LIVE | HumidiFi, Prediction Markets and Tokenization | 0xResearch

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to you Friday morning, December 5th. Picacio, myself. We're joined by James Kristoff, Noah Thea, Noah Goldberg, Noah. >> Is that public? >> I won't I won't say some other other words. >> Don't worry. >> I think he's I think he's pretty well doxed on all accounts uh that you can find easily online. is also >> James Noah Bach. How are we doing today, gentlemen? [clears throat] >> Um, I'm doing great. Thank you for asking. I just had some late lunch and I'm very excited to talk to uh two people who are very cynical but also very smart to hear about what they hate and what they don't hate.

>> What we love. >> Yeah. >> Yeah. Noah begged to be on today. So glad we could have him. He he really wants to yap it up. Uh, which is good. I think, you know, we need that on this show. >> Uh, we definitely do. James, Noah, how are you guys feeling? Are you happy? >> Mixed feelings. I bet James is happier than me. [laughter] >> I'm always happy. >> I'm very good. >> Yeah, I can't complain. >> Very, very good. Um, I want to get us started off with something super light.

Danny, you can correct me if I'm wrong as always. Um general market sentiment seems to be horrendous um continuously. Um still I feel like people don't people think that we're going to be in a prolonged bare market. I um I haven't talked to well I've actually talked to James intermittently about this but I try to avoid it because he generally says it's all over. So >> [snorts] >> um I guess like curious to hear you guys' take on four year cycle. Um are we just doing like dead cap bounces down, dead cap bounces down? Um obviously it's very difficult to predict global um macro as well as Bitcoin moves, but curious what you guys think. If you want

to share, if you don't want to share, you can also say I don't know. I can't share. Yeah, I'm happy to give a crack at it. Um, I mean my my answer won't be satisfying, but I think it's like a reasonable view, which is um like in the summer things got pretty hot. Um, and I think like in general since the election, crypto has done like better than it otherwise probably would have. Um, and then also like we had the the DATs that pushed up ETH and Soul. And I think like we could forget about how much Micro Strategy has been pushing up Bitcoin for the past two years, but

that's also been in the background. And so when things started to unwind around like 1010 like the the flash crash, I think you saw like these premiums to MNAV get crushed and then like an ephemeral uh like source of demand for these underlying assets get crushed and given that like a lot of the revenue in the crypto space is predicated on like the pricing of like the largest three assets that has like negative feedback loops. Um, and so like getting here, I I don't think any of this was like unforeseeable or like not the base case.

I think it's just the reaction to price being pushed up too much. And so like getting the question, where do we go from here? I don't know. But I I think like I have a good way to think about it, which is you have some like view on the probability of a bare market and you have some view on the probability of a bull market and you just have to continuously be pricing both of those probabilities when you're looking at different assets in the crypto space. So I think that's harder to do with like Bitcoin, ETH, Soul, etc. But like something like a or like a D5 protocol that like you're building out a cash flow model for I think like in the bare market scenario the next like one to two years of revenue are probably going to

be lower than in the bull market scenario. And the bull market scenario is mostly a function of like what is the annual growth rate going to be for the next like several years. And so like the valuations in both scenarios are very different from each other. But like the expected value today is somewhere in between those two scenarios. And as it gets closer to like the bare market scenario, you can feel pretty good stepping into certain names knowing that like yes, we could stay in that market environment, but that's what you're like it's already being priced for. I don't think we're in a market environment that like things are priced for a prolonged bare market. But they definitely are much closer to pricing that than they were three months ago. Like I I think like for a lot of DeFi blue chips the the

correct price to me is still like probably a bit lower than here. And putting aside like market goes back into bull market like just on an expected value basis. Um but we're much closer to fair pricing than I think we've been for all of this year maybe other than like in April and then even like for the past couple years it feels like things make a lot more sense than they used to. So kind of a long spiel but that's that's kind of where I'm at on markets. No like strong view. Just think the framework that I'm using is reasonable enough. >> That makes sense. James, any hot takes or do you generally >> No, not really. I mean, I generally agree. I mean, look, as you guys know, I I candidly just don't own that much crypto anymore. Um I just I don't think

it's like a super interesting spot in any direction, right? Like I've never I've never taken like short trades in crypto because I think that's generally pretty silly. Um but there's not a whole lot of stuff that like really excites me right now. Like I don't you don't look at Bitcoin at 90,000 and say look I need to rotate out of all my equities and buy it. Um I think it's kind of just like wait and see mode for something a little bit more interesting to buy. Um but I I don't I don't think it's all over. Um but I also just don't think the idea of like Bitcoin doubling next year is very realistic. Um like it's totally totally possible to me that maybe we just keep chopping forever until the remaining market participants are just dead and then maybe we can do

something different. >> Yeah, this that makes sense. This kind of ties into a very intellectual debate that has that was that happened over the past few days um which is this idea of like valuing um let's say Bitcoin or Ethereum um versus like I don't know salon etc. Um, how do you would you how do you value Bitcoin and ETH? Because to me, functionally, they're are very similar assets. Both of them make money revenue off of the network.

