Arthur Hayes and Tom Lee discuss DAT, stablecoins, and the future of prediction markets

Source: Unchained; Compiler: Ismay Host: Haseeb Qureshi, Managing Partner of Dragonfly Tom Schmidt, General Partner of Dragonfly Tarun Chitra, Managing Partner of Robot Ventures Guests: Arthur Hayes, CIO of Maelstrom Tom Lee, CIO of Fundstrat Capital and Chairman of Bitmine This interview brings together heavyweights in the crypto industry - 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 shared their unique insights on market trends, product strategies, and the competitive landscape, but also analyzed the development logic of crypto assets from an institutional perspective: how DATs can become the "Wall Street CEOs" of blockchains, whether stablecoin chains can truly create a value stream, the competition and innovation of Perp DEX, and the potential of prediction markets and privacy coins in information, speculation, and social value. The article not only showcases practical industry experience but also reflects the latest trends in financialization, regulatory compliance, and product innovation within the crypto ecosystem, providing a valuable 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'm Dragonfly's Chief Marketing Officer. We're early-stage crypto investors, but we must state that nothing we say here is investment advice, legal advice, or even life advice (laughs). We're back at Token 2049. I was just backstage revisiting last year's scenes. If you rewind the clock back to before Trump became 'Dear Leader,' Token 2049 was all about meme coins. If you remember Breakpoint next door, Iggy Azalea made big news back then. Arthur, what was the atmosphere like at Token 2049 this year? Arthur: Traffic jams. Haseeb: Absolutely (laughs). Tom Schmidt: I think it was almost a bit of "comfortable boredom." Compared to last year's meme coin craze, this year everyone's talking about stablecoins and DATs (digital asset vaults). Don't mind me, Tom, but the atmosphere is completely different from last year's Iggy Azalea strip party. Haseeb: Last year, there were fewer suits and more striptease. This year, Tom, what was it like being at Token 2049, a more institutional event? Tom Lee: This year, the energy was high, with a huge turnout, including many key figures. We had tons of meetings, and it was incredibly efficient. Haseeb: Even more efficient than last year's strip party? Tom Lee: I didn't attend (laughs). Discussion on DAT Trends Haseeb: Understandable. Okay, let's talk about DATs. For those unfamiliar, DAT stands for "Digital Asset Treasuries," which is like the "micro-strategy of everything." Tom, who's on stage today, is the chairman of Bitmine. Bitmine holds 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. It's worth noting that we're seeing a high concentration of trading volume among these DATs. Previously, there were many different DAT participants, but now 90% of daily DAT volume is concentrated between MicroStrategy and Bitmine, with the rest of the volume being a small fraction. I have to ask, Tom, many people consider you the "savior of Ethereum." What are your thoughts? Tom Lee: It's a big... Haseeb: Yes, that's right. Tom Lee: I think Ethereum itself is in great shape. The Ethereum Foundation has been focused on the right things over the past year. This, coupled with the rise of stablecoins, has truly ignited demand for blockchain. Bitmine simply happened to hit that perfect timing. Haseeb: That's true. Back then, the Foundation was still adjusting internally and reshaping the narrative. But now it feels like you've essentially become Ethereum's "Chief Marketing Officer." Tom Lee: Haha, I'll have to add that title to my business card then. Haseeb: You really should. Arthur, what do you think of the DAT craze? How has it impacted Ethereum and the reignition of the narrative? Arthur: I think everyone loves hearing Tom Lee on CNBC. If he's willing to drum up support, then go for it, man. I love it. We need more Tom Lees like him. Every chain should have its own Tom Lee. Haseeb: Yes, every chain, right? So let me ask you a question: Tom, what do you think you did right that other wannabe "Tom Lee clones" didn't? Tom Lee: I think the first thing Bitmine did right was communication. We've always kept our message very simple and clear: ETH is in a supercycle. We've consistently emphasized this through our website, speeches, and the chairman's video message. Secondly, Bitmine has strong connections with the institutional world. For example, Cathie Wood publicly invested heavily in Bitmine early on, and it's now one of the top ten holdings of the ARK Fund, 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 said, together with MicroStrategy, we're indeed creating liquidity for DATs. Haseeb: So what's next? I see you're not just focused on Ethereum anymore. There was recent