Arthur Hayes talks about DAT, stablecoins and forecasting the future of the market

Source: Unchained; Compiled by: Ismay

host:

Haseeb Qureshi, Dragonfly Managing Partner

Tom Schmidt, Dragonfly General Partner

Tarun Chitra, Managing Partner, Robot Ventures

Guest:

Arthur Hayes, Maelstrom CIO

Tom Lee, Fundstrat Capital CIO and Chairman of Bitmine

This interview brought together heavyweights in the crypto industry – Arthur Hayes and Tom Lee, and conducted in-depth discussions on cutting-edge topics such as perpetual contracts, stablecoins, digital asset vaults (DATs), forecasting markets and privacy coins.The guests not only shared their unique insights on market trends, product strategies and competitive landscapes, but also analyzed the development logic of crypto assets from an institutional perspective: how DAT becomes the “Wall Street CEO” on the chain, whether the stablecoin special chain can form a real value stream, the competition and innovation of Perp DEX, and the potential of predicting the market and privacy coins in information, speculation and social value.The article not only presents the industry’s practical experience, but also reflects the latest trends of the crypto ecosystem in financialization, compliance and product innovation. It is an important reference for understanding the current development context and future trends of the crypto market.

The following is the entire content of the conversation:

Haseeb: Hello everyone, I am the chief momentum officer of Dragonfly. We are early investors in crypto, but we want to state that nothing we are talking about here is investment advice, legal advice, or even life advice (laughs).

We are back at Token 2049.I was just reviewing last year’s scene in the background.If you turn your time back to “Before Trump became the ‘Dear Leader'”, then Token 2049 was all meme coins; if you remember the Breakpoint scene next door, Iggy Azalea made big news at that time.Arthur, what is the atmosphere of Token 2049 this year?

Arthur: Traffic jam.

Haseeb: True (laughs).

Tom Schmidt:: I feel almost a little “comfortable”.Compared with last year’s meme coin craze, this year, everyone is talking about stablecoins and DATs (digital asset vault).Don’t mind Tom, but the atmosphere is completely different from the Iggy Azalea strip party that last year.

Haseeb: Last year, there were fewer suits and more undressing clothes; this year, Tom, how do you feel about a more institutional Token 2049?

Tom Lee: This year, there are a lot of energy, and there are a lot of key people coming. We have held a lot of meetings, which are very efficient.

Haseeb: More efficient than last year’s strip party?

Tom Lee: I haven’t participated (laughs).

Trend discussion of DAT

Haseeb: It’s understandable.OK, let’s talk about DATs.For listeners who don’t understand, DAT stands for “Digital Asset Treasuries”, which is equivalent to “micro-strategization of all things.”

Tom on stage today is the chairman of Bitmine.Bitmine is the largest Ethereum vault to date, with a very fast increase in holdings, already holding about 2.65 million ETH, accounting for more than 2% of the entire Ethereum supply.

It is worth noting that we see that the volume of these DATs is highly concentrated.There were many different DAT participants in the past, and now 90% of DAT daily trading volumes are between MicroStrategy and Bitmine, and the other trading volumes are almost small pieces.

I have to ask, Tom, many people think you are the “savior of Ethereum”.What do you think?

Tom Lee: This is a big deal…

Haseeb: Work, yes, that’s right.

Tom Lee: I think Ethereum itself is in good condition.The Ethereum Foundation has focused on the right direction over the past year.Coupled with the rise of stablecoins, the demand for blockchain has really ignited.And Bitmine just happened to hit this opportunity.

Haseeb: That’s true.At that time, the foundation was still adjusting internally and the narrative was also reshaping.But now I feel like you have basically become the “Chief Market Officer” of Ethereum.

Tom Lee: Haha, then I have to add this title to my business card.

Haseeb: You should indeed add it.Arthur, what do you think of DAT’s craze, what impact does it have on Ethereum and the reignitment of narrative?

Arthur: I think everyone loves to listen to Tom Lee on CNBC.He is willing to promote the gongs and drums, so let’s do it.I like it, we need more of Tom Lee like this.Each chain should have its own Tom Lee.

Haseeb: Yes, every chain, right?Then let me ask you a question, Tom What do you think you have done right, and other people who want to be “copycat version of Tom Lee” did not do it?

