Arthur Hayes talks with Tom Lee about the future of DATs, stablecoins, and prediction markets

Original Title: Arthur Hayes & Tom Lee_ Perps, Stablecoins, Prediction Markets Author: Cookie, Blockbeats Original Compilation: Ismay, BlockBeats

Guests:
Arthur Hayes, Maelstrom CIO
Tom Lee, Fundstrat Capital CIO and Chairman of Bitmine

Editor’s Note: This interview features heavyweight figures in the crypto industry—Arthur Hayes and Tom Lee—engaging in an in-depth discussion on cutting-edge topics such as perpetual contracts, stablecoins, Digital Asset Treasuries (DATs), prediction markets, and privacy coins. The guests not only share their unique insights on market trends, product strategies, and competitive landscapes but also analyze the development logic of crypto assets from an institutional perspective: how DATs can become the "Wall Street CEO" on-chain, whether stablecoin-specific chains can create real value flows, the competition and innovation in Perp DEX, and the potential of prediction markets and privacy coins in terms of information, speculation, and social value. The article presents both industry practical experience and reflects the latest trends in the financialization, compliance, and product innovation of the crypto ecosystem, serving as an important reference for understanding the current development context and future trends of the crypto market.

Here is the full content of the conversation:

Haseeb: Hello everyone, I’m the Chief Evangelist of Dragonfly, we are early investors in crypto, but I must state that everything we say here is not investment advice, legal advice, or even life advice (laughs).

We are back at Token 2049. Just backstage, we were reminiscing about last year's scene. If you rewind time to before "Trump became the 'dear leader'," Token 2049 was all about meme coins; if you remember the Breakpoint event next door, Iggy Azalea made big news back then. Arthur, how is the atmosphere at this year's Token 2049?

Arthur: Traffic jam.

Haseeb: Indeed (laughs).

Tom Schmidt: I feel like it’s almost a bit "comfortably boring." Compared to last year's meme coin frenzy, this year everyone is talking about stablecoins and DATs (Digital Asset Treasuries). Tom, no offense, but the atmosphere is completely different from last year's Iggy Azalea strip party.

Haseeb: Last year had fewer suits and more strip outfits; how about this year, Tom? What’s your feeling at a more institutional Token 2049?

Tom Lee: The energy is high, the attendance is very large, many key figures are here, and we have had a lot of meetings, very efficient.

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

Tom Lee: I didn’t attend (laughs).

Discussion on DAT Trends

Haseeb: Understandable. Alright, let’s talk about DATs. For those unfamiliar, DAT stands for "Digital Asset Treasuries," which is akin to "everything micro-strategized."

Today on stage, Tom is the Chairman of Bitmine. Bitmine is currently the largest Ethereum treasury, with a very rapid accumulation rate, holding about 2.65 million ETH, accounting for over 2% of the total Ethereum supply.

Notably, we see that the trading volume of these DATs is highly concentrated. There used to be many different DAT participants, but now 90% of the daily trading volume is between MicroStrategy and Bitmine, with the rest being almost negligible.

I have to ask, Tom, many people consider you the "savior of Ethereum." What do you think?

Tom Lee: That’s a big…

Haseeb: Job, right, exactly.

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

Haseeb: That’s true. At that time, the foundation was still adjusting, and the narrative was being reshaped. But now it feels like you’ve basically become Ethereum’s "Chief Marketing Officer."

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

Haseeb: You definitely should. Arthur, what do you think of the DAT craze? What impact does it have on reigniting Ethereum and its narrative?

Arthur: I think everyone loves to hear Tom Lee speak on CNBC. If he’s willing to beat the drum and promote it, then go for it, brother. I love it; we need more Tom Lees like him. Every chain should have its own Tom Lee.

Haseeb: Right, every chain, right? So let me ask you a question, Tom, what do you think you’ve done right that others trying to be "the second-rate Tom Lee" haven’t?

