The End of the L1 Premium? | Hype, Venice & The Future of Crypto
- Jason's 2026 “stock-pickers’ market” thesis is broadly playing out: most coins are not working, while assets tied to structural flows (ETFs/DATs), fundamental revenue, or strong narratives are. HYPE, Venice, and Zcash are the clearest examples. He expects the pattern to persist into the back half of the year and says participants must either accept what the market rewards or fade it.
- Ceteris lays out the Venice (VVV) case: roughly $60M of current ARR from subscriptions and API revenue, with weekly additions rising from about $2M to $2.2–2.3M and then $2.5M-plus. He sees a possible path to at least $200M of additional ARR over 12 months. Eric Vorhees self-funded the company, there are no equity investors, and it never raised into the token, creating what Ceteris calls an unusually clean setup—though there are no guarantees of value flowing to VVV. Annualized issuance is expected to fall to $3M beginning in July, and Ceteris expects the token could become deflationary by year-end.
- The panel’s L1 reckoning is severe: the old value-accrual bears were right, though early. SOL fell from roughly $250 to around $85; L2BEAT data showed 63 of 118 tracked L2s below 0.1 TPS, with Base and Arbitrum the only two still doing much; and successful applications increasingly appear able to move to their own execution environments. The panel also questions where the marginal bid for a $250B ETH comes from if institutions have already had access for years.
- One panelist is considering reducing Bitcoin exposure to add HYPE for the first time: HYPE is viewed less as a crypto asset than as a business operating on crypto rails, with activity expanding into equities, indices, commodities, and other non-crypto markets. Since HYPE traded around $50, HIP-3, HIP-4, HYPE ETFs, a DAT strategy, and Circle’s 80–90% USDC-yield arrangement did not exist, while expected team selling was much larger. A panelist also says KYC is likely eventually, with both bullish and bearish implications.
- Jason says much of Web3 no longer commands his attention: stablecoins and DEXs have worked, but he prefers the larger growth stories in AI, robotics, defense, and related fields. Jose would generally direct someone with $50,000–$100,000 toward Mag 7 companies rather than crypto, while the panel notes that crypto’s earlier airdrop-driven opportunities have become rarer, more concentrated, and more PvP.
- The defense discussion centers on drones and counter-drone systems: cheap attacks can destroy equipment worth two or three orders of magnitude more, forcing spending toward drones, counter-drones, lasers, and related systems. ACS is said to be raising roughly $2B to connect existing guns to tracking systems, while a panelist says the group has invested in an unannounced laser-defense company. Data centers, airports, ships, and other valuable infrastructure may all require such protection.
- Kevin presents Kang’s crypto-to-robotics transition as a model for reinvention: Kang invested in Figure and Skild very early, later participated at a roughly $2.6B Figure valuation before it was marked near $40B, and contributed the position to Robo Strategy, now trading around 2–4x NAV. Another investor argues that robotics valuations and stale private marks could be repriced as pilot programs develop. Kevin closes by tying expanding deficits and defense spending back to Bitcoin’s currency-debasement thesis.
1. Stock-pickers’ market: flows, fundamentals, or narrative
- Jason revisits Delphi’s year-ahead report and says its central prediction is broadly playing out six months in: 2026 would not be a market in which most coins did well. The assets working tend to have structural flows from ETFs or DATs, fundamental businesses and revenue, or a powerful narrative. Zcash is a privacy-narrative example, while Venice straddles fundamental and narrative-driven categories. He does not expect the setup to change much in the back half of the year: “the market tells you what it likes,” and participants can accept that or fade it and be upset.
- On HYPE, Jason focuses on the stablecoin component. The revenue is highly durable and should receive a hefty multiple, while the stablecoin yield provides a buffer when crypto activity and volumes decline. It will still be cyclical if users withdraw stablecoins, but likely to a lesser degree. He cites the viral framing that revenue was up 25% while the coin was up 48% as evidence that a repricing made sense.
- The SEC’s stock-related news also appeared to make the environment for tokenized equities more favorable, though Jason says he does not know how defined or permanent that change is. It matters to a perp DEX because a liquid spot market helps keep perp and spot prices aligned, supports liquidity, and keeps funding rates in line. Lighter, previously “a dog,” also appears to be repricing after being a comfortable short with liquidations in striking distance on the liquidity heat map.
2. Ceteris’ Venice math: roughly $60M ARR and a path to $200M more
- Ceteris says the repricing began about four weeks earlier, when Venice added subscription tiers and started releasing granular subscription data. He estimates current ARR at about $60M from subscriptions and API revenue, with API revenue perhaps around $1M. The more important variable is forward revenue: roughly $2M of ARR was added three weeks earlier, $2.2–2.3M two weeks earlier, and $2.5M-plus the prior week.
- Even annualizing the weaker additions and combining them with API revenue, Ceteris guesses there is a path to adding at least $200M of ARR over the next 12 months. Subscriber disclosures, token burns, and rising token usage are helping investors connect the forward earnings story to VVV’s current valuation.
- A panelist raises the value-transfer problem: the company has an equity structure, while burns are only around $200,000 per month. Ceteris responds that the burns mainly demonstrate subscriber growth and signal value transfer rather than representing the full transfer today. He acknowledges the usual dichotomy: when things go well, token and equity interests appear aligned; when things go badly, token holders can get squeezed.
- Ceteris views the setup as unusually clean because Eric Vorhees funded the entire equity side, there are no equity investors, and the company never raised into the token. That removes some legal protections and self-interested parties seeking to maximize an equity exit, though it does not create any guarantees. Ceteris thinks Eric’s best exit opportunity may ultimately be through the token rather than an IPO, and cites his long-standing privacy ethos, including his history with ShapeShift and Bitcoin.
- He expects annualized VVV issuance to fall to $3M per year starting in July—roughly 3–4% inflation—and says the annualized issuance rate has been declining by $1M per month. He expects that decline to continue while burns gradually rise, potentially making VVV deflationary by year-end.
3. DM: a capped utility mechanism with little speculative value left
- One panelist replaces a payback-period model for DM with a yield-and-going-concern framework. DM provides roughly $365 per year of free inference, or $1 per day. Its value depends on the opportunity cost of the cash and the premium attached to Venice continuing as a going concern.
- With a 5% opportunity cost and a 45% going-concern premium, the calculation is $365 divided by 0.50, or about $730. With a 15% going-concern premium, it is $365 divided by 0.20, or about $1,800. The speaker considers DM relatively fairly valued at the latter level, with little speculation remaining: holders can buy it, use the inference, and hope to sell it back at a similar price.
- Supply has a soft limit around 38,000 DM, with current supply near 38.2K and movement within roughly a 4% band over an extended period. The mechanism is described as a marketing exercise and game that brought attention to Venice and created a supply sink, but also as a liability: at maximum usage it could represent as much as $38,000 of daily revenue, or perhaps $19,000 after margins. Actual usage is far below the maximum.
- At a market cap of roughly $50M, the mechanism does not require an enormous amount of demand to support its price. The conclusion is that DM is not what accrues value as Venice grows; VVV is the main token tied to user-base growth.
4. The L1 value-accrual thesis has broken down
- A panelist says they hold some SOL ETF exposure but no spot SOL or spot ETH, something they cannot recall being true for their entire time in crypto. SOL was near $250 last year—roughly a $125B–$150B valuation—and is now around $85. The question is why SOL or ETH should have been worth those amounts in the first place.
- Jason summarizes the verdict: “all the Layer 1 value-accrual bears were right,” though early. Tetris Capital was right, as were people who criticized SOL’s valuation at $7. The panel also notes that the app-chain thesis was directionally right, but expressing it through Cosmos was a mistake.
