Raoul Pal’s Sequel to the Exponential Age

Central Bank Digital Currencies (CBDCs) will accelerate DeFi adoption and enable the entire crypto ecosystem to function at scale, not by replacing fiat but by existing alongside it and providing an additional currency option.

“it's going to happen at lightning fucking speed because the central bank digital currencies enable all of this, which is what people don't think.”

Facebook (via Diem stablecoin) is constructing a digital sovereign state—the largest in the world by population—where centralized control mirrors nation-state sovereignty, making the battle for digital state ownership the next major geopolitical competition.

“if you unify them with Facebook Diem, which is a stablecoin, which is no different than El Salvador's currency board or the currency board here in the Cayman Islands. It's a stablecoin, essentially, but for use on Facebook. So, what have you created? You've created the largest sovereign state in the world with the largest number of people.”

The Fourth Turning argues that demographic cycles create turning points where institutional change becomes necessary, and the transition from baby boomers to millennials/Gen Z represents such a moment demanding comprehensive institutional rebuilding.

“The Fourth Turning is a book about demographics, and how demographic cycles repeat themselves. And Neil Howe and William Strauss went through in great detail back in the 1990s these demographic transitions through time. And you get these turning points, where basically a full group of full three or four generations of people have gone through.”

Defi carries significant risks including protocol bugs, hacks, and experimental failures, because it's an unsolved domain and practitioners acknowledge they don't have perfect solutions.

“There are risks with that too, as there are with all yields and all returns... Stuff gets hacked. Some of these protocols don't work in defi world because it's all experimentational. Nobody is saying I've got the perfect solution here.”

The metaverse should be conceptualized as an end state that unifies multiple technologies: DeFi (digital financial systems), DAOs (organism/corporate systems), social tokens (value exchange within communities), and NFTs (digital identity and value transfer).

“A digital financial system. Defi, a digital system of organisms and corporations. DAOs, social tokens, system of money for the communities that you're in. NFTs, digital identifies and stores of value within the digital world and interoperability and transferability of that value across various digital properties. All of that becomes the metaverse.”

The crypto space benefits from a distributed intelligence network (engineers, developers, mathematicians, economists, finance experts) working on independent experiments, creating unprecedented discovery power compared to centralized institutions.

“The network effects of that power of intelligence and the sheer number of doggedly determined people doing things is unprecedented. We saw it with open-source software. We saw it with the internet. But this has the powerful incentives built in that if you are a participant, you're not owning the equity in a company, you're owning a stake in the network, which never has happened before.”

NFTs represent immutable, uncensorable digital identity and self-ownership, protected by freedom of speech and blockchain immutability, making them 'something extremely precious' for digital identity that people have lost.

“because NFTs can't be thought of as securities and they're probably protected under freedom of speech, and they're immutable, and they're on the blockchain, they become something extremely precious in this world. The thing that we've all lost, our own digital self.”

Digital sovereign states are being created as tokenized communities where people own a scarce part of the network (unlike fiat currency which can be printed), and can exit one community and join another by selling their token—a form of 'voting' that enables sovereignty.

“What we are creating is digital sovereign states, multiple of different sizes. So, we are fracturing the online world, and we'll talk about the metaverse and where this all going later. We've fractionalizing communities into separate states.”

Price is the single most important factor driving financial institutions to adopt crypto, followed by regulatory clarity enabling market-making and prime brokerage functions.

“Price. It's simple. The number go up, more get involved. Then after that is regulatory clarity, which is happening.”

Cryptocurrency represents the fastest adoption of any technology in all recorded history, with 150 million users growing at 113% annually compared to the Internet at 150 million users growing at 63% annually in 1997.

“the chart you can see on the screen now shows that the Internet back in 1997, when it had 150 million users, was growing at 63% a year. 150 million users in crypto is present day and it's growing at 113% a year.”

We are living in the greatest time in human history due to exponential growth in computational power, AI, genetic sciences, 5G networks, electric vehicles, green energy, and crypto all converging simultaneously to enable a new renaissance.

