Original Title: Arthur Hayes & Tom Lee_ Perps, Stablecoins, Prediction Markets
Original Source: Unchained
Original translation: Ismay, BlockBeats

host:

Haseeb Qureshi, Managing Partner, Dragonfly

Tom Schmidt, General Partner, Dragonfly

Tarun Chitra, Managing Partner, Robot Ventures

Guests:

Arthur Hayes, Maelstrom CIO

Tom Lee, CIO of Fundstrat Capital and Chairman of Bitmine

Editor's Note: This interview brings together crypto industry heavyweights Arthur Hayes and Tom Lee for an in-depth discussion on cutting-edge topics such as perpetual swaps, stablecoins, digital asset treasuries (DATs), prediction markets, and privacy coins. The panelists not only share their unique insights on market trends, product strategies, and the competitive landscape, but also analyze the development logic of crypto assets from an institutional perspective. They explore how DATs can become the "Wall Street CEOs" of blockchains, whether stablecoin-specific chains can foster a true value stream, the competition and innovation of Perp DEX, and the potential of prediction markets and privacy coins in generating information, speculation, and social value. The article showcases practical industry experience and reflects the latest trends in the crypto ecosystem's financialization, regulatory compliance, and product innovation, providing a valuable reference for understanding the current development of the crypto market and future trends.

The following is the full content of the conversation:

Haseeb: Hello everyone, I am the Chief Mobilization Officer of Dragonfly. We are early-stage crypto investors, but we must state that everything we say here is not investment advice, legal advice, or even life advice (laughs).

We're back at Token 2049. We were just backstage revisiting last year's scene. If you rewind back to before Trump became 'Dear Leader,' Token 2049 was all about memes. If you remember Breakpoint, Iggy Azalea made big news back then. Arthur, what was the atmosphere like at Token 2049 this year?

Arthur: Traffic jam.

Haseeb: Indeed (laughs).

Tom Schmidt: I think it's almost a bit of "comfortably boring." Compared to last year's memecoin craze, this year everyone's talking about stablecoins and DATs (digital asset vaults). Don't mind me, Tom, but the vibe is completely different from last year's Iggy Azalea strip party.

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

Tom Lee: This year there was a lot of energy, a large number of participants, and many key figures. We held a large number of meetings and it was very efficient.

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

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

Trending Discussions on DAT

Haseeb: I understand. Okay, let's talk about DATs. For those unfamiliar, DAT stands for "Digital Asset Treasuries," essentially the micro-strategy of everything.

Tom, who is on stage today, is the chairman of Bitmine. Bitmine is the largest Ethereum treasury to date, and its holdings are increasing rapidly. It now holds approximately 2.65 million ETH, representing over 2% of the entire Ethereum supply.

What’s notable is that we’re seeing a high concentration of trading volume across these DATs. Previously, there were many different DAT participants, but now 90% of DAT daily trading volume is between MicroStrategy and Bitmine, with the rest of the volume being a small fraction.

I have to ask, Tom, a lot of people think you’re the “savior of Ethereum.” What are your thoughts?

Tom Lee: That's a big...

Haseeb: Work, yes, that’s right.

Tom Lee: I think Ethereum is in great shape. The Ethereum Foundation has focused on the right things over the past year. Coupled with the rise of stablecoins, this has truly ignited demand for blockchain. Bitmine simply happened to hit that timing.

Haseeb: Exactly. Back then, the foundation was still adjusting and reshaping its narrative. But now it feels like you've essentially become the "Chief Marketing Officer" of Ethereum.

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

Haseeb: You should. Arthur, what are your thoughts on the DAT craze and how it impacts Ethereum and the reignition of the narrative?

Arthur: I think everyone loves hearing Tom Lee on CNBC. If he's willing to make a big splash, then go for it, man. I love it. We need more Tom Lees like him. Every blockchain should have its own Tom Lee.

Haseeb: Yeah, every chain, right? So let me ask you a question, Tom, what do you think you did right that other people who want to be "Tom Lee clones" didn't do?