Tom Lee: I think the first thing Bitmine did right was communication. We have always conveyed information very clearly: ETH is in a super cycle. We keep emphasizing this through our website, speeches, and the chairman's video addresses. Secondly, Bitmine has a strong connection to the institutional world. For example, Cathie Wood publicly invested heavily in Bitmine early on, and now it’s one of ARK’s top ten holdings, which has attracted more institutional funds. This process has created a "flywheel effect," allowing us to become the 26th largest stock by trading volume in the U.S. And as you said, together with MicroStrategy, we are indeed creating liquidity for DATs.

Haseeb: What’s next? I see you are not limited to Ethereum anymore. Recently, there was news that your scale has surpassed Worldcoin's DAT, and it seems you are expanding outward. Can you talk about that strategy?

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

This also includes investing in some truly outstanding projects. For example, Orb 8 code—it's related to Worldcoin, and as a16z mentioned, one of the 11 directions that AI genuinely cares about is "human identification." Worldcoin is one of the earliest projects doing this, and nearly 17 million people have been verified as "real people" through it. I think protecting human identity is a significant mission on the blockchain.

Haseeb: I have a little theory. We discussed it in a previous episode: the significance of DATs is not just as a tool for institutional investment; it also gives a chain a "Wall Street CEO." This CEO can do things that the foundation cannot. For example, leaders of foundations like Vitalik or Tamash cannot go on CNBC shouting, "ETH bull market is coming," nor can they post a bunch of technical analysis because that would be "inappropriate" for them.

But DATs can outsource this role, allowing someone to tell the story in a language that Wall Street understands. This is something the crypto industry has always lacked—despite being highly financialized, no one has taken on this "market officer" role. And in my view, you are the typical example of this.

So what about the future? We have already seen the DAT craze cooling down, net asset values compressing, and fewer new products emerging. What do you think DATs will evolve into in the next 2, 3, or 5 years?

Tom Schmidt: I was just about to ask Tom. I actually think the whole process and pace are much faster than we originally thought. Most E-type 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 then buy back shares? Will they be acquired? Or will they pivot to AI? What would you do, or what do you think they will do?

Tom Lee: I heard today that there are already 78 DATs, which is indeed a lot. In the traditional secondary market, institutional investors generally only choose 2 to 3, at most 4. So within that range, there will definitely be multiple winners. But institutions cannot buy 70 DATs. Those that have fallen below NAV are facing a survival crisis. I believe a DAT should not fall below NAV; that in itself is a negative signal. I don’t know if they should turn into ETFs, whether they should liquidate, or merge. But I am very sure that DATs should not fall below NAV. Of course, this is also a "level" issue in the market.

Tom Schmidt: So you are saying it’s a "level issue," right?

Tom Lee: Exactly. You see, no ETF would trade below NAV, so DATs shouldn’t either. If they have a way to "threaten" to turn into ETFs, then they will always trade at NAV, which should be the bottom line.

Haseeb: Makes sense. What do you think?

Tarun Chitra: I also agree with the point about "mergers." For example, Solana's DAT is constantly signaling for mergers; it can't have 20 forever. But what I don’t understand is why some people are issuing DATs for tokens with only a market cap of 1 billion, 2 billion, or 3 billion dollars. I can’t fathom how projects of this scale can survive, and why anyone would issue such DATs?

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

Tarun Chitra: But imagine if you were Tom, operating a DAT with only a 30 billion dollar market cap, and someone offers you 1% of the circulating share, you have to manage this. Would you be willing to do it?

Tom Lee: Right, this could undermine "reflexivity." In theory, a DAT should be a long-term holder of the token, but if it holds too much, it could bring about a "power law" negative effect. So Bitmine has always avoided holding more than 10% of ETH; the actual target is only 5%. Small token DATs might help tell their story, but you don’t want it to grow so large that it becomes a bag holder.

Haseeb: Recently, the Zero G token has been in some trouble. Its DAT closed before the token went live, essentially injecting some tokens without market prices and then casually setting a valuation.

