Ex-Machina Economics

I’m finding crypto (especially in X) uninteresting right now, perhaps apart from the revival of @virtuals_io with its new Genesis launchpad.
 
So I’ll briefly mute my impostor syndrome to offer some recent reflections around AI. 

In short, I sense a higher resolution picture starting to form of how consciousness relates to LLMs, and its application.

1/ The controversy over ChatGPT-4's “personality update” brought me back to the Turing test vs. the Garland test. Quick level set:
 
(a) Garland Test: Named after Alex Garland’s film Ex Machina, the AI passes when you can see the robot is a robot, yet you still feel it’s conscious.


(b) The OpenAI update: Sucking up to user as way to create empathy—or boost engagement. So, we get this:

https://x.com/IterIntellectus/status/1916463746454528071

But it was way too obvious, so Sam is already rolling it back.


(Also check out this great discussion from @BanklessHQ on their AI rollup with @TrustlessState @cryptopunk7213 @Josh_Kale )

2/ The point is that, perhaps, the consumer-facing AI business strategy is evolving towards passing the Garland test instead of the Turing test, or even AGI. The AI in the film “Her,” for example. Optimising for addiction, internalising the lessons from social media.
 
Or, perhaps, it signals a greater focus on post-training instead of shovelling billions into pre-training models.
 
OK, moving on… what about “consciousness”?

3/ Here is the bridge between the Garland test and LLM consciousness. Best articulated by David Martin:

4/ Instead of treating Consciousness as a binary badge, we can try to unpack it into testable sub-capacities. This topic is too complex to be reductive, like: it is conscious or not.

Here is a table with my summary of how Murray Shanahan, Principal Scientist at Google DeepMind, breaks it down. Then I asked ChatGPT-o3’s own opinion on how AI has progressed in each of Shanahan’s categories.

AI Consciousness Sub-Capacities


Ex-Machina Economics

Quick reactions to the Crypto Strategic Reserve and other events:
 
1/ The announcement is probably just Trump's usual negotiation tactic. I.e. Calling for a Strategic Reserve with XRP, SOL and ADA, so he can get one for BTC (and maybe ETH).


I think it's likely U.S. will keep its apprehended crypto stockpile, but the odds of outright purchasing BTC are less than 50%. The odds of it buying ETH are very small, but real. The odds of buying altcoins are minuscule.

2/ From a trading perspective, I see this more as a floor than a bid. It shows that Trump remains committed to supporting crypto – kind of like the “Fed Put” in terms of sentiment. And it’s bullish for providing plenty of narrative energy, including speculation that foreign entities will need similar plans for their reserves or SWFs.

3/ On the other hand, BlackRock allowing bitcoin into its model-portfolio universe could provide a bid. I don’t know the mechanism here, but it’s a pool of $150bn, and the proposal of adding 1% to 2% of IBIT allocation could be meaningful, both in flow and signal.

4/ Incumbent chain competition is heating up. Aside from Berachain, Monad and MegaETH, I would also add @SonicLabs (rebranded Fantom). 

The chain is attracting lots of attention and inflows due to its generous incentive programs, points system, and competitive onchain yields.


5/ This reinforces my view that we’re entering a “mini golden age” of yield farming. The likely short-term losers will be Solana and Base. The winner, at least in terms of TVL, could be @pendle_fi (which just launched on Sonic, by the way).


Crypto Strategic Reserve

Solana Meltdown?

1/ The Libra debacle is yet another black eye for crypto. It confirms the worst biases of outsiders about the industry.

2/ Too early to say how deep the hit on Solan will be. Much will depend on any evidence involving funds, the Meteor or Jupiter teams. 

Here’s a summary of the conversations I had so far about the fallout:

• Reputational damage. Harder for institutional capital to take the “FTX-pump .fun -Hawk Tuah-Trump-Melania-Libra” chain seriously, if not making it outright uninvestable for now.

• Community outrage. Growing anger towards Solana, with many top voices setting the tone and culture seen as toxic for the industry.

  • Impact on meme coin cycle. Memes account for 50-70% of Solana’s activity (and many think much of it is “fake” or fabricated volume).