“We're living in probably the greatest time in all human history... the rise of computational power, AI, genetic sciences, 5G, network, all of these things, EV, green energy, all of these massive exponential trends of which crypto is part of this.”

Media companies can be built from the ground up on blockchain (e.g., Aku cartoon by Micah Johnson), where NFTs serve as foundational building blocks for media properties with TV/film rights already optioned.

“When we spoke to Gary Vee, he's trying to build a media company from the ground up, as is Ashton Kutcher, as is Micah Johnson. That was a fantastic under watched interview with Micah Johnson about what Micah is doing with Aku which is incredible. He's basically NFT-ing from the ground up a cartoon. So, it's built on the blockchain. And it turns into a whole media property. And he's already got TV rights or film rights for it.”

The digital asset class, currently valued at $2.5 trillion, could reach $200 trillion if adoption rates continue, representing a potential 100x increase in value by the end of this decade—an opportunity unprecedented in human history where an entire asset class (not individual stocks or companies) could appreciate 100x.

“this is currently a $2.5 trillion asset class. If you compare the other asset classes, they're between 150 trillion and 300 trillion until you get to derivatives which are one quadrillion... if we continue this rate of adoption, we should get to an equivalent size asset class in these digital assets. And that would make them worth 200 trillion.”

Layer-one protocols like Solana and Terra are also following the same fractal adoption patterns as Ethereum and Bitcoin, suggesting that all protocols behave similarly as their networks achieve adoption, making network adoption the key variable for valuation.

“if my logic about Metcalfe's Law is right, then these layer-ones that we'll talk about later should also fit. And bizarrely, here's the chart of Solana against Ethereum in the last cycle... It's exactly following. And the same is true of Terra. It's exactly following.”

Augmented reality enabled by hardware (Apple glasses) will allow NFT art and digital assets to be viewable in physical spaces through permissioned digital maps, creating hybrid physical-digital experiences.

“Apple are going to give you an ability because they own this, which is a supercomputer in your hand. They're going to have the ability that those glasses you're wearing today, Ash, will give you augmented reality.”

Young people (Gen Z) have a structural advantage in the tokenized world because they grew up with digital value and cultural trends, allowing them to spot opportunities that older generations miss.

“You have a massive advantage over all of us. Culture as an investment is something you grew up with. You will spot the cultural trends that you can get involved in, and you will make money from it.”

Tokenized communities represent a pragmatic solution that combines progressive values (participation, democratic rule-setting) with free-market capitalism, creating a middle path between pure libertarianism and pure socialism.

“is actually creating something that only exists in some places. Which is, it is progressive because it allows participation of everybody in a society, and it allows society to set rules. But it's also free market capitalism at the same time. It's like putting these two things together that are being fought over.”

Bitcoin itself is a social token that reflects shared beliefs about hard money and elements of economic freedom, and people move between crypto ecosystems based on whether they agree with the community values, as Pal did by moving from Bitcoin to Ethereum because Bitcoin community became less accepting of broader perspectives.

“Bitcoin is the social token if you think of it... it's a group of communities that share a vision about hard money... there's a group that share a belief in wealth distribution... should you decide, as I did, that I was getting uncomfortable with that community and society, because they were not being accepting of people with broader views, I sell some of my Bitcoin tokens and moved across the Ethereum ecosystem”

Metcalfe's Law—which values networks based on the number of users plus connections between them and applications built on top—predicts that Bitcoin is following its 2013 price structure exactly, suggesting a gigantic rally into year-end with potential prices in the $300,000 range.

“I have been following Metcalfe's Law as my guide for this. Metcalfe's Law is about how do you value a network. And it's about basically the number of people on the network, plus the number of connections between those people... the biggest network is currently Bitcoin.”

Howe and Strauss's Fourth Turning predictions have proven prophetic regarding financial crashes, war, and political cycles, suggesting their framework predicting innovation acceleration through institutional rebuilding is reliable.

“And their argument has proved prophetic on where this is going, how you ends with financial crashes. And out of the financial crashes, comes people realizing we need to do things differently. And generally speaking, even the previous two elections are pretty much in the book, even though it was written 20-odd years ago.”

