Podcast notes: Ryan Zurrer and Jake Brukhman on Delphi podcast – “Crypto is fastest, most Darwinist industry in the world”

Recorded Dec 2022

Guests: Ryan Zurrer, Jake Brukhman
Interviewer: Tommy @ Delphi

Ryan – 10 years in crypto, mining in 2012-13, SAFTs / ICOs in 2017, defi summer in 2020, p2earn gaming in 2021

Jake – CoinFund in 2015, one of first to focus on digital assets, 8 years full time crypto investing, invested 150 projects, “technical discipline”

Ryan
More shoes to drop in crypto (eg, FileCoin because DCG in massive selloff)
OGs have driven the market for last decade, crypto native values matter
Starting defi summer, whole space got drunk on debt

Jake
FTX not failure of technology, traditional failure
If we adopted more decentralization, smart contracts – could have mitigated FTX risks
Founder quality has gone up – especially if you’re entering in bear market
Infra is more mature

DCG / Genesis
Ryan – could allow Genesis (lending book) to chapter 11, keep the rest safe
Jake – big dent in institutional investor interest

Ryan
After DAO hack, ETH developers disappointed from $30 back to $10 – but was great buying opportunity
Now possibly generational buying opportunity for ETH

Systemic risks?
Ryan – wants CZ to release audited crypto reserves – thousands of low liquidity projects depend on Binance; if Microstrategy starts to unwind, could be cascading waterfall; would be nice to see Binance buy their way into compliance eg by buying Coinbase
Jake – “should use a DEX no matter what”

Web3 social media

Jake – Twitter cannot become true free speech platform unless its decentralized, which Elon will not completely do; web3 social usability not quite there; Farcaster is familiar Twitter experience (low friction switching); people need to coordinate switching at same time, ideally with token rewards; lots of people jumping to Mastodon
Ryan – thought creator incentives would drive great migration, but haven’t been able to sign up big ticket influencers
Tommy – Audius brought successful musicians early on
Ryan – category of artists most oppressed is musicians; believes NFTs will help unlock for musicians; music needs radically different biz model; would be nice to tokenize record portfolio and have DAO buy it – but still regulatory uncertainty

Jake – what crypto product can you explain and try in 3 seconds?

DAOs

Jake
-Major reason why DEXes struggle is because you can’t move $1M from bank account to a DEX
-2015 Vitalik defined DAOs, everything revolves around smart contract
-2022 a typical DAO – very little is onchain, and vast majority of actions use web2 SaaS
-you need to build 10K iPhone apps to find one that really takes off – we’re in same process with web3

Ryan
-If too much ownership by too few people, there’s resistance to using it – eg, Uniswap “Gini coefficient” is too high
-Financial incentives can enable, but can also be huge drag on apps if you do it improperly – eg, Play2earn gaming

Jake
-DAO use cases today: Governance of public good, Grant writing organization
-future of DAOs – package of software that just works, easily upgrade your entire community

Ryan
-Most current DAOs aren’t decentralized, nor autonomous
-Broad mandate investment DAOs – have any distributed more than their fund back?
-Disappointed in how these funds are organized and operated today
-no multi-B fund has returned above 3 DPI

Tommy – best DAOs have a strong lead, clear vision, high alignment among members
Would be interested in investment DAO that is a collection of sub-DAOs with different themes, small teams

Jake – funds need to be good at 1) sourcing, 2) due diligence, and 3) portfolio construction
-Flamingo DAO has excellent network – one of best investment DAOs
-DAOs struggle at due diligence – voting isn’t the best method, how to allow non-consensus investments

Ryan – “You don’t need 50 people to do due diligence – you need one great guy”

NFTs

Jake
-NFTs are financial rails for many classes of assets
-Movies and music going on-chain
-Stock photography, AI outputs
-Real estate – more of them looking at NFTs to go onchain (instead of security tokens)

Ryan
-traditional art world has strong interest in “phygitals” – some physical manifestation of the digital art
-recommend that aspect to all NFT projects – a print, a physical piece, etc – tactile connection, “necessarily digital and necessarily physical”
-PFPs as social club
-decided to focus on art – personally resonated, impossible to focus on all areas of NFTs
-Hollywood model has not worked for most – better to focus on crypto native experiments
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Tommy
-wish more NFT projects would lean into web2 experts, have good bizdev – eg, like what Bored Apes did
-if PFP collection is successful, automatically boxes out much of the community (bc price is too high)
-PFPs can go in movies / media – but it’s about the quality of the content, not the NFT
-license characters to legit movies and games – don’t need to build it yourself – Ryan: “just go and cut the deal with Netflix”
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Macro

