The FUTURE of Investing and How You Capitalize on The Current Financial REVOLUTION | Richard Craib

Richard Craib, welcome to the show. Good to meet you. Dude, I'm really excited to have a conversation about something that I've been trying to grapple with since the pandemic kicked off. I trained myself to be good at making money, but never really understanding investing money, and um have watched the frustration build with people that feel that they're working inside of a broken system, and couldn't really understand like what they were struggling with. And now, once the pandemic hit and I began to see that I needed to look more closely at investing and all of that and what was going to happen to the world financial markets, I started to be unpleasantly startled by the things that I was finding in terms of how it's structured. And as a person that I would say is the future of finance and the way that you're approaching things with Numerai absolutely fascinating. Talk to me a little bit about what is the structure of finance? Well, it's for sure broken. I mean, and that's why there's so much energy and new ideas around finance. I mean, one thing I always ask people is like, "What are What are young people doing?" And uh young people today, you don't like meet someone out of college who says, "Um my idea is I'm going to start a new bank." Or a new hedge fund even. Um and the reason is the barriers to entry are so crazy. Uh and it's basically like controlled by uh by regulation. And the regulation sounds nice at first. Because it's designed to protect people theoretically. know, we all need protection. Um and then it creates like this crazy class of like um compliance uh people are sort of required to to do to do anything. So, I I can't imagine what it would be like for us sort of a 25-year-old to apply for like a banking license or something like that. But, it's But, the sad thing is got so so bad that it it's not even in anyone's of It's not even in anyone's affordance to even have the idea uh to do anything about it or try to change it. And um and that's where crypto is powerful and things like Numerai are powerful uh because it's it's somehow making it possible for people to be involved in the financial system. So, I have this thesis that I'm working on. I'll be very interested to hear what you think. So, I hear this idea that basically there's all this tension happening between the generations and the reason that the tension is happening is because the old guard is refusing to pass the baton to the new guard, but that doesn't strike me as the way that human nature works. And I think that people cling to power for every conceivable second. You have to pry it out of their cold, dead fingers. And I think that historically what happened was youth and vigor, like so much of the economy was generated around being able to um have a higher degree of stamina, do physically demanding jobs, and therefore the next generation was just able to beat the old generation on that. And now, as we go into an information technology economy, what you see happening is it's easy to get ahead of people because you understand the game better. And you can either do political moves, or you can just be more knowledgeable, and so that allows you to hold on to power longer, and so that creates all this friction uh between the generations. And now, what we're seeing is what I call [ __ ] the man energy. And so, we're getting this energy. You saw people with um Occupy Wall Street. But then, Satoshi writes a white paper. And people that have been watching me for the last like 6 months have heard me say like this idea over and over, but this is really interesting to me. So, Satoshi writes this white paper and creates digital value out of thin air. And people buy into this, and it creates this decentralized, democratized way to go about money, and it's now starting to spill over into other areas. But, help me understand one, is it just regulation? Is that the only problem that makes this [ __ ] the man energy so strong? And what is it about decentralization that seems to be the cure to whatever the ill is? Yeah, it does seem like the a lot of the energy in crypto kind of couldn't maybe wouldn't be that if there were if it just were incredibly easy to do normal business. Um so, if it was if it was extremely common for young people to start new banks or um or just people to IPO companies, uh even that's like kind of weirdly rare. Um if all that was a little bit more possible, then it would be hard to imagine the world of crypto developing with so much energy. So, I do think it's definitely related to to regulation. Um it's also like a kind of I think there's something going on with like technological literacy as well, uh where you you there's the way that the finance people uh talk about things like exchanges, um it's like there's a lot of jargon. You you you don't understand it. Um you could never you could never build something like this. We're much we're much smarter than you kind of thing. When actually, it's like 100 lines of code uh to write Uniswap, um and you can have digital assets being traded in a decentralized way with no intermediaries at all. Um and so, there's something about it where it's like it's like people are realizing how bad it is and how uh easy to to rebuild um the whole the whole financial infrastructure is just with a just with new technologies. And that's the sad thing. It's like when you're growing up, you kind of think I remember growing up and watching the internet entrepreneurs uh doing amazing things. And I always thought, well, when I grow up, I'm going to use the latest technology to do amazing things as well. And somehow it's it's a little bit gray area to be using blockchain or even AI or kind of any Gray area from uh regulation From a regulate Yeah, you don't know um what what the US is thinking about uh cryptocurrencies and uh and any new systems that challenge old systems. And so it's like super okay to build a social network uh in 2006. But even if you can write a new stock exchange or a new bank or a new type of hedge fund, even if you can do it and you have done it uh it's weirdly not it's like not uh stuff like acceptable yet. You don't know whether the government's going to be like, "Wow, yeah, we want all this wealth to be captured by the United States." You know? Or are we just going to ban it? And people like me came here from I came from South Africa to be, you know, try to be like uh an Elon Musk of hedge funds or something like that, right? And I will I thought this would be the place would be definitely uh very very pro-technology, but weird things are happening in the culture where it's it's not and I think it's bad. Yeah. Uh tell me more about that because so I never expected to do a single interview where the words um culture war were put together. Like just did not think that that would be something I would ever get involved in. Not the the thing I want to focus on. Like, I'm about the individual. How do you empower an individual person regardless of where they were born, color, creed, nationality, nothing. To me, none of that [ __ ] should matter. It's like, can you add value to the world? And if you can, you should be richly rewarded. And now I find myself where the ideas seem self-defeating to the very people that are promulgating a lot of the ideas. So, what do you see as going wrong? As somebody who could look at America one way when you were younger, and now that you're in the thick of it, think, "Ooh, maybe some of these ideas aren't as useful as people are hoping." What is broken in the parsing of that data? It's something like a uh a desire for like a static society. They don't necessarily want uh innovation in Because it leads to uneven outcomes? It's It could be that, but it's also just uh if you're if you're if you're older, it's also annoying. Uh Change. to have things change. Um and uh and have to learn a brand new technology or something. So, I think there's something like it's and it's like it's fine if if if all you're doing is um kind of a joke. That's why I think it kind of like NFTs are interesting because it's like it's like a joke, and and so it's like it's like can't be illegal cuz it's just art. And so, the same people who I think So, I have a friend who um created an NFT project, and he's like got a computer science degree, really good at machine learning, and like he decided to make NFTs um out of college. And it's like on the one hand, that's cool, sort of, cuz it's like a protest art thing, maybe. But on the other hand, it's also like is that the only thing not banned? Like if you can't sell shares in your in your futuristic new bank or hedge fund or something on the blockchain, but you can sell pictures of uh cats or something. So we just did a big NFT drop and dude, the number of hours that I had to spend with attorneys trying to figure out like, "Hey, I want to make sure that I can keep supporting this thing, that the SEC's not going to come after me." Yeah. Of course, the the first words out of their mouth are like, "Hey, this is just a big question mark." Yeah. Some of the attorneys are like, "You shouldn't do it. There's questions and so our job is to CYA and so just, you know, don't." And then other people, you know, were far more thoughtful in their guidance, but it is So the thing that winds me up about the system now that I'm like really looking at it. So the old system worked very well for me, right? I generated a tremendous amount of wealth. So while I was doing that, I it seemed like everything was working perfectly. But then once I had wealth and I was like, "Oh, I want to do something with this." And then I needed to look at the way the system is made for somebody who isn't an entrepreneur, which is the vast majority of humanity, then I started to just be dizzy and it started with accredited investor regulations. And I was like, "Wait a second. I am the dumbest investor of all time, but now because I have over a million dollars in liquid net worth, I can invest like it was so strange to me that the value of an idea or a company or whatever is captured long before an IPO. And it's now captured by VCs or, you know, who accredited investors. And so I remember the day that I learned about it. I forget who told me, but I was like, "Why aren't people rioting in the streets over this? Like this is crazy." And that's crazy to me. And so to your point about NFTs, how do we get How do we deal with that? What's like the path forward? Well, I mean, it's it's so obviously bad that and then and I one thing that's kind of interesting, I think, is I I do think there's quite a lot of research coming out on like um marginalized groups, let's say, traditionally considered