment. My wife was the breadwinner. And I hustled. I don't know, it felt like a thousand meetings with VCs to go.

39:52Turner Novak:Was it actually a thousand or a thousand? It felt like it. Yeah. I think a thousand was probably over a graduation. That's like our headline fortune cookie number, but it was probably like a couple hundred. Yeah. So you have to like if you're really serious about raising, you have to be I think in the Bay Area because it maximizes your odds. And you make a list of every event that is just relevant to your industry. Go to every event, talk to every person there, figure out who the VCs are, pitch to them, do the elevator pitch, get an intro, ask them if their fund doesn't invest, will they write an angel check if you get a lead?

40:32Just do everything you can to work the network. And within two months, you will talk to everyone because that is their job. All the major firms have analysts and people who just literally spend 24-7 and going to these events to look for deals. So that's where you meet them. And as you do this, you refine your pitch. And if you cannot get funding during that time, it means it's not going to happen during that cycle.

41:05Turner Novak:Well, I think it's interesting because I know A16Z invested, but they didn't at first. So you pitched them and how did that go? And then what changed? They literally had the guy that invented verifiable delay functions, Ben Bonet, talk to me and I'm not the cryptography expert. So I could not meet, I think they could not validate my idea on a technical basis, which was their biggest blocker. Well, so what happened? Did you say, okay, I got to keep talking to other people? Did you just find other people that bought in? Yeah, you talked to as many people as you can. And we got funding from Slow Ventures, from Sam and Foundation Capital and Multicoin and a bunch of really good VCs.

41:53So they eventually invested at like, I think, a thousand times the price of the C round.

42:01Turner Novak:Oh, wow. Well, that's their fault then. That's how it goes. The thing is, they have an impossible job because they literally have to go and talk to a bajillion founders and a bajillion ideas and make a couple of bets. and their fund operates in many layers. And if they're wrong at stage one, they can reposition in stage two. This is how they work. So I don't fault them for saying no. I think the fact that they said yes afterwards is great. That's like, I think the best the fund can operate is really understand that you're taking the most risk at the earliest stage and you can only bat so many and then figure out as things to risk.

42:47running a fund is like I thought was would be like a dream job it is I think one of the hardest jobs

42:56Turner Novak:yeah it's challenging because you basically talk to really smart really ambitious people who tell you these kind of crazy big dreams that they have and pictures of the world and most of the time it probably won't work and you got to kind of pick which ones will and then fail but yeah you always know that one of them will yeah it's like size it wrong like it's just yeah it's really hard and then you're like man that like the one that did became salon you're like oh man i thought it was really smart but i you know i didn't i had a question around like the did he actually understand it technically and so i didn't i didn't give him any money and it's a really good idea but like and i could totally see why i got this wrong and i invested in something else that didn't work and like it's just that over and over again yeah yeah so you did get some money so then you said trading was kind of this initial market that you thought was going to work so what was the process of like just getting people to start using it oh man that was impossibly hard and i think we got a lot of it was a bit of luck with timing so i i think my biggest strength here wasn't And my weakness wasn't, I wasn't like a PhD academic that understood cryptography inside out.

44:13And this is what Dan Bonet could easily smell through. He's really smart. My strength was that I had like decade plus experience building live systems with millions of users and low latency. And I was able to pull really smart engineers out from Qualcomm. literally folks that wrote the LTE standard, the GPU runtime, all of these really low-level, high-performance systems that run on cell phones. We were able to leverage that knowledge and that expertise to build Solana. So this was our differentiator. I think at that time, a lot of teams that did get funded with these 100 million rounds were coming from academia.

45:01and they, you know, to their, I think, as any founder that gets funded their first round at 100 million, you get like blinds, you get blindfolds on. You think that you're right, that you, it's really hard to pivot and try to understand real PMF and things like that. And the fact that I raised barely enough money for us the last two years gave me that like kind of animal hunger is that we have to build the smallest possible set of dependencies to prove that the sync can be fast for trading. That's it. I didn't care about block explorers or anything else. We literally just bare bones everything else.

45:46We had a command line wallet.

45:50Turner Novak:What's a command line wallet versus a non-command line wallet? Do you use crypto at all? I mean, a little bit. I have a Coinbase account. I have a MetaMask I haven't logged into in a while. Okay, so MetaMask is a UI where you click buttons to transfer. We had a thing in the terminal you'd have to type in Solana transfer because we didn't know how to build UIs. Really? Okay. So this is the very, very... So then who used it? So who were the first people that were like, I'm going to start using this super weird command line crypto thing. This was basically, we were running out of money and they cut us to the bone, like layoffs in December 2019, like end of the year.

