An Inside Look at the AI Crypto Market Reset

welcome bankless Nation to the AI rollup where we stay up to speed with the emerging Trends and developments in the crypto AI space I'm David hoffen here with my co-host EZ e Jazz how you doing my man what's up man uh you haven't heard it's a blood bath out here David oh I know I am well aware yeah I know it's time to pack it in um this is actually the final episode of this is the last one we're wrapping up jop yeah I'm kidding but it is fans yeah it it is the markets are crazy um and I think we're probably at or near the end of

this shortterm dip and you know don't crucify me if this isn't true but um let's look at the latest dashboard on cookie UHF fund David um what are we seeing here basically um essentially we're seeing quite a bit of uh capitulation from um some of these tokens all-time highs uh I think the market cap is sitting at what is it roughly like 8 billion right 7.5 billion so what was it at it Peak when we were we were doing this episode PE at its peak it was about 20 no 20.5 I believe

yeah it just Wicked to to 20.5 and and now we're sitting at less than half of that so so a pretty crazy retrace I saw a tweet um somewhere where it said on average some of these AI coins basically retraced about 60 to 70% which to to put things into context um it's not abnormal to see 20 to 30% Corrections during a bull market in things like Bitcoin and E like Bitcoin and E and stuff um and we we all know that like alts typically get

hit harder um but to see something like a 60 to 70% retrace and by the way this isn't just uh specific to AI coins this is across every single uh sector of of alts that we've seen so far um it's just a different market and a different type of cycle and I don't want to say that this time is different but this time evidently has been different David um we've got virtuals pulled up here I would actually say relatively speaking um obviously virtuals peaked at uh I think High yeah $5 I think it was like

what market cap was that roughly billion token price and we are currently at like 1.4 so I think when people look at like the size and magnitude of the AI agent space I think the virtuals chart is kind of just a microcosm emblematic of the whole thing so like November we were at 50 cents uh and 50 c virtual price January 2nd was the Peak at $5 and then we are back down to $1 and half dollar $1.4 I think if I think if I pull up AI 16z is going to do something similar pretty similar I think like a

lot of energy came into the AI agent space yeah way more aggressive and then it's like I think people's like reality has caught up with people saying oh we have a lot more to build and and just so people have Capital has flooded in and then flooded out pretty quickly I I mean I I do want to direct for those of you who are watching um direct your attention to the bottom left of this chart here right which highlights that hey this whole meta was is only a few months old still we're still literally like like you know ai6 Z wat came to life in at the end of October right and

then it had this kind of parabolic run um up until like $2.5 billion market cap and then it kind of like crashed so um I think you summarize it really well David like the crypto AI sector specifically agents has seen a huge influx of capital and and uh we may have you know just surged too ahead of time we might have gotten a little over our ski tips we tend to do this as D Gamers you know um and you know it kind of like that Pico top was kind of like when Trump released his meme coin and then Melania a few

days later and then everyone was like well hang on a second like is this the end um or is this just the start and then uh the market got really impatient because uh surprise surprise the American government didn't announce a strategic Bitcoin Reserve immediately and setting them up like immediately right which is crazy to think right like a year back David if we had this news we would just absolutely send and it would imply that the market has probably priced something uh some of these things in since um Trump got elected right um

so it's just like an interesting way to frame things um I know you have axt pulled up here but I kind of want to direct our attention to um a different flavor um of uh the cookie uh fun dashboard that they have this really um interesting way of framing things David which is they're splitting AI coins into meme AI coins and then like infrastructure framework def AI based coins and why I like this view um is it kind of shows us where the attention and

and capital is going into and it kind of like informs us of the types of investors or dare I say traders that are involved in this sector right now so number one David Is MeMe AI coins so these might be AI coins that I mean there's some examples to the right actually um that will kind of like tell us so fcoin up there what else have we got David right uh Toshi which is the uh coinbase based uh chain meme coin which apparently has like an AI integration but I think these are call call these

memes that have some amount of AI properties call sentient memes right sentient memes and and if we come out of this we see number two is led by framework so this is typically protocols or teams that you and I cover every week actually like AI this more the fundamentals this is like the layer one of a trade exactly um and it's worth noting actually I kind of want to point it out here um there are very few protocols that show Green in terms of like uh M share certainly not price action but um if we want to kind of look at certain teams that are bouncing off

some of these like lows um we notice that the largest market cap coin which was able to do this was Arc right at the top of this David and I I was kind of thinking to myself like I wonder why um because it's not necessarily a small market cap coin um and I would put it probably put it in the placings of virtuals in ai6 z um I think it's through a few different things like like one I think probably it's making a lot of progress on salana and salana is kind of being branded the AI chain or the AI