- L2BEAT data released the previous day showed 63 of 118 tracked L2s doing fewer than one transaction every 10 seconds, or less than 0.1 TPS. Base and Arbitrum were described as the only two still really doing anything, repeating a conclusion one speaker says they had reached two years earlier. The speaker says the L2 thesis has blown up for both Ethereum and Celestia.
- The proposed explanation is that many “DApps” are really ordinary applications with tokens and do not need their own L1. The applications that do work often have enough power to move to their own platform or execution environment. One panelist states that the only blockchain doing well is one generating revenue, and says Solana has lost its revenue to Hyperliquid.
- A panelist calls longing TIA after previously being bearish on it a major mistake: the trade was based on a relative comparison with ETH, which is not a sound investment strategy if ETH itself is overvalued. The panel still prefers SOL over ETH if forced to choose one, while acknowledging that owning neither has been the better decision over the past year.
5. Where does the ETH bid come from?
- The panel points out that institutions have been able to buy ETH for years through spot markets, ETFs, and DATs, so there is no obvious wave of new institutional access waiting to arrive. One speaker says Tom Lee is slowing purchases, making him an example of the marginal buyer becoming less aggressive.
- At roughly $250B, one panelist says there are at least 20 assets they would rather own than ETH. There is no known catalyst large enough to undo several years of missteps, leading to the recurring question: where does the bid come from? The same argument applies to SOL to a lesser extent.
- The competition is no longer only within crypto. In 2020 and 2021, crypto was the obvious high-growth industry; now capital and attention are also going toward AI, memory, semiconductors, deep technology, defense, robotics, and biotech. One speaker jokes that crypto funds became memory experts and started trading SanDisk. Crypto is no longer automatically the shiniest game in town.
- Another panelist says they are considering reducing Bitcoin exposure to increase HYPE exposure, the first time they have considered selling some Bitcoin. HYPE is viewed as a business operating on crypto rails rather than primarily as a crypto play. Compared with roughly a year earlier, HIP-3 and HIP-4 did not exist, there was no HYPE DAT strategy or HYPE ETF, Circle was not returning 80–90% of USDC yield to Hyperliquid, and the market expected roughly 10M HYPE tokens per month to be sold by the team.
- HYPE now derives substantial activity from equities, equity indices, and commodities as well as crypto. A panelist says only Zcash among the three strongest recent assets is a true crypto play; HYPE is an exchange business, while Venice is primarily an alternative business using crypto rails.
6. Capital formation or “things that aren’t good enough to go public”?
- The panel disagrees over what the token model represents. One speaker argues that token holders have no equity rights and are relying on Eric Vorhees’ good faith. Venice probably could not list on a public stock exchange, and the token may therefore look like a way to access a business that cannot use conventional public markets.
- Another speaker says the token currently trades at only a small discount to OpenRouter despite OpenRouter having better margins. The speaker calls this notable because it is the first time in their experience that a crypto company doing something comparable to a non-crypto company appears to trade at a meaningful discount rather than a premium.
- The counterargument is that tokens democratize access. Ordinary users could not have bought or been airdropped a large position in a company like Hyperliquid at such an early stage, then used that position to become invested in building HIP-3 markets, lending markets, or stablecoin infrastructure. Another speaker counters that Venice did not actually raise capital, and that traditional venture markets are currently more liquid for a company doing the same thing.
- Jason says investors should distinguish philosophical preferences from market opportunity. Some crypto businesses can be decentralized and crypto-native; others can simply combine crypto rails with a conventional business. He views Hyperliquid as meaningfully more transparent than the incumbent exchange structure, even if it is not highly decentralized, and believes it is positive for the industry to have a new competitor challenging Binance’s dominance.
- A panelist argues that decentralization should make the product better or harder for regulators to shut down, rather than being an ethos checkbox. KYC is considered fairly likely for Hyperliquid. The bear case is that it loses anonymous or “fish” users; the bull case is that compliance-friendly access brings in users currently blocked by VPN or regulatory restrictions.
- Jason’s broader conclusion is that much of Web3 no longer commands his attention. He still sees stablecoins and DEXs as major successes, and identifies Zcash and MetaDAO as interesting crypto-native experiments, but prefers scaling proven products such as perps, stablecoins, and open APIs for real-world assets over new 0-to-1 primitives.
7. Advice for a $50,000–$100,000 portfolio
- Jose says that unless the person genuinely loves investing, he would favor a Mag 7-style basket such as Amazon and Google. He considers these companies relatively resilient to AI: in a bull case they can do well, while in a bear case they trade around the teens or low-20s earnings and may not be crushed.
- Jose is unsure that crypto offers as attractive an opportunity set for a $50,000–$100,000 portfolio as it once did. He acknowledges that crypto still produces major mispricings—such as an early VVV call—but says public markets also offer accessible trades. He considers the memory trade relatively straightforward when AI users could see the bottleneck emerging, though it is now more expensive and difficult.
- Ceteris says smaller portfolios were especially attractive in crypto when many new projects and airdrops were launching. Creative farming could create meaningful lumpiness, but there are fewer launches now. One panelist adds that the surviving participants are more sophisticated, making the market more PvP, with rallies sold and more chop.
- The discussion recalls DeFi Summer, when people felt like geniuses while throwing money into smart contracts and farming Yams without getting rugged. At that time, 10–50x outcomes and airdrops were common. Recent examples are more concentrated: a 2–3x VVV outcome from the December bottom is already large, while one speaker thinks even a $2,000 Zcash price would be difficult despite people discussing $10,000.
- Ceteris says access to private markets is partly a skill issue, but the panel notes that most people are not full-time investors, do not have millions of dollars, and can end up in poor SPVs or get rugged. Jason’s response is that such people probably should not be aping into tokens either.
- For a hungry 20-something without capital, Yan recommends the Delphi playbook: learn, write, share ideas, build a reputation and network, and gradually find an investing seat, founder seat, or early-stage company. The point is to earn access rather than wait for a shortcut.
8. Drones, counter-drone systems, and the new defense economics
- One panelist identifies two major defense tailwinds. First, the world is becoming more multipolar, so each geography wants to spend more on its own defense and develop local companies rather than depend on potential adversaries. Second, the Ukraine war has shown that drones can destroy equipment worth two or three orders of magnitude more than the attacking system.
- The social-order framing is that dominant military technology shapes institutions: knights supported feudalism, gunpowder reduced the need for decades of knight training, and drones are again lowering the cost of attack while widening the range of potential attackers.
- A panelist says the economics have flipped from expensive weapons shooting down expensive weapons. Cheap drone swarms make it difficult to justify firing million-dollar missiles at $1,000 targets, while proximity and portability make the threats harder to detect. Existing defenses therefore need to be supplemented or redesigned.
- ACS is described as raising roughly $2B, though the speakers say they are not investors. Its system connects existing .50-caliber, 30mm, and machine guns to tracking technology so that current ammunition can be used against drones. Another panelist says the group has invested in an unannounced laser-defense company.
- Better lasers could provide a cleaner defensive tool: if a beam is tuned to destroy the drone and dissipate beyond it, deployment becomes easier in populated areas. The speakers note that lasers have their own risks, including continuing into space if they miss, but see improving technology and unit economics as important.
- The demand case extends beyond military bases. Data centers, airports, cargo ships, and other valuable infrastructure may need counter-drone systems, and one speaker says ships could eventually carry drones or defensive systems as a normalized part of operation. Spending is viewed as politically palatable because it is framed as protection rather than attack.
- The panel compares rearmament to buying generators after a major blackout: once an expensive failure occurs, it is irrational to remain unprotected. Defenders must also plan for a three-sigma swarm rather than a single drone, because attackers will optimize for the chance of success.
9. Kang’s robotics transition and the Bitcoin close
- Kevin presents Kang’s move from crypto into robotics as an example of reinvention. Kang entered around 2017, with THORChain and Synthetix among his early wins, and later made a large trade through 3AC. He also built a strong venture record through Mechanism.
