Original Title: Arthur Hayes & Tom Lee_ Perps, Stablecoins, Prediction Markets
Original Source: Unchained
Original Translation: Ismay, BlockBeats
Host:
Haseeb Qureshi, Managing Partner at Dragonfly
Tom Schmidt, General Partner at Dragonfly
Tarun Chitra, Managing Partner at Robot Ventures
Guests:
Arthur Hayes, CIO of Maelstrom
Tom Lee, CIO of Fundstrat Capital and Chairman of Bitmine
Editor's Note: This interview brings together heavyweight figures in the crypto industry—Arthur Hayes and Tom Lee—to engage in an in-depth discussion on cutting-edge topics such as perpetual contracts, stablecoins, Digital Asset Treasuries (DATs), prediction markets, and privacy coins. The guests not only share their unique insights on market trends, product strategies, and competitive landscapes but also analyze the development logic of crypto assets from an institutional perspective: how DATs can become the "Wall Street CEO" on-chain, whether dedicated stablecoin chains can create real value flows, the competition and innovation in Perp DEX, and the potential of prediction markets and privacy coins in terms of information, speculation, and social value. The article presents both industry practical experience and reflects the latest trends in the financialization, compliance, and product innovation of the crypto ecosystem, serving as an important reference for understanding the current development context and future trends of the crypto market.
Below is the full content of the conversation:
Haseeb: Hello everyone, I’m Haseeb Qureshi, the Chief Evangelist at Dragonfly. We are early investors in crypto, but I must clarify that nothing we say here is investment advice, legal advice, or even life advice (laughs).
We are back at Token 2049. Just backstage, we were reminiscing about last year's scene. If you rewind time to before "Trump became the 'Dear Leader'," Token 2049 was all about meme coins; if you remember the Breakpoint event next door, Iggy Azalea made quite a splash. Arthur, how is the atmosphere at this year's Token 2049?
Arthur: Traffic is congested.
Haseeb: Indeed (laughs).
Tom Schmidt: I feel like it’s almost a "comfortably boring" vibe. Compared to last year's meme coin frenzy, this year, everyone is talking about stablecoins and DATs. Tom, no offense, but the atmosphere is completely different from last year's Iggy Azalea strip party.
Haseeb: Last year had fewer suits and more strip outfits; what about this year, Tom? What’s your feeling about a more institutional Token 2049?
Tom Lee: The energy is very high this year, with a lot of attendees and key figures present. We’ve had numerous meetings, and it’s been very efficient.
Haseeb: More efficient than last year's strip party?
Tom Lee: I haven’t attended one (laughs).
Discussion on DAT Trends
Haseeb: Understood. Let’s talk about DATs. For those unfamiliar, DAT stands for "Digital Asset Treasuries," which is akin to "micro-strategizing everything."
Today, Tom on stage is the Chairman of Bitmine. Bitmine is currently the largest Ethereum treasury, accumulating assets at a rapid pace, holding approximately 2.65 million ETH, which accounts for over 2% of the total Ethereum supply.
Notably, we see that the trading volume of these DATs is highly concentrated. There used to be many different DAT participants, but now 90% of the daily trading volume is between MicroStrategy and Bitmine, with the rest being mere fragments.
I have to ask, Tom, many people see you as the "savior of Ethereum." What do you think?
Tom Lee: That’s a big…
Haseeb: Job, yes, exactly.
Tom Lee: I think Ethereum itself is in a great state. The Ethereum Foundation has focused on the right direction over the past year. Coupled with the rise of stablecoins, it has truly ignited demand for blockchain. And Bitmine just happened to hit this timing perfectly.
Haseeb: That’s true. At that time, the foundation was still adjusting, and the narrative was being reshaped. But now it feels like you’ve basically become Ethereum’s "Chief Marketing Officer."
Tom Lee: Haha, I should add that title to my business card.
Haseeb: You definitely should. Arthur, what do you think of the DAT craze and its impact on reigniting Ethereum and its narrative?
Arthur: I think everyone loves to hear Tom Lee speak on CNBC. If he’s willing to bang the drum and promote it, then go for it, brother. I love it; we need more Tom Lees like that. Every chain should have its own Tom Lee.
Haseeb: Right, every chain, right? So let me ask you a question, Tom, what do you think you’ve done right that others trying to be a "knockoff Tom Lee" haven’t?
