ARKInvest Digital Assets: The Next Bull Market Could Be The Biggest Ever (What We Expect)

Transcript

So, I actually got into crypto kind of in high school. >> My name is Lorenzo. I'm the director of research of digital assets at Arc Invest. >> Eventually just got kind of hooked. Started my school's blockchain club and then [music] basically kind of knew like this was industry I wanted to work in going forward. It >> has been really um the biggest piece of [music] legislation in crypto. >> Stablecoin is just a much more pure way of sending value. My [music] priority is to set the agenda on the best possible investments and products and fund to push forward. >> Just like the streets of Manhattan, I'm going to keep this quick. Over 70% of our viewers are not subscribers. Yes, you. Every week, we interview [music] some of the best entrepreneurs and investors in the financial industry. The

easiest way to support our channel is to hit the like and [music] smash the subscribe button. Now, sit back, relax, and enjoy today's show. Lorenzo Ray, welcome back to the rollup. Good to have you guys. You guys look very comfy and cozy in the office. Good to have you guys. >> Thanks for having us, Andy. Pleasure to be here. >> Happy to be back. >> Yeah, man. Um, lot going on, it seems, in the digital assets market. I mean, for for one of the first times in a while, we've got the AI and tech stocks pulling back a little bit on this day today, which is Tuesday, August 18th, and the old crypto is is is having a bit of a rally. So, in the midst of a slight regime change amidst this kind of uh 10-monthl long bare market, lot lot of interesting developments and kind of

maturity of the space happening. And um I mean I was on a stream today earlier and I was just speaking about the way to build a winning portfolio thinking ahead into 2026 and 2027 and I keep stumbling on this kind of store of value barbell. You've got Bitcoin, you've got Ethereum, you've got some of these L1s. I throw in Zcash in there. I'm sure Lorenzo will have a take about that. And then I go into the revenue producing onchain businesses. Hyperlid, lighter, you know, pump, um, Etherfi, you can kind of name name, right? And so I kind of have started to formulate a barbell around how the space has matured around kind of oifying store value assets and really

really focusing on businesses that have strong token economics um have buybacks and treat token holders as first as a first class citizen. And so kind of with that context in mind today's um episode is the state of digital assets. I'm curious h what you guys think about building a winning portfolio looking ahead into the 2027 um and and 2028 kind of lens. How you guys think about what this kind of winning crypto portfolio uh may look like and and just generally how your thoughts about the asset class has evolved over over the last you know sixish months in this bare market. Kind of a very open-ended to start and uh

guys glad that you're here and um welcome back. So I'll say a few things Andy like first of all like we invest uh in tokens but also private and public right so I think we can talk like of kind of all of these um I think if we step back we've ju we're just seeing huge consolidation in the industry like I think the the this year has been kind of a pivotal year we're seeing like record number of companies and protocols shutting down which I'm sure you know you've kind of followed right Um and so you know if you look at where uh what are the like the pockets of growth basically like within crypto right and I

think that goes kind of to your your barbell strategy. uh right now if you're you know either building like you have to be building around stable coin and kind of orchestration there you're either building around kind of rwas and tokenization right or we're seeing like a bit of activity on on the on the memecoin side kind of take up again with pump and like some of these other uh launchpad but I would say I think like the the barbell strategy has been mostly a function of the I've never seen a market so consensus, right? Like we're I mean you you you talked to a lot of investors, you know, I had a lot of I have a lot of chats with different kind

of asset managers and and and and hedge funds and VCs. There's just a lot of consensus around like which tokens are the best, right? Which is scary at the same time because it usually mean that there is then like a net a phase of dispersion, right? And in what actually outperforms. So I think you know if I had to kind of sum it up for um for us it's clear like that within crypto there are like pockets of growth and we have like you have clear winners there or you know protocols that we're able to integrate with uh companies that have a lot of distribution like the Robin Hood chain which I'm sure you know we can touch on as well and so like which are the protocols that we're able to get get

on there or kind of these long-term L1 thesis with like you ETH, Bitcoin, you know, we can talk about Zcash or even Soul that obviously uh are down like 50, 60, 70% for some of them that I think still have like very strong fundamentals. Uh but other than that I think we're just seeing you know a lot of protocols shut down a lot of protocols not being able to to raise and I think even investors frankly uh Andy that uh uh are kind of shifting focus also like like they they they raise like these huge funds some of them are investing more into AI and and other uh areas and so I

think uh we're kind of seeing that right like there's consolidations there are like buckets of areas like within D5 that that are kind of primed for for growth and there's also I think like too much capital that was chasing these opportunities which now is kind of being diverted to into uh into other areas and that's kind of how you get you end up with this kind of uh uh barbell uh strategy that that that uh you're talking about. >> Yeah. I mean Ray, anything to add as well? >> Yeah. Yeah. You know, I would just say like to add on top of that like Lorenzo mentioned like we are seeing like the sectors and like the clear winners kind of evolving like from those. But one of the things like even like within these sectors and like you have these protocols that are generating you know

