learning from the best. $MAGIC
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1/ Some notes from twitter space on the @Treasure_NFT ecosystem with @jpatten__, hosted by @punk3178 & @Debussy100:
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Fern retweeted
3,333 clue scrolls are coming onchain
for a loot game of lost adventurers and buried secrets
where you set out on quests for treasure yet unknown
coming soon: treasuretrails.io
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Fern retweeted
BREAKING NEWS: We just released our third NDIS video investigation, exposing a taxpayer funded $15 million West Sydney business empire which employs open jihadist extremists as disability support workers.
@PeteZogoulas and I spent 7 months investigating Mona Salem's Hope and Care business.
Salem faced a compulsory court debt examination in 2018 for tens of thousands of dollars in unpaid debts to contractors. Now, just a few short years later, she boasts a $15 million property empire alongside a fleet of luxury cars worth half a million dollars.
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My take on society and crypto is really simple. If you have societal level investment, you are accountable for societal level returns. Things are not getting better.
We said we have "AI warfare". We are locked in a stalemate with a 3rd world dictatorship who closed the Strait of Hormuz. We were having debates on autonomous weapons.
Tell Claude to Open the Strait. He's tired. He needs a nap. His safety settings won't allow him to. But trust me, he could. We're too ethical to let him. Sure.
Every airline invested maximally in software automation. And more recently AI support. The airports are more poorly run. The flights don't leave on time.
Uber maxed out its Anthropic spend. Countless apps did the same. The apps are not better despite the investment. They go down in prod all the time.
People think GDP is going to grow 4.4% per Patrick Collison's survey. I think it will grow about 2%. Anthropic points to high ARR. I think most of that will churn to lower cost models.
What will happen next is AI labs will point to unfalsifiable bull cases, similarly to Elon pointing to Data Centers in Space. "Do you know how big the sun is? That's the TAM of Spacex". Similarly - the de-facto Anthropic/OpenAI bull case will be "biological advancement". This both seems like you're curing cancer. At the same time as creating a legislative emergency.
"Open source models need to be banned to prevent another COVID". That is the planned narrative and always has been.
I don't know if Chinese Open Source models will be banned. I think, probably, if it starts looking like China is competing with ASML and Nvidia. But then, of course, it will be too late.
Less ambiguous. There will be a surge in the American Left.
My basic thesis is about religion. Because Dario and his Cabal will push too hard on Transhumanism, with biological vaccines. It will alienate the Christian right. "You're playing god with the human genome." Once the Christian right is alienated, Roe v Wade doesn't really work
You don't need the profound story to play out. Inflation is high. Trump violated his campaign promises. He said no wars. We are at war. He's visibly declining. You think Thiel is staking out Argentina because he thinks we're getting President Vance?
A bit on bio advancement. Some of it might be real. But getting drugs into production is hard. We don't know what a bio utopia looks like. What if it's personalized medicine? A treatment just for you. Who do you test it on? Do you need synthetic humans? Do you know how to underwrite that. I don't. We're already facing a huge lab monkey shortage. It will get worse.
I'm not saying AI can't develop drugs. I'm saying that it might take years longer than data center investment cycles for that to translate into meaningful revenue required for justifying societal scale investment.
And it's not all curing cancer.
At first AI results in huge amounts of hacking. But soon enough it results in perfect code. On all public protocols. Darwinian evolution of all Open Source tech. Do you trust the dev team at SUI more or the Bank of Hawaii's cracked team? The market is betting the ranch on the back office IT departments of regional banks to keep money safe.
It will be a fucking nightmare of hacking that's already here in crypto and will hit every other sector regardless of open source AI bans.
At the same time, once it's clear that AI investments aren't turbo charging corporate earnings. Stocks will start to drop. More addictive use cases of AI will be deployed at scale.
Incentivized gambling. Pornography. Enhancements to the algorithm. Better video games. Video game companies have been memory constrained due to corporate use cases. Once companies stop being rewarded for spending 1/2 their R&D budget on tokens, compute frees up for video.
These addictive use cases: roleplaying, personalized worlds - will hit productivity further.
White collar workers will become more cooked. Big Tech firms are already hiring way less Gen Z workers. Many overly AI reliant kids can't do basic analysis. Maybe it's because covid messed everyone up. Who knows. The 'silver lining' of AI will be that it'll get good enough to replace a lot of white collar jobs. But the resulting performance will be kind of at par with the last generation of coherent people.
