This episode reveals a critical market shift: crypto is moving beyond speculative narratives to demand real business models, forcing investors to decide where value will ultimately accrue—in tokens, equity, or the traditional companies leveraging crypto rails.
Prediction Markets: The Battle Between Distribution and Regulation
- Santiago, an early investor in Poly Market, frames it as a classic case of revisiting a concept that previously failed (like Augur) but with superior technology, particularly the availability of stablecoins for settlement. He argues that for consumer-facing apps, the underlying tech is becoming a commodity, and user experience is paramount.
- Poly Market is positioned as a direct-to-consumer (D2C) brand, focusing on capturing mindshare and becoming a primary source for event odds, even being cited by mainstream media like Bloomberg. It prioritizes user growth and brand recognition, operating in a less regulated environment.
- Kalshi has taken the opposite approach, securing a license with the CFTC (Commodity Futures Trading Commission) to operate as a regulated exchange in the U.S. Its model is to be the licensed infrastructure provider, powering prediction markets for partners like Robinhood, rather than owning the end-user relationship directly.
- Strategic Question: The speakers debate which model will win long-term. Jason draws a parallel to the early days of crypto exchanges, asking if Kalshi's regulated, "slower" approach will prove more durable like Coinbase, or if Poly Market's focus on capturing distribution and audience will be the winning strategy, similar to Binance. Dante suggests that a future, larger winner might emerge by solving the long-tail liquidity problem that plagues both platforms.
Jason notes, "where prediction markets are kind of where crypto exchanges were in 2013."
The Search for Crypto's "Magnificent Seven"
- Michael introduces the core thesis that the market is maturing. To be included in this elite group, tokens must have a sustainable business model and a clear mechanism for value accrual, similar to publicly traded companies. He emphasizes the need for standardized accounting principles, like GAAP, to allow for apples-to-apples comparisons.
- He points to Pump.fun, a platform for launching memecoins, as a potential future contender due to its staggering daily revenue (reportedly $1-1.5 million per day), which is rumored to be directed back to its future token.
- The conversation highlights the BNB token as a highly successful, non-US example of value accrual. By staking BNB on Binance, users receive not only trading fee discounts but also airdrops of newly listed tokens, generating APYs reportedly between 50-100%.
The Great Divide: Token vs. Equity Value Accrual
- Jason uses Uniswap as a prime example, questioning whether an investor's focus should be on the UNI token or the private equity of Uniswap Labs. This ambiguity creates significant investment risk.
- Michael argues forcefully that projects must make a definitive choice. Attempting to accrue value to both the token and the equity simultaneously will inherently disadvantage one, creating a conflict of interest that undermines investor confidence.
Michael states, "if you choose both you inherently disadvantage one of them... You have to choose one value accrual."
- Actionable Insight: For investors and researchers, a project's clarity on its value accrual model is now a critical due diligence checkpoint. The industry is moving past the point where this ambiguity is tolerated.
Institutional Capital and the Public Market Premium
- Dante observes that stocks like Circle and Coinbase have seen massive appreciation because they are accessible to "segregated capital pools"—large institutional funds that are barred by regulation or internal policy from holding tokens directly.
- The Clarity Act, a proposed US bill for digital asset regulation, is mentioned as a potential catalyst that could unlock these pools of capital for on-chain investment.
- Strategic Implication: The high valuations of public crypto companies are a direct function of this trapped institutional demand. While regulatory clarity could eventually bridge this gap, public equities remain the primary, and premium, vehicle for institutional exposure to the crypto sector for the foreseeable future.
Tokenized Stocks: A New Competitor for On-Chain Capital?
- Dante highlights Republic, a platform now offering tokenized access to shares in private companies like SpaceX.
- He theorizes that this could siphon significant liquidity away from native crypto assets like L1s and memecoins. For global investors, buying a token representing SpaceX equity may be a more compelling proposition than speculating on the next L1.
- This development reinforces the theme that capital is becoming more selective, with a growing number of on-chain options competing for investor attention.
The Squeeze on the Venture Capital Landscape
- Michael provides a stark look inside the institutional world, explaining the Denominator Effect: a portfolio imbalance where illiquid venture assets become an oversized allocation for endowments because companies are staying private longer, delaying distributions.
- He reveals that over 60% of US endowment venture portfolios have been cash-flow negative for the last five years. This has led to major institutions like the Yale endowment selling off private equity portfolios.
- Strategic Implication: Crypto founders must prepare for a more challenging fundraising environment. With LPs pulling back, VC funds raised in 2024-2025 will likely be smaller, leading to what Michael calls a "belt tightening season."
Rethinking the Market Cycle: Is the Four-Year Cycle Dead?
- Santiago presents the traditional view: Bitcoin's dominance rises, creating wealth that then rotates into riskier assets like Ethereum and other L1s. He believes improving regulatory clarity will accelerate this "catch-up trade."
- Michael offers a contrarian take, arguing the old four-year cycle is broken. He believes we are in the very early stages of a new, longer cycle driven by the "global T-wap" of institutionalization via products like ETFs.
Michael asserts, "I don't think the four-year cycle exists anymore... I think we're at the very beginning."
The Rise of "Crypto-Enabled" and Verifiable Businesses
- Jason introduces the idea of Verifiable Apps, which leverage blockchain for transparency and enforceability without being fully decentralized, potentially avoiding the inefficiencies of DAOs.
- Santiago uses DePIN (Decentralized Physical Infrastructure Networks) like Helium as a prime example of a "crypto-enabled business." These networks use crypto incentives to build real-world infrastructure at a fraction of the cost.
- Core Dilemma: This raises a critical question for investors: does the value accrue to the network's token (e.g., HNT) or to the traditional companies (e.g., telcos) that use the network to cut costs? The answer is unclear, posing a challenge for capital allocation.
The Ripple Effects of a $3.7 Trillion Stablecoin Market
- Michael categorizes stablecoins into two types: Payment Coins (like USDC and USDT) used as a medium of exchange, and Yield Coins (like USDe and USDS) designed for asset allocation and yield generation.
- Actionable Insight: The primary beneficiaries of this massive influx of on-chain liquidity will be protocols that generate sustainable yield. As trillions of dollars seek a return, assets with proven, scalable business models that can capture this flow are positioned for a significant re-rating.
- The DeFi Valuation Gap: Santiago questions why a protocol like Maker (now Sky) trades at a fraction of the valuation of a public company like Circle, despite a potentially superior business model. Michael attributes this to the complexity and duration of protocol transitions (e.g., Maker to Sky, Maple to Syrup), suggesting a major re-rating is possible once these transitions are complete and the market can clearly evaluate the new models.
Conclusion
This discussion underscores a fundamental maturation of the crypto market. The era of pure speculation is yielding to a demand for viable business models, forcing investors and researchers to critically assess where value will truly accrue—in tokens, equity, or the crypto-enabled businesses of the traditional world.