revenue and actually like acrewing a lot of value in users. Something that like investors and like most of the market has to become privy to this cycle is definitely the fact that you know sometimes the token or like the equity structure doesn't make the most sense in terms of like actually being value creative to the end user. So actually aligning that is something that a lot of these protocols have had to come to terms with and we've seen a lot of great protocols out there that have a solid business have been around for the last couple years and maybe this was just a product of you know the postgenda era or something where they were forced to have a token and maybe they didn't need one but you see an actual protocol in terms of strong fundamentals uh where the token is not doing well or they have a

dual token equity structure that investors now are not actually you know going to tolerate at this point and you know you see that with like kind of like the high flow low FTV that a lot of the tokens are suffering uffering from like the dual equity structure and I think that's something additionally that a lot of people have come into consideration or like that has become a factor when people are deciding what's investable and what isn't. I mean generally like I agree with both perspectives with regards to a the consolidative processes that have happened bare market but this one felt specifically different in that the type of investor coming in are folks like you arc and the team right it's these types of capital intensive investors with serious frameworks looking to allocate to an industry that is currently in kind of a depressed

phase but looking for kind of the next material improvement to kind of what what um Ry mentioned here which is token equity structures which is like the actual uh business and and equity dynamics here at play and creating this um these overly consensus bets that as you say feel a little bit too consensus and so there's the token side and then as you said um there is the equity side on actual equities so you got Robin Hood you've got Coinbase you've got BitGo you've got keyword size has has just had their recent spa launch. And so one of the arguments that a friend of the show

Santiago says, Santiago Santos, is he says that he claims that he thinks crypto equities may outperform tokens in the coming era uh in the coming cycle uh due to the improvements in the business structures of a given um existing company. Take Robin Hood for example, integrating blockchain for tokenized assets, opening up a new revenue stream with Robin Hood chain, albeit quite small. And so just curious, you know, for your perspective on that. >> Um, Lorenzo specifically, we were in that Empire chat and you and Santi were kind of going back and forth about the PTE of different equities versus stocks specifically on Hyperlid. uh on the

token side, curious kind of on the performance of tokens and their valuations versus equities and theirs and just kind of generally how you may think about uh positioning or how this may unfold. >> Yeah, I can I can take it and yeah, I think had you know some good back and forth with with Santi. Look, I think you know I posted about this if you see the revenue pools within crypto, right? like how so how much revenue acres where like the off-chain centralized companies you know and I did a bit of work on this it's basically 8 to 10x more than onchain companies so think of onchain companies like both apps and protocol L1's L2s whatever you want to to call

them right uh in 2025 is about like 8 billion from for onchain and offchain it's a bit of an approximation because you have like public companies where we know the earnings but you also have the private companies where you we don't have like public data like the tether you know the Binance and stuff like that but you you roughly get the 8 to 10x right so I think just on the numbers like you know it it is true right I think there's many reasons to this um number one we've talked about this just the token the the problem that onchain companies and protocols have is is the dual equity token structure that you know it seems like a lot of investors just don't want to deal with And I think

it makes a lot of the teams just slower, right? You have to deal with the DAO. Who are the service providers that you want to uh kind of hire? You have to make onchain votes. And that process, you know, the last few years has just been a show honestly. And so if you compare that to Coinbase or like a centralized company, it's like the CEO is the CEO. They move much faster. They make decisions much faster. And I think over like 10 years that just has compounded a lot to be honest. So that's kind of the uh the first um difference. The other difference is um the centralized companies and kind of offchain like they sit much closer to the user, right? And so they earn much more of the uh they have they earn much

more, right? Like you know if you see what happened with Robin Hood chain which I think was really interesting is like um you remember Andy like two or three years ago when you launched an L1 the L1 was actually paying the apps to come on their chain basically build and here like it was the first time where that was the opposite because clearly like we know that that distribution is super valuable in crypto and so there like basically the lighter the apps that are on Robin Hood chain they're basically paying Robin Hood like via to like tokens and subsidize on their app and it's basic it has basically flipped right. Yeah. like we've completely flipped like the meta the points meta uh script like a few years ago and it's

just the reality right like distribution matters like a much more uh and so I think um you you know you have both that like you know you have this problem on the token to token equity structure uh but also like that you know you have these companies that have compounded over years like we you know we look at a lot of companies at late stage which is very interesting right now and it's just like you're building in crypto four or five years ago, you were basically competing with like Soul, Coinbase that was very young. Like now these companies, they're huge. [snorts] They have a lot of money. They can go out and compete. They can fork your protocol.

