This episode unpacks the surging TradFi interest in crypto, exemplified by blockbuster IPOs, and contrasts it with the explosive, DeFi-native growth of platforms like Hyperliquid and Pump.fun, questioning where the next era of value will truly accrue.
Overall Market Vibe Check: Bullish Sentiment with Frothy Potential
- The discussion kicks off with a "vibe check," noting significant activity, buzz, and "animal spirits" in the crypto market.
- Host David Hoffman highlights tweets from "Intern" and "Anom" summarizing bullish factors: ICOs returning, apps generating revenue, crypto IPOs (Initial Public Offerings, where private companies first sell shares to the public) like Circle's success, Bitcoin at all-time highs, stablecoin growth, and increasing Bitcoin accumulation.
- ZeroX Bread Guy (Bread) acknowledges the structural bullishness, citing the ETF (Exchange-Traded Fund), a type of security that tracks an underlying asset and trades on an exchange, approvals and a more lenient regulatory outlook. However, he anticipates significant volatility.
- Bread states, "Something is going to happen over the next six months that's going to scare the bejesus out of us but then we have to look back to stuff like this and go like guys we're fine."
- John Charbonneau (John) agrees, expecting volatility but emphasizing the "really just great" broader setup for the space, especially regarding the political and regulatory environment.
Strategic Implication: Investors should brace for volatility but recognize underlying structural strengths and positive regulatory shifts that could support a slow upward grind in the market for the second half of the year.
Regulatory Landscape Shift: A More Engaging SEC
- John highlights a significant positive shift in the U.S. regulatory environment, particularly with the SEC.
- He notes the SEC is now "very actively reaching out to us because they want to engage. They want to get this right," a stark contrast to the previous year's enforcement-heavy approach.
- Evidence of this shift includes SEC tweets about how DeFi (Decentralized Finance), financial applications built on blockchain without central intermediaries, fits the American spirit and respects self-custody.
- Progress on stablecoin legislation (like the "genius bills") and potential market structure bills further buoys sentiment.
- John emphasizes the onus is now on the industry: "The onus is really on us to build the products that take advantage of hey you can go build mature real products now like please go do that."
- Bread raises a pertinent question about the quality of industry representation in these regulatory discussions, referencing past missteps (like SPF's involvement) versus the current, seemingly more effective, representation. John, whose partner at DBA Michael Jordan spoke at a recent SEC event, believes current representation is "incredibly well."
Strategic Implication: The improving regulatory climate in the U.S. creates a more favorable environment for crypto businesses to mature and for institutional capital to enter, signaling a potential derisking for certain crypto investments.
The Circle IPO Phenomenon: TradFi's Thirst for Stablecoin Exposure
- The discussion pivots to the Circle IPO, which John describes as "the biggest left curve mid curve" between Crypto Twitter's (CT) bearish sentiment and the actual market outcome.
- Circle's IPO was reportedly 25x oversubscribed and saw its stock price increase 5x shortly after listing.
- John attributes this to a simple, powerful factor: "I think people really want stablecoin exposure... and there's limited opportunities to do that particularly in a public markets way."
- He compares it to buying Grayscale Bitcoin ETPs (Exchange-Traded Products), securities tracking an underlying asset, at a premium years ago—a potentially irrational micro-decision for a rational macro bet on Bitcoin if it's the only accessible vehicle.
- The panel agrees Circle's fundamentals likely don't justify its current $25 billion valuation (trading at $106 per share), especially when compared to Coinbase (valued at $65 billion, with 30-40% of its revenue from USDC).
- Bread suggests the valuation reflects the "gargantuan trad world" capital size, where $25 billion is less significant than in the crypto-native ecosystem.
Strategic Implication: The Circle IPO underscores immense institutional and TradFi demand for regulated stablecoin exposure, even at premium valuations. This may indicate a broader appetite for other "whitelisted" crypto assets and services accessible through traditional markets.
TradFi Embraces Crypto: The IPO Rush and Broadening Exposure
- The success of Circle's IPO is seen as a "very clear sign" that the market is open for other crypto companies to go public.
- John notes, "Those timelines are probably being pulled up. I saw one of the tweets was it was Gemini. Gemini, I believe they were pulling forward their timeline to looking to file." Kraken and others are expected to follow.
- This creates a growing number of ways for TradFi investors to gain crypto exposure without directly entering the crypto ecosystem, using platforms like Robin Hood or traditional brokerages.