Tom Lee: I think the first thing Bitmine did right was communication. We’ve always conveyed information very clearly: ETH is in a super cycle. We’ve emphasized this through our website, speeches, and the chairman’s video addresses. Secondly, Bitmine has a strong connection to the institutional world. For example, Cathie Wood publicly disclosed her significant position in Bitmine early on, and now it’s one of the top ten holdings in the ARK fund, which has attracted more institutional capital. This process has created a "flywheel effect," allowing us to become the 26th largest stock by trading volume in the U.S. And as you mentioned, together with MicroStrategy, we are indeed creating liquidity for DATs.
Haseeb: What’s next? I see you’re not just limited to Ethereum. Recently, there was news that your scale has surpassed Worldcoin’s DAT, and it seems you’re expanding outward. Can you talk about that strategy?
Tom Lee: Bitmine aims to continue helping Ethereum grow over the next 15 years. Specifically, this includes identifying more key projects that will consume ETH and burn gas; we will also help incubate new payment rails on Ethereum. Of course, we are closely collaborating with the Ethereum Foundation to identify and prioritize upgrade directions.
This also includes investing in some truly outstanding projects. For example, Orb 8 code—it’s related to Worldcoin, and as a16z mentioned, one of the 11 directions that AI genuinely cares about is "human identity verification." Worldcoin is one of the earliest projects doing this, and nearly 17 million people have been verified as "real" through it. I believe protecting human identity is a significant mission on the blockchain.
Haseeb: I have a little theory myself, which we discussed in a previous episode. The significance of DATs is not just as a tool for institutional investment; it also gives a chain a "Wall Street CEO." This CEO can do things that the foundation cannot. For instance, leaders of foundations like Vitalik or Tamash cannot go on CNBC and shout, "The ETH bull market is here," nor can they post a bunch of technical analysis because that would be "inappropriate" for them.
But DATs can outsource this role, allowing someone to tell the story in a language that Wall Street understands. This is actually something that has always been lacking in the crypto industry—despite being highly financialized, no one has taken on this "market officer" role. And in my view, you are the epitome of that.
So what about the future? We’ve already seen the DAT craze cooling down, net asset values compressing, and fewer new products emerging. How do you see DATs evolving in the next 2, 3, or 5 years?
Tom Schmidt: I was just about to ask Tom; I actually think the whole process and pace are much faster than we originally thought. Now, most E-class DATs have already fallen below net asset value (NAV). What do you think will happen next? Will they dump a bunch of ETH and then buy back shares? Will they be acquired? Or will they pivot to AI? What would you do, or what do you think they will do?
Tom Lee: I heard today that there are already 78 DATs, which is indeed a lot. In the traditional secondary market, institutional investors generally only choose 2 to 3, at most 4. So within that range, there will definitely be multiple winners. But institutions cannot buy 70 DATs. Those that have fallen below NAV are facing a survival crisis. I believe a DAT should not fall below NAV; that in itself is a negative signal. I don’t know if they should convert to ETFs, liquidate, or merge. But I am certain that DATs should not fall below NAV. Of course, this is also a matter of market "level."
Tom Schmidt: So you’re saying it’s a "level issue," right?
Tom Lee: Exactly. You see, no ETF trades below NAV, so DATs shouldn’t either. If they have a way to "threaten" to convert to ETFs, they will always trade at NAV, which should be the bottom line.
Haseeb: Makes sense. What do you think?
Tarun Chitra: I also agree with the point about "mergers." For example, Solana’s DAT is constantly signaling for mergers; it’s impossible to have 20 of them forever. But what I don’t understand is why some people are issuing DATs for tokens with market caps of only $1 billion, $2 billion, or $3 billion. I can’t fathom how projects of that scale can survive; why are people still issuing such DATs?
Arthur: Because the initiators can take a 5% management fee.
Tarun Chitra: But imagine if you were Tom, trying to operate a DAT with a market cap of only $3 billion, and someone offers you 1% of the circulating share; you have to manage this. Would you be willing to do it?
Tom Lee: Right, that could undermine "reflexivity." In theory, a DAT should be a long-term holder of the token, but if it holds too large a position, it could lead to a "power law" negative effect. So Bitmine has always aimed not to hold more than 10% of ETH; the actual target is only 5%. Small token DATs might help them tell their story, but you don’t want it to grow so large that it ends up being the last buyer.