>> I was actually thinking about this this morning in the shower where I do my my best thinking. Are you continue? Sorry, I thought you were done already. >> No, I'm done. Please speak of your shower. >> Um, like so me and Danny were talking about this. We were just each other back and forth. Yes, in the shower um a few weeks ago >> together. >> Um yes, together. How my general view is like all this stuff by and large trades much more like commodity super cycles, boom and busts than it does any sort of like beta hold asset. Um, and I think like that's kind of why everyone is always so pissed off in the space is even when when asset prices are at all-time highs, like the actual like

basis of people is is not not good because this is not an asset class that you can kind of just like average into in DCA like someone would um into SPY or something and like at the end of the day have a decent cost basis um and be happy about like where markets are. they're always going to be pissed off because retail participants are always buying at the absolute tops and selling the bottoms in the asset class. So like when you think about valuation like I don't know I think it's probably impossible for someone to say Bitcoin is actually you know you can value it on anything but if you think about it in terms of like commodity super cycles and like you kind of crudely compare it to something like oil or something like that. Um I think to me at least that makes a little

bit more sense and I think it does explain people's behaviors and general views and how upset they are compared to what price actually is. like you people really shouldn't be that pissed off with Bitcoin at this level, but then you realize the vast majority of people bought it way higher than than they should have. >> One question I have here is like when you say oil, oil is a very useful asset. >> Um >> so like can you compare or like commodities super cycle whatever copper and stuff included in that and that is like going up a lot because usage and RAM and CPUs.

>> It's not not necessarily evaluation. I'm just more comping it to the fact that like >> there's no such thing there's no such thing as a long-term commodity investor, right? You can't just besides gold, right? Like to put X that like there's no one who just buys natural gas or buys oil forever and holds it for 20 years. It's just like that's just not how that asset class works. >> Okay, that makes sense. Um, so you're not a big we should value these like cities guy. I think it depends. Like if you're if you're talking about something like if you're if you're talking about like a credit product on chain that's like lending out money and buying back a token with revenues then yeah totally that makes sense. But like I just don't I don't find the conversations like how do you value

um Bitcoin that interesting to be honest because I don't really know what it gets you like there's no there's no action even if you do. Yeah. It just doesn't do anything for you. I I one followup and I think no this is also related to something that I I wanted to ask you is do you think that if there are more traditionally valuable businesses that's probably not the right way to put that in but let's say uh I don't know a humid I don't want to say humidifier let's say like a syrup um or like a maple which has a credit business which is something that exists in real life um is that do you think that pulls investors further into it because it's like well okay like this is how you should value this thing

therefore it should be valued at XY Z or is that not the right way of thinking about it and then also general thoughts on this would be appreciated I mean I think anything that has cash flows is easier to model than things that don't have cash flow or like is the the band of whatever you consider fair value is more narrow um and I would say like I I agree with James um like this isn't a particularly like trying to value BTC ETH soul like the amount of time and effort that goes into like debating these topics is kind of a waste just because there is no like true valuation. So like we can like say what's the probability that it's priced

like this type of asset or this type of asset but it's all kind of just finger in the air. So I don't know I'll I'll just add that in. The other thing I'll say is like my kind of view on the way ETH and EDC and some of these other assets are priced is mostly a function of like how much capital is there that is looking for a home within crypto. Um and like that explains most of it like when you think about how people like allocate their capital on a directional basis within crypto like BTC E soul that's that's beta asset. I want alpha asset. I think like a lot of people think like that. And so if you have a bunch of alpha assets that are really attractive, all of a sudden that starts to eat away at the the beta asset is

like a kind of like within your portfolio composition. And so like my view for quite a while, and it's not to say it's played out, but like I still have confidence in it, is that like if you had hundred billion dollars worth of like cash flowing assets on chain today that were priced appropriately, ETH would get hammered just because like there's a lot of capital that wants allocations to things that make sense. ETH like it does not make sense but only because there's no fair price or like maybe there is but it's it's hard to to come across so you can just allocate to it blindly and say like this is my beta asset. So I I just think like and the same thing with L2s which might be and not to get into like a big rant but I

think like people ask the question like how do you value an L2 and like that's a question that you can ask when like some of these L2s are trading at 10 billion but all of a sudden when they trade like at 500 million you're like oh well sequencer fees like it's a high multiple but like now we're starting to talk about things in terms of multiples. So I think like the argument for like how do you price ETH? like things that actually have like cash flows that they could potentially produce. Um it's it's hard when they're so far away from those like cash flow levels to like try to price it and then as they get close to those levels you start to be able to justify it. And I think like that's like quite negative for these assets just because like as they go down in price all of a

sudden like you become more conditioned to agree like oh maybe the fair value should be lower if they're priced on cash flows. So that's like a bunch of different ideas with regards to the current like valuation debates happening. >> Yeah. And one little thing I'd add I think made a really good point. It's like for BTC ESOL, their valuation is like I'm I don't know how to quantify it, but it's it's almost entirely related to how you would think institutional allocators increase their beta crypto exposure from X to X times 1.1, right? And that that drives the exact valuation. There's there's no there's nothing else there in terms of like fees or revenue. I think >> I think that makes sense. Um well I

guess Daniel unless you want to jump into humidify I have one more thing I can bring up on this. >> Yeah. >> Um we were just thinking about this like internally because some of these like multiples for some of these sectors are so so [ __ ] in crypto. Um, do you guys see that they improve over time or do you think that some of these are just perpetually uninvestable? The one I'm thinking of like liquid staking stuff is I mean they don't have a great way of expanding their business and their core business is really [ __ ] It's like clipping a bip on mint and burn and stuff. So curious if you guys have any

thoughts on like how multiples might change going into the future. I'm just like at this point I'm more so asking, okay, I want to buy some stuff. How should I think about this? >> If you're asking me, do I think the price of Lido will continue to go down while the market cap goes up? The answer to that, as you can expect, is yes. >> Very good. >> Um, [laughter] >> yeah, a couple things. One, like multiples have been too high for too long. And part of that is like there was an assumption being made on growth that didn't materialize in the way that it was being underwritten. Like if I'm trying to like say everything's fundamentally oriented, um the other answer is just like people didn't care about fundamentals and so we're willing to price things like higher than they