marginalized people are actually much more likely to be involved in cryptocurrency. Mhm. Um and uh any of these new things because in some ways the other stuff is clearly not available to them. So, you could have two friends and um uh they can't invest in each other's companies. Uh and it's like crazy. It's so crazy and I I actually didn't know about that law, either. I thought America was like clearly, you know, the place to be for capitalism. And I met a young guy who was like 23 or something and he wanted to invest in my company and uh he wasn't accredited. And he was super smart, knew exactly what he was doing, but he couldn't invest and he had to yeah, kind of figure out other ways to be involved. Um but that's so how could you make how could that any anyone think that was a smart law to pass? And it's very much in the in this framing of like protection. Like how can we protect people from themselves? Um and that's the opposite of the American value of like individual responsibility and being able to pursue whatever dreams you want to pursue. Going back to my um question about like what do we think is broken in the culture? That to me is a big part of this is I love the energy of wanting to protect people and making sure that they're safe and you know, that there's like in in business, number one rule is avoid a mortality event, right? So, you have to learn to hedge your downside. So, I'm going to try this thing and if it works, we've got upside, but if it doesn't work, I've got a way to make sure that this isn't a catastrophic moment. So, I get that. Like I I can put on my um you know, my hat of giving them the benefit of the doubt, but at some point you have to look at what is the result of that system and if you're looking at the result of that system becomes pretty apparent that you've made things so hard that it's only people that can cross this incredibly insane threshold that are going to be able to take advantage of it and so that is where this starts to really get wonky. Um but now if we take that hat off and we put on a cynical hat for a second it really starts to be outrageous of you created the ultimate game to isolate people that don't know how to play that game and then it creates this sense of overwhelm which shuts people down and then they don't engage. Um and so when the crisis the COVID crisis kicked off whatever we're filming this like 18 19 months into it I started having like some of the biggest brains in finance on and I I didn't know how to do those interviews to be helpful cuz I was trying to help the average person. And I just could not get them to articulate like how do you you don't want to put the average person in position where they have to understand what's going on in China and trade wars and stuff like that to be able to make a decision. Um how do you think of that like as you look at all right we have we're wearing our cynical hats for a second we have this system that seems designed to isolate the average person. It is an incredibly complex system. I think that there is an answer that was presented which I'll give my answer once you've had a chance to speak but how do we help people in this new era navigate that without having to just tear down the old system. Well it is it's I mean I don't know I mean I so Numerai we have a hedge fund and it's it's kind of um obviously you have to be an accredited investor to invest. So, anything I'm working on probably not for the normal person, but it's not for lack of trying. It's just the way it is. So, I mean I but I do think that they are I mean there are more people a lot of people involved in the stock market through things like Robinhood and and ETFs and and things like that. So, I don't think like in some ways there is more access than ever, but then there's always like this underbelly story, which is like well, Robinhood's selling the order flow uh to Citadel Securities, and they they have this uh huge entity that's kind of like done all this regulatory capture and stuff. But like so, it's every That's what's sad. It's like every story you hear was like about financial inclusion is like something in the background that isn't that's like the dark side of it. But then, when it comes to crypto, it's kind of like weirdly public. You know, it's like there's every everything is on chain. Uh you can see all the transactions. You kind of you kind of know what you're getting into. And then, when you have applications like decentralized applications, you know that there are no intermediaries. And and so, there's something compelling about that uh to for the normal person. However, it's sad that many of those things can't be what are considered securities. So, you can't say I'm going to make a company and my company's going to be on the blockchain, and we're going to turn we're going to make a thousand shares and sell the shares to people to fund the business. Uh that is like completely illegal. Um and so, people are doing things where they almost are told they're not allowed to make their blockchain projects valuable. If if if if it makes return, really bad. Uh and if you tell people it might go up, really bad. Uh and that seems strange that you're kind of pushing this energy into more and more um things that aren't securities. It's It's like it would be better if um some of these things could uh be more valuable or could have an open uh like they could do what they wanted to do. Um so it's uh it's very hard I would say it's very hard for for people to to navigate. Um and I don't really have any personal financial advice people. That's very wise since I'm sure that would get you in trouble. But I It's another regulation. Yeah, right. I think you actually though have your finger on the answer. It's interesting to me that you're doing it within the sort of traditional hedge fund world, but here is the my core thesis. This I'm building literally Impact Theory is built on one idea and that idea is if you want to scale in today's age, the fastest way to do it is to crowd validate. So, I came onto this idea which probably was self-evident to people long before me, but it took me a minute um because we're a studio. So, we're trying to tell stories and in any creative endeavor, you can expect a one in 20 hit ratio. And so, as I'm thinking through that, I'm like, okay, we have to then start with the most inexpensive way to bring these ideas to the public. And then in the inexpensive version, you want to get the crowd to vote with their attention essentially on what do they like, what do they not like? And as they validate that, then I spend more money. So, the our value chain starts with what we'll call fan fiction, so it's just prose, right? Somebody's writing a story and people are either responding to it or not. It's often called light novels because it's not like, you know, Nabokov where, you know, it's like some really deep [ __ ] It's fun stories. It's done serialized, so you know, maybe you do a few pages a week or whatever and people just tune in and every week they know they're going to get something. And so, okay, cool. If that's popping off, then you move it to a comic book. Then if the comic book pops off, then maybe you do short animation. If the short animation pops off, then you pitch to Hollywood and you do like the full-blown thing. And so, you've got this trail of value where you can point back and say, "Hey Netflix, the reason you should get this is look how many people read the weekly thing. We've already got, you know, 100,000 people that read that every week. The comic book has a million people in it a week. Our Our animated shorts, you know, have done hundreds of millions of views. So, this is something that you know people are going to be interested to check out." Now, you're going to have to explain to people exactly what Numerai does, but the fact that you're essentially and I don't know that you would use the word crowd validate, but you're using this intelligence of the crowd to create a totally new paradigm for approaching the market and I think you've tapped into something that is universal. It will work everywhere. You just happen to be using it for finance. Exactly. I think you're you're right. The that thesis is going to be completely right. The this idea that you could make kind of communities and then those communities could have huge impact over the long run because they get bigger and bigger and bigger. Like think about the Ethereum community or something like that. Um and and Numerai is trying to do that. So, basically the trad finance uh What's trad finance? traditional Got it. Got it. Got it. is uh it's like you have a lot of thousands of of really bright people going into Wall Street and you have thousands of sort of associated paper pushing kind of like imaginary [ __ ] jobs that uh that, you know, we all know about. It's kind of a whole fake system. Um but you would think it would be it would be worth it if if they were good at their job. Um but it's like more like 80% of fund managers actually underperform the market, don't beat their benchmark, and they charge huge fees, and they just they just keep getting money because they're it's a often an agency problem. So, a big pension fund will say, "Oh, yeah, you guys have a have a bunch of our money." And the pension fund gets to go to drinks with them, and and then they slowly what lose money over time, and and and the but they keep entertaining the guests. It's the kind of thing. And the pension the people who are in the pension fund don't even know where their their money is. So, they don't have any agency to uh stop that problem. But um anyway, Numerai was uh the idea was could we make a completely new kind of hedge fund where uh anyone could contribute ideas to the hedge fund, uh signals to the hedge fund. And the hedge fund would combine them all together and trade a really smart uh model that had a lot more alpha than a traditional fund. Um So, people are basically giving you, "Here's what I think is going to predict the success of a given stock." So, yes. Um but it's a little bit more uh it's very quantitative. So, every model that is submitted on Numerai is a machine learning model. And so, it's not really for everybody. It's not like you got to tell us your favorite stocks or something like that. It's much more um complicated. So, we give out a huge data set of thousands of features and decades of financial data, and all the data's completely obfuscated, meaning no one knows what the data even means. Like, if you looked at our data, it's like millions of numbers between zero and one. That's it. And you're supposed to do something with that. And people can't do anything with that data because they can't they don't know what to do. It's It's too vast. It's