All right, guys. We're back with Haseeb in the tokenization tower. Just a normal day. NASDAQ down 4%. S&P down two. Bitcoin is under 60K, sitting at 59.2. So chill. Everyone's favorite tokens, Hyperliquid and Zcash are crushed and the relative strength trade got hit by a truck.
Yeah. I mean, look, markets are hurting. But look, if you've been in crypto for a while, you've had your share of days like this. So I'm chilling. I think the Zcash one is the most idiosyncratic. Of course, it's about this bug, which I'm sure you guys have probably talked about given that you had Mr. Mert on. But I was just chatting with some people online and realizing like, man, people do not understand what happened. And so I wrote a post this morning trying to at least explain a little bit because people think there's some kind of like oh we're never going to know the supply of Zcash ever again and maybe there'll be extra Zcash floating around. And that's just not what happened. That's not what the bug means. So I did a little bit of educating this morning which I think was helpful to people. But the reality is that macro right now is primarily driving this downturn. Because you know with the jobs report being as strong as it is, it's just like okay higher for longer.
Yeah. And it looks like now markets are projecting that there may even be rate hikes coming this year. And if there are rate hikes this year, every risk asset is going to get crushed. That's just how it works. So crypto is no exception to that. And Bitcoin is still a risk asset at the end of the day. So that's why we're seeing what we're seeing. But you know I think it doesn't really change any fundamentals for anything.
Yeah. You know that's an interesting point because it feels like the performance of equities and other kind of AI stocks have been dislocated from reality a little bit in terms of like the war or the rates or the liquidity environment. And you know Chris Burniske he tweeted this bitcoin is the most honest macro asset. I think it's trying to tell us something you know I don't know this a couple weeks ago like what do you think about the honesty of Bitcoin as a macro asset? How do you think about like stocks and equities just being kind of like pumped up by Trump or by whatever it is whereas Bitcoin being a more telltale signal of the reality of the situation? Do you agree? Do you disagree?
I totally disagree with this. I think this is horseshit. Like I mean it is not the case that the economy has deteriorated by 50% in the last 6 months. Like that's just not a correct reading of reality. Very clearly Bitcoin was drawing down well before the war in Iran began. So you can't really pin Bitcoin in the Strait of Hormuz. Most of the downturn happened well before that. So, and you know when the Iran conflict started, Bitcoin was actually doing okay for a little bit and actually it kind of started to recover during the Iran conflict. So that just cannot explain what's happening with Bitcoin. The extent to which Bitcoin is honest, it's like I mean, okay, yes, obviously Trump wants the stock market to go up, but we don't live in a centrally planned economy. Trump cannot make the market go up. If the market wants to go down, it's going to go down. Now if you're talking about, you know, Treasury going out and buying bonds or, you know, quantitative easing or the Fed going in and doing something, that's a different story. None of those things have happened. There is no Trump price stabilizer except for his change in underlying policy. So that's why I don't really think this is true. It's pretty obvious what's happening, which is that retail is not here.
Yeah. Retail left and it's just us in the room and like it's you know we're kind of stabbing each other as we go and being like oh my coin better than your coin. And that's you know that's like the relative strength trade like I mean that's what's been happening. It's been the revenue trade like oh my protocol makes money. We have buybacks so we're going to you know survive the bear or I'm a privacy protocol so like I'm important or you know something to do with AI and there's important things happening there. I know you're a big Lighter bull. And Lighter was just, you know, doing quite well for the last couple weeks and its buybacks significantly outpace Hyperliquid's. Your partner Tom Schmidt dunked on me today on Twitter with a screenshot of the Hyperliquid all-time high revenue day or sorry, all time in the last quarter. It was about four and a half million. And then he put up a chart of buybacks and how Lighter is just significantly higher in terms of its buybacks per, you know, based on the total market cap. Where do you think that this revenue trade goes? Do we think that Hyperliquid and Lighter and Variational have the ability to kind of leverage their non-crypto trading volumes to diverge from the broader crypto markets? Like revenue has become clearly like the category leader. Like how do we see if it's possible some of these assets be more resilient than the rest? Is it just solely an idea and a narrative? What is your take?
Yeah, I mean, so look, it's pretty clear Hyperliquid, Lighter, anything else that's kind of up on the high tier list of crypto perp DEXs, especially if they have RWAs. A lot of the smaller perp DEXs don't have any RWA exposure, in which case they're getting decimated alongside the rest of the market. The market is being buoyed in part by Hyperliquid and these other assets because they have diversification of revenue, right? They're not purely exposed to the underlying crypto market. If we're going through a deep crypto winter and there's less retail activity, that means there's less trading fees. Look at Coinbase, look at Robinhood, these stocks are telling the same story, which is that retail is not here. They're not paying the fees, which means we don't have the revenues, we don't have the profits. So, if you are diversifying your business away from that, Robinhood still has a foundation, which is that there's a lot of people trading stocks and the stock market is at all-time highs. There's all this brilliance, you know, we got SpaceX about to go out presumably OpenAI and Anthropic later this year and that means that there's still a lot of energy in that market and what crypto can offer to allow people to access the universe of financial assets, not just crypto is still really compelling. It's still a really strong narrative and a strong growth story. If you're purely exposed to I want to buy and sell Bitcoin and ETH and sell SOL and blah blah blah, that market is challenged right now. And it also means that your token is going to be very tied to crypto beta. Crypto beta is getting hammered. That means those tokens are getting hammered. What you're seeing is relative outperformance coming from having some kind of break from crypto beta, right? Where it's like, okay, even if Bitcoin goes down, I'm not that exposed to the Bitcoin price. I'm not that exposed to how many people are trading crypto. That's what Hyperliquid is saying. Look, it got hit today but on a week-over-week basis it's something like flat I think on a weekly basis which tells you like yeah Hyperliquid is doing okay even in a world where Bitcoin is going through a really dark period. Hyperliquid's going to be okay, Lighter is going to be okay, they're going to have some impact on revenue but it's not catastrophic whereas you know you take something like Uniswap or a... they're completely exposed to the crypto market. That's why I think you're seeing the divergence we're seeing.