- Kang recognized early that software costs would trend toward zero and viewed robotics as the more defensible AI opportunity. He invested in Figure and Skild extremely early, with the speaker estimating an early Figure valuation around $20M, then describing participation at a roughly $2.6B valuation before Figure was marked near $40B a few months later. The position was contributed to Robo Strategy, which became liquid and was trading around 2–4x NAV at the time of discussion.
- The investment is presented as a crypto-to-robotics parlay and one of the strongest investments and trades the speakers have seen. Kang is described not merely as a trader but as someone who identified the shift away from crypto early and stayed committed to robotics.
- Another Robo Strategy investor argues that the NAV discount criticism misses two points. Robotics valuations may be due for repricing as new models appear and robots enter pilot programs, while some private marks are stale. In addition, the vehicle is not merely holding existing assets: it can issue shares, invest in new deals, and use its brand, access, selection, and sector knowledge to find companies that may appreciate faster than the premium over NAV.
- The broader lesson is that strong investors can learn an entirely new industry and repeatedly reinvent themselves. The panel invokes the maxim, “When the facts change, I change my mind,” and notes that Kang avoided being pulled back into ETH when the ETH narrative returned.
- Kevin closes by connecting defense to the broader macro thesis. Defense spending is rising, much of it government-financed and effectively non-dilutive for the companies receiving it; European allies are being pushed to rearm; government expenditures exceed revenues; and fiscal deficits continue expanding.
- He then returns to Bitcoin’s long-term chart. Despite volatility and pullbacks, he would take the long-term chart every day of the week, and says his BTC thesis remains as strong as ever because of currency debasement and the spending dynamics discussed. The final joke is that BTC is pumping—it is just private.
Full transcript
How’s everybody feeling about this market?
I mean, Jason is the big HYPE bull.
1. ETH, SOL & the collapse of the L1 premium thesis
Yeah. I mean, this is something we wrote about in our year-ahead report, and we’re currently in the process of revisiting it, scoring our predictions, and revisiting what we thought would happen so far. One of the big themes was that we thought 2026 would be a stock-pickers’ market in crypto. It would not be a market in which most coins did well, and you’d have to anchor to 1 of 3 things, or a combination: structural flows, maybe coming from ETFs or DATs; fundamental businesses and revenues that drive value to the token; or a really strong narrative-type play.
A Zcash privacy narrative is an example of that, while Venice straddles the two between something fundamental and something narrative-driven. As I’ve been going back and reading that massive report, that was one of the things that stuck out to me. It’s 6 months into the year, and that’s kind of how it’s played out. I honestly don’t really see that changing very much as we move into the back half of the year.
I think the market tells you what it likes, and it’s your job as a participant to either accept that or fade it and probably be upset.
Yeah, no, the HYPE move was a big one.
Venice is up way more, right? Venice has been the main story these last couple of weeks.
Yeah, no, and just to go back to HYPE real quick, I think the stablecoin component was a big one. You want to think about what multiple to value that revenue at, and I don’t really have a great answer, but it’s highly durable. It should get a pretty hefty multiple.
In particular, you see a lot of cyclicality in crypto, and HYPE is no different. As activity wanes, volumes come down and it reprices lower. I think the stablecoin element adds a nice buffer. Not to say it won’t suffer from cyclicality, in the sense that people will withdraw stablecoins and there will be less USDC on the platform, so it’ll be generating less yield, but I think that happens to a smaller degree.
It makes sense for HYPE to reprice off that. You saw the viral tweet going around—the messaging was, “Revenues are up 25%, and the coin is up 48,” and so on and so forth. It certainly made sense to have that repricing.
Then you had the big stock news from the SEC. I don’t really know exactly how defined or permanent that is, but the idea was basically that the environment for tokenized equities would be much more favorable.
The reason that’s important for a perp DEX is that you need a liquid spot market to help keep basis relatively aligned. You don’t want to have a big divergence between perp and spot. The size of the perp market is going to be a function of the size of a healthy spot market, because that allows you to create liquidity and keep funding in line, which is needed for good UX on that front.
2. Venice AI (VVV), AI tokens & crypto business models
I think those pieces of news helped quite a bit for HYPE, and Lighter, I think, is one of those that’s repricing as well. It’s been a dog for a while, but it seems to be repricing now. I think you had a situation where it was just a very comfortable short for a lot of people.
If you look at the liquidity heat map, there are some big liquidations in striking distance, depending on whether or not they add liquidity to their positions. It’ll be interesting to see what happens there.
Yeah, no, Venice has been the big one. We’ve been chatting about it for some time. The recent information that’s come out—not news, but information—started about 4 weeks ago, when they released more subscription tiers and started providing granular subscription data.
That gives you a view of the revenue ramp going forward, and that’s kind of the bet you’re making. It’s useful to understand the trailing revenue, but there’s no great way to do it. I estimated it at around $60 million in ARR at the moment, as a combination of subscription and API revenue.
The forward earnings are what will really drive interest in the token. The reason people are getting excited is that they’ve been adding revenue consistently. Three weeks ago, they added about $2 million in ARR. Two weeks ago, it was $2.2 million or $2.3 million, and last week it was $2.5 million and change.
Even annualizing the weaker of the two and combining API revenue, which I think is probably around $1 million, with subscription revenue right now in terms of revenue added, I’m guessing there’s a path to adding at least $200 million in ARR over the next 12 months. If you think about where the token trades now relative to forward earnings, I think there’s a lot of room for upside there.
I’m happy to provide some bear cases, but I think the source of the repricing is that they’ve been publishing more information on subscriber numbers, and token usage has really gone up as well. People are trying to put all of that together.
Are you fully expecting the token to get all the value? I know that’s something a few people have brought up, and it’s a good point. There’s the equity structure, which is something we’ve talked about a lot. Why is this one different? They’re only burning, I think, around $200,000 a month. What do you think about that?
Yeah, for sure. The burn has been more of a way to show how many users they’re adding. They’re disclosing new subscription numbers through the burn. It’s not really meant to be the full value transfer; it’s more of an indication of subscriber growth and a signal to the market that they are sending value to the token.
As you mentioned, you always have this dichotomy. It’s all fine and dandy when things are going well, but when things hit the fan, you realize who’s actually at the top of the totem pole, and tokens get the squeeze.
I think what’s unique here is that you don’t have competing interests in the 2 vehicles. Eric funded the whole thing on the equity side. There are no equity investors, and they never raised into the token. The setup is there for it to be—ultimately, it’s up to him in that case—and it’s one of the cleaner setups for something like that.
You don’t have legal protections and self-interested parties that are just trying to maximize their exit value when things go south. I think that cushions the risk a bit.
If I’m thinking from his perspective, I think his exit opportunity is probably best through the token. Maybe this can get acquired. I don’t know about going public, but obviously, that’s a much tougher road. He can always just pocket all the cash flows and not really send any value to the token. That can be a sneaky way to do it.
But I do think he’s been in the space for a while and is principled. He’s building this because he believes in the ability to have private inference and privacy in general. That’s been part of his ethos for a while, going back to ShapeShift and part of the reason he got into Bitcoin all those years ago.
I think the setup is there for a clean flow of value to the token. Right now, there are no guarantees on that front. At this stage, no company should really be sending anything too meaningful back to holders. They should be reinvesting it, and I think that’s what they’re doing now.
I anticipate that the token itself will become deflationary, probably by the end of the year, from reductions in issuance, which he’s continually doing. They’re basically going to be down to $3 million a year of VVV issuance starting in July. Call it 3% to 4% inflation, but he’s been lowering it by $1 million a month.
They’re not issuing $1 million a month, but the annualized rate has been going down by $1 million a month. I anticipate that will continue, and then the burns will gradually creep higher.
