Unchained - Arthur Hayes and Hanson Birringer on Hyperliquid’s Success (And What Could Stop It) - Ep. 852

Starting point is 00:00:00 Can hyperliquit justifies valuation in the face of a point base in Robin Hood, perp exchange that targets the wealthiest retail DGens in the world, Americans? Hi, everyone. Welcome to Unchained. You're no hype resource for all things crypto. I'm your host, Laura Shin. June 14th was a special day for crypto. And no, we're not talking about Donald Trump's birthday. We're talking about ours. On June 14th, 2016, Unchained, the podcast, officially published its first ever episode. Nine years and close to 900 episodes later, we're still here. And just like crypto, we're not going anywhere anytime soon. With a launch of shows like The Chopping Block and Bits and Bips and some other shows in the works, there's more coming around the corner. Here's to many more years

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Starting point is 00:02:05 Today's topic is Hyperliquid. Here to discuss are Arthur Hayes, CIO of Milstrom, and Hansen Beringer, head of U.S. Sales at Flowdesk. Welcome, Arthur and Hanson. Thanks for having us. Thanks to see you. So Hyperliquid has been a D-Fi-L-1 juggernaut ever since itsirdrop in November. The decentralized perpetual swap exchange now ranks eighth of all Bitcoin futures exchanges, according to Coinglass. And it's been lauded for having one of the only good air drops in recent memory. And the price has actually been going up since then. It was done in a true fair launch style, so it's gotten praise for that. And then it was the center of attention when the pseudonymous trader James Wynn became the main character on the timeline.

Starting point is 00:02:48 And I think longed Bitcoin up to $100 million, but then lost it all, ended up $13 million in the whole. And on top of that, the founder Jeff Yan has ended up in a tweeting and sub-tweeting war, I think, with Z of Binance. And at the moment, we're also seeing that at least Binance and Bibit are backing new dexes. And I don't know, maybe it's, it seems that they're trying to take on Hyperliquid. So I actually want to start by asking Arthur, since you were the creator, or one of the creators of Perpetuals. I'd love to hear what your thoughts have been as you've been watching hyperliquids rise. So I think the narrative that Dexas are going to take over the world has been something

Starting point is 00:03:30 that we've been on the lookout for for a very long time. And I think the first real perp Dex that caught everybody's attention was DYDX back in it was like 2020, 2020, and 2021. And I remember at the time, I think Bitmex Ventures had a chance to invest in it. We didn't probably a bad call at the time. But I think the DYDX price chart, if you'll take a little bit of it, you'll take a little bit more. look, it went up to something like $28 billion FTV, which is a massive number at the time given like their trading volumes are pale in comparison, even at their height to what hyperliquid

Starting point is 00:04:04 is doing today. But it just shows that the market understands that the future of perps trading is probably going to be on a decentralized platform. Now the question is how long that takes. I don't think that's anytime soon. None of these platforms are easy. Hyperliquid included, maybe, you know, Hansen can. elaborate on this, but like when I talk to my friends at Defi hedge fund trading shops,

Starting point is 00:04:28 like, it's a fucking mess, right? What is this code? How does it work? We can't really get good, you know, a handle on it. And then some people just say, fuck out, I'm trading on it. And some people say, I guess can't handle these sort of execution and connectivity risks with hyperliquid. But that being all said, liquidity is there, the volumes are there. It is still quite difficult for an average retail user to use it, but they have probably, you know, something like 20 or 30,000 active traders, which make them a billion dollars in fees every year. So it goes to show there's very few people in crypto that generate literally all the revenue for everyone. And I, you know, know that for a fact, given my ownership of Bitmex and

Starting point is 00:05:07 so the distribution of how much money we make from whom it fits, that there's, you know, 10 to 50,000 people that literally pay the bills for the entire ecosystem from a trading perspective. and we're seeing that with hyperliquid. So again, it's very exciting. I think the narrative fits. They've done a very, very good job in execution on not having any VC overhang, doing a fair launch, and then buying back literally using, I think, 95% of the revenue goes into a hype buyback. So they're doing all the right things, which is why the token has been the best performing,

Starting point is 00:05:40 probably new launch of this cycle. Hansen, what have you been thinking? Yeah, no, I think, you know, as a, you know, Global trading firm in crypto, we obviously kind of, I think, saw the potential of hyperliquid. Pre-TGE is just a market maker in the space and started to take a look and play around and kind of get active in the ecosystem. Post-TGE, though, it's taken on, I think, a completely new narrative, both in the broader ecosystem and industry, but also from like a client interest perspective, we're seeing, you know, a lot of hedge funds and institutions looking to get exposure, you know, kind of echoing what Arthur was saying, not really maybe knowing how or their custodian setup doesn't enable them. to, so having to find different workaways, whether that's working with the firm like Flowdesk

Starting point is 00:06:22 or other OTC desks in the space to get that exposure, sometimes via derivatives contracts as well. But it's really, like, changed, I think, the game for the better. You know, the lack of VC's, the buyback and burn, or not, sorry, not burn, but buyback revenue of the assistance fund. Arthur mentioned, you know, they've already bought back, I think, like $360 million dollars worth of hype, which is not worth, you know, 750 million, you know, on track to do multiples of that throughout the rest of the year. So it's really just like nothing we've ever seen before in crypto in this kind of open-sourced on-chain atmosphere, which is awesome to see.

Starting point is 00:07:00 And out of curiosity, Arthur, you mentioned DYDX, and obviously there's also been other perpetuals, um, dexes before. I wondered, you know, what is it that, you know, brought hyperliquid kind of to the fore in this way in a way that the previous. Perp Dex's kind of didn't manage to do. Do you think it's literally just all this stuff we talked about, like the fair launch and kind of the community aspect or is there something else? I mean, obviously, Jeff and his team are extremely talented engineers. I think they only have 10 engineers, something insane, right?

Starting point is 00:07:32 Their output is per engineer is better than anything I've ever seen from an exchange perspective. So there's that. But I think the key thing for retail, and I try to bang this on through the throats of my project, is like make your retail users rich. You know, do right by them. And I think that the hyperliquid team has done right by other users. They have given them a massive air drop. It's predicated on trading flows.

Starting point is 00:07:56 People understood how they could earn the token. They trusted that at some point they would get the token. And then they weren't disappointed by the amount of tokens that they received in the manner in which they received them, which I think a lot of projects led it to one down. You know, we're going to have this points program. And then it comes out that gets fucking around. And, you know, they're doing these OTC deals with somebody else. And the retail feels like, well, I just got cheated.

Starting point is 00:08:16 I was a reason why you are successful and then you fuck me. And so I think Hyperliquid executed a perfectly done air drop to TGE, because timeline and flow. And the retail user stuck around and they traded with them. I'm going to agree with the, I think one of the, maybe not most overlooked, but most important aspects is making your users, you know, rich. You kind of have to have that community aspect and really that deep rooted sense. of loyalty from your community, which I think Hyper Liquid kind of hit, you know, nail on head.

Starting point is 00:08:49 Yeah, we kind of saw a similar dynamic with Solana ecosystem kind of go through ups and downs. A lot of people in that industry or sorry, ecosystem got very wealthy. And then they, you know, choose to stay there and kind of participate in that ecosystem. And so we're starting to see now, you know, the Hyper EVM kind of coming to fruition. You know, there's billions of TVL, a lot of great, you know, products coming to market there. and you're seeing this exact same kind of network effect of these users who receive large air drops, you know, A, they're never going to trade probably anywhere else because they're super loyal to the hypercore product. But B, they're going to then take that capital that was, you know, air drop to them and keep it within the hyperliquid EVM ecosystem as new products like Felix and, you know, HyperLend and Hyperdrive come to market and give them things to do and make their capital productive.

Starting point is 00:09:40 So we're super excited for that and continue to see the build down. out of the ecosystem itself. And I'd be curious just to know for either of you, do you think that if Hyper Liquid had launched as an L2 instead of an L1, that we would still say, and everything else stayed the same, like do you think any part of the story would be different, or do you feel like it actually doesn't matter whether it's an L2, like for instance, on Ethereum or its own L1?

Starting point is 00:10:07 I mean, I guess it's kind of a hybrid, right? Because you're still the connection to the EVM and, you know, you're still connecting Metamask and go to the Army the arbitrament and some other things that get there. So kind of that it doesn't really matter. It's a layer something. And people give a higher price to earnings ratio to layer something versus a Dex, right? I think, you know, when I initially looked at the $3 offering at the year, the initial TG is like, oh, this is pretty expensive for a Dex given the volume that they were doing at the time.