should have been. But now that multiples are coming down, you start to like ask real questions. So like whereas you know a year ago someone might have been willing to buy a deck at like 20 time sales because like the average multiple for dexes is like 50 time sales. like when all the DEX multiples are coming down and I'm starting to look at like trap fight comps and say like okay this is what like real business multiples are then it's it's just a kind of painful reality check to like find out that the majority of like even early stage companies because like that's the argument that someone could say against this but like even early stage companies like a 20 time sales multiple is like not unheard of but like pretty hard to achieve um unless you're like really

early in the revenue story and people have a lot of confidence on on the growth. Um so that's like one piece and then the second on like quality of revenue and like growth prospects. to like what is the correct multiple I think like my view just broadly within this industry is that people haven't been focused on like commercialization um or a lot of people like within the token complex like lido is a great example because it seems like things are changing there like there's this like almost like communism socialism mindset whatever the like the right term is there where like people are like kumbaya I don't need to make money like our business will just work and like I think anybody coming and could say like that was a like a stupid

idea to have. Um, but you know, when you finally put pressure on people and like they start to have their token go down because they're not making money and so like there's no reason to invest in the token then they start like having to figure out like what do I do to make money? Um, and so like it's just to say I think like for the past few years there's been no real discipline um within like the the token market complex. Um, whereas now that like prices are coming down you're starting to see discipline. And so I just think like a lot of products that or like businesses that created single product lines that like really weren't commercially scalable are going to have to realize like I either have to like vertically expand massively or I have to like horizontally expand into a DeFi uh

like suite. So as far as like what are the multiples that you're willing to pay for this stuff, I think it's like heavily a function of what is the ambition of the team. Um because like to your point liquid staking is not a big revenue opportunity. even if you win the entire market, even if you win like every marginal like L1 that launches, it's just never going to be enough to justify like more than a couple billion in like the true upside case. Um, and like that's reasonable, but if you're investing at like 500 million, then you need the case for like more than that and that's going to require them to go into other business lines. So that's like my very long spiel on like what has to happen where valuation is. I think like valuation isn't cheap unless you believe these team or like the the teams

that you're investing in are like doing what's necessary to to grow revenue sufficiently. >> Yeah, it does kind of suck though because when I first got into crypto, you could have just looked at a valuation and been like, "Yeah, this seems cheap." Without like doing any multiples and you would have made money on it. Yeah, I think I think the big factor here that Noah calls out is like path dependency was probably pretty ruinous for a lot of teams because so many of them got lulled into this like false sense of security that like the 2021 times mean that you can just have you know a 200 or 300 or thousand multiple forever uh off of just like pure exuberance uh or belief or something like that. And uh as as those

compression prices come down, it's like kind of like a a sucker punch of oh actually like maybe we do need to uh think about how we make money. Uh and I think to Noah's point like we're seeing that pretty generally like across the board. I think you know even the the ETH folks were pretty down in the doldrums like at the beginning of this year prior to like Tom Lee sort of bringing back some exuberance but still the discussion there became very split between like okay does the chain need to make some money or can we you you kind of have the other side of the camp that's like no actually this should be worth 88 trillion because of like it's a a nation state or something like that.

>> Yeah. The nation state stuff I did like to be fair because I thought that one was like a little kooky enough that you could actually get behind it. I think a lot of this is just spill over from the fact that early Ethereum people are academics or um like false people such that monetization isn't a massive thing and then they're still kind of worrying about that. I also don't know if the implication behind no's communism comment was Ethereum. I'm presuming it is because um of past experience but um I guess Danny I don't have enough context on humidify to introduce the topic. Would you like to share?

>> Yeah. Yeah. Let's talk about humidify. It's been a big topic uh in our chat on CT and generally kind of within the space right now. But I guess maybe background on humidify and that maybe market on soul is that propm have become uh sort of the dominant means of trading activity um on Salana. Now they're they're basically the dominant sort of market makers for um most of the larger more liquid tokens on the chain. And I think an interesting stat is that like Soul USD for example they're processing more volume than Binance as of like this past month. Um, so it's pretty significant like what they're doing. But Humidify, the leading propm today, uh, did or is doing, um, they're still

working through this now, which is maybe part of this discussion. Uh, working through an ICO of the wet token. Um, and I guess there's lots of criticisms from the community generally around like what the token is, what it achieves in relation to the protocol, like what the purpose is. Um, but they they did a a pre-sale and then like a public sale. Um, I think there's a lot of things we can talk about, but maybe the the one thing that happened in the past day or two is that the uh public sale portion of the for the wet token got botted by four addresses. Um, which I think people are pointing as like a this should have been obvious type of outcome. um of there was like you know no restrictions on addresses or like who could

participate or KYC or these things with a $1,000 I think max kind of allocation in that round. Um and so naturally you know some you know not that sophisticated but anyone willing enough to kind of write up the script and the bot to to go ahead and do it just uh sniped the entire sale. Uh and now they're having to rethink that portion of it. But uh I think there's a lot of things we could talk about. We could talk about tokconomics. We could talk about like the utility of the token as stated in their like kind of initial docs is that um holding some amount of it or staking some amount of it gives you a a fee discount for trading with uh you know via humidify. Um Noah and James were were fairly heated