Yeah, they seem to really be leaning into the token. Obviously, it has the utility of staking for access to the platform, minting DM, and all of that. Reading the tea leaves, it seems probable, but it would be great if at some point he came out and definitively said it. I imagine he hasn't for a reason.
You also have the DM component, which is a fun thought exercise in terms of what it should be worth. I used to think of it as a payback period, but I decided that's not really the correct framework. I broke it down into 3 elements. There's the yield you get, which is $365 a year, effectively $1 a day of free inference.
The other 2 inputs are the opportunity cost of that cash had you just put it in Treasuries, and the third element is the going concern of the business. It's not about repayment. It's about the chances that I can buy this, use the free inference, and then sell it back at a reasonably similar price. It's assessing what you think the market views as the going concern of Venice.
If the going concern is very high, the formula is basically 365 in the numerator divided by the opportunity cost plus the risk premium of the going concern. If you think there's a big going-concern premium, call it 45%, then 365 divided by 0.5, and you're saying the fair value is 730.
But if you're fairly confident in their ability to continue—and I think as the business grows, it's more and more likely—the going-concern premium comes down. For me, I think it's relatively fairly valued now. It's all the way at the bottom, basically, where the going-concern premium is 15%. So you say 365 divided by 0.05 plus 0.15—365 divided by 0.2—which means the fair price is 1,800.
I think there's no speculation left in the token. It's more about people buying it, using the free inference, and then selling it back for relatively the same price that they bought it for. If you scroll a bit lower, there's a chart.
But I mean, what's the reason to even have this token model? Why not just build for inference normally? Does all inference basically require DM?
No, no, no, no. There's basically a soft limit of around 38,000 DM. It's a formulaic thing where, after a certain supply, the amount you issue against your VVV becomes very small, to the point where it isn't even worth it. Supply now is around 38.2K, and it's really not going to change from here. Supply is relatively fixed; it's moved within a 4% band for an extended period of time.
It's basically a good marketing exercise and a fun game. It brought attention to the platform when it started early on, and it created a supply sink for Venice. It's ultimately a liability for them, because they have to offer up a maximum of $38K worth of revenue per day to these holders. Obviously, their costs are going to depend on their margins, so it's not a $38K liability. It's probably more like a $19K liability.
People can hold it and get $1 of inference a day, assuming it's maximally used, which it never is. You can see in the other charts where they show the amount that's staked and the amount that's used. It's more of a fun thing, but I don't really think there's much speculative juice left in this.
You don't need an insane amount of users to rationalize the value and keep the price where it is. It's not like the market cap of this thing is around $50M, so it's not a massive liability or market cap that needs to be supported with bids. I think it'll probably sit around this price. But it's not really what accrues value as Venice grows. It seems a bit gimmicky, but I guess some people find it fun.
So the real way to play it is just through VVV?
Yeah. VVV is what appreciates as the user base grows.
Are any of the Base AI things interesting, or do you think it's just people chasing after VVV?
There are some I'm still digging through and trying to understand. They're quite a bit more complex. This is one of them that I'm trying to understand a bit more deeply. There are a lot of moving parts to this one, and it isn't as straightforward because of what they're building versus what Venice is building. I just haven't spent as much time looking into it, and it takes a bit longer to fully grasp.
Just talking about the market in general, it seems that right now—obviously, who knows how things change in the future—people are very interested in Venice, Zcash, and HYPE. Those seem to be the ones that have been doing the best. Bitcoin, ETH, and SOL have been pretty bad, especially ETH and SOL.
I own a bit of a SOL ETF, but I don't own any spot SOL or spot ETH. I don't know if that's ever been true for me—not to own spot of either of those. Basically the entire time I've been in crypto, I've always had at least one. It's like, did we just get it wrong in the past about how we were valuing stuff? We put so much money into ETH and SOL.
I'm still quite bullish on Solana from a technical perspective and everything, but Hyperliquid really was bad for the L1 token premium. You're seeing stuff like Venice now, which makes money too. Zcash is a bit different; it's a privacy narrative, so that's a pure store-of-value thing. But you're not getting a lot of those types of tokens doing well. It's basically just Zcash.
Solana was close to $250 last year, and it's at around $85 now. When you look at that $250, it's like, yeah, that was $125B or $150B. That's a big number. Why should it actually be worth that? Why should ETH be worth $250B or whatever it is? We've had this discussion forever, and we don't need to go back into it again.
Alt seasons that we've had in the past were: you get the majors moving, and then you get the other things after. ETH and SOL have just been bad since 10/10. Same with Bitcoin. But now you're getting these other tokens. Obviously, HYPE has been strong for a while, but Zcash and Venice have been stronger more recently, along with a couple of other things. I don't know. It is a pretty interesting market.
All the Layer 1 value-accrual bears were right. Tetris Capital was right. They were just early.
Yeah. Too early.
Way too early.
Same with people who were grave-dancing SOL at $7 for the same reason. It was all right. Crypto's brutal, man, because a lot of those people were right. I think it went back to $8.
Yeah. It's just like ETH is still a $250B asset. There are so many things I would rather own at that market cap than ETH. It's actually crazy.
No, it's tough.
I don't know. I think the old L1 value-accrual bears were right. The app-chain thesis that I think we were all pretty bullish on at Delphi—unfortunately, we chose to try to express a lot of it on the building side through Cosmos, which was a mistake. But I think Hyperliquid was always the thesis: the killer apps would just be exported onto their own chains that were optimized for that use case. I think it's definitely played out with Hyperliquid so far.
Even if Solana gets, like, a Bullet [?] or one of these perp DEXs that does really well, is that really going to be reflected in SOL's price?
I mean, it's already $50B. It's already worth a lot.
Yeah.
So that's the thing.
Yeah. The bet was that there would be a wide surface area of a variety of apps that would launch. It wasn't going to be just this super-powerful, exchanges-only type of thing. At least that was the initial bet on why L1s would have a premium: the use and activity that would happen there, with all of that being in one place.
But it turns out a lot of DApps don't make sense, and some do. The ones that do end up having all the power to move off to their own platform or execution environment.
And a lot of them—DApps aren't DApps. They're just apps with a token, and those don't really need an L1 in any real way, like VVV, right?
The thing is, yeah. We don't even have that many L2s. L2BEAT released something yesterday, and it was 63 out of the 118 L2s that they track doing less than 1 transaction every 10 seconds. That's less than 0.1 TPS. The only 2 that are still really doing anything are Base and Arbitrum.
What's crazy is that I wrote about this 2 years ago now—how Base and Arbitrum were basically the only L2s doing anything. It's crazy how literally nothing has changed there.
And so the L2 thesis completely blew up, both for Ethereum and for Celestia. I think that's the main thing that has hurt so much: the L2 thesis just completely blowing up. They have a lot of assets on it now, but again, you go back to the revenue thing.
And then Solana seems like everyone hates the Solana Foundation these days, but it's still tough. They're in a tough spot. What's funny is that when Solana was SOL versus ETH two years ago, everyone started talking about rev, which I always thought was correct, and I still do. That's the correct way that you should be valuing this stuff.
3. Why Hyperliquid changed the crypto investment landscape
Solana lost all its rev now, and Hyperliquid is the one making money. I don't know—it feels like we've been debating this, but it's been enough time now that I don't think you can really debate that revenue for L1s is important. The only blockchain doing well is one that gets revenue, and the other ones just have not.
Yeah, I think the SOL people, including us, always focused on the relative comp versus ETH, which I think was the right way to play the narrative game. It still looks okay on a relative comp versus ETH. It looks much worse than it did at the peak because rev has been destroyed, but it still looks good.
The problem is, what if ETH itself is overvalued?
Exactly. By a factor of 10 or whatever.
Yeah, I don't know.