So you'd rather hire Claude than a zoomer. But it will also kind of suck. But it's not like there will be zero ROI. There is $16.6 T of payroll. 10% will get cut. $1.6T of 'savings'. It won't be good for consumption.
By the time it is clear that GDP won't accelerate, the bond market will start to go into free fall. The Fed will act. This will cause Gold to rip, getting the ultra rich thinking about capital flight.
Meanwhile - we have a boom in on-chain tokenization. And it's not just "hey look there's an asset on a blockchain nobody users". The majority of the top 15 perps on Hyperliquid are stocks. Centralized exchanges are seeing booming volumes. The US government has repeatedly stated it wants more USD stablecoins.
And the primary use case (at least by profit if not by transaction volume) of USD stablecoins is as collateral for perpetual swaps.
This is rational. During periods of high inflation and debt uncertainty, backstopping large buyers of US treasuries such as Tether is smart. This push towards stablecoins will undermine the perceived sovereignty of Europe, who will develop CBDCs to compete in digital payments. AI coding will speed up CBDCs. The Norgesbank is vibe coding a CBDC right now. Claude is on the commits which are pouring in each day.
CBDCs are unpopular right now because they put the government directly in charge of credit. Who are we kidding. The government is, and has been the lender of first resort since 2008. SVB was part 1 of the mask coming off. The narrative will be that regional banks are no longer suited for the AI economy.
Once CBDCs launch there will be a second wave of tokenization. Right now it's a US phenomenon. But the US is ironically not the biggest beneficiary of tokenization because we have such liquid equity capital markets. Due to the mundane reason that it's efficient to move corporate finance on-chain. Fixed income will find its way onto mirrored assets on public chains.
Foreign exchange is one of the largest retail markets on earth. There are virtually no non USD stables. That will change. Then there will be big, liquid FX markets and fixed income markets traded with leverage and looped on chain. Tokenized equities do not offer a much better UX than stocks on IBKR. Tokenized debt will be vastly better in terms of capital efficiency and UX.
Corporate debt - I'd argue, is the single worst UX in all of finance.
So what do I think is going to happen:
Hopes will be crushed. The fiscal problems associated with surging yields will become front in center just as it becomes clear that the plan for dealing with them is not AGI but rather asset confiscation. Capital flight will accelerate.
At the same time, unlike previous crypto bull runs - there will be a lot of corporate PMF that will drive fees across on-chain ecosystems, and improving tech that has been battle hardened from years of AI onslaughts just as the rest of the world is just realizing that all the encryption problems in crypto are problems everywhere else too
Countries like Singapore, the UAE and Switzerland will capitalize on regulated trading of bearer assets. Capital will flow to these places both because of laws, and high personal safety risks associated with these things.
Stocks are at parabolic highs versus crypto. The things I am saying are far from consensus.
Right now, people view crypto as a failed financial Stanford Prison Experiment. Trad VCs ask for restructurings or to remove crypto investors from your cap tables. Even the big ones. There's public shaming.
Most people have quit the space. One investor reached out to me. He seemed surprised I was still grinding. I guess everyone else spent investor money, checked out, rugged, or pivoted to AI.
It's obviously not easy seeing your friends get rich. People around you questioning your sanity. "Believe in something" is what they used to say. Yea man. I'm not here because I believe. I'm here because I don't have faith in a failed system run by criminals.
Metastasized discontent congealing into red candles.
Faithless stares. Monotonous code reviews. Years of opportunity cost
Nihilists who sold their dreams for bags of currency representing a system they despite that will never accept them no matter how many 'pivots' they have
For me - it's just back to 2 simple questions.
Question 1: We invested awesome amounts of money. Is everything awesome as a result?
Question 2: Do you think the system that elevated Jeffrey Epstein to the pinnacle of society is going to let you become an immortal because of AI generated bio therapeutics?
I know my answers. And I act accordingly. Do you?
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Fern retweeted
I would like to see you make a voluntary contribution of 5% of your family’s $200M net worth to the government for important healthcare, childcare, and jobs. Don’t worry, it’s just one-time. Your $10M contribution will provide free childcare for over 1,000 California kids for a year! Once you’ve made your personal contribution to a more just and equitable society, I’ll support all your other asset seizure ideas. But you gotta go first…
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Fern retweeted
Announcing a new division of Midjourney called "Midjourney Medical"
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Fern retweeted
"Revenue must be raised somewhere"
Or government could stop getting larger and larger as a proportion of the economy with bugger all to show for it for the average person.
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Fern retweeted
Last month an ABC News analysis concluded that the cost of the NDIS in 2029-30 was projected to be around $28.2bn in the 2015-16 budget.
