Original Title: Arthur Hayes & Tom Lee_ Perps, Stablecoins, Prediction Markets

Original Source: Unchained

Original Translation: Ismay, BlockBeats

Host:

Haseeb Qureshi, Dragonfly Managing Partner

Tom Schmidt, Dragonfly General Partner

Tarun Chitra, Robot Ventures Managing Partner

Guests:

Arthur Hayes, Maelstrom CIO

Tom Lee, Fundstrat Capital CIO & Bitmine Chairman

Editor's Note: This interview brings together heavyweight figures in the crypto industry—Arthur Hayes and Tom Lee—to delve into 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 landscape but also analyze the development logic of crypto assets from an institutional perspective: How DATs can become the on-chain "Wall Street CEO," whether stablecoin-specific chains can create real value flow, the competition and innovation of Perp DEX, and the potential of prediction markets and privacy coins in information, speculation, and social value. The article presents both industry operational 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 trajectory and future trends of the crypto market.

The following is the full transcript of the conversation:

Haseeb: Hello, everyone. I am the Chief Evangelist Officer of Dragonfly. We are early investors in crypto, but I want to emphasize that everything we say here is not investment advice, legal advice, or even life advice (laughter).

We are back at the Token 2049 venue. We were just backstage reminiscing about last year's scene. If you rewind time to "before Trump became the 'Beloved Leader,'" back then, Token 2049 was full of meme coins; if you remember the Breakpoint venue next door, Iggy Azalea made big news at the time. Arthur, how's the atmosphere at Token 2049 this year?

Arthur: Traffic jam.

Haseeb: Definitely (laughs).

Tom Schmidt: I feel like it's almost a bit of "comfortable boredom." Compared to last year's meme coin craze, this year as we go around, everyone is talking about stablecoins, talking about DATs (Digital Asset Treasuries). Tom, don't take offense, but the vibe is completely different from last year's Iggy Azalea stripper party.

Haseeb: Last year was more suits-off, strippers-on; this year, Tom, how do you feel at a more institutionalized Token 2049?

Tom Lee: The energy this year is high, the attendance is very large, with many key people present, we've had a lot of meetings, very productive.

Haseeb: More efficient than last year's stripper party?

Tom Lee: I haven't been to one (laughs).

DAT Trend Discussion

Haseeb: Understandable. Alright, let's talk about DATs. For listeners unfamiliar, DAT stands for "Digital Asset Treasuries," akin to "microstrategies of everything."

Today on stage, Tom is the Chairman of Bitmine. Bitmine is the largest Ethereum Treasury to date, with a rapid accumulation rate, holding approximately 2.65 million ETH, representing over 2% of the entire Ethereum supply.

It's worth noting that the trading volume of these DATs is highly concentrated. While there used to be various DAT participants, now 90% of the daily trading volume of DATs is between MicroStrategy and Bitmine, with other trading volumes being almost negligible scraps.

I have to ask, Tom, many people see you as the "savior of Ethereum." How do you see it?

Tom Lee: That's a big...

Haseeb: Job, yes, exactly.

Tom Lee: I think Ethereum itself is in a good state. The Ethereum Foundation has been focusing on the right areas over the past year. Combined with the rise of stablecoins, it has truly ignited the demand for blockchain. And Bitmine just happened to hit this timing right.

Haseeb: Indeed. At that time, the Foundation was still adjusting internally, and the narrative was being reshaped. But now it feels like you've basically become Ethereum's "Chief Marketing Officer."

Tom Lee: Haha, then I should add that title to my business card.

Haseeb: You should indeed. Arthur, what is your take on the DAT craze and its impact on the reinvigoration of Ethereum and the narrative?

Arthur: I think everyone loves hearing Tom Lee speak on CNBC. He's willing to trumpet and promote, so go for it, bro. I love it; we need more Tom Lees like this. Every chain should have its own Tom Lee.

