# Crypto AI Intersection and Institutional Adoption

**Podcast:** The Milk Road Show
**Published:** 2026-03-04

## Transcript

I I think it's kind of again just the the industry maturing, which is kind of good and and kind of sad.
Like I will always have a very fond spot for the kind of you know uh crazy cypherpunk days when people were doing ICOs and launching food farming uniswap forks and stuff like that.
But um the industry is really growing up.
I mean, it's like you know, BlackRock's here and Fidelity's here, and you know, Mor Morgan Stanley just came out and they're like pivoting their whole you know roadmap into crypto.
Bitcoin finally seems to be holding its ground in the high to mid 60 thousands.
Meanwhile, everyone is speculating about artificial intelligence and how it's going to impact the market and the economy.
But where does crypto fit into all of this and what crypto projects are building now to prepare for success in the future?
Hello, and welcome to the Milk Road Show, the daily crypto show that knows that you won't be replaced by AI.
You'll be replaced by an AI that's even more of a DG and you are.
I'm your host, John Gill, and today is Tuesday, March 3rd, and today we are joined by Tom Schmidt.
Tom is a venture capitalist and general partner at Dragonfly Capital Partners, a global investment firm specializing in cryptocurrency and blockchain.
Tom previously led product development at Zero X, a decentralized exchange protocol on Ethereum, as well as roles at Facebook, Instagram, Apple, and several others before fully transitioning into the crypto industry.
Tom is one of the smartest investors and most plugged in investors in all of crypto.
He's also one of the best product experts in crypto.
So if all of this sounds good to you, we're gonna have a lot of alpha in this episode.
Make sure you like and subscribe, share this episode with somebody who's gonna enjoy it.
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And without further ado, welcome to the Milk Road Show.
Tom, how are you, sir?
Hey, I'm doing well.
Thanks for having me.
I'm really excited to have you on the show.
There's a lot of things to talk about.
Um, I I wanted to start this conversation with something that we've been very focused on here at Milk Road, which is this intersection between crypto and AI and figuring out what that space looks like.
Um, I know uh Haseeb, your partner Dragonfly was at NIRCON in San Francisco.
You guys have been paying attention to this space a lot.
What are some of the big takeaways you've had coming out of NIRCON and and this conversation around the intersection of AI and crypto?
Where's your head in the game at this point in the market?
Yeah, I mean, I think um it's a space that people have kind of theorized about for a long time.
And there have been you know a few different types of attempts at companies being built in this space.
I think historically, most of the companies that's AI crypto intersection are are basically trying to take different parts of the existing um AI stack and run them in a decentralized way.
So, you know, decentralized data collection and labeling, um, decentralized training, decentralized inference.
We've really kind of stayed out of that for the most part.
I think those are just really, really tough to compete with the big labs, especially with the overhead of having a decentralized network, which is inherently going to be less efficient than having you know one big centralized data center um that's highly optimized for a specific task.
Um I think that's kind of what you've seen in the the data so far, is there's not a lot of demand for something like decentralized inference.
I think this next generation of what we're seeing is thinking more about where, assuming AI is just going to do its AI thing, where are the interesting overlaps with how crypto is used today?
And that's where you see things like agentic payments.
If we think everyone's gonna have a bunch of different agents coming around, maybe they wanna pay for a single API call for some provider.
Great.
That's something where you probably don't want to have them, you know, set up an account and have a credit card and maybe something goes haywire, and like, you know, maybe the API call costs a fraction of a cent.
And so stable coins seem like a really nice fit for that, especially for things that are cross-border.
Um, so we're seeing more and more interest in things like that and X402, which is kind of the standard that supports agentic payments.
I think we're also seeing some renewed interest around you know, verifiable um identity and verifiable humanity.
I think the kind of trend that we've also all seen online is like this you know incredible rise of AI generated content and you know AI generated accounts that someone don't even know are AI generated.
And um I think people realize that hey, if this thing um continues to go the way that it's going, um, we're gonna see a hundred times more content, a hundred times better content um coming from from AI generated accounts, such that now even very sophisticated people really can't tell the difference.
And so cryptography, um, which is you know sort of underlying um cryptocurrencies and blockchains, is a way to be able to verify, hey, where did this image come from?
Where did this video come from?
Is this a real person or not?
Um so I think we're seeing some renewed interest around that space, and I think there's gonna be um something cool to be done there.
Gotcha.
Okay, yeah.
So and I think a lot of these things are very early days.
Um, but beyond this sort of you know, microtransactions, stable coins for AI agents, are you seeing anything that's starting to get real world adoption?
