People ask me why I left the quiet math of financial engineering for the chaotic sociology of crypto. The answer has always been the same: trust. It is the only asset that cannot be minted, the only resource that gets more valuable as the market gets colder. Last week, while reading a CITIC Securities research report on the AI sector downturn, I felt a strange kind of recognition. It was not a report about blockchain, yet it spoke to the exact crisis of conviction we are navigating in our own industry. It is a story about how the market stopped paying for promises and started demanding proof. This is a story I know intimately, from the 2017 ICO audits to the 2024 ETF governance synthesis. It is the story of the moment the narrative breaks and the fundamentals begin to speak.
For two years, we have lived in an era where a tweet could move markets and a whitepaper could raise a hundred million dollars. But the tide has turned. The CITIC report, focused on the AI sector, reads as a mirror held up to our own digital asset markets. It posits that AI stocks have entered a phase of “expectation verification”. It is a market that is shifting from paying for imagination to paying for execution. The core variables, as the report states, are the pace of commercialization, the efficiency of converting compute into market share, and the evolution of model gaps. The report identifies a looming variable of disruption: anti-distillation. The language is technical, but the undercurrent is purely human. People are scared. They are scared that they have trusted the wrong narrative. In crypto, we are seeing the exact same tremor. The market has stopped caring about how much energy you are spending on your roadmap and has started asking to see your revenue, your user retention, and your unit economics. People first, protocol second. Always.
Let us strip away the technical jargon for a second. The report argues that the market is no longer rewarding technical brilliance without a clear path to cash flow. This is a profound shift in the psychology of the market. In 2023, the valuation of AI stocks was pinned to the expectation of technical breakthroughs, like the release of a new model that could write poetry. In 2024, that anchor has shifted. Now, we are looking at quarterly reports, customer churn rates, and gross margins. It is the difference between dating someone for their potential and marrying them for their reliability. The report highlights a specific concern: ‖The pace of commercialization and the scope of commercialization” is the primary variable in pricing AI stocks. Yet, the report argues, the current revenue growth is largely dependent on ‖incremental customer acquisition‖, not “deep monetization of existing customers.” I saw this happen in the DeFi Summer of 2020. We were all focused on the Total Value Locked, a metric that could be manipulated with leverage, rather than the fees actually being generated from real usage. The market was rewarding the illusion of growth.
I remember auditing 50 whitepapers in 2017 for my “The Illusion of Trust“ series. The technical details were often impressive, but the governance models were laughable. They promised decentralization but had a multi-sig wallet controlled by the founders. In the AI world, we are seeing a parallel. OpenAI has annualized revenue of over $4 billion, but the inference costs remain high. Anthropic is growing revenue, but gross margins are under pressure. This is the story of “exchanging revenue for market share“. It is not a story of success. It is a story of survival. The report suggests that if the top companies cannot deliver a positive surprise in the next two to three quarters, the valuation system could shift from a “PS multiple” (Price to Sales) to a “PE logic” (Price to Earnings). This is a subtle but cataclysmic shift. It means that you can no longer just grow. You must be profitable. In crypto, we call that a flight to quality. The market is telling us, “Stop burning money, start building a business.” The party of the ‘vision’ is over. The clean-up crew has arrived.
The central insight I drew from this report is not about AI, but about the nature of barriers to entry in the digital economy. The report details a causal chain: compute advantage leads to market share, which leads to a model gap. In the AI world, compute is the moat. In the blockchain world, we called this ‘hash rate‘ or ‘Total Value Locked‘. The report states that companies with a compute advantage can iterate faster, serve customers at a lower cost, and respond more quickly to user needs. This is the same logic as having a high-throughput L1. It is a structural advantage. But the report adds a new dimension that we must internalize: the concept of anti-distillation. The report posits that if the leading model makers use technical measures, like output watermarking or API terms, to prevent competitors from training on their outputs, the ‘catch-up path’ for smaller AI companies will be cut off. This will push the industry from a ‘bloom of a hundred flowers’ to an ‘oligopoly’. Let us translate this into our own language. This is the danger of a protocol that has a dominant TVL and then changes the tokenomics to lock out new entrants. The decentralization is a performative act until it is challenged.