Starting point is 00:10:34 And couldn't really buy into it. And then, you know, one of the young ins at Mills was like, no, no, no, you got to look at it like a layer something. That's, that's, don't worry about the, the price or whatever. You know, this is just, it's just the next solana of this cycle, blah, blah, blah. Okay, that makes a lot of sense. And so then an eighth in the sun. I think it's all about mindset. Again, people are willing to give you a higher valuation if you're an L-something

Starting point is 00:10:55 because you have clients. And most of these L-somethings have no clients. They have a big valuation like BeraChain, no fucking clients. And so I think hyper-liquid is very, stands out in that respect and that they brought the clients. And now they're getting the L-something multiple. Yeah, I think, um, You know, a lot of the pre-TGE consensus, it was pretty split, I would say, even amongst, you know, I would say very sophisticated kind of crypto traders.

Starting point is 00:11:23 You know, one of our clients actually told me to get a grip when I suggested that this thing might trade to 20, 30 billion FDV. And, you know, now today we're at, you know, 45 billion. So I think it's just funny to see the narrative steel around hyperliquids pretty, I would not say it's consensus trade, right? There's only 10,000 users in the EVM, which is probably a bit inflated due to people, you know, farming with their wallets. A lot of custodians still have yet to support it. The tier one, you know, centralized exchanges haven't listed spot. There's still a lot of catalysts in its pipeline.

Starting point is 00:11:56 But to answer your question, Laura, I don't really think it matters candidly because of, you know, this revenue buyback, you know, whether it's an L1, an L2, an L3, an L something like at its core, you know, hypercore makes a lot of money. And at the moment, they're using that money to buy back the time. token and kind of drive back value to shareholders that way. So I think the market is pricing in continued growth and, you know, capture of that sex-dex market share from a percentage basis. You know, they've already pretty much won the on-chain purplors.

Starting point is 00:12:27 It's now kind of setting their targets on, you know, somebody's like tier three, tier two, eventually tier one, centralized perp exchange venues. Yeah. Yeah. And just to explain what Arthur mentioned, I guess it's the bridge is on Arbitrum and that's what's holding all the money that everybody's trading with. So well, okay, so now let's talk about the biggest thing about hyper liquid that's generated the most discussion, which is the fact that the trades are transparent. And obviously, this isn't something that's particular to hyperliquid

Starting point is 00:12:56 because, you know, as we mentioned, there were others previously like DYDX, which is still around where it's also transparent. But I was so curious, Hansen, since you are a market maker, like, you know, how do you, how would you do your work differently? Or do you do your work differently when you're on an exchange where, you know, other traders can see every resting order. They can see the wallet that's linked to. They can see the P&L. They can see the liquidation level. Like, what are the things that you do on a centralized exchange where positions and all of those that information is concealed? And what do you do on something like hyperliquid? Yeah. So long and short answer. I would say short answer, not much different.

Starting point is 00:13:36 There's obviously different like technical integrations when you're talking about like an on-chain, just from a latency perspective when you're trading and kind of hooking up your trading infrastructure tech stack versus a centralized venue co-location and things like that. But from a more like, I would say, manual input into the trading systems, like when we see James Wynn has, you know, a billion dollar position that's 50 bips away from liquidation, you know, you might step in and put in some stink bids there to kind of catch that, you know, liquidation wicks, so to speak, which have historically been quite attractive on like a revenue producing perspective on hyperliquid specifically. That's been a pretty good strategy, especially in the early days.

Starting point is 00:14:19 It's gotten a lot more, I would say, competitive these days. So I guess to answer your question, you know, it's a pretty similar setup with some slight nuances because you can have a lot more information, you know, historically, and this has been kind of debated on, you know, crypto Twitter and whatnot. A lot of these exchanges have had like either an, internal desk or you have like a private, you know, designated market making program, which, you know, photos we do operate in those. It's part of our business model where we're hired to step in for those liquidations. And so they don't hit the order book. You know, people bid on them

Starting point is 00:14:55 privately and then whatever's left over goes to the order book to reduce that slippage. So it's just a slightly different business model because they are, you know, an on-chain decks versus the, you know, off-chain centralized equivalence. But more or less, it's relatively the same framework. Oh, so actually the transparency doesn't, like, you don't, just all this discussion about like how it's a disadvantage or whatever, you actually aren't trying to, for instance, like avoid being hunted or something like that. So for what we do as a firm, we don't take, you know, directional exposure.

Starting point is 00:15:27 So, you know, we're never going to be punting a billion dollars of Delta as a market maker. We actually, you know, that information is valuable to firms like us. You know, you can definitely like when you see a big trade like that, you know, come to the order books, you might widen out, for example. But I don't think that's necessarily like a predatory act. I think, you know, people are using and continue to still use hyperliquid for many different reasons. And, you know, this ethos of it's all transparent. It's on chain. You know, that's why a lot of people get into crypto to begin with. So I think, you know, it's definitely a net positive for the space to have this type of product exist.

Starting point is 00:16:05 And Arthur, have you been trading on hyperliquid? And if so, like, are you changing how you're trading there because of the transparency or not? No, I don't trade on hyperliquid. Oh, what about other? To me, I don't trade anywhere really. I guess trade OTC. I'm a float as client, happy client. But, yeah, I do all my trading over the counter.

Starting point is 00:16:23 Oh, of course. That makes sense. That makes sense because you're a whale. Okay. You're one of the few 10,000 or whatever that's keeping the industry afloat. Okay. They kept me afloat. Well, so I'd like to zoom out more and talk about this transparency aspect because, you know, during this whole James Wynne saga, you know, I guess, you know, he put in initially $20 million.

Starting point is 00:16:52 He borrowed money to be able to trade 40x what he had initially invested. The holdings rose to $100 million. Then he didn't sell. And instead, he ended up in the whole $13 million, which I mentioned before. before at the end, he was even soliciting donations on X. And I checked his account today. It said that he had $11 in it. So what were you guys thinking as you were watching all that play out?

Starting point is 00:17:17 Because I was having some thoughts about like some direction that this combination of almost like social media and finance was going. But I don't know. Like is that too. Yeah, I don't know. Like what I'm trying to look for is kind of like a cultural commentary about what this says about what the future is. that crypto could be building. I mean, I think he farmed the air drop. I don't think he took a billion dollars of Delta on Bitcoin,

Starting point is 00:17:41 just because if that was what you were doing, you wouldn't be doing it like that and posting it on social media, letting everybody know here's where you can hunt me and destroy my position. Like, I'm sorry. I think it's just a farm. Very, very well executed one. I'm sure he's going to get a fuck ton of hype tokens. I'm sure he probably didn't lose money.

Starting point is 00:17:59 He probably has another account that's either on another exchange. Or he split it off a bunch of different wallets on hyperliquid and he's Delta neutral and maybe he lost a little bit on trading fees. But he thinks he's going to make it all back and the amount of hype tokens he gets in the upcoming air drop. Yeah, I don't know. It's a hard one. I can see both sides of the coin. So like it's really hard to fathom somebody just get degenerously gambling a hundred million dollars, you know, up and down. So that, you know, a lot of people then agree with Arthur that like, hey, you know, this is he was.

Starting point is 00:18:34 farming he's offsetting positions he's delta neutral um or you know he's kind of trying to like get capital in and out of an order book somehow um i don't have a strong view one way or the other i think there is you know some other social element here of he probably got huge ego tripping was like in the you know he was the main character of crypto twitter for that week and a half period and just kind of i think a lot of people in the space have been in that situation where you're like overtrading and kind of going off tilt but like he took it to be extreme extreme I guess to answer your question about like the social phenomenon, I think we'll see more of this. I don't think this was the last, you know, leaderboard style trader kind of going off the deep end.

Starting point is 00:19:16 You know, because everything is so public, you definitely get like this elevated, you know, sense of importance when you are like the number one leaderboard. And actually with hyperliquid, you can't fake it, right? So a lot of people, you know, crypto, Twitter, KOLs, whatever, they'll post a P&L screenshot. It could just be completely fake, you know, on finance. okay X or by bit. But on Hyperliquid, you know it's actually real because you can go check the chain. So I think we'll start to see more of these types of, I think, I guess, I'll call them a K-O-L. I don't know what else they call them right now, you know, using Hyperliquid to promote their, you know, trading group or kind of just trading strategies.