Haseeb: Yeah, every chain, right? So let me ask you, 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 always conveyed information very straightforwardly: ETH is in a supercycle. We constantly emphasized this through our website, speeches, and the Chairman's video address. Secondly, Bitmine has a strong connection to the institutional world. For example, Cathie Wood publicly held a large stake in Bitmine very early on, and now it is one of the top ten holdings of the ARK Fund, which has attracted more institutional funds. This process created a "flywheel effect," so today we can be the 26th largest stock by trading volume in the United States. As you said, together with MicroStrategy, we are indeed creating liquidity for DATs.

Haseeb: What's next? I see that you are not just limited to Ethereum. Recently, there was news that your scale exceeded Worldcoin's DAT, as if you are expanding outward. Can you talk about this strategic area?

Tom Lee: Bitmine wants to continue to help Ethereum grow over the next 15 years. Specifically, this includes identifying more key projects that will consume ETH and burn gas; it will also help incubate new payment rails on Ethereum. Of course, we also work closely 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 is related to Worldcoin, as mentioned by a16z, in one of the 11 directions AI truly cares about is "human proof of identity." Worldcoin is one of the projects that has been working on this from the earliest stage, and now nearly 17 million people have been verified as "real" through it. I believe safeguarding human identity is a significant mission on the blockchain.

Haseeb: I have a small theory of my own, which we discussed in a previous episode as well. The significance of DAT is not just as an institutional investment tool; it also gives a blockchain a "Wall Street CEO." This type of CEO can do things that a foundation cannot. For example, foundation leaders like Vitalik or Tamash cannot go on CNBC and shout, "ETH bull market is here," nor can they post a bunch of technical analysis because it is "inappropriate" for them.

However, DATs can outsource this role, allowing someone to tell the story in language understandable to Wall Street. This is actually something that the crypto industry has always lacked — even though it is highly financialized, there is no one taking on the role of "market official." In my opinion, you are the epitome of this.

Looking ahead, what do you see? We have seen the DAT frenzy cooling down, AUM shrinking, and fewer new products. How do you think DAT will evolve in the next 2, 3, 5 years?

Tom Schmidt: I was about to ask Tom, actually, I feel like the whole process and pace are much faster than we originally thought. Now, most of the E-class DATs have already fallen below Net Asset Value (NAV). So, what do you think will happen next? Will they dump a bunch of ETH on the market and buy back shares? Will they be acquired? Or will they transition 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 a traditional secondary market, institutional investors usually only choose 2 to 3, at most 4. So within this range, there will definitely be multiple winners. But institutions cannot buy 70 DATs. DATs that have fallen below NAV are facing a crisis. I believe a DAT should not trade below NAV; that, in itself, is a negative signal. I don't know if they should convert to ETFs or liquidate, or merge. But I am pretty sure DATs should not fall below NAV. Of course, this is also a matter of market "efficiency."

Tom Schmidt: So you're talking about the "efficiency issue," right?

Tom Lee: Exactly. You see, no ETF trades below NAV, so DATs should not either. If they have a way to "threaten" that they would convert to an ETF, they will always trade at NAV; that should be the bottom line.

Haseeb: Makes sense. What is your take?

Tarun Chitra: I also agree with the "merger" point. For example, Solana's DATs are continuously signaling mergers; there cannot always be 20. But what I do not understand is why some people are issuing DATs for tokens with market caps of only 10 billion, 20 billion, or 30 billion dollars. I completely fail to understand how projects of this scale can survive and why anyone would issue such DATs.

Arthur: Because the sponsor can earn a 5% management fee.

Tarun Chitra: But imagine if you were Tom, and you had to manage a Dat with a market cap of only $30 billion. Someone offers you a 1% circulating supply, and you have to run this. Would you do it?

Tom Lee: Yeah, this could potentially disrupt reflexivity. In theory, the Dat should be a long-term holder of the token, but if it holds too much, it can actually lead to power-law negative effects. So Bitmine has never wanted to hold more than 10% of ETH, with the actual goal being only 5%. The Dat of smaller tokens may help them tell their story, but you wouldn't want it to grow so large that it ends up being a vulture.

Haseeb: The Zero G token recently had some issues. Its Dat closed before the token went online, essentially pre-injecting some tokens that did not yet have a market price, and then arbitrarily setting a valuation.