Regulatory challenges will be solved through political pressure from millions of crypto participants who have voting power and wealth, resulting in new digital asset laws replacing 1934 Securities Laws.

“there was a grand compromise will happen. And it'll be a new set of digital asset laws. And that'll be another fourth turning. That's moving away from Securities Laws of 1934.”

Crypto will experience boom-bust cycles and corrections, but the structural risks (regulation, Tether solvency) are not existential threats because participants can switch jurisdictions or stablecoins, and there is no stopping the overall trend.

“The risk is going to be a boom bust cycle. The risk is we get a ridiculous extended bubble in this cycle, and then a collapse. Like entrants get hurt. It's that. I don't think there's any real risks of this whole thing. I just don't see it.”

The three biggest impacts of blockchain on daily life in the next 5-10 years will be: digital identity, store of value, method of ownership and IP rights, insurance contracts, income/yield generation, borrowing methods, and community identification.

“I think it will be our digital identity, our store of value, our way of digital method of ownership, our ownership of rights, IP rights. I think it'll spread to insurance contracts. It'll be the way you earn money, yield. The way you borrow, and how you identify yourself within the communities within which you live these digital sovereign states.”

Tokenized brands like sports clubs have massive untapped value because they have gigantic communities and direct relationships they must rent from Facebook and Google, and if tokenized correctly these community tokens could be worth billions, with Man United's token potentially worth several billion dollars despite currently being worth around $50 million.

“these people have communities that are gigantic. They have to rent that community back of Facebook, Google and other things... a football club, the football club's direct relationship with the customer really is the 80,000 people... Man United's fan base? A billion people? And their token's probably worth 50 million... I think a lot of it's going to sit it in community. So, that token to me should be worth a few billion.”

NFTs like Loot and projects by anonymous creators are building cultural movements around DAOs and social organization, suggesting NFTs have cultural and organizational significance beyond collectibility.

“there's some real projects like Loot, of which it's really vague on what it is. But what they're doing is building a movement of people around these DAOs and these things.”

Real Vision will issue social tokens and NFTs not as wealth-extraction mechanisms but as utility tokens enabling participation in the network, with value driven by all participants rather than by Real Vision.

“What we're going to do is create a utility token that allows people to participate in the network. And it's up to everybody who's on the network to drive value to the network. It's not about us trying to make people rich, it's about driving utility and use case to the network by all participants.”

The transition from traditional bank credit systems to crypto collateralized credit systems will happen gradually over time (a migration), not suddenly, and defi will explode during crypto bear markets when people seek yield from their holdings.

“It's a migration. Don't expect the lights to go on, lights go off. It's a migration. It just happens over time... I think defi explodes in the next bear market or sideways market for crypto.”

DAOs (Decentralized Autonomous Organizations) represent the world's largest economic experiment in real time, with thousands of economic ecosystems being tested simultaneously to see which governance and incentive structures survive.

“As Jamie Burke mentioned to me, he's like, what is interesting here is this like the world's biggest economic experiment in real time. There are literally thousands or tens of thousands of economic experiments about economic ecosystems all being run. Some collapsed, some succeed.”

All major institutions (states, corporations, communities, money, stores of value, and economics) will be rebuilt from the ground up simultaneously by hundreds of thousands or millions of smart people across multiple disciplines, as predicted by The Fourth Turning, in one of the greatest movements Pal has ever seen.

“all institutions will get rebuilt from the ground up... rebuilding, states, corporations, communities, money, store of value, economics, all at the same time, done by hundreds of thousands if not millions of people of the smartest people in to engineer... It's one of the most beautiful things I've seen, is mankind saying, fuck it, we'll do it ourselves.”

The Real Vision community's portfolio (voted on by community members) has outperformed Bitcoin and the algorithms that real Vision produces, demonstrating that hive mind intelligence allocates capital better than individuals.

“The Real Vision bot portfolio which is voted on by the Real Vision community has outperformed Bitcoin. It's outperformed the algorithms that the bot produces.”

Real Vision has transformed from a media company creating video content into a community, and community members now want to participate more deeply, creating conditions for Web3 transformation where communities co-own and co-govern the platform.