in the telegram so I'd love to just kind of jump into wherever you guys want to chat about it because I think there's lots of different angles we could take. >> Yeah. I guess I'll I'll start um and I'll I'll start with like kind of more of the objective take and then we can get into like my personal opinions. Um but I think like right now where token markets are at is that like they've been abused like public token holders for years, call it since like late 2021. I think people finally started to take note of this. Obviously the you know ICO uh bubble in 2017 was pretty painful for a lot of people. Um, but the point is like this game has been going on for

such a long amount of time that like people have at least realized like what parts of the game don't work or need to be changed. And one of them is like what is the value of a token? Like if the token is valueless, we'll price it one way and if the token isn't valueless, we'll price it a different way. Like we need to know what that is to know like what we're getting ourselves into. And so I think that's somewhat of a new dynamic that teams have had to take note of. I think like during the like previous administration there were a lot of things that you just couldn't say because you were fearful um of regulators or like malicious actions on the legal and regulatory side. It's not to say that's changed today. Like I don't think that like people should be going on podcasts and like advertising

on registered securities, but I do think that like the general idea around what you need to communicate to the market has changed and that like it's it's not a function of saying like ah this is like a token that's going to acrue value from the revenue from my protocol. Um but I do think you need to say when that's not the case. So like if you're going to launch a token that like is essentially like a memecoin. Not to say that's what like humidify is like you need to like be very transparent around it. Um and like I'll use Pump as an example. Not or too much shape there, but like there was this like kind of idea that there was going to be a 25% buyback of revenue. Um that was never publicized anywhere partially I think

because of like legal or regulatory constraints. Um, but like everybody knew that was the case and that's because people were trying or like that needed to be communicated to the market so that the market was willing to price pump at like the multiple billions of dollars that like the equity value would be worth. Um, and so like lo and behold down the line that figure changed to 100% of revenue. Um, and like great that's great for investors. They're maybe better off than they would have been with 25% buyback. But the point is it's like you had no idea what you were potentially stepping into. Um and so like I I just think in general we need to get better about disclosures so that investors can know what they're holding.

And so like I think with humidify the like going back to like more of the opinion side as opposed to the objective side like I don't want to call it distasteful per se but I think that like it's fair that people are assuming what's going on here which is that like this is a pseudo memecoin like humidify is doing really well. It's like a great product and team behind it super competent. Um but like they're not selling their equity. They don't want to like change their cap structure. This is my assumptions. Um, but like they want the mark like while the market recognized that like humidify has massive market share like they would love to get like a token exit for this business line because it's probably a much higher uh exit valuation than like

the actual value of the cash flows from humidify. Um, so that's like kind of why I have a negative feeling towards humidify is just because like I think a lot of people are asking like what's the value of the token and like they're purposely not answering the question and we can like argue why that might be. But I think like it's kind of this game of like purposely obuscating what the value of the token is so that people potentially assume that it's the like cash flow oriented token as opposed to like the memecoin token. And obviously that's different than like what's been written on the website as far as tokconomics, but that's just kind of like my view of the current situation.

>> I will say one thing is no, I agree with you completely, but like the pump situation for example, I think the market still just also doesn't like if there is any form of um I don't know if you guys remember this, but when they pump bought not 100% or like they usually do like 98% to 104%. um based on their like fees dashboard and one day they bought less than that and it just insta dumped 10%. Which like if you're not very clear with people about like what your um value acrruel mechanism is or like why your token is useful etc. then the market just generally doesn't also pump has been on like clearly there's some issue in the way that these things are

communicated um since it's it's not been performing very well. One thing is I don't really understand why humidify would launch a token. It doesn't >> Well, I I mean >> I can give you a few reasons. >> No, like yeah, you can make money off of it but I don't know. Isn't it like a very complex legal thing as well at that point? Like you're I don't know. It it doesn't >> I mean it's not more than like a million or two dollars of of legal fees to like get this all set up. and they're, if I had to guess, like not going to like say anything remotely close to like this is security or like this represents ownership. So like I I don't think there's too much risk that they're

taking. And like just for some like basic math and this is I I'm not like a quant so my numbers could be off for crypto but I have like some directional sense for what it is in like the public markets but like return on trading capital for a prop trading firm is anywhere from like 30 to 70% in like good years with like some risk to the downside. It's like highly levered activity but like that's like generally what you could expect like flow trader isn't virtue. those are public companies. Um, and like they have their results public. Um, and so I'm like on the block works dashboard just quickly pulled it up and like humidify has $10 million of trading capital like given it's growing but like on $10 million of trading capital let's say optimistically

they're able to continuously do and also I think they could be doing higher than 70% just given that this is a new trading strategy. Like the point is like if this is a profitable trading strategy, there are dozen other firms that are going to figure it out pretty quickly. This like propm space is already like somewhat competitive and so like the margins aren't going to stay above 70% if they are today. So like 70% on 10 million of capital is 70 million of revenue probably have a fair amount of infrastructure that like they're spending to to keep this revenue being produced. So like what's the multiple that your business is worth on like that revenue base on like some like niche strategy that can't grow too much just given that they're already such a large percentage of Salana like it's like maybe a five times revenue multiple like

in a very aggressive uh valuation. So it's all to say like this business line's worth less than $50 million and this token is going to trade probably above $50 million not financial advice. So like there's money to be made and it's 90% owned by the team and the 10% that's not owned by the team, a decent amount of that is going to be like sold out. So like it is essentially just like selling off a business line into like the the public markets but without any of like the securities aspects and so like they'll still make the revenue. So I don't that's like my cynical view of the the situation.