too vast and there's too many um features and they don't even know what the features mean. But a machine learning model can model any data set. Uh machine learning model uh can look at patterns in any data, right? And so everyone is downloading our data and using machine learning models like neural networks or uh tree-based models or any any anything they want and finding patterns in that data that no one else has found before. And submitting signals to us on 5,000 stocks in the world. And again, they don't even know what stocks they're predicting on. It's kind of complicated, but it works. Um and they're predicting on 5,000 global stocks and giving Numerai a deep uh edge over anything else that's been done before because we have by far the most models. Uh if you take a big hedge fund like a Renaissance or Bridgewater or Two Sigma, the number of people who are actually modeling data cuz they have a lot of compliance people and all those kind of things, it's like a maybe a few hundred. And Numerai already has uh like about 4,000 models uh that uh every week are submitted uh to power our hedge fund. Yeah, so this to me is incredibly interesting. I don't understand though and we'll we'll come back round to the idea of just um using the crowd validation, but machine learning, why doesn't a machine learn the same thing? Like why why do all of these different models end up adding more value? I don't understand how machine learning works to be honest. That's a good question. Um it's a very good question. So actually, if you think about one way to think about machine learning is that it's like fitting a line. So, fitting a curve. So, if you have an XY scatter plot of data, right? You can draw the line of best fit, right? The linear regression. So, uh would find the mapping between those two variables and find the line that fits the data the best. So, for for a linear model uh like that, there is um there's always a right answer. So, given any scatter plot, if you computed the line of best fit and I computed the line of best fit, we would get the same answer. And Numerai, what we're doing is there's not just an X and a Y coordinate system, there's the there's about 10,000 dimensions of the data. And uh and uh and you can um anyone can model the data. So, they can use any type of model. And so, some many what a neural network is is a it's a non-linear model. So, it can combine those features in all kinds of ways. And so, the more features we give out and the longer the data sets, um the more types of models could be discovered. And so, actually, many of our users are finding things that are that are really strange and might never be um found by another hedge fund. But, by having thousands of those unusual, uncorrelated models, you can create a very, very high Sharpe ratio, which is like very high um return per unit of standard deviation uh in your returns. So, that I can see if I'm I can understand machine learning at a really basic level. I'll give you the example that I I saw a video of, I fell in love with it, and just think this is so extraordinary. And I use it as an example of learning from your mistakes, but now I want to actually understand under the hood what's going on. So there's a game called Break Through and it's like an old Atari game and you've got a paddle and a little ball and then you've got these bricks at the top and the idea is to break all the bricks as quickly as you can basically. And when the machine starts playing, the little paddle is just wiggling like mad. It clearly the machine doesn't even know what it's supposed to do. So I don't know if they told it get a high score and so it's like, "Okay, like I know I can move paddle." And so it moves paddle randomly. The paddle finally ends up accidentally colliding with the ball. The ball then breaks something. Now the machine's like, "Oh [ __ ] I see how this is goes." And then now tries to hit the ball and then it hits the ball and it starts getting points. Then one time it breaks through all the way on one side and now the ball starts bouncing automatically at the top and and automatically killing everything at the top and the paddle doesn't have to do anything. So then the machine starts to optimize for how quickly can I break through one of the sides and get the ball to do this auto bounce thing at the top and break all the things. And so what is the person doing to explain to the machine like is it giving it an incentive get a high score? Is it telling it wiggle the paddle? Like what does it do so that then the machine can actually learn? Great question and that's a great example of machine learning. So uh what's happening there is there are features, right? Uh what do I mean by features? Just like the at any given state there's stuff to know about the system. Uh and so you know where the paddle is and you know uh where the ball is maybe and based on the pixels in the screen, those can generate a bunch of features. And then you're basically fitting a model to those features um and learning from experience. Are you teaching the machine that there is a good state and a bad state or a better state and a worse state? In that particular game I think they did give it the score, and they just said optimize the score. And uh and in a similar way, how sometimes these machine learning algorithms can become so good, they have almost like an alien intelligence. Uh like the way it breaks the breaks up into the top of the of break breakthrough. Um it uh and just sort of like starts it just becomes like, "Whoa, you're like perfect at this game." And I my hope is that uh with Numerai, the the longer we we go on, the more alien and peculiar the types of trades uh we make. to reach into your mind and figure out what you mean by alien, and I think it's this, that there's no emotion. There's no emotion, and there's it's also unexpected. It's like it's like uh a creativity um that emerges. And it's like, "How Why did you think to trade Tesla now? Everybody doesn't like Tesla or whatever." And then you're like, "Well, I don't know why, but the models have started to get really really intelligent and do things where we're like, "Whoa, that was a good trade." This is so interesting. So, I'm going to keep pushing on this. Um all right. So, you're giving you're telling the machine to look for states. I'm guessing if we're Numerai, well, you're going to tell me that you don't know. I'm going to I'm going to say things out loud. I get that there going to be flaws in this. Uh if I'm trying to come up with a Numerai signal, so I'm saying, "Here's the thing that I think will accurately predict what trade to make when." Um that I have to tell the machine that's parsing that historical data, I have to tell it that there are certain things to value over other things. One of those I'm guessing is return on investment. Yeah, exactly. That's your first guess that you might want to tell it to choose to make return. So, the the target variable, the thing you're optimizing for, is return. And where this becomes alien is that I think, "Ooh, actually don't optimize for a return. Optimize for this." And it happens to give me a bigger return. Yes, in fact, we don't optimize for return. Uh it's much more complicated and you Cuz on when the stock market, you're not just trying to choose one stock and put all your money in it and hope it goes up. You're trying to build portfolios. And in fact, with Numerai's fund, we don't really mind where the stocks go as long as the portfolio Meaning I don't care if they go up or down. Yeah. Most people don't know what a hedge fund is. That's true. Even So, I'm going to give you a definition of hedge fund and you're going to tell me how off I am. Here's what I think. So, I try to make sense of the word hedge. So, that most people think of the stock market is you choose the right stocks that are going to go up. Whereas a hedge fund is going to be able to go in either direction because they're hedging something. So, either if the stock market is going down, you could hedge, "No, I actually think it's going to go up." Or if the stock market's going up, you can hedge and say, "No, actually I think it's going to go down." How close am I? That's correct. And yeah, most a a market neutral hedge fund is kind of the purest version of a hedge fund where every long position, every stock that's bought, there's also a corresponding short position. How doesn't that just always equal zero? It should. Uh yeah, that's what's cool. Um if you if you have lots of longs and lots of shorts and you bought them randomly And all a long means is it's the the value is going to go up and a short means the value is going to go down. Exactly. Okay. So, you've got longs, you've got shorts. The expected value of that is 0%. And And if you bought the because the the basket of random stocks you're buying have an expected return of the market. So, it'll kind of go up as much as the S&P if they're probably got 500 random stocks. And then the expected return of the shorts are also are negative uh the market. And so, together they make a portfolio that shouldn't move. And uh the the trick is what if um you didn't choose randomly and you chose with intelligence? Maybe you could have the risk of cash cuz it's just if if it's not supposed to move, you're taking the risk of cash. You're not taking the risk of the market. Um and know what that means. You're taking the risk of cash, not the market? Yeah, so it means like if you have $100 and um in your account and you go long $100 and short $100, you haven't spent any money. When you short a stock, you get money for selling it even though you don't own it. Oh god, this gets so complicated. So, I've I've Thankfully, I've walked through this with my money manager and I think she wanted to punch me in the mouth because I was just like, "I don't [ __ ] understand this." But now I have a loose enough grasp. So, basically, if I am betting, which you're probably going to hate that term, but if I'm betting that the stock market is going to go down, there's somebody else who's betting that um that it's going to go up. And so, people are willing to buy my position. And there's like they're paying me to guarantee me to buy it. They are They are making a little deal with a broker to borrow your stocks uh for shorting. And they can borrow your stocks. And then once they've borrowed them, they sell them. And uh so they're selling something they didn't they don't own, but they will they will return your stock later when uh you know, whenever you need it. Um But somewhere in here we get into Wall Street Bets and how you can really [ __ ] people up with shorts and stuff. Um maybe explain that why how does it end up being dangerous? Because I still can feel that my