Unchained - Arthur Hayes and Adam Schlegel on Why Private Equity Is Crypto's Next Big Wave - Ep. 933

Episode Date: October 28, 2025

Crypto has spent years obsessing over tokens, airdrops, and speculation. But what about the unsexy businesses actually making money? Arthur Hayes and Adam Schlegel join Laura Shin to talk about Maelstrom's $250M private equity fund targeting crypto's most profitable, yet overlooked, companies, $50M revenue businesses with 50% margins that VCs can't touch and exchanges won't pay cash for. But while everyone frames this as just another fund, Hayes and Schlegel argue it's actually the missing piece in crypto's maturation: a cash buyer for founders who've done their time and want out without four-year earnouts.  Plus: Why Asian crypto companies with monster margins get ignored by Western capital. Thank you to our sponsors! Binance Guests: Arthur Hayes, Co-Founder of BitMEX & CIO at Maelstrom Adam Schlegel, Head of Private Equity at Maelstrom Links: Previous appearances on Unchained: The Chopping Block: Arthur Hayes & Tom Lee; Hyperliquid vs Aster, DATs & ETH Arthur Hayes and Hanson Birringer on Hyperliquid’s Success (And What Could Stop It) Bloomberg: Arthur Hayes’ Family Office Seeks $250M for Buyout Fund Coindesk: Arthur Hayes’ Maelstrom Seeks $250M Private Equity Fund to Acquire Crypto Firms: Bloomberg Akshat’s tweet announcing the fund Timestamps: 🎬 0:00 Intro 📰 1:08 Maelstrom’s $250M private equity fund to buy crypto firms 👤 1:42 Adam’s background and path from Morgan Stanley to Haveli to Maelstrom 💼 3:51 Why Maelstrom believes the next crypto boom is in private equity 📈 4:42 Arthur on how crypto investing evolved from beta → VC → PE 🌏 10:05 Geographic focus: Asia and LatAm’s overlooked crypto firms 🧭 11:49 How Maelstrom evaluates targets and performs due diligence 🛠️ 17:02 Inside Maelstrom’s $250M anchor fund and LP co-invest model 👀 26:01 The types of companies Maelstrom is targeting ⚙️ 30:16 Fund structure and Arthur’s role in Maelstrom PE 📊 36:05 “The four-year cycle is dead”: Arthur on today’s crypto market 💰 39:18 Investor requirements and $5M minimum commitment 🏦 42:09 Coinbase’s Echo acquisition and what it means for exchanges ⚔️ 47:59 The perps war, how DEXs are forcing CEXs toward zero-fee trading 💥 52:18 Binance, ADL liquidations, and leverage risk 🔮 56:27 Prediction markets: Polymarket vs Kalshi vs Limitless 💵 59:06 Stablecoins and rates, why Tether and Circle could lose to Ethena 📈 1:04:15 Who wins the next phase of crypto’s evolution 🔚 1:08:14 Closing thoughts Learn more about your ad choices. Visit megaphone.fm/adchoices

There's dozens of companies that are 50 to 100 million plus in revenue and 30, 40, 50% plus EBITDA margin. So these are actually quite good targets for a controlled buyout strategy. A lot of the most important crypto companies are not American. They're not European. They're in Asia. They're in Latin America, right? They're in places that otherwise venture capital take out Beijing essentially doesn't touch. Hi, everyone.

Welcome to Unchained. You're an old hype resource for all things crypto. I'm your host, Laura Shin. I'm here with Arthur Hayes, co-founder of Bitmex and CIO at Mailstrom, and Adam Schlegel, head of private equity at Mailstrom. Welcome, Arthur and Adam. Hello. Hey, Laura.

So it's great to have you guys here. We're just going to take a quick word from the sponsors to make this show possible, and we will be right back. Finance is the world's number one crypto exchange, trusted by over 290 million users. With industry leading liquidity, security, and a wide range of digital asset products, finance is the place to buy, sell, trade, and earn crypto.

Download finance today to get started. So Bloomberg recently reported that Mailstrom, Arthur's Family Investment Office, is seeking at least $250 million for a private equity firm to buy as many as six crypto companies focused on areas such as trading and analytics. So this is despite the fact that private equity and crypto has actually fallen a bit in the last few years, It had reached a high of about $4 billion in 2021. Adam, why don't we start with you? Because you are the new managing partner hired to head up this private equity initiative.

Tell us about your background, how you got into crypto, and why you decided to join in on this new fund. Yeah. Well, first of all, thanks for having us, Laura. I've been following your pod for a long time. So it's actually fun to finally be a part of it. So, yeah, you know, I've had a long history with sort of the people around Milstrom, actually. Uxha was one of my first friends in America. So I moved to America from Singapore when I was seven years old.

And Uxha and I met each other riding bicycles. And we've been best friends ever since. And so he actually... That is really cute. Yeah. And yeah, we, you know, we sort of like crossed paths a number of times professionally, but I've always kind of tried to figure out a way to intersect more. Uchshed had a history of kind of, you know, being in Mamed.

management consulting. You did lower middle market private equity in Chicago. And I kind of went down the investment banking path, worked at Morgan Stanley for a number of years. And then transition kind of, you know, as most investment banking analysts do into private equity. So I went to work for a mega fund called EQT, which did cross-border transactions. I was focused on businesses that, you know, were based in sort of the Western Hemisphere, but that could be, you know, expanded into Asia, either through costouts in India or market expansion in China, things like that. And for a long time, that was super interesting, but the mandate was a little bit narrow. So ended up helping a guy named Brian Schiff, who started Vista Equity Partners, found his spin-out

called Havalei Investments, which was focused on enterprise software, effectively just sort of the Vista playbook, but brought kind of to the true middle market of software private equity and helped the firm basically scale from five people. to think north of 50 and raise over $4.5 billion. So it was the largest debut of private equity fundraises of all time. And that was awesome. But in the back of my mind, I always kind of wanted to build something, kind of was tracking how Arthur and Uxhatt had been building Malmstrom, really kind of watching and a little bit jealous of all of their success and the fun that they were having, especially the parties that they were throwing now. I get to be a part of them. Yeah. Yeah. But yeah, you know, I think that the crypto industry has really kind of matured to a point where the strategy has started to make a little bit more sense, right?

Five to ten years ago, there really weren't kind of the same number of scaled, sustainable cash flowing businesses that there are today. You know, you look around kind of the off-chain infrastructure layer. We can talk about a little bit more later, but there's dozens of companies that are 50 to 100 million. plus in revenue and 30, 40, 50% plus EBITDA margin. So these are actually quite good targets for a controlled buyout strategy. And when I got to talking with both Arthur and Unkshad over a year ago about, you know, if it kind of made sense to pursue it, we all started to kind of look around and look at the number of assets and go, yeah, this starts to make sense.

So here we are. And Arthur, you've been in crypto for so long, obviously as an entrepreneur, as an investor, as a trader, as a venture and angel investor. So why did you decide to go into private equity now? And if like in explaining that, if you could also explain like where you think we are in the trajectory of crypto, like if there's, you know, a reason that has to do with that? Yeah. So I guess we can think about the cycles of crypto asset management if you were. And, you know, when I started back in 2013, I believe Pantara was around back then.

