VC will disappear, the predicted market is overvalued, which Perp DEX can challenge Hyperliquid?

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Lao Bai's Investment Evolution: From Engineer, Tier 1 VC to Cross-Asset Researcher
Treating Blockchain as a Hammer: Why Most Star Tracks are "On-Chain for the Sake of Being On-Chain"
Why Issuing Tokens has Failed: From "More Meat, Fewer Monks" to "More Monks, Less Meat"
Crypto Clearly Won, Why Do Old Investors Feel They Lost?
Perp DEX Competitive Landscape: Four Dragons and HIP-3, Who Can Challenge Hyperliquid?
Safety is a Function of Time: Lessons from Ostium, Cream to Perp
Will Hyperliquid Do Spot? The Ideal and Reality of Tokenized Stocks
Stablecoins: Crypto's Greatest Invention and the Global Extension of Dollar Hegemony
Agent Payments and Machine Economy: Cloudflare's Traffic Inflection Point and Micropayments
The Endgame of Public Chains: The Era of General Chains Ends, Institutional Chains, C-End, and Gray Markets Divide the World
Large Models Moving Towards "Public Chainization": Killer Applications and Insights from Palantir
The Truth of Prediction Markets: Completing the Gartner Curve in Two Years, the Ceiling is Far Lower than Perp
Robinhood's Clear Strategy: RWA for Investors, Meme for Gamblers
Exits of Exchanges and Talent Flowing to AI: Why This Time is Particularly Severe
From Crypto to US Stock Options: Three Cognitive Upgrades in Trading Framework
Advice for Every Role: How Founders, Traders, VCs, and Exchanges Can Stay at the Table

1. Lao Bai's Investment Evolution: From Engineer, Tier 1 VC to Cross-Asset Researcher

Victor: First, please introduce yourself, Lao Bai, and share your experiences. What tracks are you currently most concerned about?

Lao Bai: Thank you, Victor, and thank you, 168X. My previous work experience started as a researcher at Amber, then as an investment research partner at ABCDE, and later spent a few months investing at OKX Ventures.

Currently, my personal focus has actually narrowed down. Within Crypto, it has converged to a few tracks like Perp, prediction markets, and RWA, which I believe are among the few tracks in Crypto that still have PMF. My other energy and time have spread to US stocks, especially AI-related US stocks, and some other investment opportunities. Recently, I have been particularly focused on options because options have greatly expanded my way of expressing an asset, whether in terms of price or value, so I have been researching this area.

2. Treating Blockchain as a Hammer: Why Most Star Tracks are "On-Chain for the Sake of Being On-Chain"

Victor: From 2017 to now, we have experienced several cycles. You previously wrote an article analyzing Web3 games, mentioning "We once treated blockchain as a hammer, seeing everything as a nail," and many things in the world do not need to be financialized. With your past experience as a VC and investor, how do you view the development and evolution of these projects over the past few cycles?

Lao Bai: I want to elaborate on this question; I think it's a particularly good question. When I was doing Tier 1 investments, I had this feeling: whether as a VC or a founder, many of us are making the same mistake of treating blockchain as a hammer and seeing everything as a nail.

If you start from the first principles of blockchain, setting aside terms like decentralization, privacy, and censorship resistance (99% of users actually don't care about these), the core value of blockchain is actually what Li Xiaolai or Lao Mao wrote about in an article back in 2017: Blockchain is the world's first network that realizes peer-to-peer value transfer. The internet allows us to transmit information, while Bitcoin, or blockchain, allows us to realize the transfer of value, not just the transfer of information. How does it achieve this? Simply put, it prevents the infinite copying of information (copy-paste) through the technology of preventing double spending. You can even think of blockchain as an evolved version of BitTorrent, only instead of a peer-to-peer download network, it has become a peer-to-peer value transfer network. Another important feature is that the assets on it can be programmed.

If you dig into Satoshi Nakamoto's earliest posts from around 2009 to 2012, you will find that his original idea was, after Bitcoin's success, to carry more assets on top of Bitcoin, including invoices, bonded contracts, etc. So Bitcoin had thought about doing what Ethereum later did; it’s just that Satoshi retreated, and Vitalik emerged, realizing what Bitcoin initially wanted to do with Ethereum.

This is also why I was particularly optimistic about BitShares in 2017. At that time, Chang Jia's idea of bringing real assets on-chain resonated with me; I thought blockchain should do this, so the first altcoin I bought was BitShares. But looking back now, BitShares was simply too early and became a martyr rather than a pioneer. By 2020 and the end of 2021 during DeFi Summer, as asset prices skyrocketed, I also got carried away and forgot the original intention of "assets need to go on-chain."

But by 2024, I felt something was off. At an internal meeting at ABCDE, I mentioned: I personally believe that the dozen or twenty tokens I consider valuable are all things that enhance the programmability of the entire blockchain network. From Uniswap V1 evolving to V2, V3, Aave also from V1, V2, V3, to later Morpho and Pendle, we have been continuously enhancing programmability, as well as the speed and capacity of the entire network, which is the Infra set. But where are our assets? I found almost none. We tried NFTs, tried GameFi game items, tried inscriptions, Ordi, and even the current Memes, and ultimately found that none had long-term asset properties and value.

As for game items, it was initially promoted by Vitalik, who mentioned in 2017 that finance and gaming were the first two scenarios that could land. As a result, we thought of treating game assets as a type of RWA asset to go on-chain, but unsurprisingly, it has now failed. So six months ago, I wrote an article titled "Why World of Warcraft Succeeded While GameFi Failed." My point is: Anything that can be scaled can definitely be industrialized; there is an impossible triangle involved. Even if you let the assets in World of Warcraft circulate freely like blockchain, World of Warcraft would be destroyed by studios, let alone our chain games that have no playability.