D chain of this cycle and I know they partn partnered with salana Foundation U we mentioned that last week actually so I'm thinking we're probably seeing some momentum there and you know the news hasn't quite caught up because markets are just dumping um but aside from that you know AI 16z hit pretty hard in terms of like mind share and um market cap we're going to kind of dig into a little bit about why that might be a little later and then virtuals kind of like holding Steady As We Know virtuals has uh decided to expand to salana they

haven't officially launched that platform just yet but they're going to be working towards it so all in all like um you know the market is reset the market is resetting um and it'll be interesting to see how we kind of move forwards over the next couple of months I think that resetting word is nice because if you just look at the virtuals chart it has gone back down to a place it's much higher but it's just it feels like it's much down but further back down to reality right things are like we are no longer full of hot air things are starting to find there closer to a fair

price um you can claim that AI agents are just Bots maybe you're even right but nonetheless this industry is like real it's attracting developers it is growing as fundamentals there is like a loose road map for the sector as a whole so I think things have kind of come back down to reality uh which is I know call it like an internal to a broader secular bull market a bare Market it's a bare Market in a bull market and AI tokens AI agent is like the frontier of the frontier and so it it takes like just a

lot of things to go right for uh I think you know the animal spirits to find their way back to AI tokens uh but right now right now we in fundamental Zone well well I mean I always ask myself like am I just in this like tiny miniature bubble like I I even focus on the right things am I like kind of like dreaming um I think it's important to look at AI mind share just as a topic of conversation as a whole can you pull up um sami's tweet here David um where he kind of shows uh a screenshot from Kaio

uh which captures the different kinds of market share so so uh for reference here Kaio tracks very um you know specifically sentiment on crypto Twitter where is where which is where a lot of people you know kind of like get their investment advice from trade or just kind of research um and we see that AI is still dominating you know now we've seen better examples of this where AI just takes over 50% of the screen it's now down to like what is it like 30 something per roughly David 30 35 it's

still a solid like 3x ahead of the number two which is me which interes because AI tokens by comparison to meme tokens are getting wrecked in terms of price action yes but AI as a conversation piece as a m shair piece is three times higher than meme pieces and you can also see that show up in like centralized exchanges when AI tokens show up on centralized exchanges they don't necessarily catch a bid you know we need more data to follow through on that but when meme coins show up on centralized exchanges as token listings meme coins go through the roof so

there's just a general appetite for meme coins and it probably relates to the Lindy mum coins have over AI yeah there there's a there's a lesson there not quite sure what that lesson is but there's a lesson there which is you know maybe people that are just entering the space and wanting to ape into crypto are just kind of they View kind of crypto as this gambling sector and maybe if they see meme coins they're like oh I don't need to think too much about this I don't need to read a white paper about this I don't really need to dig into this I just does it laugh does it make me laugh or does it not exactly exactly and I think that kind of like ties into

the financial nihilism that's been um pervade across the sector over the last couple of months I do personally think we're going to shift away from here I think with the US government setting up a bunch of regulatory Frameworks you know yesterday they came on and said you know stable coins are going to be super important we're going to build Frameworks um I think led by Kathy Woods that's going to like figure out what all of this is going to look like I think we're going to see a shift into fundamentals eventually but one more point I want to make around this mind

share chart David is um AI has been the dominant category for about a year now probably a year and a half actually I've been tracking this Kito stuff for since they pretty much launched and AI just still has been top of Mind share so there's there's probably something worth um paying attention to here maybe it's like an asymmetric trade or whatever that might be um but I mentioned earlier David like we should look at like okay so the market is dipping which token should we focus on is is everything you know going to zero

or or are there some things we should focus on well if you pull up this tweet by um deep value metics deep value deep value metics I actually really like this account it's it's a pretty small time account if you guys are listening you know just go give it a follow um I have no association with it I just think they they produce some interesting uh pieces typically they do like long form stuff but this one I like that little market kind of summary here where if you look at like large cap coins obviously you have fcoin leading the mimetic AI category you know bouncing back strong and then you had Arc which bounced back

plus 4 % off the off the lows um so it's really interesting to see which coins are being paid attention to you have a meme coin meme AI coin there you have a framework coin which is in the form of Arc and then you have VV and Anon which kind of sit in the kind of a middle wear D AI category right and Anon performing uh strongest in the in the latter interesting is Anon Anon is the token on base that uh you can tweet out of the Anon account via ZK privacy app right uh