news that your company has surpassed Worldcoin's DAT in size, 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 related to Worldcoin. As a16z mentioned, among the 11 areas of real interest in AI, one is "human identity verification." Worldcoin was one of the earliest projects working on this, and nearly 17 million people have already 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 previous shows. The significance of DATs isn't just as a vehicle for institutional investment; it also gives a chain a "Wall Street CEO." This 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, because it's "inappropriate" for them. But DATs can outsource this role, allowing someone to tell the story in a language that Wall Street can understand. This is something the crypto industry has been lacking for a long time: despite being highly financialized, no one is taking on this "marketing officer" role. And I think you exemplify this. So, what about the future? We've seen the DAT craze cool down, with net assets under management shrinking and fewer new products. What do you think DATs will look like in the next two, three, or 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 Class E DATs have already fallen below their net asset value (NAV). 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 into AI? What would you do, or what do you think they would do? Tom Lee: I heard today that there are already 78 DATs, which is a significant number. In the traditional secondary market, institutional investors typically only invest in two to 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 DATs that fall below NAV face a survival crisis. I don't think a DAT should be trading below NAV; that's a negative sign in itself. I don't know if they should be converted into ETFs, liquidated, or merged. But I'm pretty sure DATs shouldn't fall below NAV. Of course, this is also a question of market "levels." Tom Schmidt: So you're talking about "levels," right? Tom Lee: Exactly. Look, no ETF ever trades below NAV, so DATs shouldn't either. If they can "threaten" to convert to an ETF, then they'll always trade at NAV, and that should be the bottom line. Haseeb: That makes sense. What are your thoughts? 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 would issue DATs for tokens with market caps of only $1 billion, $2 billion, or $3 billion. I have no idea how a project of this scale can survive, and why would anyone even want to issue a DAT? Arthur: Because the founders get a 5% management fee. Tarun Chitra: But imagine you were Tom, running a DAT with a market cap of only $3 billion. Someone offered you 1% of the circulating supply, and you had to manage it. Would you do it? Tom Lee: Yeah, that could undermine reflexivity. In theory, DATs should be long-term holders of the token, but if they hold too much, it can lead to a negative "power law" effect. That's why Bitmine has always avoided holding more than 10% of ETH; their goal is actually only 5%. Smaller DATs might help them tell a clear story, but you don't want them to become so large that they end up being the sole receiver. Haseeb: There's been some recent trouble with Zero G Token. Its DAT closed before the token launched, effectively injecting tokens before they even had a market price, and then arbitrarily assigning a valuation. Furthermore, the US SEC has been tightening its grip lately. Rumors circulate that insider trading was reported to the SEC, and they're investigating these "pre-market close" manipulations. Furthermore, Nasdaq has tightened its rules regarding DATs. Projects taking shortcuts will likely be targeted soon. Overall, the trend remains towards consolidation. If you're small, lack scale, and don't have strong assets, your DAT 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 throwing 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 on Ethereum, RW (real-world assets) will be on Ethereum, and banks will be 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 now fully bullish on robotics companies. What do you think of bears like Andrew Kang? Tom Lee: As you know, in crypto, "retarded" is a compliment. So I took it as a compliment. Haseeb: Haha, good, good. Tom Lee: Thank you very much. Haseeb: That's a great 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 switch gears and talk about Plasma. Speaking of stablecoins, Plasma is a new L1 stablecoin chain, with Tether participating. I'd like to ask everyone here: How many of you have mined Plasma or hold Plasma tokens? Raise your hands... Okay, I see. Arthur: You could be lying. Haseeb: Not many hands raised, I'm surprised. Actually, this mining was pretty big. It's one of the recent token launches, and the airdrop was massive. The fully diluted valuation is currently around $8.5 billion, with a total circulating supply exceeding $1 billion, and the airdrops