Additionally, the U.S. SEC has recently been hitting the brakes, with rumors that someone reported insider trading to the SEC, and they have begun investigating these "dark operations before closing." Coupled with Nasdaq tightening its rules on DATs, those projects taking shortcuts will likely be closely monitored soon. Overall, the trend is still "consolidation." If you are not large enough, not of sufficient scale, and your assets are not "hardcore" enough, the DAT itself won’t have much trading volume. Without trading volume, you can’t even do ATM (additional financing), so what’s the point of doing this? It’s just locking up some capital and throwing it into the stock market, with no one buying or selling.

Haseeb: Speaking of ETH, recently our friend Andrew Kang tweeted something that went viral, titled "Tom Lee's Ethereum Argument is Stupid," with about 1.5 million views. His point was: yes, stablecoins will go on Ethereum, RW (real-world assets) will go on Ethereum, and banks will also go on Ethereum, but they won’t actually pay, they won’t pay fees. This is all a joke; the real buy should be robot companies. He is now fully bullish on robot companies. What do you think of Andrew Kang's bearish stance?

Tom Lee: You know, in the crypto circle, "retarded" is a compliment. So I’ll take it as praise.

Haseeb: Haha, good, good.

Tom Lee: Thank you very much.

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

Arthur: That’s why he needs me.

Plasma and the Stablecoin Craze

Haseeb: That’s also why Bitmine is number one. Alright, let’s change the topic and talk about Plasma. Speaking of stablecoins, Plasma is a new L1 stablecoin chain backed by Tether. I want to ask the audience, how many of you have participated in Plasma mining or held Plasma tokens? Raise your hands… Okay, I see a few.

Arthur: You might be lying.

Haseeb: Not many hands raised, I’m quite surprised. In fact, this mining scale is quite large. It is one of the recent token launches, with a huge airdrop. The current fully diluted valuation is about 8.5 billion dollars, with a total circulation exceeding 1 billion dollars, and the airdrop amount is also substantial.

The problem is, Plasma’s nominal valuation is very high right now, but in reality, there are not many usable applications; it’s essentially just a huge mining farm. They probably spend about 500 million dollars a year on incentives to get people to transfer USDT over. So how does everyone see it? Will stablecoin-specific chains be the new trend? Will it shake Ethereum's narrative? Because looking at on-chain data, this week most stablecoins have flowed out of Ethereum and directly into Plasma.

Arthur: I think this mainly comes down to the "mining function." If there are positive returns, people will do it. But if there is no value creation afterward, these funds will return, just like all the chain games over the past decade.

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

Arthur: Pretty much. Yes, it’s just a farm. But it must be able to run on top of the logic of a farm to be considered truly valuable.

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

Haseeb: A Bear Chain specifically for stablecoins?

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

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

Arthur: Yes.

Haseeb: Elaborate on why you think it’s like Bear Chain?

Tarun Chitra: Because it’s so typical: when a new L1 launches, there are crazy incentives, and everything revolves around "mining." The gimmick of stablecoins is not that important. Yes, all rewards are settled in Tether, but what people are really interested in is mining XPL tokens. Most of the earnings are XPL rewards, starting from 60% to 70%. Many protocols have this kind of earnings structure. It feels like Bear Chain; back then, everyone rushed in, and the daily narrative was "the meaning of this chain is to give you a farm," so providing liquidity on the launch day was crucial.

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

Haseeb: Indeed, their BD is very impressive, and their marketing is on point, with execution completely online. But I agree with your concerns. What would you suggest they do next to avoid becoming the next Bear Chain?

Tarun Chitra: I just don’t understand how they can truly move the stablecoin funds onto their chain. It seems almost impossible. Either you can only eat into Tron, but who is the biggest XPL farmer? Clearly, it’s "Tron the Great."

Haseeb: Haha, not "the Great," but "Your Excellency."