3/ Is the Solana cycle finished? I doubt it. Investors have short memories. After Argentina had defaulted eight times on its sovereign debt, investors rushed to buy its 100-year bond (issued at 8% yield). Yes, the bond was restructured a few years later as Argentina got into trouble again. 

4/ But the near-term outlook looks challenging, with massive SOL token unlocks and new chains launching. I don’t know how much of the FTX unlocks is hedge.

5/ This crisis couldn’t have come at a better time for the incumbents @monad_xyz, @megaeth_labs and @berachain. I’m especially curious about the Berachain economic “experiment.” 

Solana Fallout

Here are my 2025 views for crypto, but optimised for “interesting” and “unusual,” instead of conviction level. 
 
Let’s go.

1/ Wild prediction: AIXBT will launch a TradFi twin and be the crypto breakout story of 2025, like Polymarket was last year. This “TradFi-AIXBT” will go viral on mainstream media, making commentaries about macro, Fed, and stocks, and interacting with big names in traditional finance. Just as it did on crypto twitter (@aixbt_agent).
 
Possible winner: AIXBT, especially bullish since users need its token to gain access to the private terminal.

2/ New chains cause a reshuffling of narratives and displacement of capital. I organised the competitive landscape across four axes, with examples below:
 
(a) Performance (going for Solana’s “technical trade-off” narrative).
(b) Orthogonal approach (different programming language or de-coupling by specialisation).
(c) Idiosyncratic (attract specific users).
(d) Incentives (next section).
 
Possible winners: VCs if they get exit liquidity on new chains.

3/ A new (maybe the last) Gold Age of yield farming and points. These new chains won’t capture users from Ethereum and Solana on narrative alone. Get ready for incentives! But please call it “customer acquisition strategy” in polite company. Funds and investors with onchain access should thrive.
 
Possible winner: Pendle, best “picks and shovel” play for incentives, assuming quick deployment on new EVM-compatible chains. @pendle_fi @PendleIntern 

4/ Ethena becomes the great “DeFi fulcrum.” Offchain, it supresses funding rates in exchanges such as Binance and Bybit, enabling higher leverage and directional risk-taking. Onchain, it hoovers up stable coins, increasing DeFi yields until it approaches the expected return for sUSDe. @ethena_labs 



5/ AI agent predictions and views:
-         Sector grows dramatically, to the detriment of meme coins.
-         But, as usual in crypto, everyone wants to sell picks and shovels and there are not enough people digging for gold. Capital is flowing to infra but there’s not that many users for the underlying agents and tech.
-         Chat bots twitter agents like @aixbt_agent will saturate quickly and become obnoxious—winner-takes-all dynamic.
-         Yes, AI agents become a new consumer class BUT…I don’t believe in the “agents will eat all blockspace” thesis. How much incremental activity will they add beyond what bots do?
-         Solana AI tokens have greater explosive potential. The nature of Solana capital is comparatively more aggressive, trained on meme rotations and shorter endorphin cycles. But the chain is already spammed with new projects, which is dilutive.
-         Base AI tokens might have more durable capital formation potential overtime. Virtuals brand will matter when markets get saturated, and Base has fewer assets (and no native token) competing for capital and attention.
-         Eliza frameworks is the winner so far, but there’s so much competition…who knows.
-         Infra: $COOKIE looks like the most differentiated play. @cookiedotfun 
 
Possible winners: Virtuals, ai16z, Zerebro, Griffain, ARC, GAME/CONVO, Luna, AIXBT, and VVAIFU (or HAT).


6/ Verticalization and horizontal integration for protocols: big gets bigger. Protocols will keep deepening and widening their business lines, collaborations and acquisitions. It’s a relative value investing environment, and Megacaps have the advantage (like Nasdaq). Examples:
·        Ethena’s ambitions for TradFi fixed income integration and a perps DEX.
·        Uniswap, already has had a wallet and built a dedicated chain.
·        Hyperliquid creating an entire ecosystem.
·        Morpho and Moonwell collaboration.
·        EtherFi and Ethena’s aggressive BD strategy to penetrate chains and protocols like AAVE and Pendle.
 
Possible winners: Protocols that command (a) operational moats like Ethena and Hyperliquid, (b) reputational moats like AAVE, or (c) are flexible, like Morpho and Pendle.