They can pay out like, you know, they can they can bring users on. You know, if you want to go out there in your stable coin, you have to compete with Circle and Tether. Like these are behemoth, right? Like this was not the case like four or five years ago. So just like overall you have an in you have an industry right now where the winners are winning and they're much bigger and they're like settle settling in and you know if you're a contender of like a smaller protocol you need to have like a very clear edge basically otherwise you basically have to kind of pay for distribution uh or um you know or build like in a vertical that is like very uncon you know like not consensus and hope like

the kind the the the vertical growth. So that's you know that's kind of my take on on that. >> Yeah. >> Yeah. >> I mean I I would just add like two small things but you know agree with everything he just said. I think also though people are willing to pay a premium for security but also certainty and those are two things you get with the C the centralized counterparts that you're not going to get as much with more of the onchain like permissionless uh like protocols out there. And then additionally, um, Lorenzo me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me me mentioned this but just being able to like fork the protocol and everything being open

source at that layer when all of your competitors can go and see like all of your advantages like how your matching engine works like how your protocol works what makes you so efficient and they can go and relaunch the same thing and kind of do a vampire attack like we saw with Sushi Swap and Uniswap that you know brings down the overall cost that everybody's able to charge and it makes the space that much more competitive which in the you know centralized world isn't really as much of an issue. You have kind of proprietary ownership of your software. It's not open source and that's not really the standard. >> Yeah. I mean, I think that you know, we've gone through these different iterations of the value of decentralization, right? Like you you you you had this very very strong value of decentralization to start the

industry. Um it really carried through. You had the Gendler era that lasted, you know, far too long and that really forced like this kind of fugazi decentralization as it pertains to the value of tokens, right? It led to the creation of governance tokens. Um, it led to uh also the creation of these, you know, mega companies that, you know, that we've se Coinbase, etc. Um but also they had their you know fair share of battles and you know it seems like we're kind of going through the process of flipping those a lot of like the habits and the you know I guess the industry norms that were built in that era kind of on their head uh in this era where it's it's seemingly more um open to

systems that aren't as decentralized as they may were have or as they may have been in the past or have been spoken spoken about being in the past. And so I also expect that to kind of change like I expect the uh you know in two years when we have a new administration I'd probably expect to see uh the reignited focus of decentralization but in that goes through it's it's kind of like a through line through all of what we're talking about through buybacks through um the kind of store of value assets through whether public companies are going to be able to consolidate a lot of kind of these onchain companies and they're just so big that it's hard to compete with because of all these different modes. And so, you know, it it

is interesting how at top down the regulatory structure has impacted the I guess like the path dependency of the industry. Um, you know, and today we get the SEC coming out with pro- crypto rulings. Obviously, the Clarity Act is seemingly not going to pass anytime soon. I I think if you look at the prediction markets, you know, you're at like 10% or >> below. And so it it's just interesting to me how a lot of these conversations about value crew, about revenue, about what is in what is investable, why certain um moes have been formed have been almost like a a result of this kind of up and down seesaw of what is what you're allowed to build in this

industry. And so it's just a weird dynamic. >> Yeah. I mean, this also like peak bare market conversations. like when you get into a couple months into a bare market, everybody loves to be super skeptical and, you know, nitpicky for every little thing and I think that's where a lot of these discussions end up coming from. >> Yeah. So, buybacks, um, this has been a thing and >> whether you like them or not, whether you agree with them or not, just some quick context, the top performing tokens outside of Zcash and Monero the last 12 months are tokens that have buybacks. Um there have been a kind of exodus of tokens that have not a lot of product

market fit and in a a business in favor of tokens within the stable coin per kind of onchain trading or trading verticals that have buybacks that have revenue and that kind of have shifted this token equity conversation to very clearly being the token is where the value is acred. Now on to buyback or not. Uh a friend of the show Luca Prosper basically gave us a very simple framework. If the return on your equity is higher than you know the return on the capital of buying back then investing in the company in the early stages is the right idea. The return on equity is lower than the uh you know prospective return on capital then you

buy back. in kind of compressed markets where you can only get a little bit of a return on equity, but you can potentially get a higher return on your capital via a buyback, which one could argue is is now um then buybacks are more permissible in more, let's say, exuberant markets. You know, you're not trying to be a company buying back your own stock at the top, right? Or close to the top or in the later stages of your expansion cycle. And so, you know, you go through this conversation with these people about tokens and buybacks, and then we have Paul, uh, the CEO of Morpho on the show, and he says, "Look, I'm not doing buybacks. I'm not shooting for five or 10%. I'm going for 10 to 100x to

a,000x because this industry is so small, and you'd be shooting yourself in the foot for a five or 10% um, you know, gain on on your asset or uh, shrinking of the supply in exchange for that upside of investing in growth." And so I guess I would just like to hear your opinions on the performance aspect of the tokens with buybacks, why you may feel that the pendulum may swing back into growth mode versus investors solely looking at buybacks if that's the case or just generally like why you think this kind of current era of the space is perhaps a little bit misled.