Tarun Chitra: Right, right, "Your Excellency." The problem is, you also can’t eat too much of TON’s trading volume, let alone Ethereum’s trading volume. So where will these funds come from in the long run? Honestly, I think besides tempo, other stablecoin chains find it hard to explain where the "natural fund flow" is.

Tom Schmidt: Yes, I am indeed a bit worried. If the only highlight of a new project that everyone discusses is "the strongest mining farm in history," it’s like the joke about SBF’s "token in a box": if everyone is making money, you better get out of that room quickly.

Of course, I don’t think there’s anything wrong with stablecoin chains; I think this direction is correct. But I agree with Tarun’s point that a more reasonable path should be: applications with existing distribution scenarios slowly migrate their internal fund flows to the new chain. This is the logic behind Stripe supporting tempo. I wouldn’t be surprised if some exchanges are also considering similar plays.

Because most people holding Tether essentially hold it through certain "distribution terminals," so those truly capable of driving this migration are actually the institutions that control the end users.

Haseeb: The other Tom, what do you think?

Tom Lee: I think stablecoins will be a super large market. The total market cap is only about 300 billion dollars now, and I can completely see it growing to 4 trillion. This is also what the Treasury Secretary has been talking about recently, and it may not even account for "micro-payments." Stablecoins are inherently suitable for micro-payments because Tether has 12 decimal places, allowing for extremely granular payments.

These demands cannot all be realized on one chain; Ethereum itself cannot hold that capacity. So I think exploring multiple chains is reasonable. I hope to see various solutions succeed.

Haseeb: Yes, Tom, I think you are right. To establish a new chain specifically for stablecoins, you must first bring in the fund flow. Tempo is clearly on this path—they are collaborating with Stripe, which will serve as a source of B2B traffic.

But if you just want to siphon off stablecoin demand that is already elsewhere, that’s too difficult. Because Tron’s network effect is just too strong, and its stickiness is too high. Ethereum is the same—many people hold stablecoins on Ethereum. Theoretically, I could pay you on another chain, but in reality, we are more likely to trade directly on Ethereum.

Tarun Chitra: Yes, for example, regarding the bridge issue yesterday, Phantom issued stablecoins on Solana through the bridge. I see that this fund flow is mostly still moving among the existing user base, rather than going to those new chains trying to attract users.

Haseeb: What exactly went wrong with that bridge?

Tarun Chitra: There wasn’t a big problem; it’s just that Phantom issued stablecoins on Solana through the bridge. What I mean is, this operation makes me wonder: why would I go to another chain? If I were an application provider, I could easily find one of the 4 or 5 stablecoin service providers in the market and directly issue my own white-label stablecoin. Do I really need to run to a new chain? I don’t think it’s necessary.

Hyperliquid and the Competitive Landscape of Perp DEX

Haseeb: Makes sense. Alright, since we’re talking about bridges, let’s talk about Hyperliquid. As everyone knows, Hyperliquid is currently the largest decentralized derivatives exchange. A competition increasingly referred to as the "perpetual contract exchange war" has emerged.

Currently, the front line of this war is Aster, which is associated with CZ, Binance Labs, and BNB Chain. Their daily trading volume has reached around 60 billion dollars.

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 is talking about it, so it counts as a success.

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, which is their layout in the derivatives market. It seems that this is not just a war between DEXs; CEXs are also selecting their "agents" to join the battle.

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

Arthur: Yes, I said that.

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

Arthur: Yes, I sold it.

Haseeb: Your reason at the time was that Hyperliquid was under the "sword of Damocles." Explain, what sword?

Arthur: Actually, everyone has known for a long time, it’s the unlocking pressure. At least since November, about 500 million dollars worth of tokens will enter circulation each year. This is not a secret; everyone is aware.

When Hyperliquid was still dominant (a month and a half ago, its market share was 60%-70%), the unlocking wasn’t that critical. Because the market assumed it could earn more fees and use that money to buy back HYPE tokens, so this is the so-called "positive unlocking," just like the situation with Solana in 2021.