Tom Lee: I think the first thing Bitmine did right was communication. We've consistently kept our message simple and clear: ETH is in a supercycle. We've repeatedly emphasized this through our website, speeches, and even the chairman's video message. Secondly, Bitmine has strong connections with the institutional world. For example, Cathie Wood publicly stated her significant position in Bitmine early on, and it's now one of ARK Fund's top ten holdings, which has attracted even more institutional capital. This process has created a flywheel effect, which is why we're the 26th most traded stock in the US today. And as you mentioned, we, along with MicroStrategy, are indeed creating liquidity for DATs.

Haseeb: So what's next? I see you're not just focusing on Ethereum anymore. There was a recent report that your scale has surpassed Worldcoin's DAT, suggesting you're expanding. Can you tell us about your strategy in this area?

Tom Lee: Bitmine aims to continue to help Ethereum grow over the next 15 years. Specifically, this includes identifying more key projects that consume ETH and burn gas, and helping to incubate new payment rails on Ethereum. Of course, we also work closely with the Ethereum Foundation to identify and prioritize upgrades.

This also includes investing in truly outstanding projects. For example, Orb 8 Code is linked to Worldcoin. As a16z mentioned, among the 11 areas of real interest in AI, one is "human identity verification." Worldcoin is one of the earliest projects working on this, and nearly 17 million people have been verified as "real people" through it. I believe protecting human identity is a crucial mission for blockchain.

Haseeb: I have a theory, which we've discussed on a previous show. The significance of DATs isn't just as a tool for institutional investment; it also gives a chain a "Wall Street CEO." This kind of CEO can do things that foundations can't. For example, foundation heads like Vitalik or Tamash wouldn't go on CNBC and shout, "ETH bull run is coming!" or post a bunch of technical analysis posts. It's simply not appropriate for them.

But DATs can outsource this role, allowing someone to tell the story in a language that Wall Street can understand. This is actually what the crypto industry has always lacked: despite being highly financialized, no one is taking on the role of "marketing officer." And in my opinion, you are the epitome of this.

What about the future? We've seen the DAT craze cool down, with net assets under management shrinking and fewer new products launching. How do you envision DAT evolving over the next two, three, and five years?

Tom Schmidt: I was just about to ask Tom, but I think the whole process and pace are moving much faster than we originally thought. Most of the E-class DATs have already fallen below their net asset value (NAV). So what do you think will happen next? Will they dump a bunch of ETH and buy back shares? Will they be acquired? Or will they pivot to AI? What would you do, or what do you think they would do?

Tom Lee: I heard today that there are already 78 DATs. That's a significant number. In the traditional secondary market, institutional investors typically only choose two or three, or at most four. So within this range, there will definitely be multiple winners. But institutions can't afford to buy 70 DATs. Those that fall below their NAV face a survival crisis. I believe a DAT shouldn't fall below its NAV; that's inherently a negative signal. I don't know whether they should be converted into ETFs, liquidated, or merged. But I'm certain that DATs shouldn't fall below their NAV. Of course, this also depends on the market's level.

Tom Schmidt: So you're talking about a "level problem," right?

Tom Lee: Exactly. Look, no ETF trades below NAV, so DATs shouldn't trade below NAV either. If they can "threaten" themselves into converting to an ETF, then they'll always trade at NAV, and that should be the bottom line.

Haseeb: That makes sense. What do you think?

Tarun Chitra: I agree with the "consolidation" point. For example, Solana's DAT is constantly signaling consolidation; there can't always be 20. But what I don't understand is why some people are still issuing DATs for tokens with market caps of only $1 billion, $2 billion, or $3 billion. I can't understand how projects of this size can survive, and why would anyone even issue such DATs?

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

Tarun Chitra: But imagine you were Tom, and you were running a DAT with a market cap of only $3 billion. And someone offered you 1% of the circulating shares, and you had to manage it. What would you do?

Tom Lee: Yes, that could undermine reflexivity. In theory, DATs should be long-term holders of tokens, but if they hold too large a position, it can lead to a negative "power law" effect. That's why Bitmine has always tried not to hold more than 10% of ETH; their goal is actually only 5%. Small DATs might help them tell a clear story, but you don't want them to become so large that they end up being the "buyer" of the market.