Or maybe that's something that maybe hasn't yet, but that you guys at Dragonfly are particularly like excited about, or or you see coming on the horizon here?
Yeah, we have we have one portfolio company called EXO, um, which is doing distributed compu um compute or distributed inference instead of decentralized inference.
So we've seen, obviously, you know, today the most popular models are still these you know big lab models that run in a data center somewhere and you're paying them to access and they can sort of gate who can use it and how can you use it.
But we're seeing more and more of these open source models get nearly as good as these these big lab models, and you can run them for you know very, very inexpensively on any really cloud provider that you want.
Um and increasingly, I think recently today, actually, um uh Gwen announced a new model that can actually run on edge.
It can run on your phone locally.
So you can ask it you know, questions, you can do anything you normally do with like OpenAI or Cloud, but it's all running locally on your device.
And so XO allows you to perform these same sort of or to run these same sort of open source models locally across multiple different computers on your network.
So if you have an Apple Mac Studio and a Mac mini and a iPhone or and a MacBook, whatever, it can discover all those computers and then run your model sharded across all of them simultaneously.
So you get way better performance, um, which is also really important right now when there's still this GPU shortage and um, you know, if you want to get an H200, like good luck, you know, we're waiting a really long time.
And so I think if you think of a world where more people are gonna be running local compute and which is, you know, obviously part and parcel with like the cryptocurrency vision and sort of um you know self-sovereignty.
Um, I think that like this is really a nice, nice fit where this allows you to more efficiently run really big models um locally.
So you don't have to worry about sort of you know censorship and the you know sometimes lack of reliability of the of these um big big lab models.
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That's a really interesting uh use case and example of this.
I think that there's just so many different potential ways that these two different um, you know, uh pieces of technology can interact with each other over and above just you know assets and asset prices and number go up technology.
Um, but yeah, we're we're gonna keep watching that space here at Milk Road.
So I'm I'm glad you guys are paying attention there.
Um coming back to Dragonfly more specifically here, you all just closed your fourth funding round at $650 million, which congratulations, by the way.
I'm sure you're very excited.
Um, but I I'm curious on how the investment strategy at Dragonfly has sort of evolved since 2018 and what you see now as being the focus or where the lot of the energy for this fourth round of funding is gonna go in terms of investment here.
Yeah, I mean, your investment strategy as a fund is is partially dictated by you know your fund structure, but also obviously, you know, the the market and sort of your your capital base.
And so um when I joined Dragonfly, it was a much smaller fund and it was a much different market.
We were really fighting to get any allocation into you know any good deals and really trying to kind of you know pick through uh the dirt to kind of find those those gems that can fit the the fund of our size when we're competing with a lot of the much larger funds, which were you know 10 or 20 times you know larger than us.
Um, I think as things have progressed, um, especially with our our third fund, which is the same size, we really have stuck to just leading and getting meaningful ownership in the companies that we pack and working with them really closely, which is kind of the cool thing about venture capital.
Instead of having a really broad portfolio, you have a very concentrated portfolio that you have a lot of ownership in, and there you can help them do whatever it is that they're trying to do.
And we rely on a lot of our own you know technical backgrounds or operating backgrounds or um networks across the world to um help companies um you know achieve whatever it is that they're they're going after.
I think from from fund three to fund four, and uh and even just across that period of investment, um, we've seen this kind of shift back and forth across um infrastructure to applications, from tokens to equity and back.
I remember you know, in in 2019, people were saying, you know, tokens are dead and it's just apps, and it felt like that.
Then that kind of fell out of vogue and now it's now it's back.
It's nice having a really flexible um you know structure uh that that we have and LPs who are down to back us for the long haul.
And I think ultimately fund four will probably be a similar blend of some equity investments like an exchange or like a wallet where maybe they'll never be a token, and some investments in companies where we think this can be a real new network and it can be really decentralized and a token really makes sense.
So I think we try to stay nimble and try to be more, I say bottoms up, I think than a lot of other funds, where we just look at like what is actually working, what do we like to use, what are products that you know we enjoy using you know every day or every week, and um you know, trying to back those.
So I think the the the big trend right now is as you're probably seeing is like the aperture of crypto is just expanding so rapidly and touching all these other areas.
Um so I mean we already touched on AI, stable coins are obviously kind of touching everything.
I mean, poly market is extremely you know mainstream and it's running on chain, is running with stable coins under the hood.