It was the same thing, though. My biggest mistake over the last couple of years was longing TIA after I had been so bearish on it. Honestly, I was just trying to be a hero and play both sides of it.
What are you doing? I forgot about TIA.
My bull case for TIA was honestly the relative comp versus ETH, right? That's not a good investment strategy. I still think that if you have to own either ETH or SOL, I'd rather own SOL here. But again, if you're deciding to own one of the two, obviously owning neither has been the right choice over the past year or so.
Historically, I've always felt like the L1 tokens, especially the big ones that actually have users, were kind of your safe hold, and then you could dabble in other stuff.
Yeah, I guess my question is, it's not like institutions haven't been able to buy ETH for years, right? It's not some question of where the bid is going to come from for ETH.
Well, even Tom Lee is slowing down purchases now, too. That's your marginal buyer.
You know, $10 billion. Yeah, of course.
For ETH at $250 billion, to Jose's point, there are probably at least 20 assets that I would rather own right now. Institutions have been able to buy it, so it's not like they're going to rush in to buy. There's no massive ETH catalyst that I'm aware of that's going to change the game and undo a couple of years of missteps. So where does the bid come from? To a lesser extent, I would also apply that same argument to SOL.
I think that's a big part of the story, too. SOL versus ETH—owning neither and owning other things has been a lot more profitable because if you think back to 2020 and 2021, even before the bear market in 2022, crypto was the thing from a macro perspective. It was the high-growth industry everyone was getting into, so the relative-value trades maybe made sense.
This was before the ChatGPT moment, before AI, and before the latest deep-tech and hardware renaissance. If you're coming into crypto, where is that marginal or incremental bid coming from? If you're coming in, you're getting more concentrated in things that have either real fundamentals or a real thesis.
If you're not, you're trading. How many crypto funds or crypto investors do we know that overnight became memory experts and now trade companies like SanDisk? AI stocks have become the bellwether, where everyone's attention is. You're not just competing for capital within crypto anymore. You're competing for attention across a lot of exciting, high-growth, potentially massive industries that have pretty attractive valuations, depending on your thesis about what the future looks like in 5 years.
Crypto isn't the only game in town, or the most exciting or shiniest thing out there, like it was in prior cycles.
No, I absolutely agree. One thing I wanted to mention is that if you're coming into crypto as an institutional investor at this point, you could have bought Bitcoin or ETH for years, either spot on Coinbase, through ETFs, through DATs—however you wanted to get exposure, you could have. The same is true for Solana over the last year and a half or so.
But if you're coming in now, what is there? I've actually thought for the first time that I might want to decrease my Bitcoin exposure and increase my HYPE exposure. This is the only time I've ever even considered selling some Bitcoin.
I don't view HYPE as a crypto play. It just happens to be a business that's in crypto and has a token, but clearly what they're going for is not a crypto business. A year ago, when HYPE was trading at around $50, HIP-3 didn't exist, HIP-4 didn't exist, and there wasn't a Hyperliquid DAT strategies company bidding HYPE.
HYPE ETFs didn't exist. Circle wasn't giving them 80% or 90% of USDC yield on Hyperliquid. People assumed there would be 10 million HYPE tokens sold by the team for unlocks every month. All of those things were part of the situation last year when HYPE was at this value.
Today, it's fundamentally a business deriving a lot of its activity from things that are not crypto: trading equities, trading equity indices, trading equity perpetuals, and trading commodities. A lot of institutions coming in and a lot of people looking at the market will also come to that conclusion. Thinking about it as a crypto company is missing a lot of the upside.
I think you're completely right. Of the 3 assets that are doing well right now, only Zcash is a true crypto play. HYPE is essentially the exchange play that you just talked about. Venice isn't really crypto. They have the token, but it's really just an alternative.
Yeah, they have crypto rails, which are useful for agentic payments because you assume the bulk of inference will be from agents going forward. Having that setup helps, but I agree: their primary user base is going to come from outside of crypto. It's just a good bootstrapping mechanism, which I think is—
Which is kind of like—I don't know, that's fine. Building good businesses on crypto rails is fine, right? You don't have to be a fully crypto-native company.
I mean, it should be, right?
Is it? I don't know. The whole point was that otherwise it's just a way to go public without going public.
Well, think about Venice. You actually have no rights. If you owned equity in one of the neoclouds or whatever, you would have some rights. Here, you're just relying on the good faith of Eric Vorhees, which is worth a lot, clearly.
I mean, I know it's at a discount.
It's a bit depressing to me.
It trades at a very small discount. At least based on your analysis, OpenRouter has better margins and it trades at—Venice still trades at a pretty small discount to it. I think it's pretty—
Would Venice actually be able to get listed on a public stock exchange?
Probably not.
And so that's actually where the crypto angle is useful, right? The product is mostly just putting out the token.
So it's just things that aren't good enough to go public.
No, it's not just because it's a different type of instrument. If you're going public, you're IPOing. That's an equity issuance.
4. Crypto capital formation vs traditional equity markets
I hear what you're saying, but it goes back to one of the original killer crypto use cases—and one you've always been bullish on—which is capital formation, right? Is this not a good example of that? I know it's still early, and there are things that can be improved. The fact that token-holder rights aren't equity rights is something we can table, because I think we all agree that eventually needs to be solved. But from a capital-formation standpoint, this seems exciting.
What capital formation is happening here, in your view? They didn't raise money, right? And if they raise money, I think the traditional equity markets—not even the IPO ones, just traditional venture—are way more liquid than crypto. Right now, it's the first time since I've been in crypto that there's a meaningful discount for a company in crypto that's doing the same thing as a company outside of crypto. You actually have a discount with a token, whereas historically it was always the opposite. You have liquidity.
Yeah, you have liquidity. But that's the whole securities law issue, right? It's meant to stop this, because these things are actually just securities, which I totally think those laws shouldn't be there either. I think you should be able to list more easily and transfer things much more easily. But it's not really what got me excited about the space. I don't like any of this stuff, really, personally.
Yeah. That's different from seeing the opportunities in front of you.
Yeah. I don't know. I look at things like this: there are certain aspects of crypto that I philosophically align with, like Bitcoin, clearly, and even things about Ethereum with decentralization. Unfortunately, being in the space for years, you realize how little people actually care about it, so you get jaded.
But there are certain businesses that could just be crypto-native and decentralized, and have all the crypto-ethos aspects. There can also be businesses that aren't, and that mix aspects of the two. As a market participant in crypto, I feel like if you let what you wish was the case stop you from investing in a business that's—and I'm pretty sure you own HYPE, so this doesn't apply to you—but if—
I do indeed.
If you let your philosophical ideal stop you from buying clearly the best business that's come out of crypto in a while, for example, that's just a weird thing. I do think HYPE does a lot of good for the space. I don't think Binance having a stranglehold over crypto trading and exchanges is necessarily a good thing.
I think having a new player come in and challenge that, especially from a more open perspective, is positive. It's clearly not decentralized like a lot of other perps have been in the past, but it's also significantly more transparent than the incumbent. It's clearly moving the industry in a better direction in that sense.
I mean, decentralization is—just to cut you off—but it's supposed to make your product better, right?
No, you're fine.
It's supposed to make your product better, right? Decentralization makes your product worse from a UX perspective, but the benefit is that you're harder for regulators to take down and all this stuff. So, with Hyperliquid not being decentralized, they can get hit from these other angles.
If you think not being decentralized is what's going to cause regulators to completely shut them down, and that's why you're not buying, then that's fair. You've been wrong so far, but that's fair. But if you're thinking, “The ethos is that they're not decentralized, so I'm not going to buy it,” that's where you go wrong, because you don't just want to make everything decentralized for the sake of it. What's the benefit you're getting from this decentralization? That's what you need to answer.