“It was about two years ago that I started to realize that it was pointless to be just a media company creating video. And actually, we created something better which is we created a community... people have been telling us, we want to be more part of Real Vision... We want to be part of this network.”

In a credit cycle tightening, crypto market participants are less affected than traditional markets because most crypto participants are not deeply involved in credit cycles, though institutions and hedge funds may exit due to margin pressures.

“most people in the crypto market aren't involved in the credit cycle so much. So, it's not a credit market thing... at the margin, it will take hedge funds out, institutions out... credit cycle... still rules most things, but in these exponential adoption curves, it has a much lesser pronounced effect.”

Institutional behavior—including rebalancing by BlackRock, P&L closing by Tudor hedge funds at year-end, and new allocations by institutions in January—will extend the crypto cycle beyond the December endpoint seen in 2013 and 2017, potentially pushing peaks into Q1-Q2 2022.

“if you are BlackRock and let's say I'm right and Bitcoin goes up 4x into the end of year or 3x, you are going to rebalance and sell some Bitcoin. If you are Tudor, you come into the end of the year, you want to lock in your gains because you get paid your annual performance fee in January, so you will probably flatten out your P&L.”

Ethereum's constrained supply—with only 10-11% of available tokens on exchanges and the rest locked in smart contracts, cold storage, DeFi, NFTs, and staking—creates scarcity pressure that will drive the cycle longer, potentially extending it to summer 2022.

“Ethereum has no supply. There's about 10% or 11% of all available Ethereum on exchanges. Everything else is locked away in smart contracts, cold storage, defi, NFTs, and then staking. Because everybody wants the ETH 2.0 to come, so everybody's staking their ETH for the yield.”

NFT projects like CryptoPunks create elitist social identifiers because they cannot be fractionalized (you must own the full NFT and spend millions), which mirrors luxury goods signaling rather than enabling broad participation.

“Some of it I don't quite like yet, because I think to be a CryptoPunk is now an elitist group. Because you can't fractionalize these things. You can if you put them in a different structure, but basically you can't fractionalize a CryptoPunks, you will own it outright. So, you're basically saying I've spent three and a half million on my JPEG.”

The metaverse is not a question of which single platform wins (Zuckerberg vs Sweeney vs Apple vs Google), but rather a multiverse of interoperable platforms where users move fluidly between different communities and metaverses.

“the metaverse is not to me, who's going to win? Tim Sweeney, Mark Zuckerberg? That's just not going to happen... It's the same way as these communities. We will be interoperable. We'll be able to move fluidly between places that better suit our needs”

Education is critical to preventing the knowledge gap that created resentment during 2008 and 2012 crises; Real Vision's mission is to democratize information so nobody can claim ignorance about the greatest opportunity in human history.

“I was driven on a mission after 2008 and 2012 European crisis to tell people about the risks and opportunities. I didn't want somebody to come to me and said, why didn't I know? My job, the whole job of Real Vision is to make sure everybody knows.”

We are living in probably the greatest time in all human history but it simultaneously feels like the worst time due to societal fragmentation and division, and the resolution of this paradox is that from breakdown and chaos, a new world is being built.

“We're living in probably the greatest time in all human history. And exactly like the Fourth Turning, it also feels like the worst time in human history, where the worst of humanity has come out... But from that, we're building a new world.”

Ethereum will double in relative valuation versus Bitcoin, and may briefly achieve a 'flippening' where it exceeds Bitcoin's market cap, marking the end of the cycle before a larger correction.

“my guess is it gets pretty close to Bitcoin's market cap. So, I think it probably in the end somewhere doubles in relative valuation versus Bitcoin. I don't think the market quite expects that.”

Crypto cycles will likely be either shorter and sharper or shallower and longer, not perfectly matching historical patterns, creating impossible navigation challenges that necessitate fund-of-funds approaches.

“My guess is either the corrections are shorter and sharper. Actually, I don't know. Shorter and sharper, or just shallower and longer, or none of the above. I don't know. It makes it really hard to navigate.”