So when you talk about the star tracks of various cycles, I think there are a few categories. One category, like BitShares, became a martyr too early, including Augur, which was Ethereum's earliest prediction market, also considered too early in direction and timing. Another category is those whose execution did not keep up, like the earliest DEXs, Bancor and Kyber, which were later directly outpaced by Uniswap.

Victor: Bancor seems to have shut down recently.

Lao Bai: Yes, that token is already considered a failure; everyone has tacitly accepted it as a failed project, so whether it shuts down or not is of little significance. So now when I look at projects, I basically look at how to distinguish: is it blockchain for the sake of blockchain, or is it blockchain to serve business and reduce costs and increase efficiency? The simplest way is to take away the token and see if your product stands. You will find that Uniswap stands, Aave stands; but projects like Axie Infinity and STEPN in GameFi do not stand at all. Therefore, projects that do not stand when the token is removed, we can now all consider that this is not a correct development direction. You ultimately still need to clarify what traditional finance cannot do that blockchain solves, and then see how it reduces costs and increases efficiency in real society.

3. Why Issuing Tokens has Failed: From "More Meat, Fewer Monks" to "More Monks, Less Meat"

Victor: So when you evaluate projects now, you mainly look at whether they have PMF and whether they can generate cash flow. In the past, the token issuance model often allowed VCs, retail investors, and various roles in the industry to participate. Why was the token issuance model feasible in the past but is no longer viable now?

Lao Bai: I think the reason token issuance worked before is that the industry was in a very early stage, and everyone could give it a high valuation based on "market dream rate." Even if you currently have no users and no revenue, as long as KOLs and VCs believe that your business model can work in the next five to ten years, we are willing to give you a high valuation. The pursuit of these tokens by retail investors follows a completely different logic than investing in stocks; it is entirely based on the judgments of KOLs and various VC institutions. For example, if you get money from a16z or Paradigm, retail investors will recognize the institutions' views, and after the project issues tokens, what retail investors are buying is essentially a "market dream rate option" for the next five to ten years.

The second reason is that there were not enough projects on the market at that time. Funds pouring in could amount to hundreds of billions or even trillions, but we only had dozens or a couple of hundred projects, which is a classic case of "more meat, fewer monks." But this state cannot be maintained long-term; later, more and more project parties entered the market, and more and more VCs were established, and everyone started making PPTs to seek VC financing endorsements, then high FDV, low circulation, locked control, making retail investors the last leg of liquidity. When this situation crossed a critical point and turned into "more monks, less meat," the entire cycle was broken, liquidity could not be sustained, and it became what it is now.

Victor: Many communities are still discussing whether projects like Polymarket, which already have strong cash flow, still need to issue tokens. People say that OpenSea was surpassed by Blur because it did not issue tokens at the right time. Do you think this logic is correct? Can Polymarket surpass Kalshi by issuing tokens?

Lao Bai: From the perspective of retail investors, you could say that Blur succeeded at that time and OpenSea failed because it did not issue tokens at the right time; if it had issued tokens then, its valuation would have been at least ten billion. But from Polymarket or OpenSea's perspective, with such strong cash income, it is unnecessary for them to issue tokens because the essence of the tokens you issue is actually your debt. For the project parties themselves, issuing tokens does not necessarily maximize their financial or brand commercial value. Moreover, I understand that Blur is not exactly a thriving project; it just temporarily surpassed OpenSea during that period.

Polymarket can indeed surpass Kalshi through issuing tokens in terms of traffic and other aspects. But taking recent months as an example, opinion did a token airdrop at the end of last year to the beginning of this year, and its trading volume was almost close to Polymarket, but after issuing tokens, its trading volume and tokens have nearly gone to zero. So I think from Polymarket's perspective, they actually do not have a pressing need to issue tokens; whether they do or not is fine.

4. Crypto Clearly Won, Why Do Old Investors Feel They Lost?

Victor: There is a situation now: many VCs and retail investors feel that Crypto has already won, Bitcoin has entered the mainstream, ETFs have been launched, and Wall Street is increasingly recognizing it. But why do veteran investors in the industry seem to feel like they have lost, not making as much money as in past cycles? Is it because Crypto is gradually being absorbed by traditional finance, leaving retail investors with fewer opportunities to participate?

Lao Bai: It is indeed the case, and I think both of these statements hold true: First, Crypto has matured; second, the ambition of Crypto to transform the world has indeed diminished. In other words, we have gone from wanting to create a new world from scratch with Crypto to becoming reformers and dependents of the existing financial system, somewhat like the feeling of Liangshan being recruited in Water Margin.

If you could time travel back seven years and tell VCs, founders, or retail investors from the 2018-2019 era: stablecoins have now become a very important dollar infrastructure globally, with a scale of several trillion; Bitcoin has ETFs, with pension and institutional funds buying it; Crypto companies can participate in IPOs; RWA is starting to truly enter the traditional financial system, with companies like Stripe, Visa, and BlackRock deploying Crypto infrastructure, building public chains, and doing PayFi. People from that era would definitely feel: we have won.

But from the perspective of assets, we indeed have not won. You won't see another DeFi Summer or altcoins skyrocketing fifty to a hundred times; that perspective is absent. Moreover, over the past decade, the issue of launching native assets on-chain, from NFTs to inscriptions to various Memes, I think we have also lost. We ultimately only built a financial track on-chain, and now we are starting to bring native assets from reality onto the chain.

However, we have two very impressive inventions: one is stablecoins, and the other is perpetual contracts. These are what I consider to be our great victories, truly Crypto Native PMF.

Mr. Z: Hearing your remarks resonates with me. A few weeks ago, I saw Haseeb, the managing partner of Dragonfly, say that Crypto has slowly matured, and he believes that in the next decade, there may no longer be Crypto VCs, just like in the mid-2000s when we invested in IoT and social platforms like Facebook, and now no VC claims to be investing in those things. So do you think that in five or ten years, Crypto VCs will no longer exist?