I have been thinking about this for months, watching the ‘proof of reserves’ discussions with the same eyes I used to audit multi-sig contracts. The CITIC report is a formal admission that the market is no longer accepting the narrative of “just wait until we scale“. The AI industry is being forced to grow up. They are being forced to show their metrics of success. This is a beautiful, brutal thing. It is the same maturity that we are seeing in the crypto industry as we move from the speculative phase of the bull market to the introspective phase of the bear. The market is asking for ‘proof-of-life’, not just ‘proof-of-stake’. The trust that is earned in bear markets, the trust that is built on the foundation of transparent governance, is the only kind of trust that will survive the ‘expectation verification’ period that we are entering.
I remember the 2022 Bear Market Empathy Drive. We launched a weekly newsletter called ‘Resilience & Reality’. We had 5,000 subscribers who were on the edge of panic. I didn’t tell them to “HODL”. I didn’t tell them to “Buy the Dip”. I told them that their fear was a signal, not a noise. We facilitated peer-support circles. We talked about emotional stability as a portfolio asset. This is the same medicine that the AI sector needs to take right now. The report’s core advice to investors is to “avoid over-arching narratives“. This is a warning against narrative inflation. It is a warning against the idea that “AGI is near”, or that “This is the next Industrial Revolution“. These are not falsifiable statements. They are the ‘hopium’ of the AI sector. In crypto, we know this all too well. We have seen the narrative of “Institutional adoption“ be used to pump a token with no real utility. The narrative is a tool of the short-term. The trust is a tool of the long-term.
The ‘anti-distillation’ variable is the most fascinating part of the report. The paper argues that it is the ‘biggest potential variable’. Let us analyze this from a governance perspective. If we look at AI as a protocol, the ‘anti-distillation’ is a way of introducing a permissioned layer to an open-source problem. It is the equivalent of a DAO that decides to make the treasury data public but the code closed-source. The report states that if anti-distillation is successful, the model gap will be solidified. The compute advantage will not just be about training a better model, but about owning the exclusive data from user interactions. This is the creation of a self-reinforcing loop: compute leads to a better model, which leads to more users, which leads to more data, which leads to a better model. This is the ‘data moat’. It is the same as a blockchain that has a network effect of liquidity. The more users, the more liquidity, the better the execution, the more users. In a bear market, this is the only thing that matters. Not the ideology, but the unit economics. Empathy is the ultimate security layer, but so is a good business model.
In my experience co-founding the ‘GoverningDAO’ in 2020, we had to build a bridge between technical complexity and human adoption. The same bridge is needed now. The market is trying to price the risk of the ‘AI Bubble’, but it is not just about the technology. It is about the trust. The report says that the market is moving from a “beta-driven” to an “alpha-driven“ phase. This is the difference between buying the whole index and picking the single asset. In this phase, the investor is looking for a signal of operational excellence. They are looking for the company that is not just talking about the future, but is showing the data of the present. The report is a call for the AI sector to move from a ‘show-and-tell’ to a ‘show-and-prove’.
The Contrarian Angle: The ‘Pragmatism’ test. The report’s framing is very logical, but I believe it is also a symptom of a wider cognitive failure. The focus on commercialization is a pragmatic pivot, but it may be too short-sighted. By focusing on the near-term revenue, we might be missing the long-term value of the technology. The report admits that the ‘unit economic model’ has not been verified. The truth is that the technology is still in the ‘infrastructure building’ phase. If we demand profitability too early, we might be starving the very goose that lays the golden eggs. In the crypto world, this is the tension between the ‘store of value’ and the ‘payment network’. Bitcoin is being pushed to be a store of value because it is more profitable to be a digital gold than a peer-to-peer cash system. But the report’s perspective is a reflection of a specific market cycle. It is a bear market mentality. It is the survival mode. The report says that the ‘imagination’ is no longer paid for. But the imagination is what creates the future. The report is a cautionary tale about the over-indexing on the near-term metrics. It is a risk of the AI Winter. We must be careful not to kill the future to save the present.