Additionally, the U.S. SEC has recently hit the brakes. There are rumors that someone has reported insider trading to the SEC, and they have started investigating these "closing time dark pool operations." Furthermore, Nasdaq has also tightened its rules on Dats. Projects taking shortcuts will likely soon be under heavy scrutiny. Overall, the trend is towards "consolidation." If you are not large enough, not scalable enough, and your assets are not "hardcore" enough, the Dat itself lacks liquidity. Without liquidity, you can't even do ATM (fundraising), so what's the point of doing this? Just lock up some capital points and throw them into the stock market where no one buys or sells.

Haseeb: Speaking of ETH, our friend Andrew Kang recently posted a tweet that went viral. It was titled "Tom Lee's Ethereum Argument is Retarded" and had about 1.5 million views. His point is: Yes, stablecoins will go on Ethereum, real-world assets will go on Ethereum, banks will go on Ethereum, but they won't actually pay fees or transact. It's all a joke; the real thing to buy is robotics companies. He is now fully bullish on robotics companies. What do you think of this bearish view from Andrew Kang?

Tom Lee: You know, in the crypto community, "retarded" is a term of endearment. So I'll take it as a compliment.

Haseeb: Haha, okay, great.

Tom Lee: Thank you very much.

Haseeb: That's a good response, very good.

Arthur: That's why he needs me.

Plasma and Stablecoin Craze

Haseeb: That's also why Bitmine is in the number one spot. Okay, let's change the topic and talk about Plasma. Speaking of stablecoins, Plasma is a new L1 stablecoin chain with backing from Tether. I want to ask, how many of you here have participated in Plasma mining or hold Plasma tokens? Raise your hand... Okay, I see a few.

Arthur: You all might be lying.

Haseeb: Not many hands raised, I'm quite surprised. Actually, the mining scale this time is huge. It's one of the recent token launches with a significant airdrop. The current fully diluted valuation is approximately $8.5 billion, with a total circulation of over $1 billion and a substantial airdrop amount.

The question is, although Plasma's nominal valuation is very high, in reality, there are not many usable applications. Essentially, it's just a massive mining farm. They distribute around $500 million incentives per year to make people transfer USDT there. So, what do you all think? Will a stablecoin-specific chain be a new trend? Will it shake Ethereum's narrative? Because looking at on-chain data, this week, most stablecoins have flowed out from Ethereum directly into Plasma.

Arthur: I think this is mainly a "mining function." If there is a positive return, everyone will do it. But if there is no value creation afterward, these funds will come back, just like all the chain games in the past decade.

Haseeb: Yeah, just a random "mining farm."

Arthur: Pretty much. Yes, just a farm. But it has to run on top of the logic of the farm to truly have value.

Tarun Chitra: In India, the "X for Y" narrative is particularly strong. For stablecoins, Plasma is very much like a Bear Chain.

Haseeb: A Bear Chain specifically for stablecoins?

Tarun Chitra: Yes, essentially that's the idea.

Tom Schmidt: But I think... Well, kind of.

Arthur: Yes.

Haseeb: Expand on that. Why do you think it's very much like a Bear Chain?

Tarun Chitra: Because it's too typical: crazy incentives at the launch of a new L1, with everything revolving around "mining." The stablecoin's gimmick is not as important. Yes, all rewards are settled in Tether, but what everyone is truly interested in is mining the XPL token. Most of the earnings come from XPL rewards, starting at around 60% to 70%. The earnings structure of many protocols is like this. It feels like Bear Chain, where everyone rushed in, and the daily narrative was "the meaning of this chain is to farm for you," so providing liquidity on the launch day was crucial.

I think the only somewhat unique point is the integration with Binance Earn, which brought in at least $20 billion (SEC/USDT), a scale far exceeding my expectations.

Haseeb: Indeed, their business development is very strong, their marketing is on point, and their execution is fully online. But I agree with your concerns. So, what would you suggest they do next to avoid becoming the next Bear Chain?

Tarun Chitra: I just don't understand how they could really move the stablecoin's liquidity to their chain. It seems almost impossible. Either you can only cannibalize Tron, but who is the biggest XPL farmer? Obviously, it's the "Tron Emperor."

Haseeb: Haha, not "Emperor," but "Your Excellency."

