Pongo Points 11/9/23

Elon's private "open" AI | OpenAI is hungry for startups | SEC can't hire crypto experts | SEC commissioner wants proactive crypto regulation | Balaji credits Twitter for exposing SBF

1. Elon Musk Releases “Grok” under xAI

Read it on xAI here: Announcing Grok

Why it’s interesting: After publicizing his frustrations with OpenAI (the makers of ChatGPT), Elon Musk finally released his competitor called “Grok.”

  • The term “Grok” was coined by Robert A. Heinlein in his science fiction novel Stranger in a Strange Land, meaning “to understand intuitively.”

What stands out: The xAI model is trained on real-time knowledge of the world via X (formerly Twitter), meaning it could have a far more current understanding of the world than other leading AI models - which might result in more unreliable answers too.

  • Elon Musk has often expressed distrust of OpenAI, despite being one of its angel investors, due to the company’s increasingly closed-source model.

What’s next: xAI’s Grok is the “more open-source” and “free” answer to OpenAI’s ChatGPT and Google’s Bard. Other AI models are mocked for having manicured responses due to their mega-corporation creators that must tightly control responses to avoid outrage, which a disadvantage that Elon Musk’s company doesn’t share.

2. OpenAI Eats Derivative Products

Why it’s interesting: OpenAI has begun incorporating features to its flagship product that were once derivative products built by startups.

  • OpenAI originally operated as a non-profit company, but has since transitioned to a “capped” for-profit company - so it is now incentivized to build out more products rather than just research.

What stands out: OpenAI will soon implement a “GPT Store” where users can create their own ChatGPT-based apps, services, and custom models.

  • Also called AI “wrappers,” products that rely upon access to an AI model like ChatGPT are inherently subject to the whims of that model’s creator.

What’s next: There are two points of view with respect to OpenAI’s updates: 1) The market is free to research new products and applications, but shouldn’t expect to develop a “moat” if the AI companies can simply absorb their product, or 2) OpenAI should be more cognizant of its “victims” and focus on refining its models versus becoming more of a consumer product - i.e. platform vs. product.

3. SEC Won’t Hire Crypto Experts

Why it’s interesting: In its annual report regarding operational challenges for the agency, the SEC touches on the crypto industry’s “widespread noncompliance” while simultaneously admitting that it lacks “qualified experts” to fill its crypto-related positions.

  • The report also admits that the SEC’s position towards crypto is to build caselaw rather than to proactively create a body of law regarding digital assets.

What stands out: The SEC’s Office of the Ethics Counsel has taken the position that any candidates that are hired for crypto-related positions must divest their crypto assets in order to work for the agency.

  • The pool of qualified candidates that can intelligently navigate the crypto space without having any “skin in the game” is exceedingly small, if it exists at all.

What’s next: The SEC will continue towards governing through enforcement and court decisions rather than accepting the crypto industry’s olive branch to issue interpretive guidelines that keep digital asset companies in compliance.

4. SEC Commissioner Disagrees with the Agency’s Approach to Crypto

Why it’s interesting: SEC Commissioner Mark Uyeda comments on the SEC’s ineffectiveness in providing guidance to crypto companies regarding whether or not their products fall under existing securities laws.

  • Uyeda joins Commissioner Hester Peirce in offering a dissenting opinion of the SEC’s recent actions against crypto companies.

What stands out: Uyeda notes that the SEC’s case-by-case approach will not effectively regulate the industry, nor will it foster an environment for technological innovation, as it will take years to reach any legally-binding precedents.

  • The commissioner admits that legal analysis is not a simple task for market participants or for courts, especially when it comes to defining a security vs. a non-security.

What’s next: The SEC will continue with its enforcement actions against crypto companies, likely through to courts of appeal, and digital asset startups will continue to move to other jurisdictions with clearer guidance from regulatory bodies.

5. Balaji Srinivasan Bashes SBF’s Media Coverage

Read it on Balajis Substack here: Crypto Twitter Found SBF's Fraud

Why it’s interesting: Entrepreneur and pro-crypto advocate Balaji bashes the media’s treatment of Sam Bankman-Fried (SBF) and suggests that SBF’s drawn out tribunal is a glaring example of the establishment’s inadequacy.

  • Balaji points out that Twitter (or X) and crypto publications were the only successful investigators in the early stages of the FTX collapse, whereas legacy publications like the NY Times were continuing to praise SBF.

What stands out: Balaji highlights the inconsistency with which the state addresses suspected criminals, and calls attention to a specific situation where the US was able to arrest an overseas coder within two days for developing a crypto-mixing tool vs. SBF’s arrest taking weeks.

  • The article draws connections between SBF’s political donations and his extended apprehension, suspecting that the political regime delayed action until social media outcry posed a publicity problem.

What’s next: After earning notoriety for his COVID-19 call in January 2020 and for betting Bitcoin’s price would be over $1m in June 2023, Balaji has earned a cult following among tech enthusiasts for his honest and uncompromising exposés.

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