They might have been the only fund back then. And what do they do? They said, hey, give us 2% management fee and 20% performance. We're just going to buy Bitcoin for you because you're too retarded. You can't think that. Not to say that it was easier. It was difficult back in 2013. But if you're, you know, an institutional style investor used to this fund structure,

here is Pantor. And they said, I'm going to give you crypto beta. And you're going to pay through the. asked for it, which is fine. They did a valuable service to the market. People got involved to crypto who otherwise wouldn't, and they made money doing that. Fast forward a few years. We had the ICO boom, and now we have a lot more assets that people can trade. And we have a lot of teams who are saying, okay, there's this new medium called crypto and blockchain. And I have this idea for this application. And I'm going to go out and raise money. And I started with the ICO.

That was fun. There was some issues with that. That was essentially banned in most places, are very heavily curtailed. And so then you had this move to the crypto VC, which is, hey, I'm able to essentially corral together some money and a structure that investors are familiar with. And I'm going to go out and buy these early stage token deals. Again, you know, we had, you know, Pantera's in there, some of the other funds, multi-coin, paradigm, you know, all the big ones.

Very successful firms, lots of complete dog shit. As I'm, you know, every six months, we get some sort of like, you know, Twitter feed about somebody who puts some money in some fun and they're down 99% even though Bitcoin's up 3x and you're like, what are you doing? And so, you know, we've done that situation. And so now we're in this sort of like third cycle, if you will. Obviously there's been institutional adoption of crypto with the ETF and, you know, different sovereign nations talking about Bitcoin reserves and you, you know, have all these

large funds who have this crypto allocation. You have private wealth managers talking about and encrypted people's portfolios. And so you have these massive funds with, you know, hundreds of millions, billions of dollars of capital, and yet they can't buy anything. Because if you think about the most disruptive and primitive things in the crypto landscape, they don't need a $100 million check from a 16-Z or Kleiner Perkins or index or benchmark on these guys, right? They need a few million dollars and subattention in the crypto ecosystem, and then they can

go out and build this application. So you have all this dry poverty sitting around pretty much doing nothing, maybe charging fees, maybe not. And but then you also have this ecosystem of, as Adam mentioned, like highly profitable companies, they're not massive, but they're, you know, intrinsic to how capital markets work in crypto. And there might be coming you've never heard of, but if you're in exchange or a market maker or a data provider, you're using these services, you're paying them money. And, you know, these companies are doing very well. And obviously, after a few years, everybody wants to party like Arthur Hayes and they say, where's my cash money? I'm out of this game.

And they look around for people who can buy them. And the unfortunate part is if you want to get bought out for a decent multiple as a founder and your founding team, they're probably looking at an established exchange, like a coinbase of crack and finance, buy bit, these kind of things. And, you know, those people are not looking to essentially finance your party lifestyle. They want to buy a good asset that's integral to how customers access their platform and make you the founding team work, you know, two to four years as an earn out. Which, you know, they're making money. It's not a bad thing that you're getting paid. but if the goal was, hey, I've done my five, 10 years of hard knocks of crypto, I want to take

my money off the table and go do something else in my life. Selling any one of those players is not really on the cards. What their lax is, and this is what we're trying to build here, is a real cash money buyer with operational abilities coming from, obviously myself. I've run Bitmex. Opshet has been with me in that journey for a while at the Bitmex Ventures. You've invested in a lot of early stage in some of very successful companies today and crypto. our rule of operators who can come into a business that's already running well, say,

okay, we're going to be able to grow this three, five times the next two to four years. We're going to put on a different multiple on this asset because now it's going to look a little bit more similar to something that a Western U.S. or Western European investor would invest in, or a traditional P.E. fund would take out and then do their magic and then resell it for another higher multiple. We're that sort of intermediate stage. We're going to take somebody from a $40 million dollar rev business. hopefully we can make that a few hundred billion dollar revenue business, you know, get a, you know, 10 times multiple on earnings, great for our investors, but that still gives a lot of juice for, you know, a later stage growth equity type player to come in, take that business,

take it public or maybe flip it to, you know, a KKR type PE vehicle. So that's kind of where we sit. We don't really see anyone in this particular niche right now. And that's why I greenlit the proposal that I chan and Adam came you with to start this PE vehicle. Okay. Yeah, by the way, we keep talking about Akshat. It's Akshad Vedia, I think, is how to pronounce his name. He's the managing partner and co-founder at Milstrom. So, you know, honestly, like when he wrote like on X about it, he actually, he didn't describe the same trajectory as you. He actually

talked about, like potentially he wrote some of the, you know, potential acquirers or no, maybe, hold on. So we said, new tradfly slash Silicon Valley entrance to crypto, both present and future. For example, Robin Hood, Charles Schwab, X, Wellfront, Struggle to find polished turnkey businesses to acquire rights. So he was naming them as potential acquirers. So are like, do you also see those types of companies as being acquired? Sure, absolutely. I think, again, I think there's a certain type of either fiduciary, if you're a fund manager or a Western company, Asia is scary to them, right? You know, like, you know, Singapore.

This is not a scary place. fine. It's probably safer than most of the United States and Western Europe, but the perception of investors is that there's all this dodgy shit that goes around anywhere that's not where they live in Europe and London and Paris. And so, fine, I'll help you. I'll relieve yourself of those suspicions by making it look just like you need to look, but I'm going to check you three times as much for it, which is perfectly fine. That's where our investors make money. So again, these are the types of players who want these businesses, but it's too scary for them. Or it's not in the right form where their IC committee or their board of directors would accept buying this business.

Well, they think because it's based in Malaysia, their revenues are bullshit because every Malaysian is just a scammer because they watched some sort of like Wall Street Journal about Joe Lowe and his cronies and all that kind of stuff. So I think that this is a kind of misperception that we're trying to solve and we're making a lot of money doing it. I think there's also, you know, kind of this idea, right? So obviously we're financial investors. We want to make money at the end of the day.

if you buy something that's, you know, lower revenue growth and less profitable and you make it more of a grower and more profitable, the multiple that you're paying versus the multiple that you're selling is going to be different, right? You're going to buy for less and sell for more. Just math. So that's sort of the business model, but inherent in that and what circumscribes that from sort of like an ecosystem perspective is the notion that that doesn't exist today in cryptocurrency. in a way that it does in TradFi, right? There are businesses in TradFi that benefit from private equity acquirers coming in and running a more professional playbook where they improve sales efficiency, improve product efficiency, just overall kind of optimize the business and sell it

to a strategic that otherwise doesn't have the time or wherewithal or resource allocation to do that themselves. And so with Uxhut's Post, really the purpose of that was to say Robin Hood, Coinbase, you name your, you know, Trad 5 strategic requireer here is probably poking around a lot of assets in crypto right now. As we know, obviously, Crypto Eminus has boomed in this last cycle. But if you kind of look at what they're buying, a lot of times they're buying things that are, you know, pre-scaled revenue, potentially even pre-product, just to buy and have a stake in the space. They're not really poking around serious assets, right? Because I think they don't

necessarily have the ability to come in and fully integrate those things for a number of different reasons. And so we kind of provide this liminal transitional resource of taking something from, you know, that somebody has taken from zero to one, let's say, and scale it from one to 10, such that these guys that have appetite but are kind of sitting on the sidelines can really participate. And over time, the hope is that, you know, that force multiplies kind of the broader professionalization of the space. And Adam, earlier, when you spoke, it sounded like you guys had already kind of identified companies that you would like, you know, to target here for this private equity fund. Is that true? Or yeah, we've basically