Tarun Chitra: Right, "Your Excellency." The question is, how can you not absorb too much of TON's transaction volume, let alone too much of Ethereum's transaction volume. So, in the long run, where does this liquidity really come from? Honestly, I think, except for tempo, it's very difficult to explain where the "natural liquidity flow" of other stablecoin chains really comes from.

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 the box" back in the day: if everyone is making money, you better hurry up and leave the room.

Of course, I don't think there is a problem with stablecoin chains themselves; I think this direction is correct. But I agree with Tarun's statement, the more reasonable path should be: existing applications with a distribution scene gradually moving their internal liquidity flow to a new chain. This is the logic behind Stripe supporting tempo. I'm not surprised at all that some exchanges are also considering similar plays.

Because most Tether holders fundamentally hold it through some "distribution endpoint," the entities truly capable of driving this kind of migration are these institutions that control end users.

Haseeb: Another Tom, what are your thoughts?

Tom Lee: I think stablecoins will be a huge market. The total market cap is currently only around $300 billion, and I can totally see it growing to $40 trillion. This is also what the Treasury Secretary recently talked about, and maybe they haven't even factored in "micropayments" yet. Stablecoins are naturally suited for micropayments because Tether has 12 decimal places, allowing for very fine-grained payments.

All these demands cannot be accommodated on a single chain; Ethereum itself cannot handle the capacity. So I think exploring multiple chains is reasonable. I hope to see multiple solutions succeed.

Haseeb: Right, Tom, I think you're spot on. If you want to build a separate chain just for stablecoins, you have to first bring the liquidity in. Tempo is clearly on that path — they are partnering with Stripe, which will act as a source of B2B traffic.

But if you just want to capture existing stablecoin demand from elsewhere, that's too hard. Because the network effects of Tron are too strong, the stickiness is too high. Ethereum is the same — many people simply hold stablecoins on Ethereum. In theory, I could pay you on another chain, but in reality, we are more likely to transact directly on Ethereum.

Tarun Chitra: Yeah, for example, with that bridge incident yesterday, Phantom issued a stablecoin on Solana through a bridge. I see that most of this capital flow is still circulating between existing user bases rather than going to those new chains trying to attract users on their own.

Haseeb: What specific issue arose with that bridge?

Tarun Chitra: Nothing major, just that Phantom used a bridge to issue a stablecoin on Solana. What I mean is, this kind of operation makes me wonder: Why should I go to another chain? If I were an app, I could just pick one of the 4 or 5 stablecoin service providers on the market now and issue my own white-label stablecoin. Do I really need to go to a new chain? I don't think so.

Competition Between Hyperliquid and Perp DEX

Haseeb: Makes sense. Alright, since we're on the topic of bridges, let's talk about Hyperliquid. Everyone knows that Hyperliquid is currently the largest decentralized exchange. There has been an emerging competition known as the "Perpetual Exchange War."

The vanguard of the current war is Aster, which is the exchange associated with CZ, Binance Labs, and BNB Chain. Their daily trading volume has reached about $600 billion.

Arthur: Really?

Haseeb: Yes, that's what the data I saw indicates.

Arthur: Actually, whether it's real or not doesn't matter anymore. Since everyone is talking about it, it's considered successful.

Haseeb: Exactly. 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, showing their positioning in the futures market. It seems that it's not just a war among DEXs anymore; CEXs are also choosing their own "agents" to join the battle.

Haseeb: Arthur, you've also been in the news a lot recently. I remember you once said that Hyperliquid's token would increase 126 times.

Arthur: Yes, I did say that.

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

Arthur: Yes, I sold it.

Haseeb: Your reason at the time was that Hyperliquid was facing the "Sword of Damocles" overhead. Can you explain what sword that is?

Arthur: Actually, everyone already knew it was the unlock pressure. At least starting from November, about $500 million in tokens would enter circulating supply annually. This was not a secret; everyone was aware of it.

When Hyperliquid was still dominant (with a market share of 60%-70% one and a half months ago), the unlock wasn't that critical. Because the market assumed it could earn more fees, use that money to buy back HYPE tokens, so this was considered a "bullish unlock," similar to the situation with Solana in 2021.