Tom Lee: I think the first thing Bitmine does right is communication.We have always conveyed the information very simply and clearly: ETH is in a super cycle.We constantly emphasize this through official websites, speeches, and video speeches from the chairman.Secondly, Bitmine has a strong connection with the institutional world.For example, Cathie Wood publicly held a heavy position in Bitmine very early, and now it is one of the top ten positions in ARK funds, which has also attracted more institutional funds.This process creates a “flywheel effect”, so we can become the 26th largest stock in the United States today.And as you said, we, together with MicroStrategy, are really creating liquidity for DATs.

Haseeb: What’s next?I see that you are not limited to Ethereum.Recently, there was news that your scale exceeded Worldcoin’s DAT and seemed to be expanding outward.Can you tell me about this strategy?

Tom Lee: Bitmine wants to continue to help Ethereum grow over the next 15 years.Specifically, it includes identifying more key projects that consume ETH and burn gas; it will also help incubate new payment tracks on Ethereum.Of course, we are also working closely with the Ethereum Foundation to identify and prioritize the support for upgrade directions.

This also includes investing in some truly outstanding projects.For example, Orb 8 code – it is associated with Worldcoin. As a16z mentioned, among the 11 directions that AI really cares about, one is “human identity proof”.Worldcoin is one of the first projects to do this, and now nearly 17 million people have passed it and have been verified as “real people”.I think protecting human identity is a major mission on blockchain.

Haseeb: I have a small theory myself. We have talked about the previous program. The significance of DAT is not only as a tool for institutional investment, but also gives a chain a “Wall Street CEO”.Such CEOs can do things that the foundation cannot do.For example, foundation heads such as Vitalik or Tamash cannot go to CNBC to shout “The ETH bull market is coming”, nor can they post a bunch of technical analysis posts, because this is “inappropriate” to them.

But DATs can outsource the character and let someone tell stories in language that Wall Street understands.This is actually something that the crypto industry has always lacked – it is obviously highly financialized, but no one takes on the role of “market official”.And in my opinion, you are the typical example.

What about looking forward to the future?We have seen the DAT boom cool down, the net asset management value is compressing, and there are fewer and fewer new products.How do you think about the future? What will DAT evolve in 2, 3, and 5 years?

Tom Schmidt: I was about to ask Tom, but I actually felt that the whole process and pace were much faster than we originally thought.Now most Class E DATs have fallen below their net asset value (NAV).Then what do you think will happen next?Will they smash the market and sell a lot of ETH and then buy back the shares?Will it be acquired?Or will you transform into AI?What would you do, or what would you think they would do?

Tom Lee: I heard today that there are 78 DATs now, and this is indeed a lot.If you look at the traditional secondary market, institutional investors generally only choose 2 to 3, up to 4.So in this range, there will definitely be multiple winners.But it is impossible for institutions to buy 70 DATs.DATs that fell below NAV are facing an existential crisis.I think a DAT should not be lower than NAV, which is a negative signal in itself.I don’t know if they should be converted into ETFs, nor if they should be liquidated or merged.But I’m pretty sure that DAT shouldn’t fall below NAV.Of course, this is also a question of the market’s “level”.

Tom Schmidt:: So you’re talking about “level issues”, right?

Tom Lee: That’s right.You see, no ETF will be lower than NAV, so DAT should not be like this.If they have a way to “threat” themselves to convert ETFs, they will always trade with NAV, which should be the bottom line.

Haseeb: It makes sense.What do you think?

Tarun Chitra: I agree with the point of “merger”.For example, Solana’s DAT is constantly releasing merged signals, and it is impossible for 20 forever.But what I don’t understand is that there are still people who are sending DATs to tokens with a market value of only 1 billion, 2 billion, and 3 billion US dollars.I can’t figure out how to survive a project of this size, and why do anyone still have to issue such a DAT?

Arthur: Because the initiator can charge 5% management fee.

Tarun Chitra: But imagine if you were Tom and you wanted to run a DAT with a market value of only $3 billion, and someone else said you would give you a 1% circulating share, and you had to trade this.What are you willing to do?

Tom Lee: Yes, this may destroy the “reflexivity”.In theory, DAT should be a long-term holder of tokens, but if its position is too large, it will actually bring about a negative effect of “power law”.So Bitmine has never wanted to hold more than 10% of ETH, and its target is actually only 5%.The DAT of the small token may help them tell the story clearly, but you don’t want it to be a big dealer in the end.