>> Right. So I'm I'm going to start because I probably like the have like >> I think buybacks are stupid and like I I don't know how we got how we got here honestly. So one thing uh Andy so you you said like basically the tokens that are doing like buyback and burn or buybacks are performing uh better right? I think that's just like circular kind of logic. It's like basically what you're saying is like to do a buyback you actually have to have revenue. So basically what you're saying is like protocols that do have revenue are doing better than protocols that are not doing basically like the the only what I guess what I'm saying is like the only protocols that are doing buybacks are the ones that are actually doing like

pretty well because they have revenue. So obviously they're going to you know they're going to outperform people that are not doing buybacks because most likely they don't have any revenue right. So like first like it's kind of a you know I don't know the sample size and everything. I've seen like some data uh on Twitter that actually shows that there's no no much not a lot of difference. The second thing is I think it's crazy that we have these protocols that are like two three four years old that literally raised like two years ago that now are like redistributing revenue to like investors. I think it it's just crazy and >> uh you see that only in crypto honestly and I think one reason is like

>> we we talked about the token equity dynamic and so basically uh the founders are kind of constrained of doing the buyback and burn because they want a virtue signal to the market that you know the token is kind of the the the value acrew mechanism but the the like the reality Andy is like uh pump hype they could stop the buyback tomorrow and they could be acquired by Tether or Coinbase and they could go work or they could go work at Facebook like tomorrow literally right like that that's just the the truth of the the matter so I think it's just like a replace like it's trying to replace more certainty on the equity and token dynamic by basically doing some virtual signaling uh the

other thing is the the I think we forget that the industry is super cyclical like Go back Andy like two or three years ago. You think like GMX, you think like Dydx, you think that OpenC and many of those guys wish like they hadn't done like that many points meta and like given like half of their supply to like random internet users for like years or like they burned like through half of their revenue in a year and a half because they were doing like buyback and burn and now suddenly like they're not competitive anymore because the market has shifted. They're not able to raise.

you're not able to to compete because you can't acquire users and now you're you're basically gone, right? And so it's like I think um for me as an investor is like if you're buy back and burning right now, it's like you're basically telling me you have nowhere else to allocate the capital and you're out of ideas. Like you don't know where to grow, right? Which is super bearish. And like think about like you know tomorrow I actually post like an interesting thesis that I that I have about the hype but imagine and you know I think there's a case to be made even for Salana and Ethereum right it's like if you think about it if if you become like large enough like the multiund billion kind of network you obviously have this kind of store of value dynamic

and so like your tokconomics need to be somewhat def disinflationary or like slightly and so but you know you could argue you like hey like the ETH foundation is basically super small right now. They own like very few tokens because you know most of the value has been returned obviously to to ETH holders. Um, and so you could even I think make the ar argument for some big L1s, right? It's like, you know, I talked about this with a lot of folks is like should a portion of the fees on ETH be kind of returned to the Ethereum Foundation and ETH Labs to be able to basically invest in growth and in research and stuff like that. So that that's just to give you an example, but like on the on the startup side, like if

you're, you know, if you're doing like sub, you know, if you're doing like a couple hundred million even of revenue, like it it seems a lot in crypto, but the market changes really fast and like in a year it could be like in a very different situation and not having flexibility in that, you know, huge kind of uh cash war chest, I think is just like very uh very stupid. So yeah. >> Yeah. Well, I think a lot of the previous uh bull thesis was metap's law network effects. This L1 is going to be a is going to acrue these these users over time and the users will scale the number of transaction fees will scale and we'll have this dynamic of these

very very very profitable fat protocols and like that shifted and is now shifting to the app layer. If you look at the app layer of Robin Hood chain, it makes a lot more money than the actual chain itself, right? And so I think the broader shift of the question here is is partially buybacks and token econ, you know, token economics, but it's also like the shift in the way that investors are thinking about how these networks make money. like from what we hear on the show from every L1, you know, investor and founder is, oh, we're going to get to a massive breakout point of transactions with a very, very small protocol fee and we're going to operate with economies of scale at In fact, I think Totally tweeted that

like yesterday. He was like, "Wait till we get to 6 billion transactions a day with 0.003 transaction fees and let's talk about, you know, economics." And so like you know then you've got Hyperlquid just printing 500k to a million dollars a day and it's like well totally sounds like he's 10 years down the line and you know this thing's doing it now today so why is Salana trading at XYZ higher than this protocol that's doing it today and so then you start to get into that conversation that you're saying Lorenzo but I think it's a conversation more that I think that we can agree upon whether the buybacks matter or not I think that pendulum will shift back towards somewhere in the middle perhaps it's like you have to buy back right now