But then one day, I casually checked the trading rankings: Hyperliquid was still first, with a daily trading volume of 4 billion; but closely following were Lighter at 3.9 billion and Aster at 3.8 billion. This indicates that competition has truly arrived. This doesn’t mean Hyperliquid can’t compete with them; its technology, HIP3 upgrade, and development team are all strong, and it could completely outpace its competitors in the next 2 or 3 years. I previously said it could rise 126 times by 2028, and I still think so.

But right now, the market has started to reprice, and I can’t just sit there and watch the price get pushed down. So I simply sold it, stood on the sidelines, and will wait until the market direction is clear before making any moves.

Ultimately, it depends on whether Hyperliquid can prove it has a "moat" and can charge real, sustainable fees in the competition. If it can’t, then it will depend on what new products or services perp DEX can launch that will make users willing to pay, while not being immediately imitated and "zero-cost rolled" by centralized exchanges. The goal of CEXs is simple: to ensure that no one can truly make money in the decentralized derivatives market. If they achieve this by suppressing the profits of leading DEXs, then the number one position will also be lost.

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

Tom Schmidt: I think the notion of "positive unlocking" makes sense.

Arthur: So should I buy Hyperliquid now? This price seems quite 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. I think this market will continue to explode. It could be like "convergent evolution," where different species eventually evolve into crabs because that form is efficient and robust. The crypto market might be the same—eventually, everyone will be buying "crabs."

Arthur: Buy crabs? Buy the buy side? What are you talking about?

Tom Schmidt: Haha, I don’t even know what I’m saying. What I mean is, to create value, you must make the perpetual contract market more perfect. So the market will grow a hundredfold, and Hyperliquid could certainly keep up.

Haseeb: So you mean—you’re buying now?

Arthur: Yes, are you buying now?

Tom Schmidt: I’m buying perp (perpetual contracts), not the standalone token.

Arthur: Hey, come on, just go long on HYPE.

Haseeb: Right, we are long-term bulls on HYPE. We haven’t sold, so should we add to our position? But we have also invested in many other perp projects, like Lighter and APEX. Our exposure in this field is already quite large. So what do you think about the current DEX war?

Tarun Chitra: I think it depends on whether Lighter’s "zero-fee" strategy can work. We won’t know how effective it is until they finish their airdrop and go live. The real question is whether the zero-fee trading model can retain users. It’s hard for me to make a judgment without seeing the data. So my current stance is to wait and see, neither buying nor selling.

Tom Schmidt: But don’t you think the market trend is that fees are constantly being compressed? Why not just jump in?

Tarun Chitra: Strangely, the real money is actually being made on the LP and treasury side, not the exchange itself. There’s a subtle dynamic here: competition between funds on the "treasury" side and the "order book" side.

Haseeb: But I think it’s impossible to have zero fees forever. For example, looking at Aster now, there are fees, but they make more money than Hyperliquid because they have a larger trading volume. It’s just that everyone knows their profits are negative because they are crazily dumping tokens in the form of "points." In other words, regardless of whether they charge fees or not, all perp DEXs that haven’t issued tokens are operating at a loss.

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

Haseeb: That’s a good question. But think of Binance as an example. The first to monopolize the perp market was Max Bit, which was later overtaken by the Byte system exchanges around 2020. After that, Binance also lost some market share, and the competition became more intense and fragmented. Today, the Byte system accounts for about 40% of the market share, but the entire perp market has significantly expanded.

And don’t forget, the size of DeFi’s perp market is still very small compared to CeFi. These new exchanges are bringing in users who have never traded perp before. In the dYdX era, there might have only been a few thousand active users; now there are at least tens of thousands. I haven’t looked at Aster’s data, but I bet they have attracted a large number of new users, especially from Asia. Because they have a mobile app, while Hyperliquid does not.

