Hi, I’m Azeem Azhar. I convene Exponential View to help us understand how our societies are changing under the force of rapidly accelerating technologies.

In today’s edition…

• The consequences of FTX collapse on crypto innovation,

• Tracing what the signals from COP27 tell us about our climate future,

• Is the age of social media come to an end?

Sam, bankrupt and fried

The collapse of FTX is shocking on many levels. I’m pretty shocked by the cavalier and hubristic approach of Sam Bankman-Fried (SBF), the founder of the firm. 

There are two communities in crypto. A financial crypto of speculators and investors who view this as an asset class with trading opportunities. They seek to replicate the titans of traditional finance like John Templeton, Jack Bogle, Bill Gross and Marcus Goldman with a new narrative. And a tech crypto which views blockchains as a fundamental set of computational primitives that endeavours to build novel, (potentially) powerful network applications. There are relationships between them, naturally: financial crypto helps fund tech crypto. 

FTX’s collapse will do deep damage to the whole sector but particularly financial crypto. SBF was so public, branding the Miami Heat Stadium, musing about acquiring Goldman Sachs, funding political causes and becoming a big-time philanthropist, backing the utilitarian maximalists at Effective Altruism. And so FTX’s fall is more significant than outfits that looked shadier. He had some of the trappings of a proper gent.

Providers of capital, such as pension funds and family offices, had been showing more and more interest in crypto as an asset class, based on many conversations I have had over the past five years. They were dipping their toes in the water, getting more comfortable with crypto and lapping up its diversification benefits and adding to its legitimacy. These flows will freeze and go into retrograde. Losses will be taken. If even FTX, the number 2 in the market, operated like a cross between Madoff, LTCM, Lehman Brothers, Enron and Amaranth, what hope for the rest of the sector? 

This short-term pain could usher in the kind of regulation that can create a more salubrious environment for innovation and growth. It might also trigger more attention to decentralised finance, which avoids the centralised approach FTX favoured. Neither of these changes will do much to enthuse professional allocators back into the space in a hurry.

For tech crypto, it’ll turn off the money spigot for now. Many developers will find themselves much poorer. More parsimonious management will be required to get to product-market fit. It might be that the enforced discipline will finally lead to the development of useful services.

There may yet be more fall-out. Already, BlockFi, run by two other wunderkinds, has stopped customer withdrawals. Binance, the largest exchange, has avoided contagion but has, according to Reuters, swerved regulatory scrutiny in recent months. It isn’t clear to me that this round is yet over.

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• Marc Rubinstein
  offers a solid explanation of FTX’s collapse and SBF’s role in it is excellent reading.

• The FT discovered that FTX had $1bn in liquid assets against $9bn in liabilities.

• FTX used customers' assets to fund the risky bets of an affiliated hedge fund.

• Sequoia Capital deleted a hagiography of SBF (in whom they invested, and who subsequently invested in their funds) from their website. The Internet archive kept a copy.

• Other crypto brooks are rushing to prove their probity, promising transparent disclosure of assets. Binance’s disclosure showed nearly half of its assets were in its own tokens, Crypto.com here. Alex Svanevik, is helping exchanges set up transparency dashboards to prove their reserves.

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🔒 Weekly Commentary: Can the clean transition happen?

The clean transition requires massive growth in the supply and use of critical minerals. Many deem it impossible to achieve. In this commentary, I argue this reasoning is unsound and look at historical, techno-economic and market data to come to a different conclusion.

Paying members of Exponential View will receive full commentary on Monday morning.

Dept of our climate future

Every week, we track key metrics that tell us a little about our shared climate future. 

Our member, Marshall Kirkpatrick, takes the time to curate a view of our current climate status in this segment every week, and you can read Marshall’s view below.

The one thing to consider about our climate future this week: The future of the UN’s impact on climate is being determined now. This week, COP27 in Egypt will be pivotal in determining the international community’s role in our climate future. It’s impossible to know which of the many developments this week will have the most impact in 5 to 10 years, but here are some contenders. Probably one of the most important is the new satellite data that found emissions from the world’s oil and gas facilities may be 3x higher than is being self-reported. The Secretary General’s 5 recommendations to end greenwashing in climate commitments (PDF) could prove hugely important as well. So could the first-ever official dialogue on loss & damage payments for climate adaptation, as long as EU & US conditions are met that no questions of liability be discussed. Alaa Abd El-Fattah’s hunger strike and calls for human rights standards for future hosts could be pivotal (Lula?). Siberian activist Rodion Sulyandziga is attending his 10th COP and says recent Indigenous collaboration in tackling implementation challenges represents “a completely new page of history” and believes that within the next 3 to 5 years “we will see some tangible results.”