Haseeb: Recently, the Zero G token had some issues. Its DAT closed before the token went live, effectively injecting some tokens without market prices and then arbitrarily setting a valuation.
Additionally, the U.S. SEC has recently started to apply the brakes, with rumors suggesting that someone reported insider trading situations to the SEC, prompting them to investigate these "dark operations before the close." Furthermore, Nasdaq has tightened its rules regarding DATs. Projects that are taking shortcuts are likely to come under scrutiny soon. Overall, the trend is still "consolidation." If you don't have a large scale, aren't substantial enough, or your assets aren't "hardcore," the DAT itself won't have much trading volume. Without trading volume, you can't even do ATM (additional financing), so what's the point of doing this? It's just locking up some capital and throwing it into the stock market, with no one buying or selling.
Haseeb: Speaking of ETH, our friend Andrew Kang recently tweeted something that went viral; I don't know if you saw it, titled "Tom Lee's Argument for Ethereum is Idiotic," with about 1.5 million views. His point was: yes, stablecoins will go on Ethereum, RW (real-world assets) will go on Ethereum, banks will also go on Ethereum, but they won't actually pay, they won't pay fees. It's all a joke; what you should really buy are robot companies. He's currently very bullish on robot companies. What do you think of Andrew Kang's bearish stance?
Tom Lee: You know, in the crypto circle, "retarded" is a compliment. So I’ll take it as praise.
Haseeb: Haha, good, good.
Tom Lee: Thank you very much.
Haseeb: That's a good response, very good.
Arthur: That's why he needs me.
Plasma and the Stablecoin Craze
Haseeb: That's also why Bitmine is number one. Alright, let's change the topic and talk about Plasma. Speaking of stablecoins, Plasma is a new L1 stablecoin chain, backed by Tether. I want to ask how many people here have participated in Plasma mining or held Plasma tokens? Raise your hand… Okay, I see a few.
Arthur: You might be lying.
Haseeb: Not many hands raised; I'm quite surprised. In fact, the mining scale is quite large. It's one of the recent token launches, with a massive airdrop. The fully diluted valuation is around $8.5 billion, with a total circulation exceeding $1 billion, and the airdrop volume is also substantial.
The problem is, Plasma's nominal valuation is very high right now, but there aren't many usable applications; it's essentially just a huge mining farm. They probably distribute about $500 million in incentives each year to get people to transfer USDT over. So what does everyone think? Will dedicated stablecoin chains be the new trend? Will it shake Ethereum's narrative? Because looking at on-chain data, most stablecoins have been flowing out of Ethereum directly into Plasma this week.
Arthur: I think this mainly comes down to the "mining function." If there are positive returns, people will participate. But if there’s no value creation afterward, that capital will return, just like all the chain games over the past decade.
Haseeb: Right, just a random "mining farm."
Arthur: Pretty much. Yes, it's just a farm. But it has to be able to run on top of the farm's logic to be considered truly valuable.
Tarun Chitra: In India, there are a lot of "X for Y" narratives. For stablecoins, Plasma is very much like Bear Chain.
Haseeb: A Bear Chain specifically for stablecoins?
Tarun Chitra: Yes, that's essentially what it means.
Tom Schmidt: But I think… well, maybe.
Arthur: Yes.
Haseeb: Elaborate on why you think it resembles Bear Chain?
Tarun Chitra: Because it's so typical: when a new L1 launches, there are crazy incentives, and everything revolves around "mining." The hype around stablecoins is actually less important. Yes, all rewards are settled in Tether, but what people are really interested in is mining XPL tokens. Most of the returns are XPL rewards, starting from 60% to 70%. Many protocols have this kind of yield structure. It feels like Bear Chain; back then, everyone rushed in, and the daily narrative was "the purpose of this chain is to give you farm," so providing liquidity on launch day was crucial.
I think the only particularly notable point is the integration with Binance Earn, which at least brought in $2 billion (SEC/USDT), a scale far beyond my expectations.
Haseeb: Indeed, their BD is impressive, and their marketing is spot on; their execution is completely on point. But I agree with your concerns. What would you suggest they do next to avoid becoming the next Bear Chain?
Tarun Chitra: I just don't understand how they can truly move stablecoin funds onto their chain. It seems almost impossible. Either you can only nibble at Tron, but who is the biggest XPL farmer? Clearly, it's "Tron the Great."
