Arthur Hayes and Tom Lee debate DATs, Ether, and the next market trend.

Source: Unchained

Compilation: Vernacular Blockchain

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Statement: This article is a reprint. Readers can obtain more information through the original link. If the author has any objections to the reprint format, please contact us, and we will make modifications according to the author's request. Reprinting is for information sharing only and does not constitute any investment advice, nor does it represent Wu's viewpoints and positions.

Editor's note:

During a heavyweight panel discussion hosted by Dragonfly at Token 2049, the clash of opinions between Arthur Hayes and Tom Lee became the focus of the event.

Tom Lee outlined a grand blueprint of an “institutional supercycle” led by Ethereum, while Arthur Hayes countered sharply, warning that the DATs market faces brutal consolidation, and for the first time, he revealed the true logic behind his sale of Hyperliquid. As the perpetual contract wars enter a heated phase, where will their gaze turn together?

The following is an excerpt from the interview.

01 The Institutional Wave of Ethereum and the “Tom Lee Effect”

Host: Tom, many people refer to you as “the savior of Ethereum”. How do you view this评价?

Tom Lee: Yes, it's a heavy responsibility. I think Ethereum itself is in an excellent state. The Ethereum Foundation has prioritized the right things happening this year, and of course, the emergence of stablecoins has really ignited the demand for blockchain. I think Bitmine just got lucky to catch the right timing.

Host: It feels like you are the Chief Marketing Officer of Ethereum right now.

Tom Lee: Okay, I can add this title in.

Host: Arthur, what do you think about the frenzy sparked by Tom Lee regarding DAT (Digital Asset Trust)? How has it driven the development of Ethereum?

Arthur Hayes: I mean, people like to hear this guy talk on CNBC, so screw him. If he wants to beat the drum for Ethereum, then go ahead, brother. Let's go. So I really like it. We need more Tom Lees. Every [altcoin] needs a Tom Lee.

Host: Tom, what do you think Bitmine did right that other imitators didn't?

Tom Lee: Well, I think Bitmine, first of all, is very thoughtful in terms of communication. You know, we've kept the information very simple: Ethereum is in a super cycle. We convey this through our website, presentations, and the chairman's speech videos. I believe Bitmine has a lot of connections with the institutional world. Cathie Wood made significant public investments in Bitmine early on. It is now one of the top ten holdings of Arc. This has attracted other institutional investors, and I think this process has created a flywheel effect. That's why we are currently ranked 26th in trading volume in the US, and as you pointed out, we and MicroStrategy are really creating liquidity for DATs.

Host: You have recently expanded beyond Ethereum, for example, providing seed funding for Worldcoin's DAT. Could you talk about the strategy behind this part?

Tom Lee: Well, I believe Bitmine hopes to play a role in helping Ethereum move into the next 15 years. This includes helping to identify projects that are crucial to Ethereum, which will use more Ethereum and consume Gas. It also includes helping to provide seed funding for other payment rails coming to Ethereum. Of course, we are working closely with the Ethereum Foundation to truly identify and prioritize upgrades.

So, part of it also invests in projects that truly stand out. For example, Orbs 8co, which is the parent company of Worldcoin. As a16z pointed out, one of the 11 things that AI genuinely cares about is proof of humanity. And Worldcoin is indeed one of the first projects, with nearly 17 million people verified as human. I believe that protecting humanity on the blockchain is an important priority.

The Future of 02 DATs: Integration or Extinction?

Host: The enthusiasm for DATs seems to be cooling down, and the net asset value premium is shrinking. What do you think the future of DATs will be like?

Tom Lee: Yes, indeed. Today someone told me there are 70 Ethereum DATs, which is a lot. If you look at the traditional public market, investors can support two or three, maybe four. So in this universe, there may be multiple winners, but institutions cannot buy 70 DATs. I believe those trading below NAV ( face survival issues. I think DATs should not trade below their net asset value. I don't know if they should convert to ETFs or if they should be liquidated. They can consolidate. But they should not trade below net asset value, and no ETF will trade below net asset value, so DATs shouldn't either.

Arthur Hayes: Well, I definitely agree with the idea of consolidation. I think the DATs of Solana have been conveying this message: “We need to consolidate. It's impossible to have 20 DATs.” But what strikes me as odd is that there are still people launching DATs for tokens with lower market caps (for example, $1 billion to $3 billion). I don't understand how these things can stay alive. Because the baker can earn 5%, you just don't care.

Tom Lee: Yes. It seems that this could undermine reflexivity. You know, the reflexivity you want is for DAT to be a permanent holder of the tokens, but you also don’t want them to be large enough to produce negative effects from the power law. That’s why Bitmine really doesn’t want to exceed 10% of Ethereum, with a target of 5%. So, if it's a low market cap coin with a small circulation, I think DAT could help promote the advantages of that coin, but you don’t want it to be large enough to become a bag holder.

03 Challenges and Opportunities of the Ethereum Ecosystem

Host: Tom, how do you respond to the skepticism that “while banks and institutions may use Ethereum, they will not be willing to pay high Gas fees”?

Tom Lee: As you know, in the world of cryptocurrency, being “stupid” is a good thing. So take it as a compliment.

Host: So, will dedicated stablecoin chains become a new trend and harm Ethereum's value capture?

Arthur Hayes: I guess this might just be a feature of mining, right? If they can provide positive mining returns, you'll go for it. If they can't create value afterwards, then it will all come back, just like all those other games you've played with these tokens over the past decade. It's a mine, right? It has to accelerate beyond mining before we can see if there is real value there.