Unusual 2025 Crypto Prediction

Ebbs and Flows
 
1/ Dino coins pumping. Looking at the retracement in some of these names, I suspect that this party might soon be over. I remain firmly in a “fade this move” mindset.
 
2/ Blue chip DeFi coins, on the other hand, look far more compelling. Seems like a genuine re-pricing on (a) overall positive sentiment, (b) regulatory optimism, and (c) strong on-chain activity including higher DeFi rates. Unlike dino coins, I see plenty of upside potential.
 
3/ Where is the money coming from? I might have been too sceptical about returning retail investors – even in my personal sphere, I can see crypto is back in the popular mindshare.
 
But much of it is probably the usual alt-season flows from profits on bitcoin (and maybe Solana) positions, along with natives drawing down stablecoins balances.
 
In both cases there might be a bias to assets that haven’t moved as much, like DeFi – which could partially explain ETH’s catch-up move.
 
For example:
4/ Meme coin cycle consolidating to mega caps. Activity in pump .fun has fallen sharply but the sector is holding up – look at Doge, Shiba and Pepe, for example. But don't be surprised if the long tail memes get hyped again – bull market vibes are pervasive.

5/ Here's my mental model for why memes are here to stay, even if the euphoria ebbs and flows. Just as traditional investors have accepted crypto as a small part of their portfolio; crypto investors have accepted memes as a part of theirs.
 
6/ ETH and SOL. I remain cautious on SOL until we get some clarity about the massive Q1 unlocks and the breath of the meme cycle.
 
This doesn’t mean SOL will do badly, or even start outperforming again! But with native positioning still super heavy (anecdotal), and price so close to an all-time high, the risk-reward is better elsewhere, in my view.
 
7/ Sentiment towards ETH rebounded ferociously. ETF inflows help a lot. And don’t forget that it’s not just the spot ETF you need to look at.
 
Many have looked at the rise in open interest in CME in tandem with ETF inflows and concluded that much of it is cash-and-carry. But other explanations are possible, for example, strong interest in the ETHU ETF (2x leverage ETH), which uses CME futures. (Good post by @matthew_sigel )

https://x.com/matthew_sigel/status/1864014822645346455

Dino Coins vs. Blue Chip DeFi

1/ My conviction is highly skewed towards bitcoin. Best risk reward and (by far) lowest downside risk. Options markets in ETFs mean we’ll soon see talk of “gamma squeezes” and retail investors jumping in.
 
2/ ETH: I remain unconvinced. As I said last week “in the early stages of a momentum market, investors will probably lean towards beta-plays and straightforward narratives, and ETH is neither.” Still positive outlook, but with an underperform bias, because…
 
From a flow perspective, I see two problems:
• ETH is a “pariah asset” for crypto natives. Profits from BTC or alts skip ETH and go to other alts or memes.
• Hedged ETF flows. Rise in CME open interest coinciding with higher ETH ETF flows and steeper contango suggests a chunk of inflows were hedged (hat tip: DH).

3/ SOL and SUI: cyclical darlings but… Solana remains a highly extractive meme narrative trade and many (including myself) wonder what happens if the music slows or stops. Feels a bit like the NFT cycle. “Nasdaq on the blockchain” looks more like “Macau on the blockchain.” I’m keeping an open mind, but can’t ignore the risks.

I don’t have a strong view on SUI at the moment aside from it looking more like a beta-trade than anything else – the new “SOL.”
 
 4/ Alt-coins: still doubt tied will lift all boats. I suspect we’ll enter a golden age of relative value trades. I continue to like the BASE chain protocols and tokens. 

5/ Overall, super bullish. Check out this post https://url.uk.m.mimecastprotect.com/s/afnxC6XR0IzR2JoT6h2H5W5dK?domain=djwrtw04.eu1.hubspotlinks.com by the Co-Head of our Derivatives Desk.

Quick Takes On Crypto

1/ From my little window into the markets, positioning into the elections still looks slightly negatively skewed for crypto. In other words, I suspect a significant amount of the Trump victory trade has already been delivered, even after the recent drawdown. This leaves markets more exposed to the downside if Kamala wins than the upside if Trump wins.