brain is confused, and I've had this conversation like a dozen times. it is it is kind of confusing. So, yeah, that's quite weird. Like if you have $100 in your account, and you short $100 of stock, you get you will have $200 of cash. In theory or in reality? Yeah. How? But you'll because you you borrowed stock from somebody. You just said, "Hey, can I borrow some stock?" And they're like, "Sure. We'll give You have to pay us a little bit of interest, but like you can borrow my stock." So, now I haven't done anything. I've still got my $100, and I've borrowed $100 of stock. And now because I have borrowed it, I'm also allowed to sell it. It's mine to do whatever I want with. So, I sell it. And then I get $100 of cash proceeds. So, now I have $200. Have I doubled my money? No, because I have a short position. I have to return the stock eventually to the person I borrowed it from. And therefore, if that stock doubles, I will lose everything. Cuz I have to buy it back at the higher rate. it back at 200. So, if the price actually goes down, then I was okay because I sold it, and I don't have to buy it back. You can return it at the lower price. So, if it goes down to 50, And it goes down even further to 50. And I got the vig on the delta. I guess not even the vig. I got the delta. Yeah. [ __ ] So, that's how shorting works. And you can see why it's scary because there is no legal? Like this is complex [ __ ] This is like really gambling. But this So, you're going to say something I'm guessing about the efficiency of markets? Yeah. I would I would like to say something about that. But yeah, I mean, if someone knows something about a stock, knows it's going to go up, um you want them to buy it because they're putting their they're making the market more efficient because they're putting buy orders on that stock and it becomes more valuable. If someone knows something about a stock, like it's going down, why shouldn't they be be able to express that knowledge in the market so that the price of that stock uh tends towards the sort of Cuz it's mean and it will influence people's perception. Now, I'm not saying you actually shouldn't be able to. You probably should. I don't know [ __ ] about it. But that would be one That's one thing that freaks me out about shorts is if you're paying attention and people see, "Ooh, that person who I think is really smart is shorting it." Now my psychology flips and I think it's going down. And that brings us right to [ __ ] Wall Street Bets where it's like you really can influence markets. Yeah, for sure. And I I There's maybe some questions about whether you should be able to short and then also take out a front page ad in the New York Times that says this company sucks and everyone should sell it or something. Which people do, I take it? People do that kind of thing and that's what was happening with Tesla even. You'd had these kind of normie analysts on Wall Street making up stories and trying to get Tesla to go bankrupt. And that would have been a very bad outcome for the world if that happened. And it was quite close. So, then, you know, but but yeah, it it worked out in the end. Um so, I would say that we when we short, we're shorting like a very small amount, a very small and we're not we're not actually not interested in the company losing. We're just interested in hedging our risk uh with a company that we think is like average. And so, those are the companies we we tend to short. And I do think there's a big questions about the sort of activist shorting where they're like, "This company's a fraud. It's going bankrupt." And uh they get huge positions. But, in to some in to to you know, thanks to markets, they've been killed already. So, the GameStop people killed killed those types of shorters. In fact, they shut down their firms. This is the craziest story of the last like 5 years. I mean, this is absolutely bananas. Walk people through that. I don't know how familiar my audience is with what happened with GameStop and Wall Street Bets. Walk them through it. What is Wall Street Bets? Let's start with that. Well, I'll tell you a funny story actually. I was coming back from South Africa after Christmas and uh I was it stopped by the immigration. And they were like, "What what are you doing in America?" What do you What What do you What's your job? And I was like, "I work at a hedge fund." And he just started laughing. He's like, "Did you Did you Were you short GameStop?" And he was just like laughing. He was like so happy. He was like so happy that um the hedge fund people were were struggling under the Wow. the the Wall Street Bets thing. So, it was a very interesting kind of movement where uh GameStop considered kind of a bad company uh not many prospects and um but Reddit people decided they really liked it. And uh kind of got together and pulled off this massive short squeeze where they knew a lot of people had shorted this company. And they knew that the more the price went up, the more they'd have to cover their short as in, you know, do this what we just described where you have to go out and buy it buy the company that you don't even want to buy in order to return it back to the person you borrowed it from. And why can't you just wait for the price to come back down? Because you have um some kind of risk mandate in your fund, and you you maybe you have a deal with your investors where they say, "You know, we don't have more than 30% in one name." Otherwise, you know, we're going to pull the money or sue you. And so, they maybe put 10% into GameStop short, and then it went to 30% Suddenly, it's 30% of their positions. Because the value would be so high for them to have to buy it that on the books it changes the ratio. Exactly, yeah. So, it's suddenly this huge position, and they have just a a rule they they can't keep holding it even if they think it's going to eventually go down. Their their risk limits say they have to sell some. And so, as an exit the position uh so, they end up um needing to go into the market to buy the exact thing that they think is going down, and that pushes the price even higher. That is crazy. Yeah. And so, it was a very interesting thing to watch because it was a bit of like maybe crowd crowd validation because it's like you have all these people and um they're posting screenshots of their accounts on Robinhood proving that they're they're they're in and that they're diamond hands. They're not going to sell. Uh and and suddenly people like maybe we can we can do this. And in this kind of distributed way decentralized intelligence, they end up doing something that was actually very smart. Um and and did and did cause big ripples in the hedge fund industry because a lot of the those stocks were when that type of thing is happening, um it affects all kinds of other stocks. So, there was almost like a huge rally in these kind of junk stocks. And all the hedge funds are short the junk stocks. We were even short some of them. Not GameStop, but some of them. Um and they they don't know how to deal with that type of um event, and it's almost like unprecedented. And so, you had funds like two one of two Sigma's funds was down 8.6% which is like one of their worst years one of their worst months on record. Um and many many other quant funds did terribly because of this. So, it really did have the a negative effect on the on those markets. Okay, so what was going on there is so uh Wall Street Bets is a Reddit sub a sub Reddit. And so, it's just a bunch of humans that are in a space sort of together talking about were they saying, "Hey, let's go. Um I believe in in GameStop and I want to see it go up." or "Hey guys, if enough of us buy into this, we can [ __ ] over the hedge funds." There Yeah, it's hard to know what the sort of like aggregate motivation was. Uh but there were people who liked the stock uh like even Michael Burry uh big short guy. He owned it. He thought it was a bit undervalued at a time. This is why maybe it was on $4 or something. And then um there are other people that came in and for their own reasons liked it. Um but then it started to become like, "Well, someone's posting that there's this huge hedge fund that has a huge short position, and all we need to do is to get this up by $50 or more. Um and they will be toast. And uh we can literally take their money out of their fund into our Robinhood accounts." Dude, that that that is insane. The what you just said, we can literally take the money out of their accounts and put it into our Robinhood accounts. That's bananas. That's the short cover. here's why I always encourage people to don't think about things, think about the nature of things. Once you understand what's really going on, like I could never have pulled that off cuz I don't understand it well enough, and because I don't understand it well enough, I can't think from first principles. And if you can't think from first principles, you can only follow, you can't lead. And wow, like that is really really fascinating. So, this whole idea of um distributed anything. We're moving into a really fascinating period in human history, and my mission has slowly become over the last 18 19 months since COVID kicked off, getting people to um recognize that we're going through something unprecedented right now, but in any moment of disruption is tremendous opportunity. Um I wanted to have you on the show because I see you applying that to an area where I know people have told you to your face, like this isn't going to apply to finance, which you're really pushing back on. But going broader than finance, why do you think there is um why is decentralization as a movement Well, one, do you think it's inevitable and the future? And if so, why? Um Someone said to me that what decentralized thing has ever really worked? And I was like, what? Literally capitalism. It like that is a decentrali- that is the story of it. Um so, it's it's like this idea that if you leave people to their own uh de- decision making and let them start things and create capital, um it will just kind of do an amazing things. And no, there was no central planner who called Elon Musk 15 years ago, 20 years ago, and said, "You have to start an electric car company. Um please do it. We need it." No one It was from him. And uh and so you can have a system like the capitalist system where you have have an amazing outcomes um from people following their own instincts and and uh motivations. And um and so with but decentralization now means a lot like cryptos related stuff. And it's like, "Why is that decentralized?" Um well, no one's in charge. There's no one who can stop you from building uh a small set of instructions on on the blockchain and have that become a very valuable piece of