been, I can't remember the phrasing, but. Yeah, we've been looking over the, the course of the last year. So in parallel to kind of doing all of our fundraising, we all wear, you know, many, many hats. We've sort of scoured the earth, I'd say, in terms of geos, subsectors, looking for diamonds in the rough. And we're, and we've, we've sort of scoured, we've, we've found quite a few. You know, I think we got very, very close to acquiring a couple of them earlier in the year, but, you know, deal processes are very complicated and they don't always work the way that you want to for a number of different reasons. But we have found a proof point, both in our own kind of ability to proprietary source deals and create a funnel and a life cycle

of deal flow that we haven't seen anybody else able to recreate. And then also a proof point that there are a number of these attractive assets out there that remain fairly uncovered relative to tried by it so does that mean because i was going to ask you guys some questions like for entrepreneurs who might want to be you know part of this fund are you like are you searching still or yeah always looking okay okay always looking for good companies for sure yeah no the search never stops but uh yeah we're we're definitely in contact and we have a bit of a short list right now, I'd say. I think the other thing, too, is just sort of our in-house view of where we're at in the cycle is that things are getting a little crazy in terms of valuations, probably across

the space, right? I think 12 months ago, we all thought that, you know, the cycle was going to be at a very different point now than it is. And so I think by really kind of capitalizing on fundraising now and deploying in the bear, we're going to get the best of both worlds with this investment product. Okay. And one other thing, Arthur, you were speaking. as if like you're going to focus on companies in Asia or like is that? No, I'm putting a context on like why a particular company with 75% EBITDA margins with, you know, $100 million revenue is like being looked over as a sort of a theme that we see, right?

If you think about crypto, a lot of the most important crypto companies are not American. They're not European. They're in Asia. They're in Latin America, right? They're in places that otherwise venture capital, I mean, take out Beijing, essentially doesn't touch for whatever interesting categories, they don't touch it. But I think we fill a void here of being able to say, oh, if we found a great company in Minnesota, fuck, we'll buy it. This isn't like an anti-American thing. But I'm saying, I'm looking for the cheapest thing to make it more expensive.

And this is the trend that I see is a lot of great companies that are integral to what crypto is that don't get any sort of recognition. because they're not based in New York City or, you know, Silicon Valley or London or something like that. Okay. And is there any other part of this also that's about, like, seeing that there are certain things missing in the industry that could really further adoption and, like, trying to pick spots to, you know, help crypto get more established? I mean, that'd be nice if that is sort of a tangential benefit. I'd say they'd not the number one goal. Like, obviously, you want to find a revenue generating company that, you know, has a real future. And hopefully we're able to take that and make that, you know, a juggernaut.

Okay. But Adam, like, what I was going to ask is if there are certain things that you're seeing, like you feel like the industry is missing, that is holding it back from mainstream adoption. Yeah, I think so, right? I mean, I think, you know, kind of to Arthur's point, right, we're going to, we're, again, financial investors at our core. So obviously, we care a lot about making money for both ourselves and our LPs. But I think beyond that, there's going to be a knock on effect here whereby running, these tried and true. And this stuff isn't like rocket science, right?

Like this has been going on for 40 plus years in Trad 5. But bringing this into crypto is going to bring a certain level of, I'd say, like increase in seriousness in certain pockets in terms of, you know, company's ability to really deliver consistent results, profitability, growth, things of that nature. Starting to get people thinking about TAMs and moats and sort of like, you know, all the kind of HBS lingo. I think that a lot of people in Tradf, I've been thinking about for a really long time,

but that crypto could really benefit from. And I think if these companies took some of that stuff more seriously, I mean, sky's the limit in terms of where some of these products can go, right? I think some of these managers are, and to be fair, right, like, you know, they took it from zero to one and they've created some really great businesses, but to get it from one to 10, they're not necessarily the right team to get it there. And so helping them get there either as partners, as new owners, whatever it is, I think is going to really kind of show the broader space, hey, this is possible. You know, sure, we're going to have competitors come in as well.

I would welcome competition. I think that's going to be great. We're doing this now because we're not seeing anybody step in and really kind of take charge and ownership for it. So we're going to be the first ones to do it. As we demonstrate that we're successful over time, other people are going to go, hey, I think that's a pretty good idea. And then the hope is that rising tide kind of lifts all shifts. And so Arthur kind of briefly touched on this. But in Ockshott's post, he mentioned a third problem.

He said capital allocators think pension funds, family offices, et cetera, want to deploy into crypto focus funds at scale nine figure sums. But current options, for instance, scaled large crypto VC funds deliver poor risk-adjusted returns. And then he said, we're LPs and many. We know. So can you talk about like, you know, what you think the expectation or what difference there would be an expectation for investors in this private equity fund versus, you know, what has traditionally been the expectation for the crypto VC funds? So I think what you separate out those who just want a crypto beta return, like obviously this is not the product for you. But those who say, okay, I've got my Bitcoin and maybe some other coin that I consider like super important in terms of a crypto portfolio.

and now I want to earn, whether it's new projects or it's established companies, like those type of returns, the products out there and the returns that they generated aren't really that impressive if you think about it. And so I think that's where we're stepping in. Like, look, we're not trying to raise a billion dollars to try to do 5,000 deals at $1 million a clip, right? This doesn't work, which is why you see a lot of these large funds who are great at fundraising are horrible at actually buying stuff because the ticket says they're too small.

And then obviously this is a private equity vehicle. This is we're running these companies, right? I'm going to call some people up. You're like, look, I need to be in the seat. I'm going to make sure you get paid if you perform. But like, trust me, as someone who's worked and been with me, you know, over the last 12 years in the crypto thing, we're going to blow out the water. Please come and work with us.

Like, that's something that a lot of these other funds don't have. Yeah, they've got a billion dollars or whatever, but that's not going to get you. you the right executive to come in to run this company and take it and increase the multiple than double or triple. So I think that's the difference in the type of product that we're offering. And obviously a large pension fund endowment, they're used to this product and they're already allocating to alternative investments, whatever type of PE vehicle you want to call that. If we layer on this crypto piece where you're going to see an explosive growth and revenue on a very low, full-time higher base because we have an awesome operational leverage in a lot of these

businesses, this is the only game to play. And so I think we're going to be, you know, a great way for these funds to allocate to this space in a way that makes sense to them and that they're actually going to be able to get size off. It's not like, hey, I'm going to take a million dollars of your money. I'm going to grow a 10x. Great, but that's not where these guys are looking for. Yeah, and I'd add to that. So like, if you kind of dissect the LP base into let's call it crypto-native and crypto-curious for the time being, I think in the crypto-native space, right, It's like, what are your options to really invest into crypto if you're a serious LP? Think pension fund, sovereign wealth fund, endowment, right?

These guys are sitting on not $5 million. They're sitting on $50 billion. And they have to make allocation decisions based off of that. And so if the investment, Tam is opportunities and think quality assets, right? So crypto VC, let's say every cycle, 20 to 40 kind of good opportunities within that. Maybe there's five to 10 absolute bangers that are. like 100 baggers, right? If that's the opportunity set and you're only allowed to kind of invest a few million dollars here and there, the TAM to really get those returns isn't all that large.