Lao Bai: I basically agree with Haseeb's view. In the future, as a VC or even as a trader, you should no longer treat Crypto as a separate industry or sector to worry about. Just like now, you wouldn't say a VC is an "internet fund VC"; the internet serves the business system as a technology; Crypto will also be a foundational technology that integrates into your entire business model. When you need to use stablecoins or need to put some things on-chain, you might only participate in 10% to 20% of the commercial projects or companies in Crypto. It will be hard to say you are a "Crypto VC" or that this is a "Crypto project." I think Crypto should gradually integrate into the real world like the internet, and people will no longer need to worry about whether this is a Crypto asset, Crypto project, or Crypto VC; these labels will disappear.

5. Perp DEX Competitive Landscape: Four Dragons and HIP-3, Who Can Challenge Hyperliquid?

Mr. Z: This resonates with the current operations of Perp DEXs like Hyperliquid and Variational, which use blockchain as a foundation to move assets on-chain, such as using protocols like HIP-3 to allow deployers like TradeXYZ and Paragon to move assets on-chain, enabling users to trade stocks from various countries 24/7. What do you think the competitive landscape for Perp DEXs will look like in the next two to three years?

Lao Bai: First of all, I am very optimistic about Variational. Beyond Hyperliquid, in my mind, the second tier I am optimistic about includes Aster, Lighter, and Variational. I think the RFQ (Request for Quote) combined with over-the-counter hedging model of Variational makes a lot of sense, plus the team, founders, and the capital and institutional resources behind it are very strong.

I think the market only needs four to five Perp exchanges, just like we only need four to five exchanges. Previously, there was Binance, OKX, along with some user-favorite exchanges like Bitget, Bybit, and Gate. In the end, only four to five Perp exchanges will form a leading effect: T0 is Hyperliquid, and T1 includes Lighter, edgeX, and Variational.

A few days ago, I was chatting with a friend, and he made an interesting point. As the Perp and CEX in the crypto space become more like the leveraged contracts of traditional finance and stock brokers, many small and medium stocks with average liquidity may adopt Binance Alpha's strategy. The approach is to achieve 60% to 70% control at the spot level, continuously buying to raise prices, while creating a narrative, such as a traditional company that was about to fail suddenly saying it will pivot to AI or DAT (Digital Asset Reserve). At this point, a very high OI might be piled up on Hyperliquid or Binance, and the company's shareholders or stakeholders could exit through Perp. In terms of regulatory oversight at the spot level, you won't find any loopholes because the company is only buying back its own stock, only buying and not selling, so regulators can't say anything; but selling would happen in Perp. This is a long-term regulatory arbitrage, combined with our Perp DEX, creating a new play for other small and medium stocks with average liquidity worldwide.

Mr. Z: I observe that besides Hyperliquid, latecomers actually need some different strategies. Hyperliquid already has many US stocks; standard US stocks like Interconnect and Storage should be available. Should latecomers like Variational explore Asian stock markets, such as listing UMC, MediaTek, TSMC, or Korean, Japanese, and Hong Kong stocks like Alibaba, Tencent, Meituan, and JD? Because directly competing head-on with Hyperliquid is not feasible. What do you think about this?

Lao Bai: Exchanges like Lighter and edgeX, which have the same structure as Hyperliquid and are based on CLOB and market makers, should indeed pursue differentiated competition. The Asian assets you mentioned, TSMC, MediaTek, and Korean stocks, are all valid directions. I remember Mable's Trasia is focused on Asian assets. Another friend of mine plans to jump from VC to create a Perp targeting on-chain forex. This is something we have been calling for many years but have not succeeded in. If stablecoins reach over a trillion on-chain, then the TAM for on-chain forex is actually very large.

But Variational and Ondo Perp are different. If you look at their slippage and liquidity, they can achieve better and more converged spreads than Hyperliquid or even Binance. Hyperliquid essentially uses a single market maker to provide liquidity, while Ondo is similar to an RFQ quote, allowing you to hedge with your own TradFi in an extremely convenient way. Therefore, Ondo Perp has better spreads and slippage on many RWAs, especially large stocks like Nvidia and Micron, than Hyperliquid and Binance, which I checked before. The mechanism of Variational theoretically can also implement what Ondo does, and the swap it launched last month has already introduced traditional TradFi hedging mechanisms for commodities like crude oil and gold. So I think these two are different mechanisms and can be considered to compete head-on with Hyperliquid.

Mr. Z: Looking inside Hyperliquid, HIP-3 currently has TradeXYZ as the leader, but there are also up-and-comers like Paragon, which have a clever strategy, emphasizing speed and efficiency, quickly auctioning off tickers where there is market heat to launch assets, and not doing a front-end interface, believing that Hyperliquid's front end is already good enough. Are you paying attention to this area?

Lao Bai: I have been paying attention, but perhaps not extensively. I can currently only see deployers like TradeXYZ and Paragon on Hyperliquid's front end. I see that some assets on Paragon are somewhat different from TradeXYZ, but currently, its volume is actually quite small, mostly at the level of hundreds of thousands, while TradeXYZ often has tickets in the hundreds of millions, which is a significant gap.

HIP-3 originally only marked a deployment opportunity; the first three slots are free, and later slots are bid through auctions, and what asset you want to deploy in that slot is entirely up to you. But I think this will likely lead to a leading effect, and it’s not just a matter of user perception. Because market making is not officially participated in by Hyperliquid; it’s TradeXYZ and Paragon doing the market making themselves. For the same asset, if TradeXYZ's market makers provide very good liquidity and spreads, everyone will definitely go to TradeXYZ, creating a self-reinforcing positive growth flywheel effect. How to break this is something that latecomers need to think about. Moreover, unlike Uniswap, where you can use some new AMM mechanisms, like how Curve achieved different effects for stablecoins with different curves; HIP-3 purely competes on the liquidity and depth of market makers, which is about who has more real capital, making it harder to find clever ways to innovate.

