Original link: Empire Podcast - Markets Bounce Back, The Hyperliquid Thesis and Kraken Raises $200M

Hosts:

Jason Yanowitz (Co-founder of Blockworks)

Santiago Roel Santos (Santi, crypto investor, former partner at ParaFi Capital)

Editorial Introduction

Santi presents a cautionary assessment in the show: this is the highest interest that traditional hedge fund managers have shown in the crypto industry since Paul Tudor Jones called Bitcoin "the fastest horse on the track" in May 2020, and this time the focus is not on BTC, but on Hyperliquid.

The catalyst is the Iran conflict. Commodities need pricing places during the weekends when traditional markets are closed, and Trade XYZ's weekend oil price has only a median prediction error of 50 basis points for Monday's opening, causing Hyperliquid's commodity position to surge to 17%, surpassing Ethereum. Santi predicts that commodity trading volume will exceed Bitcoin within the year, and Hyperliquid's market cap is expected to rise from $25 billion to challenge $100 billion.

Two other signal points: Kraken's valuation was slashed from $20 billion by the end of 2025 to $13.3 billion, and Deutsche Börse invested $200 million for a 1.5% stake (the discount may arise from the structure of common and preferred shares); the SEC clarified this week that self-custodied DeFi front ends (like MetaMask and Phantom) are not subject to broker-dealer registration rules, ending one of the biggest pending legal issues in the DeFi space.

Highlights

Hyperliquid and the Weekend Market

This is the highest interest I have seen from traditional hedge fund managers in crypto since Paul Tudor Jones called Bitcoin the fastest horse on the track in May 2020, and the interest point is Hyperliquid. The weekend market is a big reason for this. (Santi)

Hyperliquid essentially moves the entire matching engine, order book, clearing house, and margin system of CME to an integrated blockchain where every transaction, clearance, and funding rate is recorded on an immutable public ledger. (Santi)

My prediction: the commodity trading volume on Hyperliquid will exceed Bitcoin within the year. Its current market cap is $25 billion, and I see a clear path to reach $100 billion. (Santi)

The probability of U.S. compliance approval, I would say, is about 30% to 40%. If it is truly approved, it would be an instant re-rating; CME's market cap is $117 billion, and the market needs a benchmark. (Jason)

The Institutional Adoption Path of Hyperliquid

I received a call this week from a large hedge fund manager asking me to explain Hyperliquid to him. Most of their team spends time on Twitter, and their trading ideas also come from Twitter. Their fund cannot directly buy HYPE tokens, so they bought Hyperliquid's DAT (Digital Asset Treasury), which has now become one of their largest positions. He said this was one of the few assets he could buy that is not related to AI trading. (Jason)

Trading Philosophy and Personal Positions

The core logic behind my continued accumulation is looking at my spending structure. The companies I spend the most money on year after year (Amazon, DoorDash) are the ones I am accumulating. A senior once said, the younger you are, the more alpha you can get from being "close to the frontline," and as the future evolves, the alpha on the internet will become less, and you must discover it by seeing it for yourself and using it personally. (Jason)

Macro and Crypto Interconnection

The past 10 trading days have been one of the most unusual ten days since 1950. The S&P 500 rose by 9.8%, which is at the 99.7th percentile of all historical 10-day gains. (Santi)

I think crypto performs well because the macro is good, and the stock market is good; the correlation is very strong. The rise of Bitcoin to $75,000 is mainly because the market has shifted the probability of the Clarity bill passage from last week's 50/50 to now 60% to 65%. (Jason)

Regulatory Turnaround

This week, the SEC told MetaMask, Phantom, and basically all DeFi front ends: you are not brokers. This ends one of the biggest legal uncertainties in DeFi. (Jason)

L2 and the "Melting Ice Block"

The L2 track has been a melting ice block for more than a year. In 2017, with no users and no data, you could sell dreams; today, the crypto market has nearly zero patience for white paper-style narratives. (Santi)

I believe this round will genuinely see a group of protocols reach zero, not like before when they were just left in the dust waiting for the next round, but the market will directly give up. Funds will only concentrate on assets like Hyperliquid and Bitcoin that have genuinely emerged. (Santi)

The Next Round of Opportunities

I have three main lines in my investments: the demand for stablecoins outside the U.S. will continue to grow and is far from being satisfied; the world will only become more turbulent; there is a serious affordability crisis globally. These three pillars have corresponding paths for realization on-chain. (Santi)