But then one day, I casually checked the trading rankings: Hyperliquid was still number one, with a daily trading volume of $40 billion; closely followed by Lighter at $39 billion and Aster at $38 billion. This indicates that real competition has arrived. This is not to say that Hyperliquid can't compete with them; its technology, HIP3 upgrade, and development team are all very strong, and in the next 2-3 years, it could completely outperform its rivals. As I mentioned before, it could increase 126 times by 2028, and I still believe that.

But now the market has started to reprice, and I couldn't just sit there and watch the price being pushed down. So I decided to sell, step aside for now, wait for the market direction to clarify, and then decide.

Ultimately, it depends on whether Hyperliquid can prove its "moat," able to collect real, sustainable fees in the competition. If it fails to do so, then it will be interesting to see what new products or services perp DEX can launch to attract users' willingness to pay, without immediately being copied by centralized exchanges and experiencing "zero-cost parasitism." The goal of CEX is simple: ensure that no one can truly make money in the decentralized contract market. If they achieve this by suppressing the profits of the top DEX, even the first place won't be safe.

Haseeb: So, what do you all think of the "Sword of Damocles" hanging over Hyperliquid? Do you agree with this statement?

Tom Schmidt: I think the idea of a "bullish unlock" makes sense.

Arthur: So, should I buy Hyperliquid now? The price seems reasonable.

Tom Schmidt: What I mean is, this is actually a kind of "induced demand." They have figured out a blueprint, and now everyone is imitating it. I think this market will continue to grow explosively. Either it will be like "convergent evolution," where different species eventually evolve into crabs because this form is efficient and robust. The crypto market could be the same—ultimately, everyone is buying "crabs."

Arthur: Buying crabs? Buying sellers? What are you talking about?

Tom Schmidt: Haha, even I don't know what I'm talking about. What I mean is, if you want to create value, you have to make the perpetual contract market more perfect. So the market could grow a hundredfold, and then Hyperliquid could certainly keep up all the way.

Haseeb: So, are you saying—you are buying now?

Arthur: Yeah, are you buying now?

Tom Schmidt: I am buying perp (perpetual futures), not just the token itself.

Arthur: Oh, come on, just go long on HYPE directly.

Haseeb: Yeah, we are already long-term bulls on HYPE. We haven't sold, so should we add more to our position? However, we have also invested heavily in other perp projects, such as Lighter, APEX. Our exposure in this field is already significant. What do you think of the current DEX war?

Tarun Chitra: I think it will depend on whether Lighter's "zero fee" strategy is viable. We will only know the impact once their airdrop is completed and they go live. The real question is whether the zero fee transaction model can retain users. Without seeing any data, it's hard for me to make a judgment. So for now, I'm taking a wait-and-see approach and not buying or selling.

Tom Schmidt: But don't you think the market trend is towards continually lowering fees? Why not jump in directly?

Tarun Chitra: Strangely enough, the real big earners are actually on the LP and treasury side, not the exchanges themselves. There's a subtle dynamic at play here: the competition between funds on the "treasury" side and the "order book" side.

Haseeb: However, I don't think zero fees can last forever. For example, if we look at Aster now, it charges fees but makes more money than Hyperliquid because of its larger trading volume. However, everyone also knows that its profit is negative because it's aggressively distributing tokens through "rewards." In other words, whether they charge fees or not, all pre-token launch perp DEXs are operating at a loss.

Arthur: That's true, but the question is: can Hyperliquid survive under this valuation?

Haseeb: That's a good question. But think about the example of Binance. Initially, Max Bit dominated the perp market, then it was overtaken by Byte-affiliated exchanges, probably around 2020. Subsequently, Binance also lost some market share, and more competitors emerged, making the landscape more fragmented. Today, Byte-affiliated exchanges probably hold about 40% market share, but the entire perp market has expanded significantly.

And let's not forget, the volume of DeFi perp compared to CeFi is still quite small. These new exchanges are bringing in users who have never traded perp before. In the dYdX era, there may have been only a few thousand active users; now there are at least several tens of thousands. I haven't checked the data for Aster, but I bet they have attracted a large number of new users, especially from Asia. This is because they have a mobile app, which Hyperliquid doesn't.