And so the LPs actually have a ton of money and a very small opportunity in terms of what is going to drive sort of tier one blue chip returns in the space. And as CryptoVC has really blown up over the last kind of five to 10 years, what happens is. sort of basic supply and demand of money, right? Returns get compressed because valuations get bid up. And that's what we've seen. Quality has just gone down. You can't do the same level of quality with a billion dollar fund as you can

with sort of a $25 million fund because you have to deploy capital and you're going to basically sacrifice quality for deployment. So what this product really is intended to do is say, okay, we understand that. What hasn't been explored yet is really kind of taking ownership stakes. and companies in deploying one, two, three, four, five hundred million at a time, right? So it's really to kind of satiate that appetite for large-scale investment opportunities, but still drive operational transformation, get the alpha from the crypto upside, and kind of participate on both fronts.

That's the only investment product in town today. And so that's really kind of the idea is to kind of expand the funnel for what LPs can invest into within crypto. And then for what Arthur was saying earlier, right, there's sort of this cohort of LPs that's crypto curious. They're like, okay, you know, we're pension funds, but we don't necessarily have the ability to invest in liquid funds or we don't necessarily want to hold a token for X, Y, or Z reason. This is an interesting product for them because they kind of get to dip their toes in. It looks, smells, feels, tastes, touches like private equity, which is something they're used to and have been investing in for 40 years, but gives them that end market expose.

to crypto that they otherwise would have had they invested into these liquid funds, but they can't. So we're hoping that this is really kind of the intersection of the best of both worlds for both the crypto native and the crypto curious LPs. Yeah. Honestly, it kind of feels like, you know, so obviously there's been a lot of discussion about how the crypto is in this phase of adoption. And it's almost like, you know, for a long time, it was driven by this like idealism around like tokens and decentralization and all and all that.

But now it's like, okay, you know, everybody's talking about, oh, it's all about revenue. It's all about adoption. It's about distribution. And it feels like you guys are focusing because, you know, so the fund explicitly will not invest in tokens. But it's very much about like CFI, you know, the role of CFI in crypto. So, you know, it feels like, yeah, this is the moment when the adults come in the room or something where like, you know, before, like I said, it was just driven, you know, initially by like

this libertarian ideal and then you know maybe sort of the Silicon Valley like you know software is going to eat the world kind of thing and then and then now it's like okay there's going to be this moment to where these centralized players are going to play key roles so let's also dive into you know like what kind of so we we've obviously talked about just like from a business model what kinds of investments you're looking for but talk a little bit about how you plan to do due diligence on these companies and like you know what what you'll be looking for and what deal breakers might be? Yeah. So there are a number of sort of sub sectors that

we're interested in and are spending a lot of time. And one is sort of trading infrastructure. Right. And within that, there's some pockets. There's some more kind of Dgen staff where you kind of have seen people trading mean points and the workflows that exist around that. Screening tools, execution layers, dexes. So we're very thematic in terms of how we're approaching each of these. We've like I said, kind of scoured the earth, spoken to way more founders. and, you know, VCs than I would like to count. But, you know, I think we've kind of found pockets where we like stuff. And broadly, we think that there's, you know, some interesting secular tailwinds that are going to support investment activity. So our process is basically similar to kind of a way

that, you know, a private equity process broadly work. So you find an asset and you kind of hire or work alongside what we call operating partners. And we've got a number of these partners that we're working with and we're still looking for more as well. But, you know, through obviously Arthur's network, Uchett's network and my own network, we have a really, really powerful cast of characters across Web 2 and Web 3 that have done this before, that have really driven transformation, gotten businesses to scale, and either achieved, you know, amazing exits or at least delivered significant results for investors. And so working alongside these operators that can really kind of tell us, hey, you know, this thesis needs tweaking here or this is something that you guys may

not have considered. These guys essentially become our diligence partners that then help us kind of refine and drive forecasts, underwrites, things of that nature. And, you know, we go through and we look at everything. We turn over every stone, obviously looking at all the financials that the business has to offer, go through technology audits. We bring on a number of consultants to really kind of verify like, what does the code look like? You know, is this stuff real? How is it going to integrate if we were to put it together with another business? We bring in consultants that can kind of help really kind of score the management team, the operating partners help with that as well. Legal, you know, armies of lawyers that kind of come in and turn over every stone and every

document, right? Like, so we really kind of get as much help as we can in every single department from all kinds of service providers that we surround ourselves with and we've built relationships with over the last 10 plus years. And they kind of become the driving force that really helps us due diligence on these businesses and determine, you know, is this going to be a good investment or not? But what undergirds the whole thing is this thematic kind of procedural component that we have in the background.

We're always thinking about, you know, what are good pockets to invest in, what makes sense, where are we going to make the most money? All right. So in a moment, we're going to talk a little bit more about, you know, what this will look like when these investments are made. But first, a quick word from this boss. We just make this show possible. Finance is the world's number one crypto exchange, trusted by over 290 million users globally. With world-class liquidity, security, and a wide portfolio of digital asset products, finance makes crypto easy for everyone.

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Binance.com slash E.N. slash terms. So let's also now talk about, you know, when you do make these investments, like, how do you plan to structure this? Like the Bloomberg article went into a little bit about how these would be structured as special purpose vehicles. So explain a little bit more about that. And, you know, I'm sure a lot of people in the industry, if they, you know, once they heard about this, they probably thought, oh, it would be great to work with Arthur.

And I wondered kind of like what Arthur's role would be or just, yeah. So talk a little bit about like what the structure would look like. Well, I'll just go on and end up for my sort of elevated role in that we get into the details. But it's number one is people. And I've learned that the good and the hard way for my time at BitMets. And if we are going to operate these companies at a different level, then we need the best people. And I think that I have one of the best networks of folks within crypto and then adjacent to crypto who do things that we need to have done at these companies.

And so I come in at that level. And I come in as this spokesperson and sort of driving awareness. And obviously any businesses that are going to be in our stable are going to be promoted very, very heavily through Mailstream, my own brand out there in crypto. And then obviously I give the reins to Adam and Aksha to really do what they do and getting into the degree of the financing and putting these deals together and making sure that at the end of the day, I felt comfortable that we're going to have the greatest chance to deliver a great return for our LPs. Yeah. And then onto your other question, Laura, about the SPVs. So the way

that we're structuring the fund is basically we're calling this kind of, it's called the $250 million anchor fund. This is sort of a way to get people in the door. And we're giving these LPs preferential access in terms of a really favorable fee structure that doesn't really exist in the industry today. So we're saying basically, hey, if you want to come in and you guys come into the anchor fund, you get a discounted management fee and discounted carry performance fee. There's kickers, of course, but versus the two and 20 that you would be paying at the, you know, name your crypto VC of the world. It's a lot more attractive.

And those fee discounts extend. into SPV. So if you think about it sort of like as a hub and spoke model, the anchor fund really is where LPs are going to come in and serve as sort of like a capital base. And then deal by deal, depending on if the deal outscales the individual allocation from the SPV. So let's just make round numbers easy. Five investments from a $250 million vehicle. So 50 million comes out of the 50 million comes out of the anchor fund. If for whatever reason, the acquisition that we're looking at necessitates more equity than that, we'll raise an SPV to basically cover the excess.