or else you're not investable and you know perhaps that's not the right way to do it but I think the broader shift we we we can agree on is like this like infra thesis going towards value acrewing to the app layer. Yeah. >> Yeah. And yeah, one thing is I I I do think like uh um you know, we have we've had like protocols and teams that basically have tried the same like we lack imagination like honestly like I I you know I think like we we like in the last two or three years we launched like a hundred L1s and L2s and they basically all did the same exactly same go to market exactly same tokconomics exact Exactly. Everything was exactly

the same, right? >> And I I really wish that some of these with, you know, the revenue and or value acrruel mechanism that they have just went out there and uh did you know things just radically different like trying to acquire distribution or like central like more experimentation, right? I think the problem that we're seeing is uh we've kind of run the same playbook for like two or three years and we've actually only run one experiment a thousand times and >> Yeah. and it hasn't done like super well. So, um yeah, that's that's kind of the the the other thing, Ray. I don't know where you are.

>> No, I mean I I would just say that like a lot of the like I kind of resonate with a lot of the protocols out there that are doing BIX because I feel like a lot of them would actually somewhat agree with what Lorenzo is saying and when you look at like how do you actually tie like the value of the token to uh you know the growth of the protocol like how do you do it in a way that makes sense in terms of like utility and like the functionality of the protocol and everything. I think for a lot of these it doesn't make a ton of sense and buybacks are just a good way of doing that. This goes back to that like Gendler era like avoiding you know like looking decentralized and avoiding like regulatory scrutiny. Um where a lot of these protocols did launch a token

and then you have this investor base and then you're kind of you know somewhat of a startup that has a bunch of public shareholders when you probably shouldn't uh that that early stage in your cycle. And now you have all these people who are kind of expecting you to increase the value of this token and there's no real way to link it to the growth of the protocol besides buying it back. So I think like my controversial opinion would be there are a lot of protocols out there doing buyback. So it would probably somewhat agree with what Lorenzo just said and it's probably just due to factors of how the industry evolved that were somewhat out of their control.

>> I mean Rob's not here but he would say that those protocols rate launched a token far too early. And I think that's also aligned with what Lorenzo is saying here is because all of a sudden you've launched this token for the wealth effect of, you know, your four-year vesting, but now you've got this community who's like, well, yeah, you know, I'm not buying this thing because you guys aren't buying this thing. You know, you guys are selling this thing. >> Yeah. But I think a lot of people also launched a token because they thought they could then, you know, use it to market themselves as decentralized or, you know, a utility token or something to avoid that scrutiny, which then kind of like backfired to, you know, looking at where we are today and everything that we're discussing here. the Andy the other thing that you you were mentioning

like the the fat protocol thesis and kind of the the L1 value cruel you know it's interesting because like I was looking this morning and I think like Salana is hitting all-time highs in number of transactions right on chain but their revenue is not at alltime low but it's like at multi-year low and the thing is like with a lot of these ones right it comes to like block space contention right it's me right like a lot a lot of the the fee there I think It's kind of the thing that we need to to I would say like form an opinion or like you know at least discover. It's like are these L1's going to make money on base fees or like on priority and me?

If it's priority and me, you can have like a lot of transaction, but if they're not competing for block space and they're not bidding for block space, like >> the your revenue is not going to be substantial, right? which is kind of what we're seeing with Salana right now where you don't have a lot of contention and so like there's not a there's not a lot of bidding for block space if it's the base fee which is kind of uh uh which is set right and it's it's not dynamic then you need a number of transaction that is just like order of magnitudes that we're what we're doing right like you need >> correct >> an L1 with like 10 or 100 million TPS basically right so that's kind of the first question the other option is just like DL1

doesn't make money and I think it's a it's also a question it's kind of the trillion dollar question in crypto. It's like hey >> does Salaner ETH like do they need to make money because like I can see a future actually very possible where you have like $3 trillion worth of assets on Salana and ETH but ETH and Soul are not making a lot of money out of that. they're they're basically, you know, they're not acrewing a lot of money and revenue and so like is that valuable? I think that's the question that all of us are kind of uh dealing with right now.