>> James, what do you think? Um, I don't really honestly have anything super strong opinion on it either way. Um, I'm probably going to buy it at TGE just because cynically I think enough other market participants will incorrectly assume that this is just buying equity in the highly profitable market maker, which it's obviously not. Um, right? like if if this type of thing I always like to index of like if a project like this were to launch in much more exuberant times like what the valuation would be right like this this probably could have been a billion dollar token at some point in the past um is it something I would hold long term definitely not um

for every reason Noah said it's just it's not tied to any revenue that they're making or anything like that I I I can't don't have super strong feelings on it. Yeah, I think I agree with I agree with both of you here. Like I think I've seen some comments that are basically like 2021 ah looking token um which I think to Noah's points about how like the token market has kind of evolved especially maybe this past year um maybe six to eight months even like just the market itself is is asking a lot more and you know you mentioned pump as the example and I think pump was basically their hand was forced to do 100% buybacks because the market was not

like not willing to accept the valuation at even the rumored 25% buyback. I think you know plenty of people still out there sitting thinking along the lines of oh they have two billion in cash or what have you and like the token has no claim to it XYZ. Um, and the lack of sort of like clear comms on that or like clear kind of forward strategy of how that benefits the token holders is kind of it sort of leaves it in this limbo where the market wants more and they're like not willing to give it. Um, and so they're, you know, they're sort of I think in within the market they're getting punished for that. Um, and so it's sort of this correcting thing. And I think that's essentially what we're seeing with humidify as well is I agree with James anytime you're the new token

um doesn't doesn't matter if it's like a great thing or a bad thing necessarily in terms of the structure of the design but you know we we're a lot of people are here to to gamble. So people will gamble on it for a few days. um maybe that's a source of revenue for you know the team potentially if they're not willing to be more clear about the intentions with it or if you know it gives you a claim to the revenues that the that the operation is actually providing then the market I think will inevitably hammer them for that unless they provide you know more context or are willing to get offer up more but in the long term if they don't you know it'll get hurt for it.

>> Yeah, I think that's that's kind of why I find this generally just not super interesting. It's it's just more of the same. Like if if we want to keep playing these like very small extractive games for like these sums of money with ambiguous tokens that don't really do anything, like that's fine and it can be fun for a few weeks. Um but it like just fundamentally doesn't drive the space forward at all. Um and it's it's just not a serious way of raising capital, right? That's my general view. >> But they did the ICO already, right? >> No, they're refunding everyone. >> They need to rework it. Yeah. So, I guess the big the big issue now is that they did the pre-sale and there was limited to like certain wallets because there it was based on JUP stake criteria and things of that nature.

>> Oh. >> Um and you got allocation based on Jup stake. But then the actual public sale phase, the public sale phase did not have this limitation. So you could have spun up a bot to, you know, snipe a thousand USDC across a 100 wallets and get filled. And that's exactly what happened. Um so they're rethinking what the public sale looks like. I will say one thing. These guys are also temporal. Temporal. Temporal. What's the correct pronunciation? My >> temporal. >> Okay. Temp. Okay. Temporal. Um, humidify is them. Um, we interviewed uh Ben from remind me the name.

>> Harmonic. >> Harmonic. And then we also have project zero which is Mc Brandon which is also temporal. So these guys are across um essentially everything relevant that is being built right now in Solana which is quite impressive. Um I will say like no matter what you think it is quite a few products that is coming out of this like one um it's got I guess I don't know what you would call it a research group. Uh Danny what would you call this system >> the new the new paradigm? Yeah, I mean you kind of have I guess it's sort of paradigm like in the sense that you have sort of like this variety of project protocol teams and um are sort of like

all affiliated under kind of like this research brand. That's probably the way I'd think of it. >> Yeah. Like if you if you told me you can buy equity in the umbrella that owns all this stuff. Yeah, I'd probably do it. That would be cool. >> There's never going to be offers. How [clears throat] about you can buy potentially associated memecoin or equity? No clear. This is another case where I was talking to Ryan Connor about this. He was like, "What are your thoughts on metadata?" And I was like, "Anything bad that happens in crypto is an advertisement for Metad." So, it is going to be continuously relevant over the next year.

>> This is true. I know. I know makes a tweet every single time there's a bad token launcher or something like that. >> Yeah. Free advertising. [laughter] Yes. Um and and I don't want to continuously shadow it out given that, you know, we're we're an investor. Um but yeah, I think highly of it. The thing that I will bring up in tandem with that is Douggee Duca from Figma Capital put out like a good article uh on Twitter the other day um where it basically like talked about hype and metadata, what they have in common, like why they worked and I think like he's he's right at like a high level. Um, but I think it like kind of touches on this like broader topic at hand, which is

like in an ambiguous market, um, like eventually you breed distrust and eventually like the easiest way to to kind of communicate why someone should trust you to the market is to take like the most extreme uh like version of trust that you can give. So like in the case of Hyperlid, they never raised from VCs and they put 100% of their revenue on their buyback. With Metadow, you have like a incredibly token holder friendly governance and legal structure. Um and like I I think that like these in in the current reality where there isn't like regulatory um clarity around like

tokenized equities assuming that like eventually happens in the future these are kind of the like stop gap measures required to convince the market that they should trust you just because I think like whereas like a few years ago people were willing to kind of trust people to eventually figure things out uh on the token that trust has been removed from the market. And so you're almost like if you're launching a token, there's like not necessarily a discount per se, but like there is some risk premium that like the market is very clearly pricing in on the fact that like unless you say something very explicitly and like we can hold you to it legally, like we need to be compensated for that.