Haseeb: There was some trouble with Zero G Token recently. Their DAT was closed before the token was launched, which effectively meant they injected tokens that didn't have a market price yet, and then arbitrarily set a valuation.

Furthermore, the US SEC has recently been tightening the screws. Rumors circulate that insider trading has been reported to the SEC, and they've begun investigating these "pre-market close" operations. Furthermore, Nasdaq has tightened its rules for DATs. Projects taking shortcuts will likely soon be under scrutiny. Overall, the trend remains towards consolidation. If your DAT isn't large enough, lacking scale, and lacking strong assets, you won't have much trading volume. Without trading volume, you can't even do ATMs (additional financing). So, what's the point of doing it? You're just locking up some capital and leaving it in the stock market, with no one buying or selling it.

Haseeb: Speaking of ETH, our friend Andrew Kang recently posted a tweet that went viral. I don't know if you saw it, but the title was "Tom Lee's Ethereum Argument is Stupid," and it's gotten about 1.5 million views. His point was: Yes, stablecoins will be listed on Ethereum, RW (real-world assets) will be listed on Ethereum, and banks will be listed on Ethereum, but they won't actually pay fees or transaction fees. This is all a joke, and the real investment is in robotics companies. He's all bullish on robotics companies right now. What do you think of Andrew Kang's bearish stance?

Tom Lee: As you know, in the crypto world, "retarded" is a positive word. So I took it as a compliment.

Haseeb: Haha, okay, okay.

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 why Bitmine is number one. Okay, let's change the subject and talk about Plasma. Speaking of stablecoins, Plasma is a new L1 stablecoin chain, in which Tether has invested. I'd like to ask everyone here: How many of you have participated in Plasma mining or hold Plasma tokens? Hands up... Okay, I see.

Arthur: You could be lying.

Haseeb: I'm surprised not many people raised their hands. Actually, this mining event was quite large. It's one of the most recent token launches, and the airdrop was substantial. The fully diluted valuation is currently around $8.5 billion, with a total circulating supply exceeding $1 billion, and the airdrop was also substantial.

The problem is that Plasma's nominal valuation is high, but in reality, it has few viable applications. It's essentially a giant mining farm. They're offering roughly $500 million in incentives annually to get people to transfer USDT. So, what are your thoughts? Will dedicated stablecoin chains become a new trend? Will they shake up Ethereum's narrative? On-chain data shows that this week, the majority of stablecoins have flowed out of Ethereum and directly into Plasma.

Arthur: I think this is primarily a mining function. If there's positive returns, people will go for it. But if there's no subsequent value creation, the funds will return, just like with all the blockchain games of the past decade.

Haseeb: It’s just a random “mining farm”.

Arthur: Pretty much. Yes, it's a farm. But it has to be able to run beyond the logic of a farm to be truly valuable.

Tarun Chitra: In India, there are a lot of "X for Y" narratives. For stablecoins, Plasma is very similar to Bear Chain.

Haseeb: A Bear Chain specifically for stablecoins?

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

Tom Schmidt: But I guess... well, kind of.

Arthur: Yes.

Haseeb: Could you elaborate on this? Why do you think it resembles Bear Chain?

Tarun Chitra: Because it's so typical: when a new L1 launches, there's crazy incentives, and everything revolves around "mining." The stablecoin hype is less important. Yes, all rewards are settled in Tether, but what people are really interested in is mining XPL tokens. The majority of revenue comes from XPL rewards, starting at 60-70%. Many protocols have similar revenue structures. It feels like Bear Chain, where everyone rushed in. The daily narrative was, "The point of this chain is to farm," so providing liquidity on launch day was crucial.

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

Haseeb: Indeed, their BD is impressive, their marketing is strong, and their execution is top-notch. But I agree with your concerns. What would you recommend 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 own chain. It seems nearly impossible. They can only cannibalize Tron, but who is the biggest XPL farmer? Clearly, the "Tron Emperor."

Haseeb: Haha, it’s not “The Great Emperor”, it’s “Your Excellency”.