However the climate future unfolds, this week’s been a big one.

• The US federal government is the world’s largest buyer of goods and services ($630 billion annually). It announced this week that all major contractors will be required to disclose carbon emissions and plans to reduce them in line with the Paris climate accords.

• Solar parking: France will require all parking lots for more than 80 cars to be covered by solar panels; the scheme is forecast to produce as much power as 10 nuclear reactors.

• Solar forecasts: Singaporean government groups have built a system of forecasting solar power availability with 90% accuracy.

• Blue Bonds: Instead of global banks loaning governments money with austerity conditions, The Nature Conservancy is loaning money with conservation conditions to four governments and counting.

Market data

Taiwan’s TSMC is investing another $12 billion to expand Arizona’s chipmaking capacity. [link]

Ether turned deflationary for the first time since the Merge. [link] See also, the electric bill for bitcoin mining is now higher than the coin earnt. [link]

AI & machine learning semiconductor startups outside of China saw a 69% decline of VC funding this year. [link]

60 cents: Bankers are trying to shift Twitter’s debt with a 40% haircut. [link]

Short morsels to appear smart while avoiding angry octopuses

🧫 Great essay by

⌛ Thought-provoking argument by Ian Bogost: “the age of social media is ending.”

🧮 Amazon’s robot Sparrow uses machine vision to handle 65% of the more than 100 million items in Amazon’s inventory — a striking feat. 

🕳️ This collection of scammers abusing the $8 verification marker will forever remind us of the strange phase in which Twitter finds itself. 

👽 Scientists create a post-detection hub for coordinating efforts if we were to detect alien life.

🐙 Angry octopodes throw stuff, via EV member Roger Dennis 

👩‍💻 Women’s participation in China’s workforce has fallen since Xi Jinping came into office. 

End note

What a crazy week. And a tough one for hubristic men around the world.

Zuck laid off 11,000 people because of his heavy spending on the Metaverse. Reviews of his new headset are mediocre. 

Musk is struggling with Twitter. Large-scale internet platforms are complex pieces of living software. The thousands of developers in the firm until last week would have committed code tens of thousands of times a week: small tweaks and large updates to keep the platform running.

Now shredded by very rapid and clumsy firing, the capacity of Twitter’s engineering team to keep it alive and safe has been savaged. Systems may start to degrade at an accelerating pace. (Rohit Krishnan is keeping a useful list.)

So reality may intervene in its turnaround. And it may be hard to rebuild any kind of engineering culture that can arrest the decline.

Brian Krebs, a renowned security analyst, makes a taut observation: “Everything that [Musk] has done publicly so far to Twitter seems like exactly what I’d do if I wanted to ensure the entire platform ran straight into the ground, and fast. His actions and words make it really hard to see how this isn’t actually his plan.”

Putin’s army fled from Kherson, the city which he had formally annexed into Russia six weeks ago.  Kherson, you will remember, was the one provincial capital that Putin had managed to capture. It was also in one of the oblasts (helpfully called Kherson too) where Elon Musk had proposed running a referendum. Probably don’t need to do that now. The videos of delighted Kherson residents welcoming the Ukrainian military are worth watching.

The craziness means that we’ve got two weekly commentaries this week. I wanted to reflect on bad-boy Bankman Fried’s misadventure - and that had to come today.

But I’d also done some thinking about how we might frame the challenge of the resource requirements of the clean transition. I didn’t want to miss out on that this week so that fun essay will be delivered to paying members at 6 am UK time tomorrow. 

Cheers,
Azeem

What you’re up to – notes from EV readers

Jonno Evans and his team at Epsilon launched a talent collective for leading technology companies who value the skills and expertise of professionals with public service experience.

Rodolfo Rosini on the future of the search engine: “The next Google search engine will be Generative AI”.

To share your projects and updates, fill out your details here. Because of space constraints, we prioritise updates from paying members and startups I have invested in. (You can become the former by subscribing, if you have not already, and the latter by getting an intro to me via a trusted contact.)