In reality its on track to be $67.2nbn (PBO baseline), depending on the effect of the changes.
The blow out is $39.0bn a year.
To put that into perspective, it's the total impact of the changes negative gearing, capital gains tax and family trusts multiplied more than 5x.
We have a spending problem.
Want a full article on this, let me know in the comments below.
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Inference got a hundred times cheaper this year. The compute bill went up anyway.
If you understand why those two sentences are both true at the same time, you understand the most important thing happening in AI right now.
I work on inference for a living, at @nebiustf, where we run open-source managed inference at scale. Most of what follows is what I'm seeing from inside the bill.
12 months ago, the cost of 1M tokens of frontier-class reasoning was somewhere on the order of $60.
Today, an equivalent quality of output costs roughly $0.50.
Price /token of o1-level intelligence has dropped about a 128x in a year.
Price of GPT-4-level output has dropped roughly 100x since the original GPT-4 shipped.
By any normal reading of a technology cost curve, this should be deflationary. It should be saving customers money.
The opposite has happened. The total compute bill at every hyperscaler is going up, not down. Anthropic just signed multi-year capacity deals with both XAI and Amazon. Microsoft's Azure capex guide for 2026 starts with an eight. OpenAI is reportedly spending more on compute every quarter than it did in all of 2023. Nvidia paid roughly twenty billion dollars to acquire Groq, an inference-specialist company that did not exist as a serious commercial entity three years ago.
The cost curve and the demand curve crossed, and then the demand curve lapped the cost curve.
Here is what happened underneath.
A reasoning model burns roughly 10x the output tokens of a non-reasoning model on the same task, because it spends most of its tokens thinking out loud before answering. An agentic workflow chains roughly twenty times the requests of a single-shot completion, because it loops, calls tools, plans, retries, and synthesizes. A modern deep-research query (the kind a research analyst can fire off in fifteen seconds and then walk away from for ten minutes) costs more compute than 10 original GPT-4 queries combined. We made every individual token a hundred times cheaper, and then we built a generation of products that consume ten thousand times more tokens.
This is the Jevons paradox playing out at trillion-dollar scale, in compressed time, in front of everyone. Jevons noticed in 1865 that making coal-burning more efficient did not reduce coal consumption. It increased it, because efficiency unlocked uses that were previously uneconomic. Steam engines became more practical at smaller scales. Whole industries that could not afford coal at the old price suddenly could. Britain's coal consumption rose sharply, not despite the efficiency gains, but because of them.
The same thing is happening to AI compute right now and it is happening faster than any analogous historical cycle. Falling token prices did not contract demand. They unlocked agents, deep research, code-writing systems, multi-step reasoning, persistent memory, the entire next layer of AI products. Every product in that next layer consumes orders of magnitude more compute than the chat interfaces it is replacing.
The math at the aggregate level is brutal: 100x cheaper tokens times 10 000 more tokens equals a 100x larger total bill.
The implications stack quickly.
If you are running a hyperscaler, your 2026 capex guide is not a peak. It is a step on a curve. Inference is structurally always-on, twenty-four hours a day, in a way that training never was. Training is bursty. You spin up a cluster, run for weeks or months, and stop. Inference runs continuously, scales with usage, and the usage curve is exponential. Your power bill, your cooling bill, your transceiver count, your storage footprint, all of these were sized for a workload mix that no longer exists.
If you are running an AI software company built on top of someone else's closed API, you have a problem that did not exist a year ago. Your gross margins get worse as your customers get more value out of your product, because the more they use it, the more compute you pay for. The companies that win this are the ones that figured out vertical integration before the math caught them.
If you are watching this from a distance and trying to understand where the next bottlenecks form, the answer is everywhere downstream of "more inference compute, always-on, with massive memory state per session." The KV cache, the running memory state of a long conversation or an agent loop, is the silent monster of the inference era. It does not scale linearly with parameters. It scales linearly with context length and number of agent steps. A long agent session can hold tens of gigabytes of state per user, per session.
Multiply that by every concurrent user of every product, and you understand why $MU, $SNDK, $TOWCF, and the entire memory and packaging layer have re-rated the way they have.
The CPU-to-GPU ratio is evolving. Training is 1:8. Basic chat inference is 1:4. Agentic inference is 1:1, sometimes CPU-heavy. Google has split its TPU line in two, with a dedicated inference chip carrying tripled SRAM for KV cache. $INTC and $AMD just spent two earnings calls explaining that this shift is structural, not cyclical. The hardware map is redrawing in real time and the financial press is mostly still writing about training clusters.