So that's kind of the other thing that we were thinking about. The other thing is just like hype, right? Like what is Hyperlid doing is basically why are they making so much money is like they're basically monetizing the app layer. like they're taking a fee of, you know, the exchange kind of order book and they've built this Hip 3 Markets, which is basically the front end. Uh, and so, you know, they're they're not monetizing really like the blockchain fee, right? They're really monetizing the application layer of what's built on top of the blockchain. >> And so, uh, that's also kind of another, uh, dynamic. But this is, I think, a lot of the questions that are in in investors mind right now. If you look at like what Hyperliquid's doing like Salon

has even had these conversations like these L1s are looking further up the stack to see like where they can monetize and that's where these conversations of Hyperlid internalizing the stable coin revenue for USDC came with like the AQA agreement with Coinbase and Circle right and Salana I know that they've talked about like internalizing their stable coin supply as well in terms of like actually internalizing the yield and I think that's because you know a lot of them have come to this realization that Lorenzo was just mentioning where it's that, you know, the fees are compressing at the L1 layer and going forward it's like is that where any real monetization is actually going to happen. So looking I think we'll see more and more chains continue to look further up the stack and see what's available from like a

monetization perspective. Yeah, I mean we I mean look back two years ago, we were you know running the numbers on what a data availability layer needed to do in terms of transaction size in ter how many rollups do we need to get on Celestia to have Celestia make right and it's just like to to go to have gone from that to where we are now is just like a a stark a stark change and so you know just kind of looking forward um one thing that I thought was interesting a bit more on this kind of like protocols that are making money and and you know not to get too deep into the whole pump and meme thing but it's kind of funny that uh during this bear

pump's revenue was relatively steady given the decline in onchain speculation and what happened simultaneously from an economic perspective and from a token perspective in I think it was April or June I think it was June is pump decided to burn 36% of their supply and then they turned on a 50% guaranteed programmatic buyback of all the revenue in a smart contract starting that day. And you look at the inflection point of that and it, you know, from that point you had a couple weeks to months more of kind of a bit of a sideways down move and and then it popped like three 3x or so from the lows. And so there was this

concept that a deli researcher put out about um the the essentially the durability of revenue and why is hyperlquid valued at you know let's call it just flat at as it is 59 billion you know people have different kind of mental math on their FTV when you know pumpf fun did more 30-day revenue in this period than hyperlquid or why is sky valued at where it is around I think it's around 1 and a half to two billion FTV when it did more 24-hour revenue than Hyperlid yesterday.

Like this was fact checked yesterday. Robbie and I went through it. And so you're starting to put your like put through in your mind. Is it the market valuing stable coins? Is it the diversification of um revenue from Hyperlquid from RWA per? Is it the TAM of the market? Do investors just think that meme trading is simply not going to be as big or as durable as per? [snorts] And so you start to get into this investor uh position where you can find yourself where the market is doubting the durability of a revenue of a given company and then effectively position into these you know protocols and tokens or equities prior to the market realizing that maybe that revenue is more durable than what the rest of the

market is currently you know ascribing it to be. And so, you know, I present you guys as uh the same question. I'm very curious what you think. Why does the market value Hyperlid at, you know, X, Sky, who has, you know, done reasonably similar, albeit less, but not 20 times less revenue at Y, and then Pump somewhere in the middle with similar to Hyperlquid over the last, let's say, quarter. Why is there this mismatch in valuations from the investors in digital assets for assets based on their on their on their uh on their basically financials? Um just curious kind of what you guys think there >> in terms of durability like I would say

like the first thing that comes to mind is like we've spoken with the pump team and like how they kind of described is you can think of like their user base is like these are crypto users like in one ven diagram and these are pump users and they barely overlap. So what he kind of like was getting at is that their revenue is not really cyclical with crypto because their user base is not really crypto users. It's just people who are on there like DGEN trading meme coins. And so we I thought that was very interesting because that gives them much more durable revenue than you're going to see in a lot of other protocols out there. And then additionally in terms of like the divergence these valuations that we're seeing, I know you mentioned um like hype and sky. So like when I hear that like for me it's kind of like

what are like the growth multiples that are being attributed to Sky versus Hype and then like what are the respective like sectors that they're in. Sky is kind of more in like the yieldbearing like stable coin area versus like Hyperlquid is in perpetuals. And if you think about like which one is you know a leader in its category Hyperl is obviously the leader in per right now. I would say sky you have to put it behind like the Coinbase and the Tether that are absolutely you know dominating that market. So if you think of one like the growth trajectory of stablecoin versus per you could probably make an argument per has a little higher tam there especially if you know you're talking about hyperlquid being the home of all onchain finance eventually I know that's kind of the narrative that's been going

around. So one in terms of like the growth of the market size and then the positioning in the market. I would say for me it kind of makes sense why the market's given hyperlid this higher multiple than something like a sky even though the revenue might be similar or you know I think sky might even be higher at times you know today. So I would say those are the two things that I would touch on. >> Okay. I think uh Andy like it depends name by name right like if you start to generalize like so I I'll give you my take on the on those three names right and it's it's not a house view like it's my personal view um I think with Sky main question same as Athena and we know guy he you know he we we love him he's he's uh he's a great founder but it's

like can ultimately like we we know the TAM right of stable coins we have like a good a good picture of what the market's going to be like in the next few But basically, can you compete with cither right like I think the question for Sky has been between like seven and 12 billion I think of supply for the last four or five years and so they're just like they're just scared right it's like hey can you go above that like can you hit scale and go to like the 20 30 40 billion I think we don't have the answer to that or at least for now it's it's it's a no so I think that's kind of the main thing with sky um the other thing they have obviously like the subdow structure which I think like is just very hard for like the the