Haseeb: Something happened to the Zero G token recently.Its DAT was closed before the token went online, which was equivalent to injecting some tokens that were not yet market-priced, and then setting a valuation at random.

In addition, the US SEC has also been putting on the brakes recently. There are rumors that someone has reported the insider trading to the SEC, and they have begun to investigate these “blind operations before the closing.”In addition, Nasdaq’s rules on DAT have also been tightened.Those projects that are taking shortcuts will probably be highlighted soon.Overall, the trend is still “integration”.If you are not big, not big enough, and not “hard core” enough, DAT itself has no transaction volume.Without trading volume, you can’t even do ATM (added issuance and financing). So what’s the point of doing this?Just locking up some capital and throwing it into the stock market, no one is buying or selling it.

Haseeb: Speaking of ETH, our friend Andrew Kang recently posted a Twitter hotter. I wonder if you have seen it. The title is “Tom Lee’s Ethereum Argument is Silly”, which has about 1.5 million views.What he means is: Yes, stablecoins will be used on Ethereum, RW (real-world assets) will be used on Ethereum, and banks will also be used on Ethereum, but they will not really pay and will not pay the handling fee.All this is a joke, and the one that should be bought is a robot company.He is now fully focused on robot companies.What do you think of Andrew Kang’s singing school?

Tom Lee: You also know that in the encryption circle, “retarded” is a compliment.So I just took it as a praise.

Haseeb: Haha, OK, OK.

Tom Lee: Thank you very much.

Haseeb: This is a good response, very good.

Arthur: That’s why he needs me.

Plasma and Stablecoin Hot

Haseeb: That’s why Bitmine is number one.OK, let’s change the topic and talk about Plasma.Speaking of stablecoins, Plasma is a new L1 stablecoin chain, invested by Tether.I would like to ask how many people present have participated in Plasma mining or held Plasma tokens?Raise your hand… OK, I saw it.

Arthur: You may be lying.

Haseeb: Not many people raised their hands, I was quite surprised.In fact, the mining scale this time is very large.It is one of the latest token releases and has a huge airdrop.The current full dilution valuation is about US$8.5 billion, with a total circulation of more than US$1 billion, and a large airdrop.

The problem is that Plasma has a high nominal valuation now, but in fact there are no applications available, and it is essentially a huge mining farm.They spend about $500 million a year to turn USDT away.So what do you think?Will the stablecoin chain be a new trend?Will it shake the narrative of Ethereum?Because looking at the data on the chain, most stablecoins have flowed out of Ethereum this week and flowed directly into Plasma.

Arthur: I think this is mainly a “mining function”.If there is positive profit, everyone will do it.But if there is no value creation in the future, these funds will still come back, just like all the chain games in the past ten years.

Haseeb: That is, it’s just a random “mining farm”.

Arthur: It’s almost the same.Yes, it’s a farm.But it must be able to run above the logic of farm to be considered really valuable.

Tarun Chitra: In India, there are many narratives of “X for Y”.Plasma is much like Bear Chain for stablecoins.

Haseeb: A Bear Chain specially designed for stablecoins?

Tarun Chitra: Yes, that’s essentially what it means.

Tom Schmidt: But I think…well, that’s it.

Arthur: Yes.

Haseeb: Let’s talk about it, why do you think it looks like Bear Chain?

Tarun Chitra: Because it’s so typical: the new L1 is crazy inspiration when it comes online, and everything revolves around “mining”.The gimmick of stablecoins is not that important.Yes, all rewards are settled in Tether, but what you are really interested in is mining XPL tokens.Most of the gains are XPL rewards, starting from 60% to 70%.This is the income structure of many agreements.It felt like Bear Chain. At that time, everyone rushed in. The daily narrative was “the meaning of this chain is to farm for you”, so it was very important to provide liquidity on the day of online launch.

I think the only special point is the integration of Binance Earn, which brought at least 2 billion US dollars (SEC/USDT), which is far beyond my expectations.

Haseeb: Indeed, their BD is awesome, their marketing is in place, and their execution is completely online.But I agree with your concerns.Then you would suggest what they should do next so that they can not become the next Bear Chain?

Tarun Chitra: I just don’t understand how they can really move the stablecoin funds flow to their chains.It looks almost impossible.Either you can only eat Tron, but who is the biggest XPL farmer?Obviously “Tron Emperor”.

