Joey Krug on Prediction Markets, Crypto Treasuries & the Next Era of On-Chain Finance (Partner at Founders Fund)

Speaker A: You dropped out of school and then built what was really the first crypto prediction market called Augur. How did that idea come to you? Speaker B: If you have markets where you can basically bet prospectively on anything, that's the ultimate vision of capitalism. And I was really drawn to this vision as well. If you can have markets on any future state of the world, you can then use that information for lots of other things. Speaker A: We're now seeing ETH treasury companies, Solana treasury companies. How do you think it changes the structure of this market?

Speaker B: I think it probably works less well as you go down the list of assets. In the same reason that a small microcap stock can't really issue that much debt. People want to buy Apple bonds or Goldman Sachs bonds. They don't really want to buy the small to mid-cap. Speaker A: We've talked about some of these regulatory changes that have been made under the Trump administration and how much hostility there was under the Biden administration. Speaker B: I think the most absurd thing I remember under the Biden admin for crypto was that the SEC actually tried to take the position at one point that stablecoins were a security, even though, like, buy USDC, you can't really make money.

Speaker C: Prediction markets are having a moment. Over the past 2 years, these exchanges have gone from curiosities to possibly the future of finance. Increasingly, platforms like Polymarket attract billions in monthly volume from traders keen to speculate on just about anything, from political races to sports events to the number of tweets Elon Musk will post in a given timeframe. Today's guest, Joey Krug, saw the opportunity in prediction markets long before the rest of the world, building the first decentralized player in 2014, and then backing Polymarket as a partner at Founders Fund nearly a decade later.

In this episode, Joey unpacks his history with the concept, why the moment is finally right for prediction markets to take off, and how he expects them to develop. We also cover the Crypto Treasury movement including Founders Fund's investment in ETH treasury player Bitmine, and finish with Joey's thoughts on the state of the crypto markets. As a note, our discussion covers tradable assets, so please remember that none of this is financial advice. And with that in mind, let's get to the conversation. I'm Mario, and this is The Generalist. Every revolution in AI creates one question that never changes.

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to/mario. Speaker A: Joey, I'm so excited to have you here. Uh, ever since we, we met through the Founders Fund piece, I remember being really struck by what a sharp and interesting person, uh, you are, uh, with a really unique perspective on crypto. And so, yeah, thrilled, thrilled to have you here. Speaker B: Yeah, thanks for, thanks for having me. Speaker A: Amazing. Well, I'm excited to get into a lot of different pieces today, including, you know, some of your, your story and some of the pieces of the crypto market that you've been involved in.

You know, particularly I think prediction markets has been a big part of your story, both as a builder and as an investor. But maybe to start out, I wanted to circle back to part of your origins, which I remember really struck me when we talked back in the day, which is that I think you told me that in your early days as a kid, some of the first quote unquote investing you did was betting on horse races. How did that start? Speaker B: Yeah, that's right. So, you know, I used to be really, I still am really into horses and horse racing.

And you know, when I was a kid, I used to go riding a lot and I just remember one year, you know, watching the Kentucky Derby. Like on TV and there was a big kind of like long shot payout for the horse that won. I kind of looked at it and I was like, that's interesting. I wonder if there's a way you could like predict which horses are more likely to win and then bet on that to make money, which usually is the start of a story where things are about to go south.

But in my case, was able to actually, you know, I basically borrowed $20 from my mom and, um, started kind of looking into it and built like a really simple, basically like linear model system, literally just in, you know, Excel, where I get all this historical data about all the horses in a given race. And then I'd look at, you know, all the races on any, on any given day, and then, you know, pick 2 or 3 bets to make, basically. Speaker A: Wow. Uh, it's fascinating to me that clearly the odds were not, uh, sharp enough to sort of have done that sort of work.

Like, where was the edge in that model, out of curiosity? Speaker B: I think one example where there's probably the most extreme edge was like if you have a track where it's like really muddy and really rainy, there's some horses that just— I don't know if it's genetics or just like personality, but some horses really love to run in the rain. And so like, you know, that's one example where there's like massive mispricings because there's horses that look really good on paper, but they've only ever ran, you know, on like a clear sunny day where the track's super dry and fast, versus there's some horses that just really outperform when the track is like super muddy and filthy.

Like, that's one example where like it doesn't happen very often, but if you come across that scenario where there's a horse that has really good past performance in the rain, like that's one market dislocation. Another one is like people are really bad. All this stuff is much more efficient now, but back then people were really bad at like, you know, you look at a horse and it's won its last few races, but the distance on those races are significantly shorter than the race that's about to be run. And you have a horse that's maybe gotten, you know, second, but it has run that long distance before.

That horse is usually undervalued relative to the one that's going up in distance because it's just like a, a new thing for the horse and, and they tend to underperform. Stuff like that is sort of what, what surfaces. Speaker A: I love these sorts of stories because, you know, I think when you're a kid especially, you, you haven't necessarily have your mind, you know, trained or warped or sort of, uh, molded into these strict ways. And so you can see just sort of the natural way people's brains work. And so clearly this was something that, you know, almost congenitally or, or behaviorally, you're predisposed to look for these, uh, opportunities, uh, in a way that has certainly served you as an investor today.

It sounds like you were, you know, obviously a very technical child, so to speak. Uh, I believe that I read that you started learning, um, AppleSoft BASIC, which is not the, the most common type of code that someone would traditionally learn to, uh, learn to code. How did that happen? Speaker A: I love these sorts of stories because, you know, I think when you're a kid especially, you, you haven't necessarily have your mind, you know, trained or warped or sort of, uh, molded into these strict ways. And so you can see just sort of the natural way people's brains work.

And so clearly this was something that, you know, almost congenitally or, or behaviorally, you're predisposed to look for these, uh, opportunities, uh, in a way that has certainly served you as an investor today. It sounds like you were, you know, obviously a very technical child, so to speak. Uh, I believe that I read that you started learning, um, AppleSoft BASIC, which is not the, the most common type of code that someone would traditionally learn to, uh, learn to code. How did that happen? Speaker B: Yeah, it's kind of funny because, because sometimes, you know, just like over the years, like in in business, you know, I'll come across people that are, you know, in their, in their like 50s or 60s and, you know, somehow the subject of like, how did you start programming comes up?

And often they, they will have started programming on AppleSoft, you know, BASIC, right? And, and they're surprised when, you know, I'm like, yeah, me too. For me, that was just, um, when I was in middle school, my dad got me an old, an old Apple II computer that he just bought on eBay. Um, and you know, it was like, hey, like you should, you know, learn to learn to program on this. Like, and, you know, it got me like one or two books about BASIC and I just started writing, you know, really, really simple programs, um, which is kind of a good way to start.

Um, you know, cause, cause there's not, there's not that much you can do. Like you're basically just using like a command prompt or terminal, um, and writing, you know, text-based programs. There's not really. Like in theory, I think you can, you can, you know, write a server in AppleSoft BASIC, but like, that's not the kind of stuff most people did. It was just sort of like mostly local programs running on the machine. So it's pretty like contained way to start programming, which I think is actually pretty, pretty, was a pretty good way to start.

Speaker A: Really interesting. Um, and so you, you sort of, you know, were obviously interested in computers and you had sort of this, uh, investor sensibilities, whether you would have thought of it that way or not at the time. When did sort of crypto enter the picture? Was this, you know, somehow discovering the Bitcoin whitepaper and finding that fascinating? Was it, you know, something that happened a little later? Speaker B: Yeah, I mean, crypto I first came across through gaming. I used to play a lot of video games when I was a kid and I had this computer that had two AMD Radeon 6870 GPUs and I used to be into overclocking it, you know, making it run faster than stock.

And there was this forum where someone had basically posted like, hey, there's this software that if you run it, you can earn money kind of like out of thin air with your graphics card. And I came across that and I was like, that sounds like a scam, but also, you know, this is a really popular thread, so, you know, maybe there's something here. And it turns out it was like, I think the program was GPU Miner and, you know, it's for mining Bitcoin on your GPU. That's sort of how I first came across it.

And then I didn't read the white paper until like maybe a month later, because I had some of these, you know, Bitcoins that I mined and I was like, you know, should I, should I sell this or, or is there something real here? Like, is, is this a scam or not? And that's when I actually read the paper and kind of thought it was a cool idea. Wow. Speaker A: That's amazing. So you were, I assume like in high school or even, I don't know, sort of mining Bitcoin in your, in your room on your, on your GPUs effectively.