institutional the allocator to understand like where does the value crew you kind of we kind of get into the same conversation with the hater like hey the is the subdial like how much of the re and it's like it's just very difficult I think yeah >> so that's kind of for sky >> they do a lot of revenue but that's gross I think like most of that is passed on to the user like as yield right like as USDE >> right >> um and so uh I actually don't know net revenue, how much the Sky protocol does. But that's kind of on Sky. I think on Pump and Hyperlquid, it's actually a super interesting question. Uh I think there's one thing like uh if you if you try to size the memecoin market, it's actually like like that's the problem, right? It's like for

Pump, you actually as an investor, you need to underride how big the memecoin market is going to be, right? Like what are memecoins? Are these like is it like lottery lottery tickets like can you size that with lottery tickets? Is it like more like you know uh like creator creator coins and stuff like that? And so I think for for pump is how big do you think the market can be and what the market is. Um obviously you have to be able like you have to think like memecoins are durable, right? Like pump has been out for a couple years but like how big that market is and like can Pump like crossell other stuff, right? I think like when we talked to the pump founder one thing that was super interesting he said you know like people are buying lottery tickets they're

basically investing $10 to $100 in pump like it's very small so like my question is like hey can you cross-ell them like more stuff can you can you make them like trade pers can you make them like trade spot right like can you increase the the arpoo basically like the average revenue per user right and so I think like pump there has actually like a lot of Boom. For Hyperlquid, look like you have the narrative in the market obviously of PERS. They're like very popular. We think they're going to take on like, you know, some of the option volume, some of the traditional futures volume. Hyperlid is just a narrative that's been like much more kind of worldwide spread. And so I think for the investor, uh the the story

around hyperlquid is just much cleaner, right? Uh it's much cleaner. you can very easily underwrite how big these markets are and you know how how uh hyperlquid can grow uh and so that I think is kind of the uh the the difference and also you know you mentioned sky has been unlocked for a year like in terms of token dynamics some of these protocols you're unlocking a lot of tokens >> others obviously are fully unlocked and it's much more kind of a a stable like token holder so I think that dynamic also kind of plays out >> since I know we're I mean far over time this conversation could go on for another hour. Um, last thing though, um, because I was having a having a coffee with with Ray and I brought up Zcash and he said that Lorenzo is going to have

some spicy takes. Look man, >> I'm Zcash pill. I think it is the second to Bitcoin in store of value. I think Ethereum and Soul and these others have ways to go and I know it sounds ridiculous, but I think it might be one of the best performers and I think it privacy makes sense. I think it is just like the meme is so left curve and right curve private Bitcoin buying Bitcoin in 2016, but it's actually private. This is the real use case. Right curve, thermodynamic postquantum hard Swiss bank account in your pocket. Like it's like it's it's pretty damn good both sides. Um the team shipping, they just got through Ironwood. They just got

through that whole counterfeit uh kind of FUD. And I mean the OGs love it, man. I can't lie. I the OGs that I speak to of Bitcoin, you know, we're talking 500 plus coins, a thousand plus Bitcoin, they're allocating into Zcash. They they I you know, they say that or they kind of h have a rhetoric of it being similar to uh feeling like Bitcoin in the early days. And so that's kind of like the investment side. But just to kind of round out, we talked a lot about the revenue producing business side of what what I think it makes a good portfolio.

And I think a lot of investors should think about whether the L1 or the L2 or the infra that they're holding is going to treat them as as well as Hyperlquid will or will grow or make as much money as some of these other onchain apps and businesses will and that's their own choice. And then I think this kind of store of value is is the other barbell that that we started with just at the top. I know we just have a couple minutes but Bitcoin, Zcash, ETH, who else belongs in there? Why does Zcash not why does Bitcoin why does Ethereum, you know, just give us a sense of that side of the barbell for how you guys are thinking about it.

>> Yeah, look, I'll tell you personally because I think Ray is much more positive on Zcash. Look, I I think for me like if you if you compare to I think there is no second Bitcoin that that's kind of my problem in ter I guess in terms of store value, right? It's like if you see the properties like what makes Bitcoin like really uh a unique asset, it's the liquidity. It's kind of the the the you know the the e acceptance like in exchange brokers. It's the decentralization like number of nodes miners. It's the hash rate like the security and Zcash just doesn't compete at any of those metrics just just fundamentally. So that's kind of number one. Number two is and we've been talking about this like the last couple