no I think this is hey Anon David so okay cuz that one does not look good that is a different story that one no one yeah this is hean on which is kind of like a I kind of like think of it as similar to like what Griffin guys are doing where it's kind of like an agent execution uh platform and stuff like that and then if you look at like the midcap so obviously lower liquidity it's easier to pump and and and you know also easier to to dump um the midcap coins are focused on largely um agent

execution platforms that are lower in their maturity um as well as agents themselves so we have like grift which is I I believe sphere ones protocol um and then we have Buzz which is uh a protocol that came out of the salana AI agent hackathon which I was able to help judge and I I saw the team kind of build it out live um and then Mobi which is like the leading kind of uh crypto Alpha agent on Solana so kind of like similarly competitive to axt uh on base for example so I thought this was a a really interesting kind of thing to to

follow on but like we should also look at like inflows right um if you pull up uh um Elon money's tweet over here um so what I like about this account is like he always tracks using nanson basically like what the smart money is buying and you'll see that it represents the same kind of bounces that we've seen in tokens that we've just mentioned right we've seen Arc fcoin um Griffin wasn't specifically mentioned so that's probably worth noting and then graph I think like the lower go down on here like it's just you know uh a much smaller market cap so it's easier but

like I I would say focusing on the top three uh gives us a a bit of a hint or sign as to what might um you know do the best once this Market recovers it is interesting to see fcoin is 100% a meme coin you are seeing fart coin being talked about in like mainstream circles as an example of just like well Dogecoin was funny it was a cute meme ha Doge so there or obviously fcoin like crypto Traders fcoin obviously you don't even have to think about like that too hard

it just so happens to also be AI so it kind of makes sense that the meme side of fcoin is the thing like holding up the price uh in addition and like one day I think this will be like synergistic with each other but right now I think there's one there's two sides of fcoin the meme side and the AI side and I think it's the meme side that's actually outperforming here yeah hot air rises you know um yeah it's a it's a it's a very reflexive asset actually one of the most reflexive Assets in the cycle across all different categories so super interesting to see and I know I've spoken a bunch about Arc

already um but the reason why I keep bringing it up is it's broken certain trends that hasn't been present in previous weeks so this tweet that you've just pulled up here shows Arc for the first time ever dominating mind share amongst top AI agent protocols typically it's always been AI 16z typically it's always been virtuals and they've had some pretty big news over the last couple of weeks but for some reason and again like I can't quite pinpoint it just yet but Arc is is kind of leading the foray here and I'm it might signal

that the markets are saying something that uh Isn't So publicly obvious right now interesting one thing that thought uh was pretty interesting this week was this tweet from Sha and I think a lot of the uh you know crypto Twitter AI Twitter the market is kind of processing this is Shaw's tweet that when did this come out yesterday um yeah yesterday uh he said I would advise you to think twice about launching a fair launch coin if you intend on using it to fund a long duration project which at a high level seems a little obvious uh but there has

been a movement towards Fair launch coins kind of like in a reaction to the high fdv low float meta and so like meme coins had like really got a Tailwind because the other the other you know tokens of the Cino were these VC coins with very low flow and a very high FTV that kind of just is a is a not a good deal for retail right so then then we went to these Fair launch projects the problem with Fair launch projects is that it's hard to incentivize the team doing the project if they aren't able to

have a meaningful share of their tokens which is while while the whole like high FTV low float meta is toxic for different reasons one thing that it's not a problem for is incentivizing long-term team commitment to the project because well why is there a low float well because the team is locked up invested um and so this is like the opposite end of the spectrum and so Shaw put out this tweet talking about like man this whole AI 16z project um I it's been fun I've enjoyed it but also there's this fundamental incentive alignment issue with this Fair launch

coin that much of the team doesn't really hold too much toly of so we're not like sufficiently incentivized over the long term that was kind of the big takeaway that I got from from this thread what what did you take away from it yeah no I I I think that's that's pretty bang on let me let me add a few things so um you mentioned men High FTV low float just to kind of remind the audience um basically last year everyone got super Jaded by all these VC back crypto protocols because you know we really believed in the tech back a year back right and then everyone learned

about how the VC game kind of works and they're like oh well okay that makes sense they're early investors because they're taking on the risk but it was kind of like uncovered that you know VC's actually own quite a large percentage of the supply and and a very minor amount sometimes gets you know put out to the public and happens on some occasions not it's it's not prevalent across um the entire landscape and this put a lot of people um this made a lot of people quite skeptic skeptical um they started thinking well um that means we're only going to be used as exit liquidity etc etc and that's what led to

