Empire Newsletter: The intersection between crypto and AI is growing

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Crypto and AI sitting in a tree…

We’ve previously chatted about the intersection of AI and crypto, focusing specifically on bitcoin miners and AI.

But the two industries have a few more intersections that I want to get into today.

“I think in a lot of ways, AI and blockchains work made for each other, whether that’s the provenance of data, sort of machine-generated and enforced contracts, machine value exchange, the privacy, preservation,” said Cosmo Jiang, a portfolio manager at Pantera focusing on liquid token strategies.

The crossover, Jiang noted, isn’t that surprising when you look at academic research being done to explore both areas.

If you’re not into academic research, I don’t blame you. But there’s no doubt that the two have the ability to grow into a potentially profitable intersection.

Bitwise, in a note published earlier this week, said that it thinks the two could become a $20 trillion megatrend, which includes the aforementioned miner and AI crossover.

“The two industries could add a collective $20 trillion to global GDP by 2030,” wrote Juan Leon, Bitwise’s senior crypto research analyst. That figure is based on PwC projections that the two industries could add nearly $16 trillion and $2 trillion to the global economy in six years, though Leon noted he’s bullish enough to round up.

When it comes to how this could impact the crypto industry, Jiang said that he expects AI models being used on blockchain projects to have some intersection with human training so that the model can be guided.

“You’re seeing some of that play out in small cases, like with Hivemapper, where they give out crypto incentives for those who help their AI bots label and help their AI mid-generation tools. Or you see that with, I guess, in the case of [Bittensor’s] TAO. There are labeling subnets on TAO,” he said.

Ah, yes, real-world examples. Let’s focus on one to give you a better idea of how these technologies interact, shall we?

Bittensor is a decentralized network focused on AI models. It has drawn a lot of attention, including from Pantera which has been involved with the company “since sometime mid to late last year,” Jiang said. If you haven’t heard of it before, he explained it as a “novel way to incentivize open source contributions that haven’t really been possible or haven’t been tried before at a great scale.”

“Bittensor’s decentralized the subnet creation so that any business, any entity, can create subnets that solve very specific AI problems, we see the blossoming of real businesses, real companies, building subnets with real use cases,” he continued.

“At first, a lot of these are very basic generated AI use cases they see elsewhere, like a chatbot or image generation, or like very short timeframe price prediction algorithms, but you can see a world…where there are many different, many, many more use cases than just that, and the fact that it has attractive, very serious AI talent is pretty exciting,” Jiang continued.

Taking another birds-eye view at the crossover, Leon’s note also points out how blockchains and AI can intersect.

“Theoretically, we could see similar ways of validating everything from original research to official government communications. It’s why many experts affirm that blockchains will play a pivotal role in putting checks and balances on AI,” he wrote.

And then there are bitcoin miners. I’m not going to go too in-depth here, given that I recently wrote about it, but what I will say is that we’re seeing more deals flow in between miners and cloud providers. Look at the multi-billion dollar CoreWeave and Core Scientific partnership announced last week.

But it’s early in the AI-crypto game, which means there are still a lot of reasons to adopt a cautious approach before diving into it. There’s vaporware to be aware of and “a lot of empty promises and a lot of scammers,” Jiang warned.

But that shouldn’t act as a deterrent for those interested in exploring the space.

P.S. David and I need your help. No, we’re not soliciting you for donations. Phew. We just want to get to know you better. Fill out this survey and help us produce journalism tailored to you and your interests.

— Katherine Ross

Data Center

• Bittensor’s TAO sits at roughly $329, down roughly 9% over the last month.
• Bitcoin ETFs notched positive inflows Wednesday, recording a collective $100 million per Farside data.
• Despite moving higher on CPI data, Bitcoin’s price is back down to $67K.
• $230 million worth of liquidations took place over the last 24 hours, according to CoinGlass data.
• Most of the big bitcoin mining stocks — including Riot, Marathon and even Core — closed in the green on Thursday.

Terraforming the labs

$4.47 billion.

That’s the (proposed) amount for Terraform Labs to settle the civil lawsuit from the US Securities and Exchange Commission. That figure includes a whopping $3.5 billion in disgorgement of ill-gotten gains.

In addition, former chief exec Do Kwon would, under the proposed plan, cough up $200 million, an amount that would be given to the Terraform bankruptcy estate amid its own wind-down process.

These are big numbers, ones that are perhaps fitting for a company that once seemed like it stood near the center of the action in crypto and, during its downfall, appeared poised to wipe everything out. But it didn’t, in the end, and here we are, watching the SEC levy a massive bill as Terraform Labs’ existing leadership prepares to wind the entity down post-settlement.

Criticism of the SEC was swift from some quarters of Crypto Twitter, with critics complaining that the SEC was handing itself a massive payday via the settlement over the investors harmed by Terraform’s collapse (and are now seeking remedy in the courts).

But within the SEC proposal was the stipulation that the SEC would wait — at least for now — before trying to enforce the terms of the settlement. If the court signs off on everything, Terraform Labs would be required to put forward an SEC-approved Chapter 11 process.

“Under the liquidation terms of the Chapter 11 Plan that Terraform is required to propose, the SEC will recover on its claim after harmed investors and other general unsecured creditors recover in full,” agency lawyers wrote. “If all Terraform’s assets are distributed pursuant to such a plan, the SEC’s monetary remedies will be deemed satisfied. Finally, if no such plan is in effect by October 31, 2024, the SEC is entitled to enforce the judgment against Terraform.”

According to Terraform Labs’ Chris Amani, the future of the distributed crypto network is, well, up to the community. “I believe there are a couple teams and devs who want to do this and you should be seeing information in the forums soon,” he wrote on X.

Of course, all of this requires sign-off from multiple judges, but if confirmed, it’s yet another one of those chapter-closing moments from crypto’s most recent — and extremely tumultuous — market cycle. So much of the current moment has felt like it’s been operating in the shadow of the collapse of TFL, FTX, etc. One hopes that things will proceed smoothly — with a lesson or two learned along the way…

— Michael McSweeney

The Works

• MicroStrategy announced that it plans to offer another $500 million in convertible senior notes to buy more bitcoin.
• President Joe Biden is allegedly mulling adding crypto donations, following a similar move from former President Donald Trump, The Block reported.
• Over in Texas, power grid leader ERCOT warned that the state may need to double its power generation partially thanks to miners and AI.
• Vitalik Buterin gave a list of things in crypto to pay attention to outside of memecoins in a post on X.
• Stablecoin issuer Paxos cut 20% of its workforce, The Block reported.

The Morning Riff

Eager for crypto to be a race-defining issue this November? Well, your chances improved with the victory of Sam Brown in Nevada, who won nearly 60% of the vote in the state’s GOP primary this week.

Brown outlined his position in an op-ed for Blockworks last spring — check it out here — and more recently defended Uniswap Labs in a public statement and supported the passage of the FIT21 Act.

To be sure, I’m not issuing any endorsements here, but it’s nonetheless remarkable to me that candidates so openly supportive of crypto are using these issues as they seek elevation to office. Other candidates, including John Deaton of Massachusetts, are seeking to do the same.

Will it matter in November, or will more tried-and-true issues like healthcare, abortion and the economy matter more? Tough to say — but it wouldn’t surprise if we see some crypto questions pop up during at least one general election debate.

— Michael McSweeney