Starting point is 00:19:54 And the vaults haven't really taken off, but I do think that's going to start to take off. I think the team is coming out with some new improvements and tweaks to the vault product within hyperliquids UI. And off the back of that, I would assume that we'll start to see more capital flow to those from like leading traders on the leaderboard, you know, kind of managing other people's capital through those products. Yeah, I saw a lot of people saying that they thought it was his way of promoting his moon pig thing. So that was one theory. But in terms of what you said about how you can't think it, I don't know if you guys saw Andrew Tate. posted his hyperliquid referral link and said he was up 138% and someone found his address. He had actually lost $600,000.

Starting point is 00:20:38 So he deleted his tweet, which I thought was a way. I think that's the one thing you don't want to bet against is on chain sluice in the crypto. They'll always, they'll always find you. Find what's actually going on, which is great. That's the whole transparency of blockchain, which it powers. Yeah. So I did also want to ask, um, Just do you think it's a different type of trader that's trading on these decentralized purpose exchanges?

Starting point is 00:21:05 Like, or do you think everybody's trading everywhere or yeah, just so actually out of curiosity. So Arthur, when you said it's like the same 10,000 people that are making up the majority of the trades. But then, but then you were saying, oh, well, you're not actually trading on any of these venues. So like what size like what size of whale, if that's a way to think about it? are in that active group. Like, yeah, I'm just curious to understand, like, is this a different group that's on this kind of platform or or not? So, I mean, I think I would say there's probably, let's say, it's called 100,000 traders

Starting point is 00:21:43 in all the world. You literally pay for 80 to 90 percent of all revenue at all sexes indexes. And maybe they're just directional traders, you know, your South Korean punter. maybe they're arbitrage guys, maybe there's some high frequency shops, you know, all these types of things. But there's very few people in crypto who spend enough money to basically pay the bills

Starting point is 00:22:07 for the entire ecosystem. Especially when you talk about derivatives. I'm not talking about spot and all that other stuff. So when it comes to hyperliquid and you look at their active addresses trading and it's something like 20 to 30,000, that tracks. Because if you are in a location

Starting point is 00:22:25 where you can't trade on, a centralized exchange for whatever reason, hyperliquids were you going? Which obviously the one issue, well, not issue, the one problem that I see potentially with the valuation and the multiple is what happens when Coinbase and Robinhood launched their perks sometime this summer in the United States. How many of those 20 to 30,000 people are Americans who couldn't trade perps anywhere else and hyperliquids their thing? And that was an easier option that's, you know, direct.

Starting point is 00:22:56 they can wire money straight from the bank account and start trading perps. Maybe they're not going to get 100x leverage and this can be lower, but this can be much easier than dealing with all the interest cases of an on-chain trading venue. So I think that is the real short-term question. Can hyperliquid justifies valuation in the face of a coinbase in Robin Hood, PURP exchange that targets the wealthiest retail DGens in the world of Americans? I don't know to answer that question.

Starting point is 00:23:23 We'll find out. Yeah, although I could see it. some kind of Venn diagram where there's the circle of people who just prefer to have a no KYC decks and then the circle of people who for ease of use they don't mind doing KYC and there's probably some overlap of people who, you know, are kind of in both categories, but maybe, yeah, whoever. Sure, for sure. I'm not saying that hyperliction is not going to make money.

Starting point is 00:23:48 The question is, do you pay 100 times earnings or 200 times earnings, right? It's a multiple thing, right? And so you can still make, hyperlicker can still double revenue, but the valuation drops by half you've made no money on the token. So that's, as a trader, that's what I care about. I don't give a fuck about the actual resorts. What are you going to pay me for the future? And how did that future change based on your information? That's what I'm trading.

Starting point is 00:24:11 You know, I think Coinbase announced that, you know, at their summit this past week. You know, I think, I guess my initial take on it is probably a bit more positive than other people's reactions. I think that the maybe hyperliquids percentage of the pie gets smaller, but I think the pie overall gets much, much bigger over the next, you know, 5, 10, 20, 30 years. Hyperliquid has a benefit of not needing users to trade via them directly on the UI. They have their builder codes. They have hip three coming out.

Starting point is 00:24:42 They have a lot of, I would say, untopped potential of just being that liquidity layer for a lot of other, you know, applications in the world. as perps grow, their market share as a financial instrument, bleeding into, you know, tradifies dominance from options. I think it's a very, very, you know, short-term possibility that we're going to see like tokenized perps trading on different hyperliquid, sorry, tokenized equities trading on hyperliquid front ends, you know, unit protocol that's just kind of doing the canonical spot assets for the hyperliquid protocol itself when it was messing around in test net. Some sleuths found that out, you know, on Twitter last week for doing E.

Starting point is 00:25:22 and NQ perps of 20x leverage. That is something that the hyperliquid core team doesn't need to build themselves. They just kind of build this tech stack for other people to plug into and grow the total addressable market, which is super exciting because I think a lot of people in crypto got into it to have this 24-7 style trading. They want to be able to trade anything on chain permissionlessly. It's just a different type of user. I definitely agree with Arthur that you will have some drop-off of traders who just prefer

Starting point is 00:25:51 to wire their core. based or rob it in account and trade there and have it all with everything else they're doing, maybe just from like a tax reconciliation accounting perspective. But I think the net added new user of perpetuals as an asset class growing with this kind of stamp of approval from firms like that and bring it to the U.S. under proper regulations, just means the pie is going to get much bigger. So if their percentage grows smaller, I still think their revenues can grow. Yeah, yeah, totally agree.

Starting point is 00:26:20 It definitely feels like this whole area. is just about to explode. I did want to ask also about Jeff's long post. Well, he has two actually on X, talking about transparency. And his first one said, you know, very strongly, like transparency results in better execution for Wales compared to on private venues. And the comparison he made was ETFs. He was saying, like even leverage ETFs that have to be rebalanced daily.

Starting point is 00:26:49 They choose to do so in the closing auction of exchanges. And he argued their positions are known. The trading strategy is known, which he said isn't the case for whales in hyperliquid because they can trade however they want. And these ETFs do so at a very predictable time, whereas whales, they can trade at any time. But he's saying, you know, ETFs still, ETF managers still opt for these more transparent auctions. And he said, number one, a transparent venue does not lead to more front running than private venues.

Starting point is 00:27:16 Rather, traders with consistently negative short-term workouts benefit by broadcasting their auto-corrected flow directly to the market. And number two, liquidations and stops are not hunted on transparent venues more than on private venues. Attempts to push the price on a transparent venue are met with counterparties more confident to take the mean reversion trade. If a trader wants to trade massive size, one of the best things to do is tell the world beforehand. So what do you think?

Starting point is 00:27:41 Do you agree or did you disagree with his position? I have no fucking idea. I mean, I think I think Caroline Ellison will have a. might disagree with the broadcasting your size beforehand leads to better results. She ultimately destroyed the exchange by telling CD to hit her at $22. So I'm not sure that it directly bears out. Yeah, it's kind of, it's a hard, it's a hard question because I don't think any two situations will be alike. I guess go into the ETF.

Starting point is 00:28:15 So Flodis, we're one of the liquidity providers for a gray scale. I could say that we're in like the SEC filing documents. So we've been, you know, how those trades have worked is Grayscale gets a trade from one of the APs. You know, they have a redemption or creation of GBTC, for example. They'll go out to their liquidity providers, float as being one of them, and get a bid going into the, it's the XPX print, which is basically like 4 p.m. Eastern across a syndication, you know, it's like a unknown formula, you know, but basically like volume weighted across like six different U.S. exchanges. So, you know, we'll know on any given day, hey, we have to go buy or sell, let's call it 500 Bitcoin going into that print. So there definitely is, I would say, a positive of that order being public into the close of like everyone knows that ETS are rebalancing. You know, BlackRock does 3 to 4 p.m.