46:42And COVID happened in 2020. The markets crashed by like 70%. And the day before, like everything crashed, for two days before we announced that we're launching and we're going to have this auction to sell the token initially. And we had a group of super fans that participated in the TOSnet and boot up. And the network was a thousand times faster than anything else. It was instant. We have this demo app that we built called Break where you hit keys in the browser and each keystroke is a transaction and you'd see it send and it lights up as soon as it confirmed. It was like kind of rainbow bright.

47:28So we had this like tiny demo, it was useless. You literally hear, look, you can just slam the keyboard and every keystroke is a transaction, super cheap and super fast. And the people that saw it, it was like, this can't be real. You guys are cheating. I'm like, no, look, it's fully the whole thing. We had this small group. So everything crashed. And every VC that I talked to was like, I don't know what's going on in the world might be ending for all I know. So this was like March of 2020? Yeah. And we launched and barely cleared a little below our last private round price. And that was the bottom of the market.

48:11So the fact that you can never time markets, it's impossible. But as soon as a major catastrophic event happens, the probability of it happening again is pretty low.

48:25Turner Novak:Probably not going to be another global pandemic right away again. So you're launching at the bottom of the market, and that is the best time to launch. Why is that the best time? Because you could argue that's the worst time to launch. Why was that the best? If you can survive it. So because our team was so small, and because it never raised a lot of money, we did everything in the bare bones. We were like a great enterprise for people that wanted to participate, for developers that wanted to build stuff. It was a new technology that was ahead of everyone. It was all green space and it can only get better.

49:03You could build the first explorer and then get users and get traction that way. We had nothing. So for the people that had an easy time building wallets or UIs and things like that, to them, it was an opportunity to go differentiate with something totally new. And DeFi kind of started to kick off and we got traction with a bunch of traders and people building markets. So people were kind of creating their own crypto coins throughout 2020 and 21? Yeah. Coins, but more specifically markets. So they were building their own... Do you know what a constant product market maker is? Like Uniswap? Oh, I've heard of Uniswap.

49:54Turner Novak:Yeah. So Uniswap is built on Solana technology? No. It was built on Ethereum, but it was expensive and slow. And it was based on this math paper, I think from the 80s or something, where you kind of get rid of Jump and Citadels and all these people that are providing liquidity and use math instead. And it never took off because of US markets are really efficient. So even if you're like half a basis point less efficient than that, it's really hard to compete. But on blockchain, you don't have other competition. And it's innovative in different ways that it can bring liquidity together for assets that are on the tail end of popularity.

50:42Like things that are really early in their development, like meme coins, whatever. Things that are super risky or hard to price. It is actually really, really good for that. That traditional finance just doesn't care about. So you have this kind of explosion of DeFi summer. Like DeFi summer literally happened in 2020. And we were just launched early enough, much cheaper and faster than all the competitors that delayed even that we were able to get that initial traction. So I think the lesson there for founders is like PMF, when you have PMF, people will they will like bend over backwards to overcome all the kind of painful problems of onboarding that they can overcome themselves over like a weekend.

51:35So you don't need to solve their like weekend problems that like a dedicated like engineer can go work through that. Solve those problems later on. But the problems that you need to solve are the ones that are like, take six months to a year to solve and require coordination for multiple people, which is like make stupid blockchain fast. That was the hard problem. It takes years to solve that. We only solved that problem and that's it. We left everything else to third parties, open source developers. And the really good ones were like, okay, I have to do everything in the command line. I have to code in Rust.

52:15There's no docs. I have to read the code. This is not a blocker for a good engineer. It sucks, right? But because it creates a barrier to entry, you actually had green fields for really smart people that could overcome it. So this was the weirdness that happened in Solana or the opportunity that we had was from that. That it was hard to build for, but it solved the real world problem. And so what was so hard about the thing that you were solving?

52:47Turner Novak:Because it sounds like it was actually kind of difficult for people to use it, but you solved something else that was even harder. So they got through all the other hard stuff. So what was the really hard part about it that you were solving? Remember that physics radio lesson? So the way Bitcoin solved it is that basically the difficulty in proof of work means that the average time it takes to find the proof of work puzzle to solve it is about 10 minutes. and when you solve it, that gives you the right to propagate a block, meaning that when you accept a block from a node, you will drop it if they didn't solve the difficulty challenge.