you know this frenzied meme coin pump um David you know like everyone was like okay well I'm just going to be on pump fun and and just gamble my money away instead of like putting it into this um high fdv low float type situation and ironically some of these meme coins um ended up pioneering agent coins David like goat and Arc literally came out of pump. fun you know goat started meme coins backed into becoming a real fundamental agent token yeah yeah it was it was very uh um prophetic actually you know we we didn't actually realize um

that that was going to be the case but we watched as these coins went from uh being a meme to adding utility at the heart of an ecosystem sounds great right and everyone was able to ape at launch the team has barely any allocation so everyone wins right you know decentralized investing let's go but teams are starting to face this different kind of problem that they're realizing in the wake of this heavy market crash in the sector that is you know the team that doesn't have enough tokens to incentivize themselves to work

on their Vision um can't really fulfill what their vision is they have to like look at ulterior Solutions and motives to make a profit in order to then refocus back on their Vision right think about it you kind of give away 90% of your tokens um and you at most manage to scr maybe 5% for you for your community loves you the community loves you right but your team certainly doesn't and the developers that want to build with you that you need probably don't um and and you know that 5% isn't worth much to maintain the best Builders to help you build like especially in a world of Open

Source development when you know you have many pots cooking typically with if we compare this to crypto startups David the team keeps a large chunk which not only incentivizes them but in trusts them with the ability to use that allocation in the right way right maybe it's like hey you need your treasury exactly right that makes sense obviously the founders likely know best where all of this is going not some random anon on pump fund that's like [ __ ] talking or [ __ ] posting right so teams are starting to realize that the lack of incentives and capital

to carry out their mission um you know and they kind of like forced to seek alternative ways so Shaw writes about this like literally I I recommend everyone to to read this post I think it's important and might end up in a shift to something Midway you know where maybe it's like there's merits to all token distributions there's merits to the high fdv low float launch it doesn't do great for the community there's merits to the fair launch mechanism which does great things for the community but really terrible things to the team and the structure and long-term planning and then we need to figure out

how to how to like meet in the middle here now granted I do think that the fair launch mechanism that also reserves a supply of tokens for the team is a pretty trivial fix uh I think it there just needs to be like you know a little bit more planning ahead of time before like sha launched a meme coin and then he was like well wait a second what if I like commit my time in life and and career to this so he didn't really have a moment to breathe to think about this ahead of time but I think a fair launch like a pump. fun launch a a flare flunch launch um where you do a fair launch but

then you just have 30% of the supply that's vested in a in a team contract is a pretty simple fix to this it just requires a little bit of forethought yep yep I agree um yeah I mean I I have no real comment here it's just ironic that we've went to both ends of the extreme and the answer is let's just kind of like settle somewhere in the middle yeah what do you think this means for the AI 16c project what do you think this means for sha how do you think the AI 16z Community is processing this so um okay so to answer the last question I think they're processing it badly but that's

understandable because typically it's the team and the leader that needs to have the vision and honestly the capability to execute from here okay figure it out you're in the situation that you're in figure it out um my personal take is I think the team is um a crew of amazing developers and Builders and on the Eliza OS side so that's the framework and the platform that they're building on top of it they're going to kill it right V2 is coming out around the corner I'm excited to see what that is um I think the team also has the capability to adapt to this

now what exactly that strategy is is yet to be determined and I'm honestly curious to see what they come out with my personal opinion is they're going to need to cook something up that drives revenue or success of their framework that they built out that they've open sourced for everyone to tie value back to ai6 Z whether that is driving more AI 16z tokens back to the team in some sort of a treasury so maybe they take a percentage of every transaction that's happening on every uh part of their platform that they're going to launch um

back to a treasury or if they do certain launch where they capture certain values and they're able to kind of like ACR it into their Dow treasury whatever it is they need to amass a stockpile um a strategic AI agent coin Reserve if you want um for AI 16z and I think that they'll probably pursue a path like this there are other projects out there David that are in similar positions I won't name names right I was going to ask that yeah yeah I mean there are some I I don't want to name names because you know what's the point of like fting but um it's important um that a bunch of

these teams start thinking about these things and and it's evident from this post that they already are right and I think the timing of this is very much because we have seen 40 50 60% draw down in token prices this isn't happening if we have 3x from here you know or even if we go 20% up tomorrow we're not going to be talking about this because no one no one will even care suddenly you have a larger stock pile suddenly your 5% is worth a lot more yeah but but if you're here for the long term like we all know AI agents are not going to be built overnight or in a week or in a month

this is going to be a multi-e year long Arc and so teams need to be thinking about multi-year long incentive structures in treasuries and I don't think the AI teams other than maybe virtuals is different because virtuals has literally already been around for well over a year um so they've already been thinking like a startup and so maybe maybe that's an exception um but this is space has arisen so quickly that I highly doubt teams have been looking thinking about like what happens if we go into a a multicycle not not like four-year cycle but like a multi-era