Starting point is 00:29:10 Gray's Gale does 4 p.m. on the dot. A lot of trading happens in that final, you know, 60 seconds call it. And so people who are looking to buy or sell will typically get active into. that print. So I think that is a positive thing. I think, you know, a negative thing of like James Wynn example or James Wynn's situation, for example, would be, you know, his liquidation levels being broadcasted publicly and someone, you know, trying to go hunt it. I think also the caveat is it's very difficult to move Bitcoin like 3 to 4%. Like it's like a pretty, you'd have to have to have a lot of capital to do that. And it can't just be on hyperliquid, right? You have to move

Starting point is 00:29:46 the entire global market. And I think Bitcoin is just too big of an asset right now. for any one person to do that. I think obviously it's a bit rich coming from him, given what happened with the jelly issue, which was some illiquid chip coin that he decided to list and didn't really have the proper margin policies against it. And so, yeah, maybe that transparency wasn't really appreciated in that situation. But if you have a, oh, that's like Bitcoin, of course, you're not going to be able to push the price, you know, a few percent just because you have, you see, just because you saw liquidation

Starting point is 00:30:16 level. Right, right. Agreed. Yeah. I think the jelly jelly situation with HLP was, I think, a lot of lessons learned for both users of the protocol, depositors into HLP and, you know, the team, you know, changing the kind of, you know, standardization and kind of different metrics that HLP can take over and different levels of leverage on the platform itself too. Yeah, yeah, that is so true. I definitely agree that that particular incident, you could tell that they definitely probably were going to change how they did things going forward.

Starting point is 00:30:52 Okay, so in a moment, we're going to talk more about that. But first, a quick word from the sponsors who makes this show possible. Hi, I'm Matt Hogan, CIO of Crypto Asset Manager Bitwise. Look, crypto can be confusing. There's so much noise and the space changes so quickly. That's why, every week, I write a five-minute memo on the biggest stories impacting crypto in plain English. Why is Bitcoin up or down? What are people missing? Where should investors look next? Get the lowdown every week. Sign up to get the weekly CIO memo delivered straight to your inbox. Go to bitwiseinvestments.com slash CIO memo.

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Starting point is 00:32:42 And also an X, Rain said, Stablecoins is backbone. That could change everything fast. Again, if you want to hear your comment featured on the show, please write a review or leave a comment on an episode on YouTube, Farcaster, or X. Back to my conversation with Arthur and Hansen. So during that jelly jelly incident, when Binance listed the jelly token, which they did like really quickly, assuming that the price rose, which, you know, if you put on Binance is likely, then it, you know, you know, You know, and so the chain of events there would be. The price rose that would have caused the hyper liquidity provider to lose a lot of money. Did you take that as a moment when Binance was almost trying to like take down a rising competitor or like how did you read those incidents or that chain of events?

Starting point is 00:33:30 I think you could definitely read it that way. I think it was Binance and OkX, right? Those are the two simultaneously launched this jelly market. Yeah. CZ and Star don't like each other. So it's a very interesting coordination between. those two folks. So I think it's, you know, maybe, possibly.

Starting point is 00:33:49 You could definitely see a little bit of jealousy. He was this hyperliquid guy's got 10 employees and he's generating way more money than us. So maybe. Yeah, I think, you know, that sequence of events was, I don't want to say predatory, but like maybe advantageous is a better word. You know, I'm just looking back at the chart here, jelly, jelly was 80. million market cap um you know i think hlp took on the bad debt around like 12 to 15 million um and then it it went up to 50 million you know this is also like classic crypto right we're like

Starting point is 00:34:25 momentum traders short squeeze and then like just delta punters who were like seeing something happened like in uh there was the mob token on ftx that got super squeezed last cycle um you know when this stuff gets broadcasted and shared in telegram chats um you know trading groups discords like it becomes a pretty well-publicized trade. And then you saw the kind of OKX and Binance adding like field of the fire, not spot listing, but like a perp listing, which we've seen, you know, kind of the cycle be kind of the way the exchanges are going of just listing these like low-cap tokens on, you know, high leverage perps. Because they realize that also this is what people want to trade.

Starting point is 00:35:06 It's been like the total mind share of the cycle of these, you know, mid to high cap meme coins on perps. that's been the money driver. And so I think they also saw an opportunity to probably hurt HLP a little bit, and they took it. But I obviously don't know for certain. Yeah. And then it's hilarious that hyperliquid resolved it in a way where they paid themselves a little bit of money.

Starting point is 00:35:28 But anyway, one other thing actually that I was just thinking is, you know, that kind of description that you had there about how once people knew about this, then they wanted to go in on that trade. Like just earlier for the discussion around where kind of, of social fires going. It does feel like, you know, like that whole thing with the LA vape cabal, kind of around like the Libra token and all that. And, you know, I, so I never listened to one of their streams, but apparently on there, because Turun Chitra was listening to one and talking about it on the shopping block. And he was saying like, oh, like on there,

Starting point is 00:36:01 they're literally bragging like, oh, I lost 100K. I lost, you know, whatever. And there is something, yeah, like with the James Wind thing, I don't know, it sort of feels like, yeah, it's like bragging rights. And then around this like jelly, jelly incident, it even reminds me of almost like, people are going to hate me for this comparison. So, you know, just hold your fire. But it's a little bit like canceled culture or something where like this internet mob,

Starting point is 00:36:26 like gets into, you know, they get into something and they all kind of want in on it or something like that. Does that make sense? Yeah. People love leaderboards, right? I don't think, what's not new? Every sex has a leaderboard. you know, we have one at Bitmax and all the major exchange.

Starting point is 00:36:43 We have chat groups where you can talk shit in the chat, you know, post your positions, post somebody your stack is. Like it's tried and true internet culture. So the fact that it's made it on chain and now you can verifiably post your positions and know people know that you're not lying, it's just another way to sort of, you know, brag in this online community inflex how much money you have by either how much you lost or how much you made? Yeah, I think, you know, that the social trading, copy trading phenomenon has been totally

Starting point is 00:37:18 accelerated through the use of like telegram trading bots, right? This cycle are a huge thing. A lot of, you know, PVP trade is an example. It's one of the larger, I would say, protocols built on top of hyperliquid. You can trade teleprps from a telegram bot, you know, on your phone or, you know, at your desk. And they have, you know, social trading, right? You can see when your friends are buying or longing or getting liquidated, you can see on the chart, like when, you know, their positions get, you know, stopped out. And all this sort of, and they have leaderboards like Arthur mentioned, you know, people love that.

Starting point is 00:37:50 They love that sense of, like, being important and like showing and kind of flexing both to the upside and, ironically, to the downside of, you know, loss that they want to share. We see that with Wall Street bets and kind of the rise of roaring kiddie and GME stuff a couple years ago. So I think this type of secular trend is only going to continue. And we're also seeing a lot of like venture capital going into social trading style companies just because it is a fun thing that is capturing a lot of user attention and wallet share. Okay. So, you know, just to go back to that jelly, jelly incident.

Starting point is 00:38:28 Arthur, I did see your tweet recently. Pham, do hype, perp volumes flip finances this full cycle discuss? So you must have tweeted that because you might have been thinking that it might happen. Yeah, I'd be interested to hear your thoughts. I mean, could it happen possibly likely to happen? Again, I think the big roadblock is how does hype volumes compare when you have a real competitor out of the U.S. Coinbase and Robbenhaushood this summer. I don't know the answer to that question.

Starting point is 00:39:01 Obviously, I was long a lot of hype. I'm not long a lot of hype anymore, mainly because I had a trade plan. The trade plan was you exit when Coinbase and Robin Hood, either one of them announced that they're going to do perps in the U.S. Because again, I don't know the multiple that this thing is going to trade at. Are they going to make a lot of fucking money? Yeah, we're going to make a lot of fucking money. That's at the point. We're trading multiples here as a trader.

Starting point is 00:39:21 So that's the question. I think if there's a lot of cool things that they're working on, like the permissionless listing of perps, right? You should take some hype. You're able to launch as many markets as you want. I think that's absolutely amazing. if they're able to launch 24-7 Q's and Spooze trading, amazing, right? Or 24-7 Tesla and Nvidia and these are all user-generated markets and then anyone around the world can trade these things. If they're able to get those sorts of things going, then yeah, the sky is the limit because these are things that Coinbase and Robin Hood will not be doing, even in their home market of the United States.

