The case for AI finding a killer app for crypto

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Same but different

AI is the source of many great ironies in crypto right now. But that might not always be the case.

Perhaps AI makes the crypto space safer, say, through integrations with wallets and web apps to catch phishing and other types of fraud ahead of time.

AI may also boost the power of trading bots so that gains are easier to come by, or even design and code memecoins that make us all stinking rich.

All those use cases utilize AI as a tool — augmenting infrastructure that mostly already exists to simplify the lives of crypto users.

What connects the Bitcoin, crypto and Web3 narratives with AI is, for now, somewhat tangential. 

Even to the point that some industrial bitcoin miners are increasingly looking to convert their existing farms into AI-compatible data centers, because the latter makes more money at the moment.

It’s a slow process that isn’t easily reversed — as the only similarity between running a bitcoin mining farm and an AI data center is that both require bucketloads of power.

There hasn’t yet been a publicly disclosed instance of a bitcoin miner fully switching over to service AI initiatives, although some are easing into it slowly. 

But that trend, if it continues to crystalize, reflects where the mainstream is at right now. 

Google Search trends show interest in AI is at an all-time high right now, having shot up considerably at the end of 2022 — just as interest in bitcoin and crypto reached near-two-year lows. 

It’s unlikely that bitcoin miners will undergo a mass exodus toward AI, and even if they did, the Bitcoin network would almost certainly still be impervious to 51% attacks. 

And besides, the network’s difficulty would eventually drop to the point that mining bitcoin could end up just as lucrative as AI computing all over again.

It’s apt, then, that decentralized GPU marketplaces persist as the one crypto-AI intersection with reasonable product market fit, as highlighted by Casey Caruso, managing partner at Topology Ventures, on today’s episode of Empire.

Just like how the promise of fresh BTC incentivizes miners, blockchains act as a coordination layer for all different kinds of computational resources — from data storage to CPU and GPU services for AI — so that regular crypto users can rent out their machines in return for tokens.

So, while AI coins might appear relatively small on the first chart above, shown by the purple area in the bottom right-hand corner, their total market caps only tell one part of the story.

GPU marketplace Akash allows users to pay for compute with two different cryptocurrencies: its native AKT and USDC. 

In total, the platform has generated over $811,000 for lease providers, and weekly fees reached over $30,000 at the end of August, a new all-time high, and more than double what was recorded around the start of the year.

The overarching quest for Bitcoin, crypto and AI proponents is finding the killer app that makes them make sense for the world’s population. 

We’re not exactly sold that chatbots are AI’s killer use case. But for crypto specifically, whatever the killer app is, it’s increasingly apparent it should be decoupled from the price of bitcoin — operating as its own thing, with its own value proposition and market dynamics, something that hasn’t been totally achieved just yet. 

Maybe an AI use case will make the difference.

— David Canellis

Data Center

• Crypto markets are mostly flat, with BTC ahead 0.7% on the day and ETH exactly even. (BTC: $59,200; ETH: $2,310.)
• SUI has extended its recovery after reaching nine-month lows in early August — rallying almost 120% since to $1.17. It’s still down 45% from its record high in March.
• AI coins altogether set a new market cap record in March alongside bitcoin’s own high: $56.3 billion, about 36% above its prior peak in November 2021.
• Base is closing in on Solana in terms of stablecoin supplies: now $3.488 billion to $3.849 billion, after gaining 3.43% in the past week.
• $231.95 million net has flowed out of Arbitrum bridges across the same period, with $89.2 million and $36.06 million flowing into Ethereum and Optimism, respectively.

Wrap it up

There are still a few crypto bankruptcies looming over our heads, including BlockFi and FTX. 

We’re going to hear more about FTX early next month, at a reorganization hearing that’ll seek to confirm the plan shared by the FTX estate earlier this summer. 

The plan, the estate said, has received support from creditors, though it’s a bit controversial. If the confirmation hearing goes well, then we could be one step closer to wrapping up the bankruptcy. 

BlockFi is also getting close to the finish line. Haynes and Boone partners Richard Kanowitz and Alexander Grishman told me that their client, BlockFi, is in the “final stages” after the plan was confirmed “a while ago,” Kanowitz said.