People have tested this in multiple directions. Solana tested it more than Ethereum, and then Hyperliquid tested it more than Solana. You saw CME and NYSE come out the other day saying they want some action to take place on Hyperliquid.
I do think it's pretty likely that Hyperliquid eventually has KYC, but I also don't think that's necessarily bearish for them. You can look at it both ways. The bear case is that more institutions will feel comfortable trading there, but you lose all the fish. The bull case is that there are a lot of people who don't trade on Hyperliquid because VPNs block them, because of compliance reasons, and all this stuff. If Hyperliquid were regulated, maybe all those people would start trading there.
Yeah, the other element we're ignoring is the democratization of access to these platforms at a really early stage, right? There's no world where everyone could have bought an asset like Hyperliquid, or even been airdropped for using it, and then bought this asset at such a low price and decided, “Okay, I actually have a huge stack. I'm very invested. I'm going to go build on top.”
You create all these incentives for people to partner and continue to build, whether it's HIP-3, lending markets, or stablecoin setups. I think that stuff doesn't happen without a token, and that in and of itself is why crypto makes something like this possible.
Yeah, I would distinguish Hyperliquid from something like VVV. I think Hyperliquid is clearly not super decentralized right now, but it is built on crypto rails in a way that something like VVV just isn't. There is potentially a pathway for it to become more decentralized, and it has been moving in that direction over time.
I agree there's an opportunity set in front of you. For me, when I came across crypto early on, I thought this was the biggest thing I'd ever come across—the biggest narrative—and there were all these dreams that we had for it. I think in many ways we exceeded those: stablecoins and DEXs have crushed it.
But there are many other things I sort of don't believe in anymore, kind of like Kyle's tweet. A lot of Web3 I just don't believe in anymore. If I have scarce attention units, I'm always interested in the biggest story. I like the biggest-upside story.
That's what crypto taught me, too: if you're in the industry that's growing the fastest, you just have more opportunities, and even if you screw up, you kind of win anyway. You're punished way less for losing. I just don't see that as crypto right now.
None of these good token stories, like VVV, changed my mind on it, because I don't feel like it's really crypto. I would rather be in some of these other markets. I do think there are interesting opportunities within crypto, but now it's more about deploying things that we already know work—whether it's perps, stablecoins, or open APIs for RWAs—and scaling them, rather than these very interesting 0-to-1 primitives.
Other than things like Zcash and MetaDAO, which are super-interesting crypto-native experiments, there are definitely a few of them out there. But I don't think it's the most interesting story right now, personally.
Yeah. I think you kind of created this Venn diagram where it needs to satisfy all of these individual beliefs, desires, and all this stuff. Through that lens, sure, nothing fits the filter. But I—
Jose's hierarchy of needs.
Yeah.
No, if we go—
Yeah. This bar is too high.
No, I just think there are sectors that are growing at such an absurd pace, and people are building such legitimately, insanely interesting stuff.
Yeah, for sure. People don't have access to all of that stuff, and that's kind of part of the point: this allows for much broader access to these assets.
Yeah, you want to buy robotics, you have to go buy Kang's FOF strategy.
And honestly, I think a lot of people talk about how it's trading so much above NAV, but those are private marks, right? I don't know what the right premium over NAV for it to trade at is, but it's obviously not 1-to-1, considering those marks are from raises a year ago, and people are pretty bullish on robotics.
But to your point, with robotics, you can probably do well in robotics over the next few years even if it turns out to be like the car industry in 10 years, right? As you're going through this, you can kind of be wrong and get away with it. That's definitely true in crypto. You definitely can't be wrong anymore.
Robotics, AI generally—inference, infrastructure, defense, even biotech—is having a bunch of—
But yeah, so much of this is private markets, right?
Yeah, for sure. It's all private.
Here's a question for you, Jose. If you didn't have access to private markets, would your opinion change on where it's easiest to do well?
I think if I didn't have access to private markets, I would be doing the poor man's Aschenbrenner and just trading AI.
I think memory was a relatively obvious trade. A lot of people talked about it. If you were on Twitter using Claude, it was very clear that this was a bottleneck that was going to happen. I think people underestimated AI in public markets for ages, and I think they still do.
Even though semis have gotten really hot, I think some of the other bottlenecks always have a way to go further ahead on that. Personally—and again, there are different ways to play the game, right?—you can try to find softer games that maybe have less upside but where you have more of an edge, or you can always try to play in the biggest game.
The way I'm built and the way I like to invest is that I always want to play in the biggest game. Whatever the biggest trend is that I see happening, I want to be as close to it as possible. So I think I'd probably be doing that.
But realistically, everyone can have access to private markets. It's a little bit of a skill issue, right? If you really wanted to put in the time, you could have access to private markets. If you're not doing this full-time, that's the other thing.
Yeah, for sure. If you're not doing it full-time, you—
And that's most people. So—
Yeah, but you probably shouldn't be buying tokens either, man. You probably shouldn't be aping into tokens either.
Well, if you have somebody you trust giving you information, because that's what most of this stuff is, it's like—
It's like a friend chat with one dude who's full-time in crypto shilling his enormous—
For sure.
But then they have access, and so—
For perspective, a family office[?].
Dude, from my perspective, I just feel like I don't have a ton of time to go looking into private markets. I'm trying to run the research business at Delphi, and naturally, yes, I can be looking at tokens all the time because that's kind of what my job is.
There are obviously other people in tons of different areas. Now, if you're just some unemployed trader—
Mm-hmm.
Then sure, maybe. But going into a bunch of private markets as someone unemployed could work, but it could also—
Yeah, I don't know.
Be pretty bad.
I feel like a lot of people probably don't have the money to effectively invest in private markets. Most people don't have millions of dollars.
Also, private markets historically have done worse than just buying the index fund. There are obviously a lot of good private investments now, but again, it's about selection and—
So, let's say you are someone who goes into private markets and then you're buying all these SPVs that end up getting rugged too. There's so much that you need to—
I agree.
Like—
Yeah, and it's also about quality, right? The highest-quality deals are still very much an access game, especially—
If you had a younger cousin, Jose, who had, I don't know, $50,000 or $100,000 saved up and wanted to get into the markets, which markets would you tell them to get involved with? Would crypto still be there, given a smaller portfolio, which probably applies to the majority of people in retail?
No, I don't. Unless you love investing, I'd probably just tell them to buy a Mag 7 kind of thing—Amazon, Google, these kinds of companies—that I think are pretty safe from AI.
In a bull case, they do pretty well, maybe not as well as the CoreWeave and memory stocks and stuff like that, but I think they do pretty well. In a bear case, they're trading at teens or low-20s earnings, so I think you don't get absolutely crushed in those names.
And then if you're— I mean, yeah, it's hard. It's tough. I do think public markets are more interesting than ever, and that's the competition for crypto. I don't know that crypto offers that interesting an opportunity set for $50,000 to $100,000.
There's still alpha because these things get so mispriced, like Yan just showed with VVV, calling that super early. It's clearly a fundamental story, but I'm not sure that I think there aren't people crushing it in public markets too, in trades that are not that hard.
The memory trade wasn't that hard. Now it's maybe harder, and things are more expensive, but yeah.
I think the $50,000-to-$100,000 portfolio size was very attractive in crypto when there were a lot of new things launching because of the airdrop component.
That lumpiness was pretty meaningful, especially if you got creative and really optimized on the farming front, but—
For sure, that—
There just aren't as many launches happening. It definitely hurts.
Crypto is a much harder game to play, and you also have the issue that the only people who survive are obviously going to be better than the average user. It becomes more PvP. They're also the ones who tend to sell, so rallies get sold off and there's just a lot of chop. But when risk returns, they do really well.
I think it's definitely hard for a new person to get in because they're not going to be conditioned the right way to survive right now.