Tarun Chitra: Yes, they really do it very smoothly. I still hold the view that if you go back to 2010, as an investor, you would think: should I buy Microsoft? Should I buy Google? Amazon? Or Facebook? The answer is actually: buy them all. The entire market will continue to explode and grow. Maybe you can marginally pick some relatively valuable targets, but the real big risk is—you expose too little or don’t participate at all.

Arthur: But they are not all offering exactly the same product. Perpetual contracts across platforms are actually indistinguishable; I think this is a commoditized product.

Tarun Chitra: There can still be some differentiation. For example, in the exchange field, do you have a localized market strategy? Do you have targeted regional penetration? Also, in cloud computing, you can consider it semi-commoditized, but even so, the market is not completely efficient; it may gradually move in that direction.

Haseeb: Tom, what do you think of this perpetual DEX war?

Tom Lee: I think this is capitalism at work. A product comes out, and others see it and copy it. But as Arthur said, the key is whether the frontrunner can maintain its lead. If not, then the market will truly become completely commoditized. So this logic makes sense. I still believe this market will continue to grow because, in my view, the number of people participating in crypto is still far fewer than those in traditional financial markets.

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

Arthur: Fixed income, not perpetuals. I think there’s a lot of space here. Clearly, I’ve invested in Pendle; I think Boris and their product are very interesting. Interest rate trading is a much larger and more complex market, and the challenge is how to make it a product that retail crypto users find interesting and are willing to speculate on.

So if I were to say the next super successful product from 0 to 1, I would expect someone—preferably Pendle—to create a very sticky way for people to bet on certain crypto interest rates, and it should be fun and easy to trade. But right now, it’s not fun, which is why there are so many perpetuals and derivatives. Because technically, making fixed income into a super sexy and fun "Degens product" is much harder than copying an existing perpetual contract product from a centralized exchange.

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

Arthur: We can trade "cats."

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

Arthur: Triple-digit leverage, like 1000x leverage, a lot of things become fun immediately.

Haseeb: Well, that makes sense. If you ever come back, I’d be very willing to invest in your "fixed income gamified trading platform."

Tom Lee: I want to add something; actually, Arthur has captured the key word—"betting." I think this is precisely the strength of crypto. People can hedge, split, and bet on different ideas, and that is the truly large market of the future. Ultimately, it’s about the "gambling market." The representative projects that have emerged now are Polymarket and Kalshi, and in the future, there may be "micro-betting," which could be on interest rates, fixed income, or even real estate speculation; anything is possible.

Prediction Markets and Privacy Coin Markets

Haseeb: Exactly. So let’s continue 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—where several of us on stage are actually investors—and its competitor Kalshi. Kalshi has already obtained regulatory approval in the U.S. and is continuously catching up in trading volume, even sometimes surpassing Polymarket. It has also established a partnership with Robinhood, bringing in a lot of traffic mainly in sports betting.

Here I want to discuss two points. The first is that there was a little incident at Token 2049; Tom, would you like to share what happened in your panel discussion?

Tom Schmidt: I actually think it’s not a big deal, but some people might find it a bit "dramatic." I’ve been hosting some discussions recently, and I was invited to host a roundtable with Kalshi members. But they protested, saying I might not be a "completely neutral" host.

Haseeb: Why did they complain?

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

Haseeb: I remember you tweeted that "the Kalshi team is a bunch of little mice"?

Tom Schmidt: Haha, yes, that tweet was indeed mine. But I consider myself a pretty qualified host, asking some good questions and trying not to let personal biases affect me. But maybe that doesn’t come across on Twitter. The result was that I was eventually replaced.

But it’s not a bad thing; I happened to have time this morning to go eat kaya toast and have a cup of coffee, which was an unexpected gain.

Haseeb: Haha, alright. Besides this, there was another "exciting event" related to prediction markets this week. That is the new episode of "South Park" that just aired last week. The internet exploded—this classic American satire animation actually included prediction markets in its plot, featuring Kalshi and Polymarket.