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of virtuals David the team has actually been working on something that hasn't been seen in the market before and maybe this is because they've been around for a while and they kind of like seen how these things play out um so they're introducing something known as their fiscal policy for their virtuals Nation right so this sounds very Broad and bold and honestly kind of crazy but virtuals Nation fiscal policy I love that title okay so so the point around virtuals and the team and their vision is is they believe agents are going to exist everywhere right doesn't matter what

chain they're on and they they've evidently expressed this in their road map by announcing that they're going to be launching on salana for those of you who don't know virtuals has primarily been based on the base chain um which is an evm L2 so the fact that they're moving over to salana is pretty nuts right and they're going to juggle two ecosystems and they're probably going to expand to more in the future right um but the whole idea is okay if these agents exist on different chains and they're able to transact with each other and it doesn't where your agent is they can just communicate and and you know converse with each other um then you're

kind of building out some kind of a separate economy right it's not governed by a geographical borders it's not governed by land it's governed by virtual space right um and so if it is governed by virtual space there needs to be some kind of you know policy or tax system that kind of keeps your uh stakeholders or participants in check you know David making sure they're not doing illegal [ __ ] but also making sure they're um paying back to the society that's supported them that's allowed them to kind of like build into

something right um and so virtuals announced this um uh fiscal policy Manifesto right where I'll break it down but it basically says like right now agents on virtuals um can go to the platform and they can be designed and then they could launch right and there's like a bonding curve situation and all that kind of stuff um and they've addressed each stage of this agent's launch and and they've mentioned now how they're going to be introducing new kinds of mechanisms or procedures that would help either enhance or kind of cut

out some of the Riff Raff that's happening at each of these different stages so basically making it a more uh functioning Society essentially right so if we look at like pre-launch um you know they talk about this Venture partner Network and and what they mean by that is so far it's been a free-for all right you turn up there's not really been any guidance there's a doc that you can read online and then you can kind of like just get on with it and and launch your agent they're now going to try and take a more curated approach kind of similar to what we've seen with like Arc and a few ai6 z uh Team launches

actually as well so what they mean by this is they're going to have several Venture Partners which will act as curators so think of like um a profile on Instagram that has a verified check mark right you're going to probably trust the content that that come that comes out of that account same as on Twitter right you'll see Venture partners that will have like a verified check mark on their platform that will be able to offer up certain opportunities to invest in agents or teams that are going to be launched and you're trusting them that they've done

their due diligence you're trusting them that they've kind of figured out what this might be and and they're kind of like funding and supporting the right things right MH the second bucket is they're calling postlaunch pre sentience so virtuals has this kind of um launch mechanism where okay when Once the agent reaches its bonding curve it launches right the token becomes um uh available on whatever decks they support um but then like it's still a low market cap right every the team could just dump this entire thing but

they have different kind of like Milestones if your market cap for your agent hits 50 million then it's considered sentient or if it's 100 million then it's considered you know something a little more useful than sentient or whatever that might be so the post launch pre sentience like they they're going to try and focus on um funding teams that believe they have you know full like much better potential um above that particular category right so they're calling it prototype to sentience um virgins which is like a

play on I guess virgins but like it's like virtual Deens well it's virtual Deens and it sounds hilarious if it's like virgens um but they'll be basically provided with virtual grants to scout for like high potential teams as they they put it out here and um as funny as that sounds David I've never seen teams take this more seriously um if you pull out actually the next tweet um by Vader um you know he he talks about or this team rather talks about virtuals quantitative easing tldr right

essentially okay so so let me let me checkpoint this virtuals it collects revenue from the virtual system system we know this it collects fees from Trading fees on the bonding curve using the virtuals token and now it is implementing a top- down fiscal policy in that is meant to encourage new businesses AKA agents on the in the virtuals universe and it has bestowed some powers to certain people that we're calling Venture Partners to go out and actually you know sprinkle out some cash in targeted precise directions at

precise teams because they think it's a good bet to help encourage the teams grow that AI agent on the virtual platform and so taking some of the revenue putting it back into the bottom of the economy economy the virtuals economy hoping it Tri trickles back up and then we can create a feedback loop which is like basically a Taxation and uh like social safety net system not social safety net but collect taxes put it back out into the economy in ways to simulate the economy and then collect taxes again and do it all over again that's what we're talking about here yeah runs pretty much like an actual