are also substantial. The problem is that Plasma's nominal valuation is high, but there are actually few viable applications. It's essentially just a giant mining farm. They're doling out roughly $500 million in incentives annually to get people to transfer USDT. So what are your thoughts? Will dedicated stablecoin chains be a new trend? Will they shake up Ethereum's narrative? Looking at on-chain data, most stablecoins this week 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 every blockchain game over the past decade. Haseeb: It's just a random "mining farm." Arthur: Pretty much. Yeah, it's just a farm. But it must be able to run beyond the logic of farming to be truly valuable. Tarun Chitra: In India, there's 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 think... well, it kind of is. Arthur: Yes. Haseeb: Can you elaborate on why you think it's so similar to Bear Chain? Tarun Chitra: Because it's so typical: when a new L1 is launched, there are crazy incentives, and everything revolves around "mining." The hype surrounding stablecoins isn't that 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% to 70%. Many protocols have similar revenue structures. It feels like Bear Chain. Back then, everyone rushed in, and the common narrative was, "The purpose of this chain is to farm," so providing liquidity on launch day was crucial. I think the only unique aspect was the Binance Earn integration, which brought in at least $2 billion (SEC/USDT), far exceeding 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 suggest they do next to avoid becoming the next Bear Chain? Tarun Chitra: I just don't understand how they can truly shift stablecoin capital flows to their own chain. It seems nearly impossible. They can only cannibalize Tron, but who's the biggest XPL farmer? It's obviously "Tron's Emperor." Haseeb: Haha, not "Emperor," but "Your Excellency." Tarun Chitra: Yes, Your Excellency. The problem is, you can't cannibalize much of TON's transaction volume, let alone Ethereum's. So, where will these capital flows come from in the long run? Honestly, I think other stablecoin chains, except for Tempo, have a hard time explaining where their "natural capital flows" actually lie. Tom Schmidt: Yes, I'm a little concerned. If the only buzzword about a new project is "the most powerful mining farm ever," it's like SBF's "token in a box" joke: If everyone's making money, you'd better leave the room. Of course, I don't think there's anything wrong with stablecoin chains themselves; I think they're moving in the right direction. 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 similar strategies. Because most Tether holders essentially hold their Tether through certain "distribution terminals," the institutions that truly have the power to drive this migration are those that control the end users. Haseeb: Tom, what are your thoughts? Tom Lee: I think stablecoins will be a huge market. The total market capitalization is only $300 billion right now, and I can definitely see it growing to $4 trillion. This is something the Treasury Secretary recently discussed, and that probably doesn't even include "micropayments." Stablecoins are naturally suited for micropayments, as Tether, with its 12-decimal place, allows for extremely granular payments. These needs can't all be met on a single chain; Ethereum simply doesn't have the capacity to accommodate them. So I think exploring multiple chains is reasonable. I hope to see multiple solutions succeed. Haseeb: Yes, Tom, I think you're absolutely right. If you want to build a new chain specifically for stablecoins, you have to first bring in capital flows. Tempo is clearly on that path—they're partnering with Stripe and will serve as a source of B2B traffic. But if you're just trying to absorb stablecoin demand that's already happening elsewhere, that's going to be very difficult. Because Tron's network effects are so strong and sticky. The same is true for Ethereum—many people hold stablecoins on Ethereum. In theory, I could pay you on another chain, but in reality, we're more likely to transact directly on Ethereum. Tarun Chitra: Yeah, for example, yesterday's bridge incident, where Phantom issued a stablecoin on Solana using a bridge. I think this kind of capital flow is mostly still flowing among existing user groups, rather than going to new chains trying to attract users on their own. Haseeb: What exactly went wrong with the bridge? Tarun Chitra: Not a big deal. Phantom simply used a bridge to issue a stablecoin on Solana. I mean, this kind of operation makes me think: Why would I go to another chain? If I were an application developer, I could 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 move to a new chain? I don't think so.

The Competitive Landscape Between 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."