Speaker A: That's amazing. So you were, I assume like in high school or even, I don't know, sort of mining Bitcoin in your, in your room on your, on your GPUs effectively. Speaker B: Yep. Yeah, that's right. Wow. Speaker A: Uh, and so then you read the white paper, uh, you know, you, you go to college, study computer science before sort of dropping out. Was the white paper sort of a, a moment where you're like, hey, actually, you know, the way that I see computer science is going to be through this paradigm, or how did it sort of go from maybe this curiosity to a thing where you're saying, hey, I'm actually going to step out of school and, uh, try and build something in this space?

Speaker B: I'd always been really interested in, in in medicine as well for a bunch of other reasons that, you know, you can get into at some point if you want. But basically I was interested in medicine and, but I always thought that like, you know, it'd be really interesting, you know, if you were like a doctor who could also program. I thought that would be, you know, maybe there was something interesting you could build if you did that. Then went to school and then, you know, kind of two things happened.

One, I sort of thought about, you I love school, but I also thought about, you know, if you want a doctorate, you need to do another 4 years plus probably another 4 in like residency. You know, kind of at the same time, the price of Bitcoin was rising. There's all this interesting stuff happening in crypto. The Ethereum whitepaper kind of just came out and like none of the professors were teaching courses on crypto anyways. I mean, now you can take courses about it at Stanford where you can like, you know, write smart contracts and you know, do stuff with zero-knowledge proofs.

But back at the time, especially in undergrad, like that didn't exist. And so I found myself just reading lots of papers about crypto and, and, you know, buying and selling crypto and, and sort of kind of thought that like, I may as well just leave school and build something in the space as opposed to spending another 3 years there. And not really learning anything about crypto anyways beyond what I was doing on my free time. And so, yes, I may as well just do that, do that full-time was sort of the, the high-level logic.

Speaker A: You, you had an amazing breadcrumb that I can't help but follow, which is that you have this interest also in, in healthcare and this idea of a, you know, a doctor who can code. I think would have been really prescient if you look at some of, sort of the stuff with, you know, computational biology, biotech, you know, all of these things that have also grown in sophistication, uh, in, in the time period since. Where did that sort of interest originate from? And, uh, you know, to the extent that you have sort of the latitude to explore that interest, today?

How does it, yeah, how does it influence how you think? Speaker B: Yeah, I mean, where, where it originated was kind of way, way back. Also when I was in middle school, like roughly 5th, 5th grade, my brother got this really, really rare disease called atypical hemolytic uremic syndrome. It's basically a kidney disorder where your red blood cells basically, basically like destroy themselves. It's called hemolysis. And I ended up just spending a ton of time, actually dropped, dropped outta school for the first, for the first time, then just homeschooled myself for a year.

And so I could spend time in the hospital with him and, and also research like any potential treatment for it. Eventually came across this, this drug called Solaris, which is, which is used for this other blood disorder called PNH. But it's sort of, if, if you give a patient who has AHUS to, to not have to say the whole mouthful every time. If you give, if you give a patient with AHUS Solaris, it also basically effectively treats them and makes them 100% normal. And so we, we basically, it's a really long story, but basically we got my brother to this doctor at, at the University of Iowa who was doing like the first trial with like 5 patients with his disease with this drug.

And the company is called Alexion Pharmaceuticals. And in hindsight, I should have bought this stock as well. Yeah. But didn't, didn't think about that back then. But, you know, he's on, he's on it now. There's actually a newer version that's longer lasting and, and, you know, 100% normal versus it was a disease that had, you know, like a 95%, you know, 5 to 7 year mortality rate prior to this drug existing. So that's what got me into medicine. Cause I was like, there's just all this like, really interesting stuff you can do.

You know, I think the other thing that kind of made me interested in it was like, there's kind of just this like wide disparity between what certain doctors were aware of as well. I think AI is like narrowing that, but like, he was at WashU in St. Louis, the doctors there basically didn't believe this drug would work and were like, yeah, there's nothing we can do. Versus, you know, this random doctor in Iowa, you know, is running this, this trial that you know, worked and, you know, made him, made him basically 100% better with it within, you know, 6 months.

And so that's sort of how I first, first got interested in, in, in it. Speaker A: That is an astonishing story. I mean, it's sort of, uh, wild to me because it's clear that, you know, even as a kid, you must have been one, you know, extremely high openness that you're like, you know, I, I can, you know, I'm, I'm open to the idea of this new kind of money and also I'm open this to this, you know, different type of drug. But also, you know, I'm at risk of using jargon that is too tech jargony, but very high agency that you're, you know, you were, you know, as a kid thinking about these solutions and able to sort of broker these things.

So, um, yeah. Wow. I mean, it, uh, it's really remarkable. Yeah. Do you find yourself, uh, spending time on that in your sort of nights and weekends? I feel like everyone sort of needs a place very different from their work life to go, uh, you know, almost think about something totally different. Speaker B: Yeah, I mean, my nights and weekends are basically two things. Yeah, one is, you know, kind of looking into what's going on in medicine or biotech. Just always been interested in it, kind of sparked from that story.

But then I've also spent some, a bit of time on it, like Sean Liu and I at Founders Fund are looking at some companies in the space as well. Probably spend more time, you know, over the years there. But I think the other area is trading. I do a lot of trading in public markets, which is a good way to stay sharp and also has a faster feedback loop than VC, but also informs your worldview for investing in privates. And so that's the other nights and weekends thing that I do.

Speaker A: I love it. That's a great yin and yang to sort of come back to you know, some of these early formative crypto experiences. I'm going to jump around a little bit because there are pieces that I really want to, to dig into that I think are especially relevant to the way the markets are today, the place the market is in today. But to, to sort of jump back in where we left off, you, you dropped out of school and then built what was really the sort of, I think the first crypto prediction market called Augur.

How did that idea come to you? Because it's, uh, one that has really found its place in the sun, you know, maybe a decade later. Speaker B: It was one of the first use cases talked about after, after Ethereum kind of came out. It was one of the use cases, you know, first, first mentioned the Ethereum whitepaper, even like Vitalik wrote about it and I didn't know that wrote a couple of blog posts. Yeah. So it wasn't, it wasn't like a novel idea, but it was sort of an idea I was interested in kind of dating probably back to the, to the horse racing betting stuff where I sort of thought that back then you couldn't really bet on sports or on horse racing in the US.

You had to use these offshore places where, you know, it was just like you're betting against the bookie, right? And I always thought that that should be a market. So that was one reason I was interested in it. But then the other reason was that I thought that like Shane from Polymarket talks about all this all the time, but we both kind of read some of the same papers from like Hayek and And there's also like these two economists, Arrow and Debreu, that had this idea of like complete markets or complete securities where if you have markets where you can basically bet or speculate on anything, that's sort of like the ultimate, you know, at least in their view, ultimate vision of capitalism.

And I was really drawn to this vision as well. 'Cause it's like if you can have markets on any future state of the world, you can then use that information to for, for lots of other things. Um, so that's sort of like the intellectual reasons why I was interested in it. Speaker A: Super interesting. You know, I think probably the vast majority of listeners will have heard of prediction markets, but if for some reason someone hasn't, I think you encapsulated it so well there. This idea that, yeah, betting on, on anything, it can be a presidential election, a mayoral election, it can be, you know, what the Fed rate, uh, are going to be in a certain period of time.

It can be if China's going to invade Taiwan. and being able to, you know, do that in a sort of centralized location where there's, you know, lots of liquidity hopefully, and, you know, a sort of robust system of resolution. It's interesting to me because I think there's a lot of people who actually came to crypto sort of nerd sniped by what you were doing with Augur and prediction markets in general. Like, um, I remember talking to Dan Romero from Farcaster and he, he mentioned that that was like something that really got him excited about crypto in general.

What do you think it is about that concept that like seems to really intrigue smart people? Speaker B: I think, you know, where I go back to is like, okay, if you look at Bitcoin, you know, the thing that intrigues people about it is it's like this first, you know, whether you call it a monetary or, or gold-like asset that's, you know, kind of digital and independent of any government. And then if you look at smart contracts, you know, they enable you to basically do that for anything in the financial system.

And then, so the next kind of level of logic is like, well, okay, you have smart contracts, what's kind of the most logical thing to do? Well, it's to create a financial market that's independent of the traditional financial institutions where you can basically speculate on anything you could possibly want to speculate on. And not only that, but you can create these markets fairly quickly in a matter of minutes. And it basically kind of democratizes, like, you know, most people have seen like The Big Short. If you remember the scene where they're going around getting all these ISDA agreements in place with, you know, the big banks to take on the specific bets they want to make.