Yeah, I think it's really hard to—yeah, I think it's hard.
And it's true. A lot of the best-performing coins are hype. What are you looking for here?
A 2–3x on VVV was a pretty big multiple if you got in right at the pico bottom in December, but right now, it's more reasonable. Same with Zcash. I know people are throwing out $10,000, but realistically, it's going to be tough, in my opinion, to get to $2,000 or something.
These are all the strongest-performing assets, right? Whereas one meme coin did a 3x recently or something. In the past, you had 10–50xs everywhere, plus the airdrops.
To Jose's earlier point, it was hard to screw up if you were just long. So many people, including myself, thought we were geniuses during DeFi Summer in 2020. But what was I doing? I was just throwing money around in different smart contracts and farming Yams, and somehow I didn't get rugged.
Maybe that Based coin was the dumbest, but there was just a lot of stuff like that back then. Maybe it'll come back. It's just definitely a lot more concentrated.
Yeah.
Yeah. It was way more fun when you could just farm Yams and make money.
5. Advice for young investors entering markets today
What's the equivalent right now? I guess the sectors or whatever that are most mispriced—if you're a smart, hungry 20-something—
In crypto.
Starting from a low base, I think in crypto in general—
Yeah, or in general. I know, Yan, you're super interested in this, and we're spending a lot of time on the defense side, which I think is a pretty interesting sector. Obviously, I don't know if we need to get into that on the Hive Mind right now, but there are opportunities like that always.
Yeah, I do think there are opportunities like that always.
But it depends. Do we caveat it with whether you're full-time in investing or a casual participant? What would you do if you had a full-time job where you did well, but it wasn't investing? I think then I'd just do—
I'd have to—you'd have to just do the public market, big—
Big index or big names, I think.
I don't know. I don't think you're going to do well casually in any market right now. There's not a—
Unless you're in Yan's family office.
I just don't think it's going to be easy. I more so mean if you're a really hungry 20-something who's willing to dedicate some time, wants to really make it, and doesn't want to be part of the permanent underclass.
I do think defense is one of the most interesting places to mine for opportunities right now. AI is obviously super interesting, but it's very fully priced and kind of hard to break into from scratch.
But in that sense, are you kind of trying to pitch yourself to a fund to get hired? That's because you don't necessarily have the capital base to just invest on longer horizons.
I think you do the Delphi playbook, right? You just start learning, writing, trying to have alpha, sharing it with people, gradually building your reputation, gradually building your network, and finding whatever the right opportunity is.
Eventually, you want to be in an investing seat. That's the way to go—or a founder seat, if you have the skill set, or joining an early-stage company. But you kind of have to be in the investor seat first so you understand what company to join and what makes the most sense.
I think you probably just do the Delphi playbook. It's still the way to make it in whatever sector. But yeah, if you don't have money, for sure, if you don't have money—
So basically, work hard.
Grind.
Yeah, work hard. Exactly. Yeah.
I feel like defense is one area that someone grinding and working hard as a regular person can't really get into on the private side. So much of this stuff is heavily influenced by government interests, right? National defense is different from just investing in an AI company. So, yeah, no, I agree.
Bio is one I know very little about, but we've spoken to a lot of very smart people who have been super excited about bio over the last few years in terms of price and where it's going. But, yeah, Kevin, I don't know. Do you want to get us back on track? Talk about some layoffs or Cerebras?
No, I think this is exactly what I wanted to talk about because I agree. I think that comes back to the competition for attention, capital, and liquidity. Now the public markets are exciting again, and I'm pulling up charts like this where you look at—I mean, this is just the iShares U.S. Aerospace & Defense ETF. There are much better select plays or ways to get exposure, but you have semiconductors and memory stocks.
To your point, there's so much happening. It's almost these exponential tech trends coming to a head at once. If anything, the hard part of the game is figuring out what the signal is from the noise because there are just so many things that, over the last 6 to 12 months, seem to be vying for your attention if you consider us all growth investors, which I think we all are.
There's so much vying for attention right now.
For sure. Yeah, I'm long this index, actually, and I do think defense is super interesting because you always want to be in sectors where there are big tailwinds, obviously. With defense, there's this same thesis that got people into crypto, or at least is a bull case for crypto. One of my bull cases for crypto is just that the world is becoming more multipolar.
I think it's almost consensus now that the U.S. isn't going to be the police force of the world. Everyone has to spend on their own defense, and you're seeing Anduril-like companies in every geography. Every geography will want to have its own defense companies and not be buying from potential adversaries.
So there's that tailwind of everyone both spending more and wanting to spend more on companies in their geography. Then there's the second tailwind, which is that I think drones—the Ukraine war has created this paradigm shift in defense. I'd love for Yan to jump in because I think he's even deeper on this than I am.
In simple terms, you can blow up billions or hundreds of millions of dollars' worth of equipment with 2 or 3 orders of magnitude less cost. A lot of this equipment becomes very difficult to use, and the game just moves to drone and counter-drone warfare. It's almost like a reset, right? A lot of the investments that countries have already made in this kind of stuff become much more redundant.
I think a lot of the spending has to shift to drones, counter-drones, and a bunch of the ancillary technologies around them. You have this other tailwind of spending shifting, which I think is pretty huge. It's almost like a reset.
One of the founders I spoke to put it this way: He has this theory that the social order is dictated by the dominant military order. You had knights and feudalism, and the whole system was centered around knights. Then you invented gunpowder, and you no longer needed 20 years to train and equip a knight. Any peasant could grab a gun and blow his head off, you know?
Drones, to some extent, are shifting this balance again by lowering the cost of defense—and of just being annoying—by so much. But, yeah, I'm curious to hear what you think, Yan.
Yeah, it's like lowering the cost of attack. Right now, you no longer need the most cutting-edge tech to be a real nuisance to a world power, right? That widens the surface area of potential attackers.
Both in terms of cost and proximity. They no longer need to set up a very obvious missile system. It's something much more portable and unnoticeable. And so what that means is that a lot of existing defense doesn't really work for it, right? You need to rearm in a different way.
The economics of this are also very flipped. Before, it was an expensive thing shooting down an expensive thing, but if all your defenses are in the form of expensive missiles, using them against cheap tech is much harder, especially because of the swarm element. You kind of need to rethink it.
You're seeing quite a bit of that, and you're seeing counter-drone tech in a variety of ways.
A big one is ACS. I think they're raising 2 billion now, and we're not investors in that, but they've built this cool system where they allow existing guns—50-caliber, 30 mm, and machine guns—to connect to the system. The system is a tracking system, so you can use these guns to shoot down drones.
You're basically using existing ammunition and all that on that front. Another big area has been lasers, and that's one we're definitely excited about and have invested in. It's not announced yet, so I'll refrain from sharing names, but basically, it's using lasers to shoot down drones.
Previously, it was difficult because these lasers are pretty fragile, and you're still using a very high-kilowatt laser to shoot down something that's pretty minimal. Lasers also, if you miss, continue into space. They can hit airplanes. I think they're less of an issue relative to bullets, which eventually have to land somewhere.
But I think as the laser tech improves—which it has—it provides a really clean way to defend. Spending on defense is very palatable, right? We're not spending on missiles to blow things up. We're spending on defense to protect.
There isn't really going to be a slowdown in this spending because you always want to shore up more. As we're building out data centers, and even just existing airports and all this stuff, everything is going to need defense.
I think we move to a world where just data centers—like ships, right? Like big cargo ships—I just think a lot more of it is going to be normalized. You'll have some drones on board to do basic defense, or counter-drone systems, depending on where it ends up.
Yeah, counter-drone systems. As that tech gets better, the unit economics continue to improve, and the accuracy improves. Once the accuracy improves, you can also broaden the number of places where you can set these things up.