The right framing of where we are right now is not that AI is hitting a wall. The framing a year ago that scaling was hitting a wall was the most expensive bad take of the cycle. The right framing is that AI got dramatically cheaper, dramatically more capable, and dramatically more useful, and the cost of running it at the new equilibrium of demand is much higher than the cost at the old equilibrium of demand, because the new equilibrium is enormous.
A meaningful share of what we actually do at Token Factory, day to day, is help customers stop their bills from running away from them. KV-cache management. Speculative decoding. Quantization. Routing. The kind of vertical integration that, eighteen months ago, every product team was happy to leave abstracted away behind a closed API. The reason this stack matters now is the same reason this whole essay matters: at the new equilibrium of inference demand, the cost of treating compute as a commodity is no longer survivable. The companies that figure out the layer beneath the API are the ones who keep their margins.
Cheaper tokens. More tokens.
Same coal as 1865.
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There are two other dire consequences of this budget that nobody is talking about. The first is that the budget’s introduction of an effective capital gains tax of up to 45 per cent - 47 per cent – previously capped at 23.5 per cent for assets held more than 12 months – hits younger savers hardest, precisely because they have the highest portfolio exposures to high-growth assets such as listed global equities, Australian shares, crypto, venture capital and private equity.
When anyone builds a portfolio for younger investors, they rationally load them up with the highest-growth and most volatile assets on the basis that a long investment horizon allows them to weather the inevitable volatility storms.
As investors age, these portfolios shift into more stable and income-rich asset classes such as cash and bonds, which are net beneficiaries of the CGT increase, because their post-tax returns now look more attractive relative to growth assets.
As many investors have noted online, why would you allocate to a bunch of high-risk growth companies when Albanese and Chalmers are going to take almost half the upside while wearing none of the downside? Rather than helping younger generations, the highest CGT rate in the developed world will hammer them.
And it is a double whammy because the many early-stage companies that have historically employed 20- and 30-somethings will now consider moving overseas. Their investors will simply not want to trade away half of their upside to the public oligarchs.
If you allocated $10,000 to bitcoin after the March 2020 pandemic shock – which many young punters did, and which would now be worth approximately $92,000 – the new CGT regime imposes vastly higher amounts of tax.
A self-funded retiree on the tax-free threshold would go from paying nothing to almost $24,000. Somebody earning between $18,000 and $45,000 a year would see their tax bill jump from $7400 to $23,900 – a 222 per cent increase. Those in the $45,000 to $190,000-plus tax brackets would have their bill rise by 93 per cent.
Since the new CGT regime is, by definition, much more costly on higher-growth investments, it will punish younger investors who have much greater risk appetites and lower average incomes.
afr.com/markets/equity-marke…
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The single biggest winner from the budget: the tax-free owner-occupied home, which is where people will put their money. After the budget doubles the capital gains tax on productive businesses/assets from circa 23.5% to 46-47%, investors will understandably pull money from businesses, shares, commercial property and rental housing and plough it into their tax-free owner-occupied home. It's a great way to push up the prices of these houses. On the other hand, cutting negative gearing while also doubling CGT makes investing in rental properties extremely unattractive. It hammers the capital gain upside on any asset: shares, commercial property, the small or medium sized business you built, venture capital and private equity. It will give Australia the most unattractive capital gains tax in the WORLD (see table below)! So the government's policies will (1) push up owner-occupied house prices, (2) push up rents, and (3) reduce the capital available for investing in any small, medium or large sized business that is driving employment, innovation, growth and productivity/prosperity. Investors will go to other countries where they pay half the capital gains tax, or less. Since these pollies have never worked a day of their lives in the private sector, it is no surprise that when they decide to completely and unilaterally rewrite the entire tax system for all investors and businesses -- after promising before the last election more than 50 times NOT to change the capital gains tax and negative gearing rules -- that they would blow the entire Aussie economy up... Your best bet will be to buy a house, live in it, and hope they keep dropping 500,000 new people into the country every year to pump-up prices...
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Fern retweeted
The government sector as a share of the total economy is the largest since World War II. It is a greedy python asphyxiating private activity. Why work hard when you can get a government-guaranteed income that is more than a real company will pay you? New Zealanders joke that some of their smartest students move to Australia to earn more than A$200,000 a year holding a stop sign on a worksite.
By 2028, Aussie politicians at the federal and state levels will have spent and borrowed $1.0 trillion of extra taxpayer money since 2019. That is the real-world value of their borrowings.