In theory, like, you could get a really informed counterparty who's willing to let you speculate millions of dollars on almost anything and fit it under a swap agreement, right? In practice, you know, if you go to JP Morgan and say, hey, I'd like to bet $10 million that, you know, Russia invades Ukraine or whatever. Speaker A: Yes. Speaker B: They're going to be like, what are you talking about? Yeah. And so I think people are interested in prediction markets because it allows you to basically take the same kind of intellectual underpinnings of things like Bitcoin and smart contracts and then apply them to any financial market where it's just like a pure, you know, free market where anyone globally can trade them.

And so I think that's sort of why people got excited about this idea. Speaker A: And also just even for folks that, you know, maybe don't see themselves as the speculator themselves, there is just this value of having this crowd wisdom or, you know, what, you know, there's probably better ways to really describe it, but getting to see the odds or the, you know, the prognostications of a group of people that are actually putting some amount of asset at risk to sort of justify their opinions. It gets you sort of closer to truth, hopefully, or at least the perceptions people have of that moment, which I think is, you know, now extremely valuable.

I find myself going to the Polymarket and Kalshi and looking and saying, you know, okay, what are the odds in this race? Or, you know, what are the sort of the view of the world right now? So there's this sort of informational aspect that is really valuable. Speaker B: Yeah, yeah. I think, I think that's totally right. Like I go to Polymarket multiple times a week just to inform my view of the world. And often there's like interesting trades you can do around that too. Like what, what, like one small example, you know, for, for someone who's like skeptical of this idea, right?

Like one, one small example right now is like you go to Polymarket and there's a greater than 50% chance that the United States does a military action in Venezuela by the end of the year. Like if you ask most people on the street, they would probably say it's below that, right? You know, like one example, like I'm buying a couple stocks that are exposed to Venezuela right now because I think like, yeah, it's probably mispriced. There's a bunch of different things like that. You know, if you go back to the tariff stuff, you know, earlier than in the year where prediction markets were like super, super useful to understand what's actually going on.

Speaker A: So, you know, to come back to what you were doing with Augur, Why was it structurally that crypto was such an unlock for this idea? You've sort of mentioned parts of it there, but yeah, what, you know, what if you sort of put yourself back into your teenage self there, what were the sort of theses that you were operating under? Speaker B: The unlock for crypto for prediction markets is, and it's sort of similar for, you know, why crypto's useful for other things as well, is one, it's inherently a sort of global market.

So, you know, you just need an internet connection and a way to access, you know, back in the day you needed East Tibet, you know, now you can use stablecoins. And then the second thing you, that it does is, and this is probably kind of a bit more slept on thing, but if you look at sportsbooks, part of the reason their fees are so high is one, they're taking the other side of every bet. So it's not a market. But I think the other reason that people don't think about as much is a lot of the payment methods are reversible.

So there's the risks that you, you know, bet $500 on the Yankees game and then charge it back and say, oh, actually I didn't make that bet. Someone must have stolen my card. And so you have to price that in. Crypto doesn't have that problem 'cause it's, you know, once you send it, it's settled and there's no way to kind of reverse like a stablecoin transaction with exception of some obscure edge cases. Like if you're, terrorist or something. And so I think that's another reason. And then I think the third reason is that it's sort of just the most efficient way to operate or run financial markets.

Like if you think about, you know, how you would create something like this in, you know, kind of the traditional finance landscape, like you can do it, but it's just a lot clunkier and it's a lot harder to kind of share the liquidity pool. you know, in countries outside the US and you, you end up having some of the same, you know, chargeback risks that, that the sportsbooks have. And so I think back when, you know, I was working on Augur, the main unlocks were just like, it's global, you know, 24/7.

And yeah, you can create these, these financial markets pretty easily versus having to go through a lot of steps and paperwork and stuff like that that you have to do in the traditional system. Speaker A: And in terms of the, the sort of reasons that Augur didn't ultimately work, it feels like a lot of that was just sort of hamstrung by the state of crypto infrastructure at the time. You know, the, the speed of these transactions, the cost of the transactions. What were the pieces that you feel like, you know, even if we'd had, let's say, 100% perfect execution, we would have really hit a wall because of X, Y, Z.

Speaker B: There's a few reasons. I think some, some of them were things, you know, in our control and some, some of them were things not in our control. I think if you look at, you know, back then, for most of that period, the government was, especially under Biden, the government was quite hostile to crypto. Speaker A: Yeah, true. Speaker B: There was even like a speech given by, you know, one of the CFTC commissioners at the time that like, I haven't talked about this before, so this is maybe new to some people, but it's, it's basically like, clearly like 100% about, you know, Augur.

Speaker A: Oh really? Speaker B: It's saying that, yeah. And it's about prediction markets. We were the only prediction market, you know, in crypto back then. And it was saying that, you know, developers of smart contracts should be held liable for the actions that take place using those smart contracts, which is sort of like saying that, you know, Microsoft should be held liable if someone writes a ransom note with Word. Really absurd. But also a lot of the legal stuff, you know, hamstrung us because we were trying to build it with kind of, you know, one and a half arms behind our back, so to speak, where there's a million things we could have done to make it like so much easier and faster and quicker to use.

But we just took the maximally decentralized approach because the thing we were optimizing was that like, if the government ever did sue us and it went to court, we wanted to win. Which meant that we did like almost nothing. You know, we didn't create the markets on Augur, we never traded in them, we never market made in them, we never resolved them ourselves. Um, we didn't even host the website. And, and so it was like, you know, there, there, there's a million reasons why it was just so hard to, to use.

And I think, you know, like if you, you went back and looked in, like the Augur Discord is public, a lot of those chats are public, you can see, you know, it's almost always a legal reason why we took something that was clunkier or harder to use as opposed to like a, you know, UX reason. I think that was a big part of it. And I think another big part of it, even if, even if we took all the legal risk and, you know, I think the second piece was just that the, the kind of like tech and infrastructure wasn't ready.

Like when Augur started, eventually there, these got built by companies like Alchemy, but when Augur started, there weren't even like Ethereum node RPC endpoints where you could talk to an Ethereum node. You had to spin up your own node to, to use Augur day one. Also transactions were very expensive, you know, on Ethereum. And Augur was kind of fairly, fairly gas inefficient as well. Like doing a trade on Augur would cost like $50, you know, no one wants to pay $50 to do a $500 bet or whatever. And so there are kind of all these reasons that, you know, that's kind of gotten solved by layer 2s.

The infrastructure's a lot better, faster, and cheaper. Stablecoins are a lot more widespread. It's a lot easier to on-ramp into crypto. And so I think even if we took all the legal risk, it probably wouldn't have taken off. Like the timing was just wrong. We were way too, way too early. But, you know, hopefully we, we like inspired some people to, to, to build in the space. So yeah, that's, that's sort of my, like, sort of my read of it is like maybe, maybe Augur's Napster and Plymouth, Spotify, or some, something like that.

Speaker A: I love that. Uh, yeah, an idea ahead of its time, uh, that certainly did inspire a lot of people and I think brought a lot of people into crypto and intrigued a lot of people to sort of, you know, go forward in your career a little bit. You know, after Augur, you, you became sort of co-CIO of Pantera Capital, which, uh, I, in only in, in researching, uh, this episode did I learn that it's a Tiger Cup, which, uh, you know, it's sort of a I didn't necessarily expect that from a, a really early crypto fund.

But anyway, you, you, you went to Pantera and then, you know, landed at Founders Fund. And, and this is sort of where the, you know, I feel like the prediction market story comes full circle, which is that Founders Fund led the, the Series A and has become a, you know, very large investor in, in Polymarket. How did, you know, Polymarket first come up on your radar? Speaker B: The first time I came across it was, was a long time ago where back when I was doing Augur, Shane had sent me an email and kind of a list of like, it was a good email.

It's like a list of all the UI/UX stuff that was, that was wrong with it. Um, and you know, I, I sort of agreed with like 90% of it. Um, but a lot of it we just couldn't, couldn't do due to kind of all this stuff I just kind of went through. And, um, and then I think maybe a year later, I forget the exact timing on it, but a year later, he was just like, you know, decided to create Polymarket and build a prediction market and wanted to basically kind of build a vision that he thought made sense for it.

And we sort of stayed in touch, like in loose touch off and on over the years. And then the thing I kind of always told him was like, if you get to, if you get to like a clear kind of product market fit, you know, I will invest. Was basically what I said. And I was like, you know, prediction markets is probably like the hardest idea to build because so many people have tried it. It's so like intellectually interesting. Everyone wants it to exist, you know, but it, but it's still just really, really tough.