- The panel discusses how the market might equilibrate with numerous crypto-related public companies (e.g., MicroStrategy, potential Ethereum acquisition vehicles by figures like Joseph Lubin, Circle, Gemini, Kraken, Anchorage, Chainalysis) alongside ETFs.
- An interesting point is that while Circle's IPO success might spur exchanges like Gemini and Kraken to go public, their valuations will likely be comped against Coinbase, not Circle, potentially leading to different market reactions.
Strategic Implication: The wave of crypto IPOs will diversify TradFi access to the asset class. Investors should monitor how these new public entities are valued relative to each other and to their crypto-native fundamentals, as discrepancies could present arbitrage or mispricing opportunities.
Stablecoin Dynamics: Ethereum's Role and the Value Accrual Debate
- The conversation touches on the stablecoin landscape beyond Circle (USDC, $60B market cap) and Tether (USDT, $150B market cap), noting a significant drop-off to the third largest, Ethena's USDe ($6B market cap), followed by Dai, Sky Dollar, and BlackRock BUIDL. This highlights the dominance of the top two.
- Despite $160 billion in stablecoins predominantly on Ethereum, Bitcoin's dominance is increasing (currently 64%, with the host tweeting about a "max pain" scenario of 75% Bitcoin dominance and no altcoin season).
- Bread reiterates a key concern: "ETH technology can be great for stable coins. It doesn't necessarily mean ETH the asset goes up." He argues that while Ethereum provides excellent infrastructure for stablecoins (credible neutrality, decentralization), this utility doesn't directly translate into demand for the ETH asset itself in large size for stablecoin operations.
- John uses Tether as a "perfect test case," referencing a tweet by Ryan Berckmans. Tether generates billions on its Ethereum-based business yet its treasury primarily holds Bitcoin and gold, exemplifying how a business can heavily utilize Ethereum without directly investing in or accruing value to ETH the asset.
- John distinguishes between idle capital (like RWA (Real-World Assets), traditional assets tokenized on-chain) sitting on Ethereum and high-velocity capital generating fees, suggesting Ethereum currently hosts more of the former.
Strategic Implication: While Ethereum's dominance as a stablecoin platform is a positive sign of network utility, investors need to critically assess the mechanisms (or lack thereof) for this activity to translate into direct value accrual for the ETH asset. The "fat application" thesis might be gaining traction over the "fat protocol" thesis in this context.
The ETH vs. BTC Debate: Value Capture and Network Utility
- The host outlines two common thought processes regarding Ethereum's value:
- The "ETH bull" case: A 10x increase in tokenized RWAs on Ethereum will create a halo effect and proxy demand for ETH from large institutions like BlackRock.
- The "John Charbonneau" case: Demands a clear mechanism for value capture; otherwise, Bitcoin is the preferred investment.
- Bread discusses the "underwater beach ball" tweet from "D's" about the ETH/BTC ratio chart, expressing skepticism about technical analysis alone without structural underpinnings for conviction.
- He posits a scenario where nation-states or large entities needing truly permissionless, pristine assets on-chain might accumulate ETH because "it's the only thing that like is truly like credibly neutral, permissionless, pristine."
- Bread elaborates: "If North Korea wants to do a deal with like you guys... they're going to probably do it on Ethereum... Not going to do it on Base... It's not going to happen on Bitcoin... It's not going to be Solana."
- The critical question remains: how much actual economic demand does this specific, albeit crucial, use case generate for ETH?
Strategic Implication: Investors evaluating ETH need to weigh the narrative of broad adoption and institutional use against the concrete mechanisms for value accrual. ETH's role as a potential neutral settlement layer for high-stakes, adversarial transactions is a unique value proposition, but its impact on ETH's price is still debated.
Hyperliquid vs. Solana: Application vs. Platform Deep Dive
- The discussion shifts to Hyperliquid, whose token Hype recently hit an all-time high of $42. A Crypto Twitter legend reportedly turned bearish on Solana (SOL) due to Hyperliquid's success.
- John, whose firm owns both Hype and SOL, notes Solana is facing the "early stage difficulties that ETH has had," primarily the challenge of moving a $100B+ asset.
- Fee generation comparison:
- Solana: Annualized revenue closer to $1 billion (peaked at $1.4 billion last year).
- Hyperliquid: Annualized revenue in the $600-$700 million ballpark.
- John highlights a key difference: Hyperliquid's revenue is primarily at the app level (Hyperliquid core), while Solana's revenue is platform-level fees, with much economic activity occurring on apps like Pump.fun and Jito.
- John states, "This Soul [Solana] versus Hype [Hyperliquid token] is very emblematic of the current big meta question of platforms versus applications on top of them what is actually going to be the revenue generator going forward."