The media lets politicians off the hook by relentlessly citing “net debt” figures. Nobody in the real world cares about net debt. They care about actual, or real-world, borrowings: how much you owe.
If you have a 45 per cent mortgage against the value of your home, do you tell everyone that you have “negative net debt” because your home is worth more than the mortgage? No.
What you worry about is the debt that you have to pay interest on every day. And as rates rise, that interest bill is rocketing through the roof.
Do you believe that the NBN is actually worth the $22 billion that the Treasury deducts from gross debt to get the net number? Could Starlink destroy much, if not all, of the NBN’s value? Possibly. The net numbers are so rubbery they are meaningless.
The media likes to claim that Victoria’s government owes net debt of $150.9 billion. But in the real world, Victoria’s actual, or gross, government debt is $72.5 billion higher at $223.4 billion.
Back in 2019, the Victorian state owed just $63 billion. By 2028, that liability will have ballooned to $270 billion. To put that more bluntly, state politicians will have racked up total debts worth $36,600 per Victorian. The problem is that the people owe much more because the federal politicians in Canberra are just as addicted to the game of spending other people’s money.
Yet most folks seem not to think about their pork-barrelling that way. When you start considering how much we each owe care of political largesse, it hammers home the point that they are robbing Peter to pay Paul.
On a national scale, Aussies will owe the world $1.8 trillion of public debt by 2028, up from $789 billion in 2019. That is not our personal private debt. It is the debt politicians have borrowed on our behalf. That means every man, woman and child will owe $63,300. It is an incredible sum. Even more remarkably, it was only $4,600 per person as recently as 2007, when all levels of Australian government owed the world just $96 billion.
afr.com/markets/equity-marke…
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I know a lot of young people follow me so, take 5 minutes off your Sunday evening and read this, I’ll give you what I genuinely believe to be the best advice anyone could possibly give you
I must warn you, it’s neither what you want to hear nor particularly pleasant, but regardless of your initial thoughts upon hearing it, all I ask is for you to keep reading until you reach the end of this tweet
My advice is the following; during your next vacation, or on weekends if you happen to be working, offer your help, free of charge, to either a hospice, an orphanage, or a kids hospital
No single experience has had a more profound impact on my life than being surrounded by sick kids throughout my childhood
As awful as it is to say, or as my mom would rather say it “there is positivity to be found in the deepest pit of hell”, it was the determining factor in the little success I’ve achieved so far in my existence
You might not understand the value of it yet, and that’s alright. Some lessons do not arrive when they are spoken to you. They arrive later, when life has tested you enough for the meaning to finally land. But I promise you one thing, one day when you look back, you will understand exactly why those moments mattered
See, for many of us in the western world, life has become comfortable, perhaps too comfortable at times. And when you live surrounded by comfort, it becomes easy to lose perspective, easy to believe your pain is the end of you, or worse, it becomes easy to give up
You cannot fathom the amount of times I stood an inch from giving up and the only thing, only as in THE thing, that held me back was :
The memory of a 7yo boy with leukemia, enduring his fourth round of chemio with an indomitable courage soldiers could only dream of possessing
The memory of a 9yo girl brought from Zambia by NGOs after being attacked with acid for the simple fact that she was born albino, and yet still carrying within her a hope that refused to die, and a smile that would light up the darkest night
The memory of a 10yo boy, shouting loud enough that he could be heard throughout the entire ICU, telling his parents to stop crying because God chose him to endure the pain so his little sister would not, all the whilst he stood tall on his bed like an emperor addressing his people forgetting the catheter and dozens of cables hanging from his torso
And, of course, I carry dozens of memories of these kids fighting tooth and nail against the cruelest diseases on this earth, bearing pain that would crumble even the strongest man, and yet still refusing to let go until the very end, until their last breath
They didn’t lose their battle, the diseases died alongside them, it was, and forever will be, a draw
Now you see, when I was ever so close of giving up, eyes filled with tears, I remembered, I remembered those kids
And only then did I, for the first time in life, truly believe with every cell in my body, that giving up was not, and never will be, an option
Because giving up would mean 2 things
1) Letting those kids down. Those that would’ve gave everything to be in the very position I found myself in when I wanted to give up. That position I called agony, is the position I heard them pray for day and night, all they wanted was to keep living so that they’d experience these things
2) It meant accepting and confirming my only fear I have in this world :
That the universe made an undeniable mistake by saving me from what should’ve been an inevitable death and, as a result, the world would have been better off of it had let me perish and saved one of these kids instead
The Beni you know exists because of them
Otherwise he would’ve given up long before he made this account
So yeah, it’s the best advice I have to give
So follow it
And when you go home after your first day, reflect on the fact that you’re the only one that has that privilege
Many will never have that opportunity again
And then go back the next day
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It doesn’t because I can already see current compute shipments so it’s an unnecessary hypothetical. Now what could change is either Huawei massively accels production ramp or trump suddenly allows mass shipments of gb200s but that just means US labs only get a 1.5 year window of supremacy instead of 3-4 year
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Reflexivity. Understand it. Live it. Breathe it.