The timing is still a bit in the air, but the estate is making “interim distributions and looking forward to making a final distribution,” he added. BlockFi’s international arm is still undergoing proceedings with Bermuda courts to get everything tucked away in a neat little bow. 

Similarly to FTX, creditors wanted BlockFi’s distributions to be “in-kind,” which essentially means that their crypto is handed back to them rather than receiving a sum of cash. And, unlike FTX, the two lawyers said they were able to access reports and see where assets were. It’s no secret that the teams working for the bankruptcy estate at Sam Bankman-Fried’s former company didn’t have such an easy time. 

A bankruptcy is still a bankruptcy, even if Kanowitz called BlockFi the “golden standard.” And, given the legal action we’ve seen against the leadership at both FTX and other bankrupt lenders, like Celsius, perhaps the standard is a tad low.

BlockFi, despite being able to access assets, didn’t have enough crypto to distribute in-kind to creditors. 

“That [puts the] cart before the horse, right? If they had all those assets to be able to return to customers, [they wouldn’t have needed] to file bankruptcy,” Kanowitz explained. 

But there’s long been one question lingering in the back of my mind: Is our current bankruptcy code sufficient enough to tackle crypto?

Kanowitz essentially said yes, that the crypto bankruptcies didn’t have anything “out of the ordinary that the bankruptcy code couldn’t handle.”

Grishman, who worked with BlockFi prior to the bankruptcy, agreed with Kanowitz. 

“There was nothing that was so novel” about the case, Grishman said. “It’s just that the underlying asset is novel, and that it is cryptocurrency, but it’s nothing that the bankruptcy courts are not able to deal with.”

When I posed the question to Bill Hughes, senior counsel and director of global regulatory matters at Consensys, he had a bit of a different take.

“What has to happen is, where necessary, you come up with new approaches that seek to serve similar ends, and deal with the reality in which people use a peer-to-peer network. That requires changes to accounting rules … and adding to parts of the bankruptcy code. Perhaps the tax code needs some tweaks,” Hughes told me. “There’s a way to do it that serves the purposes of the law, but does so in a way that serves the system.”

Though this is perhaps easier said than done given the speed at which legal and regulatory changes are implemented. 

— Katherine Ross

The Works

• Former Binance CEO Changpeng ‘CZ’ Zhao will be released from prison toward the end of the month.
• dYdX will list perpetual futures on prediction markets, CEO Charles d’Haussy told CoinDesk. 
• Bhutan holds 13,011 bitcoin worth $780 million, according to Arkham Intelligence data.
• MicroStrategy, once again, announced a convertible debt offering of $700 million to buy more bitcoin.
• Former President Donald Trump unveiled World Liberty Financial, the new crypto venture, in a Spaces on X last night. 

The Riff

Q: Is Trump launching a token really bullish?

Literally anyone can launch a token. And so many have, whether we’re talking about earlier in this cycle with Caitlyn Jenner or if we’re going back to last cycle. A token launch isn’t novel on its own. 

The project behind the token is what really matters. I haven’t yet seen the full white paper for the World Liberty Financial project, so I won’t pass judgment. 

What I will say is that one could argue that the token launch is bullish because it could spur on other token launches. Last week, PitchBook’s Robert Le told us that there are a lot of projects in the wings waiting for the perfect time to do their own token launches, and this could be the catalyst they need. 

Ah, yes, I can just imagine the look on Gary Gensler’s face while being debriefed about the Trump-backed token. What a fun cycle.

— Katherine Ross

I’m with Katherine. If there were any stigma left attached to launching tokens — including governance coins — then Trump may have just severed it altogether, for good.

NFTs did a lot for that cause. Internet inventor Tim Bernes-Lee sold an NFT of his original web source code in June 2021 — six months later, Jimmy Kimmel and Paris Hilton were gabbing about their Bored Apes on camera.

Understandably, more crypto-native folk might be cringing at Trump’s team hawking its own non-transferrable governance token to accredited US investors while marketing it as DeFi.

It’s not outside the realm of possibility that Kimmel and Hilton may have seen someone like Bernes-Lee dabble in NFTs and figure: “Why not me?” 

World Liberty Financial could have the same effect on someone on the fence about whether they should jump into crypto. After all, they could probably do better.

— David Canellis

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