I guess it's probably the hardest digital idea. Like, like fusion's probably the real world thing that's harder. But that's sort of what I said. And then, you know, I kind of gave him a benchmark where I was like, you know, if you get to like 4 or $5 million in volume a week and it's sort of repeatable, that seems like real enough to me that I would, I would take a bet on it. And then he called me, you know, late 2023 and said, hey, we, we hit the number. Do you want to, do you want to invest?

And I said, you know, let's, let's talk about it and let's also loop Napoleon in because he's also interested in prediction markets and, and betting. And we ended up agreeing to invest pretty, pretty quickly. And so that's, that's sort of how it, how it started. Speaker A: That's amazing. It is. It's funny, you, you mentioned the Napster Spotify example, but it really has that echo even from, you know, the, the connection to Founders Fund, right? Obviously Sean Parker, you know, goes to Founders Fund and, and finds Spotify, uh, after, you know, founding Napster.

So there's a fun symmetry there. Had you looked at a bunch of these other prediction markets sort of along the way and considered investing in them? Like, was it really just, hey, this is the one that seems to be breaking out and so, you know, this is the one to bet on? Speaker B: Yeah, I mean, I looked at ones over the years because given the Augur history, you know, I'm, I'm kind of one of the first people that people think to pitch, you know, when it comes to prediction markets.

But none of them really had the right, you know, kind of like founder market fit that Polymarket had. And then I think the other thing that I really liked about Polymarket relative to, you know, anyone else I ever talked to was, was sort of the, the crazy kind of relentless focus on like the UI/UX and the user and, and like why, why Shane is building it and those, those sorts of like founder reasons that are relevant to why Founders Fund likes to invest in stuff. I think it was very clearly, I think even, even in the memo we sent out about Polymarket, to the rest of the Founders Fund team, I think there was a line in there that was something like, you know, if, if anybody can do it, it's this team.

If they don't do it, it's probably not going to work for another 5 to 10 years, was, was sort of the, the rough mental model. Speaker A: What were the sort of founder-market-fit pieces that really spiked in terms of Shane and, and when you looked at the team that made you think, okay, this is, this is the folks that if anyone's going to do it, it's going to be these guys? Speaker A: What were the sort of founder-market-fit pieces that really spiked in terms of Shane and, and when you looked at the team that made you think, okay, this is, this is the folks that if anyone's going to do it, it's going to be these guys?

Speaker B: I think the way I would describe it is like, if you look at Shane, he's basically super, super obsessed about just like there being more efficient markets and there being a way to basically get data about kind of anything in the real world that people care about. You know, I think one of the kind of frequently used lines is like, if it's on the front page of the New York Times, like there should probably be a probability on it for how real it is. And Polymarket's the best place to go to get that.

The other like founder thing is the sort of extremely strong perseverance and relentlessness. You know, he, he did take the, the legal risks that, that we didn't. And there, there was kind of the first CFTC settlement. And then after, after Biden lost, there was, you know, the FBI raid. And I think, you know, a lot of people like reasonably probably would've just like, you know, folded and not wanted to take on the extreme risk. But, you know, he sort of had this extremely high conviction that this needed to exist. It, it was right.

You know, the government was, was, was wrong to be going after them and that he wanted to build it anyway. And I think that that is just sort of, it's impossible to fake. And then it's also really good for rallying people like around you to your cause. And if you think about like, what's important for a founder to be able to do is be able to have a clear, compelling vision and then get other people to support that, whether that's, you know, investors, people on the team, partners of the business.

And, you know, I think he really spiked on all those things. And then the second piece that I kind of alluded to earlier is just like this really high obsession about, about product and having like wanted to have the product for himself, you know, sort of, sort of thing, I think is really is really a big part of that as well. Speaker A: You, you mentioned sort of the interest of the CFTC and the FBI, right? For folks that, you know, maybe didn't chart that story, what was sort of the, the précis of, of, of what happened and, and how he was, you know, able to sort of manage that process?

Speaker B: So, so the, the short story of it is basically, you know, the first version of Polymarket, it's completely global, um, based on smart contracts. They didn't, block US IPs or anything. I think it was under the Biden admin, they had to settle to CFTC and basically block US IPs for very obscure reasons. The US government says that prediction markets are swaps. And there's kind of a great Matt Levine piece, which is like everything is a swap. If you Google that, it's kind of interesting to read. And then if you fast forward, you know, it's like '22-ish, something like that.

And then if 2022-ish, and then if you fast forward, right after, you know, Polymarket predicted the Trump election win and Biden lost, um, roughly a few days, maybe a week after the election, you know, the FBI raided Shane's apartment, took all his electronics and phone and everything. It's kind of sort of unclear exactly what, what the thing they're trying to get at or go after was. I don't think it ever really, um, kind of fully got explained, but And eventually ended up getting, you know, basically dropped, you know, earlier this year.

But that's sort of what I was referring to is, you know, they burst into his apartment at like 8 AM or whenever and, you know, took all his stuff and he didn't give up. Like I spoke to him, you know, like a day or two after and he seemed in as good as spirits as usual. Um, which, which is just crazy, crazy impressive. And, and yeah, it's hard. It's, it's, it's like, I would be pretty sad if the FBI raided me. Speaker A: To maintain your focus. Speaker B: Yeah. Uh, but you know, he, he stayed focused and on track and, and, you know, they've, I think they just did more, more volume than the election month, you know, last month.

So it's, it's, it's crazy where, you know, again, another, another situation where like if you look at what Polymarkets has done over the last year, you think for a majority of that, you know, they were again fighting with one hand behind their back because the government was incorrectly trying to go after them. Now that they're not, you know, imagine what they'll do with like 100% full focus is sort of how I think about it. Yeah. Speaker A: I mean, also just from, you know, the perspective of your investment, it feels like it was astonishingly well-timed in that you guys first invested ahead of, of the election cycle.

And I think there were, you know, probably a lot of folks that were questioning, you know, okay, maybe it works during an election period, but it's going to cool off and, you know, this is going to crater to, I don't know, 5% volume, 1% volume, you know, however bearish I suppose you want to be. And, you know, while there obviously has been a correction, it seemed that there has been still this sort of growing variety of use cases and sort of a higher base, uh, you know, naturally there are these spikes.

But, um, was that something that you felt confident about at the time that you were making your bet, or was that sort of one of the pieces that, that felt like an unknown even to you? Speaker B: The way I think about this stuff is always like, what, what's the market pricing versus what, what are we pricing, right? And I think, um, you know, in, in this case, the way I thought about it was like the market was pricing that there would be like a 90% decrease in volume. You know, that was— she scrolled Twitter, that was the common sentiment.

We thought that was wrong. You know, I, I our view is sort of that, like, or at least my view was sort of that, you know, maybe there'd be like a 50% decrease and then it would kind of take a while to rebound. But there wouldn't, there wouldn't be this like 90% drop. And the reason behind that was like, if you looked, you know, at Polymarket's volume, I think the percentage was like 50, maybe 60% elections. Like there was still this chunk that was not, not elections. And so to think it would drop a ton, you had to believe that all the users that came in for the election would just leave and not trade anything else.

But that wasn't really what it looked like from, you know, the underlying data, which is all on-chain and you can, you know, verify it. And so, you know, I think it's, it's probably the volumes have performed probably better than we thought they would've a year ago. But, you know, we, we sort of priced in them doing better than the market did, which I think is like, you think about edge as an investor, you know, you don't have to predict everything 100% precisely. You just have to, the delta between you and what the market thinks just has to be wide enough to, to be right.

Speaker B: The way I think about this stuff is always like, what, what's the market pricing versus what, what are we pricing, right? And I think, um, you know, in, in this case, the way I thought about it was like the market was pricing that there would be like a 90% decrease in volume. You know, that was— she scrolled Twitter, that was the common sentiment. We thought that was wrong. You know, I, I our view is sort of that, like, or at least my view was sort of that, you know, maybe there'd be like a 50% decrease and then it would kind of take a while to rebound.

But there wouldn't, there wouldn't be this like 90% drop. And the reason behind that was like, if you looked, you know, at Polymarket's volume, I think the percentage was like 50, maybe 60% elections. Like there was still this chunk that was not, not elections. And so to think it would drop a ton, you had to believe that all the users that came in for the election would just leave and not trade anything else. But that wasn't really what it looked like from, you know, the underlying data, which is all on-chain and you can, you know, verify it.