Ryan
-last 2 years saw coupling of crypto and macro
-does lot of MEV, delta-neutral, alt strategies beyond DeFi is now table stakes given high fed funds rate
-focused on timeline to liquidity – no more 7 years for full vesting
-crypto is fastest, most Darwinist industry in the world
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Tommy
-hard to take bullish liquid position given current macro
-crypto sells off ahead – maybe it bottoms earlier
-VC: be disciplined on valuations
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2023 predictions

Most exciting category: AI
Where will be crossover between crypto and AI?
Where does value accrue in AI? Or does it all flow to OpenAI?
If fat protocols is true, can you keep those as open public goods? What will happen to OpenAI?

Tommy – surprised by how quickly AI evolves, MidJourney, ChatGPT, “iteration cycle is insane”
Crypto use cases for AI: Auditing smart contracts, auto-rebalancing Uniswap LP positions

Ryan – early 2020s culture will be embedded into all the AI training data, could have huge impact as AI grows exponentially

Galerie.ai – make generative art with multiple models

A little something we’re working on, you can try it here: http://galerie.ai/

It does two things

1. Returns results from a growing library of the best AI art

2. Lets you create AI art from multiple generative models (including Stable Diffusion 1.5, 2.0, 2.1, and MidJourney)

Let me know what you think!

We auto-suggest some of the trending prompts and popular art results on the home page, try it out!

For example here is ” photorealistic portrait, a young beautiful woman Goddess wearing Echo of Souls Skull Mask armor, skeletal armor bones made from 24k gold and silver metal intricate scroll-work engraving details on armor plating, skeletal armor, gemstones, opals, halo, aura, intricate details, symmetrical,”:

Cognitive Investments — a good geopolitics newsletter: “Russia has its fingerprints over the last three major global geopolitical transitions”

I’m enjoying their weekly issues. You can sub here: https://www.cognitive.investments/get-to-know-us

A few highlights from recent reports, including a very thoughtful and informed assessment of crypto post-FTX:

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The late 1980s was “Peak Japan” – the West was obsessed with the notion that Japan was going to overtake the U.S. as the most powerful economy in the world. Instead, Japan entered a period of lost decades, while the U.S. presided over an era of globalization, expanding free trade, technological innovation, and (relatively) unrestrained American military power. These were not the only geopolitical conventions that turned out to be wrong. Germany went from Sick Man of the Euro (we can thank The Economist for that prediction) to center of a European industrial renaissance. China emerged out of Tiananmen as the newest and largest “Asian tiger.”

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It was not until Russia invaded Ukraine in February 2022 that it became clear that the world had changed irrevocably – or at minimum, that global sentiment had changed irrevocably. (Aside: It is ironic that Russia has its fingerprints over the last three major global geopolitical transitions. The Russian Revolution brought us the rise of Communism and the Cold War. The collapse of the Soviet Union brought us U.S. hegemony. Might Russia’s failed invasion of Ukraine now open the door to the multipolar multiverse?)

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Fiat money allows governments and central banks to be more flexible and strategic – they can design policies around interest rates and money supply without being dependent on what mining companies can extract from the ground. The downside of this is that money, whose value for so long had been based on an objective factor (the value of a precious metal), was now officially politicized.

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In that sense, FTX may well be the beginning of the long-awaited clash between cryptocurrencies and governments – not because FTX is in any way representative of cryptocurrencies, but because it gives governments the excuse they need to crack down on them. It is unclear how many people lost money, or even their life savings, in the FTX debacle (an issue to societal stability in its own right), but you can be sure governments will use the FTX example as they aim to regulate cryptocurrencies into oblivion – or at least into becoming similar to other tradeable securities rather than as a fundamental threat to the future of money.

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Max Weber once wrote that the state is defined in part by its claim to the monopoly on the legitimate use of physical force. I think we can add that the state claims a monopoly on the legitimate use of currencies within its borders. When the state decides to use the former to ensure the latter, we will see just how powerful cryptocurrency really is – and based on recent developments, it is a clash soon in the making.