And so investors that have put money into the anchor get that discounted fee structure in any SPV that we raise. That's one major benefit. New money that comes in pays the full two and 20. And that's how we're going to go about making these acquisitions. It's a bit of a novel structure that, you know, you don't see too often, but it's really LP-friendly, right? It gives LPs lower fees. They get significant co-invest dollars, which is fee-free.

So a lot of these major pension funds, sovereign wealth funds, endowments, what they're looking to do is buy down their fee components significantly. And so they really love fee-free co-invest. And this is a structure that really kind of west that appetite for them. And then on top of that, it allows LPs to really like double click and subselect, hey, what investment do I really have conviction in? Which ones do I want to participate in more? Which ones do I want to participate in less? And so the idea is that this is going to have, you know,

a significant amount of demand from the LP side because of its creative kind of structuring and how attractive it is for them. So if there are entrepreneurs who are listening to this, who might want to work with you, how should they approach you? Yeah, well, you can hit us all up. I think today our contact information is available on the website. But yeah, I mean, we're always open for business, always looking for great deals. I think in terms of some perimeter around what we're looking for, I'd say scale is a big factor.

So, you know, we're not looking to do minority deals. So we're not going to, this isn't the side of the house that's going to do kind of like a 100K check in somebody's series A or seed round. this is, you know, 50 plus percent, 51 percent controlled deal. So we're looking to buy somebody out and either have them continue on for some period of time or replace them with a team that we've pre-selected. And so for us to kind of do that and for it to make sense with the money that we're looking to raise, I think on the lower end, you know, companies that are around, let's call it, 25 million in revenue is really sort of like about as small as we should be going. And even then, that's a little bit small.

And at that level, let's call it 50% EBITDA margin. So, you know, that kind of narrows the universe of investable assets significantly. And, you know, there might be a number of founders going, hey, I don't meet that threshold today. That's totally fine. We're also interested in having conversations with people that are kind of in the liminal zone before that, right? These are, this is a relationship business. And we want to meet people that are doing cool things. And so, just because a founder is not necessarily at that level, you know, there may be creative ways that we can work together for them to get there. But I think our real kind of down the fairway strike zone is 25 mil plus in revenue. And you're aiming for a first close of March 31st. And you mentioned earlier

that you were raising now to deploy in the bear. So I'm sure you've heard this commentary that, oh, the four-year cycle is over. Actually, I think I saw a little social clips saying with Arthur saying the same thing. So talk a little bit about like how you see the current market and where we're headed. And so both of you. Yeah. Yeah. So I think I wrote an essay. My last essay was about how the four-year cycle is dead. And I still stand by that. I think, you know, crypto has continued to go up into the to the right for a while. That doesn't necessarily mean that valuations are going to follow, right? Sometimes they, you know, go in the same direction. Sometimes they don't. I think, obviously, as Adam is saying, we see valuations becoming quite.

frothy. And obviously, if you're talking about the type of deal that we're talking about and how we're going to provide an exit opportunity for investors, it really hinges on like sort of like public or pre-public market sentiment around crypto and sort of associated types of investments. Whether that's digital asset treasury companies or new IPOs or these type of things are really going to inform the end buyer of the things that we're trying to structure. And so, you know, that could go through a little bit of many, market, like that that situation has come off quite a, quite a bit, except for maybe Bitmine and Michael Saylor's thing, micro strategy. You could say, okay, well, maybe there's a little bit less

advertising the public markets. That's going to feed down to the type of multiples that founders are going to be able to demand from folks. So while I think that the crypto bull market is going to continue in Bitcoin and Eith and definitely Z-Fash and some other things out there, it doesn't necessarily mean that we're not going to be able to execute on a number of deals after we close this fund because those multiples and the desires of investors will operate independently from just, okay, number to go up on crypto. Are you willing to pay 100 times revenue or 20 times revenue or whatever it is? Like that forward multiple is not going to be a linear relationship with the price of Bitcoin. Yeah. And I also think there's idiosyncratic dislocations. I

think Arthur's spot on. But I also think there's idiosyncratic dislocations that we're looking to seize upon as well, right? I mean, people come to us that have certain personal things happen in their lives. I mean, we almost bought a half a billion dollar business. There were a couple of guys that had families and kids, right? And they're just like, we're tired. Like, we don't want to do this anymore. And, like, that's perfectly legitimate. And we see that all the time, right? And that doesn't necessarily map to where we are in this cycle. Um, so I think. these opportunities kind of come out all the time and we're snooping around and we have our finger to the pulse in terms of where a lot of the good ones are. So we're ready to strike whenever the iron's

hot regardless of where we're at in the cycle. And so I think there will be plenty of these opportunities. Obviously, I think, you know, the bulk of the deployment probably will happen when valuations compress significantly. But we're certainly going to be doing deals, you know, I think pre-bear market if there's an extended falling process. And for those who are interested in investing, is there like a minimum or what are the requirements? Yeah. So broad brushstrokes, $5 million minimum and you need to be an accredited investor or qualified purchaser. That's basically it. Okay. So I want to go into like some specific news events that happened recently. But before we do that, Adam, I was just so curious.

because, you know, you come from like traditional private equity and obviously you probably have familiarity with a number of other industries. And I was just so curious, like when you look at crypto, what, you know, what do you see in industry in terms of like how it compares to other private equity opportunities? Just like from a perspective of, you know, does it look, how does the industry look to you in terms of its maturity level? Gold mine. No, just kidding.

So I was a software investor for a really long time, right? And I think the way that I like to look at crypto today is kind of like internet 20, 25 years ago. There's all of these companies coming out and some really great ideas, some pretty kooky ideas, some just bad ideas. And like the reality is, right, Tradfai kind of looks at that and or mainstream Wall Street. investors kind of look at that and they go, ooh, you know, like FTCX happened. Like, ah, that just must mean that the whole situation is toxic and everything is bad. That's not the case. And I do think like, you know, we've seen some pretty amazing businesses been born this cycle, the last cycle.

And for cycles to come, there will be amazing businesses that get created. And so I think broadly, right, if you're willing to kind of do the work and have your ear to the ground really kind of have the relationships that Uchad and Arthur have built over the last, you know, five, ten plus years, you can find those amazing diamonds in the rough and really make a lot of money and do some pretty cool work, creating category leaders in the space. So I think it looks a lot like, you know, internet did kind of in 2000 when a lot of people were like, I don't know, a lot of this stuff looks kind of weird. And look at where the, internet is today, right? It's the backbone of so many things that we do and now AI is getting

layered on top of it. So I think as a technology, obviously, everybody here and listening to this really understands the importance of blockchain and crypto broadly. The applications thereof are still sort of being figured out. And I think that's kind of a beautiful point in time for us to be doing what we're doing, right, because we get to play a role and a guiding hand in that. All right. So let's talk about some recent news events with probably the main one that I think is right at the intersection of what you guys are doing and the news is obviously the Coinbase acquisition of Echo. And I'd love to hear your thoughts on that. You know, like what do you think of those two entities coming together? What did you think of the price? You know, the whole deal. And yeah, just whether or not you think Coinbase will recoup that investment with the future of like, you know, know, like launch pads or two.