Tarun Chitra: Yes, Your Excellency. The problem is, you can't cannibalize much of TON's transaction volume, much less Ethereum's. So, where does this capital flow come from in the long run? Honestly, I think other stablecoin chains, except Tempo, have a hard time explaining where their "natural capital flow" lies.

Tom Schmidt: Yes, I do worry a bit. If the only thing people are talking about when discussing a new project is "the most powerful mining farm ever," then it's like SBF's "token in a box" joke: if everyone is making money, then you'd better leave the room.

Of course, I don't think there's anything wrong with stablecoin chains themselves; I think the direction is right. But I agree with Tarun: the more logical path would be for existing distribution applications to gradually migrate their internal capital flows to the new chain. This is the logic behind Stripe's support for Tempo. I'm not surprised that some exchanges are considering a similar approach.

Because most people who hold Tether essentially hold it through certain "distribution terminals", the institutions that truly have the ability to promote this migration are actually those that control the end users.

Haseeb: Other Tom, what do you think?

Tom Lee: I think stablecoins will be a huge market. The total market capitalization is currently only $300 billion, and I can definitely see it growing to $4 trillion. This is something the Treasury Secretary has been talking about recently, and that probably doesn't even include "micropayments." Stablecoins are naturally suited for micropayments, as Tether has 12 decimal places, allowing for extremely granular payments.

It's impossible to meet all of these requirements on a single chain; Ethereum simply doesn't have the capacity to handle them all. Therefore, I believe exploring multiple chains is reasonable. I hope to see multiple solutions succeed.

Haseeb: Yeah, Tom, I think you're absolutely right. If you want to build a new chain just for stablecoins, you have to bring in capital flows first. Tempo is clearly on that path—they're partnering with Stripe and will serve as a source of B2B traffic.

But if you simply want to absorb demand for stablecoins already elsewhere, that's difficult. Tron's network effects are so strong and sticky. The same goes for Ethereum—many people hold stablecoins on Ethereum. In theory, I could pay you on another chain, but the reality is that we're all more likely to transact directly on Ethereum.

Tarun Chitra: Yeah, for example, with the bridge issue yesterday, Phantom issued a stablecoin on Solana via a bridge. I think this kind of capital flow is mostly still flowing among existing user groups, rather than going to new chains that are trying to attract users on their own.

Haseeb: What exactly happened to the bridge?

Tarun Chitra: It's not a big deal. Phantom is using a bridge to issue a stablecoin on Solana. I mean, this operation makes me wonder: Why would I go to another chain? If I'm an application developer, I can easily find one of the four or five stablecoin service providers on the market and directly issue my own white-label stablecoin. Do I really need to go to a new chain? I don't think so.

The competitive landscape of Hyperliquid and Perp DEX

Haseeb: That makes sense. Okay, since we're talking about bridges, let's talk about Hyperliquid. Everyone knows Hyperliquid is currently the largest decentralized contract exchange. There's a competition emerging that's increasingly being called the "Perpetual Contract Exchange Wars."

At the forefront of this battle is Aster, the exchange associated with CZ, Binance Labs, and BNB Chain. Their daily trading volume has reached around $60 billion.

Arthur: Is that true?

Haseeb: Yeah, that's the data I saw.

Arthur: Actually, it doesn’t matter whether it’s true or not. Everyone is talking about it anyway, so it’s a success.

Haseeb: Exactly. Whether the trading volume is real or fake, it's certainly attracting attention. Recently, we saw Bybit announce a deeper partnership with APEX. Coinbase is also moving closer to Avantis, as part of their expansion into the futures market. It seems the battle isn't just between DEXs; CEXs are also selecting their own "proxies" to join the fray.

Haseeb: Arthur, you've been in the news quite a bit lately. First, I remember you saying Hyperliquid's token would increase 126-fold.

Arthur: Yes, I did.

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

Arthur: Yes, I sold it.

Haseeb: Your reasoning at the time was that Hyperliquid had a "Sword of Damocles" hanging over its head. Explain what that sword was.

Arthur: Actually, everyone has known about this for a long time. It's the pressure to unlock tokens. Since at least November, approximately $500 million worth of tokens have entered saleable circulation each year. This is no secret; everyone knows it.