Haseeb: Haha, not "the Great," but "Your Excellency."
Tarun Chitra: Right, right, "Your Excellency." The problem is, you can't nibble too much of TON's trading volume, let alone Ethereum's trading volume. So in the long run, where do these capital flows come from? Honestly, I think aside from tempo, other stablecoin chains struggle to explain where the "natural capital flow" is.
Tom Schmidt: Yes, I am indeed a bit worried. If the only highlight of a new project that everyone discusses is "the strongest mining farm in history," it’s like the joke about SBF's "token in a box": if everyone is making money, you better get out of that room quickly.
Of course, I don't think there's anything wrong with stablecoin chains; I believe this direction is correct. But I agree with Tarun that a more reasonable path should be: applications with existing distribution scenarios gradually migrate their internal capital flows to the new chain. This is the logic behind Stripe supporting tempo. I'm not surprised that some exchanges are also considering similar plays.
Because most people holding Tether essentially do so through certain "distribution terminals," so the ones truly capable of driving this migration are those institutions that control the end users.
Haseeb: What about you, Tom?
Tom Lee: I think stablecoins will be a super large market. The total market cap is only about $300 billion now; I can completely see it growing to $4 trillion. This is also what the Treasury Secretary has been discussing recently, and it might not even account for "micro-payments." Stablecoins are inherently suitable for micro-payments because Tether has 12 decimal places, allowing for very granular payments.
These demands cannot all be realized on one chain; Ethereum itself can't handle the capacity. So I think exploring multiple chains is reasonable. I hope to see various solutions succeed.
Haseeb: Yes, Tom, I think you're absolutely right. To establish a new chain specifically for stablecoins, you must first bring in the capital flows. Tempo is clearly on this path—they're collaborating with Stripe, which will serve as a source of B2B traffic.
But if you just want to siphon off stablecoin demand that's already elsewhere, that's too difficult. Because Tron’s network effect is just too strong, and the stickiness is too high. Ethereum is the same—many people hold stablecoins on Ethereum. Theoretically, I could pay you on another chain, but in reality, we are more likely to trade directly on Ethereum.
Tarun Chitra: Yes, for example, regarding the bridge issue yesterday, Phantom issued stablecoins on Solana through the bridge. I see that this capital flow is mostly still moving within the existing user base, rather than going to those new chains trying to attract users on their own.
Haseeb: What exactly went wrong with that bridge?
Tarun Chitra: There wasn't really a big problem; it was just that Phantom issued stablecoins on Solana using the bridge. What I mean is, this operation makes me wonder: why would I go to another chain? If I were an application provider, I could easily find one of the 4 or 5 stablecoin service providers currently on the market and directly issue my own white-label stablecoin. Do I really need to run to a new chain? I don't think it's necessary.
The Competitive Landscape of Hyperliquid and Perp DEX
Haseeb: That makes sense. Alright, since we’re talking about bridges, let’s discuss Hyperliquid. Everyone knows Hyperliquid is currently the largest decentralized derivatives exchange. A competition is emerging that is increasingly being referred to as the "perpetual contract exchange war."
Currently, the front line of this war is Aster, which is associated with CZ, Binance Labs, and BNB Chain. Their daily trading volume has reached around $60 billion.
Arthur: Is that true?
Haseeb: Yes, that’s the data I’ve seen.
Arthur: Actually, whether it’s true or not doesn’t matter; everyone is talking about it, so it counts as a success.
Haseeb: Exactly, that’s right. Regardless of whether the trading volume is real or not, it has indeed attracted attention. Recently, we saw Bybit announce a deep collaboration with APEX. Coinbase is also getting closer to Avantis, which is part of their strategy in the derivatives market. It seems that this is not just a war between DEXs; CEXs are also selecting their "agents" to join the fray.
Haseeb: Arthur, you've also been in the news a lot lately. First, I remember you once claimed that Hyperliquid's token would rise 126 times.
Arthur: Yes, I said that.
Haseeb: Then about a month later, you sold your HYPE.
Arthur: Yes, I sold it.
Haseeb: Your reasoning at the time was that Hyperliquid was under the "sword of Damocles." Explain, what sword?
Arthur: Actually, everyone has known for a long time; it’s the unlocking pressure. At least since November, about $500 million worth of tokens will enter circulation each year. This is not a secret; everyone is aware of it.