6. Safety is a Function of Time: Lessons from Ostium, Cream to Perp

Victor: Recently, there have been some incidents in the Perp space, such as the recent incident with TradeXYZ and the Hynix spike, which also occurred at Binance but had a smaller impact. TradeXYZ ultimately chose to compensate all user losses, which was very generous. Other projects have also recently experienced hacks or bugs, such as the RWA project Ostium being hacked for about $18 million, and Paradex was also hacked recently. How will these security issues affect people's doubts about DEX security and whether Perp can be accepted by more traditional finance and investors in the future?

Lao Bai: I think this depends on two points. The first point is that time is needed to prove it, because 99% of users cannot look at your underlying code; they rely purely on reputation and time. Why is AAVE so strong and has such high consensus? It’s because it has never had any security issues as a lending protocol; the previous incident was actually a problem with the underlying assets leaking up, not an issue with AAVE itself.

You will find that the vast majority of lending platforms that have suffered security attacks have occurred in lending: taking a garbage asset out through oracle issues, price manipulation, or controlling votes as collateral to extract a lot of stablecoins. For example, the Mango platform on Solana and many garbage lending platforms have been attacked multiple times. Even the lending platform of Machi from Taiwan has been attacked three or four times; I never understood why people still bravely deposited money after being hacked.

So for Perp, I think there are two points. First, do not scale the Perp business to the point where you can collateralize certain assets and include lending. I remember Paradex, or it should be Drift on Solana, wanted to be comprehensive, doing spot, collateralized lending, and Perp, and ultimately the lending side opened a hole that was breached. If you are doing a Perp, just focus on doing Perp; do not try to collateralize assets to extract stablecoins. Once you do this, there will definitely be a day when something goes wrong. The second point is that there is no other way but to rely on time to prove it. If four or five years later, Hyperliquid has never had any security incidents while others have, then people will naturally believe it and be willing to deposit money there, just like Binance, where user perception has been completely occupied.

7. Will Hyperliquid Do Spot? The Ideal and Reality of Tokenized Stocks

Victor: Regarding spot trading, Hyperliquid has not yet launched spot. Do you think they might enter the spot market? If they want to follow the strategy you mentioned about Binance Alpha possibly helping stocks launch assets, do they need to do spot trading?

Lao Bai: I don't think they will do native Crypto spot trading. The impact of spot trading is currently too small; you see that 80% to 90% of Binance's revenue comes entirely from Perp, and within Perp, over 60% now comes from US stocks, which are RWA, rather than from native Crypto.

So if you want to do spot, you either have to launch a spot stock, similar to Binance's bStock. I'm not sure if Hyperliquid will have something like "hyperstock" in the future; the possibility exists, although it is small. But if they do, the only purpose would be to serve their Perp; you can do spot-futures arbitrage and on-site hedging. Just like why Ondo has such good Perp liquidity is that it has its own Ondo Stocks on-site, where market makers quote you, and if you open a $1 million long position on Micron, they can simultaneously give you a short position as a counterparty, directly holding $1 million of Micron spot with zero delay. So if Hyperliquid takes this action, I wouldn't be too surprised, but it will definitely not do spot trading for Crypto assets like BTC, ETH, or SOL.

Victor: If you had to choose between tokenized stocks and Perp, which one is the better model? Or are they complementary? For example, StableStock positions itself as a stablecoin broker, allowing people to buy stocks directly with stablecoins, but it does not do Perp; while Binance has a full suite, including Perp, US stocks, and tokenized stocks.

Lao Bai: The ideal state for tokenized stocks should be "real stocks, with clear legal ownership, plus free circulation on-chain." This is something that Nasdaq itself may want to do; I remember the SEC recently approved Nasdaq to do on-chain stocks. So in terms of stock spot, StableStock, including BIT, may have pricing competition with Nasdaq itself, but Nasdaq may not allow you to freely buy and sell with stablecoins in the short term.

However, from a practical perspective, the vast majority of users do not need clear legal ownership or real stocks; they just need a price exposure they can bet on, as long as this exposure can anchor the real stock price. So the most mainstream form remains Perp. This is also why I say that over 60% of revenue comes from Perp, and within Perp, 60% is RWA. The ideal is that everyone is a holder and a long-term investor, like traditional US stocks; but the reality is that everyone is a gambler, needing an exposure, and then adding five to ten times leverage, crazily going long or short. Ideals are ideals, and reality is reality.

8. Stablecoins: Crypto's Greatest Invention and the Global Extension of Dollar Hegemony

Victor: Next, let's talk about stablecoins. Recently, projects like Open USD have gathered traditional financial institutions like Visa, Stripe, and Mastercard, resembling the situation of Facebook's Libra back in the day. How do you see the evolution of the stablecoin track in the next cycle? What kind of differentiated advantages do new projects need to emerge?

Lao Bai: I am infinitely optimistic about stablecoins; I am super bullish. I think this is the most important invention after Bitcoin, bar none. The biggest contribution of Crypto to the world is actually stablecoins, not even Bitcoin. Bitcoin is now mainly a game for a small number of large holders, institutions, and whales, but stablecoins are the technology that truly changes the world through blockchain.

Last year, we were still discussing the stablecoinization of debt. Last year, it was $36 trillion in national debt, and now it has increased to $39 trillion. Everyone is thinking that stablecoins should reach one to two trillion before 2030, at least helping to convert two trillion of US debt and lighten the burden on the US government; in another ten or twenty years, it might reach five trillion or ten trillion in scale. You can see that on the B-side, companies like Stripe and Visa are getting involved, from payments to interest-earning scenarios; on the C-side, it goes without saying that stablecoins can be used to buy and sell various assets in the world. So ultimately, I believe stablecoins and tokenized US stocks create a synergistic effect: dollar hegemony plus the hegemony of dollar assets, penetrating into every country and corner of the world through stablecoins.

As for what it takes to be a new player, I think the requirements are too high. New players can only be super players like Stripe, BlackRock, and Visa, who already control traditional payment and currency financial entry or intermediary circulation links, to have the qualification to share a piece of the stablecoin business. Ordinary entrepreneurs are advised not to touch this area; it is a business very reliant on institutional aspects.