uh financial infrastructure. Uh and that's so um empowering for people. Uh and and and as to make it even more intense uh why crypto is a kind of hypercapitalism, even if that thing is doing something wrong, uh like it's a little bit scammy or a little bit scary, there's no one who can stop it. And so in the in the in the capitalist market in the United States, if a company's doing something wrong, they can just be shut down. Uh but in crypto, it's it's a more uh it's more free. Uh but it's also more dangerous for that reason. But the the benefits um so far seem to be outweighing the the bad things. I mean, the the good things in crypto uh are are very good. Um What are the good things in crypto? Well, I mean, some of the things like say Uniswap is a really interesting exchange. And it suddenly got it's a decentralized exchange has no intermediaries. You don't need to sign up to it. You don't need to KYC yourself. You don't need to do anything. You can just trade and it's got some some days it has more volume than Coinbase. And it was started like I don't know 18 months ago or something. Um so there's that type of thing that it and it's it's also got no one working there in some way. So there's some coders who work at a company that sort of support the protocol. But the protocol's out there and it can't be it can't be taken down ever. Ever. Uh so it's kind of cool. Um this is the closest I've ever felt There's there's two things I will say. There's two things that I'm like you have to stop and look at these two things because it will change your life so profoundly that I've given my entire professional life to getting people to understand two things. The first one I knew would be a thing because mindset. So that like changed my life. It took me from scrounging in my couch cushions to find enough change to put gas in my car, which is a real story, to you know, having serious um success in business. And so I was like, "Whoa, this is teachable. It's repeatable. Other people can do this." And now the other is I don't know what word to shorthand it to. Maybe decentralization. Um maybe uh crypto. I don't know. But the the shift in cultural energy to things that can't be censored, stopped, broken, whatever. Going outside the system. Maybe that's it. And when I see what's happened like this the number of people in fact I'm saying it now to everybody listening to this. You have to do your own research. I cannot see the future. This is not financial advice. I'm not a financial advisor. I do not know what the [ __ ] I'm doing. So, all I want people to do is look at it. And if they look at what's going on in crypto and they reject it, fair enough. Maybe you know something I don't, and maybe my gains are short-term gains. This is so possible, and I cannot stress enough that people need to do their own research. But now, having said all of that, what I want people The reason I want people to do their own research is the rich getting richer is not a phenomenon I find interesting, even though I am wealthy, and so this like crypto is playing out extraordinarily well for me. All I do is dollar cost average. I buy a little bit every day of what I'll call the blue chips, like the safest ones, cuz again, I do not know what the [ __ ] I'm doing. I do not spend my time in this ones are pretty risky already. Ultra volatile. But like getting in there and learning about where all the cultural energy is flowing, and at least looking at it, like otherwise, dude, this is going to be another thing where a small number of people who are in the know end up reaping all the benefits. And so, I am so eager to get people to even forget like crypto as currencies. Anybody out there who's contemplating starting a business, understand why the culture wants that to happen, because you can deploy that as you have done with Numerai into a business, uh whether it's finance, whether I'm doing it on the studio level. This is going to happen everywhere. This is what I think is the inevitable future, which I'll sum up as saying this. You have to find a way to tie the community into the success of a product and company. And if you fail to do that, you will fail in business, you will fail in finance, you will fail in everything. And it is it's a transition that's happening so rapidly, that there will be outsized success over the next, I don't know. I don't know if it's 5 months or 5 years or 50 years, I don't know. But it's happening so terrifyingly fast and it's absolutely thrilling. I'm having the ride of my life. Most businesses will not be able to switch from extracting value to giving value and that will I think will decimate them and is exactly why um there's a huge opportunity in this moment of disruption. But I'm just so eager for people to really look at that. Yeah, it's very hard for people to get their head around that simple fact of like uh unstoppable or immutable uh technology one and because they've grown up in a world uh that is very controlled. Um so if you've had the experience of posting a picture on Facebook or something and then it gets reported for some some violation or and and then you realize you're not this isn't your profile page. This is like and it and even they could change the design of the page. They could change what what content is shown to your friends. You could be sort of shadow banned. Um and so if you think like that you you don't have any kind of relationship with any of the web two things that you've been involved with like a Facebook or Twitter or something. You are um you're not in any position of real ownership. And and that is what crypto changes and the and that's very very powerful difference. Um if you upload and that's where maybe what you're seeing with NFTs if you if you can if if you can upload an image to your your Facebook profile and everybody can see that image um that's extremely extremely low value compared to if you can own that image or a token that represents that image. One is worth nothing and some are worth $60 million on the blockchain. And so the difference between owning something forever and being this kind of like um sort of like slave to a system is a very different uh mindset. And uh people it's like my one of my friends said, Fred Ehrsam, he's a co-founder of Coinbase. We went on a hike a long time ago and like 2013 or 14 or something, 15, and he was just like, I think people want to like own their stuff. And I was like, what is this guy talking about? Uh he's like, I think people want to own their stuff. And I've always remembered that because that's exactly what it is. You You don't it doesn't feel like we own things anymore. Like even if you own a house, it's like somehow vulnerable to some government change uh of of the way they Dude. Yeah. It's crazy. Like I'm I'm in my 40s. I shouldn't feel this way, but I do. It feels weird. Yeah. You feel like you don't own your Yeah, like it feels like there's just a lot of like meddling, a lot of and maybe it's just restriction. I don't know, but it there is something really intoxicating about this idea of actually owning your [ __ ] And I've become way more enamored with virtual goods, which I would not have believed if you'd told me this a year ago. I would have said, "No, no, no, I'll always Like I dig it. I get virtual stuff. I've always understood that. That's just made sense to me, but I would have thought that I would always value the physical more and somewhere in the last 12 months that changed. Yeah, that's a incredible thing to change um to feel like your relationship with your physical world is somehow fragile. But then the your relationship with the digital world is is actually fixed and permanent and doesn't need police um and so that's a very powerful thing to to be aware of and I do think you're right that it over the next few years people that don't get that quite right on are going to be in a bad place. And I think even the the big owners of the big monopolies like Facebook or Google or Twitter that or any of those things, they they are they're totally aware at this point of this of this huge sea change. Um and they've built out a lot of uh relationships with the deep state, you know, basically. They've they've joined the the they follow the party lines, but they are also run by in some cases entrepreneurs who maybe don't want to play that way forever. And if the internet can be is going to be free, which seems like a a thing that will continue in the United States, hopefully, then all this crypto stuff is part of it. It's not like we can really have a free internet and not have uh crypto. Either the whole internet's free um and kind of unregulated or it's not and and it's it's a very different game. If if the US starts saying, "Well, no, you can't use this application." and What do you think will happen? I'm very curious to see. I think it's going to be very intense the next couple of um years. I'm kind of worried about like some of my friends in crypto um because there's a lot of good intentions and a lot of good um good actors in the space, especially in the United States. Like the people here are nice. They're trying to make nice things. They they're really wealthy. They don't they're not uh worried about making money. They really do want to make something special, something new. And if the good actors get targeted, then it's like a a sad state. Like if you like Brian Armstrong, co- uh founder of Coinbase, he uh he had the situation where like he's like been fighting well, he's been uh talking with the SEC about these issues for so long and they've put so much thought into their regulatory policy. And um but they they keep getting kind of kind of uh treated badly, I think, by regulators even though they're so clearly good actors. Yeah, this will be it'll be really interesting. I'm worried about what happens if the US tries to clamp down on it. There's so much cultural energy pouring into it. And look, you used a great word earlier that crypto is it there's a sense of danger to it. So, I just had an experience this morning that was absolutely hilarious. So, because there was a period of my life an un- a a an extended period of my life in my 20s where every dollar counted in my life. And so, I developed this real frustration when banks acted like my money was their money. Yeah. And now that it's on a grander scale, I still have that sort of rage-inducing mechanism. And just today I was trying to wire a non-inconsequential amount of money, but first of all, they trapped it. And so, they stopped it. And I called them, tried to deal with it. Nope, they wanted me to go into a branch. I'm like, "Guys, I I do not have time, A, and B, COVID, no, thank you." Um so, not super keen to go into the bank. Let's just deal with this over the