Starting point is 00:39:57 So, again, I think there's a lot of bullish catalysts for hype. I do think there's this middle, this medium short term question of like, okay, out of those 30,000 traders, now you got this easier way to trade. What happens? I don't know. Hansen, did you want to add on to that? By the way, I don't know if you saw, but the hyperliquid community is totally tracking all these stats, like at the top of one of their dashboards, it shows already hyperliquid purplumes are at 21% of buy bits, 90% of OKXs, 10% of finances. Like they are, they're definitely, very interested in this, but yeah, I don't know where you think this is going, this competition. No, I think, I guess I kind of alluded to it before, but I think, you know, Hyperliquid,

Starting point is 00:40:41 I think now is 75, 80% of like on-chain decentralized per market share. You know, I think it's pretty clear they're the winner right now. You know, I'm a personal, I guess, bet that they're going to continue to win the on-chain. I think the real competition then starts with, you know, these tier two, tier three, eventually Tier 1 sexes that they're competing with. I do think that they have the benefit of being a bit more nimble from a regulatory perspective of what they can and can't do. And I think they're going to utilize or kind of outsource some of these more

Starting point is 00:41:14 regulatory opaque things like the tokenized equity perps. Two builders like Arthur mentioned who are using Hip 3 to stake hype, permissionously launch their own pert market, basically utilizing the hypercore liquidity for Bitcoin ETH and then kind of adding their own tailored bespoke contracts in a different UI, right, a different unified experience for the consumer

Starting point is 00:41:36 and just basically offering this as a, like liquidity as a service basically to anyone who wants to build a front end. You know, you're starting to see builder codes have generated certain companies, you know, tens of millions of income already. I think we'll start to see that continue to accelerate.

Starting point is 00:41:55 You know, PPP trade, like I mentioned, Axiom, which is a huge. you know, on chain trading bot in the Salana ecosystem has implemented hyperliquid front ends. We're really only starting to scratch the surface of, you know, that liquidity layer thesis playing out. So the last thing that I want to ask you about this competition is I'm sure that you saw CZ's post. He tweeted, given recent events, I think now might be a good time for someone to launch a dark pole perp decks. And then he said, I've always been puzzled by the fact that everyone can see your orders in real time on a decks. the problem is worse on a perp decks where there are liquidations.

Starting point is 00:42:30 And then he describes how like on a normal AMM style decks, you can be front run and be vulnerable to MEV style attacks. And he says, for perps or futures, it's even more important to not let others know or see your orders. If they can see your liquidation point, they could try to push the market to liquidate you. Even if you get a billion dollars, others can gang up on you. So he then, you know, kind of promoted this idea of this on-chain,

Starting point is 00:42:53 dark pool style decks with perps. something that he said would either not show the order book or even better not show the deposits into smart contracts at all. And he said this should be doable with ZK or similar encryptions. And then he invited people to pitch him for investment, which I took as another way of saying that, you know, finance doesn't want to be outcompeted by this rival, but instead he will invest in a rival to take on hyperliquid. What did you think of that? Like, do you feel like CZ is worried about this? Or, and do you feel like, you know, a dark pole style decks would kind of either take market show or, you know, cause, I guess, hyperliquid to run for its money? I mean, things change very quickly in the perp decks game.

Starting point is 00:43:40 I know from very visceral experience. So CZ should definitely be afraid. I'm sure he is to the extent that if this guy, these guys with 10 people have 10% of his, I don't know, trading volume of OI, I'm not really sure which statistic they're 10% of, but have already, you know, beat up on, you know, very good exchanges like OKX and, you know, coming on by bit. So it makes sense. Whether or not a ZK enabled dark venue was really going to be the thing. I don't know, because at that point, I want to just go back to trade on the sex.

Starting point is 00:44:12 Because without the transparency, why go through all these other handwavy things to, you know, reduce your ability to understand what's actually going on on the platform. That's the whole point of the decentralized platform is you can verify that this is, it is where they say it is. The money's there. You're trading against a real address versus, you know, go back on a sex. And maybe you're trading against the internal market making desk who's got faster latency or doing some of the funny things in the background. Again, you have a black box. Why complicate it with the DK and there's all those other bullshit?

Starting point is 00:44:44 Just go back to trading on the sex if that's what you really want. Well, yeah, but this might be for people who don't want to do KYC. Maybe. I don't know. Yeah, Hansen, do you also think it's a lot? Yeah, I agree with Arthur. I think a bigger point here is I think crypto and I think people in crypto don't actually care about decentralization and privacy. It's like a pretty small subset of people. What they do care about is like a permissionless experience that's like good. And I think hyperliquid provides that for, you know, this type of user in the market. we're talking about someone who wants to log in, oh, they're on their phone or on a desktop,

Starting point is 00:45:19 you know, anywhere in the world, basically, and trade Bitcoin on leverage. That's who you're targeting and that's who they're targeting. And I think that person is caring about, A, how easy is it to get money to this platform to do what I want to do?

Starting point is 00:45:32 And then be like, not even really execution, but like just experience and like community around that product is more important. And so I actually, I think that CZ and kind of these other centralized exchanges are definitely maybe a little scared, just aware of hyperliquid. If they're not, I don't think they're doing their job. Like Arthur mentioned, this space is very competitive, right?

Starting point is 00:45:54 Even, you know, one or, you know, a little over 1% of market share is like nine figures of revenue a year. It's a very lucrative business exchanges in, you know, perpetual trading specifically. And so you're going to start to see more competition. You know, we see a lot of perp dexes get funded, you know, almost every day in this space. And the reason is the TAM is just so big. but more importantly, like, I do think there is an argument to be made that these exchanges should actually probably be buying hype to hedge their their business over time. You know, and that could be like by listing spot hype and then just taking the fees in kind and not selling it. I think that's

Starting point is 00:46:28 a good strategy that more exchanges should be starting to think about in a pretty serious way. And by that, you mean just themselves enjoying the rise and the price of hype? I guess it's more so large. You're just, you're naturally accruing. equity in one of your fastest growing competitors, right? I think, you know, in the early days of Binance, you know, people who accumulated B and B because they saw the rise, they're probably, A, pretty happy because of the price exposure, but B, you know, it's not direct equity rights to the, to finance itself, but it's a pretty good proxy to their success in the space. So I think we'll, in, you know, five years from now, I think we'll probably see a similar, you know, hindsight bias of,

Starting point is 00:47:07 oh, I should have, you know, as an exchange started to accumulate or at least participate with hype, just because it is the fastest horse right now in that category. Okay. Okay. I did want to ask about some of the concerns about hyperliquid. The main one that I see people talk about a lot is the security issue. And there's, as far as I understand, two single points of failure. So if either of these is compromised, then that's $2 billion of money in hyperliquid that can be taken without hyperliquid being able to stop the hackers.

Starting point is 00:47:40 So one is the validating software and the other is the bridge, which has a three or four multi-sig on Arbitrim on it. And that's, you know, as we talked about the smart contracts, that holds all the funds. So are either of you concerned about these risks or and on top of that, I guess for Hansen, like, how do you factor that in or think about it when you're trading on there? Yes. Yes, concerned. Does it keep me up in night? No. I think right.

Starting point is 00:48:08 Is a crypto native firm, we're comfortable. using DFI protocols and platforms, you know, if you're not, it's kind of like, why are you here? You know, not to be like rude. But like I think, you know, as a firm, we're like very comfortable operating on chain. We do a ton of stuff in DFI. I think, you know, worst case scenario, if the Arbiturum Bridge did get hacked, it's centralized enough to where I think they would freeze the funds and Circle would step in to freeze the USDC for, you know, $2 billion if it gets exploited.

Starting point is 00:48:40 Again, I'm not a security expert. This also isn't my domain of expertise. And so I am definitely placing a little bit of faith and trust in the team that they've done their due diligence and work, which so far has proven to be a pretty good stance to take, given their success and track record. Arthur, is that something that concerns you? No. I mean, again, we're Milstrom's a defy shit coin house. Like, if I was concerned about this shit, like hyperlick is probably on the better end of the spectrum of some of the

Starting point is 00:49:10 dog ship. Yeah. It's just a beat on it on. So like, I'm not worried. Yeah. I think it's, yeah, we see, we see some firms, yeah, in the space, like getting their exposure through venues like Ku Koi or some other venue. Like, I would, you know, maybe prefer hyper liquid exposure versus some of these, you know,

Starting point is 00:49:31 offshore exchanges, purely because I can also like see where my funds are on chain, right? It's the kind of going back to our other conversation about like why uses ZK rollup decks, just use a sex. at that point because the whole reason you're kind of operating on chain is you can actually see where the funds or proof of reserve, so to speak, are actually there. Okay. Okay. Yeah.