When Hyperliquid was still dominant (about 60%-70% market share a month and a half ago), the unlocking wasn’t that critical. Because the market assumed it could earn more fees and use that money to buy back HYPE tokens, so this is the so-called "positive unlocking," similar to the situation with Solana in 2021.
But then one day, I casually checked the trading rankings: Hyperliquid was still first, with a daily trading volume of $4 billion; closely following it were Lighter at $3.9 billion and Aster at $3.8 billion. This indicates that competition has really arrived. This doesn’t mean Hyperliquid can’t compete with them; its technology, HIP3 upgrade, and development team are all very strong, and it could completely outpace its competitors in the next 2 or 3 years. I previously said it could rise 126 times by 2028, and I still think so.
But the market has already started to reprice, and I can't just sit there and watch the prices get pushed down. So I decided to sell and step back to observe, waiting for the market direction to become clear.
Ultimately, it depends on whether Hyperliquid can prove it has a "moat" and can collect real, sustainable fees in the competition. If it can't, then we need to see what new products or services perp DEXs can launch that will make users willing to pay, while also not being immediately imitated by centralized exchanges at "zero cost." The goal of CEXs is simple: to ensure that no one can truly make money in the decentralized derivatives market. If they achieve this by suppressing the profits of leading DEXs, then even the top player won't be able to hold on.
Haseeb: So, what do you all think about the "sword of Damocles" hanging over Hyperliquid? Do you agree with this statement?
Tom Schmidt: I think the idea of "positive unlocking" makes sense.
Arthur: So should I buy Hyperliquid now? The price seems quite reasonable.
Tom Schmidt: What I mean is, this is actually a form of "induced demand." They have figured out a blueprint, and now everyone is imitating it. I think this market will continue to explode. It could be like "convergent evolution," where different species eventually evolve into crabs because that form is efficient and robust. The crypto market might be the same—eventually, everyone will be buying "crabs."
Arthur: Buying crabs? Buy-side? What are you talking about?
Tom Schmidt: Haha, I don't even know what I'm saying. What I mean is, to create value, you have to make the perpetual contract market more perfect. So the market will grow exponentially, and Hyperliquid could certainly keep up.
Haseeb: So you mean—are you buying now?
Arthur: Yeah, are you buying now?
Tom Schmidt: I'm buying perp (perpetual contracts), not the standalone token.
Arthur: Come on, just go long on HYPE.
Haseeb: Right, we are long-term bulls on HYPE. We haven't sold, so should we add to our position? But we've also invested in many other perp projects, like Lighter and APEX. Our exposure in this area is already quite large. What do you think about the current DEX war?
Tarun Chitra: I think it depends on whether Lighter's "zero-fee" strategy can work. We'll only know how effective it is after their airdrop ends and they go live. The real question is whether the zero-fee trading model can retain users. Until I see the data, it's hard for me to make a judgment. So my current stance is to wait and see, not buying or selling.
Tom Schmidt: But don't you think the market trend is towards continuously compressing fees? Why not just jump in?
Tarun Chitra: Strangely, the real money is actually being made on the LP and treasury side, not the exchanges themselves. There is a subtle dynamic here: competition between the "treasury" side and the "order book" side.
Haseeb: But I think it's impossible to have zero fees forever. For example, looking at Aster, it has fees, but it makes more money than Hyperliquid because it has a larger trading volume. Everyone knows, though, that its profits are negative because it's crazily dumping tokens in the form of "points." In other words, regardless of whether they charge fees, all the perp DEXs that haven't issued tokens are operating at a loss.
Arthur: Right, but the question is: if you hold Hyperliquid, can it survive at this valuation?
Haseeb: That's a good question. But think about the example of Binance. The perp market was initially monopolized by Max Bit, which was later overtaken by exchanges from the ByteDance group around 2020. After that, Binance also lost some market share, and the competition became more intense and fragmented. Today, the ByteDance group probably holds about 40% of the market share, but the overall perp market size has significantly expanded.
And don't forget, the size of DeFi's perp market is still quite small compared to CeFi. These new exchanges are bringing in users who have never traded perp before. Back in the dYdX era, there might have only been a few thousand active users; now there are at least hundreds of thousands. I haven't looked at Aster's data, but I bet they have attracted a large number of new users, especially from Asia. They have a mobile app, while Hyperliquid does not.