So one of the interesting things in this category has been this regulatory question and Kyle Samani's came back from the ashes or whatever you want to call it and he's been dunking on Hyperliquid saying that it's stuck between a rock and a hard place on the regulatory side given that it has no KYC and there is now this onshoring of perps with CME having this green light to trade perp Bitcoin in the US and soon other assets. Hyperliquid is kind of in this tough spot where they're not going to really be able to navigate the regulatory waters. Some people are like, 'No, it's a completely the wrong take. This is a very bullish all-purpose platform in general that the fact that the US is being open to this.' Then you've got Lighter. It's kind of like darling, Delaware, C-Corp, US-based. Vlad is on this SEC or the CFTC kind of council or something. There's a specific group of crypto innovators there. Do you think Lighter is just like strongly positioned regulatory wise compared to Hyperliquid? I know you guys have an investment there. And then on that, like, do you think this regulatory action is net negative for Hyperliquid? Maybe you could put those two together.
Yeah. So, firstly, we're invested in both. We're actually invested in a number of perp DEXs beyond even those two. We invested probably like five.
The old Dragonfly spray and pray, baby.
Well, I would say we're invested in the good ones. We're invested in the good ones. There's a lot of bad ones out there, but I would say, look, this is obviously an enormous category, right? We're invested in multiple, you know, centralized exchanges as well. And I think it's very clear it's not a winner or take all market. So I don't think you could look at this and say, 'Oh, well, clearly this means that A is going to win and B is not going to win.' I think probably there's going to be some relatively open treatment. They're probably going to be treated mostly the same, right? Like, yeah, it may be that Lighter's in the US and Hyperliquid's in Singapore, but for the most part, I don't think that's the bounding box that the CFTC is going to draw if and when they do. Very likely it will be hey if you want to have a regulated perp product in the US you need to get a DCM registered with the CFTC, you need to KYC everyone, you need to have market surveillance and you allow us to be able to pull anyone's name if there's some funny activity going on. That's what the CFTC does, that's their job, they are a regulator, they are the policeman, the cop on the beat, okay? So right now neither Lighter nor Hyperliquid are set up to do that. They don't have the licenses, they don't have the infrastructure. It's a different ball game than what's currently playing. Now they may decide to launch Hyperliquid US or Lighter US which is you know Lighter is not available to Americans same as Hyperliquid right.
So you think they would like split their book up?
It's possible. So one thing they can't do, they can't just serve liquidity from the offshore exchange domestically. You cannot do that. You can't do that because if I'm in the CFTC and I say hey this looks fishy. Who is this? I have to be able to unmask them and say, 'Oh, aha, this is this person who's insider trading or this is North Korea or this is whatever some sanctions violator, right?' You can't do that on chain. So, you need some kind of cordoned off liquidity, which like you see this with Polymarket, right? Polymarket has the offshore global onchain product and then it has the onshore fully KYC regulated product and they're different. They don't share the same liquidity. So in that world, you basically have Lighter or Hyperliquid or whoever wants to do this domestically. If they do it, they have to spin up a totally different kind of business and they have to compete with Coinbase, Robinhood, whoever else wants to do this domestically right now. Maybe they can. Maybe they're set up to do that. Maybe the brand is really strong. Maybe the reach is really strong. But the other thing I think is that I'm actually kind of bearish on perps domestically. This might be a little bit of a hot take, but I think the idea that perps are going to somehow reinvigorate the market and like oh because we have BTC perps in the US now suddenly people will buy Bitcoin again and people will start buying crypto. I think this is just the wrong mental model.