And so, you know, I think it's, it's probably the volumes have performed probably better than we thought they would've a year ago. But, you know, we, we sort of priced in them doing better than the market did, which I think is like, you think about edge as an investor, you know, you don't have to predict everything 100% precisely. You just have to, the delta between you and what the market thinks just has to be wide enough to, to be right. Speaker A: When I sort of looked at some of the data over the past year, it's clear that, you know, Polymarket has seen the most volume of any of the prediction markets, but that it is sort of, you know, I don't know if you would say it's closing or it's quite close with, with Kalshi in particular.

When you look at sort of the, the way this space shakes out, how, how do you, yeah, how do you see it progressing? Is this a, a winner-takes-all space, or, you know, are certain parts of it sort of cordoned off to in, in a winner-takes-all dynamic? Speaker A: When I sort of looked at some of the data over the past year, it's clear that, you know, Polymarket has seen the most volume of any of the prediction markets, but that it is sort of, you know, I don't know if you would say it's closing or it's quite close with, with Kalshi in particular.

When you look at sort of the, the way this space shakes out, how, how do you, yeah, how do you see it progressing? Is this a, a winner-takes-all space, or, you know, are certain parts of it sort of cordoned off to in, in a winner-takes-all dynamic? Speaker B: If you look at financial markets in general, historically anyways, they, they tend to be, you know, basically duopolies. So you have Coinbase and Binance, you have, you know, you know, CME and CBOE, you have New York Stock Exchange and NASDAQ. It's, that's one, one lens is like maybe there's a duopoly thing.

Speaker A: Why do you think that is? Out of curiosity. Speaker B: I think it depends on each. Like if you look at the Binance and Coinbase one, that's a clear split of just like international versus, you know, predominantly Western US markets. If you look at, if you look at the like options and futures markets, like CME, CBOE, I think that one was probably more of like a product type split in the fact that they'd just been around for so long that it sort of naturally developed where there's one place you trade grain futures, another one where you predominantly trade oil futures, you know, so, so on and so forth.

And they'll liquidity kind of concentrated. I don't have a good explanation for New York Stock Exchange and NASDAQ. I'm sure there is one. I just haven't looked into that too much. If you tie this back to like Polymarket and Kalshi and other people trying to compete, I think, you know, the US versus international lens, I think, you know, Polymarket's the clear winner internationally. And then they're about to launch in the US, I guess. And then in terms of the market categories, you know, if you look at, Again, you know, Polymarket's roughly, I think sports is like 40-something percent and the rest is other things.

Kalshi's like 90% sports, which is another interesting lens. But I guess to more directly answer the question, I do think it'll end up being a bit more of a lopsided duopoly than the other stock exchanges. Like my mental model is closer to, you know, Uber versus Lyft than You know, NYSE versus NASDAQ. There's a bunch of different like vectors upon which the competition will be fought. But I think when it comes to like product, I'm pretty bullish on Polymarket being able to ship like the best consumer product, which I think is where most of the value capture will end up kind of long run here.

Speaker A: You mentioned that this, you know, Shane has maybe this product sensibility and this sense of what the UX should be back to even, you know, emailing you at Augur and saying, here's what you should be doing. Um, when you, when you look at it today, what are the pieces of the Polymarket product that you think, hey, it's actually really important that this thing that, you know, maybe doesn't look that significant is done in, in XYZ way or is represented this way? Speaker B: I think for the, for the non-US product, I think part of it is like, I do think crypto is like the ideal market structure for something like this where if you're having to, say, have like a, you know, decentralized system, you know, you look at like Uniswap as an example.

If Uniswap was instead a centralized exchange where, you know, they had to KYC people from like 150 countries. Speaker A: Yeah. Speaker B: I think the liquidity pool would just be a lot, a lot less deep. Another interesting factor on the product side is you look at kind of the different players in this space, there's sort of a split, I think, in terms of like, do you view prediction markets as a betting exchange, like in like the sense that like Betfair is a betting exchange, or do you view them as like a financial exchange?

And a lot of people would probably like meme that sentence on Twitter and say, you know, it's just sports betting or whatever, but But to, to concretize it and make it something that's actually like, something that you can discuss and that's not just qualitative. If you look at Betfair, you know, they take 50% of the winnings that the market makers on the platform, 50% of their, of their profits. If you look at some of the other players in the prediction market space, you know, like the fees are quite high. You're talking multiple percents.

If you look at most financial exchanges, the fees are very low. You know, we're talking basis points. And so one lens is like, do you view this as an actually, as actually as an exchange? Speaker A: Yes. Speaker B: Or do you, in the financial market sense, or do you view it more as like betting? And I think, you know, the Polymarket ethos is closer to the financial market exchange. And I think as a result, especially once they launch in the US, I think the volumes are just going to skyrocket because it will be like the most efficient, most liquid place to trade.

I think that's one ethos difference. And then I think I probably can't talk about the US product, but it should launch, you know, hope maybe by the time this is, this podcast is out, you know, in a few weeks. And I think the user experience on that is just so, so much slicker than, than anything else that I've, that I've seen in the space. Like it's something where, you know, once, once it's out, I look very forward, much, much very forward to using it. Myself probably, probably multiple times a week.

I think it'll be really, really cool. Speaker A: One of the, you know, things that has, has maybe been tricky for some of these, uh, these markets, and, and Polymarket has had issues with this in the past, is like how you manage resolution. And sometimes you think these things will be straightforward and, and they end up being more complicated than you might ordinarily imagine. You know, the example that I think comes to mind most is the You know, is Zelensky wearing a suit at XYZ event? And he sort of is, he sort of isn't.

And, and, and, you know, that's when there start to be these questions about, you know, how manipulatable are these, uh, different markets, et cetera, et cetera. Uh, how, how do you sort of like get comfortable with the constraints and, and the different trade-offs that, that, you know, uh, these companies make and particularly the ones that Polymarket makes? Speaker B: Yeah, I mean, I think, um, this is a problem that I thought a crazy amount, probably too much about, you know, when I was building Augur. You know, we, we spent all this time on, on the resolution system, and I think in terms of outcomes it worked pretty well, but in terms of speed it was just, you know, horrendously slow.

Um, and so that was the wrong trade-off. Um, I think if you look at kind of the state of things today Yeah, I think one lens is that nobody has it as perfect. Even the big sportsbooks sometimes, according to the bettors, will pay things out wrong. And so it's a problem for the industry writ large. I think the suit thing is one where there's an incentive for competitors to create FUD around this stuff. If you read what the actual designer posted, Um, you know, he, he says that it was like cut from separate fabric, which according to some of my friends in, in, in sort of the fashion space, that, that means it's not a suit.

But ignoring, ignoring like the specifics of that market, I think it is a, a kind of thing that needs to be addressed for at large. I think this best way that I can think of to, to addressing this is probably actually to utilize like AI in terms of like writing the market descriptions. You know, I think, I think they may be doing this to some extent already, but you know, I think the companies in the space should basically provide like their draft, you know, description to like, you know, GPT-5 Pro or whatever.

Yeah. And have it analyze it like a really, you know, nitpicky, you know, lawyer would. And just try to cover as many edge cases as possible. The one caveat is that you still want, like, you want to cover all the edge cases, But you also want to hew to like, what is the common sense person's understanding of, of, of what happened? You also want to cover edge cases of like, you know, I think like technically there's, there's some types of like pajamas that are very technically are a suit because they're cut from the same cloth, right?

Like you don't want Zelensky to wear pajamas and then be like, oh yeah, it was a suit, you know? Um, and, and so there's a lot of these edge cases, but I think this is probably one of the one of the things in the space like AI probably is actually uniquely suited at, at helping with. Speaker A: Really interesting. Okay. Well, I'd like to, um, maybe move on to one other part of, uh, you know, the crypto landscape that I know you've been involved in and that I think feels like a big, big part of the market today, which is really the sort of, uh, emergence of, of crypto treasury companies.

Um, I feel like that's been, you know, something that has really gathered a ton of steam over the past 18 months and Founders Fund is involved, uh, with one of the sort of front-running ETH treasury companies. How did you first get involved with Bitmine? Speaker B: Yeah, we had, you know, ETH position. We've been, you know, bullish on ETH for a while. It's sort of been a tough, tough cycle for ETH, but when, when we came across Bitmine, you know, that was sort of kind of 2 or 3 things kind of converging at once.

Once was that this sort of Treasury narrative thing had started to happen. Two was that we knew one of the kind of creators of it is this guy Shen from this fund called Mosaics, and he was actually, you know, one of the founders of Workrise, which is one of our portfolio companies. So we knew him, there was some level of trust there. And then Tom Lee, I'd known a bit, you know, off and on over the years or passed across a little bit. And if you look at what these vehicles do, you know, in my, in my mind, it's basically they are a way to, you know, accumulate an asset popularized by Michael Saylor with MicroStrategy.