And you know, I see pretty much every other week um some new company, especially coming out of Silicon Valley, that maybe you know a decade ago we would have been built as you know a fintech or a neobank, but now it's running with stable stable coins under the hood, and therefore it's a crypto company, crypto adjacent company, although I think a lot of them don't like to say you know crypto these days.
Yeah, for some reason who knows how, but there's some reason the crypto uh brand has gotten a little tarnished.
Um but that's really exciting to hear that there's still a lot of enthusiasm and and investment going into crypto at this time.
I'm really curious about how Dragonfly has sort of navigated the let's say headwinds that there's been in crypto VC because a lot of attention and capital has gone to AI and you guys have stayed focused on crypto blockchain you know staying in the web three space.
What has uh what has what has it been like trying to navigate that and dealing with some of these headwinds and just do you think that that VC activity is ever going to come back to web three or is it gone to AI for good and it's never coming back.
I think actually again the funds that we compete with now when we're looking at some of these deals are more traditional large Silicon Valley funds that um have maybe made their name in uh consumer or in fintech and you know now they're they're competing with us which is kind of a more crypto specialist fund.
And so I think that is probably going to be more the trend I think kind of what we're seeing in crypto venture actually mirrors what we're seeing in traditional venture, which is you know, overall funding going down since you know, like a 2022 peak.
So it's it's not that dissimilar, which I think is kind of a something people maybe misunderstand sometimes.
But I think in some ways it's a bit of a right sizing.
I think when you have that much capital, you have too much capital going after you know too few opportunities, prices get really distorted, incentives get really distorted.
Um maybe that's happening a little bit in in AI right now, who knows?
Um, but I think ultimately, like uh it's it's you know, it feels good to be in a less crowded space.
Like I would much rather be in an area that is you know less competitive and underrated and allows us to kind of take our time and really find those companies we want to work with versus you know deals that get done in in 24 hours or 48 hours, and uh, you know, it feels uh kind of like a little bit of a rat race.
So um I I think if anything, when I zoom out, we've really been so I think vindicated in our view of crypto being this kind of world-eating technology, and you know, even in the short term, looking at things like you know, regulation and and you know, sort of broad um embrace of crypto um as an asset as a technology from the you know financial sector.
Um, I think they're just gonna continue.
And so I think peop people in crypto really get focused on the micro.
They you know see something happening over the weekend and Bitcoin's down and they freak out, and it's like, you know, uh not to meme too much, but you know, zoom out.
Like like this this in sec this industry is is incredible.
We've come from really nothing to being something that is a you know marquee world asset class in basically 10 years.
Yeah, so uh look, I'm not familiar with this whole thing you're talking about about prices being distorted.
So whatever you're talking about, I'm I'm just absolutely not familiar with that.
Uh but yeah, I think that perspective is healthy, you know.
And it's like uh now that a lot of the tourists and let's say a lot of speculative capital has has moved on to other things, the people that are still in crypto, the investment that is still going into crypto is much more purposeful, focused, and and you know, smarter, smart money, right?
So um there's some benefit to that too.
Um I'm curious though about how this like prolonged bear market period that we've seen in crypto overall, you know, Bitcoin obviously it showed some strength, but digital assets overall, crypto overall since 2022 has not really made a strong or like sustained comeback.
And I'm curious how that's changed the landscape for you guys.
Has that been pinching in certain areas?
Has that actually been advantageous in certain ways?
Like what's that experience been like for Dragonfly?
I think really it's just been a shift in in focus in the industry.
I think people have kind of expected that there was going to be another huge alt season um, you know, maybe in last year or maybe maybe right now.
And kind of what we've seen is that hasn't happened.
And in in some respects, I think that's kind of a market structure failure.
People have seen how you know token holders have gotten burned in in many ways.
And that's not to say you know, it happens to every token, but certainly for a lot of projects, um, you know, they launch a token and there's not really a plan to support it.
It's not really a story around you know how this thing becomes decentralized.
And therefore, yeah, if you're a token holder, like I understand why it's not super attractive to put more money more money into that, as well as you know, we see these kind of acquires now, we see um you know token holders kind of get treated below, equity holders.
So part of it I'm hoping is also just again, we see something like clarity pass into the US, and that allows these teams to sort of fully embrace um tokens as a form of value capture for their um protocol.
And then great, that becomes way more investable.
You can see investors sort of flock back into the space.
And so it's a natural sort of reaction to we know, you know, what the incentives that investors are presented.
I think, you know, for us, um, we we again really try to have just stay nimble.
I think if you, you know, yes, just focus on you know the top uh you know alts from 2022, those have not done super well.