53:27You basically ignore blocks that don't solve it and the difficulty challenge is kind of set up for this 10-minute period. So you have a low probability of collisions, so you don't have two blocks happening at the same time or from blocks.

53:43Turner Novak:But they were slow because it took 10 minutes. Yeah. And Ethereum sped it up to its maximum, which is 12.5 seconds with a whole bunch of tricks that Bitcoin people will never implement. But that's still 12 seconds is too slow for trading, but sort of fast enough for some payments. Like backends, 12 seconds is too slow for cash register. So you have like, they bridged the gap a bunch to where dedicated super nerds could go build an experiment, build Uniswap and things like that. And they were happy to play around in their sandbox, but it's not enough for the normal retail user. And to go from 12 seconds to 400 milliseconds, we basically took a guess because ignorance is bliss that our idea would work without any proofs.

54:34Only now do we have proof of protocols that can accomplish the same thing with academically guarantees that are equivalent to what Bitcoin can do. And that took literally six more years of Solana showing, hey, look, this can work. And a professor from Zurich called me up and said, not 100 % sure it worked.

54:59Turner Novak:This is how you would actually solve it. And you had to go back and adjust based on what he said? No, we hired him and two years later, I think Alpenglow is about to be going live, which is like the next generation protocol. So all the stuff that I developed is getting ripped away. But the problems that we solved were the key problems. So the solution was good enough at that time. And what we were lucky on is identifying that the bottlenecks are this round-trip talking between all the parties to get agreement to go to the next block. That doesn't work. Or this 12-second to 10-minute way to resolve congestion.

55:45That doesn't work either. So you need to build this idea of a continuous block-producing protocol, which we solved.

55:54Turner Novak:You essentially made it instant. You essentially made it so that instead of this waiting period in the payment settlement layer, you got it down to essentially instant or what felt like instant for everybody else. Yep. Okay. And then that's what people were then building a bunch of other things on top of this instant payments layer. Of course, execution and settlement. So in that 400 milliseconds, you get guarantees that everything executed and you have the correct state of the blockchain and the correct state of the order book if you're building markets. And that means that trading is now still slower than finance, but the gap is much, much lower.

56:38And while New York Stock Exchange or CME or these financial firms will say they have nanosecond trading, the physical reality in the world is that information has latency. So some event happens in Singapore that has relative importance to markets. It is 80 milliseconds away from New York, no matter what. No matter how fast you have your Bloomberg terminal wires, everything configured, that still has to go. That newswire has to go to New York to get fed into the algorithm to go take a trade. So even if the exchange is operating in this very fast system, once you get below 400 milliseconds, you actually can provide prices that are as good as centralized exchanges.

57:30Turner Novak:I guess then today, you said you ripped things out, you rebuilt everything. I guess, how did that feel to have to remake everything? And then what do people build on Solana today? My entire career as a software engineer, I always wanted to work in OpenSource software. I fell in love with Linux as a teenager, super nerd in the 90s, because you could see the entire stack. You have this full transparency of how the system works. And I was always the tinker. I would be the person that would overcome the weekend problems to get something to work. And that's what drew me to both Linux and to then build Solana the way it is, to be completely open.

58:14So that the hobbyists that are trading can actually, if they want to spend the time, they can actually have the exact same access as Citadel or Jump as the biggest traders in the world. And I think to me, that always felt important. And Linux is never done. It's always changing. So I'd love to see my code getting replaced. It means that there is a new generation that is taking it on and adjusting the system that I thought would work five years ago in the world to what the world needs now. So it means it's not dying. This is like change is good. Like change in software is great.

58:54Turner Novak:Well, to the point of like the legacy financial system, like it's also had to change. and sometimes it's good to just force the change. Much, much slower. But yeah. Yeah. Yeah. So getting to see the core parts of the protocol get ripped out and replaced with next generation stuff, I think that's awesome. Did some of that then enable what people are doing with it today? What's funny is that nothing really changed from launch in terms of what people do today. Anyway, I think there were a lot of ideas of what blockchain could accomplish and build. And these are like these massive big ideas of changing the world.