Haseeb: Haha, it’s not “the great emperor”, it’s “Your Excellency”.

Tarun Chitra: Yes, “Your Excellency”.The problem is that you cannot eat too much TON trading volume, and you cannot eat too much Ethereum trading volume.So in the long run, where do these capital flows come from?To be honest, I think it is difficult for other stablecoin chains to explain clearly where the “natural capital flow” is, except for tempo.

Tom Schmidt: Yes, I’m a little worried.If the only highlight of a new project is “the strongest mining farm in history”, it is like the “tokens in the box” joke of SBF back then: If everyone is making money, you’d better leave this room quickly.

Of course I don’t think there is something wrong with the stablecoin chain itself, I think this direction is right.But I agree with Tarun, the more reasonable path should be: there are already applications for distribution scenarios, slowly migrating its internal capital flow to the new chain.This is the logic of Stripe’s support for tempo.I’m not surprised that some exchanges are considering similar gameplay.

Because most people who hold Tether are essentially held through certain “distribution terminals”, it is actually these institutions that have the ability to promote this migration.

Haseeb: Another Tom, what do you think?

Tom Lee: I think stablecoins will be a super big market.Now the total market value is only 300 billion US dollars, and I can fully see it growing to 4 trillion.This is also what the Minister of Finance is talking about recently, and it may not have included “micro payments”.Stablecoins are naturally suitable for micro payments, because Tether is a 12-digit decimal number, which can achieve extremely fine-grained payments.

These requirements cannot be implemented on one chain, and Ethereum itself cannot accommodate the capacity.So I think multiple chain exploration is reasonable.I hope to see multiple solutions succeed.

Haseeb: Yes, Tom, I think you’re right.To build a new chain for stablecoins, you must first bring the capital flow in.Tempo is obviously on this path – their collaboration with Stripe will play the role of the source of B2B traffic.

But it’s too difficult if you just want to suck away the demand for stablecoins that are already in somewhere else.Because Tron’s network effect is too strong and its stickiness is too high.The same is true for Ethereum – many people hold stablecoins on Ethereum.In theory I could pay you on another chain, but the reality is that we are all more likely to trade directly on Ethereum.

Tarun Chitra: Yes, for example, what happened yesterday about the bridge, Phantom issued stablecoins on Solana through bridge.I think this kind of capital flow is mostly flowing between the original user groups, rather than going to new chains that try to attract users by themselves.

Haseeb: What’s wrong with that bridge?

Tarun Chitra: There is no big problem, it is Phantom using bridge to issue stablecoins on Solana.I mean, this operation makes me think: Why do I want to go to another chain?If I were an application party, I could find one of the 4 or 5 stablecoin service providers on the market now and directly issue a white label stablecoin.Do I really need to go to a new chain?I don’t think it’s necessary.

The competitive landscape between Hyperliquid and Perp DEX

Haseeb: It makes sense.OK, now that we are talking about bridges, let’s talk about Hyperliquid.Everyone knows that Hyperliquid is currently the largest decentralized contract exchange.There has now been a competition increasingly known as the “perpetual contract exchange war”.

At present, the front row of this war is Aster, which is the exchange associated with CZ, Binance Labs, and BNB Chain.Their daily trading volume has reached around $60 billion.

Arthur: True or fake?

Haseeb: Yes, that’s what I see.

Arthur: Actually, it doesn’t matter whether it is true or false. Anyway, everyone is talking about it, so it is considered successful.

Haseeb: That’s right, that’s exactly what it is.Regardless of whether the volume is true or false, it really attracts attention.Recently we saw Bybit announce its in-depth cooperation with APEX.Coinbase is also getting closer to Avantis, which is their layout in the contract market.It seems that it is not just a war between DEX now, but CEX has also chosen its own “agent” to join the battle.

Haseeb: Arthur, you have also been on a lot of news recently.First of all, I remember that the token you once called Hyperliquid will rise to 126 times.

Arthur: Yes, I said it.

Haseeb: Then about a month later, you sold the HYPE on your hand.

Arthur: Yes, I sold it.

Haseeb: Your reason was that Hyperliquid had a “Sword of Damocles” hanging above his head.Explain what kind of sword it is?

Arthur: Actually, everyone has known for a long time, it is to unlock pressure.Starting at least November, about $500 million in tokens will enter saleable circulation each year.This is no secret, everyone knows it.