Tarun Chitra: Yes, they really do it very smoothly. I still hold the view that if you went 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 them all. The entire market will continue to explode in growth. Maybe you can pick some relatively valuable targets on the margins, but the real big risk is—you're exposed too little or not at all.
Arthur: But they are not all offering exactly the same product. Perpetual contracts across platforms are actually indistinguishable; I think this is a commoditized product.
Tarun Chitra: There can still be some differentiation. For example, in the exchange space, do you have localized market strategies? Do you have targeted regional penetration? Take cloud computing, you can also consider it semi-commoditized, but even so, the market is not completely efficient; it may gradually move in that direction.
Haseeb: Tom, what do you think about this perpetual DEX war?
Tom Lee: I think this is capitalism at work. A product comes out, and others see it and copy it. But as Arthur said, the key is whether the frontrunner can maintain its lead. If not, then the market really becomes completely commoditized. So this logic makes sense. I still believe this market will continue to grow because, in my view, the number of people participating in crypto is still far fewer than those in traditional financial markets.
Tarun Chitra: Arthur, if you were to become an exchange founder again today, what would you do? Where do you see the opportunity?
Arthur: Fixed income, not perpetuals. I think there is a lot of space here. Clearly, I invested in Pendle; I think Boris and their product are very interesting. Interest rate trading is a much larger and more complex market, and the challenge is how to make it a product that crypto retail investors find interesting and are willing to speculate on.
So if I were to talk about the next super successful product from 0 to 1, I would expect someone—preferably Pendle—to create a very sticky way for people to bet on certain crypto interest rates, and it should be fun and easy to trade. Right now, it's not fun, which is why there are so many perpetuals and derivatives. Because technically, making fixed income into a super sexy and fun "Degens product" is much harder than copying an existing perpetual contract product from a centralized exchange.
Haseeb: Do you think people will trade fixed income in crypto just for fun?
Arthur: We could trade "cats."
Haseeb: But to be honest, even in traditional finance, people don't trade interest rates just for "fun." That's a huge market. But if you have…
Arthur: Triple-digit leverage, like 1000x leverage, suddenly a lot of things become fun.
Haseeb: Well, that makes sense. If you ever come back, I would be very willing to invest in your "fixed income gamified trading platform."
Tom Lee: I want to add one thing; actually, Arthur has captured the key word—"betting." I think this is precisely the strength of crypto. People can hedge, split, and bet on different ideas, and that is the real big market of the future. Ultimately, it comes down to the "gambling market." The representative projects that have emerged now are Polymarket and Kalshi, and in the future, there may be "micro-betting," which could be on interest rates, fixed income, or even real estate speculation; anything is possible.
Prediction Markets and Privacy Coin Markets
Haseeb: Exactly. So let's continue on this topic and talk about prediction markets. Undoubtedly, one of the hottest themes this year is the rise of prediction markets. The two major prediction markets right now are Polymarket—where several of us on stage are actually investors—and its competitor Kalshi. Kalshi has already obtained regulatory approval in the U.S. and is continuously catching up in trading volume, sometimes even surpassing Polymarket. It has also established a partnership with Robinhood, bringing in a lot of traffic primarily in sports betting.
Here, I want to discuss two points. The first is that there was a little incident at Token2049; Tom, do you want to share what happened in your panel discussion?
Tom Schmidt: I actually think it wasn't a big deal, but some people might find it a bit "dramatic." I've been hosting some discussions recently, and I was invited to moderate a roundtable with Kalshi members. However, they protested, saying I might not be a "completely neutral" moderator.
Haseeb: Why did they complain?
Tom Schmidt: Mainly because of social media; they might not have liked some of the tweets I posted.
Haseeb: I remember you tweeted that "the Kalshi team is a bunch of little mice"?
Tom Schmidt: Haha, yes, that tweet was indeed mine. But I consider myself a pretty competent moderator, asking some good questions and trying not to let personal bias affect me. But maybe that doesn't come across on Twitter. The result was that I was ultimately replaced.
But it wasn't a bad thing; I happened to have time this morning to go eat kaya toast and have a cup of coffee, which was an unexpected gain.
Haseeb: Haha, alright. Besides that, there was another "exciting event" related to prediction markets this week. That was the new episode of "South Park" that aired last week. The internet exploded—this classic American satirical animation actually included prediction markets in the plot, featuring Kalshi and Polymarket.