59:39I think that will happen. I was right that trading is really important and tokens are really important. All it does is assist them for moving tokens around and exploring them in different markets. That's what's gonna like as finance moves over to blockchain and becomes this open system, all the other stuff that people had ideas about like banking, banking the unbanked and all of this bringing the world to the same fair open financial system. It's gonna happen. It's just much, much slower. That's running at human speed. Everything else is running on like, you know, finance or trading speed, which is a bit faster.

1:00:21So what's happening now is like I think to go back to the start of this conversation, this company Backback licensed brokerage, it has full transfers. You can transfer your SpaceX stocks from E-Trade to Backback and mint it as a token on Solana and is on the open global rail so you can transfer to anybody else in the world. And they have full cryptographic guarantees that they can go back to E-Trade. So we've effectively eliminated 130 years of problems from the railroad boom software, finally. That's pretty cool. And that's a slow, it'll slowly get propagated to the rest of the world. And you kind of see like early adopters like Robinhood running full steam ahead with things like this.

1:01:13But as finance matures, as the rest of the world gets richer and wants access to American stocks, this will start happening faster and faster.

1:01:22Turner Novak:I think I saw there's something like 30-35 % of all stablecoin volume is on Solana. Maybe I got that stat wrong. So what does that mean for somebody who's not really in the weeds of that? Transfer volume. So money being moved between addresses. it's hard to again I would look at these metrics as look at them relative year-over-year as things go up not in terms of like does this mean that each one of these different individual person very likely you have power law distribution where you have like entities that are fully onboarded on chain have a bunch of accounts across a bunch of different financial institutions that they have to rebalance all the time.

1:02:09And that is a really great use case for blockchain. And otherwise, you'd be paying wire fees and waiting for delays. You need money in point A, but now you need point B. Do you wait for two-day wire, pay the fees there? Do you do it on something on-chain? So for anyone in finance that is operating in multiple places in the world, those costs are real. The time that you have to wait is real. it all translates into eventually cost to consumers. So velocity is kind of what we always thought was the important part, which is how much volume, how fast you can move it, because that is where you have real customer demands and that's where finance makes most of its rate.

1:02:54They charge and transfers and things like that and less so much and holding it.

1:02:58Turner Novak:And so essentially, by using stablecoins to manage your global money supply, you are able to... As a person that's holding the money and owns the money. It's usually companies that operate in multiple places. They have suppliers in one spot and retail or whatever. You need to pay somebody here and your balance is over there. The fastest way to do it is stablecoins right now and the cheapest way to do it. And what I suspect will happen is people think, oh, we'll disrupt Visa or MasterCard. I actually think that the more retail-based companies are not going to be disrupted because they already have the customer relationship, but they will be able to squeeze their costs down by using stablecoins across all of these different layers.

1:03:49Turner Novak:So it actually might be... So somebody might say, oh, Visa is going bankrupt because of this, but it actually might be that Visa makes more money or is more profitable because of stable coins. Exactly. And that means that competition should eventually mean customers get better service. Yeah, that's fair. I think another thing, like you're pretty big on, on one lens of this, you could say AI is stealing all the jobs, the world's ending, blah, blah, blah. The other end is, you already have your eyes. What's the other? So what's actually, how do you actually think about this? What is actually going on?

1:04:25We went through the largest transformation during the Industrial Revolution where like 80 % of the human population, kids even, were farm workers.

1:04:36Turner Novak:We used to send kids into like coal mines. They'd like die. It's like they just get trapped down there. I think that was probably like the end of the last bit of the Industrial Revolution. But reality was like prior to needing coal jobs, we had farm. Farming was the thing that you needed. Otherwise, people starved and people starved on the weather like change and screwed up the yield and stuff. So we were blessed in that loss of 80 % of those jobs or 95 % of those jobs. Like motors, like mechanical motors, displaced 200 billion jobs. There's only 8 billion people. The reason why the world is so wealthy is because motors and mechanization displays 200 billion jobs.

1:05:25Turner Novak:So it plays 200 billion jobs, even though there's only 8 billion people in the world right now? Motors have, yes. Oh, so over the course of human history. No, like right for imagine the world right now without motors and us living at the same standard of living. there's 200 billion workers somewhere that are toiling away for us to have all this wealth. So enable us to get to places we wouldn't have been able to get to with the current population of the world. The fact that we're talking real time through this magic machine is because they have 200 billion virtual workers that are motors effectively running on electricity and fossil fuels or whatever.