But I think at the same time, there have been you know unicorns and decacorns built that again use crypto in some ways, and maybe they're not a token play, but like uh I think you know, if you look at sort of public equities, you look at a lot of these IPOs, you look at um a lot of companies again use crypto under the hood, um, they've done quite well.
And so um, if you kind of just focus on one area and you look more broadly, I think that's kind of where you you can feel there's there's a little bit secular bear market.
I think in the same way a lot of people, you know, we're really focused on new chains or or you know, Bitcoin-based projects in like 2017 and have gotten kind of burned and you know, they've totally missed the entire like Ethereum, you know, DeFi revolution.
So um it's it's part of this, you know, uh need to sort of stay you know intellectually uh flexible that you need as a VC.
Yeah, I think that's a help of helpful perspective.
Um, and there's still a lot of value being created in the space, even if we hadn't seen that sort of like secular 2017, 2018 style um blow off top type of alt season.
Um I want to ask you some questions around prediction markets.
Prediction markets, a lot of people thought were going to peak out around the presidential election.
Turns out that was just like the beginning, and now it is expanded, it's blowing up.
Um, and I'm curious to hear what you guys see or what you see as being the vision for the future of prediction markets here, because there's been this really strong growth.
How big does this trend get?
How far does this go?
Um, and in terms of like capital or any other relevant metrics, like how far do you think that this goes?
Yeah, so I mean, you know, full disclosure, we're early investors in in polymarket.
We backed them in um, I think January 24 and have been kind of uh following their their ride.
I think um I I think you're right.
I think they've honestly you know beat my expectations for how this space was going to shape.
I think we had a vision of what election markets are going to look like and certainly there have been you know previous examples of you know elections being traded on on prediction markets even you know all the way back to like 2012 or 2020.
But I think what we've been pleasantly surprised by has been how prediction markets as sort of a you know good abstraction, a good sort of financial primitive apply to many other markets.
So you know very famously something like Calchi, right, I think like 90% of their volume is coming from sports betting.
But you know in some respects like event contracts are a good mapping for sports.
And so it makes sense why hey people would want to trade that or hey for these other types of world events um it makes sense why people would want to you know trade that on polymarket where it it's really this kind of idea of um trade expression and distilling down the idea and and the alpha into like its purest form people can have the right view and the right prediction of where the way you know the world is going to go but if they try to express that through um you know the wrong instrument or you know the the wrong direction, they can they can end up losing.
And so you know very famously this happened to like I think SBF when he was at Jane Street, he like predicted that Trump was going to win 2016 and he shorted US equities, and then actually US equities, you know, ripped because it was actually very bullish for them.
And so that that's kind of the, I think, where prediction markets really succeed is where you get these these markets that are like this pure distillation of, hey, what's going to happen in Iran?
What's going to happen with this game?
What's going to happen with a celebrity?
Um, and that's the thing that people really want to see, not some like weird macro, oh, like the you know, uh 10-year treasury rate is going up or down, and you try to sort of you know make sense of the tea leaves.
So um, I think also it it is just ergonomic with maybe more ways of how people want to trade.
Like I think for sports, you know, maybe people do just want to trade percentages instead of like American odds.
I think it's it's in some ways more understandable for your lay person, or you know, right now, obviously, like these very short-term uh markets are very popular on polymarket.
We can trade, you know, is the price of Bitcoin going up or down, you know, over the next five minutes.
And like, I don't know how much useful information you're getting there, but like those are probably people who normally maybe would not be trading um options or binary options, and yet they you know feel comfortable doing it on poly market.
And so it it's it's this I think when done well, you get this huge positive externality of everybody gets the information for free.
I think they have some they publish some of the stats on this, but you know, there's a huge skew where it's like 99.9% of people who visit polymarket never trade.
Um, they just want the information, they just want to track along, they just want to you know monitor the situation.
And so great, if you're if you're trading on on polymarket, you're actually giving away you know a lot of uh uh free entertainment and free information to the world.
So, you know, keep doing it.
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Yeah, well, we've all been monitoring the situation a lot recently.
Uh Tom, you mentioned CalShi.
I know like Dragonfly, you said are early investors in poly market.
I've seen on Twitter you going back and forth with some of the Calci people calling them quote rats.
Um and I don't really know where this beef came from or what's going on here, but I wanted to ask you about this and where this came from.
Like, what's what's the what's the tension there?
What why why are the Calchi people rats?
Yeah, it's um well, really goes back to uh, yeah, I'm happy to riff on this all day.
I just I'm just gonna stuff in this episode.
Yeah, no, go right ahead because I'm I'm really fascinated by this.