Starting point is 00:49:51 That's interesting. I guess it goes back to what you're saying. People don't necessarily care about decentralization. But I do think certain people don't know. If they care about decentralization, they wouldn't own B&B, right? Oh, B&B has this chain that you trade financial. It's fucking CZ's computer. And no one, and I'm not to bash CZ, right?

Starting point is 00:50:08 He knows exactly what he's doing. Oh, they want. They say they want dissentulation. No, they just run a really, really fast, you know, casino. And I can build that. Okay, cool. Let me make a bunch of money. There's B&B, right?

Starting point is 00:50:17 Good on him. He's a good businessman. Yeah, I mean, I do think there's like different, yeah, there's different kind of constituencies within crypto. And, well, actually, I'd be curious. So, Arthur, you're in Asia and Hanson and I are in the U.S. Do you think that, like, people in Asia care less about decentralization? This is like a hypothesis.

Starting point is 00:50:39 I have. Do you think that's true or do you have not enough happen opinion on that? I think that people want to invest in decentralization, but don't care what actually happened under the hood. So as long as you say you're decentralizing or decentralized, then you can receive my money. Am I actually going to investigate how the validators work, how the multi-sig work, who holds the keys, how are they rotated, do they do a proper signing event, And all these sorts of things that you would think about if you actually were building one of these things, you cared about essentialization? No, the partner doesn't care.

Starting point is 00:51:13 Oh, they said decentralization. The centralization meant Bitcoin went from zero to three trillion. Okay, I'm going to, I love decentralization. Buy now. That is all. That's not an Asian thing. That's not an American thing. That's just retail, even institutions.

Starting point is 00:51:29 No VCs give a fuck about decentralization either. Oh, decentralization. This went up from that to that. Okay, I like decentralization too. I'm investing in the centralization. I feel like wherever Satoshi is, Satoshi is going to hunt our dream at night. I think if you want a decentralized product, it's Bitcoin. Bitcoin is a beautiful decentralized network.

Starting point is 00:51:48 It's its own kind of class of asset at this point. I think, you know, the same, you know, everyone has a plan until you get punched in the face is like everyone loves decentralization until there's a hack. And then who do you go to? You go to the team and like, oh, freeze all the funds, right? We just saw what happened with Suey. you know, they're not going to let some hackers steal, you know, $250 million if they have the means to do, to let, like, stop them. It's just, it's just, you know, not going to happen. Yeah, although like Thor Chain led, you know, DPRK take, you know, launder a bunch of funds. But anyway, so it depends. Right. Well, that's, that's, you know, if Thor Chain, if Thor Chain was hacked itself, I think it would be a different story.

Starting point is 00:52:31 Yeah. Yeah. Oh my gosh. Okay, that's so depressing. But anyway, so let's now talk about some stuff that you guys have been alluding to throughout the episode. So Hyper Liquid launched this HyperEM, which enables developers to build DAF some type of hyperliquid. And we've seen like a little bit of this. There's like a lending protocol, hyperfund, which is this Telegram bot support, their hyperswap, which is a low slippage AMM. I don't know. What do you think could happen now that like there's this possibility?

Starting point is 00:53:06 Like where do you think this community that they've created and now this technological capability? Where do you think this is going to go? Well, I think they have clients, right? And at the end of the day, every single L something is competing for a very small set of people who actually do stuff on chain. Very, let's call 100,000 people do something on chain versus the millions of people who have a crypto wallet.

Starting point is 00:53:29 And so there's all these sorts of games that we all play, the Ponzionomics of tokens to get you to do something on chain. And most of these L-somethings have no clients, even after torching hundreds of billions of dollars of VC and retail funding. Whereas hype comes with a dedicated community that's spending enough money to generate, you know, billion plus dollars in fees per annum. And so now you're going to give them every single other defy application

Starting point is 00:53:55 because they're invested because they own the high, Hype token. They like the product. They like the way the team is ship tech. And so they're going to use all these other different things. So they don't need to be different than a Uniswop or a curve or whatever. They get you to be on Hyperliquid. Hyperliquid has the clients. The clients are wedded to this platform because they've made much money and they've got hype tokens. Therefore, these things do well. So, you know, at Mailstrom, you know, we're looking at some of these projects because, again, they have the clients, which most people don't have. They have to spend all our money to get the clients. Hype comes with that out of the box. So that's why.

Starting point is 00:54:26 it's exciting. Yeah. I would say Floresk, we've also invested in some of these companies in the ecosystem, you know, back in, I think, Q3 of, you know, even before TGE. And, you know, the valuations that they were able to demand was probably was candidly a bit higher than they might have deserved at the point just because they were like hyperliquid exposure through like a VC conduit. Because there are no VCs for hyperliquid. And some of these firms couldn't get any beta to crypto's number one product unless just investing in the ecosystem. And we've seen that kind of, I think, come tenfold now. But the success of hype itself, a lot of these products are raising bigger rounds

Starting point is 00:55:09 at higher valuations, also attracting, like Arthur said, they have the user base. They don't need to go pay for it. It's actually a much different type of equation for like go-to-market and strategy of user acquisition because you basically have this cult of hyperliquid maxis who, will only trade or kind of use your platform if you're supporting the hyperliquid ethos, you know, kind of decentralization and like kind of giving back revenue to the users. It's also, it's completely flipped, I think, the historical VC game on its head as well. A lot of those projects actually wouldn't take venture dollars.

Starting point is 00:55:44 They only did angel rounds because they wanted to like stick to this like no VC hyperliquid only ethos back last year. And so on a similar note, we have this, um, HIV. IP3 proposal, which will enable builder deployed perps. And I wondered, you know, assuming that that goes through, how do you think that could change hyperliquid and also the competition amongst these perp dexes? Like, like, what do you think that future looks like if those are deployed? I mean, that's the Holy Grill. That's the game. Because at the end of the day, you know, you can say what you want about decentralization. But if Jeff and his team are making decisions on

Starting point is 00:56:22 which perp to launch and win and all those sorts of things, then that's not the, you don't want to be in that space. You want to be like a uniswap. You know, they don't decide what LPE pools get listed. They get lists because they have a permissionless protocol and you can, you know, create what you want to create. So if you can do that for perps, you know, and they're not the first ones to try this. If you do it for perps and you have this sort of liquidity mirroring from the Bitcoin and Ether order books and it works and the margining rules, you know, work at scale. Who knows if that's going to, I'm not really an expert on how they're playing on marketing these things or how they're kind of separating the risk of any liquid user generated perp,

Starting point is 00:56:59 taking away from the HLP position in the Bitcoin book, all these sorts of questions you have to answer and how margin works. I have no idea. But again, if we're able to do it, it's the holy grail. And then they can defensively say, hey, we are a decentralized pro, but we don't do fuck all, right? We just build this tech.

Starting point is 00:57:17 We don't want some markets. You don't provide the liquidity. So don't talk to us, right? And we just collect fees. and then we pay them back by buying back the token. If they're able to actually execute on that, that is, they'll be the number one exchange, period. Yeah, I think, you know,

Starting point is 00:57:35 that's the whole liquidity layer thesis that the team set out. I think, you know, hit three's in TestNet, I think it's coming to Mainnet, you know, in the next probably month or two, maybe a little bit longer. But then again, it's gonna be up to, you know, builders in the ecosystem to take advantage of this product that the team has built for them,

Starting point is 00:57:53 which I think is a stance they've taken since you want, right, build this amazing product, focus on what you're really good at, and then basically, like, bring all the users to it just because of, you know, natural attrition to the best product at the market. And then that's going to bring all the builders kind of like we've been saying because you have the clients in the ecosystem. You know, they took the approach of, we're going to build the best app and then an ecosystem will just grow around it versus these other L1s are like, we're going to build this chain and

Starting point is 00:58:19 ecosystem and then try and bring the apps to it. So it's completely different style playbook. And, you know, I personally am super excited for like what the possibilities of HIP3 will enable. I kind of mentioned before, but, you know, unit protocol is going to be launching tokenized stocks there pretty, you know, shortly. It seems like just based on test and activity through their own, you know, front end. And that's going to be interesting to see how it plays out because it's not really competing with hyperliquid. It's actually just growing to this like pie through builder codes and kind of revenue generation. And out of curiosity, do you feel like HIP3 or, you know, a builder deployed perps,

Starting point is 00:59:01 do you feel like that will change your business in any way or, or will it just give you more capabilities or? No, I mean, because we're right, we're not a, we're not an exchange. We just trade on them. You know, maybe there's a world one day where, you know, we have flow decks or something. I don't know. I think that'd be pretty cool. I think that's a long way off and not really part of our business model at the moment.