Last year’s three hot spots were derivatives, prediction markets, and stablecoins. Projects that do these three things can get financing and users, while those not in these three lines are crushed. This year there will be new three projects; I just don’t know what they would be. (Jason)

I guess one of this year's three things is tokenization, especially attempts by traditional issuers on public permissionless networks. (Santi)

Transcripts of Dialogue

Opening: Podcast Data Review and Content Differentiation in the AI Era

Santi: Since Paul Tudor Jones called Bitcoin "the fastest horse on the track" in May 2020, I have seen traditional hedge fund managers show the most interest in crypto, focusing on Hyperliquid (the on-chain perpetual contract exchange). The weekend market is a big reason for this.

Jason: Hello, listeners, welcome back to the Empire Weekly podcast. Santi, how have you been lately?

Santi: Nothing special, happy to be back on the show. A lot is going on in the crypto market and the world; it’s good to live in the moment.

Jason: Santi has recently been trying to take the job of our producers. He imported all the data from Empire into Claude, using the new Opus 4.7 model, asking "how to make Empire better."

Santi: Not exactly that, but I did do that. I exported data from Megaphone and YouTube, reviewing all episodes since 2021, conducting a correlation analysis with crypto asset prices. We often say “view count is linked to crypto prices,” but the actual data shows the correlation isn’t that strong.

Jason: So it’s not as relevant?

Santi: Right. Crypto content can be roughly divided into two categories: one that purely discusses prices, which does well on YouTube; our deep interview format performs better on Spotify and Apple, but not on YouTube. Retail investors on YouTube gain followers the most during bull markets, following the trend.

Jason: YouTube’s algorithm will demote us. TLDR is that we need to create more sensational clickbait titles, but that’s not our brand tone. I’ve talked to Bankless’s Brian and David a lot about this; their thumbnails are very exaggerated. But I have too much pride; there’s a line I absolutely won’t cross, and I won’t create content like BitBoy.

Santi: I respect their path.

Jason: Never become BitBoy, and never become Joe McCann (an active figure in the crypto space). Alright, let’s get to the main topic.

Market Overview: S&P 500's 10-Day Rise and the Dual Narrative of AI

Santi: Wait, I want to first talk about the overall market. Two weeks ago, we were discussing a market downturn of 10%, and now the Nasdaq just completed a 10-day rise.

Jason: Yes, this is very rare in history. I checked the data, and a 10-day rise occurs on average about every 5 to 7 years. Since the internet bubble burst in 2000, it has only happened a few times.

Santi: To be honest, the past 10 trading days have been one of the most abnormal ten days since 1950. The S&P 500 rose by 9.8%, which is in the 99.7th percentile of all historical 10-day gains.

Jason: I was thinking about this today: you just have to stay optimistic; as long as you are optimistic, you are in the right position. I don’t know how this round will end, if it will end, or if this is a new paradigm, but the data is there and cannot be ignored.

Last week, we saw a fantastic deep dive on Hyperliquid in Colossus (an interview magazine founded by Patrick O'Shaughnessy). On a macro level, I am willing to change my perspective at any time. I recently listened to a 4-hour podcast by Leopold Aschenbrenner (a former OpenAI researcher who now manages a hedge fund). This guy predicted correctly when he was dismissed from OpenAI two years ago. In the first hour or two of the podcast, he discusses that we will reach AGI earlier than most expect, and once it falls into the hands of different regimes, the risks exist at a nuclear arms race level. He advocates for the nationalization of AI labs and opposes open sourcing. You can hear the tension in his tone. He believes that very few people understand how fast and far this is moving, and the market is not responding seriously enough.

Santi: Is that the Situational Awareness piece he wrote two years ago?

Jason: Yes. I tweeted, "I finally finished reading Leopold's article on AI; everyone should read it, regardless of their interest in AI, here are my notes." That tweet blew up with over 10,000 saves and 1.6 million views. But my foolishness lies in only making notes without buying anything.

Santi: That guy bought in. How big is his fund now?

Jason: I don’t know the initial size, but now it’s $5.5 billion. He frequently changes his positions; some of his largest holdings include Bloom Energy (a hydrogen energy company) where he invested $300 million, and it’s now worth $1 billion; plus a large position in SanDisk (memory chips). By the way, his partner is the Chief of Staff to Dario, the CEO of Anthropic.