When Hyperliquid was still dominant (the market share was 60%-70% a month and a half ago), unlocking was actually not that important.Because the market defaults to making more processing fees, it uses this money to buy back HYPE tokens, so this is the so-called “good unlocking”, just like the case in Solana in 2021.

But one day, I checked the trading rankings casually: Hyperliquid is still the first, with a daily trading volume of 4 billion; it was followed by Lighter 3.9 billion and Aster 3.8 billion.This shows that competition is really coming.This does not mean that Hyperliquid cannot beat them. Its technology, HIP3 upgrade, and development team are all very strong, and it is likely to get rid of its opponents in the next 2 or 3 years.I said before that it will increase by 126 times by 2028, and I still think so.

But now the market has begun to reprice, and I can’t sit there and watch the price be crushed.So I simply sold it, stand outside the market and wait and see it, and wait until the market direction is clear.

Ultimately, it depends on whether Hyperliquid can prove that it has a “moat” and can charge real and sustainable fees in the competition.If it cannot be done, it depends on what new products or services can be launched by perp DEX so that users are willing to pay for the order, and will not be imitated by centralized exchanges immediately and “zero-cost inversion”.The goal of CEX is simple: make sure no one can really make money in the decentralized contract market.If they do this by suppressing the profits of the top DEX, then the number one will not be kept.

Haseeb: Well, what do you think about the “Sword of Damocles” on Hyperliquid’s head?Do you agree with this statement?

Tom Schmidt: I think the statement “benefit unlocking” makes sense.

Arthur: So should I buy Hyperliquid now?This is a good price.

Tom Schmidt: I mean, this is actually a “inducing demand.”They have figured out a blueprint, and now everyone is imitating it.I think this market will continue to explode.Or like “convergent evolution”, different species eventually evolve into crabs because this form is efficient and stable.The same may be true in the crypto market – in the end everyone is buying “crabs”.

Arthur: Buy crabs?Buyer and seller?What the hell are you talking about?

Tom Schmidt: Haha, I don’t know what I’m talking about.I mean, if you want to create value, you have to make the perpetual contract market more perfect.So the market will grow a hundredfold, so Hyperliquid may of course keep up.

Haseeb: So you mean – are you buying it now?

Arthur: Yes, are you buying it now?

Tom Schmidt: I bought perp (perpetual contract), not a separate token.

Arthur: Oh, please, just go long HYPE.

Haseeb: Yes, we are originally HYPE’s long-term bulls.We didn’t sell, so do we want to increase our positions?However, we have also invested in many other perp projects, such as Lighter and APEX.We have already had a lot of exposure in this area.Then what do you think of the current DEX war?

Tarun Chitra: I think it depends on whether Lighter’s “zero handling fee” strategy can be achieved.We will only know how effective it will be after their airdrop is over.The real question is whether the zero-fee transaction model can retain users.It’s hard for me to make a judgment before I see the data.So now my attitude is to wait and see, not buy or sell.

Tom Schmidt: But don’t you think the market trend is the continuous compression of handling fees?Why not jump in?

Tarun Chitra: Strangely, the ones that really make a lot of money are actually in the LP and the vault side, not the exchange itself.There is a very subtle dynamic here: the competition between funds on the “treasury” side and the “order book” side.

Haseeb: But I don’t think it’s possible to always have zero handling fees.For example, when looking at Aster now, there are handling fees, but you make more money than Hyperliquid because it has a larger transaction volume.But everyone knows that its profit is negative because it is smashing tokens in the form of “points”.In other words, whether it is charged or not, all perp DEXs that have not issued coins are operating negatively profitably.

Arthur: Yes, but the question is: If you hold Hyperliquid, can it survive this valuation?

Haseeb: This is a good question.But think of the Binance example.The first to monopolize the perp market was Max Bit, which was later snatched away by ByteDance exchanges, probably in 2020.Later, Binance also lost some of its market share, and its competitors became more and its structure was more fragmented.Today, byte system accounts for about 40% of the market share, but the entire perp market size has expanded significantly.

And don’t forget that DeFi’s perp volume is still very small compared to CeFi.Now these new exchanges are bringing users who have never traded perp.In the past, in the dYdX era, there might be only a few thousand active users; now there are at least hundreds of thousands.I didn’t read the Aster data, but I bet they attracted a large number of new users, especially from Asia.Because they have mobile apps, while Hyperliquid doesn’t.