Starting point is 00:59:26 But, you know, HIP3 does enable, right, that kind of conversation. Because if you want to start an exchange today, right, there's a ton of work. Arthur knows better than most people on the planet of doing that in crypto. And if you can just obfuscate all of that and really just basically plug into an existing tech stack, that saves you a ton of time and you really only have to focus on user acquisition, which is a very hard problem to get, but a much, I think, arguably simpler one than getting all the liquidity. So it won't change our business model much. In fact, it'll probably just give us more venues to trade on, which we like as a trading firm. Okay. So I did also want to,

Starting point is 01:00:03 we briefly discuss the token buyback assistant fund. It recently had a billion dollars. And I saw, so earlier, one of you made a comment that you felt like this was good for the token. But I have seen other commentaries saying that as the price rises, it may not make sense for the protocol to continually being buying its token at ever higher prices. So I wondered, you know, what you thought of that criticism, whether or not you thought this style of token buyback program will be sustainable. I mean, if that's your criticism, go look at DYDX, right? They were one of the first out there. They had the same vision as Jeff. Very good team. You know, obviously was VC backed and what have you but only started distributing revenue, what, a year and a half ago? And the token has just

Starting point is 01:00:53 gotten slaughtered, even from the low nominal level that has been even after the fall from the 2000 to 21 levels, right? If you do not give away, if you make a lot of money as a exchange, which you should, that's the whole fucking point of this business. And you don't give it to the users. I mean, I'm going to buy another token. What am I here for? Why am I going to bleed for hyperliquid if they're not going to take that money and buy back the token or give some sort of mission via staking. So if that's what you want, go fucking buy a D-YDX and be down 95% over the last 24 months. Because that's what you're asking for.

Starting point is 01:01:28 Yeah, I think the, I don't think it's, yeah, the criticism that like, you know, the buybacks are bad, longer term. I think it's great. Like it gives you a constant, I don't say floor, but right, as long as the actual product itself continues to make money, which I'm betting on is they've, from, their client base and kind of trading activity. I think that will continue to go up and to the right. You know, the buybacks basically provide this mechanism to, A, hold it,

Starting point is 01:01:54 but be traded because it gives a lot of people confidence in owning this asset that's continuing to win their category and be a leader in it for a long-term investment thesis. And, you know, now it's fairly liquid. I think there's a lot to be desired still for Hype Spot itself. I think that will be fixed over time and continue, maybe not fixed, but improved over time. And like Arthur mentioned, like you have this community around this token that basically won't trade anywhere else because of the wealth effect they've had, but also be the community around it and kind of, you know, future like carrot that's dangled on a stick, right? If you trade here, there's 40% left supply, right, that's earmarked for the community. No one really knows what they're going to do with that or when it will be distributed or how, but, you know, it's a pretty good bet to take that.

Starting point is 01:02:41 It's going to part of it will go back to active takers on the venue. So like why trade anywhere else with all that, you know, knowledge? All right. Well, last question. As we mentioned, there is competition coming for hyperliquid. Do you have any? And I know, Arthur, you keep saying like, you don't know how this will affect them. But if you had to make a projection, what do you think will happen when we have these other

Starting point is 01:03:04 venues that, you know, are much bigger? They have like easy on-ramps, especially for U.S. users. Like, you know, what do you think will happen with hyperliquid at that point? I think that they're going to have to double down on the HIP. three in their true vision, right? I've spoken to Jeff and he said, yeah, I really want to build a permissionless trading platform for everything. And I think they're going to have to really go onto that vision because if they're,

Starting point is 01:03:27 you know, the vision is just we want to be a very little bit of perps decks. Okay, fine. You're still going to make a lot of money. I don't know if you justify the valuation that you have right now in the face of, you know, Coinbase or Robin Hood. Like they could go to zero fee trading on perps just because Wall Street's going to reward them for user numbers, not profitability. And so their stock price goes up just because they have more users, who goes

Starting point is 01:03:50 the fuck if they make any money? Right? Versus hyperliquid, they have to make money. The whole point is they make money. They buy back the token. That's why we, as holders, want to hold this thing and buy it. So I think there's a different sort of metric. And they could fall prey to, you know, the Wall Street VC mindset, which is just give me clients.

Starting point is 01:04:07 And at certain point, you're going to turn off the fees, like a Netflix or something like that. Then if I'm coin mason and Brian or Vlad at Robinette, okay, fine, zero fee. trading on perps, let's just destroy hyperliquid because now they don't earn any money. So I think, and then if they don't earn any money, they don't buy like a token. Token holders are not rabid supporters anymore, though they'll trade with me because it's free. So again, I think, but again, if you're saying I'm going to decentralize the entire trading stack and anyone can launch any product on anything because I've provided this

Starting point is 01:04:38 very liquid and easy-to-to-use platform like a uniswap for a spot. But now for derivatives, I think that's a vision that could really power the token past what I think is this sort of short-term question of what multiple should I pay in these future revenues if I have a very large and competitive U.S. brokerage house offering the same product. I echo what Arthur is saying. I think the real end state goal of hyperliquid is to be this liquidity layer. I kind of keep bringing up that phrase. But I don't think, I can't speak on behalf of their team, but I don't think they maybe want to directly compete with Coinbase for U.S. users, right? You can't access hyperliquid in the U.S. today. I also think there's this common theme in crypto that people think all of crypto is just in the U.S.

Starting point is 01:05:26 It's a big market, but like the world is very big. And I think that the TAM for perps and, you know, on-chain trading is actually much, much bigger outside of the U.S. And so there's a lot of market share for them to win in the interim before even not having to worry about the U.S. market, but they can focus on all their efforts of tapping into the hundreds of other countries around the world. And then also getting right via builder codes in HIP3, that tangential liquidity and kind of trading volume and revenue from the U.S. market, from people who build, right, compliant KYC front ends or hyperliquid in the event that perps do get fully regulated and legalized here in the U.S. without even really having to pay for it. So I think that's kind of, I guess, my take on the future of the protocol. And, you know, it's something that's really exciting to kind of be a part of, you know, in crypto today. And actually, just one last question when you were talking about when, you know, HIP3 goes through.

Starting point is 01:06:26 Does that ask, would that create fragmentation and liquidity in any respect? I don't think, I know. I don't think so, right? They're going to be using kind of, well, the new per. that get listed from whoever's choosing to list it will obviously have to manage and kind of drive their own liquidity, but the other pairs, to my understanding, will not be fragmented. It's just a different front end to access the same order book. Okay. All right. Well, is there anything I didn't ask that either of you want to mention? Yeah, I'm all good. This was great. I appreciate the time and get the conversation. Well, you should hit up Jeff and get some free tokens for us. Come on.

Starting point is 01:07:02 Jeff, if you're listening, Arthur definitely wants some free tokens. He's mentioned it twice now. All right, well, do either of you want to give out handles where people can learn more about you and your work? Sure, at Crypto Hayes on X and Substack. Yep, just at Hansen Beringer on Twitter or HansenB underscore Floodusk on Telegram. Always happy to chat. Great. It's been a pleasure having you both on Unchained. Thank you. Thank you.