1:06:13The wealth that exists in the world is from that. And AI will maybe do$100 billion more if we're lucky. And if you... The median American, I think, lives on$80 a day in terms of spending, consumption. The world is, I think, around$8. So for us to bring the rest of the world to the median American, we need to 10x productivity. We roughly need to displace 80 billion jobs. Does that make sense? We need everybody in the world to still work every day as hard as they're working now, but to be 10 times more productive. And that would bring the rest of the world, that 8 billion population, to be at the median level of American.

1:07:05so this idea that ai is taking our jobs is dangerous because it can do real damage like if we don't increase productivity we're we're prolonging extreme global poverty we're prolonging extreme poverty like everywhere not just in the u.s it's like uh do whatever you want with your life be selfish but to prevent other people from like being more productive is cruel like the the global economy so interconnected that productivity improvements in the US that it allows us to become richer lift people out of extreme poverty everywhere like this is that that's like US companies make money everywhere they don't they don't they're not insular in in United States like a Apple makes a phone in China it's assembled in China those people have jobs and then sold in Southeast Asia.

1:07:59And we are blessed that somehow they pay taxes in the US, that they are American designers and engineers. We get a major benefit from that and capture a lot of the wealth there, but the people that benefit, benefit everywhere in the world. And I think it's kind of this like luddite miserly nimbyism that's driving this like anti - here. They see their share of their pie shrinking even though the pie itself is growing. And this is what's driving that selfish need to protect your little share of the pie as opposed to thinking if the rest of the world gets wealthier and they just get to the same level as the median American, the median American is going to be double in wealth easily.

1:08:49Turner Novak:Yeah, it's kind of interesting, though, that no one... It feels like the average view is, you know, we shouldn't be building data centers because they pollute or it's loud or... But there's the least polluting industry ever. Build a phone. But the whole narrative is they use all this water or something like that. They can make them air cools. and in your town and your city you you can live in your beautiful town that is once low traffic and doesn't want to grow and that's totally fine and be selfish there because myself i cannot possibly tell you how to value that and like do whatever you want in your local community but to prevent another one that is growing to take it on the risk and building productivity improvements for everyone, that's cruel.

1:09:45That's not being selfish. It's just being actively cruel. So places that want to do whatever they want locally, that's great. I think preventing Texas from building data centers of suicide and literally cruel to, not just the people of Texas, but to the lowest extreme poverty-stricken people. I think, I don't know, I was 11 when we left the USSR, so I still remember it. And we were well off relative to the Soviet Union. And I think when I looked up the stats, I think it was like$20 per relative to$80 spending today in purchasing power. USSR was at like$20 or something like that. What that meant was that we had a shared apartment with three other families.

1:10:37There was a single bathroom that everyone used with one toilet for all the families. and this is bizarre when I told my kids they didn't believe me you had the toilet seat was hanging on the wall with the last name of your family written on it so you would put on your family toilet seat on the toilet that's insane that was upper middle class USSR and this is higher than the median standard of living globally so like I don't know if you have anti-data center listeners or whatever or you're being cruel. This is my message to you. You're being cruel to the rest of the world. Yeah.

1:11:18Turner Novak:Well, it's interesting though, like the beauty of capitalism is like, all right, you don't want them in any, like in your town in Texas, we're going to put them in space. Like we'll just, we'll figure out a way to do this because the incentives are like... But that's a cost. It slows us down. Like that is every 1 % of like the GDP, global GDP growth that's short means millions of people remain in extreme poverty. That's like the... People need to put on their little awareness hat. Think about how do you actually lift people out of extreme poverty? You have to improve productivity, which requires risk.

1:11:57Risk has to be underwritten by capital. Somebody has to go build that new motor, that new whatever way of insuring crops or fertilizer, whatever. Like somebody has to go figure it out. And to do that, you need all this growth. Otherwise, like I had six years of Soviet communist education. Emancipation of the proletariat can only come from massive productivity improvements.

1:12:26Turner Novak:Well, what was the biggest culture shock when you moved from the USSR to the US? I thought the entire United States was like Manhattan, like end to end. It's like a big downtown big building. You just saw one of those maps and you're like, this whole thing is just like big buildings. Because that was like the idea of modern America was that like New York, super busy, like hyper capitalist, like, dense place. And the biggest culture shock to me, there's like end of the Soviet Union, like right before the collapse. So you were like, I mean, it was probably like the worst it had been before the collapse, right?