With lasers, you can design the beam so that when it hits the drone, it's hitting it with just enough force to destroy it, but it begins to dissipate beyond the drone into a harmless light. That means you can set it up in more densely populated areas.
I think there's going to be a lot of rearmament, and none of the existing defense really applies. You'll see this stuff get bolted onto existing larger missile systems. That will help when these things are reloading, or simply as a way to avoid firing something that costs $1 million at something that costs $1,000.
Broadly, these things need to be set up everywhere, and they will be because you don't really have the negative headline of, “This is an attack thing.” No, it's purely defense, so it becomes really easy. Once you have one of these events, everyone rearms massively.
The Cold War was an example, but even something as simple as when an area has a big blackout, everyone buys generators because it's a relatively cheap way to protect against something like that. You would be a fool to run into the same issue again.
If you're thinking about the value of what you're defending, in your home you have electricity. That's obviously not a huge value beyond your family and the convenience of not living without power. But when you're defending incredibly valuable systems like airports or data centers, where any form of outage can be catastrophic or catastrophically expensive, then you can rationalize a pretty massive amount of spending.
You also need to overspend because you're not defending against someone sending 1 drone. You need to defend against the 3-sigma event. If I'm going to attack, I'm going to try to increase the probability of my attack being successful. So you need to defend against a pretty sizable swarm of drones or missiles, or whatever it is.
So, I think there’s going to be a huge buildout on that front.
6. Robotics, Figure AI & the next major investment wave
And maybe—yeah, I don’t know, Kevin, if you want to—where you want to take this. I was thinking of just doing a shout-out to Kang at Robo Strategy. I don’t know if people are aware of how crazy that trade was that they did, or we can talk about some of the AI topics that you had—Cerebras or situational awareness. What do you think? No, do the Robo Strategy one for those who aren’t. Yeah.
Yeah. Robo Strategy is crazy because, for those who don’t know Kang—who entered crypto in the last few years—Kang’s one of the most successful crypto traders, probably of all time, or he’s probably up there. Obviously, we don’t know about a lot of the Bitcoin whales and stuff, but he entered pretty much at the same time as us, around 2017. I think THORChain was both of our first wins.
Yeah, Synthetix. Then 3AC was the one in size, I guess, that got us going. I guess he was early in Synthetix, too. He just absolutely crushed it as a trader and, obviously, with venture through Mechanism, too. Then he got into AI very early and saw robotics as the real defensible area in AI, because he understood early that the cost of software was going to go to 0 and made this bet on robotics.
He ended up doing Figure and Skild extremely early on. I think he did it at $20 million or something like that. I think he did the 2.6 billion round before it got marked up to like 40 a few months later. That’s according to his tweet, at $2.6 billion, like 15x-ing that. That’s obviously an illiquid position. He contributed it to this Robo Strategy fund, right? Now it’s liquid, and it’s at—I mean, I don’t know what it is right now, but sort of 2x to 4x, something like that, marked up to NAV.
The crazy thing is, I think he’s just getting started, but it’s one of the best investments and trades of all time: this parlay of Kang from crypto into robotics. Very impressive to see. I do think people have thought he’s a trader, which he definitely is, but I do think he was extremely bullish on crypto, and being long was the only way to really make money early. I think he just realized what a lot of people are realizing now, earlier, and I think he’s very long robotics. He’s one of the people that I really think can build something like that.
Yeah, generational there.
I’m also a BOT investor. I think the FUD now is basically where it trades relative to NAV. A couple of points there: 1, I think robotics is due for a repricing. I think inference stole a lot of the limelight.
If you think about how much inference and broader cutting-edge tech has repriced since these rounds, the valuations before kind of seem pretty trivial now. At the time, they carried a lot of headline risk, but now—again, I’m an investor in BOT; I also invested in Apptronik—and I do think those are due for repricing. There was always going to be this kind of lull in the trade because the market—
—moved away, and revenue was a bit—okay, so you have stuff that’s already generating a bunch of revenue, and you could see it continuing to scale without slowing down. At the same time—
—didn’t. So everything—and, you know, for the first time, money chased revenue-generating companies instead of hype. I do think, as attention shifts back here, at Figure’s $40 billion and Apptronik at $5 billion, I’m personally more bullish on Apptronik at the relative valuation differences.
I do think they’re going to see repricing as these new models come out. The timelines varied, but I think it was always late 2016, early 2017 when you start to see these robots in pilot programs with some of the initial customer bases. As people see that, they’ll start doing some moon math and extrapolating, and the unit economics of these are pretty impressive. I do think you’ll see repricing there, and part of the NAV, I think, is basically stale, is what I’m saying.
The other element is that it’s natural to assume there’s a premium because this isn’t a vehicle that bought these assets and just sits there, right? If it was one that just sat there and was a holding company for a variety of these, then you would value it closer to NAV, with some liquidity premium on top.
But I think what these guys are doing is they’re going to be issuing shares and investing more. I do think they’re going to get into great deals because of the brand and their ability to help with future rounds. I think they understand the space very well, so there’s going to be good selection and good taste outside of just good access.
That’s effectively the premium you’re paying, and the idea that what they invest in will be able to reprice. You’re selling a share for—you know, call it $1 million worth of shares in the open market—to invest that $1 million into something that you think will appreciate. What the NAV is implying is their ability to turn a market-cap premium into quality investments that appreciate at a bigger rate than the spread over the NAV.
And to me, this is an example of how—what Kang did—you can just reinvent yourself and learn a completely new industry and try to become one of the leading names in that industry. I think the best investors—and I think crypto is going to have some generational investors—are going to just do that over and over again in their careers.
That’s what I was trying to say earlier. I do think, whatever the quote is, “When the facts change, I change my mind. What do you do?” I think that’s what I would say to a lot of crypto people that are still doing crypto.
Kang did a really good job when he switched timing—
—on everything.
It was early—
Very early. And also not getting sucked back into ETH. I think a lot of people in crypto got sucked back into ETH because Tom Lee came back last year. He stuck to his guns on all of that, too, and it’s all played out well for him.
Yeah. Nice. What are you thinking, Kevin? You want to end it here?
7. Bitcoin, macro tailwinds & long-term positioning
Yeah. Yeah. I was going to tie it back, when we were talking drones and defense, to run it all full circle. I was looking at an industry where you’ve got—I think some of the best ones right now are ones where you have massive spending explosions, and a lot of that is government-financed, right? So it’s non-dilutive financing for a bunch of these companies.
Just looking at national defense spending in the U.S., that’s only going up and to the right. This all ties full circle to our big macro thesis and even what Bitcoin’s long-term value proposition was with currency debasement: defense spending is going up, government expenditures are going up, and government revenues aren’t matching that. Deficits are getting bigger. The U.S. is pulling back and forcing people like European allies to bolster their own defense and spend a lot more on that. This world of fiscal deficits, and those expanding, is not going anywhere.
How I’d like to wrap it is with the long-term chart of Bitcoin. When you really zoom out and look past the day-to-day volatility, it’s not that bad-looking of a chart. I would take this chart every day of the week, right? Even the short-term pullbacks and some of the volatility, every now and then I think it’s important to look at these types of charts and just think about the long term.
My thesis around BTC is still as strong as it has ever been because of all the currency debasement and all the spending we’ve been talking about.
I agree. Yeah, I think BTC will probably pump at some point soon, and then everything pumps with it and people get back in. All it takes is people starting to make money again in crypto.
BTC is pumping. It’s just private.
Private BTC is pumping.
Hopefully.
But yeah, we’ve—I think it was a really good conversation. We definitely had some topics we didn’t get to, but that’s what this is for, right? Just to air out what’s most top of mind for us. We’ll have plenty of juice to talk about next time. Appreciate you guys hopping on, joining, and sharing your thoughts.
It was good. Thanks, everyone.
Thank you.
Thanks, guys.