In this case, it was, you know, with ETH. Bitmine sort of launched at a time when ETH was pretty, you know, in my opinion, oversold. I think it was like the low $2K range. They had kind of a combination of two things that I think is really important to make this work. One is like the capital markets expertise with, with Shen. Mosaic is a hedge fund. He ended up starting a hedge fund. And then Tom Lee, also with the capital markets expertise, but also like the branding and marketing and, and awareness building that he's really good at.

That combination of things is why we decided to invest. And I think that the ETH ones have some kind of interesting elements to them that I think makes sense for them to trade it, not a crazy premium, but still maybe a slight premium. Which is like, if you look at ETH staking, the ETFs, since they can be minted and redeemed, won't be able to stake 100% of their ETH even when the SEC approves it. And so if you have a capital structure where the corporation can basically stake the ETH, one, you can stake 100% of the ETH.

And then two, the other interesting dynamic is that you basically get, you know, capital gains treatment because the company is the one paying the tax on the staking yield. Versus it being directly income to you as a shareholder, which is like some somewhat interesting. And I think there'll probably be some demand for that from capital markets. Those are kind of like the longer-term reasons why it's interesting. And then the more shorter-term, like why we invested are kind of tied to the people, like almost, you know, anything else we do, that's sort of where it starts.

Speaker A: You know, that's such an interesting point on the sort of difference between an ETH treasury company and a Bitcoin treasury company. There are these sort of quirks to it. For, for folks that maybe haven't really followed this as a, a trend in, in the crypto markets, like, what, what is the value of someone, at least in theory, investing in MicroStrategy, which, you know, is a Bitcoin treasury company, versus an ETF, versus the underlying asset? Speaker B: Let's start with, you know, the underlying first. The underlying, you know, benefits of that are it's traded 24/7, um, You can just send it to any exchange that you have an account with and you can, you can trade it there.

You know, it's self-custodial. If you're really, really libertarian and, you know, think that the government's going to seize your Bitcoin or something, I don't, I don't think that, but you know, if you were paranoid about that, you know, purely self-custodial spot is a good way to go. And there are people who live in countries where like that is actually a valid concern, right? And then If you go kind of, you know, one, one step up, you have the ETFs. For the ETF, I think the benefit there is just convenience. Like if you buy, you know, a Bitcoin or ETH ETF in your Interactive Brokers account, even if your computer gets hacked or whatever, like you kind of have the legacy financial rails to protect you there.

Like, you know, it's, it's not like you're going to wake up one day and all your ETH or Bitcoin is stolen. And then And then I think when it comes to the treasury companies, these are sort of more like a higher beta kind of supercharged version of the underlying asset where they own, you know, Ether, Bitcoin. There's sort of a couple reasons why one might be willing to pay, you know, a premium for that. Think about a company like, you know, Apple or Tesla or Facebook. There's like debt for it that you can trade.

It gives you some exposure to it. It's higher yield than like treasuries. but you don't really have the same downsides you have as investing in, you know, underlying Meta stock as an example. For, you know, Bitcoin and Ethereum prior to Saylor, that didn't really exist. And so he basically created this way for people to buy, you know, convertible bonds where it's collateralized by Bitcoin. There's some sort of capital stack. They get, you know, some amount of upside if Bitcoin does well, but they're able to invest out of, you know, via debt structure and it's lower downside.

And there are people who want to invest in that or who can only invest in those sorts of vehicles that do want exposure to crypto. They can't buy the underlying. So there's like this interesting financial instrument that he created as a result that has some value. And then you can debate around the margins, like, you know, what is the premium of buying MicroStrategy stock that it's worth in exchange for him providing that service? You know, and I think like my view is that the answer isn't zero. It's probably not 3x either.

You know, it's, it's, it's, but, but I think that's sort of the, the notion of why you would buy it because he's basically selling this service and as an equity holder, you know, you're, you're basically getting the monetization of, of that service or the benefits of it, sort of the high-level way that I would think about it. Speaker A: And the fact that we're now seeing, you know, ETH treasury companies, Solana treasury companies, you know, other ones coming up the pike. Like, do you see that as, I don't know, simply memetic behavior?

Is it telling us something about the maturation of this market and the players in it? How do you think it changes the structure of this market? Speaker B: Yeah, I mean, it's definitely memetic. Like, we, we've— Napoleon and Peter and I have talked about that to some degree as well. Like, there's— Speaker A: yeah, in some ways I'm like, this is— you guys must have had an alarm bell going off, uh, in making this investment because there is such a memetic quality in a way. Speaker B: Right. Yeah. So there's some memetic element to it, which I think like, you know, if you think about financial markets, if you're early to a memetic phenomenon, that's good.

That's kind of the classic Soros argument. If you're late to it, it's bad. One thing that I think people kind of overcomplicate is like, you see sometimes, especially last year, you'd see on Twitter, all these people talking about, you know, oh, Michael Saylor is buying all the Bitcoin. You know, there's not any real demand. And it's like, well, if you zoom out, one layer more abstract from that. It's like, why is Michael Saylor buying the Bitcoin? It's 'cause people are buying his stock. They want Bitcoin exposure. So it's really, there's still someone who's like, you know, pressing the buy button.

Yes. That is then triggering that inflow. It's not like Saylor is just magically, you know, printing all this money outta thin air. Even like the stock issuance he does that then buys Bitcoin, someone is buying that stock, which is really, you know, in a world without Michael Saylor, I think that money would've eventually found its way to crypto. But he's created a way for people to buy it that for, for, for whatever reason, like the idea of maybe getting some extra, you know, beta on this like bond trade that we talked about, or maybe they just can't buy spot or ETFs for some reason.

Like there are certain asset managers that can only trade underlying stocks. And so a hacky way to buy Bitcoin is, or, or, or ETH is to just buy one of the treasury companies, right? Speaker A: Yeah. Speaker B: And then to answer your question about the, the medic— or the mimesis, you know, of other companies doing this. I think it probably works less well as you go down the list of assets. And the same reason that like, you know, a small microcap stock can't really issue that much debt. You know, it's like people want to buy Apple bonds or Goldman Sachs bonds.

They don't really want to buy like the small to mid-cap Yeah. Speaker A: Well, Hims is maybe sufficiently large. That's not a, a potshot at Hims, but just that sort of comes to mind. Speaker B: But yeah, like 3 years ago they wouldn't have wanted to buy Hims bonds. Speaker A: Exactly. Speaker B: As an example. Speaker A: Taking a step back and, and reminding listeners that none of this is financial advice as, as, uh, you know, I'm sure they know. What is your, your view on the state of the crypto markets today?

Like where does it feel like we are in the cycle? Speaker B: There hasn't really been any sort of euphoria this cycle. You know, in prior cycles, there was, there are points where it got super, super crazy. I think maybe the craziest this cycle got was some of them, some of the meme coin stuff on Solana, but even then that didn't get really that crazy. That was, it was more of like, it was more of like a new version of like betting or gambling almost because like with a small exception, there's a few that did actually persist.

Most of these, you know, traded way up and then traded way down. Speaker A: Yes. Speaker B: Versus in prior crypto cycles, you had assets that for years traded really like way, way up. Maybe that's like too many people got burned last cycle. Maybe it's that like more money is flowing into like sports betting and prediction markets and stuff. Maybe it's just that we've kind of been through like this, like rolling consumer recession kind of thing in the US where like the vibes are bad. Like the Kyla Scanlon thing. Like I think that's real.

Like Do you look at the Michigan Consumer Sentiment? It's been kind of negative recently. Maybe that's why retail hasn't come in. But then I think on the flip side, you know, you do have a lot more, a lot more institutional inflows and, you know, people that, that are just kind of fairly long-term investors that, you know, buy Bitcoin or ETH and kind of just hold it and sit on it as a small percentage of their portfolio, but their portfolio's very large, so it ends up making for a good amount of, of net inflows.

You know, I think you kind of combine those things, it sort of feels like you look at prices today, I don't know, it doesn't really feel like anything's like crazy expensive or crazy undervalued. It kind of just feels like we're in this like, you know, interregnum period or, you know, purgatory or whatever. And I think I tend to be pretty bullish. You know, there's a lot of fundamental catalysts coming over the next couple months. You have, yeah, you have the next ETH hard fork, you know, upgrade, um, which I think is positive because if they, if they ship it, you know, that'll be 2 in a single year, which kind of means they have reverted to a faster shipping cadence.