Santi: That’s some useful information. Before joining OpenAI and starting his hedge fund, he also worked for Future Fund, which was funded by Sam Bankman-Fried of FTX. In that podcast, he discussed his experience working with SBF and the lessons learned, which is quite interesting.

Jason: Here's a data point on FTX: SBF owned 7.8% of Anthropic at the time. Did you see the news this week? Anthropic's new valuation is $80 billion. The value of that stake would exceed the entire market cap of Coinbase.

Santi: Yes, and that stake was liquidated by the custodian for about $1.5 billion.

Jason: Crazy. FTX creditors ended up fully recovering their funds and even received a premium. Public market investors are really on edge, always looking for something. There’s both fear and excitement regarding AI; the two sides of a coin. This sentiment brings about extreme volatility and pullbacks, but fundamentally the market still wants to go up. People realize it’s a runaway train that cannot be stopped.

Santi: On one end is the fact that everyone is unsure how to model the bearish and bullish impacts of AI into valuations. These labs are rolling out their big moves one by one, and if you can't keep up, it creates tension. On the other end, after listening to Leopold, Elon, and Dario's podcasts, you feel a sense of shock that “we are at a critical point in human civilization.” Rockets are launched into space and come back, and the market is both tense and willing to rise.

Trading Philosophy: Finding Alpha through Spending Habits

Jason: Can you be specific about your positions?

Santi: I posted that Situational Awareness tweet and haven’t sold anything since. I’m just a bag holder; I buy and hold. I'm not a very interesting podcast guest because I trade very little. I've held Robinhood from $10 to $15 all the way up to $125, and I continue to add to that. DoorDash is the same; the companies I spend the most money on year after year are the ones I accumulate.

Jason: That logic is really smart. Something you said before has stayed with me: watch for changes in your annual spending; some companies you spend more on every year. Amazon is one, and DoorDash is another.

Santi: When I was a freshman, I took a class where a friend’s father was a guest speaker. He managed a hedge fund with about $5 to $10 billion. He said that all of his best trades came from observing his and his children's consumption. If his daughter said, "I want an iPhone," he bought Apple; if she said, "All my friends are using Snapchat," he got involved in Snapchat’s early funding. He told us, a group of 18- and 19-year-olds, "You don’t realize that being close to the frontline means alpha. The older you get, the harder it gets to find alpha. He also said, we are heading towards a world where there will be no alpha on the internet; you must discover it by seeing it and using it yourself."

Jason: Reddit used to be full of alpha. There was a hedge fund that made money by scraping Reddit. Before the release of the Barbie movie, he checked audience reviews on Reddit and found, "this movie is a masterpiece," while Rotten Tomatoes gave it a low score. He heavily invested in Mattel (the maker of Barbie) and made a fortune. So you could set up a Claude instance to scrape various information from Reddit.

Hyperliquid Deep Dive: Wall Street's New Favorite

Santi: Alright, let’s move to the news.

Jason: There’s so much to discuss: Tether backing Drift's (a perpetual contract protocol on Solana) user rescue plan; Tether launched a new wallet—two pieces of Tether news; Rob’s VC manifesto article; Kraken raised $200 million and is preparing to go public; Hyperliquid's deep dive in Colossus. Let’s start with Hyperliquid.

Santi: First, let me introduce Colossus. Patrick O'Shaughnessy runs the Invest Like the Best podcast and Positive Sum asset management company. He recently launched a print and digital magazine called Colossus, dedicated to deep feature stories on tech and finance personalities with world-class quality. This time, they wrote about Hyperliquid founder Jeff (Jeff Yan).

Jason: Let me steal a point from you. You said something very accurate in the episode we recorded with Logan (Logan Jastremski): It’s been a long time since I felt that outsiders cared so much about a crypto project. Just like Polymarket became hugely popular due to the presidential election controversies, Jeff has now captured Wall Street’s imagination. The geopolitical catalyst this time is that everyone wants to trade commodities over the weekend, and Hyperliquid has captured this influx.

Santi: Even if the situation in Iran and the Strait of Hormuz eases, this trend won’t stop. The train has left the station; you will see more trading volume and activity pouring in. Currently, the trading volume of non-crypto assets on Hyperliquid has already surpassed that of crypto assets.

Jason: Really?