1:13:09Turner Novak:Like it just... No, it was the highest GDP USSR had. It was like a year before it collapsed. Really? So things were great relatively, right? Okay. Well, relative to where it had been for the USSR. So what was going on? If GDP was going up, but things were the worst. When the government directs the economy, the GDP that measures personal spending is measuring spending that people want. That I want to buy this thing, I want to buy this donut, I want to buy this, I don't know, Crocs shoe or this Botox treatment, whatever. That means I'm willing to spend money on this. And when that goes up, naturally, it's very correlated to the spending that people want to do, which means that they're serving their needs and they're happy.

1:14:03When the government spends money, it's spending on our behalf and it's trying to do its best in the most optimistic light, right? It's trying to figure out what is it that we want and spend it. But there's an error there. And the bigger the government budget is, the more dislocated is the GDP number from I'm spending stuff on what I want and I'm satisfying my needs. You get this like distortion. So USSR economy was 100 % government spending, like maybe 95%. You had like 5 % small Portland level, like everything handmade businesses. And people were unhappy because they didn't have like the stuff that they needed.

1:14:46Turner Novak:right so they just had what the government thought they needed which might be right but there's also going to be some stuff that's wrong in that assumption it can only be right on like very macro large-scale energy that kind of thing like even then like i think but it's just very very hard for it like you think of like can the government solve housing can they build a thousand apartments next to your home. This is how they would place the apartments in the wrong spot at the wrong quality. And the people that would get them would not be happy. I want to share this toilet with four other families.

1:15:28Turner Novak:Exactly. But in theory, you got housing for the people. It's just not what they want necessarily. Interesting. For example, I know you play underwater hockey like you might love you might want to play under underwater hockey but like we just built soccer fields you got to play soccer yeah exactly so that actually sounds like a like a fake sport what is underwater hockey because i grew up i'm canadian so i grew up playing hockey but like how do you play underwater there's actually a really great canada like team like group that plays really okay it's in places with a lot of pools it's six on six you wear fins and snorkel you You hold your breath and you got a stick about like a foot long and a puck that looks like a puck but it's got a lead core.

1:16:16So you fling it around in the pool on a flat pool eight feet deep.

1:16:20Turner Novak:Does it sink? Yeah, it sinks. So it's almost like air hockey underwater and it's three-dimensional because you like swim over players. So the puck is fast. Like when you hit it, it moves really quick? Yeah. Yeah. So you can't fling it around the side like you can in hockey, right? You can't do icing or whatever. But you can fling it 15 feet, which is a quarter way there. And the play can move really quickly if you one touch it or cross. So it kind of sounds like water polo, but even faster and more intense. Can you climb on people and stuff? No, no. The reason why people get into it is because it was co-ed in college.

1:17:07There is a global world championship. I was the worst player, I think, on the US men's team.

1:17:14Turner Novak:Oh, you were on the US men's team? Oh, nice. That's cool. That sounds fun. It sounds like one of those things you really commit to get into it. You probably couldn't just try it. but actually it's so small that half the way to get on the national team is just to afford to go to all the tournaments interesting okay so that's why you were the worst you could afford it i wasn't like iron man shape so i was a i had endurance i loved running cycling surfing like but i think I'm there's just a certain amount of athletic athletic talent that like pros have right that I think us normal people no matter how much we train can get to do you have um just like quick question to close do you have like a favorite um founder or ceo company maybe it's inspired salon and maybe not but I mean and like as of current day or even like historical like anything you've like really gotten a lot of inspiration from?

1:18:15Romani is the founder of Backpack. He's this guy that he was an FTX employee. He was like, he built a whole bunch of tools on Solana. He was like the engineer that I was like working with. Me, like working on the protocol, him working there. And he was going to build this company and FTX collapsed. And all their funds were on FTX, like 80 % of their runway. And they were stuck there. from backpacks. They just did this big raise. They had raised$15 million. It was a massive round day. And the company was basically dead in the water after the collapse of FTX. And it was six people and they just buckled down in the worst possible, I think, crypto market ever and just built really good products and recovered.

1:19:04And now has a full exchange that's issued SpaceX. I think it's an amazing recovery story of just real personal grit. So it's been my inspiration.

1:19:18Turner Novak:Wow. I didn't... I'm sure... Yeah, that'd be crazy. What was it like? Because wasn't FTX a pretty big holder of Solana at the time it collapsed? Yeah, they were like a big investor and we just finished our conference called Breakpoint. And it was the biggest conference to that day. We've been lucky that all of them have been bigger than the next. But it was like 1000 developers show up at this massive hacker house, like 2500 tickets. We were like in our tickets on free, there are 500 apiece. So I always made the conference team to like it has to be breakeven, it's not a charity. It sold out. And it was, we were riding cards on the plane flying back from this like amazing conference.