Tarun Chitra: Yeah, they really did it very smoothly.I still have the same view. If you go back to 2010, as an investor, you would think: Should I buy Microsoft?Should I buy Google?Amazon?Or Facebook?The answer is actually: buy everything.The entire market will continue to explode and grow.Maybe you can choose some relative value targets on the margin, but the real big risk is that you exposed too little or did not participate at all.

Arthur: But they aren’t all offering the exact same product.There is actually no difference between perpetual contracts on different platforms. I think this is a commercial product.

Tarun Chitra: There are still some differences.For example, in the exchange field, do you have a localized market strategy?Do you have targeted regional penetration?Besides, cloud computing can also be considered semi-commercialized, but even so, the market is not completely effective, it may gradually move closer to that direction.

Haseeb: Tom, what do you think of this sustainable DEX battle?

Tom Lee: I think this is capitalism at work.When a product comes out, others will do as they see it.But as Arthur said, the key is whether the leader can stay ahead.If not, the market will really become completely commoditized.So this logic makes sense.I still think this market will continue to grow, because in my opinion, there are still far fewer people participating in crypto than those in the traditional financial market.

Tarun Chitra: Arthur, what would you do if you were to be the founder of the exchange again today?Where do you think the opportunity is?

Arthur: Fixed income, not perpetual.I think there is a lot of space here.Obviously I invested in Pendle and I think Boris’s products are very interesting.Interest rate trading is a much larger market and more complex. The difficulty lies in how to make it a product that makes crypto retail investors find interesting and willing to speculate.

So if I were to talk about the next super successful product from 0 to 1, I would expect someone – preferably Pendle – to make a very sticky way to make a certain crypto rate that can make people bet on, and it’s fun and easy to trade.But now it’s not fun, so there are a bunch of perpetuals and derivatives.Because technically, it is much more difficult to make fixed income into a super sexy and fun “Degens product” than to copy the perpetual contract products you already have in a centralized exchange.

Haseeb: Do you think people will trade fixed income in crypto for fun?

Arthur: We can trade “cats”.

Haseeb: But to be honest, even in traditional finance, people will not trade interest rates for “fun”.That’s a huge market.But if you have…

Arthur: Three-digit leverage, such as 1000 times leverage, many things immediately become fun.

Haseeb: Well, that makes sense.If you really make a comeback one day, I would be willing to invest in the “fixed income entertainment trading platform” you set up.

Tom Lee: I would like to add that Arthur actually grasped the keyword – “betting”.I think this is exactly the strength of encryption.People can hedge, split and bet on different ideas, and this is the real big market in the future.After all, it is the “gambling market”.The representative projects that are now available are Polymarket and Kalshi. There may be “micro betting” in the future, which can be interest rates, fixed income, or even real estate speculation, and anything is possible.

Predictive Market and Privacy Coin Market

Haseeb: That’s right.Then follow this topic and talk about predicting the market.There is no doubt that one of the hottest themes of the year is the rise of the forecast market.Currently, the two major forecast markets are Polymarket—the ones on the stage are actually investors—and its competitor Kalshi.Kalshi has obtained a regulatory license in the United States, and now the transaction volume is constantly catching up, and sometimes even surpasses Polymarket.It also has a partnership with Robinhood, which has brought it a lot of traffic mainly on sports betting.

I want to talk about two points here.The first one is that there was a little episode on Token2049 this time. Tom, do you want to tell me what happened in your group discussion?

Tom Schmidt: I actually think it’s no big deal, but some people may feel it’s a bit “dramatic”.I was hosting some seminars recently and I was originally invited to host a round table with Kalshi members.But they protested that I may not be a “completely neutral” host.

Haseeb: Why do they complain?

Tom Schmidt: It’s mainly because of social media, some of the tweets I’ve posted and they may not like them very much.

Haseeb: I remember you said “The Kalshi team is a bunch of little mice”?

Tom Schmidt: Haha, that’s right, I did post that tweet.However, I think I am still a very qualified host. I will ask some good questions and try not to let personal prejudice affect me.But maybe these are not visible on Twitter.As a result, I was finally replaced.

But it was not a bad thing. This morning I had time to eat kaya toast and drink a cup of coffee, which was an unexpected gain.