Santi: Commodities are now the second-largest asset class on Hyperliquid, second only to Bitcoin. Let me make a verifiable prediction: commodity trading will exceed Bitcoin within the year. Hyperliquid could become one of the top five in crypto market cap. Currently at $25 billion, I see a clear path to $100 billion. Coinbase and Robinhood are of this scale. As long as Hyperliquid continues to execute well, they have the technical talent and have won over crypto traders and are now winning over Wall Street traders.

Jason: Here’s some data for you. Bitcoin accounts for 25% of Hyperliquid's holdings, commodities 17%, Ethereum 16%, HYPE tokens themselves 10%, index types (which should be leveraged S&P) 7%, L1 tokens 4%, stocks 4%, Solana 3.5%, followed by meme coins, privacy coins, and DeFi.

Santi: I think the most interesting story in crypto right now is probably the growth of the oil market on Hyperliquid. Thanks to the Shoku team for creating Trade XYZ (the derivatives front on the Hyperliquid ecosystem). When the Iran situation erupted, trading volume and open positions skyrocketed because the oil market closes over the weekend, and Hyperliquid became the only pricing venue. This has crossed the mainstream divide.

Jason: We specifically built a website called Weekend Markets (weekendmarkets.com) to showcase all this data. When traditional markets are closed, Trade XYZ is the only active price discovery venue. Weekend trading volumes reach billions of dollars, with a median prediction error of only 50 basis points for Monday opening prices. Trade XYZ's price is now the most informative signal across the financial markets relative to Friday’s closing price. Institutional investors in the traditional space are likely more interested in Hyperliquid's weekend market than anything else in crypto.

Santi: Daily oil trading volume is $500 million, and open positions amount to $350 million.

Jason: Do people outside the crypto space often ask you questions? Are they mainly interested in commodities or stocks?

Santi: The most interest is in Hyperliquid itself. I can say this is the highest interest point from traditional hedge fund managers in crypto since Paul Tudor Jones called Bitcoin "the fastest horse" six years ago. This time, the focus is Hyperliquid, and the weekend market is the core driver.

This week, I received a call from a hedge fund manager asking me to explain Hyperliquid. Their fund is large, and he and his team spend most of their time on Twitter, with trading ideas also coming from Twitter. This illustrates the importance of Twitter. He said a top trader he knows posted content about Hyperliquid on Twitter, and he went on to research it, listening to all the podcasts that Jeff had been on. Their fund cannot buy HYPE tokens directly, so they bought Hyperliquid’s DAT (Digital Asset Treasury), which is precisely the bull case for DAT. Now, this is one of their largest positions, and he said it's one of the few assets he could buy that is unrelated to AI trading.

Jason: I just had AI explain Hyperliquid to TradFi: "Imagine CME moving the entire matching engine, order book, clearinghouse, and margin system onto an integrated blockchain, where every transaction, clearing, and funding rate is recorded on an immutable public ledger. This is Hyperliquid."

Hyperliquid’s Compliance Prospects: CME as the Best Benchmark

Santi: Is it possible that if Hyperliquid is approved for compliance in the U.S., it could undergo a massive revaluation?

Jason: I’m not a lawyer nor a regulator, so this goes beyond my expertise. But Hyperliquid did hire Jake Chervinsky (former Chief Legal Officer of Variant Fund) to head the Hyperliquid Policy Institute. The logic is this: after the 2008 financial crisis, the Dodd-Frank Act required futures to be traded through regulated entities like CME and Cboe for transparency, ensuring that all trades are visible to prevent black swan events. If you are Hyperliquid or Jake, your argument to the CFTC is: you set this regulation to ensure transparency and avoid future incidents. We have DeFi, where all transactions are completely transparent, and the clearing mechanism passed basic stress tests on October 10. If they haven’t made this argument yet, they should. Just imagine if Hyperliquid gets approved in the U.S.; it would lead to an instant revaluation. CME’s current market cap is $117 billion, and the market needs a benchmark.

Santi: I would give this probability about 30% to 40%.

Jason: When you talk to hedge funds, have you heard any bearish viewpoints on Hyperliquid?

Santi: Not much. Most people are just starting to understand it and haven’t formed clear bullish or bearish views. Don't forget, at the peak of Solana, protocol revenue hit $100 million, most of which came from meme coin trading.

Jason: The peak of REV (Real Economic Value).

Santi: Yes, in January 2024 or 2025, Solana could hit $500 million REV, almost entirely from meme coins. The question now is: should the revenue generated from meme coin trading be given the same valuation multiple as the revenue generated from TradFi commodity trading?

Jason: Of course not; commodity revenue quality is higher.