9. Agent Payments and Machine Economy: Cloudflare's Traffic Inflection Point and Micropayments

Victor: The narrative of stablecoins and AI Agent payments was very popular last year, like x402, and recently Cloudflare launched an agent wallet. Earlier this year, Tether also launched its own wallet, all aiming to highlight Agent payments with stablecoins and the machine economy. Is this a feasible narrative, or is it more of a dream?

Lao Bai: This narrative is very feasible, but whether it relates to Crypto, I think is another matter. Let's look at it from two aspects.

First, will the agent economy actually happen? I believe it will. Last month, Cloudflare's CEO mentioned in an interview that on a certain day last month, bot traffic on the internet surpassed human traffic for the first time, which happened on a day in July and is a significant milestone. There have always been many bots on the internet, but human traffic has always dominated. Now, as the world's largest gateway/CDN, Cloudflare's data shows that bot traffic has finally surpassed human traffic. The reason is the large language models: if a human wants to buy a single-lens reflex camera, I might check five web pages and do a price comparison, and the HTTP requests are based on those five visits; but if you ask ChatGPT or Doubao to "recommend a single-lens reflex camera for five thousand yuan that needs to achieve certain functions," it may need to make five thousand HTTP requests to browse all relevant e-commerce and review sites to give you the best answer. Therefore, the machine era has an extremely explosive demand for web traffic, and Cloudflare's CEO believes that in the next five years, agent traffic will expand another thousandfold.

Second, he raised a question: the previous internet economy was realized through Google Ads, where we completed the entire commercial loop based on search and recommendations through clicking ads; but the agent's recommendations break this model. The only solution I see is that when agents scrape data from your website, they make a micropayment. For example, if you are an e-commerce or review site, and the agent used your data in five thousand scrapes, it pays you two cents. How will these two cents be paid? Most likely through something like x402, or through stablecoin-based solutions slowly rolled out by Cloudflare, Visa, and Stripe. It is definitely not traditional Visa, nor necessarily Crypto, but it will definitely be stablecoins on a certain chain; we don't know if that chain will be Solana, Ethereum, Tempo, or Arc, but I believe this scenario will definitely happen.

10. The Endgame of Public Chains: The Era of General Chains Ends, Institutional Chains, C-End, and Gray Markets Divide the World

Victor: How will stablecoins and agent payments affect the competitive landscape of public chains? Currently, the largest is still Ethereum, along with Solana, Circle's Arc, Stripe's Tempo, and last year there were Plasma, etc.

Lao Bai: I feel that the next cycle will likely be "Caesar's to Caesar, God's to God," with everyone advancing together. If you are doing gray markets, you might still choose to use TRON and USDT; if you are retail investors, you will likely still choose USDC on Ethereum and Solana to play DeFi and Memes; if you are institutions, B-end, corporate payments, or forex exchanges, you will likely go for institutional chains like Tempo, Arbitrum, and a privacy-focused chain like Canton, which is also developing very well. So I think the landscape will likely be such that three or four institutional chains serve the B-end, while Ethereum and Solana serve the C-end, and TRON serves the gray market.

Victor: In past cycles, everyone regarded public chain tokens as the mainstream Beta, like Ethereum and Solana. Will public chains still be the main axis for VCs or retail investors to invest in next?

Lao Bai: Definitely not. Hyperliquid has basically set a benchmark for all public chains: Public chains must serve applications. I am a chain, but I exist because I serve a super powerful application, not to create a universal public chain. The era of general public chains may have reached its end after Ethereum and Solana, but we are still reluctant to accept this, leading to the emergence of Aptos, Sui, Monad, and MegaETH. Recently, MegaETH's Shuyiao tweeted that their MegaMafia incubation plan will stop and they will no longer fund new projects on-chain, deciding to develop applications themselves. This indicates that the era of general chains has been declared over, and the future should be an era of application chains.

This is somewhat similar to AI: first, we need to build infrastructure; we must lead with a version and get the infrastructure right, which has a particularly high valuation; now everyone is finally starting to focus on applications, PMF, users, and cash flow, and the crypto space is beginning to move towards being more like the US stock market. Conversely, the semiconductor and storage sectors in the US stock market are somewhat like the previous version of our crypto space, beginning to "crypto-ize," which is why many people have failed while trying to leverage Hynix with two times leverage.

11. Large Models Moving Towards "Public Chainization": Killer Applications and Insights from Palantir

Victor: Now large models are somewhat like public chains; the barriers to creating large models are getting lower, and the main battlefield is shifting to models specialized in certain applications. Do you think large models will develop in a direction similar to public chains?

Lao Bai: I think it already is. You look at China's six small dragons, like Kimi, DeepSeek, and MiniMax, they already have a feeling similar to public chains, with each large model having its own characteristics. For example, MiniMax's recent new model is an uncensored version, which has made many video creators happy. So we have already made characteristics in technology, cost-effectiveness, and moral scrutiny, somewhat like the public chain competition of the past.

Ultimately, who can break through still depends on two points. The first point is who can better integrate into the B-end. OpenAI and Anthropic have both established frontline deployment engineer teams, learning from Palantir's model, aiming to integrate AI into enterprises. Because you see, we have become so popular, but over 90% of enterprises only equip their employees with Anthropic, OpenAI, or Doubao, while the entire enterprise process and structure remain traditional. The overall improvement of AI for enterprises may be less than 20% to 30%, but for individuals, it may exceed 500%. So OpenAI and Anthropic are a bit anxious and have decided to personally establish companies to help enterprises integrate AI into workflows. The second point is C-end looking for who can create killer applications; beyond ChatGPT, Codex, and Claude, can other killer apps be developed?

Victor: A few days ago, Palantir's CEO mentioned in an interview that the narratives Anthropic is currently sharing with the public are actually things Palantir has been doing, which is quite amusing.