phone. They were one, you have to stand hold for ungodly periods of time. And then, second, they were like, "What why are you wiring the money?" And that's like my red line. I'm like, "That's none of your [ __ ] business. Like, this is my money. I'll [ __ ] wire it to whoever I want. Like thank you for the protection but like asking me what I'm doing with it like that drives me [ __ ] crazy. And so once you get into crypto and you see how easy it is. One it feels a little scary cuz you're like I could send this to the wrong address and it is gone forever. Like there is no getting that back. But the first time you send a payment and it's like point two seconds it is amazing. And so the reason I had to wire the money not that I was willing to tell my bank this not that it nothing bad but I was trying to buy an NFT and Coinbase limits right the amount that you can send in any one day. And so that's important thing to note is there are some parts of crypto that are centralized and so you run into the same issues. But once you get into your wallet you can do whatever the hell you want. So anyway I was having trouble getting enough into my wallet to buy this NFT. So I pinged a friend and I was like yo I'm trying to get this and he was like cool I'll send you the ETH then just wire me the money. And so the hilarity of it took him point two seconds to get me the ETH and it's taking me like four days and like battling with my bank to get him the money. I was like oh my god this is so obnoxious. Well it's funny you say this like I I just had this kind of experience so for some reason just because I made a I I sold some crypto that I had not um one that I bought a long time ago from a like a friend's project and uh sent them to my bank account shut my bank account down. Uh card blocked everything and I was like what are you guys doing? And I have like a private wealth person who's supposed to be like looking after my interests and she's like well um you know we needed to do some KYC you know, like ask your like I'm like, "What are you talking about? Like you do know me like me. I have been like at the bank for like 12 years." And now I'm like I paid I I got my um an assistant who works for me, this guy Pedro. Uh he had to draw money from a cash mail it to me by FedEx to the hotel so I could afford to like buy a cab to go to the conference that I'm going to. And like it's still in process. My Netflix is I can't even watch Netflix. I have my PayPal's off. And I'm like kind of a good citizen of the financial system. And I paid like a lot of taxes. And like [ __ ] it, man. I hate it. I was just like maybe I should just not get the card fixed. Oh, dude. Literally rejected from every credit card I've applied to. I have no credit. Why? Don't know. I'm probably because I'm South African. Uh-huh. So, yeah. It's actually terrible. And it's also this feeling of like, "Oh, wow. I'm actually powerless." Like if I move banks Mhm. that's the next bank is under the same regulatory regime and has the same people working there shuffling the same papers and annoying their customers on purpose. Yeah. So, I just don't think this is going to last. Like if it's that if it's that hard to like use just to like my like I'm locked out of my Uber. It's like so crazy. That is crazy, yeah. What for? It will be very interesting to see. It feels to me inevitable that the the decentralized web web 3, however we're going to think about it, is going to happen. That people are, I hope, going to be willing to trade some of the risk. And look, I am not looking for no regulations or anything like that. I had a conversation with Robert Breedlove and I was saying, like sovereignty is a double-edged sword. I don't want 100% sovereignty. Like I like the idea that, you know, the cops will show up if I've got an issue. I don't want to have to, you know, deal with everything myself. So I'm certainly not that guy. Um but getting to a world where there are options, where we can make different trade-offs, um and it seems to me that crypto's a leading edge of that. Exactly. Um and I also agree. I actually I don't think the the US the story of the United States would would have worked out so well um without the SEC. Uh like they did a lot of good clever things um to make America like they do want to be the financial capital like of the world. Um and they've done things that made a lot of sense. But I feel like somewhere around like 2008 or something, they just started going just like into this insane uh direction where it seemed like it is let's just say 0.001% of of transactions are are are kind of sketchy. Is it worth wasting your time or my time as entrepreneurs spending 6 days a year locked out of their bank accounts so that you can like do your compliance [ __ ] Like no. It's uh it's uh absurd and it's ugly and it's like not what's what we we should be doing at all. Yeah, this is so companies, as I'm sure you know, um they reach a point where the system you used when you were smaller stops helping you. And so it's what I call the dragon begins eating its own tail. And I think there's that sweet spot where you want regulation, you do want protection, but then there comes a point where it starts being destructive and it's creating more problems than it's freeing up. You're using a tactic in Numerai that I think is part of the potential solution to this, which is staking. Yes. Talk about staking cuz you I haven't heard anybody else say what I've heard you say many times and no one ever asked you a follow-up question, so here we are. Which is you've said not only is it working in Numerai in finance, but I think that this would work across the entire internet. Yes. So, what is staking and why will it help? So, staking is um where you lock up some crypto assets, any coin, and and because you've locked it up, uh you get some kind of benefit. Um and you can unstake and get your stake back. And that simple mechanism uh is really nice. In some ways, you know how like this things on the internet is either free or paid. And I think like the middle of free and paid is is like staking, where it's actually not paid. It actually is free. You can stake and then unstake. Um but you can do things when you're when you're when you do staking. So, for Numerai, we had uh a really good start to the company. Had lots of people join and amazing data scientists submit predictions to the to the fund. And for after a while, what happened was uh people realized, "Well, if I just make a thousand Numerai accounts, um then I'm going to increase the chance of me having one model that's just lucky, and then I will win the Numerai tournament." And that's like a civil attack, it's called, sort of, and it's uh it's uh you don't want that in a system like this because we want to know you believe in in your model. We don't want to have thousands of of models just hoping to get lucky. just creates noise? It creates noise, and we wouldn't know which models are good. And with staking, we say, "Well, in order to make any money on Numerai, you have to stake our cryptocurrency, NMR, on your model. And that is how you earn money. Like, if your model performs well, you will earn more NMR tokens. And if your model performs badly, we'll destroy some of your stake. And that simple mechanism of having the rewards be linked to the stake means you can still make go and make a thousand accounts, but which one are you going to stake? Or which is going to have the most stake? The one that you believe in the most. And that's this big problem that we solved, where this it's so easy to make a quant model that looks good. It's like it's got a good back test, it looks like it's going to work on the future. But with staking, we we only pay based on if your model's going to work in the future, and we get you to say up front, you put kind of skin in the game and say, "I believe in this model so much, I'm willing to stake $100,000 on it." And um and that's uh how advantage them to instead of doing $10, why $100,000? Do they get a bigger payout? Yeah, so the payouts are based almost like a percentage of their stake. So, if they have a kind of 2% correlation with uh returns or risk-adjusted returns, they will end up having their stake go up by 2% or burned by 2% if it's bad. Did you watch Squid Game? Yeah. It reminds me of the marble thing. How much did you bet? So, you've got whether you were right, and then you've got the Oh, [ __ ] bro. Not that that gave anything away, but uh yeah. Peeps got to watch Squid Game. So good. Okay, so how does this then carry across to the rest of the internet? So because um it solves the sort of spam problem. Like what if you could on your Twitter account, you know the Twitter check mark. Uh what if there was another check mark, a green check mark, which is just like the person who owns this account has staked more than a hundred dollars on their account. Well, what's it what's the big deal? Like what would that do? Well, it would make you whenever you see that be like, well, this guy's probably not a bot. Because a bot army would never be able to afford staking all of them. And then you could um you know, and if you ever want to unstake, people would be able to see that on the blockchain and then you maybe lose your check mark or something. So that simple thing is not like Twitter's now charging you to have an account or charging you for it. It's actually not to do with Twitter. Just like staking isn't actually to do with Numerai. Staking is happening on the blockchain. And so when people stake, it's like a blockchain transaction. And and so there's no intermediaries and we can't steal your stake or anything like that because it's not an agreement with us. It's agreement with Ethereum kind of. So I think that those mechanisms could and will reach the broad web very soon and change the way we we do things. Do you think that it has implications beyond just sort of validating who you are? It has it for any anything that you want to have stake on. So for Numerai, we you actually all of our data scientists are anonymous. But they're doing it to express something else. It's their confidence in their predictions. And um anything that involves like proving authenticity or proving you're part of the the crowd. I mean, even say the GameStop thing. Imagine you could make a stake on a blockchain that proved that you held GameStop. And you weren't going to sell. And anyone could maybe see on the blockchain that if you did sell, that's the type of thing that's going to be able to happen where you could have collective uh contracts uh and and be able to do incredible things once you have the proof that you're you're staking a lot. This is really interesting. So, I was taking notes on you and like what I wanted to touch on and