Tarun Chitra: That's right, they have executed very smoothly. My view remains the same. If you go back to 2010 as an investor, you might ask yourself: Should I buy Microsoft? Google? Amazon? Or Facebook? The answer is actually: all of them. The entire market will continue to experience explosive growth. Perhaps you can pick some relatively valuable assets at the margin, but the real big risk is—you are either too exposed or not participating at all.

Arthur: But they are not all offering the exact same product. Perpetual contracts are actually the same across platforms; I think it's a commoditized product.

Tarun Chitra: There can still be some differentiation to some extent. For example, in the exchange space, do you have a localized market strategy? Do you have targeted regional penetration? And in cloud computing, you could also consider it semi-commoditized, but even then, the market is not entirely efficient; it may just gradually move in that direction.

Haseeb: Tom, what are your thoughts on this perpetual DEX battle?

Tom Lee: I think this is capitalism at work. One product comes out, and others see it and replicate it. But as Arthur mentioned, the key is whether the leader can maintain their lead. If not, then the market truly becomes commoditized. So, that logic also holds. 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 in the traditional financial market.

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 perpetual. I think there is a lot of potential here. Obviously, I have invested in Pendle; I find Boris and their product very interesting. The interest rate market is much larger and more complex. The challenge is how to make it into a product that crypto retail investors find intriguing and are willing to speculate on.

So, if we 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 some crypto yield and make it fun and easy to trade. It's not fun right now, which is why there are a bunch of perpetuals and derivatives. Because technically making fixed income into a super sexy and fun "Degens product" is much harder than replicating a perpetual contract product that already exists in a centralized exchange.

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

Arthur: We can go trade "cats."

Haseeb: But to be honest, even in traditional finance, people wouldn't trade interest rates for "fun." It's a huge market. But if you have…

Arthur: Triple-digit leverage, like 1000x leverage, many things immediately become fun.

Haseeb: Well, that makes sense. If you ever do make a real comeback, I'd be very willing to invest in your "Fixed Income Gamified Trading Platform."

Tom Lee: I'd like to add, Arthur actually hit on the key word - "betting." I think this is crypto's strength. People can hedge, split, bet on different ideas; this is the real big market of the future. Essentially, it's a "betting market." The current representative projects are Polymarket and Kalshi, and in the future, there might be "micro-betting" on interest rates, fixed income, and even real estate speculation, anything is possible.

Prediction Markets and Privacy Coin Market

Haseeb: Exactly. Let's continue on this topic and talk about prediction markets. Undoubtedly, one of this year's hottest topics is the rise of prediction markets. Currently, the two major prediction markets are Polymarket - where some of us are actually investors - and its competitor, Kalshi. Kalshi has already obtained regulatory licenses in the U.S., and its trading volume is steadily catching up, sometimes even surpassing Polymarket. It has also established a partnership with Robinhood, mainly bringing a lot of traffic to it in sports betting.

Here, I'd like to discuss two points. The first is a little incident that happened at Token2049 this time. Tom, would you like to talk about what exactly happened in your panel discussion?

Tom Schmidt: I actually didn't think it was a big deal, but some people might find it a bit "dramatic." Recently, I've been hosting some discussions, and I was invited to moderate a roundtable with a Kalshi member. However, they protested, saying I might not be a "completely neutral" host.

Haseeb: Why were they complaining?

Tom Schmidt: Mainly because of social media; they might not have liked some of the tweets I posted.

Haseeb: I remember you had a tweet saying, "The Kalshi team is a bunch of little mice," right?

Tom Schmidt: Haha, yes, that tweet was indeed from me. But I still consider myself a somewhat qualified host, asking some good questions and trying not to let personal biases affect. But maybe these things are not apparent on Twitter. The result was, I was eventually replaced.

But it's not all bad, actually. I happened to have some free time this morning, so I went to have a coconut toast and a cup of coffee, which was a nice unexpected gain.

Haseeb: Haha, well. Besides that, this week also had an interesting event related to the prediction market. That is the new episode of "South Park" that aired last week. The internet exploded in an instant — this classic American satirical animation surprisingly included the prediction market in the storyline, featuring Kalshi and Polymarket.