Like at the end of the day perps are just one financial instrument. They're a convenient financial instrument. We really like them because they're simple for retail to get leverage. It's very easy to understand relative to trading on margin or buying options or dated futures. But the main thing about perps like the reason why they were created in the first place was because crypto exchanges historically did not have the ability to claw back losses, right? So if you're trading on margin, right, you can go negative. And so margin trading didn't really work in crypto history because if someone goes negative, you're never getting the money back because they live in a different country. They might be pseudonymous. You know, there used to be no KYC exchanges. You know, if you think about like BitMEX or the exchanges even before then, it was just random people with just an email address that were coming and trading on your things. So, you needed a financial product that worked in a world where you had no recourse. You didn't know who these people were and you couldn't send them to collections. Right. That's where the perp was the perfect solution to that set of constraints. But domestic US regulated exchanges do not have that set of constraints. You actually can send someone to collections. You actually can. Like a lot of these problems don't exist in the same way they do in the overseas perp DEXs, right? Like exactly like being able to trade on margin and or trading on dated futures solve a lot of the problems when you can collect from somebody who goes negative. Now perps in that it's very simple for retail. It's very easy for them to understand what they're doing. But like where they have really outsized advantages is in overseas offshore unregulated exchanges. So I think what you will see is that my guess when perps launch domestically it's going to be kind of underwhelming but they're still going to remain dominant on the offshore platforms. Right. That is where I expect we're going.
And so do you then expect that the current kind of American user whether you know we can advocate for this or not throw the VPN on trade on the Hyperliquid, trade on the Lighter, that activity effectively can't be stopped unless they do like a full like block of these websites like do you think that if there is further regulatory action that there will have to be an actual full geoblocking from these websites versus kind of what exists now which is like this like you can't use this but then like turn the VPN on that you pay like 20 bucks a month for and then you can use this like do you think?
Yeah so I mean not every site does the same thing some actually do VPN blocking as well and so it really depends on what their risk thresholds are or also I mean some of them have agreements with the CFTC so like for Polymarket for example they had an agreement with the CFTC that said what they need to do in order to stay compliant and they do that they remain compliant. So it is on some level the regulations that we have in the US is that you are not punished as a consumer for doing something that the state doesn't think is wise. Right? Like we will not come after you for trading on a prediction market. It's just not how our system of government works. Not our system of regulation works. We might go after the company if they are willfully soliciting people from, you know, who we believe are not supposed to be trading on these platforms, but we're not going to go after them. And so I think the place that we're likely going to land is that as an American, if you are sufficiently motivated to go trade on these platforms, you can. Now, if you're insider trading or you're breaking the law in some other way, then okay, people will try to come after you. But these, you know, they're not going to necessarily go after individuals for trading on these platforms. As long as those overseas platforms are not soliciting and they're not encouraging Americans to trade, I think it's perceived as more or less fine, right? Obviously, if you're sufficiently motivated, you can find a way around just about any kind of geoblock unless they're full on KYCing, which is not demanded of them. So I would say, you know, long story short, perps are a great financial innovation, but there's a reason why it's been more than 10 years that we've had perps. They are not used for almost any other financial product. People know that perps exist. They've learned about them. Crypto is a huge market, right? And yet almost everything else in the world does not trade on perps. Crypto is the thing that trades on perps, particularly crypto on overseas exchanges. Eventually I think we will see perps domestically but there obviously they're gonna be KYC and there's gonna be limitations on leverage. It's not going to be you can go on your domestic Coinbase perps and go 50x levered long. Right. Because you know just go play around with products in the US they don't allow you to take on that kind of leverage because CFTC understands look there's no real social value in allowing people to go 50x lever long on a 90 asset. Right. I mean, that's just pure gambling. So, that's why I think there will still be demand for these overseas products from people who really want to just go and yolo it.
Yeah. Yeah. I mean, when we're thinking about this category, it feels like these are the most or some of the most investable assets in the market and you look at Ethereum's market cap and you know, you were coming out during David Hoffman's I sold all my ETH thing and being like, look, we hold a bunch of ETH. We're still very bullish. But you look at the revenue numbers and Hyperliquid and Lighter are making more money than most L1s, if not like all of them. And so we had this conversation forever of like there's going to be this infra to apps shift, right, where like a lot of the investors will shift from investing the underlying into the applications. We're going to see some breakout apps generate a lot of revenue. Feels like Hyperliquid and Lighter are kind of like firmly in that camp. Obviously, Polymarket's doing well, pump.fun's doing well, but really in the perp category, let's just stay here. Like, when you're thinking about the market cap, the valuations, the investability of Hyperliquid at whatever it's at, Lighter at a significantly less amount. Like, are these things top seven crypto assets, top 10 crypto assets? Like Hyperliquid's there I think 10 now but if these things are the most profitable with the largest potential TAM of a market potentially going to be the exchanges for finance going forward like are these not just like a full port type of play? Why still hold ETH? Why hold Bitcoin? Why hold other L1s? I was talking to the Bitwise guys and I'm like guys when you're talking to your allocators is it not just like you're just stop shilling all your other L1 ETFs because you've got Hyperliquid that generates a ton of money, has a very clear tokenomic flow, and has a very easy explanation to a mega trend. Like, why would you even talk about anything else anymore? How do you think about like this consolidation of attention of capital from the allocator's perspective, from the investor's perspective? We're down a lot now. People are wondering what they want to do with their assets. Is it too late to buy HYPE, to buy Lighter? Where do these things go? Kind of what's your take on how perp assets are kind of shifting the way that the average investor is thinking about what to buy? Look, this thing is generating all this revenue. It's generating it, you know, it has very clear pre-commitments for buybacks. Why would I buy anything else? How do you think about this?