When Hyperliquid was still dominant (it had a market share of 60%-70% a month and a half ago), unlocking wasn't that important. The market assumed it could earn more fees and use that money to buy back HYPE tokens, so this was a so-called "positive unlocking," just like what happened with Solana in 2021.

But then one day, I casually checked the trading rankings: Hyperliquid was still in first place, with a daily trading volume of 4 billion, followed closely by Lighter at 3.9 billion and Aster at 3.8 billion. This showed that competition had truly arrived. This wasn't to say Hyperliquid couldn't compete. Its technology, HIP3 upgrades, and development team were all very strong, and it was entirely possible that it would surpass its competitors in the next two to three years. I've said before that it could increase 126-fold by 2028, and I still hold that view.

But now the market has begun to re-price, and I can't just sit there and watch the price be pushed down. So I simply sold it and stood on the sidelines to wait and see the market direction.

Ultimately, it depends on whether Hyperliquid can demonstrate a competitive moat and charge realistic, sustainable fees. If not, the question becomes what new products or services perpetual DEXs can offer that users will pay for without being immediately copied and "zero-costly" by centralized exchanges. The goal of CEXs is simple: ensure that no one can truly profit in the decentralized contract market. If they achieve this by suppressing the profitability of leading DEXs, they will lose their top spot.

Haseeb: Okay, so what do you think about the "Sword of Damocles" hanging over Hyperliquid's head? Do you agree with this statement?

Tom Schmidt: I think the term "good news unlocked" makes sense.

Arthur: So should I buy Hyperliquid now? The price is pretty good.

Tom Schmidt: I mean, it's really a case of induced demand. They figured out a blueprint, and now everyone's copying it. I think this market will continue to explode. Or maybe it's like convergent evolution, where different species eventually become crabs because they're efficient and robust. The same could happen in the crypto market—everyone ends up buying the crabs.

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

Tom Schmidt: Haha, I don't even know what I'm talking about. My point is, if you want to create value, you have to make the perpetual contract market more perfect. So the market will grow a hundredfold, and Hyperliquid will certainly be able to keep up.

Haseeb: So what you're saying is - you're buying now?

Arthur: Yeah, are you buying it now?

Tom Schmidt: What I bought was perp (perpetual contract), not a single token.

Arthur: Hey, please, just go long HYPE.

Haseeb: Yes, we've been long HYPE. We haven't sold, so should we add to our position? However, we've also invested in many other perp projects, such as Lighter and APEX. We already have a significant exposure in this space. So, what are your thoughts on the current DEX war?

Tarun Chitra: I think it depends on whether Lighter's "zero-fee" strategy works. We'll know its effectiveness after the airdrop and launch. The real question is whether this zero-fee trading model can retain users. It's hard to judge without seeing the data. So for now, I'm just waiting and watching, neither buying nor selling.

Tom Schmidt: But don't you think the market trend is towards ever-increasing fees? Why not just jump in?

Tarun Chitra: Oddly enough, the real money is made on the LP and treasury side, not on the exchange itself. There's a very subtle dynamic here: competition between funds on the "treasury" side and the "order book" side.

Haseeb: But I don't think it's possible to have zero fees forever. For example, Aster has fees, but it makes more money than Hyperliquid because it has a larger trading volume. However, everyone knows its profit margin is negative because it's aggressively selling tokens through "points." In other words, regardless of whether they charge fees or not, all pre-launch DEXs are operating at a loss.

Arthur: Yeah, but the question is: if you hold Hyperliquid, can it survive at this valuation?

Haseeb: That's a good question. But consider the example of Binance. MaxBit initially monopolized the perp market, but the top spot was later taken away by ByteDance-affiliated exchanges around 2020. Subsequently, Binance also lost some market share, and the competition grew, leading to a more fragmented landscape. Today, ByteDance holds approximately 40% of the market share, but the overall perp market has expanded significantly.

And don't forget, the volume of perps in DeFi is still tiny compared to CeFi. These new exchanges are bringing in users who've never traded perps before. Back in the dYdX era, there were probably only a few thousand active users; now there are at least hundreds of thousands. I haven't seen Aster's data, but I'd bet they've attracted a lot of new users, especially from Asia, because they have a mobile app, while Hyperliquid doesn't.