Was it all cash or was it stock and cash? I don't know. Stock and cash. Right. So I mean, I don't know. I would assume mostly stock. Yeah. I guess this is Coinbase using their great stock price to go and buy some,

which is what they should be doing as a corporate entity. And guess what? I hope that Millson P.E. is going to have some things to sell to Coinbase. We will. I love it, right? Well, but talk a little bit more about like just the notion of the fact that now there will be this ICU.

platform that's part of Coinbase, especially, I guess, because we're at this moment in U.S. regulations where things look kind of uncertain. Even I was just hearing on some other podcasts that people are thinking there's a possibility market structure might not happen, you know, before the midterm. So I don't know. Well, I guess the question really is like there's a 2017 style ICO, predictable website, boom, you know, subscribe, whatever, right? We don't mean all that, how that way.

And then Echo, I think there's some limits. I've never used it. So, you know. Yeah, no, you're right. There. But it's not as free flowing as a traditional ICA was back in the day. But if you think about like what is the biggest thing missing in the

Coinbase ecosystem versus sort of a Binance. And I'm sure that they're probably two competitors that matter here. Binance is a very healthy new issue market. Now you can, you know, I've talked to shit a lot of shit about the dog shit that comes out of the finance large pad, but whatever, it makes finance a lot of money and means that the new retail traders want to hold B&B. They want to be on finance. They want to be trading to get the VIP tier to get the allocation to trade the new issue, right? And this is the same thing in IPOs in traditional markets. You pay JP Morgan a bunch of money doing all sorts of not a dog shit.

So when the circle IPO comes out, you get a fill and not the other month, but down the street, it is no fill. Right. And so I think Coinbase is basically buying this business to do that, whether that'll be as successful as a launch bribe, we'll see. But I think it's in that vein. It's these Western players who don't have a pipe into the new issue market, which is where all the fun stuff happens in crypto. And they see all this money that buy bid and finance and OK, make on new issues, and they're trying to do the same thing.

So I imagine, you know, Crack and I'll do the same and Gem and I, and they'll all buy something, assuming something exists in this sort of vertical. So basically what you're saying is, like they need to be there. But also like for the price tag, it makes sense that they would use their stock and not. Yeah. I mean, I don't really know much about the internals of how much Echo makes,

but if you're paying you with it with funny money stock, fuck it, why not? Adam, do you have any comment on that? Yeah. Yeah, yeah. Yeah, I don't have the revenue either. So I don't know the multiple, but my assumption is that it's, it's probably,

a pretty attractive one for the founders. But again, right, if you think about kind of the cash to stock mix in this particular scenario, you know, this is a situation where having somebody like us in the mix would have been really interesting or an interesting, at least counter bid for the founders, right? If they're looking to have a clean exit and Coinbase is saying, hey, this is awesome. We're going to offer you guys $375 million, but you have to work for it. for us for six years and most of it is tied up in Coinbase stock. They're probably scratching their heads going, huh, didn't really factor that into my

sale off into the sunset plans. And so if we're out there and we're saying, hey, look, like, you know, the price is a little bit lower. It's 250. It's 300, whatever it is. And it's mostly cash. And you guys stick around for 12 to 18 months. And do we offer you guys a transitional kind of rollout?

whereby you kind of advise our team and then, you know, we kind of take it from there. That's something that doesn't exist really in the space today. And I think a lot of founders, they think, oh, wow, you know, I'm just going to scale my business to 25, 30, 40, 40 million of revenue and then name your sex is going to come in and take me out of my position and make me a bagillionaire. That isn't quite how it works if you're looking at a lot of these deals, right, that the okay Xs and point bases, et cetera, if the world are going to kind of come in and say, like, yeah, you're tied to us. We're going to pay you with our stock. And it's going to be a little

bit of a longer marriage than they originally thought. I'm not saying that these are bad deals for the founder, but it's not necessarily what a lot of founders have envisioned when they come to us and say they're considering an exit. As far as the deal itself, yeah, I agree with Arthur. I think it's going to be the first of many deals whereby a lot of these sexes are going to try to go from kind of trading and exchange platforms into kind of broader capital markets platforms and really cover the full life cycle of kind of capital issuance, trading, listings, and everything else. And so I think you're going to see more of these acquisitions happening as all these guys are trying to differentiate against each other. And so that's actually one of the funnels

that we like a lot, right? Because these guys are just going to hoover up assets that hopefully we're buying. All right. So let's talk about another super. for a hot area. And this is one that I'm very interested to get others opinion on, which is, of course, perps, as I'm sure you predicted. This space is not only incredibly competitive, but there's just so many different kind of ways that it's happening. Obviously, Hyperliquid kind of set this whole thing off. And then there's a lot of, you know, competition in the DFI perp space. But then obviously the other aspect of this, which of course goes to what we've been talking about this whole time is, you know, Coinbase did the Deribit acquisition earlier. This

year, the biggest acquisition in crypto history. So I'd love to kind of like look into Arthur's crystal ball. Can you talk about like how you think this massive competition and perps is going to play out? So I think hyperliquid has been the first perp-dex that has, you know, ticked all the boxes. Like, D-Y-D-X was probably the first major one. And if you look at the price of the coin, it went up really high, I think in 21 and then kind of crashed. The problem with D-Y-D-X, and I told them this of their face many times is,

They didn't pay us any fucking money. So they made all this money trading. And token holders are going to hold on dicks in the hands or your proverbial dick, depending on what you gender is. And we got fuck all. And so when Jeff, it was like, okay, I'm going to get 97% of revenue back to token holders through buybacks. But great. I know this product makes money.

Like just to look at, you know, any four possessive crypto billionaires are all trading operations and probably have some sort of per business. And so this, we know this works. However, it didn't work for me as an investor. And hyperlicker made it work for me as the investor. And so then you have this thing that grew massively quickly in 18 months. If you're a sex, you know, a major sex finder like, oh, shit. This is a better business model because the best, and I've spoken on stage of this,

a dex doesn't pay for security the way a sex does. Sex has a security team and the most expensive engineers you can have. Cybersecurity, Nation state actors, all that kind of shit, right? Got to make sure that you hold that crypto well. If you don't, you become like buy-bid and you have to reach you in your pocket with a half-half-half billion dollars and pay it out, right? But when you train in a Dex, you outsource that to the layer one, layer two, whatever, right? And you pay a gas fee. And you disassociated that gas fee with the fee you pay for trading.

And so, but in their mind, they're like, oh, it's one basis point of wherever it is. It's cheap. They don't realize they're paying all this other money over here and sequence and fees and all these other things, right? So this is why the Dex model is so much better because of how customers perceive what they're paying for. And so if you have this hyperliquid thing doing really well, anyone can trade it. You just load up your computer, even if the front end blocks, you can figure out a way to access a contract directly. Trade what you want. Trade when you want.

Permissionless listing. This is a better product than a sex. It's growing really fast. So how do you meet up a competitor like this? You make it go to zero fee trade it. And that's what all the major sexes are doing. They're all going to have their own perp decks. It's all going to be basically free.