Lao Bai: Yes, so Palantir's stock price has been rising very well recently, as people realize that these impressive SaaS platforms are not so easily replaced by large models, and large models are not easily integrated into an enterprise's workflow.

12. The Truth of Prediction Markets: Completing the Gartner Curve in Two Years, the Ceiling is Far Lower than Perp

Victor: Finally, let's talk about the prediction markets that everyone is very concerned about. You have also invested in some prediction market projects, like the prediction market 42space invested by YZi Labs. How do you view the current landscape of Polymarket, Kalshi, and the overall prediction market?

Lao Bai: Yes, I just posted a tweet a few days ago discussing the four stages of prediction markets: underestimated before the election, Kalshi and Polymarket proving the feasibility after the election, overestimated before the World Cup, and now starting to return to rationality. You can see that Polymarket's volume has been declining since July 18 after the World Cup. So I now feel that if Polymarket is really valued at around $20 billion, or if it really issues a token to reach a level of two to three hundred billion, I would unhesitatingly short it. Because from my observation, prediction markets are not on the same level as Perp at all.

At that time, we had many irrational imaginations about prediction markets, somewhat like "using a hammer to find nails." When I was at ABCDE, I discussed at least more than ten prediction markets, and everyone would imagine some scenarios, like a few friends betting, using a prediction market to open a private server room to bet separately. But in practice, the frequency of such friend betting scenarios is actually very low; it is not a PMF at all, but something everyone forcibly found to create a PMF for prediction markets.

In simple terms, a person does not have the demand to express opinions and simultaneously bet on so many things. For the vast majority of people, it may just be politics and sports. And for sports, traditional betting already meets the demand very well; for example, in Europe, Australia, people like to go to stadiums to watch games or go to sports bars, a bunch of people drinking beer, watching horse racing or football matches, and casually buying a traditional lottery ticket worth dozens of Australian dollars, winning is happy, losing is just a meal's worth. This is also why Kalshi has done relatively well in sports, but fundamentally, people's demand for these has already been satisfied by traditional markets and traditional betting.

Recently, I spoke with a founder of a prediction market tool, which is somewhat like "GMGN for prediction markets," with smart money, money flow, hot markets, AI recommendations, etc., and I think they are doing very well. But when I asked them why they ultimately chose to pivot to Perp, they gave me several very sensible points:

First, prediction markets cannot benefit from the liquidity overflow bonus. One major reason why DeFi Summer was so popular was that the US had zero interest rates and massive monetary easing, liquidity overflowed from US stocks to the crypto space, from Bitcoin to altcoins, coinciding with the explosive growth of DeFi Summer, lifting the entire industry. But prediction markets are fundamentally difficult to benefit from this bonus because they are a form of expressing opinions, not an asset form.

Second, the frequency of attention is not enough. Politics and sports have major events every few days or even weeks, but Memes are different; you see why pump.fun is so powerful, it can capture new hot spots and new memes daily, like the PNUT squirrel coin, such things happen every day, and the frequency of issuing Memes is on a daily or even hourly basis.

Third, there is no ceiling for the "head effect." In the Meme market or traditional trading market, many users copy trades, creating a head effect; the most typical example is Musk's endorsement of Dogecoin, which surged to a market cap of $70 billion, with some people making hundredfold or even thousandfold gains on Dogecoin, with a very high ceiling, even infinite. But prediction markets do not have such a ceiling; at most, you can move a market from a 10% probability to 100%, which is only tenfold at best. Moreover, the moment you bet, the market odds are already priced in; the mispricing you can capture might only be twenty or thirty percent, doubling it is already a huge profit.

Fourth, the proportion of rational decision-making is too high. When you place a bet, you must feel that you are smarter, more informed, or have a better understanding than others to do so. I might place a bet on Apple, AI semiconductors, or Intel's yield, but I wouldn't bet on a hockey or football game I have never heard of. You will find that each person can only bet on five to ten assets, which can be counted on two hands. But Memes are not like this; a meme that everyone sees on Twitter can quickly accumulate to tens of thousands, hundreds of thousands, or even millions of addresses.

So I find these points very sensible, which also leads me to not be as bullish on prediction markets as I was last year: I acknowledge that their PMF truly exists, but their ceiling is far lower than that of Perp.

Victor: How do you view projects that combine prediction markets with Memes? For example, 42space, which you invested in, has introduced bonding curves and some Meme elements.

Lao Bai: I was actually very against Memes before; I never liked them. But after seeing the form of prediction markets, I am not so bearish on Memes anymore. Rationally, I believe Memes are a form that cannot disappear and will always have vitality. In summary, the biggest difference between the Crypto market and traditional financial markets is that we have more gamblers here, and we provide enough strong gambling tools for everyone to gamble; Crypto is also the market with the highest volatility in the world, which is its industry advantage. Many functions of prediction markets in traditional finance can actually be replaced by options or CDS (credit default swaps); they cannot capture the share of options in traditional finance, and in the crypto space, they do not have enough gambling nature to meet the needs of gamblers.

I invested in 42space for two reasons: first, I have a personal connection with the founder; second, while I cannot confidently say that 42space will definitely win, I believe that "combining Memes and prediction markets to make prediction markets more gambling-oriented" is a path worth exploring.

13. Robinhood's Clear Strategy: RWA for Investors, Meme for Gamblers

Victor: How do you view the on-chain Meme craze from Robinhood? Recently, Robinhood's original native launchpad has shut down, and Uniswap recently launched the launchpad pools.trade on the Robinhood Chain. Although Robinhood focuses on RWA, a large portion of its trading volume is driven by Memes. What do you think about the growth relationship between this chain and Memes?

Lao Bai: I think Robinhood's thinking is very clear and very impressive. To put it plainly, this chain is doing two things: one is RWA, and the other is Meme. It understands what users really need. If you are a long-term investor, what you need is RWA assets, like Micron, Nvidia, Hynix, these things; you do not need those worthless VC air tokens; while for more gamblers, you just want to play with high volatility, so I will give you Memes.