As a result, Kalshi immediately tweeted that this was "an episode entirely about Kalshi." Polymarket naturally disagreed, retorting, "Wait, how come it’s just you? We’re in it too!" So everyone started arguing about whether this episode was more of a reference to Kalshi or Polymarket. It’s typical of the crypto circle to argue over issues that are fundamentally unimportant.

But has anyone really watched that episode?

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

Tom Schmidt: I’ve seen a few clips. I think more people have probably just seen the tweets about the arguments rather than actually watching the episode.

Haseeb: Exactly, completely correct. Millions of people are watching the back-and-forth between Polymarket and Kalshi, but now it feels like it has become a kind of "camp struggle," somewhat like the Bitcoin camp and Ethereum camp back in the day. The question becomes: does Kalshi really count as "crypto"? Are they "orthodox"?

Arthur: So can you enlighten us on the core differences between these two platforms?

Haseeb: Polymarket is fully on-chain; it operates on Polygon and has been crypto-native from day one. Kalshi, on the other hand, is a U.S. compliant company; it was the first team to sue the CFTC and ultimately win in appellate court, which is precisely why the U.S. has truly allowed prediction markets. The industry should actually thank Kalshi because without them fighting this battle, prediction markets might still be illegal today.

But Kalshi has always been an off-chain model; they only supported USD deposits about a year ago and have only recently started to launch crypto-related markets. But essentially, it is not a crypto project.

However, they have recently hired quite a few crypto KOLs, like John Wang and Ultra, to help them tell their story in the crypto community. After all, compared to Polymarket, crypto users have always been more skeptical of Kalshi. Now Kalshi’s stance is: no, we are also crypto, we love crypto, we are part of the crypto community.

Tom Schmidt: But this makes me feel strange. For example, they just announced last week that their trading volume exceeded Polymarket, but looking at the market composition, 95% is sports betting. So the question arises: are crypto users really that important? Is it worth fighting a "life-and-death battle" for this portion of traffic? It seems they are doing quite well on their own; I don’t quite understand why they need to treat the "crypto territory" as a must-win.

Haseeb: I think there are three reasons.

First, Polymarket’s market is indeed very valuable to Kalshi; they certainly want to siphon off that user base.

Second, everyone knows that crypto traders are willing to play anything as long as you can make it interesting and volatile; they will come.

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

Tom Lee: I want to add one point: Polymarket plays a critical role in interpreting elections. Remember the last presidential election? Polymarket’s prediction results accurately predicted every state in the electoral college, which no other institution managed to do. So how does Wall Street view the future of prediction markets? It’s likely that in the next election, the betting scale on Polymarket will be 20 times that of the last time.

This has changed many people’s perceptions. Even Goldman Sachs now cites Polymarket’s prediction market data in their research reports. Not only for major events like Federal Reserve actions and government shutdowns, but also, for example, we at Fun Strat have been using Polymarket for a long time; it’s very useful. Sports betting is certainly significant, but don’t forget that sports can be sliced very finely, with local leagues and micro-events, which also have great potential.

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

Tom Lee: We use it frequently. Here are a few examples: for instance, "Will the U.S. government shutdown end before June?"; predictions on Federal Reserve Governor Lisa Cook; and "Will Powell still be the Federal Reserve Chairman in December?"; another very active market is "By December 2025, who will be the nominee for Federal Reserve Chairman?" The information from these markets is real-time. For example, at one point, David Zervos was very popular, but then he faded away. This kind of dynamic is a typical "wisdom of the crowd," which is very valuable to us, and Wall Street relies heavily on this data.

Haseeb: I completely agree.

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

Haseeb: Right, you don’t bet, but your clients use this information. This is actually the most important significance of prediction markets. The vast majority of those who truly benefit are not the bettors but the external groups using the information. It is precisely because of this information spillover effect that prediction markets have enormous social value.

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

Haseeb: What do you mean?