Immediately, Kalshi tweeted, saying this was "an episode entirely about Kalshi in South Park." Polymarket, of course, didn't stay quiet and retorted, saying, "Wait, why just you guys? We are in it too!" So everyone started arguing whether this episode was more like a dig at Kalshi or Polymarket. A typical crypto community, fighting endlessly over some fundamentally unimportant issues.

But, have any of you actually watched that episode?

Arthur: That episode? I haven't seen it, but now I want to go watch it.

Tom Schmidt: I've seen a few clips. I think many people might have only seen a few tweets of the argument rather than actually watching the full animated episode.

Haseeb: Absolutely right. Millions of people were watching the Polymarket and Kalshi feud, but now it feels like it has turned into a "factional battle," a bit like the old Bitcoin camp versus Ethereum camp. The question now becomes: Is Kalshi really considered "crypto"? Are they "orthodox"?

Arthur: So, can you guys enlighten us on the core difference between these two platforms?

Haseeb: Polymarket is fully on-chain, it is on Polygon, and has been crypto-native from day one. On the other hand, Kalshi is a US-based compliant company, the first team to litigate with the CFTC and ultimately win in an appellate court, and it was because of them that the US truly allowed prediction markets. The industry should actually thank Kalshi because without them fighting this battle, prediction markets might still be illegal today.

However, Kalshi has been entirely off-chain all along, only adding support for USD deposits about a year ago and recently entering markets related to crypto. But fundamentally, it is not a crypto project.

However, they have recently hired many crypto Key Opinion Leaders (KOLs), such as 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 crypto too, we love crypto, we are part of the crypto community.

Tom Schmidt: But this makes me feel strange. 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 is: Are crypto users really that important? Is it worth fighting a "life-and-death battle" for this part of the traffic? It seems like they are doing well on their own, and I don't quite understand why they see the "crypto space" as a must-win battleground.

Haseeb: I think there are three reasons for this.

First, Polymarket's market is indeed valuable to Kalshi, and of course, they hope to attract those users.

Second, everyone knows that crypto traders are willing to play anything as long as you can make things interesting and volatile.

Third, to a large extent, this is a narrative issue. The crypto narrative is vast, and Kalshi also wants to have a share of it.

Tom Lee: I would like to add one more point: Polymarket plays a crucial role in interpreting major events like elections. Remember the last presidential election? Polymarket's prediction correctly forecasted the results in each state's Electoral College, something no other institution achieved. So how is Wall Street viewing future prediction markets now? It is very likely that in the next election, the betting volume on Polymarket will be 20 times that of the last time.

This has already changed many people's perceptions. Even firms like Goldman Sachs now quote Polymarket's prediction market data in their research reports. It's not just about major events like Fed actions or government shutdowns; for example, we at Fundstrat have been using Polymarket for a long time, and it's been very useful. While sports betting is significant, don't forget that sports can be sliced very finely, with local leagues, minor events, and great potential.

Haseeb: So how exactly do you use Polymarket on Wall Street?

Tom Lee: We use it often. Let me give you a few examples: such as "Will the U.S. government shutdown end before June?"; for example, predicting the actions of Fed Governor Lisa Cook; or "Will Powell still be the Fed Chairman by December?"; and there is a very active market on "By December 2025, who will be the nominee for Fed Chairman." The information from these markets is real-time. For example, at one point, there was a lot of buzz around David Zervos, but then it faded. This kind of dynamic is typical 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 ourselves wouldn't bet.

Haseeb: Right, you wouldn't bet, but your clients would use this information. In fact, this is also the most important significance of prediction markets. The vast majority of people who truly benefit from it are not the bettors themselves, but an external group that uses the information. It is precisely because of this information spillover effect that prediction markets have tremendous social value.

Tom Schmidt: I think, fundamentally, prediction markets are more akin to a social network than to trading.

Haseeb: What do you mean?

Tom Schmidt: For example, that betting pool on Taylor Swift's engagement, someone clearly bet on insider information, and in the end, they didn't make much money, just a few tens of thousands of dollars.