Haseeb: Haha, OK.In addition to this incident, there is another “funny” related to the forecast market this week.That is the new episode of “South Park” that just aired last week.The Internet exploded all of a sudden – this classic American satirical animation actually wrote the prediction market into the plot, where Kalshi and Polymarket appeared.

As a result, Kalshi immediately tweeted that it was “an episode of South Park that is totally about Kalshi”.Of course, Polymarket stopped doing it and replied, “Wait, why are you all? We are here too!” So everyone started to argue whether this episode was more like an allusion to Kalshi or Polymarket.Typical encryption circles are quarrel over some issues that are not important at all.

But, have any of you really watched that episode?

Arthur: That episode?I haven’t seen it, but now I want to go and see it.

Tom Schmidt: I’ve seen a few clips.I think more people just watched the quarrel posts on Twitter than actually watching this episode of the animation.

Haseeb: That’s right, it’s completely correct.Millions of people were watching Polymarket and Kalshi’s fight, but now it feels like this has become a “campaign”, a bit like the Bitcoin and Ethereum sects back then.The question becomes: Is Kalshi a real “encryption”?Are they “orthodox”?

Arthur: Then you can give us some popular science. What is the core difference between these two platforms?

Haseeb: Polymarket is fully on-chain, and it is on Polygon and has been crypto-native since day one.Kalshi is a US compliance company, the first team to sue the CFTC and eventually win the appeal court. It is precisely because of it that the United States really allows the forecast market.The industry should actually thank Kalshi because without them fighting this war, the forecasting market may still be illegal.

But Kalshi has an off-chain model from beginning to end. They only supported US dollar deposits about a year ago and have only recently begun to enter crypto-related markets.But essentially, it’s not a crypto project.

However, they have recently hired a lot of crypto KOLs, such as John Wang and Ultra, to help them tell stories in the crypto community.After all, crypto users have always been more suspicious of Kalshi than Polymarket.Kalshi’s posture is now: No, we are also encryption, we love encryption, we are part of the crypto community.

Tom Schmidt: But this makes me weird.For example, they just announced that the trading volume exceeded Polymarket last week, but it depends on the market composition, 95% of them are sports betting.The question is: Are encrypted users really that important?Is it worth fighting a “life-and-death battle” for this part of the traffic?It seems that they are doing well themselves, and I don’t understand why they should regard “crypto position” as a must-fight place.

Haseeb: I think there are three reasons.

First, Polymarket’s market is really valuable to Kalshi, and they certainly hope to suck that group of users away.

Second, everyone knows that crypto traders dare to play anything, and as long as you can make things interesting and volatile, they will come up.

Third, this is a narrative issue to a large extent.The crypto narrative is too big, and Kalshi wants to get a piece of the pie.

Tom Lee: I would like to add one more thing: Polymarket’s role is crucial in interpreting the election.Remember the last presidential election Polymarket’s predictions predicted every state correctly in the Electoral College, and no other agency did that.So how do Wall Street view the future forecast market now?It is very likely that the next election, the bets on Polymarket will be 20 times the previous one.

This has changed many people’s perceptions.Goldman Sachs now quotes Polymarket’s forecast market data in research reports.Not only are the major events such as the Fed’s actions and the government shutdown, but we, Fun Strat, have actually used Polymarket for a long time and are very useful.Sports betting is of course big, but don’t forget that sports can be cut very finely, with local leagues and micro events, and the potential is also great.

Haseeb: Then how do you use Polymarket on Wall Street?

Tom Lee: We use it very often.Let me give you a few examples: “Will the U.S. government shutdown end before 6 months?”; for example, the prediction of Fed Director Lisa Cook; for example, “Will Powell remain the chairman of the Federal Reserve in December”; and another very active market is “Who will the nominee of the Federal Reserve Chairman by December 2025.”Information on these markets is in real time.For example, David Zervos had a high voice for a while, but it disappeared later.This kind of dynamic is typical “group wisdom” and is very valuable to us, and Wall Street relies heavily on this data.

Haseeb: I totally agree.

Tom Lee: Of course we don’t bet ourselves.

Haseeb: Yes, you don’t place bets, but your customers will use this information.This is actually the most important significance of predicting the market.The vast majority of people who really benefit from it are not bettors, but external groups that use information.It is precisely because of this information spillover effect that the prediction market has great social value.

Tom Schmidt: I think, fundamentally, the forecast market is closer to social networks than to trading.

Haseeb: What does it mean?

