Letter 112: Venice.AI, 3 months later

I wrote a deep dive on Venice back in early March (Letter 102). VVV was sitting around $6.50, the market cap was roughly $294M, and I laid out why I was bullish: real product, real users, token directly tied to platform usage, and a tokenomics system that just made sense. That was 70 days ago. Since then, the ecosystem has soared with both VVV and DIEM hitting new highs after new highs. So today I’m doing an update on what’s changed, what’s driven the move, and where I think things go from here. Things have boomed across the board, so here’s a quick snapshot of where some of the key numbers are standing today: There are five key things that happened between Letter 102 and now: Verifiable end-to-end encryption (March 18) This was a technical milestone that a lot of people had been waiting for. One of the main criticisms of Venice up until this point was that their privacy was on a “trust me bro” basis. On March 18, Venice shipped four privacy modes, the most important being Trusted Execution Environment (TEE) and full End-to-End Encryption (E2EE), through partners at NEAR AI Cloud and the Phala Network. This made things shift from “trust us, we don’t log your prompts” to “you can cryptographically verify that we cannot see your prompts.” Each response includes attestation evidence you can independently verify. It’s a real, hardware level guarantee. For regulated industries, this is a big deal. A US federal court recently ruled that using standard AI tools could waive attorney-client privilege precisely because they lack confidentiality guarantees. If you’re a law firm, hospital, or financial institution, you literally cannot use ChatGPT for client work in a defensible way. While most will probably still choose to host their own local LLMs, Venice at least gives anyone with confidentiality concerns an alternative option and way to use models without leaking private information to Big AI. VVV jumped about 10% the day of the announcement and that was the start of the real run. Programmatic buy and burn launched (April 15) Up until April 15, Venice’s buybacks were discretionary. The team would use a portion of monthly revenue to buy and burn VVV on the open market, but the timing was at their discretion. On April 15, they switched to a programmatic engine: every new Pro subscription triggers an automatic, on-chain $1 market buy of VVV that gets immediately burned. The buybacks became verifiable, predictable, and directly tied to revenue. Burn sizes increased (April 27) There was some criticism around that first announcement that the buyback amounts “weren’t enough”, and so twelve days later, they cranked the burns up, with a new tiered structure based on the level of subscription someone signs up for: Pro subscription: $2 in VVV burned (up from $1) Pro+ subscription: $5 in VVV burned Max subscription: $10 in VVV burned The market, unsurprisingly, liked this decision too. Staged emission reduction (effective May 1st) The Venice team committed to reducing the VVV emissions by 50%. From their X post: May 1: 6M → 5M annual emissions June 1: 5M → 4M July 1: 4M → 3M For context, emissions started at 10M/year at launch. By July 1 they’ll be at 3M/year. A 70% cut from the original rate in under 18 months. Combined with the programmatic buy and burn, this is the path to VVV becoming net deflationary. They’re still a long way off this becoming a reality but with emissions reducing and buybacks increasing and overall adoption and usage of the platform skyrocketing, everything is moving in the right direction. StrikeRobot partnership (May 7-11) This one is really cool. As you know, I am bullish on Robotics too (both in general and onchain robotics), having written about the sector earlier this year. Venice is now powering humanoid robots with private AI vision and decision making, through a partnership with StrikeRobot because, quote, “Your AI shouldn’t spy on you.” I bring this up not because robots are necessarily going to move the needle on revenue this year, but because of what it signals. Venice is being chosen for high stakes physical applications where privacy actually matters. A robot in your home, watching you, making decisions about you. Do you really want OpenAI, Google, or Anthropic to have access to that data? I covered the basics of DIEM in Letter 102, but it deserves a much bigger spotlight here because I think it’s still one of the most underappreciated parts of the Venice ecosystem. Most VVV analysis I read fixates on the buy and burn, which is of course important, but DIEM is the part that really excites me (partly because I am actively using it myself on a daily basis). So let me actually explain what DIEM does and why it matters. Each DIEM token equals $1 per day of Venice API credit, forever. If you hold 100 DIEM, you have $100/day of Venice inference, every day, indefinitely. DIEM can only be minted by locking staked VVV (sVVV). The mint rate is dynamic and rises as DIEM supply approaches Venice’s target. While your VVV is locked, you continue to earn 80% of normal staking yield. To unlock your VVV, you burn the equivalent amount of DIEM. So the cycle is: VVV staked → VVV locked → DIEM minted → DIEM burned → VVV unlocked. DIEM creates a futures market for AI compute. If you’re a developer or AI agent using the Venice API daily, it can be hard to budget because regular API pricing fluctuates and costs are unpredictable. DIEM solves this by letting you buy your compute upfront. 100 DIEM costs you whatever the market price is today. From that day forward, you get $100/day of inference with no future bills or costs. It’s a fixed-cost compute futures contract. Not to mention the potential benefit of being able to sell your DIEM at any point too, meaning if you sell in 2 years at the price you got it for, your compute was essentially free. What I’m watching is the ratio of DIEM market price to its underlying fair value. Each DIEM produces $1/day of compute, so over 365 days that’s $365 of value (less if you discount for time, more if you assume AI compute costs rise over time). If DIEM trades at $200, payback is around 200 days. If it trades at $1,500, the payback period is over four years. The market is essentially pricing in expectations about how much Venice API access will be worth in the future, and that’s a real economic signal. Every time someone mints DIEM, they have to lock VVV. That VVV is taken out of the circulating, sellable supply. It’s effectively a second supply sink on top of the buy and burn. Think of it this way. If you’re an enterprise developer who needs predictable AI compute costs, you have two paths to access Venice: Path A: Subscribe to Pro/Pro+/Max and pay Venice in fiat. Venice uses that revenue to buy and burn VVV. Path B: Buy DIEM on the open market and stake it for daily credits. The DIEM you bought required someone to lock VVV to mint it. Both paths create VVV demand. Path A through direct burn pressure. Path B through removing tradeable VVV from supply. As Venice’s user base scales, both paths grow simultaneously. There’s been ongoing pushback on the DIEM model with the main argument from skeptics being that when developers buy DIEM and use it for compute, no new cash hits Venice’s balance sheet (unlike Pro subscriptions which do generate cash revenue). The concern is that DIEM could cannibalize Pro subscriptions and drain future cash flow. Venice founder Erik Voorhees has pushed back on this directly by saying that DIEM was designed to solve pricing instability and create programmable compute, not to be a primary revenue mechanism. The Pro subscription model funds Venice as a company and DIEM creates a secondary economic layer. I think one important thing to keep in mind is that DIEM holders aren’t necessarily the same population as Pro subscribers. Pro subscribers are mostly individuals and small teams who want a chat interface and convenience, and often are not crypto native at all. DIEM holders are developers, AI…

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Letter 112: Venice.AI, 3 months later