As a result, Kalshi immediately tweeted that this was "an episode completely about Kalshi." Polymarket, of course, wasn't having it and fired back, saying, "Wait, why just you? We're in it too!" So everyone started arguing about whether this episode was more of a reference to Kalshi or Polymarket. It's a typical crypto circle, arguing over something that really doesn't matter.
But has anyone actually watched that episode?
Arthur: That episode? I haven't seen it, but now I want to check it out.
Tom Schmidt: I've seen a few clips. I think more people have probably just seen the tweets about the argument rather than actually watching the episode.
Haseeb: Exactly, that's completely correct. Millions of people are watching the back-and-forth between Polymarket and Kalshi, but now it feels like it's become a "camp battle," somewhat like the Bitcoin camp versus the Ethereum camp back in the day. The question has become: does Kalshi really count as "crypto"? Are they "orthodox"?
Arthur: So can you enlighten us on the core differences between these two platforms?
Haseeb: Polymarket is completely on-chain; it's on Polygon and has been crypto-native from day one. Kalshi, on the other hand, is a U.S. compliant company. They were the first team to sue the CFTC and ultimately win in appellate court, which is why the U.S. has truly allowed prediction markets. The industry should actually thank Kalshi because without their fight, prediction markets might still be illegal today.
However, Kalshi has always operated in an off-chain model. They only started supporting USD deposits about a year ago and have recently begun to engage with crypto-related markets. But fundamentally, it is not a crypto project.
Recently, they have hired several crypto KOLs, like John Wang and Ultra, to help them tell their story in the crypto community. After all, compared to Polymarket, crypto users have always been more skeptical of Kalshi. Now Kalshi's stance is: No, we are also crypto; we love crypto; we are part of the crypto community.
Tom Schmidt: But that feels strange to me. For example, they just announced that last week's trading volume exceeded Polymarket's, but if you look at the market composition, 95% of it is sports betting. So the question arises: are crypto users really that important? Is it worth fighting a "life-and-death battle" for that segment of traffic? It seems they are doing quite well on their own; I don't quite understand why they consider the "crypto territory" a must-win battleground.
Haseeb: I think there are three reasons.
First, Polymarket's market is indeed very valuable to Kalshi, and they certainly want to attract that user base.
Second, everyone knows that crypto traders are willing to try anything as long as you can make it interesting and volatile; they will come on board.
Third, to a large extent, this is a narrative issue. The crypto narrative is so vast, and Kalshi wants to get a piece of the pie.
Tom Lee: I want to add one point: Polymarket plays a critical role in interpreting elections. Remember the last presidential election? Polymarket's predictions got every state right in the Electoral College, something no other institution achieved. So how does Wall Street view the future of prediction markets? It's likely that in the next election, the betting scale on Polymarket will be 20 times that of the last one.
This has changed many people's perceptions. Even Goldman Sachs now cites Polymarket's prediction market data in their research reports. Not just for major events like Federal Reserve actions or government shutdowns, but we at Fun Strat have actually been using Polymarket for a long time; it's very useful. Sports betting is certainly significant, but don't forget that sports can be sliced very finely, with local leagues and micro-events, which also have great potential.
Haseeb: So how do you specifically use Polymarket on Wall Street?
Tom Lee: We use it frequently. Here are a few examples: "Will the U.S. government shutdown end before June?"; predictions about Federal Reserve Governor Lisa Cook; "Will Powell still be the Federal Reserve Chair in December?"; and another very active market is "Who will be the nominee for Federal Reserve Chair by December 2025?" The information from these markets is real-time. For instance, at one point, David Zervos had a lot of buzz, but then it faded. This kind of dynamic is a classic example of "collective intelligence," which is very valuable to us; Wall Street relies heavily on this data.
Haseeb: I completely agree.
Tom Lee: Of course, we don't place bets ourselves.
Haseeb: Right, you don't bet, but your clients use this information. This is actually the most important significance of prediction markets. The vast majority of those who truly benefit are not the bettors but the external groups using the information. It is precisely because of this information spillover effect that prediction markets have enormous social value.
Tom Schmidt: I think fundamentally, prediction markets are closer to social networks than to trading.
Haseeb: What do you mean?
Tom Schmidt: For example, regarding the betting line on Taylor Swift's engagement, someone clearly placed a bet using insider information, and the money they made wasn't much—just a few tens of thousands of dollars.