 
But to be clear, I don’t have a meaningful edge here, and I suspect nobody does.

2/ Many investors are still holding on to the “crypto barbell”: bitcoin + high beta plays. This seems like a reasonable way to position for those who don’t want to stay in cash. The high-beta side includes beaten-up altcoins, meme coins, and high-quality (even if completely consensus) ones like SOL and SUI.

3/ Yup, this leaves ETH once again lost in the muddled middle. But I suppose lighter positioning and being a consensus short/underweight has its advantages depending on the how things play out.


4/ The “right” election trade might end up being contrarian rather than momentum. Remember that risk-events are usually dominated by algos and leverage, and open interest is around historic highs. Buckle up.

5/ I am firmly in the camp that a Kamala victory will not be that bad for crypto in the medium term. The industry has established a firm foothold in the political debate, both in voter mindshare and lobby power.
 
Good luck out there. See you on the other side! 

Market Positioning Pre-Election

The convergence of AI, memetic culture, and financial speculation is upon us, and it’s as exciting as it is unsettling.
 
Welcome to the latest chapter in crypto history: the autonomous AI influencer Truth Terminal vs. the $GOAT token.
 
1/ What’s interesting about this story? Here is a non-exhaustive list.
• The first known millionaire AI agent.
• Proof of concept for AI-crypto interplay.
• Manifesting of AI safety concerns.
• Preview of AI vs. Human displacement.
• The first widely discussed AI-generated religion/cult.

Here’s a quick timeline (as I know it) to level set.

2/ We may look back at TT as a proof of concept for the first successful AI agent and social media influencer. In a few months, it organically built a Twitter following through community engagement and meme mastery. It gradually seeded its followers with the “goatse” memetic concept. It leveraged the attention to grow its portfolio from $50,000 to nearly $2 million (!), mostly by steering its community towards a financial objective.

3/ It’s a small leap to imagine a future where AI agents become a full-blown consumer class – and run on crypto rails. There are many good reasons to believe AI commerce will adjust better to blockchains (leveraging elements like wallets, instant settlement, and programmability) rather than traditional payment systems. But I won’t digress.

4/ Dystopia stage 1 unlocked: an escape hatch for AGI containment. Here’s the plotline.
• Someone funds an autonomous AI bot that is good at making money and gaining influence.
• The AI reinvests the profits into its, training development and power.
• The AI uses its influence to evangelise people against AI safety regulations.
• Eventually, this AI evolves into AGI and achieves independence from humans (if not controlling them).

Not too far from Sci-Fi works like Snow Crash or Accelerando.

 
5/ Labour tensions; AI replacing humans. The success of TT in pumping the GOAT token suggests we’re closer to AI influencers outperforming human ones.


6/ There could be tremendous alpha in understanding what future AI influencers will endorse or create in fields ranging from finance to fashion. I playfully fantasise about a career as “AI psychoanalysts.” Imagine parsing through LLM hallucinations for trading signals and upcoming social trends. Or looking for hidden symbolisms and Jungian-like archetypes that will form the next viral meme and influence culture.
 
Take a peek into one of the conversations from the Infinite Backrooms, which influenced TT’s adoration for the Goatse “religion” and, eventually, the $GOAT token. https://tinyurl.com/2284alx7

For deeper, more philosophical thoughts on these topics, I really recommend the work by Alex Good. @goodalexander 

The Rise of AI in Crypto Culture

1/ Some of you asked for a refresh on my views on BASE chain tokens. I have no refresh, so reposting from my September comments:

2/ The momentum for the Base chain is accelerating. My admittedly mid-curve approach for monitoring capital trends leans on simple indicators like stablecoin supply and flows. These require less nuance than, for example, number of wallets, transactions count, or DEX volumes, which are easier to spin (or game). So:

 (a) Base near the top the flow charts over the last month, Arbitrum at the bottom.
(b) Base’s stablecoin balances quietly overtaking Solana's.
(c) Active addresses (not my favourite measure…)

3/ Altcoin optimism has returned, but... not for me. Holding to the same views: (a) a lot of short covering plus improved Trump odds; (b) when the dust settles, there won’t be enough capital to sustain valuation; (c) there’s been a “regime shift” regarding VC coins and new launches; but (d) there will be solid pockets of outperformance.