And they're going to see how long a thing like hyperliquid needs to earn money. Because the reason why we love hype is because you make money. money from hype making money. And if hype makes them money and they buy back no tokens, then all that that trading volume is going to go away or might go away. It might go to somewhere else, which is offering other incentives. And so now we're going to see who survives after, you know, months or years of low to no fee trading on on perps. And I think what the sex founders are hoping is that, okay, they destroy this competitor. And then once hyperliquids gone, or people have been disabused at this notion of charging a healthy fee for this trading,

the fees back up and, you know, maybe they'll degrade the performance a bit so that you go back to trade on sex. It's a way more profitable for them as their existing business. But I think in the other day, you know, call it five, ten years, we'll all be trading on a decentralized perpetual exchange. It's just in this sort of in-between state. There's still a lot of money to be made from the retail perspective for, you know, sex versus dex trading. And so that's why I think this is a commodification of perk dex's moment. And we'll see if hyperliquids or those who are not affiliated with a large, sex survive. Adam, to you have an opinion?

Yeah. I mean, honestly, I don't have a whole lot more to add. Arthur has the best opinions on these. Yeah. Yeah, the granddaddy of the perps. Exactly. So, well, actually, one follow-on question that I just have to ask is there's been this kind of rolling narrative where finally,

Bynance is actually doing multiple things wrong. And we haven't really seen that before. You know, they became the number one biggest exchange across the world eight years ago and have not fallen from that spot. And yet, you know, they're sort of flailing against hyperliquid. It seems October 10th. I mean, I think you're blowing the hyperliquid is what like five to 10 percent of finance is volume. So yes, they're growing quickly and they are a threat. Are they in any way shape or form dominating Binance? Like, absolutely not. No, but would you say, I'm just reading the tea leaves here, like CZ's tweets and all that.

Wouldn't you say he seems nervous about it? I mean, yeah, sure, nervous that there's a competitor coming up. I think that they're dealing with it in the way that they should be dealing with. We'll see what the outcome is. I wouldn't say that, you know, finance is failing. You probably refer to the ADL issues and the massive liquidation event. Like, I have a, thankfully, I'm not in charge of Bitmex anymore. And maybe it's one of the reasons why we didn't do so well after our March 2020 situation.

I'm a bit of a purist when it comes to trading. And if I write something in the manual, I tell you how something works. And it's been there for over 10 years. I'm calling it auto-addy leveraging. It was invented by Huawei. We came up with the term back in 2015 or 16, whenever it was. But again, this has been around for a very long time. And yet all of a sudden, everyone is like up in arm was that like, oh, if I have this leverage

I somehow get taken out of my profit at the most inopportune time. Oh shit, the NBA is down. Motherfucker, this is crypto. I'm sorry, but like, CCC did you do a solid by reaching in his pop and gave me $700 million. My black ass would not have. And, you know, I take that way. Wait, wait, wait, wait. I suffer for that.

And you know what? That's my opinion on these things is you should have read the fucking manual. If you lost and got liquidated, that's your fucking problem. No, no, no, no, no, no. Wait, wait, wait, but don't you agree that, um, like because so obviously because of the dislocations on those three assets the um you know uh you you uh you uh you was sorry i can't speak us DE um the the I can you remember my what were the other ones it was so basically it was like yeah the USCE someone dumped a bunch of USCE and that caused the

the price to trade much more than it was three there were three yeah there are a few other I forgot the other ones um yeah but similar similar situation liquidity wasn't as large on binness as it was and some other market. Finance looked at its own price versus the global average. That caused some, you know, bad things to happen with leverage. But again, this policy, but this policy is how I would put it. How I understand it was that this was written. They put out a post days before this happened, basically saying,

hey, we're doing some updates to our margining system. We're going to not, we are marking it this way to our market. We're going to change the marking method to this other method at a different date, and they gave, I think it was like a six-day time period between which they're going to make this change. Now, obviously, that event happened within that time period, but you can't say that you as a leverage trader of finance did not understand the marking method of what you're trading. That means you're a bad trader.

I'm sorry. If you don't fucking read the documents that say, I am trading a leverage, how does the exchange mark this position? And if you don't understand that, I don't care what the exchange does or says or how many courses are going to offer you. If you can't even like get to that based level understanding of what the fuck you're trading, you deserve to lose every fuck on Satoshi in your account. Now, I know that's not a very popular opinion, but as a purest trader, and I have actioned on this policy many times as CEO bitmix and maybe the results weren't as intended. But again, this is, that's my philosophy.

I don't think they did anything wrong. Okay. Okay. Well, yeah, we'll see because, yeah, like I said, I am looking at the finance situation. And it looks to me, like for the first time they're nervous. But anyway, let's move on because we only have a little bit of time left. And I want to talk about prediction markets. There is a raging rivalry between Cali and Pali Market. You know, who do you give the edge to or like what factors do you think will determine that competition? And by the way, there's another entrant limitless.

But yeah, we are an investor limitless. So I have to plug our portfolio company limitless. Well, then please answer, you know, what their little market maker was doing. this concentrated liquidity, you know, I am, honestly, I think, I don't really know. All I know is that it was great viral marketing. Whatever happens. But it was negative.

If you, I mean, if you look at the deck screener and you go all the way back in its history, you can see it relentlessly selling until it was called out. Well, maybe they did, maybe. I'm not an expert on that. Like, if you don't talk about like prediction markets in terms of like, obviously they're useful, right? And they're very useful in elections. I think the big come out moment for Polly Market was obviously the presidential election.

How are the three of these guys sort of create a product that's broader than that? That's the challenge. Can you bring prediction markets, create liquidity in such a way that one of us has an idea about some event. We put it on one of these platforms. We generate liquidity. Outside of like U.S. presidential elections, I think that's going to be the struggle. And a limitless of struggling with this. Okay, what are the markets we're going to offer?

How do we bring liquidity to these markets? Do they be standardized? Do they not be standardized? And these are the things that is going to create the winner. And I guess, you know, the next real marker will be the U.S. presidential election in 2006, right? So we'll have people understand polymarket and Kalshee and limitless. They know where to get these API feeds.

Okay, what's what am I going to trust? Do they trade with each other? Do they create in different ways? How is it? What's the easiest way to get capital onto one of these systems, whether it's on chain or off chain? Like these are the sort of things that are going to matter as we continue to prove out this team. Or maybe they're going to call some world leader dies unexpectedly, but there was a

polymarker, a limitless, or a Kelsey market, and there was a spike right before this guy or this gal died. In his career circumstances, does this lead credence to sort of like information that is not otherwise disseminated through traditional markets, is not disseminated through prediction markets, and that's why these primitives are very important. So I think that's the feature for these things.

And we'll see who wins. Hopefully, you know, a little bit of a late comer to the game can get some more volume on there. But I still think that's really the crux of who is going to win this sort of prediction markets battle. Yeah. Yeah, that makes sense. Well, then let's talk about the stable coin space, which is also just, oh, my God, so many competitors.

You know, and I'm not even going to go into all them because there's literally like a list of 20 things going on here. So I'm curious to hear from you guys, you know, what do you think this competition is going to look like because we're in this, you know, moment where there have been two dominant players. And then now all of a sudden there's all kinds of new entrants, you know, in many different kind of iterations, including, you know, Phantom's new open issuance, which allows any company to create their own stable coins. So how are you thinking about like what the stable coin space is going to look like over the next, you know, a few years?