Tom Schmidt: For example, regarding the betting market for Taylor Swift’s engagement, someone clearly bet using insider information, and the money they made was actually not much, just a few tens of thousands of dollars.

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

Tom Schmidt: Yes, they said she would get engaged on a certain day. It was obvious that someone knew a day in advance, which could be seen from the market trends. In the end, they made a few tens of thousands of dollars, which isn’t a lot. But this event was reported by media worldwide, equivalent to spending ten thousand dollars to buy millions of dollars in exposure. This is more like viral dissemination on social networks rather than trading itself.

What’s really important is not the betting, but that someone proved they had insider information, and then this became global news. To me, this is more like media and social networks rather than pure gambling. Betting is just the backend engine; the final result is the media effect. This is what makes prediction markets a bit strange; in a sense, they have transcended the crypto realm.

Arthur: So is that why Polymarket wants to issue a token?

Haseeb: Well, there are rumors that Polymarket may issue a token, but it hasn’t been confirmed yet. There are also reports that they are raising funds, with a valuation of around 8 to 9 billion dollars, and Bloomberg has reported it, so we should hear news soon.

Additionally, the impact of prediction markets is bidirectional. They not only create news and turn market trends into topics but also influence reality in return. For example, earlier this year with the WNBA incident, someone threw something onto the court. At that time, the market even opened a bet on "Will someone throw something onto the court again this year?" which was essentially a disguised bounty. Fortunately, it hasn’t continued. But such bizarre things are likely to happen again.

I think that in the next U.S. election, Polymarket will not only provide information but will really influence the election. Because the trends in the market will affect whether voters turn out to vote and even the competition between candidates. For example, someone within the party might say, "Forget the polls; look at Polymarket’s market; you should drop out, or you will drag us down." So I guess by 2028, the liquidity and information quality of prediction markets will truly reshape the political landscape.

Arthur: That might lead to some political meme coins that can hedge and play various tricks.

Haseeb: Right, there will be more and more ways to express the same bet. Alright, let’s talk about Zcash. Recently, Zcash has suddenly become popular. Zcash is one of the more OG projects in the privacy coin space. The most well-known privacy coin is Monero, which is currently the most widely used privacy coin. The second largest is Zcash, which was originally developed as a zero-knowledge proof protocol (ZeroCoin) by a group of professors and later evolved into Zcash. It supports both transparent transactions (non-privacy) and shielded transactions (privacy). Recently, Zcash seems to be experiencing a revival, especially with some Gen Z-style marketing. Previously, it was more of a "crypto uncle" hobby, but now it suddenly starts targeting younger audiences.

Tom Schmidt: Tom, what do you think of the privacy narrative? After all, some people criticize Ethereum for lacking privacy.

Tom Lee: I think privacy is very important. In fact, government agencies sometimes use Monero or Zcash for payments. So it does have real use cases. Of course, many people don’t care about privacy. Surveys show that young people would rather give their data to tech companies than to the government. So privacy may not be the only selling point for wallets; in the future, in an era dominated by AI and robots, people will also need other forms of protection, such as proving you are a real person (Proof of Humanity). Just this use case is becoming increasingly important.

Haseeb: What do you think of dedicated privacy coins?

Tom Lee: I think they can indeed be useful. I’ve even talked to some government officials, and they use them themselves. Since even the government finds them valuable, it shows they are genuinely useful.

Tom Schmidt: However, there were conspiracy theories saying Zcash is government-supported.

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

Tom Schmidt: Yes, especially concerning travel rules.

Tom Lee: But don’t forget, sometimes the government has reasons to use privacy payments.

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

Arthur: This shows it’s really useful.

Tarun Chitra: You previously said you didn’t like Zcash; what’s the story?

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

Tarun Chitra: Maybe she was lying to you, trying to catch you.

Haseeb: Haha, right, you might have been set up. But still, be careful about changing wallets. Alright, that’s it for today. Thank you all, and see you next week.

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