When Base first launched, it also attracted users through Memes because Memes can easily create early-stage growth of hundreds or thousands of times, naturally serving as a huge attraction for attention. So Robinhood is very savvy about this: first, bring users in and deposit funds; you might at any time decide to say, "I made money on Memes and want to keep my money; what should I do?" I can buy some Nvidia on Robinhood. Their strategy is clear about what people in both the crypto and traditional finance circles are thinking and wanting to play with.

14. Exits of Exchanges and Talent Flowing to AI: Why This Time is Particularly Severe

Victor: Recently, many exchanges have announced the cessation of trading operations, such as the once-leading BitMEX, which invented perpetual contracts, and BitMart, along with many projects announcing shutdowns, like Zapper and Fantasy Top, which were very popular in the last cycle. You have experienced several cycles; does this kind of situation occur at the bottom of each cycle? Is the exit of exchanges in this cycle particularly obvious?

Lao Bai: In fact, similar events occur at the bottom of every cycle, but this time is particularly severe. In previous cycle bottoms, established exchanges like BitMEX, if they had not experienced security breaches, typically would not shut down; including Zapper, which I personally used and liked during DeFi Summer, and had real users and real value, would have survived in previous cycle bottoms. But now you find they cannot hold on, so we are truly entering a maturity phase: the previous feeling that "growth can cover all problems" is gone.

In the past, if you could make money, or even if you couldn't make money but had growth, with new funds and new users coming in, everyone was good. Now there is no new capital, nor any new user growth; instead, our talent is running away, and users are leaving; all the traders and KOLs are talking about US stocks every day. Without growth, all problems are exposed at once. Our circle has shrunk, leading to some exchanges and projects that could have held on now unable to do so.

Victor: Talent is indeed a significant issue; for example, the co-founder of Sui recently announced a move to Anthropic. Compared to the cycles of 2017 and 2020, it seems that the smartest talents in the world were flowing into Crypto, but now it has reversed. What phenomena have you observed around you? When might this trend reverse?

Lao Bai: I think we may not see a reversal in the next few years; I have not seen any reversible possibilities for this talent outflow. I was particularly bullish on blockchain for a very large reason: talent. In 2023, I tweeted that at ABCDE, we had recruited four or five interns, three of whom were from Tsinghua University, one from Peking University; among my colleagues, Siyuan is a database PhD from HKUST, and Joy is from the University of Pennsylvania. In the past two years at ABCDE, I have discussed 1,300 to 1,500 projects, and about half of those founders are Ivy League graduates; I have talked to too many founders from Harvard, Stanford, Berkeley, and MIT. As a "second-tier student," being able to discuss hundreds of founders from the world's top universities in one industry is unimaginable in other industries, so I felt, how could I not be bullish on Crypto?

But that was in 2023, when AI and ChatGPT had just emerged, and it wasn't so obvious yet. Now you see that many people I know, including those interns and colleagues from back then, have gone to AI. Besides the profit motive, I think the biggest reason is: In the past five or six years, since the birth of Ethereum, we had many interesting problems to solve, such as distributed consensus, open finance, on-chain transactions, MEV, scalability, censorship resistance, and privacy. But by 2024, these problems have basically been solved. You will find that new projects from 2024 onwards, whether a new chain or a new Layer 2, are basically the same thing: creating a Meme for traffic, making a wallet, creating a tokenomics incentive, setting up a liquidity pool, doing lending, and bringing Uniswap and AAVE onto the chain. Everyone is playing the same game, and this becomes unappealing and uninteresting. You let Harvard, Stanford, and MIT people do copycat projects; besides not making money, they also find it uninteresting. But in AI, in the next five to ten years, we have countless problems to solve, just like the past decade in blockchain. So from the perspective of problem-solving, I cannot find any possibility for AI talent to return to Crypto on a large scale.

Victor: Could Ethereum's innovation path have an impact? How do you view Ethereum's development over the past few years? Many smart people came in with ideals, but it seems that the most idealistic things have been falsified, and these people are starting to leave.

Lao Bai: I think Ethereum has done quite well over the past few years. Many innovations from DeFi Summer came out of Ethereum, including the concept of Layer 2 and the entire framework of smart contracts, which were all established by Ethereum itself; Solana is the only one that has entered from another angle and done quite well. Ethereum has essentially created a foundation, which still has some things that can be repaired, like privacy, staking rates, decentralization levels, and using ZK for proofs, but these are all minor details.

In the past three to five years, we have tried all the plays that Wall Street could think of on-chain, like tranches, Pendle's risk and yield splits, and complex risk default swaps like CDS. But in the end, you will find that what is truly useful is just a DEX and a lending platform; overly complex things cannot actually be played on-chain. Pendle is already considered very innovative, but its innovation is just bringing Wall Street's model over; the complexity is just at the limit of what everyone can tolerate. More complex things like GammaSwap, or things involving hedging, options, insurance, and CDS, I have discussed, but none have succeeded. The simplest options, I have looked at more than ten on-chain projects, and none have succeeded; Deribit remains the only dominant player. So we have played out most of the things we can innovate on, and there are not so many things that the smartest brains in the world are eager to solve; they are more interested in exploring AI.

15. From Crypto to US Stock Options: Three Cognitive Upgrades in Trading Framework

Victor: You have invested heavily in AI and semiconductor stocks this year, and you often trade options. After switching from Crypto to the stock market, what changes and insights have you gained in your trading framework? Options were a relatively less participated area in the past in Crypto; how do you use them to express your trades?

Lao Bai: After switching to stocks, three points have had the most significant impact on me.