You have, you know, the, the Clarity Act, which I think will be a huge deal because it basically legalizes, or it's sort of, it's already legal, but it makes it official that it's legal, you know, the kind of overall crypto market structure. In the United States. And then, and I think that'll be big for, for kind of more institutional inflows. And then you have kind of some macro positivity with, you know, continued rate cuts and the Fed ending, ending quantitative tightening, which sort of, if you look, if you look at alts, they tend to really not do very well when the Fed is still tightening.

And, and then you have the government shutdown, which I think, you know, hopefully gets resolved over the next week or two. Speaker A: Yes. Speaker B: Versus in prior crypto cycles, you had assets that for years traded really like way, way up. Maybe that's like too many people got burned last cycle. Maybe it's that like more money is flowing into like sports betting and prediction markets and stuff. Maybe it's just that we've kind of been through like this, like rolling consumer recession kind of thing in the US where like the vibes are bad.

Like the Kyla Scanlon thing. Like I think that's real. Like Do you look at the Michigan Consumer Sentiment? It's been kind of negative recently. Maybe that's why retail hasn't come in. But then I think on the flip side, you know, you do have a lot more, a lot more institutional inflows and, you know, people that, that are just kind of fairly long-term investors that, you know, buy Bitcoin or ETH and kind of just hold it and sit on it as a small percentage of their portfolio, but their portfolio's very large, so it ends up making for a good amount of, of net inflows.

You know, I think you kind of combine those things, it sort of feels like you look at prices today, I don't know, it doesn't really feel like anything's like crazy expensive or crazy undervalued. It kind of just feels like we're in this like, you know, interregnum period or, you know, purgatory or whatever. And I think I tend to be pretty bullish. You know, there's a lot of fundamental catalysts coming over the next couple months. You have, yeah, you have the next ETH hard fork, you know, upgrade, um, which I think is positive because if they, if they ship it, you know, that'll be 2 in a single year, which kind of means they have reverted to a faster shipping cadence.

You have, you know, the, the Clarity Act, which I think will be a huge deal because it basically legalizes, or it's sort of, it's already legal, but it makes it official that it's legal, you know, the kind of overall crypto market structure. In the United States. And then, and I think that'll be big for, for kind of more institutional inflows. And then you have kind of some macro positivity with, you know, continued rate cuts and the Fed ending, ending quantitative tightening, which sort of, if you look, if you look at alts, they tend to really not do very well when the Fed is still tightening.

And, and then you have the government shutdown, which I think, you know, hopefully gets resolved over the next week or two. Speaker A: Yes. Speaker B: And I don't really have the mechanism why, but crypto historically has underperformed in government shutdowns for whatever reason. It's kind of ironic, but yeah, it is. Maybe it just goes back to like the vibes thing where people are just like not bullish because they just feel like stuff is broken or something. I don't know. Speaker A: Yeah. You're not in the mood to take new risk in that way for whatever reason.

Maybe I sort of remember covering this in the Founders Fund series that we published in The Generalist that you guys made a a pretty remarkable and prescient investment into Bitcoin and ETH primarily in sort of the summer of 2023 when, you know, I think the first buys were somewhere around like $30K for Bitcoin. And I remember hearing, I think that you guys had basically exited the Bitcoin position, but were maybe still holding ETH. What is your sort of model for ETH and what needs to happen and why it's maybe still worth hanging onto, you know, given that you've maybe made a different call with Bitcoin?

Speaker B: I think the high-level logic there is basically that, you know, ETH tends to kind of run and outperform kind of later in the cycle. Often, you know, after Bitcoin has topped because people sort of rotate into it. And then, you know, I think And so I think that's, that's sort of part of it. And then I think part of it is that, you know, it sort of got, the narrative got kind of so oversold, especially like during April where, you know, there's kind of this narrative that like Solana is everything and ETH's just going away.

Speaker A: And yeah, it was a real, real bummer vibe on, on X. Yeah, exactly. Speaker B: And, and, you know, the Ethereum Foundation can't ship and all this stuff. And I think, you know, sort of the new leadership at the EF seems pretty strong. They do look like they're going to ship, you know, this upcoming hard fork in early December. And so I think sort of holding onto the ETH is more kind of like a, I think there's probably some mean reversion and repricing that will take place. Because also if you look at, you know, kind of fundamental usage, it's still the number one platform for stablecoins.

Polymarkets on Polygon and Ethereum Layer 2, or investors in this other company called Lighter, which is, You know, one, one of the, you know, top couple, you know, perpetuals decentralized exchanges. They're also an Ethereum layer 2, and I think they've proven that you can actually get a really smooth onboarding experience as, as an ETH layer 2. It's pretty easy to deposit and withdraw funds. Like I do some of my own trading there now at this, at this point. And so yeah, I think, I think sort of like kind of got way oversold and became very contrarian this, this spring.

And I think there's probably, there's probably some room to, to go on ETH, this sort of my mental model alongside, you know, these catalysts like the Clarity Act where, you know, basically clarifying that DeFi is legal. ETH is like the number one beneficiary of that. And so similar to kind of all the mania you saw around stablecoins in the summer, I think the same thing happens around the Clarity Act. You know, whenever that passes over the next couple months. Speaker A: We've talked around, you know, talked about some of these regulatory changes that have been made under the Trump administration and, you know, how much hostility there was under the Biden administration.

You, you shared, I think it, uh, you'll, you'll have to remind me where you were on stage. Maybe it was ETH Denver, uh, talking about some of the pieces of Operation Chokepoint that, that you sort of got to see, maybe not firsthand, but, but heard from, from folks that went through it firsthand. Uh, yeah, I'd be curious. To hear that story and maybe, you know, a few months later if folks came out of the woodwork after you gave that speech and shared that and maybe even more of those sort of horror stories came to light.

Speaker A: We've talked around, you know, talked about some of these regulatory changes that have been made under the Trump administration and, you know, how much hostility there was under the Biden administration. You, you shared, I think it, uh, you'll, you'll have to remind me where you were on stage. Maybe it was ETH Denver, uh, talking about some of the pieces of Operation Chokepoint that, that you sort of got to see, maybe not firsthand, but, but heard from, from folks that went through it firsthand. Uh, yeah, I'd be curious. To hear that story and maybe, you know, a few months later if folks came out of the woodwork after you gave that speech and shared that and maybe even more of those sort of horror stories came to light.

Speaker B: On the Operation Chokepoint stuff, you know, where you basically have, you know, had all the banks kind of cracking down on crypto. People have definitely shared that more. I think after that talk I made a a tweet about it where I was like, you know, retweet this if you had a bank account shut down as a result of being in crypto. And it is kind of one of the more, one of the more viral tweets I've, I've had. And you know, that the Trump admin has definitely kind of reversed all that stuff.

You know, a lot of the banks that, you know, wouldn't, wouldn't bank me, or some of them have, you know, reached out now, you know, offering me to, you know, join their private wealth management. I've ignored all those because you didn't want me back in the day. Yeah. Speaker A: Yeah. Speaker B: It's like, so I think, you know, that, that stuff seems to have gotten fixed. I think the other thing is just that's been even a bigger deal has been kind of all the, all the regulatory stuff, like, you know, under the, under the Biden admin, there was this thing, you know, the SEC, which was infuriating, you know, they would say, come in and talk to us.

But You know, probably like 95% of the founders I know who tried to get a meeting, you know, they wouldn't meet with them. And then the very few that did get a meeting, you know, the SEC would kind of just listen and then, you know, usually later use anything they said against them in some, you know, BS lawsuit. I think like the most absurd thing I remember under the Biden admin for crypto was that the SEC actually tried to take the position at one point that stablecoins were a security, even though like if you buy USDC, like you can't really make money.

You know, it's pegged to a dollar. That's the entire point. And, you know, there are some like very obscure legal arguments you can use to say that it is, but like everybody knows it's not like in practice, it's not, it's like trying to say the sky is you know, green or something. It's just like, it doesn't have any real logic to it. But yeah, so I think the Trump admin has basically fixed, you know, essentially all that stuff. The new SEC chair seems really good. The new, you know, person that they're hopefully getting confirmed soon for the CFTC seems really positive.

So I think that's taken a complete 180. Speaker A: Yeah. Speaker B: It's like, so I think, you know, that, that stuff seems to have gotten fixed. I think the other thing is just that's been even a bigger deal has been kind of all the, all the regulatory stuff, like, you know, under the, under the Biden admin, there was this thing, you know, the SEC, which was infuriating, you know, they would say, come in and talk to us. But You know, probably like 95% of the founders I know who tried to get a meeting, you know, they wouldn't meet with them.