I don't know where this came from, but it it seems like a big thing going on.
Yeah, I mean, I mean, the real, I would say public origin came, I think end of 24.
Um, if you remember after the election, um, there was this news story that the FBI raided Shane, um, the founder of or the founder of a Polly Market's house and took his devices.
And I mean, from our perspective, it was pretty obviously a politically motivated, uh, you know, sort of nothing rate, and nothing actually obviously ever came of it, but Calchi had, you know, a couple influencers on payroll, and they you paid them to basically, you know, tweet about oh, Shane looks guilty, blah, blah, blah, blah.
And this Pirate Wires, uh, which is an online publication, ended up breaking the story with a bunch of screenshots and and really kind of covered it.
And um, I I think from from my perspective, it's it's really like the crypto industry.
Um, that was such a dark time where we spent several years, I mean, many so much so long really fighting for um legitimacy and and really like the right to survive and the really right to kind of um build the things that we wanted to build without having devs get sent to sent to prison or to get you know, um, just have this sort of law fair waged against us.
Um, and I think uh that that polymarket story being a good example of that.
And then for Calci, kind of an outsider to come in and really kind of you know stick a finger in in Shane's eye, and then frankly, in the entire industry's eye, was really upsetting.
And then it I also find it absurd that now they are trying to work their way in and LARP as a crypto product, which by the way, there's nothing happening on chain.
They accept cryptocurrency.
So they're you know, they're a crypto project in the same way Walmart is a crypto project and that you can pay with crypto at Walmart.
And you know, none of their on-chain stuff have really has really worked, and and it's really just like they want, I think what they see is they see this competition from these existing you know, US brokerages and everyone launching their own prediction market platform.
Um, and they're trying to sort of pull in this this wave of of crypto users when in in reality it's like there's no real tie between Calci and crypto.
And there's there's also just been this repeated wave of bad behavior where they really kind of really twist the truth or they just outright lie to try to make themselves look better.
And I think in my experience, when you when you see an organization that refuses to face the truth, there's there's usually something darker under the hood.
So um there's a lot more that could you know go on there, but um I think that that's really where the the beef comes through.
Is it like you have this this outsider that's trying to have this this stolen valor of being in crypto and then actually you know making things worse for for crypto companies.
This is one of my favorite things about crypto is we all get into these like Twitter beefs because we're bored and waiting for price to pump.
And um yeah, I well, I appreciate you sharing some more context on that.
It helps me know what's going on there.
Um talk to me a little bit about perps because I feel like this has been a growing narrative as well.
It's going out of crypto.
It started crypto native, it's going you know much broader than that.
Um, and I've heard you comment a lot on RWAs and how they are gonna be coming into the space.
Just talk to me a little bit about the opportunity that you see here and how this tokenization trend is you know sort of bringing a new uh new wave of investment capital and opportunity into crypto.
Yeah, definitely.
Um I think this is something you know I've been speaking about for um I don't know, a year or two, and now it feels like it's actually you know happening.
I think there's some stories where over the weekend um when uh you know Iran was was getting attacked, uh, there were uh a bunch of people trading you know, commodities and trading gold on um hybrid liquid and lighter, and they were posting all the new auto highs.
And so I think um you know I've been around the space for long enough where I've seen a couple different ways of this, you know, sort of um some security tokens or tokenized equities.
And I think they always kind of run into this issue of like why would I want to do this on chain?
Where you know I do have to, you know, KYC if it's truly a you know US equity and that is obviously limiting for a lot of people, it's not maybe trading you know 24-7, it's not super liquid.
It's you know, I have to move my, I have to pay gas to move my my tokens back and forth.
Like this seems worse than trading on a brokerage, and also if it's also pretty inflexible, you need a little you know share of Apple to if you want to go mint a um you know tokenized version of it.
Um and I think perps are actually kind of truly shown even in crypto to be the instrument that people actually really want, right?
Like perps volume is you know 10 times higher than spot volume.
Um perps are way easier to list than than spot.
Perps you have more um you know leverage, you can do more things with them.
They're they're global.
Um so there's a lot of nice features of having perpetual futures.
And so um having RWA perps, Busy allows you to get the best of both, where you can trade um, you know, things like silver and gold and Apple or the SP 500.
Um, but all you need is you know a stable coin and an Oracle.
And great, now you have this big global market where everybody can trade this one asset.
And so um, I think crypto is kind of sort of discovered that perps are really this great instrument.
And now it seems like um, you know, historically this have all been you know offshore, there are no regulated you know, perp exchanges in the US.