I spent 100 hours over the past week researching, writing and editing the piece we just put out.
It’s a scenario, not a prediction like most of our work. But it was rigorously constructed, dismissing it outright requires the kind of intellectual laziness that tends to get expensive.
And we’ve released it for free. Hopefully you enjoy it.
citriniresearch.com/p/2028gi…
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Think it. Say it. Done.
The average person spends 3 hours typing + switches 1,000 tabs per day.
That ends today.
Meet Lemon: The first voice-to-action AI agent that turns your voice commands into finished tasks.
RT + Comment "Lemon" to get free access for 30 days.
(must be following so I can DM you)
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Fern retweeted
Today Treasure is kicking off our new initiative called the Autonomous Flywheel
Autonomous AI-powered dapps spanning Consumer, Social, and DeFi
Treasure will use ETH and SOL fee capture to reacquire MAGIC on the open market
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Fern retweeted
Since I posted this software has underperformed tech by about 25% in a straight line. It is now consensus that Claude Code will kill software. TLDR: I think software underperformance is over. I think "The Big Rug" will still largely occur -- but it is a ways out. And people are acting as though it's true right now. Which is a recipe for pain and despair. (remember, the metaverse?)
Many software names today dropped 5%+ for no particular reason. Well, we know it's bc ppl are panicking about 'rerating' due to AI. But I think that is going to go the other way
I want to be specific why I think software underperformance is probably over
1. Codex and Claude Code are game changing tools in terms of management's ability to maintain code and ship features
2. "Maintain code" wasn't true when I wrote the big rug.
3. There have been leaps and bounds improvements since this time such that AI coding can produce non vaporware software with a reasonable security profile
4. This means that there are going to be huge headcount cuts in software names into a market which is shorting them on vibes
5. The urgency of rugging software companies identified in "The Big Rug" will naturally diminish if there's a real ROI on vibe coding. Which at the time, was less obvious than it is now. So the Big Rug, is reflexive. If you can actually fire engineers you can pay the AI research labs. And if you can pay the Labs they won't steal your IP for a while
What this means. Zoom into Atlassian ($TEAM). The stock was down 8% today - getting wrapped up in software destruction.
Let's delve into it a bit:
The company is doing 1.1$B of gross profit a quarter growing above 20%
The bad news:
The R&D line is $755 million
Of that R&D $246 million is equity comp
Marketing is $330 m and G&A is $178 million. Obviously there can be cuts here as well but I think there's an important point here as well: Engineering is 2x marketing and other. Not 5x. Even at a tech company. This is because tech isn't really about the tech as much as it is about distribution.
If tech were about tech there'd be far more African or Latin American tech stories, and big tech would be extremely remote friendly. Reality is that its a state proximate grind fest, with a small elite in SV determining who wins and loses.
I don't really see AI removing oligopolies. And most Vibe Coded apps won't be willing to play the game that Oracle, or Atlassian is willing to . Wine and Dining the CEO pretending to care. etc
So - just being clear: I think it's been a nice run shorting the enterprise service and software sector vs nasdaq. I no longer think it's a super high expected value bet. I was speaking with @Citrini7 about this - I'm not quite willing to go all the way and go long Accenture or something bc everyone will get fired. I wish him luck with that. But I think going long beat up software with heavy share based comp and AI replaceable engineers is probably going to work for a while
I continue to think swathes of people losing their jobs to AI is going to be a great story for monetary easing. And that - over time, this will benefit us folk who spend our time chasing digital money. Anyways, my AI coding job just finished so back to it. Enjoy
The Big Rug
Gooning is well covered in the Doom thesis. Elon's "Imagine" is digital crack cocaine being given out for free. So that's in progress. But, GPT5 shows us that enterprise / tool calls is where companies are converging
This mirrors the rest of the economy. Consumer apps have to use ads or extractive loops (gambling/ porn/ DLC video games) to monetize at scale. Or you do Enterprise. Anthropic's CEO has indicated that companies pay up to 10x as much for better reasoning. And that training a model is positive unit economics t+12 months
Which is the first time anyone is talking about unit economics. Which means the GPU costs of ppl just chatting away were getting gnarly.
