The leaked U.S. State Department letter demanding 35 nations choose between the American-led Pax Silica and China’s WAICO is not just a geopolitical realignment—it is the most significant liquidity event for crypto since the spot ETF approvals. Because AI compute is the new collateral, and the terms of its access are about to fragment the entire digital asset ecosystem.
I read the draft letter on March 14, 2025, via a Reuters leak. The language is cold: “Simultaneous participation in a competing AI framework may result in exclusion from the U.S.-led cooperative system.” This is not a request. It is a dual-choice ultimatum. And it forces every crypto analyst to recalibrate the global liquidity map: the supply of AI compute—the underlying asset of tokenized networks like Akash, Render, and io.net—will bifurcate along geopolitical lines. The market has not priced this.
Context: The Two AI Supply Chains
Pax Silica, launched in late 2024, now has 25 signatories. It covers AI models, chips, critical minerals, and advanced manufacturing. The U.S. letter targets 35 countries—the 25 plus 10 new ones—demanding they commit to the American supply chain or face exclusion. China’s counter is the World AI Cooperation Organization (WAICO), with 29 founding members, mostly from the Global South. Kazakhstan is the only dual member, a test case for tolerance.
These are not trade agreements. They are supply chain coalitions with military-industrial undertones. The U.S. framework explicitly ties AI chip access to “trusted” mineral sources (Kazakhstan’s uranium, Australia’s rare earths) and excludes Chinese open-weight models. China’s framework offers free model access and training centers, with no political strings attached. The divergence is structural: one is a fortress, the other an open bazaar.
For crypto, this means the tokenized compute market—currently valued at roughly $8 billion in fully diluted value across major protocols—will split into two addressable pools. U.S.-aligned nodes will be forced to run on American chips and models; China-aligned nodes will run on domestic alternatives. The interoperability between these pools will be constrained by regulatory firewalls. The result is a liquidity trap: AI compute tokens will trade at a premium in one ecosystem and a discount in the other, with arbitrage blocked by compliance.
Core: Crypto as a Macro Asset in a Bifurcated AI World
Let me be precise. The macro-liquidity correlation that has driven crypto cycles since 2020—global M2 expansion, Fed rate cuts, risk-on appetite—is now overlaid with a geopolitical liquidity wedge. The U.S. and China are not just competing for AI dominance; they are competing for the collateral that underpins the next generation of tokenized assets. AI compute is becoming a reserve asset, similar to how Bitcoin is treated as a store of value. But unlike Bitcoin, compute is geographically constrained by chip supply chains and energy grids.
Consider the implications for stablecoins. Cross-border payments for AI compute—imagine a South Korean company paying for rendering on a U.S. GPUs—will increasingly flow through stablecoins. But the settlement layer must be neutral. If the U.S. forces allied nations to use only American-approved stablecoin issuers (e.g., regulated USDC), China’s allies will gravitate toward Chinese-backed stablecoins (e.g., digital yuan or a TRON-based alternative). The dollar’s dominance in crypto settlements, already under pressure from de-dollarization trends, will face a direct challenge from a parallel AI-driven stablecoin bloc.
DeFi faces a similar fracture. Lending protocols that accept AI compute tokens as collateral will need to assess the geopolitical risk of the underlying asset. A tokenized GPU on Akash that is hosted in a U.S.-aligned data center may have a different risk-adjusted yield than one hosted in a China-aligned facility. Smart contracts do not care about geopolitics—but liquidators do. The market will price in a “geopolitical haircut” on compute-backed loans, raising the cost of capital for nodes in contested jurisdictions.
I have seen this pattern before. In 2020, I modeled Compound’s interest rate curves and identified a liquidity crunch risk when ETH collateralization dropped below 150%. The same math applies here: the collateral quality of AI compute tokens is not just a function of utilization rates or tokenomics; it is a function of geopolitical alignment. The probability of a forced liquidation due to sanctions or export controls is now a real variable. That is a new risk premium.
Contrarian: The Decoupling Thesis Is Wrong—Crypto Becomes the Neutral Settlement Layer
The conventional wisdom is that the AI bifurcation will decouple crypto markets—one ecosystem for the West, one for the East. I disagree. The decoupling thesis underestimates the fundamental need for a neutral, trustless settlement layer that both sides require for cross-border compute payments. The U.S. and China do not trust each other’s banks, but they both need to pay for AI compute services that cross borders. Crypto—specifically, Bitcoin and Ethereum—offers a settlement finality that no state-controlled system can match.
Consider the logic: The U.S. wants to sell AI chips to allies but cannot accept Chinese yuan. China wants to sell open-weight models to the Global South but cannot accept dollars without U.S. compliance. Both need a medium of exchange that is not tied to a sovereign balance sheet. That medium is Bitcoin. The current spot ETF flows, which have absorbed over $40 billion in the past 18 months, already reflect this institutional demand for a neutral reserve asset. The AI bifurcation will accelerate this trend: as the two supply chains diverge, the demand for a settlement layer outside both blocs will rise.
I have seen a similar dynamic in the 2024 ETF arbitrage opportunity. I executed basis trades between Bitcoin futures and spot across three exchanges, capturing a 2.5% annualized premium spread. The trade worked because the market was pricing in a regulatory risk premium that was not matched by actual settlement risk. The same is true now: the market is pricing in a geopolitical risk premium for AI compute tokens that is overestimated. The actual settlement risk is lower because crypto is the only neutral bridge between the two systems.
Moreover, the U.S. letter’s threat to “exclude” countries from the U.S.-led system is a double-edged sword. If the U.S. forces a country like Kazakhstan to choose, it pushes that country into China’s arms. But both sides will still need to pay for compute resources across the divide. Kazakhstan will use Bitcoin to settle with both U.S. and Chinese providers. The result is not decoupling but a higher velocity of crypto settlement as the intermediation layer.
Takeaway: Position for Fragmentation, Not Decoupling
Markets will overreact to the headline risk. The initial reaction will be a sell-off in AI compute tokens with exposure to either bloc, as investors fear liquidity fragmentation. But the structural opportunity is in protocols that operate as neutral settlement and compute orchestration layers—those that can route jobs across both supply chains without taking a geopolitical stance. I am looking at decentralized compute marketplaces that support multi-chain bridging and multi-currency payments, and at Bitcoin L2s that enable fast, low-cost settlement for AI compute payments.
The cycle positioning is clear: the next bull run will be driven not by speculative retail but by the institutional demand for neutral infrastructure to bridge the AI divide. The volatility we see now is the tax on the unproven consensus that crypto can be partitioned like the physical world. It cannot. The code is global. The liquidity will follow the path of least resistance—and that path is through decentralized, trustless settlement.
Volatility is the tax on unproven consensus. The consensus that AI compute will be divided into two separate markets is unproven. The tax is the current price discount on tokens that are exposed to geopolitical risk. But the final settlement will be a single, global liquidity pool that transcends Pax Silica and WAICO alike. The question is not whether crypto will survive the bifurcation—it is which protocols will be the bridges.