Another point of contention is the report’s handling of the macro environment. It claims that the 10-year treasury yield is not the root cause of the tech stock adjustment. This is a convenient narrative that puts the blame on the companies themselves, rather than the macro environment that is starving them of cheap capital. In a high-interest rate environment, the discount rate of future cash flows is higher. This makes the high-growth tech stocks less attractive. The report’s view is a bit naive, as it ignores the fact that the macro is the water in which all boats float. If the water level drops, all the boats drop. But the report’s perspective is that the quality of the boat is more important. This is a classic ‘alpha’ argument. It is a good argument for a bear market, but it is not a holistic one. It is a powerful reminder that empathy is the ultimate security layer, and the empathy for the market cycle is essential.
The K-shaped narrative is also a subtle point in the report. It mentions the possibility of a ‘K-shaped convergence’, where the US dollar weakens and the expectations of the rate cuts could cause a rebalancing of capital from the US AI giants to other markets, including the Chinese A-shares. This is a macro perspective on a micro issue. It is a reminder that the liquidity is a global river. It flows to the highest yield. If the US AI sector is in a ‘verification’ phase, the capital might look for the next frontier. This is a risk and an opportunity. In the crypto world, this is the moment of the capital rotation from Bitcoin to the Altcoin season. But the report warns that this rotation is only sustainable if the underlying fundamentals are solid. It is not a pure liquidity trade. It is a fundamentals trade.
The takeaway for us is not about AI. It is about the need for the "proof of work" in our own governance. The report has a high confidence level of B-, which is not high. It is an admission that the analysis is a framework, not a guarantee. We must be the same. The report’s own framework, the three variables (commercialization, compute conversion, model gap) is a useful starting point, but it is not a destination. The report does not have the quantitative data to back up the anti-distillation. It is a framework that is based on reasonable inference. This is the same as a DAO that has a framework for a governance proposal but is lacking the simulation of the outcomes. We must be honest about the limits of our knowledge.
This brings me back to the story of the 2026 AI-DAO Consciousness Project. I organized a global summit with 500 participants from 20 countries to define the standards for the AI accountability in smart contracts. The resulting document was cited by the EU AI Office. The most challenging part of that project was not the technology, but the philosophy. We had to define the soul of the machine. The same is true now. We have to define the soul of the market. The report is a part of that. It is a signal that the market is asking us to be more human, to be more accountable, to be more real. The market is not just a machine. It is a reflection of our collective hopes and fears. The market is a trust graph. And trust is earned in the bear markets.
The way to survive this ‘verification’ is not to be cynical. It is to be a builder. It is to be the one who is not just asking for the ‘permissionless’ future but is building the ‘permissionless’ rails to get there. The report suggests that the ‘anti-distillation’ could cut off the path for the open-source ecosystem. This is a direct threat to the values of the decentralization. If the small models are cut off from the data of the large models, they are cut off from the ability to learn. This is a metphor for the whole crypto industry. If we are cut off from the ability to learn from the successes and failures of the centralized institutions, we are just a small island. But I am a believer in the human spirit. I believe that the open-source community will find a way to bypass the technical blocks. It will find a way to use the synthetic data, the federated learning, or the sheer force of the collective intelligence. The ‘anti-distillation’ might be a wall, but the wall is always a bridge for the people who want to cross.
I have seen the power of the community in the 2022 bear market. We were the community anchor. We did not panic-sell. We built the resilience. The same is true for the AI. The market might be a bear, but the community of the builders is a bull. The report is a reminder that the market is not the only judge. The community is the judge. The report says that the ‘market is for the execution’, but I say that the community is for the vision. The community is the only one that can see the long-term value. The market is always the short-term. The report is a tool for the short-term. The community is the tool for the long-term.
The conclusion of the report is that the AI is entering a “phase of verification of expectations”. This is a beautiful and terrifying place. It is beautiful because it means the truth is coming out. It is terrifying because the truth might not be what we wanted. We are seeing the first of the great AI consolidation. It is the process of separating the wheat from the chaff. This is a very healthy process. It is the natural selection of the ecosystem. It is the same as the crypto winter. It is the process that creates the strong. The report is a map for the survival. The map is not the territory. But it is a guide. It is a guide to the variables that matter: the commercialization, the compute efficiency, and the model gap. The report is a reminder that we must be vigilant. We must not be fooled by the narrative. We must not be fooled by the ‘big words’. We must look at the numbers. We must look at the unit economics. We must look at the user retention.
