How an Extreme SHIB Bubble Crisis Funded a $1 Billion AI Political War

It all started with an accident. In 2021, the creators of Shiba Inu sent a large amount of SHIB tokens to Vitalik Buterin without his permission, hoping that implicit endorsement would help them scale as the next Dogecoin. The tokens reached a phenomenal bubble level, with a valuation exceeding $1 billion. Today, about five years later, this episode has become the surprising origin of one of the world’s largest AI policy war funds, and Vitalik is having to answer for the consequences.

The chaotic liquidation journey

When SHIB hit its peak, Buterin panicked. In a recent post on X, he described rushing to exit the position before the collapse, including calling his stepmother in Canada for help typing a 78-digit private wallet number. He sold what he could for ETH and immediately donated $50 million to GiveWell.

But he still held mountains of SHIB. He split the remaining in half: one portion went to CryptoRelief, which used funds for medical infrastructure in India and the Balvi research initiative. The other half was allocated to the Future of Life Institute (FLI), an organization focused on existential risks from AI, biotechnology, and nuclear weapons.

At that moment, everything seemed aligned. FLI presented Buterin with a comprehensive roadmap covering major categories of existential risk. He expected the organization to raise between $10 million and $25 million, considering SHIB’s limited liquidity at the time. But when the bubble finally burst in valuation terms, they managed to liquidate about $500 million. A meme coin that no one took seriously had turned into a billion-dollar philanthropic event.

The unexpected reorientation: from research to political action

This is where the story takes a problematic turn. According to Buterin, FLI underwent “an internal reorientation where they started focusing on cultural and political action as the main method.” The organization justified this change by arguing that AGI is advancing rapidly and aggressive action is needed to counter the lobbying budgets of big AI companies.

But Buterin has deep concerns. “My worry is that large-scale coordinated political action with big financial backing could easily lead to unexpected results, cause adverse reactions, and solve problems in a way that is both authoritarian and fragile,” he wrote.

He cited FLI’s biosafety strategy as an example. The main approach has been to incorporate safety mechanisms into AI models and bio-synthesis devices so they refuse to generate dangerous results. Buterin called this “very fragile,” noting that jailbreaks and fine-tuning make these restrictions easy to bypass. The logical endpoint of this strategy leads to banning open-source AI and eventually “supporting a good AI company to establish global dominance.”

“Approaches like this can very easily backfire, turning the rest of the world into your enemy,” he warned.

He also identified a structural problem in strategies that prioritize regulation. When governments restrict dangerous technologies, national security organizations are inevitably exempt — and these same entities are often the primary source of risk.

Positive signs and ongoing concerns

Not everything is negative. Buterin said he is “excited” about some recent work from FLI, specifically a “pro-AI humanitarian statement” which, according to him, “unites conservatives, progressives, and libertarians, America, Europe, and China.” The organization has also been researching ways to prevent power concentration from AI.

But the core message is clear: a donation Buterin never planned, of tokens he never wanted, funded an organization that changed the path he believed was right, and now directs hundreds of millions in directions that make him uncomfortable. He shared these concerns with FLI “several times” before publicly stating his position.

New capital flowing into prediction markets

Meanwhile, the ecosystem continues to evolve. A new venture capital firm, 5c© Capital, is being launched with support from the CEOs of Polymarket and Kalshi, focusing specifically on investing in companies built around prediction markets. The fund aims to raise up to $35 million and support about 20 early-stage startups over two years, prioritizing infrastructure and services such as data tools, liquidity provision, and compliance systems.

The move reflects the rapid growth of prediction markets, with significant increases in trading volumes, new users, and interest from crypto trading platforms and retail investors, attracting more than 20 initial investors.