Currently, at the forefront of this war 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: Yes, that's the data I've seen. Arthur: Actually, whether it's true or not doesn't matter anymore. Everyone's talking about it, so it's a success. Haseeb: Exactly. That's right. Whether the trading volume is real or fake, it certainly attracted attention. Recently, we saw Bybit announce a deeper partnership with APEX. Coinbase is also getting closer to Avantis, as part of their expansion into the futures market. It seems like the war isn't just between DEXs; CEXs are also selecting their own "agents" to join the fray. Haseeb: Arthur, you've been in the news quite a bit lately. First, I remember you claiming that Hyperliquid's token would increase 126-fold. Arthur: Yes, I did. Haseeb: And then about a month later, you sold your HYPE holdings. Arthur: Yes, I did. Haseeb: Your reasoning at the time was that Hyperliquid had a "Sword of Damocles" hanging over its head. Can you explain what that sword was? Arthur: Actually, everyone has known about this for a long time: 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 (with a 60%-70% market share a month and a half ago), unlocking tokens wasn't that important. The market assumed it would 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 4 billion in daily trading volume; but close behind were 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 pull ahead of its competitors in the next two to three years. I've said before that it could increase 126-fold by 2028, and I still believe so. But the market had already begun to reprice, and I couldn't just sit there and watch prices being driven down. So I simply sold my shares and waited on the sidelines until the market direction became clearer. Ultimately, it would depend on whether Hyperliquid could prove it had a moat and could charge realistic, sustainable fees against the competition. If they can't, it depends on what new products or services per-DEXs can offer that users are willing to pay for, while also preventing centralized exchanges from immediately imitating them and "zero-cost involution." The goal of CEXs is simple: ensure no one can truly make money in the decentralized contract market. If they achieve this by suppressing the profitability of leading DEXs, they won't even be able to maintain their top spot. Haseeb: Okay, so what do you all think of the "Sword of Damocles" hanging over Hyperliquid's head? Do you agree? Tom Schmidt: I think the idea of ​​"unlocking benefits" makes sense. Arthur: So should I buy Hyperliquid now? The price is right. Tom Schmidt: I mean, it's essentially a form of "induced demand." They've 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 evolve into crabs because that form is efficient and robust. The same could happen in the crypto market—everyone will end up buying "crabs." Arthur: Buying crabs? Buyers and sellers? What the hell are you talking about? Tom Schmidt: Haha, I don't even know what I'm talking about. What I'm saying 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, you're buying now, right? Tom Schmidt: I'm buying perps (perpetual contracts), not individual tokens. Arthur: Hey, please, just go long HYPE. Haseeb: Yeah, we've been long 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. 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 the results after their airdrop and launch. The real question is whether the zero-fee trading model can retain users. Before I see the data, it's hard to make a judgment. So for now, my attitude is to wait and see, neither buying nor selling. Tom Schmidt: But don't you think the market trend is towards continuous compression of fees? Why not jump in? Tarun Chitra: Strangely enough, the real money is being made by LPs and the treasury, not the exchanges themselves. 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 greater trading volume. But everyone knows its profit margins are negative because it's aggressively selling tokens through "points." In other words, regardless of fees, all perp DEXs that haven't yet issued tokens are operating at negative profits. Arthur: Yes, 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. Max Bit initially monopolized the perp market, but the top spot was later taken away by ByteDance-affiliated exchanges around 2020. Later, 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 perp volume in DeFi is still small compared to CeFi. These new exchanges are now bringing in users who have never traded perp 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 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've done 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? Should I buy Google? Amazon? Or Facebook? The answer is: buy them all. The entire market will continue to explode. You might be able to pick out some relatively valuable assets on the margin, but 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 still some differentiation. For example, in the exchange sector, do you have a localized market strategy? Do you have targeted regional penetration? Take cloud computing, for example. You could consider it semi-commoditized, but even then, the market isn't completely efficient; it's likely to gradually move in that direction. Haseeb: Tom, what do you think of the perpetual DEX war? Tom Lee: I think it's 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 participating 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, not perpetual. I think there's huge potential there. Obviously, I invested in Pendle, and I think Boris's product is very interesting. Interest rate trading