Um, and now it seems more and more like the US is going to allow um perps as an instrument to be traded in the US by by by US citizens.
And so I don't know, it seems like everyone's kind of converging and realizing that like this is way the way things are gonna go.
But um, I think as far as RWAs go, it also seems like I would bet on RWA perps really being again the lion's share of the market versus versus spot um for a lot of these reasons where you can very easily you know get additional leverage and you can trade you know globally wherever you are.
And yeah, if if you know the US is attacking you know Iran uh uh at you know Friday at midnight, you can you can pull out your phone and go go trade on you know a lighter or hyper liquid, whatever you want, whatever you want.
Okay, so I want to ask you about how the like we talked about prediction markets, we talked about perps, we talked about how there's an enormous amount of product market fit here, huge amount of demand, not just for the information, but for those tools as as you know, financial products.
But there's been a lot of debate continuing around um how they're gonna be regulated, which agency is going to do it, what that looks like.
You know, as this new innovation keeps coming out of crypto, we keep also running into these like regulatory crosshairs, and you know, a crypto is supposed to be permissionless and censorship resistant, but it's anything but that once you run up against the government.
Um, how how are you thinking about this issue?
Do you think this regulatory clarity comes, not just the clarity act, but just like in general around regulating and prediction markets and perpetuals.
Like what's your thinking around this and how you see this playing out?
Yeah, I I think actually it's been a great administration as far as crypto regulation goes.
Um, Celig was was confirmed as um head of the CFTC and he's been very pro vote vocally pro-crypto.
Um I think it's probably gonna look a lot, frankly, like what we've been seeing um in the crypto markets you know over the past few years, which is you know, there will be regulated versions of the instruments available onshore, you know, tradable through your you know brokerage, maybe tradable through the CME even, and they will be under CFTC jurisdiction, and there will be offshore ones for non-US people and they can get them.
And I think historically, you know, the answer was not, oh, well, you can, you know, if you're US, trade on a US regulated you know exchange, trade a right US regulated derivative.
If you're off, if you're not non-US, you know, trade, trade non-US.
It was if in the US, you know, tough luck, you can't trade perps, or you can't trade on a prediction market.
And I I don't really you know believe in that.
I think we should have consumer choice, and I think people should be able to access the instruments that they want to access.
And so it feels great to have an administration have a have a regulatory, have a regulator that is in favor of letting the market choose and being pro-innovation.
And so I think we will see, you know, again, more of these instruments be being available through uh regulated US entities.
Um, but I think the offshore versions will continue to exist too.
How are you advising founders to think about this?
Because you guys have a lot of portfolio companies that in one way or another are gonna have to you know kind of traverse some of this regulatory landscape.
How big of a hurdle is that?
How do you go through like guiding founders on that?
What have those conversations been like from your side of Dragonfly?
I mean, the thing that's really been killing teams, you know, again, since my time at Dragonfly and my time in the industry, has been the lack of certainty of, hey, we do all this big you know song and dance around where you have an offshore foundation and that's where the tokens gonna get issued, and then it's gonna go onshore and you IP block US, but maybe, and and it's all kind of just made up, right?
It's it's there's no actual law on the books that says this is how you do it.
It's this is kind of our best guess.
And that obviously is expensive.
Um it's kind of like having a gray market.
Like, of course, there's gonna be intermediaries and they're gonna want to, you know, charge a uh you know a big fee, and you have to meet up in the park behind the dumpster to do the thing.
And great, I people actually just want to walk through the door and put down their money and and do the thing.
And um, I feel like we're getting to that place um as an industry where um great, there's gonna be just a clear golden path around what is a regulated token, what is not, um, what is you know required in terms of uh your compliance burden, what is not.
Um, and that's really all we've been asking for for you know the past you know decade or so.
And it feels like now we're kind of slowly getting it.
So I think for for teams, I think really our our you know recommendation has always just been like, I mean, obviously get get your own counsel, but like kind of you know, uh work with sort of best intentions and hoping that we sort of get um more regulatory clarity, and it feels like we're we're we're slowly getting there.
I mean, we went through this with stable coins.
Now we have uh you know, genius feels like clarity is going through a similar thing, and um, you know, hopefully we get that too.
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I'm really curious your thoughts on the Clarity Act because as we have seen this get delayed multiple times, the the doubt about whether or not it actually passes has grown.
And then there's also been more people saying, like, hey, I don't know if this is actually a good bill or not.
Um, and maybe no bill is better than a bad bill.
And then there's this whole like some bill is better than no bill.
And like there's people on different sides of the spectrum on a lot of the issues around this Clarity Act.