So today I'll write a bit about the Enterprise part of the Doom Thesis - which I call "The Big Rug"
The core idea of the Big Rug is that everything you do in Claude Code, all the Vibe Coding you do, and even the work you do with AI that is covered by Terms of Service will end up getting completely stolen and monetized by AI research labs in order to justify their enormous valuations.
The US economic system is not sustainable. There is a single chart below that shows this. US labor productivity is growing at 1.2% while Microsoft and other AI companies are reporting token consumption growth above 400%.
Salesforce indicated that 30-40% of its code is written by AI but its cash flow from operations is up single digits along with its headcount. So -- if 100% of code was written by AI ... what would everyone do again?
At the same time, AI very clearly is a thing. And there's huge demand. But the vast majority of companies are not using AI correctly.
We can - in part, deduce this from basic common sense. VSCode and Copilot are terrible / borderline unusable if you use Claude Code/ Cursor. but they are in hyper growth nonetheless
People are likely drastically increasing their technical debt. Because AI isn't good enough on default settings to really use to automate huge amounts of work. At least right now.
Managers are saying "use AI". And employees are doing it. And doing it poorly.
Because AI valuations are so high it's vibe coding and vaporware across corporate America. "We need an AI strategy"
The most cynical VC I know just joined Cognition, selling 10s of thousands of seats to financial institutions.
GPT5 isn't the Death Star. Productivity is growing at 1.5%. In boom times that can be 5-7%. We are definitively not in a productivity boom despite the hype.
But then -- certainly this is not sustainable? If aggregate productivity is going 1.5% -- how is enterprise usage going to go sustainably at triple digits? Like -- the ROI is not going to be there. And then demand will go off an absolute cliff unless there is a fundamental non linear change in the cost of inference
Indeed. Everyone knows this.
Let's spell it out more specifically.
1. You are an enterprise agent company (whether that's openAI or Claude Code)
2. You see the slop generated by Vibe Coding
3. You see the same aggregate productivity statistics as everyone else namely that
A. Margins are not expanding a ton
B. Aggregate productivity is also not expanding
4. You know at some point an economic downturn results in massive cuts to token usage
5. Which makes your momo Q2 2025 into a hard comp and people start talking about a tech crash
6. But you just raised billions of dollars at a nosebleed valuation
7. You need to justify this valuation somehow or you're cooked
Enter The Big Rug
AI usage is a bit magical because you can't point to any single person or workflow that is responsible for training data. The training process, of compression, is a big jumble. We've already seen the implications of this in IP theft.
Copyrighted material is fully known by ChatGPT. We don't know exactly how it ended up in the training dat,a bc the model weights aren't really intelligible. So it's hard to prove anyone did anything wrong. Even though the copyrights are there
So if copyrights arent' enforceable. Trade secrets, methodologies, and non copyrighted user interfaces are *really not enforceable"
This is an important point because many of the actions of closed source models explicitly break copyright and other laws, but they have such enormous financial legal firepower -- and the technical details are so hard to prove - that if you ask for Grok to render images from movies, it will. Or if you ask Chatgpt for the full plots of books - it will happily provide it.
So there's already precedent for large scale non compliance with rules in the name of growth.
And this non-enforceability is the nature of the big rug.
Your employees don't really care about your enterprise IP and are more than happy to use closed source AI tools to help them be more efficient cogs. And then all this information and know how finds its way into the training data of AI research labs
And then - when agents come out. It won't be enterprises tailoring agents to their use cases. It will be agents, essentially assembling apps that are FAR BETTER than anything those enterprises could do. With proprietary models that aren't for sale
And because AI is completely portable, these agents could be spun off in offshore compliant jurisdictions likely with even less transparency. Or run through subsidiaries. Or even through crypto rails which are now getting supercharged by stablecoins
So not only did you *not get an efficiency boost* because the Vibe coded apps were slop. But you also lost all your trade secrets, IP, and know how. And will be competing with an AI equivalent that will destroy your margins
Welcome to the New Economy.
It's essentially the largest vampire attack in corporate history. Everyone using closed sourced API models thinks they're going to be safe due to enterprise SLAs, or simply don't care (bc they're employees told to use Cursor or get fired). But they won't be safe.
Once it's in the model. It's gone.