Santi: So I believe Hyperliquid can achieve much larger scale than that.

Jason: I saw data indicating the protocols mentioned the most by all the speakers at DAS (Digital Asset Summit, a conference by Blockworks). We crawled all the panels, firesides, and keynotes. Bitcoin was mentioned 742 times, Ethereum 143 times—both are absolute outliers. The third was Hyperliquid at 66 times, Morpho (a lending protocol) at 59 times, followed by Solana, Canton, Espresso (shared sorting protocol), Circle, Stellar, Avalanche, Jupiter, Tether, Maple, Optimism, Superstate. Espresso being ranked seventh is quite unexpected.

Drift Rescue Plan and Tether’s "Killing Two Birds with One Stone"

Jason: What other news have you been following this week?

Santi: Tether is investing in Drift to help protocol users recoup losses (Drift faced a vulnerability attack of approximately $285 million earlier this year). This plan is similar to how Bitfinex issued tokens to compensate victims back then, allowing affected users to gradually recoup through future protocol fees. This time, Tether is providing up to $127 million in support, with a total scale nearing $150 million.

Jason: The specific mechanism is that users must trade with USDT on Drift to recoup, which is a win-win for Tether, as they not only PR but also lock in stablecoin usage. There have been many comparisons with USDC on Twitter, claiming that someone previously contacted USDC to freeze the hacker's funds, and Circle was not as responsive as Tether.

Santi: This is a clever mechanism encouraging users to continue using the protocol. In some ways, this is the only viable option; the other would be a large-scale dilution at the base layer.

SEC’s Major Guidance and Clarity Bill Progress

Jason: And then there’s the SEC’s new guidance. This week, they stated: self-custodied DeFi front ends are not subject to broker-dealer registration rules. Previously, during the Gensler era, the main attack on DeFi was requiring these protocols to register as broker-dealers, which fundamentally contradicts DeFi’s permissionless nature and is nearly impossible to achieve. On Tuesday, the SEC’s Trading and Markets Division issued a staff statement, excluding crypto wallet interfaces from broker-dealer registration. The SEC explicitly told MetaMask, Phantom, and basically all DeFi front ends: you are not brokers. This ends one of DeFi’s greatest legal uncertainties. They created a new category called "covered user interface": if you help users convert trading parameters into on-chain instructions, you belong to this category. Custodial wallets are excluded, while self-custodied wallets, browser plugins, mobile applications, and software embedded in self-custodied wallets are all protected.

Santi: I'm surprised DeFi tokens haven’t been revalued as a result.

Jason: The revaluation driven by regulatory positivity is Robinhood, which reduced the minimum $25,000 equity requirement for day traders. Overall, Aave rose 20% this week, and Bitcoin hit $75,000. I think it’s mainly because the probability of the Clarity bill (crypto market structure legislation) passing has increased. Last week you asked Empire’s audience whether Clarity could pass, and everyone said 50/50. I was in Washington DC last week, and everyone said 50/50. Now it might have risen to 60/40 or even 65/35.

A few crypto figures appeared on CNBC saying, "If Clarity doesn’t pass before April 1, it’s totally done," which for some reason everyone accepted. But from what I understand, even if it's postponed until May 1, or even August or 2027, there’s still a chance. Of course, the longer it drags on, the more junk clauses will be stuffed into the bill. Some say if it stretches to mid-2027, it will turn into a "DeFi bill" (meaning it will be heavily modified by interest groups).

MicroStrategy’s Accumulation and STRC’s 11.5% Yield

Santi: I tend to believe that crypto performs well because macro conditions are good, with a very strong correlation. On the Bitcoin front, MicroStrategy raised funds this week through STRC (perpetual preferred stock) to buy nearly 14,000 bitcoins.

Jason: Their total holding is 780,000 bitcoins, with a total investment close to $60 billion, at an average cost of $75,000. This is one of their largest purchases. Now the market is looking not only at mNAV premiums or discounts but also at STRC’s dynamics.

Santi: There’s a protocol called Saturn, which has seen a rapid increase in TVL (Total Value Locked), effectively packaging STRC on-chain, with an annual yield of about 11.5%.

Jason: On Thursday, I visited MicroStrategy's office in Tysons Corner, Virginia, and the whole meeting was about STRC. STRC has an annual dividend of 11.5%, and at a time when DeFi yields are generally low on-chain, this number is very attractive. I won’t delve into the risks today; we can leave it for future discussions. We should invite Saylor or someone from MicroStrategy on the show to talk about it; everyone is curious about "where this 11.5% yield comes from, its sustainability, and what the risks are."