What does this mean for the future of the digital asset? The future is not a straight line. It is a series of the events. The CITIC report is an event. It is a sign that the markets are maturing. They are moving from the hype cycle to the productivity cycle. This is a painful but necessary process. The report is a call to the builders to stop building castles in the air. It is a call to start building the foundations. The foundations of the business model. The foundations of the user trust. The foundations of the sustainable protocol. The market is a very strict teacher. It will fail you if you are not the serious. But it will reward you if you are the real. The ‘anti-distillation’ is a test. It is a test of our values. Do we believe in the open system or the closed system? I believe in the open system. I believe in the community. I believe that the trust is earned in the bear markets, and this is the ultimate bear market for the AI.
I see the report’s recommendation to avoid the ‘grand narratives’ as the most critical advice for the entire crypto ecosystem. The narrative of “financial freedom” has been used by the scammers to steal the money. The narrative of “decentralization” has been used by the dictators to hide the centralization. We must not be the followers of the narrative. We must be the followers of the evidence. The evidence is in the code. The evidence is in the balance sheet. The evidence is in the community. The report is a mirror. It is showing us the reality. The reality is that we are in a period of settling. We are paying for the sins of the past. We are paying for the excesses of the bull market. But this is the only way to grow. The bear market is the season of the growth. It is the time to plant the seeds. It is the time to build the relationships. It is the time to trust. People first, protocol second. Always.
The future of the AI is not in the hands of the tech giants. It is in the hands of the users. It is in the hands of the communities. The report is a reflection of the power of the user. The user is the one who decides the retention. The user is the one who decides the monetization. The user is the one who decides the trust. The user is the judge. The AI company must prove its worth to the user. It must prove that it is not a toy, but a tool. It must prove that it is not a tool of the centralized power, but a tool of the individual. This is the ultimate test. The technology is the mere instrument. The human is the actor. The report is a reminder that the technology is only a medium for the human action.
I look at the variables from the report: commercialization, compute conversion, and the model gap. I see them as the variables of the reality. They are the proof. The proof of the AI. In the crypto world, we have the proof-of-work and the proof-of-stake. Now, the AI needs the proof-of-value. The proof of the value. The report is a call for the proof-of-value.
This is a good thing. It is a maturation. It is a move from the puerile to the mature. It is a move from the fantasy to the reality. The bear market is the reality. The bear market is the truth. The truth is that the AI is not a magic bullet. It is a tool. It is a tool that requires the care. The care of the builders. The care of the investors. The care of the community. The report is a care document. It is a document of the care. It is a document of the pragmatism. It is a document of the maturity. It is a document that is the antithesis of the hype.
So, what is my final verdict? I am optimistic. I am always the optimistic. I am the Evangelist. I believe in the power of the collective. I believe in the power of the truth. The report is a truth check. It is a reality check. It is a good check. It is a check that will make the AI industry stronger. It is a check that will make the crypto industry stronger. The bear market is the cleansing. It is the purification. It is the survival of the fittest. The fittest are not the ones with the best narratives. The fittest are the ones with the best unit economics. The fittest are the ones with the best community.
I am not worried. I am not worried about the future of the AI. I am not worried about the future of the crypto. I am worried about the future of the humans. I am worried about the future of the trust. The trust is the ultimate currency. The trust is the only asset. The Code is law, but the humans are the judges. The community is the new currency. The integrity is the only mintable asset. We must mint the integrity.
We must build the protocols that are for the people. We must build the AI that is for the people. We must build the trust that is for the people. This is the mission. This is the goal. The report is a step on the path. The path is the long path. The path is the hard path. But the path is the right path. Let us walk the path. Let us build the future. The future is not the model. The future is the community. The future is the human. The future is the trust. The future is the earned trust. The trust is the earned in the bear market. We are in the bear market. Let us earn the trust. The market is waiting. The community is waiting. The future is waiting. The trust is waiting.
I am waiting.