Yeah, I I think this is I hate that I have to do this because I'm an investor in this token, but I think this is probably a bit of hyperlquids. Um like post well because I think everybody beforehand was given the chance to say, well, we're going to figure it out. And then the SEC was the boogeyman for so long. Um and then like once you have one project who is very explicit about how the entire system works um everybody else's has to kind of be forced to do it as well or else you just you get a perpetual discount. Um I don't know that's Danny that's my thought. Do you have anything else you

want to add? >> No I think that captures it. I think we're sort of seeing some of these forcing functions um now that now that you have enough people asking for more what whatever you want to call it token holder rights or more clarity or you know explain to us how the token has value uh it's become a much larger part of the conversation and especially now that the market is not going up in a straight line obviously people maybe ask fewer of those questions when you know things are up for a year and a half two years straight >> um but yeah it becomes much more important you know when you're considering whether something actually goes to literally zero.

>> Yeah, to be fair, I think we had this conversation beforehand as well where it was like what's the utility of the token, but it was like you could get away by saying oh you can stake it and then you can also vote on governance and then maybe there's a burn versus like now even now objectively like buying back the token is very good. Um but >> to be fair, some semblance of this will always exist in capital markets broadly like you see it in equities as well. When there are tough times, people go to defensives and um they they move out of the higher volatile stuff and then when kind of exuberance re-enters the market, they ask, you know, maybe retail asks

fewer questions and they ape pick your favorite ticker. Um but you know, those are, you know, you have sort of those volatility cycles and anytime when the when the kind of tide comes back in people start asking those those underlying questions again. So >> you know it might eb and flow but I think generally we are seeing the kind of direction has been trending more in this direction. >> Okay I can I wanted to add one more thing but I realized these guys are probably going to start getting intellectually bored if I keep speaking. So next question is prediction markets. >> Before we get to prediction markets I want to do a quick shout out to our sponsor for today's stream unis swap.

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Let's get back to it, gentlemen. Go ahead Bach. Predict prediction markets. Um, okay. So, I've read a lot about prediction markets over the past two weeks. This has been very interesting to me because I thought I'm missing something. There's something way deeper in this. And then I saw Tulip King, my goat, post that as a politician, you can give 20 people $5,000 if you have a five or like a 2% chance and then if that goes up, they end up making exuberant amounts of money. So technically, you can raise like you can put in 20 people's hands a lot of money potentially and make them really want to

get you as much political power as possible, which to me implies that Tulip King's idea is we're going to give 20 people uh money so that they are incentivized to kill political opponents. But I think what he meant was um so they'll go out and do work for you. I don't really see prediction markets as this way. I feel like they're kind of ragar for gambling um by using crypto money. But curious what you guys think, especially given that um is it today Khi raised >> two days ago? Yeah, three >> two days ago she raised 11 billion $1 billion at 11 billion. Um, I don't really know how a team spends $1 billion. Um, especially an onchain

um, prediction markets team, which I feel like your burn surely can't be like it covers you for the next 40 years, right? Like that's not a >> No. >> Yeah, I was I was pretty positive and nice this podcast. So, I'll I'll just I'll I'll use the last couple minutes or so to open up as my personal self. Um, like that the politician thing you were talking about. I mean, look, I I don't really know why it's we shouldn't even treat it seriously. Like, people people in crypto still talking about these types of ideas are just so freaking detached from reality that I I don't know how to respond to kind of a suggestion so asinine. Um, imagine just trying to explain that to a reasonable person. It's just so obviously [ __ ] idiotic. Um, I don't know if anyone else

disagrees with me on that one, Tulip King, I apologize, but I I don't think that's the future of elections. That's your hot take is that that's not the future of elections. Be a little bit I brought you on here so that you can be critical and all you've said so far is >> so okay I'll I'll be serious. So I actually probably like six months ago was a little nerd sniped on prediction markets. I thought they were actually pretty interesting. Um and where I particularly actually thought there'd be a use case was like within the trady particularly the macro space. um where you know you might have a fund or a manager that wants to express a very specific view um and some some they force themselves to be you know

expressed through oil or you know other types of macro instruments that are not that elegant and I thought that would be a real route. Um and then I talked to more people and they basically told me that they weren't interested in that whatsoever. Like this is just pure anecdotal but I just haven't seen any of that demand. Um, and like just more personally and socially, like gambling really rubs me the wrong way. I think it's kind of gross and icky and and not good for people. Um, so I I just don't love the kind of entire rewrite of prediction markets over the last like six months of how these used to be the ultimate orbiters of truth and then you can look at any dashboard and people are just betting on sports, which is fine.

Like if you want to waste your money gambling on sports, that's fine. Um, but I don't think these businesses are worth $10 billion. >> Is it the arbiter of truth? I thought like I mean I guess it technically is, but isn't the Did you guys see that thing about how um this uh insider Google employee ended up making like 400 grand just because he he bet on like the highest search? Well, yeah. I mean, it's the arbit of truth through insider trading, which I guess it is democratizing insider trading or like views into insider trading, which is pretty good to be fair. That's not a bad that's not a bad use.