is a much larger and more complex market. The challenge lies in how to make it interesting and a product that retail crypto investors are willing to speculate on. So if I were to talk about the next super-successful product that goes from 0 to 1, I'd be hoping someone—preferably Pendle—creates a highly sticky way for people to bet on a particular crypto interest rate, and it should be fun and easy to trade. Right now, it's not fun, which is why there are so many perpetual swaps and derivatives. Technically, making fixed income a super-sexy and fun "degenerate" product is much more difficult than simply replicating an existing perpetual swap product 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 honestly, even in traditional finance, people don't trade interest rates just for fun. It's a massive market. But if you have... Arthur: Triple-digit leverage, like 1,000x leverage, a lot of things instantly become fun. Haseeb: Okay, that makes sense. If you ever make a comeback, I'd be happy to invest in your "fixed-income entertainment trading platform." Tom Lee: I'd like to add that Arthur nailed the key word—"betting." I think that's exactly the strength of crypto. People can hedge, split, and bet on different ideas, and that's the truly big market of the future. It's essentially a "betting market." Representative projects currently emerging include Polymarket and Kalshi. In the future, there may be "micro-betting" 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 sports betting. I'd like to discuss two points here. The first is a minor incident at Token2049. Tom, could you share what happened during your panel discussion? Tom Schmidt: I don't think it was a big deal, but some might find it a bit dramatic. I've been moderating some discussions recently, and I was originally invited to moderate a roundtable with members of Kalshi. They protested, saying I might not be a "completely neutral" moderator. Haseeb: Why were they complaining? Tom Schmidt: Mainly because of social media. They probably didn't like some of my tweets. Haseeb: I remember you tweeting, "The Kalshi team is a bunch of rats." Tom Schmidt: Haha, yes, that tweet was from me. But I consider myself a pretty good host. I ask good questions and try not to let my personal bias get in the way. But maybe that's not obvious on Twitter. As a result, I was ultimately replaced. It wasn't a bad thing, though. I happened to have some free time this morning and went out for some kaya toast and coffee, which was a bonus. Haseeb: Haha, okay. Besides this, there was another "hot topic" related to prediction markets this week. It was a new episode of "South Park" that just aired last week. The internet went viral—this classic American satire actually incorporated prediction markets into the plot, featuring Kalshi and Polymarket. Kalshi immediately tweeted, calling it "a South Park episode all about Kalshi." Polymarket, of course, wasn't happy, retorting, "Wait, why you guys? We're here too!" Then everyone started arguing over whether the episode was more of a reference to Kalshi or Polymarket. It's typical crypto-world bickering over something completely unimportant. But have any of you actually seen that episode? Arthur: That episode? I haven't, but now I want to. Tom Schmidt: I've seen a few clips. I think more people are just watching the arguments on Twitter than actually watching the episode. Haseeb: Exactly. Millions of people are watching the Polymarket and Kalshi exchange, but it feels like it's become a "camp war," a bit like the Bitcoin vs. Ethereum factions. The question becomes: Is Kalshi truly "crypto"? Are they "legitimate"? Arthur: So, can you explain to us what the core differences between these two platforms are? Haseeb: Polymarket is fully on-chain. It's on Polygon and has been crypto-native since day one. Kalshi, on the other hand, is a US-based, compliant company. They were the first to challenge the CFTC and ultimately win in an appeals court, ultimately leading to the legalization of prediction markets in the US. The industry should actually thank Kalshi, because without them fighting this battle, prediction markets might still be illegal. But Kalshi has been an off-chain model from the beginning. They only supported USD deposits about a year ago and only recently started listing crypto-related markets. But fundamentally, it's not a crypto project. 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 that their trading volume surpassed Polymarket last week, but looking at the market composition, 95% is sports betting. This raises the question: Are crypto users really that important? Is it worth fighting a life-or-death battle for this traffic? They seem to be doing pretty well themselves, so I don't quite understand why they're considering the "crypto market" such a crucial battleground. Haseeb: I think there are three reasons. First, Polymarket's market is truly valuable to Kalshi, and they naturally want to attract that user base. Second, as everyone knows, crypto traders are willing to try anything. As long as you make something interesting and volatile, they'll buy in. Third, this is largely a narrative issue. The crypto narrative is enormous, and Kalshi wants a piece of the action. 