I was like, man, I oftentimes my intuition leads my ability to articulate why something feels right. Heard a lot of people talk about staking. I've never staked anything in my life, but obviously being in the crypto space, I hear it a lot. Hearing you talk about it, I was like, okay, that's a really interesting way to do it. When you're into crowd validation, you need to know that your crowd is validated. And that people aren't able to uh mimic the crowd or be a bot in the crowd or whatever. And so I was like, wow, this is really interesting as I think about, you know, trying to build out a studio and do it in a different way and use all these layers of crowd validation. I was like, woo, there might be something there with staking. I don't yet know exactly what it is, but I can feel something tickling at the back of my mind that this could be useful. Totally. Uh it's it's so it's so useful to us and it changed our business. Like there's so many businesses that I think couldn't exist without it. Um and so we don't even know what those are, but I think the idea of a crowdsourced hedge fund um it seems obvious that you should be able to have an internet hedge fund. Like there's an internet everything. Why isn't there an internet hedge fund? And the reason is you've never been able to get the contributors to that system to be able to put skin in the game. Uh with and we are doing that with staking. Talk to me a little bit about So this whole idea of being a quant, it's so foreign to me. Um have you just always been naturally drawn to math? Do you find math incredibly useful? I actually uh only really got into math in college. I just decided to um get good at it because I realized there was so much of the world uh was written like in that language basically. And um you don't really get enough knowledge from high school. And uh but I was also always interested in stocks. My dad like gave me stocks when I was 8 years old and I I just followed them and and uh traded options when I was 15 um and started And are options the same as shorts and Options are even more funky than shorts. Yeah. So what are options? Um it's where you have an agreement uh to buy something at a right to buy something at a future date at a certain price. Okay. So So I can say hey if this goes down it's like a limit order. It It except it is um it's it just a right. So there's no obligation to have it. happen automatically. Yeah, so you And I'm paying for that right? Yeah, you're paying a premium like an option premium. So um what would the option to buy Google Imagine you had the option to buy Google shares at $2 per share. Yes, please. That option would be like yeah, I'm definitely going to exercise that option. And so that option would be very very valuable. Um But but then there's also put options which are So that's a call option and then there are put options that are making money when the stock goes down. So it's like insurance if the stock goes down. That I have somebody who's willing to buy it from me at that price. Exactly. You have the right to sell the reverse of each other? You have the right to sell the stock at that price. So I can only do a put option if somebody's done a call option at the same amount? No, actually they're different. Um But But usually they'll be calls and puts on the same asset. So let's just say Well, I don't know what Google's trading at, but let's just say you had the right to sell Google shares at $100,000 per share. Somebody has to be guaranteeing that on the other side. So yeah, banks and things are kind of underwriting these options. Really? Banks? An individual person can't do it? Uh actually, no. Uh because of how risky it is. Uh it's quite hard to get the the ability to write options. It's easy to buy and sell them, but it's hard to get the right to create them. So wait a second. It's easy to buy and sell them. There's only two sides to that equation. So what's the difference between buying and writing? You're um it's like you're the counterparty of the of the whole uh deal. Like um Yeah, like if you and I buy and sell an option, it's basically at the exercise time when you you can exercise this option, someone's on the hook for that. So it's a bit like you and I are if we if there was an insurance contract or something that we had on a house, you and I can trade it, but we're still hoping that the insurance company is good on the on the deal. It's like that. Dude, this is why I think crypto is long-term just going to suck in so much capital. This [ __ ] is confusing. Now, I'm not the brightest guy around, but I'm also not dumb, and I find all of this extraordinarily difficult to wrap my mind around. Whereas when I looked at crypto, I was like, "Oh, this is very basic. It's arbitrage. This is like a currency." And so, just like when I first got married, my wife is British, it was like, "Hey, if, you know, she's got pounds in an account in England, and we've got dollars, like you can sort of transfer them back and forth based on where the exchange rate is going, and if you think that's going to change." I was like, "Oh, cool. Like, I get that." So, if I buy a pound today, and the pound goes up in value compared to the dollar, then I'm laughing. This is amazing. That's at least like a far simpler thing. I just heard you explain it twice, and I still don't understand like how the writing of a put and a call and all that stuff. And look, I know I could buckle down and finally figure it out, but Jesus. Like, that is far more complicated. It is It is complicated, but it's um but it's it's a little bit like fake complicated. I mean, like it doesn't need to be this way. And then we we could have had these kind of options be something else. Um it's not like a a deep thing to understand. Um so, I think if you Could it have been made as simple as, "Hey, I want to guarantee that I can buy if the price drops" too? Cuz this is how I This is what I do on crypto, right? So, I only I limit buy all the time. I almost never buy from market value. So, I'll say, "Okay, the price is whatever. If it drops, you know, $500, uh then cool. I'm in. Trigger a buy for whatever." Uh but that means that somebody else has to sell at that moment. If no one's willing to sell, then I'm done. There's nothing I can do. So, is that the simplification of this whole thing, or is there Well, anything I mean, anything can become a market. So, like that the the it's still true that a call and put options or anything, you know, has a market and then people have bids and offers on that market. So, once you get to the the market point, it's it could be anything and it's easy to understand. But, but yeah, with derivatives it's it's it's just often a more leveraged scary version of of like just buying the underlying asset. What is a derivative? This is a word I hear all the time and I've never gotten a definition. is a kind of anything to do with anything based on the underlying stock. A put, a call, a short. Yeah, exactly. So, an option was is a derivative of the stock. Um and it just means it's its value is derived from the price of of the stocks the pri- all the prices something else and so um all the all kinds of derivatives in the in the market. I want to go back to math for a second. So, I am very sad that I didn't pay attention to math in high school. It doesn't come easily to me and people who are like, "Oh, no, like it describes the world and it's beautiful." I I believe it. I just my brain like there is there is an actual blankness. Like when I encounter math, my brain doesn't fire. Nothing happens. So, if I um if I read a book, encounter a psychological principle, I see a painting, my brain sparks. But, math is like an absence of something for me. And so, I really have to like get in and try to anchor it around something so that I can sort of trigger my visual brain if that makes sense and then I can start to grasp the concepts. Um or even break it into its constituent parts. So, I found in high school if I would force myself to go to the chalkboard, I would be able to figure it out because I was forced to go, "Okay, wait. Here's where my brain goes blank. I don't understand this." And then the teacher would go, "That's where you use this formula or whatever." Okay, cool. And I would just memorize that and then it would I could get it. Um but now that I'm in business, I'm like, holy [ __ ] I use math every day. And it's so important. But if you were talking to somebody who's 15, they're in algebra, and they want to know, why does this matter? Like, do you have an explanation? Uh I think it definitely does matter and it's very important. Um but it's also there's this interesting thing in culture. So I'm I'm I'm I admire you for saying that you don't you have like a block of math because many people can become um bad at math because they're too afraid of saying they of asking for help or saying they don't understand something. Because there's something in our culture which is like, if you're good at math, you're smart. It's like very related concepts. Which is just I don't know, because of media. Like probably there was some movies that had like yeah, like Rain Man or something. I don't know. Um but it's not true. Anyone can I think anybody can do math and should do math. I used to tutor math uh to students. Um So I mean, why is it important? I think it's it's it is a type of uh kind of a way of thinking, I think. But the the sad thing I would say is that almost the entire of high school math is not real math. What do you mean? It's just it's not to do with um arithmetic. Which is, you know, what's your what's what's nine times nine nine or something like that. Like even in movies when they have a smart person, they'll solve something quickly. And that's like an indication that they're good at math. But actually, that's again a complete distraction uh from what like real math is. Which is is much more about constructing proofs. How can you show that two things that seem different are the same. Um and the that type of thinking, proof proof-based math, is very useful. So, to any 15-year-old out there, I would say try to um learn some proofs. Um what are I remember these happening, but I cheated in high school, so I did not learn. What is a proof? A proof is a set of um statements that uh But mathematical statements, right? mathematical statements. went to the store. It's Yeah. x = y or some crazy [ __ ] there could be some uh explanation and and written component to it, too. But ultimately, the logic is so uh rigorous step that step by step you get to the point where at the end of it, you know that the statement is true. Not in the way we normally think about what's true, but in a deep, permanent, universal way. Can you give me an example? Well, like