>> I mean, look, we're we're just we're just expanding the gambling pool, right? And like if if that's something you're interested in and you think that has a huge TAM and you can expand multiples, that's fine. Um I just I don't see it I don't know. I I definitely don't know about 11 billion. I mean, they're So, the thing is Okay. No, maybe you speak first and I'll give my thoughts because I'm I don't really have anything meaningful to say right now. >> Yeah. I I I'm not going to talk about valuation. I feel like I don't know, feels like kind of objective whether that was rich or cheap uh on a forward basis. Um, but yeah, I mean I I I think the truth tends to be

with like within the the middle of two uh opposing views and the opposing views on prediction markets are like pretty far on the extremes. Um, and so like I think on one hand you have people that are like super negative on them because it's like essentially just facilitating gambling and like masquerading it as like some like change in financial markets. And on the other hand, like these markets allow people to communicate like views very directly that they previously didn't have the ability to speculate on. And I think both of those things are true simultaneously. Um, and that all being said, like I think people in crypto tend to have this issue, uh, and it's

definitely present here where like we talk about like what the future looks like assuming success occurs without acknowledging that like the go to market strategy in order to get success is like predicated on like ah I need to get these like gambling addicts to like start making my product money so then I can scale it to these like more like uh philosophically valuable things for society and you end up just kind of for the most part like just doing the former activity and never getting to that latter activity. And that's definitely like where I think we are right now where like 90 plus% of all prediction market activity like putting aside the fact that we're not in election is just sports gambling and like K she is on Instagram like advertising how you can

gamble on sports in all 50 states. So it's just like very clearly regulatory arbitrage simultaneously like you have a election like the stuff is going to be used for something that previously people didn't have exposure to. Um, so I don't know. I I have like a positive view on prediction markets long term, but like I think that gambling addiction in the US is like increasing rapidly. And I think that like we do not have advertising laws in the same way that like every other developed country that enabled gambling earlier on has and that's like quite a negative until that changes. So, a lot to to say there, but it's all to say like I I definitely think like the current product offering

is like heavily a function of enabling um gambling for the from those that didn't already have access to it as opposed to anything else. >> And I guess one other thing I would add is like I I I mean, tell me if you guys disagree, like one of the things that I feel like has been propagated a lot about prediction markets is is news in general. how how it can improve the news and improve the dissemination of information. Um, and like not to make too much of a social or like political comment, but like what I think society could use a lot is like true independent journalism in the news space, which like is completely detached from any level of financialization, right? Like people like award-winning journalists that

break like real stories are not doing it for like financial outcomes. So I think like when people talk about like the news like if you think of like the CNN Kalshi integration like what is it going to be? Is it going to be like a like a a KHI bet so you can watch like [ __ ] Steve Cornaki every election like predict how many electoral votes are going to be like it's it's not it's not beneficial in any sense that it's going to increase the amount of information that's spread. It just allows you to play like relatively zero sum games where you're changing the market instead of sports to politics. >> Yeah, I agree with that. One thing I will say is we had this I don't think you guys had this conversation but I was seeing it a lot was about like memecoins

when they first launched and about how it was we know what memecoins are but it was pitched as something very different back then which was um this false idea that it's sticking it to the VCs and actually you can get your news faster because on Pump Fund they create this token almost immediately after finding out. Um, and like lo and behold, we find out eight months later that it was actually just like a bunch of 16-year-olds who were um either on one side botting people and making millions of dollars or on the other side with 80 bucks in their phantom trying to make money and then making Tik Tok.

>> Well, I mean, I personally invested in SPX6900 as part of um the community. So, I I don't know I don't know if you guys did as well, but that's why that's why I did it. No, but like every six months we get the same thing rewrapped up. I mean, I guess Kalian prediction and poly market is a bit more legitimate than meme coins are, but like who is to say cuz >> I mean dude, it's it's literally for it again. >> It's the fell for it again meme. And like eventually market participants need to get smarter. like they need to increase their IQ and stop stepping on the rake and hitting themselves in the face over and over and over again.

>> I'm not sure that's an outcome though. Like if I'm going to play the other side, why does that happen? Because like even just buying lottery tickets, that's like a year-over-year to the right sports betting like >> like >> you can be like I think you can be upset like morally or ethically or something, but >> I'm not surprised to see that like they found a way to >> maybe it's a better product than sports books today. And so you're probably going to see them in the news continually in years to come. Uh because I don't think people are going to stop gambling. They love to gamble.

>> Agreed. But to say nothing about the morals of it, I think it's probably bad long term for someone like Robin Hood's business to allow their users to simultaneously like sell equities within their brokerage account and bet on like the the intergame under for like a AAA [ __ ] like a basketball team. >> I think that's a more interesting point. like are they gonna lose customer like some clip on customer balance over time because instead of buying spy they're you know they're aping into the Rams game on every Friday or something or Sunday. I mean >> yeah like just on on this point like why has Robin Hood been successful amongst many other reasons it's because the gambling is on a positive expected value

asset that is public equities like equities drag up and to the right at the risk-free rate plus like four to six% depending on what your risk premium is over most time horizons and so like regardless of whether people are like net losers from their individual trades like the direction of their accounts assuming they're like staying long is hopping into the right. And so if you like combine that and like the ability to lose money very quickly, like I know they have options, but like just on spot equities, it's very difficult. Whereas if you give someone a button um that like can double their net worth or make it zero, like most people won't click it, but some will. And half the time those people are never your customers again. So like any activity that's zero, you just have massive attrition of users as they go out of business. And that

gets me to my point like on lottery tickets and and other like speculative activities. Um I think what you probably noticed looking into the data is that like they're heavily skewed. Like it's it's like a power law dynamic where like the people that are buying lottery tickets every day are the people that count for the majority of the revenue. And like you start going into the demographic of those people. And like what you kind of come across is the fact that like there are people that are addicted to gambling that like make a certain amount of money and are able to save a certain percent of that. that isn't going to their life costs and they're just hemorrhaging all that into gambling. And so like it's not like the activity on gambling is not positive sum, it's zero sum, but because they're willing to continuously lose money in