Where do you fall in the spectrum?
What are you hoping for here?
What do you think happens with this whole this legislative debate we're seeing?
Yeah, I mean, I I I totally feel people in that I think a lot of things that I would have liked to see in clarity, we're not are we're not getting it.
Seems like to be consensus against, you know, yield for stable coins, which is which is kind of unfortunate.
But I think there will be ways to get around that and to be able to offer, you know, some sort of you know benefit for for holders.
I think you, you know, as far as um you know personally we're concerned, it's a lot of these things that I'm talking about where it's like, um, how are tokens you know regulated, how are they issued, um, how do we minimize developer liability um for people building yeah free open source software.
Um if you want to offer a DeFi protocol, um, how do you do that in the US and and what are sort of your you know uh um uh compliance obligations?
Um and it feels like that is actually all covered in the bill.
And and there are obviously some things I would have liked to see, you know, differently in some of the language, but at least having the the language codified in in in law gives you a framework to work around and figure, okay, what can I do, what can't I do, versus like this, you know, kind of current uh you know, limbo, which you don't even know what is what is allowed and what is not allowed, and really depends on um, you know, who's who's sitting in the White House.
And so I I think, you know, compromise is kind of the nature of uh legislation.
And and uh certainly I would say the current version of clarity is is a compromise.
I I also frankly would have not expected this to, you know, pass, but I was actually looking at the polymarket before this, and I think it's trading at like 78% to pass by end of 2026.
So um feels like as always, it's um, you know, nobody's happy, but the thing is passing, and um, we learn to kind of move forward.
Yeah, I think nobody's happy is definitely the takeaway for me.
I'm a little bit worried that you know, a lot of these things look great in the bill, but then if you have Senator Elizabeth Warren, you know, picking who's at the head of the CFTC or the the SEC, then suddenly, you know, you can get bogged down a lot of things you didn't expect to be problems before.
So, but we'll we'll have to see how this plays out because I agree with you.
We do need to get something.
Um, and so we'll see how that goes there.
Uh Tom, another thing I wanted to ask you about, and we don't have to go into this too much, but I'm I'm really curious your take on this.
Um, the October 10th flash crash was like a huge event in in crypto.
It's been talked to death, but I'm really curious to hear your thoughts on what lessons learned came out of that.
And specifically, what I'd like to know is do you see protocols, exchanges, just in general, people in web three starting to apply anything to try to prevent something like the October 10th flash crash happening again?
Or is this something that's always going to be sort of like an edge case risk in crypto that we just have to accept might happen again someday?
What's been some of the lessons can come out of that for you?
And do you see people actually responding to and making changes to prevent this happening again?
You know, I I I wish I had a more satisfying answer, but I I don't know if I I do.
Um I think people want a very simple boogeyman monocon monocausal explanation of what happened on 1010.
And I think unfortunately there isn't one.
It wasn't, you know, a single actor intentionally crashed the market or this protocol blew up or this fund blew up.
It was like, okay, you have this you know huge vol spike, and you know, it was it was kind of a low liquidity uh, you know, period of the market, and maybe some people blew up, or maybe it was ADLs, or maybe it was you know, hyperliquid or whatever.
Like, I I don't think any of those actually reasonably explain um what what kind of happen on 1010.
I think the you know the the truth is as always, like you do kind of have to expect the unexpected, and this happens in traditional markets as well.
I mean, there are flash crashes, there are you know counterparty defaults, there are like weird terms in in contracts that can kind of get you caught off guard.
And so um, I don't know.
I I don't view this as much as like something existentially challenging for the industry the same way I think FTX was.
Um it feels more like, yeah, this is uh you know an unfortunate byproduct of being this very, you know, still very nascent asset class and still very nascent industry.
And um uh I don't know.
I I think um uh if anything, it's like the the further away it goes in in the rear view mirror the better.
Yeah.
Well, I think that's true.
But that's also a bit of a scary answer because I would love to not have that be like a looming threat.
Um but you know, if you're on the bleeding edge of technology, sometimes you cut yourself a little bit.
So um that's that's I guess the reality of the situation.
Uh I want to come back to Dragonfly a little bit.
Tom, we've seen a lot of institutions get very enthusiastic about digital assets, about crypto, about the technology and the asset class.
Um, but we've also seen kind of like check out and go to AI to other things, you know, speculating on gold and silver of all things.
Um how big of a deal does that make to a company like Dragonfly that's working with founders, working with startups, and trying to get, you know, what ostensibly used to be retail adoption to test out these protocols and products.