of weeks. I I am just fundamentally perish self self-custody and I think privacy comes with that right. >> Yes. >> I think we haven't talked about this Andy but like you've seen the cold card uh news. >> I think like crypto has just like a huge problem like on the hardware wallet self-custody side. >> We look and between like we've looked at a lot of deals like private and like other companies. It's very hard for us to underwrite that the net new marginal user of crypto is going to use like self-custody and like the reality if you see the numbers like >> Robin Hood the Coinbase like those

companies are really going to get the the the new marginal user >> and so if you if you have that framing and you know that I think like privacy if you're holding the Zcash token like on an exchange like you're not really able to use like the shielded pools That is my understanding. I could be wrong. >> That's correct. >> It you you just have like a you know like a long-term trend where the the new user is not going to be on boarded through the cold card, the ledger, the treasures. They're not going to custody Zcash like on their uh cold wallet. And so most likely they're not going to be super interested or they're not going to be able to use like shield pools, right?

So it's mostly like price exposure, right? Um, and there I think it's just very hard to compete kind of with uh uh with uh with Bitcoin. Like looking at the the stats, we're looking at this today. There's about like 25% of the the uh C like the coins that are in shielded poles. So like Zcash is 8 billion. So it's basically like two to three billions that are in shielded poles. >> Y look like in the grand theme grand scheme of things like it's it's nothing really. like it's it's really really tiny, right? Which is really for me kind of the metric that we have you have to use. So look, I know they have great researchers. I think the research on

privacy that they're doing is is phenomenal. Honestly, I think it it could be much more useful to actually uh make Zcash like quantum proof from a store value perspective more so than anything else to be honest like from an investor perspective. But I think it's for me like at least like the last six months like my thesis on self-custody and a kind of self self-s sovereign individual and own your own bank and you're going to have your ledger and stuff is just increasingly difficult with the all the hacks and like data leaks that we're having with the providers like I think that workflow needs to be rethought from the ground up and we need to rethink that as an industry and and I I'm just having kind

of trouble there if if that makes sense. Yeah, it's good to see the traditional finance guys giving up on the core ethos from day one. Great [laughter] great >> I I have a slightly more uh optimistic take and I know we're a bit over time so I'll try to keep it quick but I mean I would say like I think like self-custody and like user sovereignty is still one of like the core things that makes crypto so special. Like obviously there's like the 247 markets and the uh global accessibility which I think like are unlocking a lot of value but I say that's like one major thing and I think privacy kind of goes handinhand with that because if that's one of the main unlocks then for a user to kind of opt into that you're kind of forgoing privacy because of how public all these

networks are in the first place. And so I would say just as somebody who does value optionality in terms of like if I want to store money in a self- sovereign way digitally and I want to keep that private what are my options available and I would say looking across you know the market right now Zcash is still the most robust one. I would say going forward like let's say Ethereum is to actually get to a point where they have implemented privacy on the L1. I would say that's probably where I would choose at that point in time like in Ethereum or Salana. But if you look at it, the most robust privacy solution on Ethereum today is like rail gun and they have 70 million shielded versus >> Well, yeah, they've got >> Zcash is >> Yeah.

>> Oh, I was going to say Zcash is, you know, like what, one like two billion, 1.5 billion around there. So, >> yeah, >> you know, just looking across there, you got the anonymity set in terms of how many other people you're sharing the pool with and how anonymous your funds actually are much larger on Zcash. And then like Lorenzo mentioned the team kind of the postquantum roadmap that they've had the migration that they've done the cryptography um better track record uh I guess more uh credibility in the team. So I think that is kind of like why I would be a little more optimistic or bullish on Zcash than Lorenzo is going forward.

>> Yeah, I think um you know it's interesting how the privacy flywheel works, right? Like the more people that shield, the more capital that's shielded, it works in your favor. But to your point though, you know, Zama's got a solution where you can just store your USDC privately in your wallet. So, is it like is it the speculative nature of something going up that's exciting or is it the storing your money privately that's exciting? But I guess if you're still holding centralized issued USDC in a private pool, the idea is that the issuer can still freeze it or take it from you. That's kind of the issue. I I would highly doubt you have full anonymity and confidentiality from circle even with USDC in like a you know Zama pool or something and also I would want to see like what is the size of the

shielded pool for Zama it's probably in the hundreds of millions I would guess which unless that gets you know a couple billion or something like Zcash size and I would still go with Zcash in this situation >> and I think also like programmability kind of kills like a lot of the use cases for privacy when you're jumping between like different apps and each one's one's private one's Not. So, that's a whole different conversation that we can get. >> You're intense, baby. Friend of the show. You're doing great work there. So, >> well, gentlemen, uh, it's always a pleasure. Thank you for your time. Um, I know we're way over, but it's been a great conversation. And I mean, maybe there was one question scripted, but I feel like it was about as good as it gets. So, I really appreciate it.

>> It's been awesome. Andy, thanks for having us. No, >> I appreciate it.