Tom Schmidt: For example, the handicap where Taylor Swift was engaged, someone obviously bets with insider information, but the money he made was actually not much, only tens of thousands of dollars.

Haseeb: Someone bet on insider information when Taylor Swift will get engaged?

Tom Schmidt: Yes, she will get engaged one day.It is obvious that someone knew it one day in advance, and it can be seen from the market trend.In the end, he made tens of thousands of dollars, which was not a big money.But this incident was reported by media around the world, which was equivalent to spending 10,000 yuan to buy tens of millions of dollars.It’s more like virality of social networks than the transaction itself.

What really matters is not betting, but someone proves that they have the insider information, and then it becomes global news.To me, it’s more like media and social networks than pure gambling.Betting is just a backend engine, but the final result is a media effect.This is where the prediction market is a little strange, they have in some sense gone beyond the scope of encryption.

Arthur: So Polymarket wants to issue coins?

Haseeb: Well, there are rumors that Polymarket may issue tokens, but it has not been confirmed yet.There are also reports that they are raising funds, with a valuation of about $8 billion and Bloomberg has also reported that it should be news soon.

In addition, the impact of forecasting markets is two-way.It will not only create news and turn the market trend into a topic, but will also in turn affect reality.For example, the WNBA incident was thrown on the field earlier this year.At that time, the market even opened, “Will anyone throw it into the field again this year?”, which was simply a disguised reward.Fortunately, it’s not going on now.But such strange things are likely to happen.

I think the next U.S. election will be more than just providing information, but it will really have an impact on the election.Because the trend of the market will affect whether voters come out to vote, and even affect the competition among candidates.For example, some people in the party may say, “Don’t worry about the polls, look at the Polymarket’s market quota. You should quit the election, otherwise it will drag our people down.” So I guess in 2028, the liquidity and information quality of the forecast market will truly reshape the political landscape.

Arthur: There may be more political meme coins that can hedge and play various tricks.

Haseeb: Yes, there will be more and more ways to express the same bet.OK, then let’s talk about Zcash.Recently, Zcash suddenly became hot.Zcash is a project that compares OG in Privacy Coin.The most well-known privacy currency is Monero, which is now the most widely used privacy currency.The second largest is Zcash. Zcash was first developed by a group of professors and later evolved into Zcash.It supports both transparent transfers (non-privacy) and blocked transfers (privacy).Recently, Zcash has a bit of a revival, especially with some Gen Z-style marketing.In the past, it was more of a “crypto uncle” hobby, but now it has suddenly begun to market for young people.

Tom Schmidt: Tom, how do you view privacy narratives?After all, some people are criticizing Ethereum for not having privacy.

Tom Lee: I think privacy is important.In fact, government agencies sometimes use Monroe or Zcash to make payments themselves.So it does have a real purpose.Of course, many people don’t care about privacy.Surveys show that young people would rather hand over data to technology companies than to the government.Therefore, privacy may not be the only selling point of the wallet. In the future, in the era of AI and robots, everyone needs other forms of protection, such as proving that you are a real person (Proof of Humanity).This purpose alone is becoming more and more important.

Haseeb: Then what do you think of special privacy coins?

Tom Lee: I think they work.I even talked to some people from government agencies and they are using it themselves.Since even the government finds it valuable, it means it is really useful.

Tom Schmidt: But there was a conspiracy theory before, saying that Zcash was supported by the government.

Haseeb: I think the government generally does not like privacy coins.Most countries have banned it.

Tom Schmidt: Yes, especially when it comes to travel rules.

Tom Lee: But don’t forget that sometimes the government has reasons to pay with privacy.

Haseeb: Yes.However, compared to Monroe, Zcash has higher regulatory acceptance because it is not the default privacy and has a transparent path.Monroe has been removed from the shelves in many places, such as Japan, South Korea, and some EU countries.

Arthur: This means it’s really useful.

Tarun Chitra: You said before that you don’t like Zcash, what’s going on?

Arthur: Not to blacken it.I remember having a meal with an FBI person six or seven years ago, and we asked, “Which is the best privacy currency?” She said it was Monroe.For me, hearing this answer is enough.

Tarun Chitra: Maybe she is lying to you, fishing and law enforcement.

Haseeb: Haha, yes, you might have been tricked.But you still have to pay attention to changing your wallet.OK, that’s all for today, thank you everyone, see you next week.