Pythagoras's theorem, you know, the if you have a right angle triangle and a² + b² = c². I think that's it. Um and c is the hypotenuse of the triangle, and a is one side, and b is the other side, and and um that is uh important uh you know, geometric result. And e = mc², is that a proof? That is a a physics um statement, but there would be a proof to that would lead to to that um based on other uh arguments. Uh so, um but yeah, uh I I think it's a it's it's very nice to know things for sure, especially in this world. And that's one of the reasons I studied mathematics was because I was I could learn all sorts of things about kind of the um political fashion de jure uh from like say studying politics or something like that. Um but that would be almost like various kinds of propaganda in some way. That might not be true. Uh you know something Yeah, controversial like say something like human rights. Maybe not a not so so important as a concept or or something like that. And those things change with time. Whereas with mathematics, you are learning things that are going to be true in a deep and permanent and universal way. And so that that's really nice especially when you trying to navigate the world that you can know it you can know a few things and they they they can be true in a in a in a deep way. And um thinking back to in uh crypto like there's some encryption proofs that show that why can't I just take the money out of your Ethereum address and put it into my address? Why? What is the thing stopping me from doing that? And it's mathematics. It's a it's the way that that the encryption works. So um it's nice to know a few things that like that for sure because a lot of people can be very confused um when they put things in the same bucket. Uh if you've heard of a website being hacked why couldn't Bitcoin be hacked? And the the two very different types of uh systems and you wouldn't know the difference between them without thinking through the the math of it. And I don't. Is there an easy way to explain? Well, the the main thing is to do Yeah, the with Bitcoin is just like it's on so many different um servers and they are following this protocol and uh they there's certain security guarantees that you get when you have a system that's distributed like that. Mhm. Is it simple way to explain? a proof around the number of uh nodes that it's installed on by like how they parse that data. And so if you make a request that it knows, "Ah, we've got an errant request over here." And so mathematically, based on the number of cycles it takes an average computer to run that equation I'm trailing off here, but like I sort of get how they work. Um well, that's the type of thing I think that is uh that is worth at least knowing at least knowing the the nature of things can be can be different. And uh hearing that some some bank had their website hacked would not surprise me, but hearing that Bitcoin was hacked it it wouldn't even make sense. It it it doesn't make sense. I mean, you I've heard you you could lose your keys or someone could rob you. And an exchange could go down, but Bitcoin protocol itself would be a a lot more resilient to anything like that. Very interesting. Okay, so do we just memorize proofs? Or is there a way to discover them? Yeah, people discover them. That's what real mathematicians do. That's uh professors are trying to prove something that has never been proved before. That this equals this. And they're not always about finding that two things are related or identical? Or that they are not identical, that they are different. Sometimes there'll be a conjecture that these two things um don't equal each other or do equal each other. And if you could show it either way, it would be profound uh outcome. Because then everybody else can just memorize it. And so now we've just sort of laid another brick in universal understanding. Exactly. Everybody then even you know 100 years from now in a Martian civilization, they could rely on that mathematics. Uh and and use it for whatever they wanted to. Very interesting. Have you by any chance read Project Hail Mary? No. Oh my god, it's so good. So this is you know talk about science that I can digest easily. It's written by Andy Weir, the guy that wrote The Martian, which is what triggered my thinking on that. Um and it's absolutely fantastic. And in the book he goes through I say that it's math, not really, but he articulates science in a way that's fun. Like hey, if you know the you know the pressure the tensile strength of this material and you know the the amount of gravity exerted because we're spinning or whatever, then you can get this outcome. And it just makes math and science sound like wow, if you really knew these things, there are a lot of problems that you can solve in life that you would not otherwise be able to solve. Yeah, exactly. And that's really important. You want to be like a magician. You don't want to just be um following others. And by able being able to build things is very valuable. Why do you say like a magician? That rings true, but I'm curious. I mean you know like coming up with something from nothing. That type of practice you can get from mathematics and another things like that. Because you you're faced with a problem and you only have your mind to work with and and other knowledge that you have. And if you can construct something and show it's true um in some creative way, that's is always going to be the same type of thing will happens in your real life, too. Where you have to solve a problem with just by yourself with the only the knowledge you have. Pretty sure I said this early in the interview, but that's why I um certainly I myself try to think from first principles and why I encourage the team to do it. Because if you can think from first principles, you really can do something original. But if you don't, you can't. Exactly. And it also is like a um you can rely on it even in when you have um when things are going badly. Because it's coming from a place of first principles. So one one um thing I often say about Numerai is uh to investors or something. It's like if let's if there were to be a hedge fund with all of the data all of the best talent connected to it and all connected with a perfect incentives through staking why wouldn't that be the the best hedge fund ever? Why couldn't that change the whole world? And so if you just think from those three basic principles cuz we already have all three now uh it's very easy to predict um the future when you have a few things to rely on. And then something could happen like um an important employee uh quits the company or an investor pulls out or whatever. Let's just say something in the operations of of life are any of those three things not true after that happens? No, they're all still true. And uh so you keep you keep going. And I think it's extremely important to me when I like look at investing in companies, not that I do it often, but to have a couple of those like first principles things because that entrepreneur is going to need them. Cuz it's going to be hard. But at least you can know that if the configuration of this project gets to that point that the first principles express themselves then all you need to do is need is time. You need time to get to the right configuration. And do you have thoughts around that with entrepreneurship? So it's going to be hard. Are there other things that surprised you as you got into building companies that you know that somebody just starting out they won't have thought of it yet? Um yeah, I mean it's certainly it is very hard and it's definitely it's like it's so hard it's not even recommended. Like I I don't want I don't think we need more entrepreneurs. Maybe maybe we don't. I don't know. what is so hard about it that makes it not recommended? It's like very lonely kind of. Uh you you usually if you're So I'm always talking about kind of venture back startups. I don't know what it's like to start a restaurant or something. It could be very different. But um if you're doing a technology company usually you're talking about something that doesn't yet exist and you're trying to get investors, employees, and all kinds of people um excited about this thing that doesn't exist. And then um you go home after working extremely hard and you're like, "Oh, it still doesn't exist." And I'm just here alone. Um and so it's it's very hard to um to continuously be be kind of uh have this energy to keep to keep something going. And with Numerai mean we've had like the there was this huge crypto crash in 2018 and areas and and market neutral funds have had a really tough time. So there's been so many times where you you would quit. Um but then the last two years it's like uh so glad we didn't quit. Why didn't you quit though at the hardest part? Because I I just knew I wanted to Something I say to entrepreneurs is don't start a company unless you're prepared to make it your life's work. And that's gets around so many of the problems that people have like they might start a company in an industry that they don't even like. Cuz they think well I'll just do it for two years and then I'll sell the company. Oh yes, I did exactly that. And and then it's like not long-term and it's like So if you if you have it in your in your in your game plan that you're going to be doing this for a long time, it changes your whole mind. Um you don't want to hire somebody who you don't really like because you know that you might have to you know it's not going to work and if you expect thing to work with him for a very long time, you'll hire better people. And all your decisions will be much longer term. Um we've had so many things where uh there's so many opportunities to follow some some new fashion or something and we've always had a lot of resistance to anything that doesn't make perfect sense for the long long-term and that's such a nice thing to rely on too. I think that is very smart. Dude, this has been so much fun. Where can people follow along with you? So you can go to um numer.ai is our website if you want to join as a data scientist. Uh you can go to numer.ai.fund if you want to learn about our hedge fund. And you can follow me on Twitter. Richard Craib There it is. Nice and easy, man. Thank you so much for coming on and guys, dude, I had so much fun researching him. As you know, I think there's something really happening in the world right now and the way that he looks at it is incredibly incredibly interesting and useful mostly done through the lens of finance but highly encourage you guys to check him out and speaking of things that I highly encourage if you haven't already be sure to subscribe and until next time my friends be legendary take care peace.