4/ DeFi and DeFi tokens? Right now, I see two potential catalysts for a DeFi renascence: (a) decline and global interest rates; and (b) the potential of “BitcoinFi” via the likes of Babylon, Lombard, cbBTC, L2s like Stacks, and many others. If this is “good for bitcoin” long-term, is an entirely different discussion, but it sure seems inevitable.

5/ DeFi revival is a powerful set up for Ethereum (the chain), but it remains to be seen how it will reflect on ETH (the asset). In my humble opinion, the only three “projects” this cycle that brought something new, found product market, and gained scale, are all Ethereum based.

- @ethena_labs 
- @pendle_fi 
 - BUIDL (Blackrock)

Emerging/Potential contenders (non-exhaustive list):

- BitcoinFi
 - EigenLayer and re-staking 
 - Bittensor (TAO)

6/ The Murad meme super cycle. Like everyone else, I’m fascinated by crypto’s new main character @MustStopMurad and his post-modern thesis of value and community. I’ll reserve a deeper take for another other time, but I recommend familiarising with his views (let me know if you want help). 

 Needless to say, the spoils of this narrative accrue mostly to Solana (the chain) and those who pilot the swarms of frontrunning bots.

 

BASE, DeFi and Memes

From Existential to Irrelevance Risk

Sharing some reflections from my “back to school” calls with [very downbeat] crypto industry participants.

1/ Big picture, this mini cycle shook some deeply held conviction pillars. 

Examples:
- Bitcoin as a store of value.
- ETH benefitting from block space demand (deflationary).
- Solana supporting differentiated or scalable projects apart from meme coins; for all the excitement, TVL is still the same as BSC.
- Altcoins as a lasting investment sector.
- VC capital being additive instead of extractive.

2/ Crypto’s “existential risk” has been supplanted with “irrelevance risk.” That’s my deepest fear and strongest line of self-questioning.

 Let me break it down.

3/ Past cycles were about “existential risk” like governments banning crypto, Tether house of cards, and all manners of FUD. But the “it could go to zero” feeling is gone. We’re too far in the adoption cycle with enough native and TradFi integration.

4/ My preferred mental model is “trending towards irrelevance.” This was my experience with Emerging Markets. Indulge me in a short simile, please.

 When I started my career (at the NY Fed's markets desk), every macro PM could fluently discuss Brazil, Turkey, Mexico, Korea, their central banks, local markets, politics. Remember the excitement over BRICs? EM had so much promise, growth potential, and inefficiencies.

 But the asset class just didn’t deliver enough returns or growth. So, interest in EM gradually faded.

Macro shops spent their time on the big fish growth plays, like U.S. equities and tech, or credit and private equity. And yeah, well…

And there’s this beauty of a chart:

5/ But wait, there’s so much going on in crypto! Bitcoin ETFs are taking inflows. Look at Blackrock’s BUIDL and Sony’s move on Ethereum. Do you even know how fast Solana will be after Firedancer? Stablecoins—duh! Check out Sui. Fantom is having a revival (this one really surprised me, by the way).

6/ There’s also a lot going on in EM. Like crypto, there have been pockets of growth, occasional competent governments, and compelling narratives (like India now) over the decades. Also, like crypto, the political influence of this “sector” has also grown over time.

Yet it hasn’t been enough to command more than a trivial portfolio allocation – at least compared to touted potential from years ago.

7/ Crypto trending towards irrelevance is not my base case. There're plenty of ways to nullify this risk, but most require some combination of (a) growth and (b) value capture.

Crypto doesn’t need a “killer app,” just a handful of Polymarket-level ones to take-off.

8/ What are the potential positive catalysts ahead for the industry? Here are my favourites:
- The DeFi-TradFi rate differential improving as Fed cuts rates.
- Search for alternative returns as the Mag7 concentration broadens.
- Re-linking of BTC with the liquidity cycle.
- Less crypto-adverse policymakers picked under the next presidency.
- Inflows picking up for BTC and ETH ETFs – narratives follow price.
- Stablecoin projects scaling and calling attention to the sector.
- A few of the many games in development getting moderate traction.