And then the very few that did get a meeting, you know, the SEC would kind of just listen and then, you know, usually later use anything they said against them in some, you know, BS lawsuit. I think like the most absurd thing I remember under the Biden admin for crypto was that the SEC actually tried to take the position at one point that stablecoins were a security, even though like if you buy USDC, like you can't really make money. You know, it's pegged to a dollar. That's the entire point. And, you know, there are some like very obscure legal arguments you can use to say that it is, but like everybody knows it's not like in practice, it's not, it's like trying to say the sky is you know, green or something.

It's just like, it doesn't have any real logic to it. But yeah, so I think the Trump admin has basically fixed, you know, essentially all that stuff. The new SEC chair seems really good. The new, you know, person that they're hopefully getting confirmed soon for the CFTC seems really positive. So I think that's taken a complete 180. Speaker A: What, you know, taking clarity as red, let's say, uh, what are the sort of other pieces that maybe feel like they're, they're still missing or you would still like to see, you know, further action on?

Speaker B: I think the other, you know, area that, you know, probably doesn't get into the Clarity Act that I think would be good is, you know, there's kind of these like regulatory exemptions for like spot exchanges that are decentralized, like Uniswap and things like that. It's kind of unclear whether they're going to exempt and probably not, you know, things like decentralized perpetual exchanges, you know, things like Hyperliquid and, and, and Lider and stuff like that. You know, say the same thing for, for prediction markets. Like anyone in financial markets, you know, would, would clearly tell you that a global liquidity book is just going to be far more liquid and better than, where poly markets currently happen to end up, which is, which is you have, you know, US exchange and then you have kind of the offshore one.

I think a much better, like long-term, you know, think over many years regulatory structure would be sort of like what Hester Peirce kind of proposed the SEC back in the day, which is she had this idea that it's like DeFi should exist. You should be able to trade on it, should be legal. It shouldn't, it should not be illegal. And, but the one negative of trading on DeFi is that you don't get the regulatory protections if you trade on a, on a regulated platform. And then if you want those regulatory protections, you can build like a regulated thing on top of it.

And so I think like if you look 5, 10 years, like the ideal way that something like Polymarket should work is you have the core platform, decentralized smart contracts based. The liquidity book's completely global. And then in the US, you can also trade on that if you want, but then there's also like a thing on top that feeds directly into the same liquidity pool. And that, you know, has kind of the regular regulatory licenses. If you're, you know, Citadel and you want to bet, you know, $100 million on some, you know, Fed action or something.

Speaker A: Yes. Speaker B: That's probably what you use because you want the full regulated financial, you know, system, but you still get the same share of liquidity. Like that's, yeah, that's, that's sort of for like over a [redacted address] I hope this stuff goes. Versus right now, you know, kind of feels like we're trying to, you know, the market structure of having these things be separate doesn't really make sense. And like, it's very clear that the smart contract based way of doing it is, is superior. And so it's just like a matter of time and who knows how long that takes, but that's, that's sort of the one thing that I think probably doesn't get done in this admin.

I think there's probably people in the admin who do want it to happen, but it's more like, you know, with Congress, you got to be practical and get what you can get done versus trying to, you know, get everything all at once. Yes. Speaker A: Well, before we maybe go into a wrap-up question, one final thing that I was curious to hear about is maybe how your investing lens has changed since joining Founders Fund, you know, obviously when I sort of looked back at your Medium post announcing that you were going to Founders Fund, you talked about how prescient Peter had been in sort of predicting the contours of cryptocurrency back in the late '90s.

And, you know, the value of being part of a really high-quality generalist investing team and how that can influence your thinking positively. So after, I guess, a couple years of this or maybe longer, Yeah. How, how has that maybe changed the way you, you think about your work? Speaker B: A bunch of different ways. You know, I think one of the, you know, one, one of the things when I first joined Founders Fund is there's like a, I forget who, someone on the investment team sent me a link and it's all the historical, you know, annual meeting talks Peter's given.

Um, and I kind of just flipped through all the slides of them and, you know, one, one of 'em is this thing where there's a slide and it's like Michael Jordan and, and it's a slide of him as when he was playing baseball. And then there's another slide, you know, right after where he's playing basketball and, and, and I forget what the slide says, but it's something like, you know, founder market fit is, is probably like the number one thing, you know, incredibly important. You know, Michael Jordan was not a very good baseball player, but world-class at basketball.

That's, that's something I think a lot about. You know, it's Founders Fund in the name, it's about backing the best founders, but then I think there's this other aspect of like, is this the right founder for, for a given market and product that they're building? And then I think the other really interesting thing is there was another slide like this, um, and I've heard Peter talk about this sense as well. It's like this, this notion that really great founders, they're not like this, like, you know, checklist. In fact, they're really, really great at some things and really, really bad at other things.

Um, and I think that's probably true for, for greatness writ large. And that's a really interesting thing. So then, then it sort of forces the question when you think about investing. I think one of the things, you know, that we do well at Founders Fund is try to zero in on like, what are the most important one or two questions for whether this will work? And then also, you know, how do those tie into who the founder is and what they spike at and, and, you know, what they're bad at.

And so that's probably one, one area. And then I think the other thing you know, that has kind of affected the way I invest is just looking at things from the lens of like, if you read like Zero to One, Peter talks about this a lot, but it's like, you know, people really underestimate the power law. And then there's kind of this notion that, that like getting to scale matters a lot. And, you know, I think, I think if you look at that, like one way to apply that to crypto that I've kind of applied it to is if you look at things like Polymarket as one example, uh, we, you know, we doubled down again in them, you know, early, earlier this summer.

Um, and so some VCs I know thought that that was like a too expensive price, you know, and then they raised it a way, way higher price, you know, a few months later because their traction 4x'd. And I think it just comes from like people tend to really underestimate the power law and how there's many cases where something that, um, you know, feels expensive actually isn't, or something that feels not expensive is actually incredibly expensive. And I guess the last thing on this question, um, you know, our, our growth team recently kind of did this analysis of like, if you look at companies and how long it took them to get from— of the ones that made it— how long it took them to go from like, you know, $10 billion to $100 billion market cap, and then $100 billion to a trillion, it's actually faster for the larger scale within tech, which is kind of surprising.

Now, of course, the hard part is making sure you're in those companies as opposed to the ones that failed. Yes. Which makes being really selective really important. But I think, you know, those sorts of lenses are, you know, some of them are things I'd thought about but hadn't realized how important they were prior to being at Founders Fund. And then some of them are just, you know, like the growth one is kind of counterintuitive, but empirically true. Speaker A: What a thoughtful answer. I'm going to be mulling that one over for a while, I think.

Well, as a final question, I always like to ask guests, if you had the power to assign a book to everyone on earth to read and understand, what is the book you'd want to assign people? Speaker B: I think one book that's really good is there's this book about the history of hedge funds. A lot of people listening to this have probably heard of, you know, The Power Law on the venture side, which I actually haven't read. But the same author wrote this book called More Money Than God, and it's a history of, you know, a lot of history of financial markets and of hedge fund investing and trading.

And it's probably the most interesting investing book I've ever read. Maybe alongside like Soros, The Alchemy of Money or Finance or whatever the title is. Because both of them provide like a really insightful window into how like really great investors thought about the investments they were making at the time that they made them. Versus I think a lot of them, a lot of investing books talk about, you know, oh, we did this, this, and this, and it was sort of obvious and, you know, we're so great and all this stuff versus these books kind of walk you through.

Like the trades and investments at the time. You know, nothing's ever as certain as it sounds in hindsight, but you can see like how people think. And there's a lot of interesting stuff that I picked up from those books. Speaker A: That is a great recommendation. I have read The Power Law, but I have not read More Money Than God. So that's a good prompt. Joey, thank you so, so much for taking this time. I really enjoyed it. Speaker A: That is a great recommendation. I have read The Power Law, but I have not read More Money Than God.

So that's a good prompt. Joey, thank you so, so much for taking this time. I really enjoyed it. Speaker B: Yeah, me too. Thanks for having me. Speaker C: That's it. Thank you for listening. To this episode of The Generalist Podcast. Please subscribe on Apple Podcasts, Spotify, or your preferred podcast app. Ratings and reviews help others discover these discussions, so if you enjoyed the conversation, I'd be grateful if you could take a moment to leave one. For all past episodes and more, visit us at com. See you next time as we continue to explore the future.