Podcast notes: Sam Altman (OpenAI) on AI – “One of genuine new tech platforms since mobile”

Interviewer: Reid Hoffman
Guest: Sam Altman

Not yet trillion dollar “take on Googles” startups yet – but will be a serious challenge to Google for first time

eg, Human level chatbot interface that actually works – new medical services, new education services

Idea of language interface where you say in natural language, dialogue, and computer just does it for you

Very powerful models will be one of genuine new tech platforms since mobile

How to create an enduring differentiated business
-small handful of large base models will win – skeptical of startups doing small models
–middle layer will become really important – take large models, tune it, create model for medicine, or model for AI friend – will have data flywheel

Lots of AI experts think these models won’t generate net new knowledge for humanity – thinks they’ll be wrong and surprised

AI in science:
1. Science dedicated products eg Alpha Fold – will see a lot more, bio cos will do amazing things
2. Tools that make us more productive – improve net output of scientists and engineers – eg, CoPilot
3. AI that can be an AI scientist to self improve – automate our own jobs, go off and test new science and research – teaching AI to do that

What is Alignment Problem?
A powerful system that has goals in conflict with ours
How do we build AGI that does things in best interests of humanity
How to avoid accidental or intentional mis-use
AI could eventually help us do alignment research itself
Reid: will be able to tell agent “don’t be racist” and let it figure out

AI moonshots?
-language models will go much further than people think – so much algorithmic progress to come, even if we run out of compute or data
–true multi modal models – every modality, fluidly move between them
-continuous learning models
These above 3 things will be huge victory

OpenAI – focus on next thing where we have high confidence, let 10% of company go and explore
Can’t plan for greatness, but sometimes breakthroughs will happen

AI will seep in everywhere
Marginal cost of intelligence and energy will rapidly trend towards zero – will touch almost everything

Metaverse will become like iPhone – a new container for software
AI will be new technological revolution – more about how metaverse will fit into AI then vice-versa

Low cost + fast cycle times is how you compete as a startup

In bio – simulators are bad, AI could help

What are best utopian sci-fi universes so far
-Star Trek is pretty good
-The Last Question is incredible short story
-Reid: Ian Banks – Culture series
-tried to write his own sci fi story, was a lotta fun

Having a lot of kids is great – wants to do it

Won’t be doing prompt engineering in 5 years
Will be text / voice in natural language to get computer to do what you want
eg, Be my therapist and make my life better; Teach me something I want to know

Reid: great visual thinker can get more out of DALL-E — will be an evolving set of human talents going that extra mile

How to define AGI
Equivalent of a median human that you can hire as a coworker – be a doctor, be a coder
Meta-skill of getting good at whatever you need

Super intelligence = smarter than all of humanity put together

Economic impacts will be huge in 20-30 years
Society may not tolerate that change – what is the new social contract
How to fairly distribute wealth
How to ensure access to AI systems (“commodity of the realm”)
Not worried about human fulfillment – we’ll always solve it
But concepts of wealth and access and governance will all change

Running largest UBI experiment in world – 5 year project

Tools for creatives — will be the great application for AI in short-term
Mostly not replacing, but enhancing their jobs

How do these LLMs differentiate from each other?
The middle layer is what will differentiate – the startups fine-tuning the base models, about the data flywheel, could include prompt engineering

SBF’s planned congressional testimony was wild: “I am, and for most of my adult life have been, sad”

Just sharing a few memorable excerpts below. Full testimony here.

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b) In addition to being false, the claims do not make sense to me. Alameda Research’s own insolvency was triggered by a market crash, which in turn triggered FTX’s insolvency; it would have been absurd to create a market crash in order to take out 3AC, and then in turn bankrupt my own businesses.

7) Various claims that I created a hard-partying culture at FTX
a) Our ‘parties’ were mostly dinner and board games
b) I didn’t have my first drink until I was 21, and to my knowledge have never been drunk

b) I have a prescription for Emsam, and have for roughly a decade. I use it, daily, for its only on-label use as an antidepressant. It is not generally the case that people are expected to talk about their private medical conditions, but enough paparazzi have snapped photos of my belongings and theorized about it online that I guess I have no choice.

On Twitter, CZ claimed that “we decided to pull out as an investor” in a thread chalk full of lies.
a) In fact, I reached out to CZ in 2021 to initiate discussions about buying them out of their stake in FTX.
b) I initiated these discussions because, among other things, it was becoming increasingly difficult for FTX to operate with CZ as a significant equity owner. CZ was not cooperative in sending his KYC information to regulators that we were applying for licenses with.

c) The last few months have been difficult enough for everyone that it feels unremarkable to me, in comparison, that I need to put on the official Congressional Record that I am, and for most of my adult life have been, sad.