the hopes of eventually making it big from like their salary, these activities can continue to grow. But like net net it's it's a pretty negative societal outcome to have like these like quoteunquote like wage cucks that are like putting a portion of their wages into these like gambling activities in order to like hopefully make it up to like the the upper class level. >> Yeah. And to say to say sorry go ahead Denny. Yeah, I was just going to say to that point, you could make the argument like if you're a business like Robin Hood or or any other, you know, maybe if you're some other broker that's going to then add in prediction markets, for example, or gambling, um you could potentially then make the argument that like you're getting net new customers who, you know, maybe you're not really

going to lose value from people who are just clipping into SPY from their from their uh their salary, and you're going to onboard net new users who maybe don't care about stocks, but will clip their salary into the prediction market every week and and bump your your revenues. >> I think with that though, like people and VCs in particular here, and this this this plays into like the valuation thing of it, like I think that they're probably far overestimating the TAM and the expansion of user bases that they can get. Like I I don't know what the number is and I don't really care that much >> for prediction markets >> for for prediction markets gambling and everything like if you say today the value is x of you know activity quantify that as a variable do I think it's going

to be a thousandx in two years no I I I absolutely don't I mean I if if someone has data to prove that wrong and thinks we're going to become as society a thousand times more likely to bet on prediction markets then that then maybe that justifies valuing couch at 11 billion but like I I think It's probably like a maybe if you say it's like a 5x and maybe that's like a super ambitious thing over a couple of years. I just don't think that this is this is something that like average retail people are really going to be diving into. Again, maybe I'm wrong. >> I [clears throat] I don't know if the front end is suitable for it to be honest with you for average retail people to be able to dive into it. Like I don't like this idea of uh making the general consumer

seem so stupid that they only need like that you can't give them more than three to four buttons or else they get confused. Um apart from sports I think I just bugged out. >> Yeah, you did. >> Are you back? I think >> you're a robot again, Bach. We're losing. >> But while Bach fixes himself, people also enjoy betting on sports because it's fun, right? Because they can go watch sports and do it socially.

>> And that's, you know, it shouldn't be surprising to people that these prediction market sites like the vast majority of their volume is on sports. It's not fun to vote on like the the attorney general race of the state of Georgia. You know what I mean? That's not a that's not a conducive thing to do socially. Yeah, I think that's fair. Maybe some like I guess some of the data points that I'm that I'm looking at is like if I look at um Flutter Entertainment is owner of FanDuel and many other betting sites and then like DraftKings for example are public companies like their aggregate market cap is like 50 billion as the major sort of like sports betting uh loca locations today. Um, so I don't know for KHI and Poly Market to like be looking at 10 plus billion dollar raises and 80 90% of the volume and the

revenues are on sports activity today. It's it just Yeah. I mean to Noah's point earlier, it's like maybe doesn't take that much of a look to question whether these raises are a bit rich and you have to be asking like where is really a lot of this growth going to come for in the next next five 10 years. Do you have to like really believe that uh like you're saying James that people are going to just start betting on political races like every day? >> Yes. And um just on that topic just to steal man what the argument is to like do the kind of 9 to 11 billion range raise for like poly market and koshi

like yes you you have like the kind of sports gambling market today and those are your comps and then you have like to James point um like how large is the aggregate like gambling market growing it's probably linear and like you know maybe low teens percent probably lower but optimistically somewhere around there. And so like you need to believe that Khi and Poly Market have enough of a differentiation to like materially penetrate the existing gambling market.

And then you need to believe that they're also able to go into like the traditional financial markets in some sense and like become a proper exchange for other activities. And like if you get both those things, I think like you can see like a 50 billion dollar outcome optimistically. I think like in a true like tail case, you could maybe be talking about like a Robin Hood or Coinbase type outcome. So like closer to like the 75 billion to hundred billion dollar value, but those are kind of like what your upsides are. And so like if you're looking at like a 5x um to like a 10x and like the upside case, like like that I think you need to have like pretty high confidence in that to like

invest at the current valuation. um just because otherwise I don't think the hurdle rate really makes sense and like I I can kind of see why you'd want the exposure as a VC fund that doesn't have like existing prediction market exposure, but like you're you're definitely kind of signing up for below market returns under like most probability scenarios. So, I don't know. I don't think like a traditional growth fund could look at this and like make the math work all that easily here. I think that it's kind of like, do I want exposure to this thing? Is this the price that I have access to?

Yes or no? Like fine, I'll do it. So, I don't know. I think there's like a valuation case where it makes sense, but like all in expected valuewise doesn't make sense to me too much. >> Fair. Fair. I think great points all around. James, any last any last comments or thoughts on prediction markets? Otherwise, I think we can wrap it up now that Vak has returned for the close out. >> That was fun. I appreciate you guys having me on as always. >> I appreciate you coming. >> Yeah, thanks for having me on. >> Awesome. Noah, James, always a pleasure.

You know, next time you really are eager to chat about something, just ping us and put urgent in the Telegram, the Zerx Research Telegram chat. And uh, you know, assuming there's not another guest lined up, we'll likely oblige. And James is gone. Sounds good. Looking forward to the next time we chat. >> All right. >> Bye, guys. Awesome. Good chat. >> Did you say bye to the listeners, Danny, or no? >> Listeners, we do love you. You should also check out Zerx Research Telegram chat. Um, it's a lot of fun in there. Sometimes I don't know.

>> Sometimes sometimes >> Ian River found out some new uh technologies to put a lot of salt dog stickers into into the chat. But uh yeah, it's usually a good time. We we talk about all things crypto in there. definitely hop in. Cool. Peace out everyone. Have a great weekend. We will see you next time.