Tarun Chitra: Yeah, they did it really smoothly. I still hold the same view: if you were an investor back in 2010, you'd be thinking: Should I buy Microsoft? Google? Amazon? Facebook? The answer is: buy them all. The entire market is going to continue to explode. While you might be able to pick out some relative value plays on the margin, the real risk is that you're underexposed, or not participating at all.

Arthur: But they don’t all offer the same product. Perpetual contracts are essentially the same across all platforms. I think it’s a commoditized product.

Tarun Chitra: There's certainly some differentiation. For example, in the exchange sector, do you have a localized market strategy? Do you have targeted regional penetration? Cloud computing, on the other hand, can be considered semi-commoditized. Even so, the market isn't completely efficient; it's likely to gradually move in that direction.

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

Tom Lee: I think this is capitalism at work. Once a product is released, others see it and copy it. But as Arthur said, the key is whether the leaders can maintain their lead. If they can't, the market will truly become completely commoditized. So the logic makes sense. I still think this market will continue to grow, because in my opinion, the number of people involved in crypto is still far smaller than those in traditional financial markets.

Tarun Chitra: Arthur, if you were to start an exchange again today, what would you do? Where do you see the opportunities?

Arthur: Fixed income isn't perpetual. I think there's a lot of room for growth here. Obviously, I invested in Pendle, and I think Boris and his product is very interesting. Interest rate trading is a much larger and more complex market. The challenge lies in making it a product that retail crypto investors find interesting and willing to speculate on.

So, if I were to talk about the next super-successful product that goes from zero to one, I'd be hoping someone—preferably Pendle—creates a highly engaging way for people to bet on a particular crypto interest rate, and it should be fun and easy to trade. Right now, that's not fun, which is why there are so many perpetual swaps and derivatives. Technically, making fixed income a super-sexy and fun "Degenerates" product is much more difficult than simply replicating a perpetual swap product already available on a centralized exchange.

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

Arthur: We can trade cats.

Haseeb: But seriously, even in traditional finance, people don't trade interest rates for fun. It's a huge market. But if you have...

Arthur: With three-digit leverage, such as 1,000x leverage, many things immediately become fun.

Haseeb: Well, that makes sense. If you ever come back, I'd be happy to invest in your "fixed income entertainment trading platform."

Tom Lee: I'd like to add that Arthur has nailed the key word: "betting." I think this is exactly the strength of crypto. People can hedge, split, and bet on different ideas, and this is the truly large market of the future. Ultimately, it's a "betting market." Currently, leading projects include Polymarket and Kalshi. In the future, there may be "micro-betting"—be it on interest rates, fixed income, or even real estate speculation—anything is possible.

Prediction Markets and Privacy Coin Markets

Haseeb: Exactly. Let's follow up on this topic and talk about prediction markets. Undoubtedly, one of the hottest topics this year is the rise of prediction markets. Currently, the two major prediction markets are Polymarket—several of us on stage are actually investors—and its competitor, Kalshi. Kalshi has obtained regulatory licenses in the US and is catching up to, and sometimes even surpassing, Polymarket in trading volume. It has also partnered with Robinhood, driving significant traffic to the platform, primarily in the sports betting market.

I want to discuss two points here. The first is that there was a small incident at Token2049. Tom, could you tell us what happened in your group discussion?

Tom Schmidt: I don't think it's a big deal, but some people might find it a bit dramatic. I was recently moderating some discussions, and I was originally invited to moderate a roundtable with members of the Kalshi group. They protested, saying I might not be a completely neutral moderator.

Haseeb: Why are they complaining?

Tom Schmidt: Mainly because of social media. They may not like some of the tweets I sent.

Haseeb: I remember one of your tweets said “Kalshi team is a bunch of little rats”?

Tom Schmidt: Haha, yes, I did send that tweet. I consider myself a pretty good host, asking good questions and trying not to let my bias get in the way. But maybe that wasn't apparent on Twitter. As a result, I was ultimately replaced.

But it’s not a bad thing. I happened to have some free time this morning so I went there to eat some kaya toast and drink a cup of coffee. It was an unexpected bonus.