Starting point is 01:07:32 Coming up, we have insight into Unchained Reporter Jason Brett's latest scoop on the Clarity Act. the White House and presidential conflicts of interest. Stick around. Hi, everyone. I'm Stephen Erlich, executive editor at Unchained, and I'm here with our regulatory contributing reporter Jason Brett. Welcome, Jason. Thanks, Stephen. Welcome. So you had a pretty big scoop last Friday, and it relates to sort of the legislative process and the future of the Clarity Act, the proposed market structure bill that's trying to make its way through Congress. Why don't you walk us through what you reported? Sure. So what we learned was the status of the negotiations around the Clarity Act, which is the

Starting point is 01:08:19 market structure version of the bill. There's also the ability of trying to regulate stable coins, and that's going on and getting a lot of the press in the Senate. But the House is also working on a market structure bill, all working toward a August deadline that has been given by the White House that is providing a lot of pressure to Congress to get it done before they typically go on break in July. One of the key points of negotiations that we learn, and really this started as just exploring a little bit more about what the status was of are they going to make it by August, it is going to be stable coins or market structure, was this very interesting negotiations that we learned of where there were a quiet group of House Republicans and Democrats

Starting point is 01:09:09 that were getting together and they were negotiating a language around conflicts of interest for let's say the president, the vice president, members of Congress and so on, who would not be able to profit inappropriately from our crypto ecosystem. To me, this was very interesting because, as we know, the House, particularly in the Financial Services Committee, there was a lot of rancor about the fact that our president is profiting off of crypto. In fact, I believe most of his wealth is now from this industry. And they've been wanting to get in amendments into the Clarity Act, which last Tuesday had the markup, where they decide sort of what amendments go in the bill and what don't. And the vote out of that committee was 32 to 19. It was very, very,

Starting point is 01:09:59 partisan, wasn't as bipartisan as, let's say, the House Agriculture Committee. This bill's actually going through two committees, which is rare in and of itself. And that vote was 47 to 6. So the House Financial Services Committee was really pushing on the president's ownership of crypto and how he might benefit, particularly because he has, as you know, a stable coin business or his family does, USD1. and the idea was what we learned in the story is that both of these groups, the Republicans and Democrats behind closed doors, said,

Starting point is 01:10:37 hey, let's come up with some language that maybe can solve this issue, not just that would be like telling President Trump, hey, you're doing something wrong, but for the current and future presidents and Congress to deal with the ethics around how we'd be involved in this industry. and the language was agreed to, apparently, by both the Republicans and the Democrats in this backdoor dealing. And that's what became the real big scoop then, because what typically happens when you negotiate these bills is you check in with the White House because they do have the veto power and you hear what their thoughts are. And the White House from our reporting show that they rejected any language at all that would prevent the current president from being a

Starting point is 01:11:23 involved in this industry. A couple of questions, just to kind of jump off here. What do you know about the precise nature of the language that was negotiated by these different sides? So we don't know and didn't learn of the language itself, although we know it existed. And I think that's because to one degree or another, the negotiations are still ongoing. So this isn't necessarily over. It was the version of the language we learned that was rejected. We've learned from our reporting that it might be language around campaign finance or donations to campaigns or political fundraisers and maybe the precedent of making sure we follow campaign finance laws and extend that to crypto. As you know, there was a lot of criticism, Stephen, about the dinner

Starting point is 01:12:15 that President Trump held with his coin, the Trump meme coin, and that if you bought enough of his meme coin, you got to go to dinner. And that comes close to the constitutional sort of concern about a moment where, you know, are you allowing people to influence the president via bribery? So to one degree or another, this language was sort of how do you put it in? And the way it was described by it from an hour reporting was people were looking with this language to find kind of a Venn diagram of how do you stop a president or a president? congressman from benefiting from crypto with this law and have that in there that would satisfy

Starting point is 01:13:02 the Democrats, but at the same time, the Republicans don't want to put in something that's like scolding Donald Trump. So it was described as kind of a Venn diagram of what exactly that language is, and that's really become the major question. And I think what they're still negotiating on now is before the bill now goes to the floor, like what kind of language would be acceptable to a president to sign that is also okay with Congress? And that's the dilemma right now. I think the real question that I know you tried to answer

Starting point is 01:13:35 and people listening to this will also be curious about is, is there any language that theoretically would be acceptable to the White House? again, because of the sensitive nature of these negotiations, it's difficult to know precisely what was in that first compromise. But this is a president through a lot of his, frankly, very blatant profiteering through this industry. I mean, you mentioned before. His net worth is now over $5 billion. More than half of that has come from crypto. Do you think there's anything that would be acceptable to him or at some point, I guess what might happen if he says,

Starting point is 01:14:15 I don't want any restrictions on my own activities or those of my family when it comes to engaging in crypto related businesses. I'm not sure there is, at least the way current things lie, unless, because it's not totally clear in the public, there's questions, but it does seem like the president is directly connected. Maybe if they took out language, because the language has talked about the president and his family, if maybe they decided to say, hey, look, the sons can. do what they want to do or daughters can do what they want to do. That might be a solution.

Starting point is 01:14:51 So I think there's an element of, you know, how you refine it. But the problem is, I think, once you get to even saying something like it could be a campaign finance violation, right, and you're the president and you're very engaged in this business, the example that was given Stephen and reporting that I liked was, you know, President Carter, which I know is probably dating a lot of people, but, you know, he owned his peanut farm. He was big into peanuts. So, like, if you imagine, like, President Carter was also starting a peanut business, you know, trying to corner the peanut market as president, if you then gave him a bill to sign that would say, hey, it might be that some of what you're doing is illegal. Like, that's a hard thing to ask of

Starting point is 01:15:36 a president, not just the president himself, but of the office of the presidency, because that's a business that he's currently, would have been currently engaged in hypothetically. So I think what you have is, how do you actually get the president to under any circumstances have his lawyers say, yeah, this is okay to sign. It's just about campaign finance, but then the lawyers look at it and they're like, well, but then this would incorporate what he did with the meme coin dinner. So we, we can't, this is going to be vetoed because it puts the president in potential violation of a law that he's going to sign. And steam, but so interesting about this. story. It's so many facets that are interesting to me is I don't think we've necessarily faced

Starting point is 01:16:15 this as a nation before where we have a president who may not want to sign a bill, primarily because it's going to affect his personal interests and have it be just so transparent to everybody. Yeah. Just one more quick one before we wrap up. I'm going to ask you to look into your crystal ball a little bit and sort of tell me what's going to happen next. Everybody in crypto knows that Trump wants to sign both bills, the Genius Act, focused on stable. claims and the Clarity Act or something like it to set the rules of the road for market structure before the August recess. Genius Act seems to be moving along as we're reporting this. The Senate is set to put a final vote or conduct a final vote on the Genius

Starting point is 01:17:00 Act on Tuesday. But it looks like in many ways market structure is already a complex instrument and now trying to find a way to satisfy the most important person in the entire process, which is the president, looks extremely daunting based on the reporting that you provided. So what do you think? Do you think we will have a market structure bill passed this year or or passed at all? The clock certainly seems to be ticking. Yeah, I think the market structure is a lot harder to get across than the stable coin bill. And ultimately, the market structure bill was always sort of behind, like the stable coin bill is the cleaner bill, but it really only covers a third or even less than that of the overall market ecosystem.

Starting point is 01:17:48 So if we're really going to get some kind of regulatory clarity for everybody, we'd want that to be market structure. And I think for right now, we're not going to be able to get it done by August. But you might get it still passed, right? Because at the end of the day, the Republicans have a trifecta. right? The trifect is the president, the House, and the Senate. So they could probably get a bill done. It might be hard to get through on the Senate side, but then it would primarily be along partisan lines. So my crystal ball is that this issue alone, I think, could be the difference to see if we actually get a bipartisan bill, which from historical, you know, when you look back the last 30 years, it's very rare you have this bipartisan negotiation going on for such a major bill. So I think the stakes are, is it going to be bipartisan or partisan? I think you will see it ultimately get passed by the end of this Congress.

Starting point is 01:18:45 The question is, is it going to be passed where it's going to be seen as like a Republican-only bill? Or is it going to be seen as Republicans coming along with Democrats? And I think the biggest obstacle to that is having some sort of ethics or conflicts of interest clause in the bill. So you think that at some point the Republicans might just say if Trump proves and transatlanticians. that they'll just do a straight party vote and get this done because they technically don't need Democrats as long as, especially in the House too, they keep everybody in line. Yeah, exactly. And possibly put the House through on like attached to a bill so you don't need that boundary of the 60 votes in the Senate. So it might see like end of year attached to some

Starting point is 01:19:28 omnibus or, you know, continuing resolution type bill where it's just attached on. Great. Well, thanks for joining us. I thank you to everybody. listening and please follow Jason on Twitter and onchained.com for more of his great reporting. Thanks, Steve. Thanks so much for joining us today. To learn more about Arthur, Hansen and Hyperliquid, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Matt Piltered, Juan Iranovich, Pamma Jumbar, and Margaret Curia.

Starting point is 01:19:57 Thanks for listening.

Unchained - Arthur Hayes and Hanson Birringer on Hyperliquid’s Success (And What Could Stop It) - Ep. 852

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