First, I will try to establish a more mature trading system. My previous trading did not have much of a system; it was mainly driven by narratives. After making some money during the DeFi Summer wave, it was easy to develop a path dependency, taking larger positions in altcoins that I thought were very creative. In fact, during the Luna incident in 2022 and the GOAT wave at the end of 2024, I lost quite a bit, even though I did not use leverage or play contracts, but still lost a lot on these altcoin spots. This reflects my trading system's immaturity; I was too young and too naive. When you invest in US stocks with real PMF, real markets, and real users, it is completely different from investing in Crypto, which is primarily based on market dream rates, narratives, and technical fancies. You need to establish a framework for your trading system, considering drawdowns, capital投入, and capital occupation costs, etc.

Second, you will learn to respect "not knowing." There is a dangerous habit in Crypto, especially for someone like me who is a Tier 1 market investor: after reading a project white paper, researching some data on DefiLlama, and chatting with the founder for an hour or two to dissect the tokenomics, it feels like you understand the project well enough to buy in. This is actually an illusion. On the US stock side, you will find it much more complex: a company's stock price involves revenue, profit margins, inventory, capital expenditures, macro interest rates, options positions, implied volatility (IV), supply chains, competitors, and you cannot possibly look at all the information. So you choose to respect that "no one can be omniscient," which is a hallmark of a mature market.

Third, and most importantly: the ways to express have increased. The expression methods in Crypto are particularly simple and crude; if you are bullish, you buy its token, and if you are more bullish, you use Perp to leverage long; if you win, you enjoy the good life, and if you lose, you go back to work. But in traditional finance, there are many ways: if you are bullish on Nvidia but think it is too expensive, you can sell a put like Duan Yongping; if you are bullish on Hynix and Micron long-term but worry about short-term pullbacks, you can use a call spread; I previously bet on the volatility of SpaceX's second launch; although the strategy failed, the idea was to bet on volatility, not direction; if the rocket exploded, it would plummet, and if it succeeded, it would rise, and at that time, you could use a straddle to construct an options portfolio. For example, I hold many semiconductor and AI stocks and think the market sentiment is overheated in the short term, so I can buy some puts for protection. With so many ways to express, it allows you to clarify your thoughts: are you bullish on the asset itself, or are you bullish or bearish on its volatility, or are you bullish or bearish on its time? You need to clarify your thoughts before choosing a way to express. This has had the most significant impact on me personally.

Victor: Speaking of assets like SpaceX, now Yushu Technology is about to IPO, and there are no stocks or options yet, but there are pre-IPO contracts available on Hyperliquid. How would you trade these Pre-IPO assets?

Lao Bai: To be honest, I don't quite understand this, so I won't participate. It's somewhat like SpaceX's pre-trading, which was only available on Hyperliquid, but I also did not participate. Because these things are entirely a short-term emotional gamble; they do not have the underlying stock, and everyone is expressing opinions on Perp; even if your opinion is correct, you could be liquidated at any moment. So I do not participate in these pre-trading Perps.

16. Advice for Every Role: How Founders, Traders, VCs, and Exchanges Can Stay at the Table

Victor: As we approach the end of the interview, I would like to ask Lao Bai to provide some advice on how different roles can survive the bear market and continue to stay at the table.

Lao Bai: I can break it down by role.

For Founders, the situation is quite different from when I was doing Tier 1. If you only have a good idea or want to bring a play from traditional finance over, that era is over. Now, if you are starting a business, you may need more institutional resources, especially from North America, and you need to find real PMF and users. Even if you find that removing Crypto makes your product better, then remove it; you do not need to sacrifice your PMF to stay in Crypto. As Haseeb said, Crypto should gradually integrate as a foundational technology into your product. You should consider what users your product serves and what it needs to do, rather than thinking, "It is a Crypto project, so it must issue a token and have a set of tokenomics"; these are not necessary.

For Traders, do not develop an identity attachment to any market. You can be a Crypto Trader, or a trader in US stocks, Taiwanese stocks, Korean stocks, or A-shares; it does not matter. If there are no opportunities and volatility here, go look at another market; wherever there are opportunities and odds, put yourself and your risk budget there, where the odds are best and where you have the most advantage or information asymmetry.

As for my fellow VCs, I feel I am not qualified to give advice, as our own VC has closed. But if I had to say something, it would be to learn from our lessons: do not be a pure Tier 1 Crypto VC; it is best to combine Tier 1 and Tier 2. I have found that the VCs that have survived this round are those with both Tier 1 and Tier 2: investing in Tier 1 does not have to mean issuing a token; you can invest in equity, not necessarily in tokens; Tier 2 can completely buy Bitcoin, Ethereum, or even go long or short on Perp for hedging, or buy Robinhood, Coinbase, and some traditional US stocks. Do not limit yourself to being a pure Tier 1 Crypto VC; you are just a VC.

I think exchanges are facing the most severe challenges. Exchanges can no longer understand themselves as just a Crypto exchange in this cycle. Your future competitors will no longer be the previous Binance, OKX, BitMart, and Gate, but Robinhood, Interactive Brokers (IBKR), Tiger Brokers, and possibly even traditional banks. Users will only care about where the most assets are, where the liquidity is best, where it is cheapest, and where it is most convenient. The ultimate goal of exchanges should shift from "listing tokens" to whether they can become an entry point for global risk assets.

So I previously expressed a viewpoint: Robinhood is the ultimate form of all exchanges in the future. Whether in the crypto space or traditional finance, there should be a place that can do everything: recharge USDT, USDC, buy US stocks, buy Crypto, leverage, do contracts, and engage in prediction markets; I want it all, which is essentially the WeChat model. Musk is also particularly envious of this Super App form; he has always thought that China's WeChat is too impressive. Including the X Pay he is working on, he wants to integrate stablecoins into X.

Victor & Mr. Z: Thank you very much, Lao Bai, for joining our Space today. We really discussed a lot, from the history of Crypto to future tracks, and insights on AI. Thank you to every listener who has been with us until now; if you liked this episode, please follow 168X on X, Substack, and YouTube, and share the program with more friends interested in Crypto, AI, and macro topics. We will see you in the next episode.

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