Haseeb: Haha, okay. Besides that, there was another exciting prediction market-related event this week. It was a new episode of South Park that aired last week. The internet went viral—this classic American satire actually incorporated prediction markets into its plot, featuring Kalshi and Polymarket.

Kalshi immediately tweeted, calling it "a South Park episode all about Kalshi." Polymarket, of course, took offense, retorting, "Wait, why just you guys? We're here too!" The debate then erupted over whether the episode was more of a reference to Kalshi or Polymarket. It was typical crypto-industry bickering over something completely unimportant.

But, have any of you actually seen that episode?

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

Tom Schmidt: I've seen a few clips. I think more people just saw the arguments on Twitter than actually watched the episode.

Haseeb: Exactly. Millions of people are watching the Polymarket vs. Kalshi exchange, but it feels like it's become a battle of factions, a bit like the Bitcoin vs. Ethereum days. The question becomes: Is Kalshi truly crypto? Are they legitimate?

Arthur: Then can you explain to us what the core differences between these two platforms are?

Haseeb: Polymarket is fully on-chain, hosted on Polygon, and has been crypto-native since day one. Kalshi, on the other hand, is a US-based compliance firm. They were the first to challenge the CFTC and ultimately prevailed in the Court of Appeals. It was thanks to their efforts that prediction markets were finally legalized in the US. The industry should be grateful to Kalshi, as without their efforts, prediction markets might not be legal today.

Kalshi has always been an off-chain model. They only supported USD deposits about a year ago and only recently began trading in crypto-related markets. However, it is not a crypto project in essence.

However, they've recently hired a number of crypto influencers, such as John Wang and Ultra, to help them tell their story within the crypto community. After all, crypto users have always been more skeptical of Kalshi than Polymarket. Now, Kalshi's stance is: No, we're crypto too, we love crypto, and we're part of the crypto community.

Tom Schmidt: But this strikes me as odd. For example, they just announced they surpassed Polymarket in trading volume last week, but looking 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-or-death battle for that traffic? They seem to be doing pretty well on their own, so I don't quite understand why they're making the "crypto market" such a crucial battleground.

Haseeb: I think there are three reasons.

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

Second, as everyone knows, crypto traders are willing to try anything. As long as you can make things interesting and volatile, they will come in.

Third, this is largely a narrative issue. The crypto narrative is so large, and Kalshi wants a piece of it.

Tom Lee: I'd also like to add that Polymarket plays a crucial role in interpreting the election. Remember the last presidential election? Polymarket's predictions correctly predicted every state in the Electoral College; no other firm achieved that feat. So, what does Wall Street think about the future of prediction markets? It's very likely that the scale of bets on Polymarket in the next election will be 20 times greater than the last one.

This has already changed many people's perceptions. Companies like Goldman Sachs now cite Polymarket's prediction market data in their research reports. This isn't just for major events like the Federal Reserve's actions and the government shutdown. At FunStrat, we've actually been using Polymarket for a long time and it's been incredibly useful. Sports betting is certainly a big business, but don't forget that sports can be broken down into smaller segments, with local leagues and micro-events, offering enormous potential.

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

Tom Lee: We use it frequently. A few examples include: "Will the US government shutdown end before June?"; predictions for Federal Reserve Board Governor Lisa Cook; "Will Powell still be Fed Chair in December?"; and a very active market on "Who will be the nominee for Fed Chair by December 2025." These markets are all informed in real time. For example, David Zervos was very popular for a while, but then his popularity faded. This dynamic is a classic example of "crowd wisdom" and is extremely valuable to us. Wall Street relies heavily on this data.

Haseeb: I totally agree.

Tom Lee: Of course we don’t place bets ourselves.

Haseeb: Yes, you don't place bets, but your customers use this information. This is actually the most important significance of prediction markets. The vast majority of those who truly benefit from them are not the bettors, but the external groups that use the information. It is precisely because of this information spillover effect that prediction markets have such enormous social value.

Tom Schmidt: I think, fundamentally, prediction markets are closer to social networks than to transactions.

Haseeb: What do you mean?