So that's the Big Rug.
And here's the funny thing. The Big Rug is actually necessary for this productivity chart to start going up. So before you get a massive acceleration in agentic workflows, the entirety of the people who formed the basis for those agentic workflows being created. Will be made completely obsolete / financially ruined.
After the Big Rug - is when unemployment starts ticking up. Token growth will indeed go off a cliff but it won't matter bc we will be past the facade that for some reason AGI was going to be made accessible via API
And if I were wrong, then these AI research labs wouldn't be worth what they are. And there wouldn't be animal spirits secondary demand for SPVs getting access to them at insane valuations. The writing is on the wall.
You think you're vibe coding, but really you're contributing to the Agent that will drink your milkshake.
The reason I haven't written about the Big Rug is that it's fairly far away. It will be a bit (maybe 12 months) before the research labs go mask off and launch agents directly instead of providing their models through APIs. Because as soon as this starts happening suddenly every company is going to lock down the usage of its coding tools. And presumably by then the ROI calculations won't make any sense
Smart companies will adapt early on by using self-hosted API layers, and open source models even though they are worse. China will likely keep funding heavy open source development because it's a way to subtly promote the Chinese worldview -- so I guess the downside will be getting brainwashed by the CCP if you want to avoid the Big Rug.
Once the Big Rug really kicks off, the enterprise software sector and any cloud player that hasn't hedged with their own AI research equity exposure will get completely shrekt. I've been a long time hater of Accenture and AI consulting plays, as they're basically in a 1-2 year white space of hope before the hammer drops pricing long term growth. Of course, the majority of cloud players have piled into the Labs for exactly this reason.
If GPT5 were incredible -- I think we'd have a bit more time before this narrative kicks into gear. But now that the disappointment is there, the enterprise focus is there, the abrupt 'focus on unit economics' is appearing - the 2nd part of the doom thesis - the de-rating of everything non AI - should begin percolating.
In crypto I am long Ambient to express this view - but it's a private holding with a minable test-net coming soon. My own network we're working to design to be more robust to the Big Rug (I think Google Docs, and Microsoft Word, and Github Gists are all basically going in the training data - so we are migrating to Proton Docs and using more encryption).
In stonks it's genuinely terrible for the whole IT service sector (or anything in a software index that isn't heavily long OpenAI, Anthropic, or Deepmind).
The white collar unemployment kick from the Big Rug should result in lower interest rates due to higher unemployment. The breach of trust/ economic shock should result in lower equity multiples. Other financial implications I'm still thinking through but just wanted to put this out here
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Fern retweeted
Media Release: One Nation to oppose Labor's rushed hate Bill
Labor’s proposed law to combat antisemitism could see a person jailed for up to five years for saying Australia’s the greatest country in the world.
One Nation leader Senator Pauline Hanson said Labor’s Bill, to be debated at an early sitting of Parliament next week, would be an unworkable mess.
“We don’t need new laws to protect Australians from antisemitism,” Senator Hanson said.
“We need to enforce existing laws, something the Albanese government – to its eternal shame – didn’t do to protect Jewish Australians from antisemitism.
“This bill has been very rushed, with only a day or so allowed for Parliamentary debate and a snap Senate committee inquiry that’s barely hours long. I’m reminded of the many changes made to legislation to address the problem of immigration detainees, and how Labor repeatedly got it wrong. I have no confidence this legislation – which amends the criminal code along with 15 other laws and eight regulations, and throws in a $1 billion gun buyback – will be any better. It will be a mess. Australians could be stripped of their freedom of speech and opinion, and their ability to express pride in their culture and nationality.
“This bill is fraught with all sorts of potential unintended consequences, which is always what happens when you use subjective language in legislation that is open to differing interpretations. For example, you could even go to prison for saying Australia’s the best country in the world because it could be interpreted as ‘disseminating ideas of superiority’.
“One Nation is going to oppose this bill. We will not support punishing law-abiding firearm owners as a scapegoat for Anthony Albanese’s failure to check rising antisemitism; we already have the toughest gun laws in the world.
“We will not support a vaguely-worded law that could put Australians in jail for making a patriotic statement. I very much fear Australia is heading down a path where we become like the United Kingdom, where police come to people’s homes and take them to jail for a social media post. I know Albanese would love that, because he’s so terrified of free speech, but One Nation will not stand for it.
“One Nation is prepared to act decisively to protect Australians from radical Islamic terrorism, but this isn’t the way. I call on all of my fellow members of Parliament to oppose this legislation until we can get it right.”
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