1:20:04And all of a sudden, one of their biggest builders in Solana, this company that we've been working with closely, just announced that they're dead. Yeah.

1:20:16Turner Novak:What happened next? What did you do? It was pretty gut-wrenching. My co-founder Raj is a perfect counterparty for this. He loves crisis moments.

1:20:33So basically, my biggest fear was a bunch of people had money in FTX and their runway. And if our ecosystem died, then we were dead. And we called a bunch of founders and our backpack was one of them. So they were kind of screwed. But 80 % of them were smart enough that they were kept in banks and they did the right thing. So they didn't keep their funds in crypto or in an exchange. A lot of advice was like, keep your money in crypto because... The advice I give people now is like, go to treasurydirect.gov and buy the stupid T-bills.

1:21:15Turner Novak:Use as dumb as low-tech money as you can. Short-term T-bills is where you want to keep your runway. The feedback that I got during those calls was that... Literally, people told me, we looked at other chains and they all suck. And we were either going to build our own blockchain or use Solana, even after all this. And it sounds like everywhere else is worse on the technical side, but equally as bad on the crisis. It's just like we were at the front of it because of how big FTX was as an investor and the token price and it took the biggest drop. But because the tech was good, the product was good.

1:22:05A bunch of people came in and built products during that time. And to them, it was an opportunity to go invest in the ecosystem that they saw was unique and healthy. So ended up working out. I think it's crazy to say that now, but there's no way I would have ever thought of saying it that it probably made us stronger, like all in all, it's math.

1:22:29Turner Novak:Yeah, it's interesting too with the whole SPF is this legendary venture investor when everyone goes back, like you own 10 % of Anthropic or whatever it was, like big chunk of Cursor, Robinhood, and it's just like a crazy, crazy situation. Do you have a single biggest prediction for the next year? Something you think a lot of people are sleeping on that no one's paying attention to, but they should? I think people are going to realize that there is no AI job losses. Those haven't materialized. I think the companies that use AI the most are hiring the most because they are seeing productivity improvements from AI that means their products are growing and they're going to hire.

1:23:15that's kind of like otherwise I think we should be in a recession if it wasn't for the AI booms we're kind of lucky there I think for crypto I always kind of made this joke that there's kind of three phases you have the punks then the hoodies then the suits and we're going through this transition to the suits which is kind of more boring but it means that it's going to be around forever It's sticky. We're doing boring stuff. We're issuing regulated stocks on chains so people can deposit them in their brokerage accounts.

1:23:54Turner Novak:Yeah, I think I saw Western Union uses Solana for stable coins. That's the most oldest boomer company you can imagine, sending money orders. We're getting boomers onboarded. The prediction is that year over year, number of boomers onboarded to boring crypto rails is going to increase by in double digit percentage. Nice. Yeah, that's good for you guys for sure. Hopefully good for the boomers too. What I want to see is this translate into lower fees and better services for users. We're in this cycle where I think businesses are looking to cut costs and are using new technologies and stuff and cut costs and increased revenue.

1:24:38but like we should start hopefully seeing lower costs for users and kind of better growth there.

1:24:45Turner Novak:Yeah, well, I mean, that'd be a good prediction for 2026 too. Next, next year. Well, cool. Well, this is a lot of fun. Thanks for coming on the show. And thank you for listening. Thanks again to this episode's sponsors, Flex, Numeral, Amplitude, Merge, and Monaco. If you enjoyed this, please like, comment, subscribe and share it with a friend who should build their own market on Solana. Make sure to check out the back catalog of over 100 episodes with investors like Gary Tan, Vlad Gill, Jathan and Eric at Benchmark, and the founders of companies like Robinhood, Sweetgreen, and Mercury. Tune in over the next few weeks for conversation with Alameen Oudin at NexHealth, Naveen Chata at Mayfield, Michael Tannenbaum, the CEO of Figure, the first blockchain-based lending company, and my friend Shensi Ding at Merge.

1:25:24Turner Novak:If you don't want to miss any of these, subscribe to my newsletter, The Split, linked in the description to get each episode plus a transcript emailed directly to your inbox every week. Thanks, Sam, for listening. See you next time. Bye.