Tom Schmidt: For example, in the Taylor Swift engagement odds, someone obviously used insider information to bet, but the money they made was actually not much, only tens of thousands of dollars.

Haseeb: Someone's using insider information to bet on when Taylor Swift will get engaged?

Tom Schmidt: Yes, she said she would get engaged on a certain date. Apparently, someone knew about it a day in advance, as evidenced by the market trends. He ultimately made a few tens of thousands of dollars, which wasn't a huge profit. But the fact that it was covered by media outlets around the world meant he spent ten thousand dollars to buy tens of millions of dollars worth of exposure. It was more like viral social media than a transaction itself.

What really matters isn't the bets, but when someone proves they have inside information, and it becomes global news. To me, this is more like media and social networking than pure gambling. The bets are just the engine behind the scenes, but the end result is the media effect. This is what's a little strange about prediction markets; in some ways, they transcend crypto.

Arthur: So that’s why Polymarket wants to issue coins?

Haseeb: Well, there are rumors that Polymarket might issue a token, but it's not confirmed yet. There are also reports that they are raising funds, with a valuation of between $8 billion and $9 billion. Bloomberg has also reported this, so there should be news soon.

Furthermore, the impact of prediction markets is bidirectional. Not only do they generate news and turn market trends into buzz, they can also negatively impact reality. For example, earlier this year in the WNBA, a ball was thrown onto the court. At the time, odds were even raised asking, "Will someone throw it onto the court again this year?" This was essentially a bounty. Fortunately, that hasn't happened yet. However, such bizarre events are likely to occur again.

I believe that in the next US election, Polymarket will not only provide information but will truly influence the election. This is because market trends will influence whether voters turn out to vote and even affect the competition between candidates. For example, someone within the party might say, "Forget the polls, just look at the Polymarket numbers. You should withdraw from the race, or you'll drag us down." Therefore, I suspect that by 2028, the liquidity and information quality of the prediction market will truly reshape the political landscape.

Arthur: There may be more political meme coins that can be used for hedging and various other purposes.

Haseeb: Yes, there are more and more ways to express the same bet. Okay, let's talk about Zcash. Zcash has been trending lately. Zcash is a relatively old-school privacy coin. The most well-known privacy coin is Monero, which is currently the most widely used privacy coin. The second-largest is Zcash. Zcash was originally developed by a group of professors as a zero-knowledge proof protocol (ZeroCoin), which later evolved into Zcash. It supports both transparent (non-private) and shielded (private) transfers. Zcash has been experiencing a bit of a resurgence lately, especially with some Gen Z-style marketing. Previously, it was more of a hobby for "crypto geeks," but now it's suddenly being marketed to young people.

Tom Schmidt: Tom, what do you think about the privacy narrative? After all, some people now criticize Ethereum for not having privacy.

Tom Lee: I think privacy is very important. In fact, government agencies sometimes use Monero or Zcash for payments themselves, so it does have real uses. Of course, many people don't care about privacy. Surveys show that young people would rather hand over their data to tech companies than to the government. So privacy isn't necessarily the only selling point of a wallet. In the future, in an era of AI and robotics, people will need other forms of protection, such as proof of humanity. This use case alone is becoming increasingly important.

Haseeb: So what do you think about dedicated privacy coins?

Tom Lee: I think they're really useful. I've even talked to some people in government agencies who are using them themselves. If even the government finds it valuable, it means it's really useful.

Tom Schmidt: But there was a conspiracy theory before that Zcash was government-backed.

Haseeb: I think governments generally don’t like privacy coins. Most countries have already banned them.

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

Tom Lee: But don't forget, sometimes governments have reasons to use privacy payments.

Haseeb: Yes. However, compared to Monero, Zcash has a higher regulatory acceptance because it's not privacy-by-default and has a transparent path. Monero has been delisted in many places, such as Japan, South Korea, and some EU countries.

Arthur: That means it’s really useful.

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

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

Tarun Chitra: Maybe she is lying to you, stinging you.

Haseeb: Haha, yeah, you might have been tricked. But still, be sure to change your wallet. Okay, that's all for today. Thank you everyone, see you next week.