Tom Lee: Well, what I mean is, I think stablecoins will be a huge market. Because right now we only have $300 billion. You know, I can see an easy path to $4 trillion. This is what Treasury Secretary Yellen is talking about. This might not even take into account that micropayments will be the real big users of stablecoins because, you know, Tether has 12 decimal places. I mean, that's how you make micropayments. So, will all this happen on one chain? I don't think you can actually fit all the traffic into Ethereum. So, it makes sense to experiment with other chains, and I'm happy to see a lot of things succeed.

04 Perpetual Contract Battle: Hyperliquid's “Sword of Damocles”

Host: Arthur, you recently claimed to have sold Hyperliquid because it had a “sword of Damocles” hanging over it. What specifically do you mean by that?

Arthur Hayes: Yes, so there are obviously these token unlocks, right? It's no secret. I think starting in November, there will be about $500 million each year that the team is eligible to sell on the market. Now, this is either important or not important. When Hyperliquid was dominant, holding about 60-70% market share (about a month and a half ago), their large unlocks weren't important because everyone assumed they would earn more money from fees to buy back HYPE tokens, which is what they call a “bullish unlock,” just like Solana in 2020/2021. So that was the dominant narrative at the time. I don't care about the unlocks.

Then, about a month ago on a weekend, I checked DeFiLlama to see how the rankings were. I opened it up, and Hyperliquid was ranked first, at around 4 billion or something. Then Lighter followed closely at about 3.9 billion, and Aster at around 3.8 billion. This is not good, this is competition.

Now, this is not to say that Hyperliquid cannot beat all of them, because its technology is great, and it has HIP-3 and Builder Code, among other things. But I will not sit idly by while the market re-prices expectations right under my nose. I will just sell and sit on the sidelines waiting. It will either go up or down. Hyperliquid will either prove it has a moat that can charge real fees to all these competitors or it cannot. And I will reassess what the landscape of perpetual contracts looks like, or what new products or services perpetual contract exchanges will launch that customers are willing to pay for and that will not be immediately commoditized.

Host: What are your thoughts on the perpetual contract DEX )Perp Dex( war?

Arthur Hayes: I don't think it will have zero fees forever. Look at Aster, it has fees, and due to its large trading volume, it earns more than Hyperliquid. But it is clearly at a negative profit, because everyone knows they are selling tokens in the form of points. So, whether you have fees or not, all leading perpetual contract exchanges are experiencing negative profits.

Tom Lee: Yes, they are super smooth. And you know, going back to something like 2010, if you were an investor, you were thinking: should I buy Microsoft, Google, Amazon, or Facebook? The answer is you actually bought all of these companies, and the market just continued to explode in growth.

Arthur Hayes: But they do not offer exactly the same products. Perpetual swaps are the same across every platform.

Tom Lee: It is a commoditized product. You could also say that cloud computing has become somewhat commoditized as well. However, you know, the market is not completely efficient, but perhaps over time it will move in that direction. This sounds like capitalism at work, right? Because you have a truly explosive product, people take notes and launch their own versions. But as Arthur said, it's important for leaders to maintain their leadership position, and if they can't, then the market will really become commoditized. I do believe this is a market that will grow in scale.

05 The Next Windfall in the Crypto World

Host: Arthur, if you were to start a cryptocurrency exchange again today, what direction would you choose?

Arthur Hayes: Fixed income, not perpetual contracts. We will trade CryptoKitties. But we will make it interesting. When you have a thousand times leverage, a lot of things become interesting.

Tom Lee: But I might add one thing, Arthur mentioned the keyword. “Betting”—I think this is exactly where cryptocurrencies excel. The real core is that people can hedge, arbitrage, and bet on different ideas. So what I mean is, this is the real big market, right? It’s the betting markets. The breakout point has always been Polymarket and Kalshi. There will be micro-bets, which can be on interest rates, fixed income, real estate speculation, whatever it may be.

Host: Tom, how do you use Polymarket at Fundstrat?

Tom Lee: We use it frequently! For example, to predict whether the U.S. government will shut down. There are also bets on Lisa Cook and whether Federal Reserve Chairman Powell will continue in office in December. All of these are real-time insights. Polymarket is crucial in how the market understood the last election, as it accurately predicted every state in the Electoral College, something no one else could do. If you consider how Wall Street will use these prediction markets in the future, the betting scale in this election could be 20 times larger. Goldman Sachs now cites Polymarket data on many matters, whether it's the actions of the Federal Reserve or government shutdowns. At Fundstrat, we have been using it for a long time; it is really very helpful and represents the wisdom of the crowd.

06 The Controversy and Future of Privacy Coins

Host: Monero recently suffered a 51% attack. Is this related to the recent popularity of Zcash?

Arthur Hayes: I don't know.

Host: Tom, what do you think about privacy narratives?

Tom Lee: Well, yes. First of all, privacy is important. I actually think that even government agencies would use Zcash and Monero when they want to make payments. So it does have a real use case. I might say that privacy is something that some people care about. A lot of people seem not to care. So, I don’t know if everyone needs privacy. I mean, if you look at a lot of surveys, young people are willing to share more information with tech companies because they trust tech companies more than they trust the government. Well, so I don’t think it’s just about privacy on your wallet. Of course, in a world of AI and robots, you would also want other forms of protection. I mean, even proof of humanity is important, right? Just proving you are human is very important, especially now that we've been scammed by robot calls.

Host: Arthur, you seemed to have a critical attitude towards Zcash in the past?

Arthur Hayes: I am not a critic. I just don't think it really works. I think I attended a dinner a long time ago, maybe six or seven years ago, when there was a lady from the FBI, and we asked her: “What do you think is the best privacy coin?” She said Monero. That was all I needed to hear.