Haseeb: Someone bet on when Taylor Swift would get engaged using insider information?
Tom Schmidt: Yes, they said she would get engaged on a certain day. It's obvious someone knew a day in advance, which can be seen from the betting line's movement. In the end, they made a few tens of thousands of dollars, which isn't a lot. But this event was reported by media worldwide, effectively spending ten thousand dollars to buy millions of dollars in exposure. This is more like viral spread on social networks rather than trading itself.
What really matters is not the betting but that someone proved they had insider information, and then that became global news. To me, this is more like media and social networks rather than pure gambling. Betting is just the backend engine; the final result is the media effect. This is what makes prediction markets a bit strange; in a sense, they have transcended the realm of crypto.
Arthur: So is that why Polymarket wants to issue a token?
Haseeb: Well, there are rumors that Polymarket might issue a token, but it hasn't been confirmed yet. There are also reports that they are raising funds, with a valuation of around $8-9 billion, and Bloomberg has reported that news should come soon.
Additionally, the impact of prediction markets is bidirectional. They not only create news and turn betting line movements into topics but also influence reality in return. For example, earlier this year, there was an incident in the WNBA where something was thrown onto the court. At that time, the betting line even opened with "Will someone throw something onto the court again this year?" which was essentially a disguised bounty. Fortunately, it hasn't continued, but such bizarre things are likely to happen again.
I believe that in the next U.S. election, Polymarket will not only provide information but will genuinely influence the election. Because the movement of the betting lines can affect whether voters turn out and even influence competition between candidates. For instance, someone within the party might say, "Forget the polls; look at Polymarket's betting line; you should drop out, or you'll drag us down." So I guess by 2028, the liquidity and information quality of prediction markets will truly reshape the political landscape.
Arthur: That might lead to more political meme coins that can hedge and play various tricks.
Haseeb: Exactly, the ways to express the same bet will become increasingly diverse. Alright, let's talk about Zcash. Recently, Zcash has suddenly become popular. Zcash is one of the more OG projects in the privacy coin space. The most well-known privacy coin is Monero, which is currently the most widely used privacy coin. The second largest is Zcash, which was originally developed as a zero-knowledge proof protocol (ZeroCoin) by a group of professors and later evolved into Zcash. It supports both transparent transactions (non-privacy) and shielded transactions (privacy). Recently, Zcash seems to be experiencing a revival, especially with some Gen Z-style marketing. It used to be more of a "crypto uncle" hobby, but now it suddenly starts targeting younger audiences.
Tom Schmidt: Tom, what do you think about the privacy narrative? After all, some people criticize Ethereum for lacking privacy.
Tom Lee: I think privacy is very important. In fact, government agencies sometimes use Monero or Zcash for payments. So it does have real use cases. Of course, many people don't care about privacy. Surveys show that young people would rather give their data to tech companies than to the government. So privacy may not be the only selling point for wallets; in the future, in an era dominated by AI and robots, people will need other forms of protection, such as proof of humanity. Just this use case is becoming increasingly important.
Haseeb: What do you think about dedicated privacy coins?
Tom Lee: I think they are indeed useful. I've even talked to some people in government agencies, and they are using them. If even the government finds them valuable, it shows they are genuinely useful.
Tom Schmidt: However, there were conspiracy theories suggesting that Zcash is government-supported.
Haseeb: I think governments generally dislike privacy coins. Most countries have already banned them.
Tom Schmidt: Yes, especially concerning travel regulations.
Tom Lee: But let's not forget that sometimes governments have reasons to use privacy payments.
Haseeb: Yes. However, compared to Monero, Zcash has a higher regulatory acceptance because it is not default privacy and has a transparent path. Monero has already been delisted in many places, such as Japan, South Korea, and some EU countries.
Arthur: This shows it really works well.
Tarun Chitra: You previously said you didn't like Zcash; what's the story?
Arthur: I'm not bashing it. I remember having dinner with an FBI person six or seven years ago, and we asked, "What's the best privacy coin?" She said it was Monero. For me, hearing that answer was enough.
Tarun Chitra: Maybe she was lying to you, trying to catch you off guard.
Haseeb:
Haha, right, you might have been tricked. But still, be careful about changing wallets. Alright, that's it for today. Thank you all, and see you next week.
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