- Hyperliquid's valuation is around $40 billion, while Solana's is $95 billion. The question arises: is it too late to buy Hype?
- Bread, who bought Hype between $26-$36, emphasizes Hyperliquid's value accrual: "97% of the actual fees are going to Hype buyback." This direct return mechanism instills conviction, making a dollar of Hyperliquid revenue potentially more impactful for Hype's price than a dollar of Solana revenue for SOL.
Strategic Implication: The Hyperliquid vs. Solana dynamic showcases the tension between investing in L1 platforms versus specific, high-revenue applications. Hyperliquid's direct fee-to-buyback mechanism offers a clear value proposition for its token, Hype, potentially making it attractive despite its already significant valuation.
Hyperliquid's Market Position and Competitive Challenges
- The host presents two charts for Hyperliquid:
- Bearish case: Hyperliquid has ~78% market share in DEX (Decentralized Exchange) perps, suggesting limited further growth within this specific niche.
- Bullish case: Hyperliquid has only ~11% of Binance's perp volume, indicating significant room to capture market share from CEXs (Centralized Exchanges).
- The key question is Hyperliquid's ability to attract Binance traders. Bread suggests CEXs like Binance are more performant due to no blockchain backends, offering lower latency.
- He mentions projects like "Mega" (his L2 project) and its application "GTE" are trying to bridge this gap by allowing market makers to co-locate with a centralized or predictable block builder on an L2 (Layer 2), a secondary protocol improving L1 scalability, to achieve single-digit millisecond latency.
- John disagrees that latency is the primary determinant. He believes the major risk for Hyperliquid is regulatory: if perps become legalized in the US, platforms like Coinbase and Robin Hood could offer them, potentially drawing users away from non-KYC (Know Your Customer), identity verification, platforms like Hyperliquid.
- John comments on Hyperliquid's regulatory standing: "This is a risk to them existing right now is that there is very unclear regulatory clarity for I mean pretty much all decentralized DeFi protocols but I mean especially someone like Hyperliquid."
- Bread draws a parallel between Hyperliquid's "ask for forgiveness, not permission" approach and Tether's, suggesting network effects could provide some resilience. The host likens Hyperliquid more to BitMEX, which faced legal trouble for similar operational characteristics.
Strategic Implication: Hyperliquid's future growth hinges on its ability to compete with CEXs and navigate a complex regulatory landscape. While its current market share in DEX perps is dominant, the larger prize (and risk) lies in challenging centralized incumbents and addressing potential regulatory actions.
Pump.fun's Billion-Dollar Ambition and Market Reaction
- The final topic is Pump.fun's planned $1 billion token sale at a $4 billion valuation, combining an airdrop, private investor sales, and exchange sales.
- Reactions are mixed: some see it as bullish, confirming a token and airdrop; others view the high valuation as a potential top signal or question the need for $1 billion in funding given Pump.fun's reported $700 million in cumulative revenue.
- Pump.fun's long-term vision includes becoming a creator streaming platform, competing with giants like Twitch, which could justify large capital needs.
- John counters criticisms of the sale being "extractive," arguing that Pump.fun is a highly successful consumer app with clear product-market fit, primarily in the memecoin/on-chain gambling space.
- John states, "I think people just really overintellectualize the hell out of memecoins. I don't think they're that complicated. They're fun. They're mostly a new form of gambling."
- He sees Pump.fun, like Hyperliquid, as an example of the "fat application thesis," generating significant revenue comparable to Hyperliquid.
- When asked to allocate $100 between Pump.fun at $4B and Hyperliquid (Hype) at $40B, Bread chooses "all into Pump.fun. 10x cheaper." John refrains from investment advice but acknowledges the strong investment case for both as top application-level money makers.
- The correlation between Pump.fun's fee revenue and Solana's platform revenue is noted, suggesting Solana's current success is significantly tied to memecoin activity facilitated by apps like Pump.fun.
Strategic Implication: Pump.fun's large token sale and ambitious vision to merge social and finance highlight the immense value being placed on applications with strong product-market fit, even in speculative niches. Investors might consider if this signals a broader shift towards valuing revenue-generating applications over L1 platforms, or if it's a sign of market froth.
Conclusion
The episode highlights a pivotal moment where TradFi's embrace of crypto via IPOs collides with the raw, high-growth potential of DeFi applications like Hyperliquid and Pump.fun. Investors and researchers must critically assess whether value will accrue to regulated gateways or to these disruptive, crypto-native platforms.