I think it's, so it's been the same thing that always says about distribution. So if you have distribution to a client base and you can force them to use a particular payment solution. And maybe that's your own stable corner or somebody else's. Great. And if that distribution is big enough and you get enough assets on the management, you make you an interest margin, good on you. But most of the things that we see are, hey, I could build a better stable coin than Tether. Probably could. You know, great engineer that you are. But you have zero clients. and the cost of acquiring a client is so fucking expensive. So I don't want anything to do with you.

And I think that's a lot of these like stable coin solutions. As people hitting me up talking about how they can like have this novel design by a stable coin, like, okay, great. But like do you have Walmart behind you or, you know, Facebook or, you know, and financial? Like tell me where your billion users are. And don't tell me you're going to raise my money to go buy them because, oh, thank you. So I think that's the stable coin situation right now is all these. issuers see that Heather makes $15 billion in a year with 115 employees and they think they

can do it better and maybe they probably can. But that's not the question. It's where's your distribution? And so I think that the market's zipped up. It's tether. I think circle gets taken over by Athena in terms of circling supply and it's circle. Those are the three. They'll be 95% of the market, even as we go to the two of the trillions. Yes, there'll be local market solutions for relevant ways of size-step local banks, but I'm not super excited about that because it's not that high margin of a business and it's going to be hard for me to make money on that. So I think you, you know, you buy Athena, you know, you buy the circle equity. If that is that what you want to do, maybe each other goes public, buy that too, right? But everything else is a zero in my mind.

And, you know, one of the times you were on the show in, I don't know, in the past year, it was right before the Circle IPO and you said, oh, you know, this, I don't think this is going to do well. And of course, it obviously has done well. But so what is your like outlook on Uncircicle? You just said you think Athena is going to overtake it. So I'd be interested to hear, like, yeah, what you think. So if we think about higher level, right, we believe, we all believe that rates are coming down. Powell isn't disobeying us of these notions, that at least in the United States, rates are coming down. If you look at number of central banks cutting versus hiking, most central banks are cutting.

So this great fat net income margin is driving $15 billion of net income for Tether. And Circle is somewhere in the like hundreds of millions of dollars. So they have to pay away so much money. they are rate sensitive. So if rates come down, their revenue comes on a lot. Now, Athena, the rate comes from speculators in crypto. And what do we know? When money is cheaper and more plentiful, the price of crypto assets goes up very quickly.

Speculators will pay money for that leverage and dollars will be scarce. Even at the however many billions that are in the system now, there'll still be a scarcity of dollars willing to take counterparty risk on exchanges to allow for this leverage to happen. That's Athena. that's where they step in. So if rates come down, tether and circles revenue plummets. But Athena's revenue goes up because the basis expands and they make a percentage. They take a charge 20% I think around there on an interest income coming from the basis. Traders will pay for basis, pay for leverage because crypto is going up, because rates are going down.

So you have Athena does well when rates come down and crypto goes up. Tether and circle do not do well because even if Bitcoin goes to $10 trillion, dollars, that doesn't necessarily mean that they're going to hold more assets under custody or that the T-Blow rate is going to be 5,000 percent or whatever it is. So I think they're completely different business models. And when you understand the nuance between what is a dollar-backed seal-a-coin in the bank holding treasuries versus what is somebody who's capturing this cash and carry yield intrinsic to endogenous to crypto and we're the drivers of that, then in a falling rate

environment, you want to own Athena. You don't want to own, say, circle. because it's a listed company at this multiple. This multiple is forecasting something insane for the future. Like, oh, no, they're never going to cut rates. And all of a sudden, all this money, they pay away those Coinbase and every exchange to be listed, that's going to go away as well. So I think in a falling rate environment, the circle is not a great trade.

Athena is. Yeah. Yeah, I actually agree with you on that assessment. And I was probably just as surprised as you when the circle IPO happened. But I think, you know, it's just a reflection of the public market mania for crypto exposure, like with the Dats. So as we've talked about in this episode, distribution is going to be a really important factor going forward. And there have been a number of players that, you know, you could say have distribution.

They appear to have their own strategies. So Coinbase, you know, they're trying to do things like the base app and they're doing a lot of integrations with, you know, base itself into the exchange. Robin Hood is, it started with, you know, they're on arbitram, but they're going to be launching their own chain soon. Stripe, obviously, they're getting into this and they have tempo. They also obviously have their existing relationships. When you look at some of these big players, there could be others. Which of these players that have distribution, like which of their strategies do you find interesting or do you think, you know, yeah, we'll kind of make them more

likely to be winners? Well, I think if, say, Coinbase and Robin Hood and stripe, they could acquire their own bank, which apparently now the Fed is allowing. I've read some announcement that they're, you know, crypto companies are going to be allowed to possibly get a Fed wire account. Then, you know, they're going to, they'll have distribution and we'll see how they're able to activate their customers with this new stable coin and earn, earn this revenue or possibly partner with somebody else. But they're all kind of in the same boat. Think of the, they have clients. So how sickies are client, how much can you actually make them change their behavior.

Obviously, Tether is the granddaddy because I know if I have Tether, if I go to fucking Baroloche, Argentina, I can pay my ski guard in Tud. I don't know this. I can't say the same thing about what Tempo is going to bring out or what Robin Hood or, you know, U.S. DEC and Coinbase. But I do know the places that I go, Tether is accepted. That goes a long way to sort of disabusing me of wanting to hold anything else.

Other than the thing, I kind of get yield on that, which is a bit little, it's a different sort of situation. But I think that's the challenge is like tether has a distribution. What do they say they have something like half a billion people are using it or something? Something crazy. A lot of people. Yeah. I don't know. But clearly. That's the problem that coin base from these guys have. If they say, I want to earn some of that revenue that tether is earning. And so I'm going to create my own thing. If there's anyone who's going to succeed will be them. It's not going to be XYZ engineer and business grad student. You think they can build a better stable coin. Like you're a zero.

I'm sorry. That's the key that Arthur's honed in on, right? It's like the stickiness of the solution and the ecosystem is really going to dictate the success of the distribution. Because, you know, the scale that they're competing against is just so massive that you really have to keep people in there and keep adding different products, different capabilities. And then you can basically expand your distribution from there. But without stickiness, you know, it's sort of like a sieve where water just like passes through. It's great that you have people in there. They're just going to go use some other product if they're not actually bound to the ecosystem in some way.

I mean, Paxos, not that I'm not throwing shit on it. They've done a great job in what they've been doing, but Paxos used to be Ibit back in the day, had their own exchange. They've been doing stable coins for as long as stable coins, a bit of thing. Like they were doing stable in back in like 2017, 2018, right? And they've yet to have a standout success or then maybe a BUSD, but they sort of let finance down when SEC came after then. But that just proves a show.

This is a company with crypto need of roots. The founders have been mining Bitcoin for a long time. They understand the system. They're in New York. They know their financial players. They've been doing this longer than anyone else is doing stable coins at sort of a non-exchange level. And yet they're struggling. You know, they made of, you know, one or two billion dollar market product,

circulation products. We're not making crazy money. And I think that is success for 99% of people who I think are doing stable coins. And that success is bleeding money. And so if that's your success, then like, I just don't see a future for a lot of these issuers. Yeah, yeah. All right. Well, thanks so much for joining us.

This was super fun. Thanks, great. Unchained is produced by Laura Shin with help from Matt Pilchard, Juan Oranovich, Margaret Curia and Pam Majumdar. Thanks for listening.