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 organization has achieved this. So, what does Wall Street think about the future of prediction markets? It's very likely that the scale of betting on Polymarket in the next election will be 20 times that of 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. It's not 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 very useful. Sports betting is certainly big, but don't forget that sports can be broken down into smaller segments, with local leagues and micro-events, and the potential is huge. Haseeb: So how exactly do you use Polymarket on Wall Street? Tom Lee: We use it quite frequently. A few examples include: "Will the US government shutdown end before June?"; predictions about Federal Reserve Board Governor Lisa Cook; "Will Powell still be Fed Chair in December?"; and another very active market: "Who will be the nominee for Fed Chair by December 2025?" These markets are all informed in real time. For example, David Zervos was a strong candidate for a while, but then faded. This dynamic is a classic example of "wisdom of the crowd," and it's extremely valuable to us, and Wall Street relies heavily on this data. Haseeb: I completely agree. Tom Lee: Of course, we don't bet ourselves. Haseeb: That's 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 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 more like social networks than trading. Haseeb: What do you mean? Tom Schmidt: Take the Taylor Swift engagement odds, for example. Someone clearly used insider information to bet on it, but the profit wasn't huge, only a few tens of thousands of dollars. Haseeb: Someone used insider information to bet on when Taylor Swift would get engaged? Tom Schmidt: Yes, she would get engaged on a certain date. Clearly, someone knew about it a day in advance, as you could see from the market movement. In the end, they made a few tens of thousands of dollars, which isn't a huge profit. But the fact that this event was covered by media outlets around the world meant they spent ten thousand dollars to buy tens of millions of dollars in exposure. This is more like virality on a social network than trading itself. What really matters isn't the bets, but when someone proves they have inside information, and then it becomes global news. To me, this is more like media and social networking than pure gambling. The bets are just the backend engine, but the end result is the media effect. This is what's a little strange about prediction markets; in a sense, they transcend crypto. Arthur: So that's why Polymarket is issuing a token? Haseeb: Well, there are rumors that Polymarket might issue a token, but nothing has been confirmed. There are also reports that they're raising money at a valuation of $8-9 billion, as reported by Bloomberg, so we should have news soon. Furthermore, the impact of prediction markets is two-way. Not only do they generate news and turn market trends into conversation, but they also impact reality. Take the WNBA incident earlier this year, for example, where someone threw something on the court. At the time, there were even predictions asking, "Will anyone throw more money into the market this year?" It was practically a bounty. Fortunately, it hasn't continued. But this kind of weird thing is likely to happen again. I think that in the next US election, Polymarket will not only provide information, but will actually influence the election. This is because the market trends will influence whether voters turn out to vote and even affect the competition between candidates. For example, someone in the party might say, "Forget the polls, look at the Polymarket market. You should withdraw from the race, otherwise you'll drag down our people." So I suspect that by 2028, the liquidity and information quality of the prediction market will truly reshape the political landscape. Arthur: That might lead to more political meme coins, which can be used for hedging and various other uses. Haseeb: Yes, there will be more and more ways to express the same bet. Okay, let's talk about Zcash. Zcash has been very popular recently. Zcash is a relatively old-school privacy coin. The most well-known privacy coin is Monero, currently the most widely used. 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. Lately, Zcash has seen a bit of a resurgence, 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 are your thoughts on the privacy narrative? After all, some are criticizing Ethereum for its lack of 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 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 a wallet's sole selling point. In the future, with AI and robots everywhere, people will need other forms of protection, like proof of humanity. This use case alone is becoming increasingly important. Haseeb: So what do you think of dedicated privacy coins? Tom Lee: I think they're certainly useful. I've even talked to some people in government agencies, and they're using them themselves. If even governments find them valuable, it proves they're truly useful. Tom Schmidt: However, there were conspiracy theories 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 travel rules. Tom Lee: But don't forget, sometimes governments have reasons to use private payments. Haseeb: Yes. However, compared to Monero, Zcash has better regulatory acceptance because it's not private 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 proves it's truly useful. Tarun Chitra: You previously said you didn't like Zcash. What's with that? Arthur: I'm not criticizing it. I remember having dinner with an FBI agent six or seven years ago, and we asked, "What's the best privacy coin?" She said Monero. For me, that answer was enough. Tarun Chitra: Maybe she was just kidding you, stinging you.

Haseeb: Haha, yes, you may have been tricked. But you still need to be careful about changing your wallet. Okay, that's all for today, thank you everyone, see you next week.