Has that been a headwind you guys have faced?
Are you still seeing a lot of adoption of some of these newer protocols?
What's that been like for you guys at Dragonfly and some of your portfolio companies?
I think it it certainly impacts the way we um invest in terms of which companies do we think are are you know backable.
I think a lot of companies are maybe still stuck in an older meta of they think they are going to launch you know like a DEX and they're gonna get a bunch of people trading on it and launching tokens and they're gonna launch a token and you know and I think we've we've actually seen more companies um choose not to launch you know a token and kind of tailor their um you know customer base more towards institutions or you know uh large companies that maybe need need some kind of um you know service within the within crypto and so I I think it's kind of again just the the industry maturing which is kind of good and and kind of sad like I will always have a very fond spot for the kind of you know uh crazy cypherpunk days when people were doing ICOs and launching you know food farming uh uniswap forks and stuff like that.
But um you know the industry is really growing up.
I mean it's like you know BlackRock's here and Fidelity's here and you know Morgan Stanley just came out and they're like pivoting their whole you know roadmap and into crypto.
And so um it's um I don't know it it it in some respects reminds me of of the tech industry where you went from you know these little you know garage hackers and people you know cobbling together servers and you know making stuff overnight to like yeah now these are you know the largest companies in the world and largest companies in in the US and I uh I don't know it's it's it's it's funny to look back and and you know think about where when you should have you know realized that but um when you're in the moment it's it's yeah you kind of get lost in it.
Yeah I think that there's going to be a lot of changes that come from all these things.
I agree with you.
Morgan Stanley deciding to become a crypto custody provider is like a huge pivot, a huge vote of confidence.
Tom, what are you most bullish on in crypto right now?
And I I want to like kind of get some detail around this because I think you know somebody who sits in your chair, you see a lot of innovation, a lot of portfolio companies, a lot of pitches for things what do you see as actually driving the next phase of adoption, the next phase of liquidity like what are you most excited about?
What are you most bullish on for crypto right now?
I think you know it's it's not a super exciting answer, but I do think sort of this stable stable coin as a substrate is going to be a thing that we're gonna continue to see where you're gonna see these new applications that are really only enabled by the fact that you can use stable coins as sort of sort of this true global you know um payment layer and this true sort of global custody layer.
We're looking at a couple um companies of portfolio some of which have launched some of which haven't which basically are using stable coins to build these sort of I would say global money games.
It's sort of like hey you can bet against somebody else or you can play like a game in your browser and you can bet on it or maybe you can you know again create sort of a PvP swap.
And um these are really you know, I think enhanced by the fact that you can, you know, put some money on it, or maybe you can have a global prize pool, or um, we have a company that's right now that's doing kind of a global lottery.
And and these are things that you just couldn't have done in in web two that you can really do in in web three.
And it kind of goes back to the fact that uh I think crypto's killer use case is financial.
It's digital scarcity.
And I think we we just see that again as sort of like it's almost kind of like this is like the EC2, uh the $5 EC2 box of of of 2026 where you know instead of spending five dollars to spin up a server, you can you know spend five dollars to spin up a smart contract and anyone around the world can use it.
And um I'm just looking forward to seeing more more innovation there.
Yeah well there's gonna be a lot of innovation and I'm excited to see where things go from here.
Tom Schmidt Dragonfly Capital, thank you so much for being on the Milk Road show.
Where can we send people to find more of you and your work online?
I'm I'm on Twitter, Tom H Schmidt um or you can go to dragonfly.xyz and check out our website.
Awesome.
Well I appreciate you being on the show.
And yeah man, you know, I think we we I I think everybody wants the euphoric rush of an alt season, but it's actually a little bit sobering and kind of like uh encouraging in a way for you to be like, yeah, things are a little bit boring.
I'm focused on stable coins, but there's a huge amount of stuff building here and I'm not leaving and you shouldn't either.
Um so that's kind of like an adult in the room kind of take on those things.
Um but I am still hoping we do get an alt season again at some point.
So I hope we can come back on during those days and have another conversation.
Yeah you never know.
I feel like it's it's so consensus now that there's not gonna be an alt season that maybe deep down there will be an alt season.
Who knows?
Yeah we're so bearish we got to get bullish at some point.
Uh Tom, thanks so much for being on the show.
Really appreciated the conversation.
Yeah thanks for having me.
And thank you all for joining us.
I hope you all learned something fun today.
So until next time, stay safe, stay educated, stay bullish.
And we will see you all on the next episode of the Milk Road Show.
Thanks for being here, everyone.
Bye.
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