Haseeb: Someone bet on insider information about Taylor Swift's engagement?

Tom Schmidt: Yes, saying she would get engaged on a certain day. Obviously, someone knew in advance, as you could tell from the trend in the pool. In the end, they made just a few tens of thousands of dollars, not a significant amount. But this event was reported by media worldwide, equivalent to spending one thousand dollars to get exposure worth tens of millions of dollars. This is more like the viral spread of a social network rather than the transaction itself.

What's truly important is not the bet itself but someone proving they had insider information, and then this became global news. To me, it feels more like media and a social network rather than pure gambling. Betting is just the backend engine; the ultimate outcome is the media effect. This is the somewhat peculiar aspect of prediction markets; in a sense, they have transcended the realm of crypto.

Arthur: So, that's why Polymarket is considering launching a token?

Haseeb: Well, there have been rumors that Polymarket might issue a token, but it's not confirmed yet. There are also reports now that they are fundraising, with an estimated valuation between 80–90 billion dollars, as reported by Bloomberg, so there should be news soon.

Additionally, the impact of prediction markets is two-way. Not only do they create news and turn pool trends into topics, but they also, in turn, affect reality. For example, earlier this year, something was thrown onto the court during a WNBA game. At that time, there was even a pool asking, "Will someone throw something onto the court again this year?" This was practically a form of indirect bounty. Fortunately, it didn't continue. But these bizarre events are highly likely to recur.

I think the next U.S. presidential election, Polymarket will not only provide information but will actually have an impact on the election. Because the pool's trend will affect whether voters turnout, and even influence the competition between candidates. For instance, someone within a party might say, "Forget about the polls; look at Polymarket's pool; you should drop out; otherwise, you'll drag our people down." So, I speculate that by 2028, the liquidity and information quality of prediction markets will truly reshape the political landscape.

Arthur: There may be some more politically themed meme coins, which can serve as a hedge and provide various ways to have fun.

Haseeb: Yeah, expressing the same bet in different ways will become more common. Alright, let's talk about Zcash. Recently, Zcash has suddenly gained popularity. Zcash is one of the most well-known projects in the privacy coin space. The most famous privacy coin is Monero, which is currently the most widely used privacy coin. The second largest is Zcash, which was initially developed by a group of professors as a zero-knowledge proof protocol (ZeroCoin) and later evolved into Zcash. It supports both transparent transactions (non-private) and shielded transactions (private). Lately, Zcash has shown signs of a revival, especially with some Gen Z-style marketing. Previously, it was more of a favorite among "crypto uncles," but now it has suddenly started to target a younger audience.

Tom Schmidt: Tom, what are your thoughts on 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 their own payments. So it does have practical use cases. Of course, many people are not concerned about privacy. Surveys have shown that young people would rather give their data to tech companies than to the government. So privacy may not necessarily be the sole selling point of a wallet. In the future, in an era dominated by AI and robots, people will need other forms of protection, such as proving their humanity (Proof of Humanity). Just this use case alone is becoming increasingly important.

Haseeb: How do you view dedicated privacy coins then?

Tom Lee: I think they can indeed be useful. I have even spoken to some people in government agencies, and they use them themselves. If even the government sees value in them, then they must be truly useful.

Tom Schmidt: However, there have been conspiracy theories in the past claiming that Zcash is government-backed.

Haseeb: I think in general, governments are still not fond of 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 as well.

Haseeb: That's right. However, compared to Monero, Zcash has a higher level of regulatory acceptance because it is not purely private and has a transparent option. Monero has been delisted in many places, such as Japan, South Korea, and some EU countries.

Arthur: That really shows how useful it is.

Tarun Chitra: You mentioned before that you didn't like Zcash, what's up with that?

Arthur: I'm not dissing it. I remember six or seven years ago having dinner with an FBI person, and we asked, "Which is the best privacy coin?" She said it was Monero. For me, that answer was enough.

Tarun Chitra: Maybe she was tricking you, a fishing law enforcement agent.

Haseeb:

Haha, yeah, you might have been played. But still, be sure to switch wallets. Okay, that's it for today, thank you everyone, see you next week.

Original Article: Link to Original

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