Kraken's Valuation Cut in Half and Dissecting the Exchange's Business Model

Santi: Speaking of Kraken, they raised $200 million from Deutsche Börse.

Jason: The valuation was cut from $20 billion at the end of 2025 to $13.3 billion, which is quite a significant discount.

Santi: I haven't seen that valuation number. It might be due to secondary market trading, buying common stock rather than preferred shares, so there are structural differences.

Jason: Right; Deutsche Börse bought 1.5% for a valuation of $13.3 billion. My guess is that because it’s common stock, a discount of about 35% was applied.

Additionally, Kraken had a small-scale security incident that did not relate to user funds; it was an issue with the support team internally, just a footnote to mention. But going back, Kraken is a well-operating company, with the potential to scale to Coinbase level. Arjun (Arjun Sethi, Co-CEO of Kraken) is doing a great job. I might look into secondary market opportunities.

Santi: I invested in Backpack (an exchange founded by Armani Ferrante), which is much smaller but very interesting; Armani is an excellent builder. The core issue in assessing exchange business models is the ratio of fixed costs to variable costs. Exchanges are fundamentally tied to crypto prices; they make big profits when prices are high, but during downturns, they get compressed. I previously did a comparative analysis of Coinbase, Robinhood, and Kraken; Robinhood performed the best, due to diversification (a high proportion of non-crypto trading volume) and the ability to significantly cut costs during bear markets. Coinbase ranked second, and Kraken third. But that was analysis before Arjun took over. They later restructured the team, bringing in many capable operators, and the DeFi team is well-constructed. So perhaps my previous judgment was too conservative. When doing any business, you have to look at operating leverage and elasticity; during bear markets, you can't let margins get crushed, which is the perspective of a cross-cycle investor.

Stocks on Blockchain and X's Cashtag New Feature

Jason: How about stocks on the blockchain (X Stocks)? I saw some discussions about pre-IPO stocks like Anthropic on Twitter.

Santi: The trading volume is still quite small; it doesn’t have the dramatic performance that oil has.

Jason: I’ve got data—currently, related pre-IPO stocks have traded about $17 million, which is still small. A few days ago, I talked to the X Stocks team at Kraken, and they, along with other exchanges, believe that stocks on the blockchain will make significant breakthroughs this year. The X Stocks team and others in Kraken are betting on this direction.

I’ll show you a tweet from Nikita, the head of product at X: "X has always been the best source for financial information for traders and investors, with billions of dollars flowing based on content on the timeline every day. Today we launched the cashtag feature on iPhone in the U.S. and Canada, bringing real-time financial data. When you search or post a cashtag or contract address, X will automatically match it with a stock or token, and by clicking the cashtag, you can see price trends and related posts without leaving X." This is the advance of Elon’s everything-app vision.

Scroll Controversy and the "Melting Ice Block" Effect in the L2 Space

Santi: How is the Ethereum ecosystem lately? Besides Tom Lee saying ETH will reach $62,000.

Jason: Not sure; I haven’t delved deep. The ECC (Ethereum Community Conference) just ended; the atmosphere was average, but there were still some interesting projects.

Santi: Ether.fi migrated from Scroll to Optimism's mainnet, migrating over 70,000 cards.

Jason: You are an investor in Scroll, but I don’t know how much you can share. Scroll seems to have done something quite inappropriate. When Ether.fi wanted to migrate from Scroll to Optimism, they manually raised the on-chain gas fees. One of Ether.fi’s founders tweeted, "This situation is more outrageous than everyone thinks."

Santi: Let me provide some context: Ether.fi is crucial for Scroll; if you strip Ether.fi away, there’s hardly any TVL left on Scroll. I don’t have first-hand information on what happened internally. The on-chain data shows that in the first six days of April, Scroll raised the fees for publishing data on Ethereum’s mainnet by 1,000 times—two orders of magnitude. Users ended up paying over $50,000 in excess fees. The timing is quite suspicious, coinciding precisely with Ether.fi’s migration window. The on-chain data is quite unappealing.

Jason: What problems did Scroll encounter?

Santi: I am an early investor. Back then, ZK-rollup and zero-knowledge proof routes were very hot, and I believed this route itself has value and meaning. Scroll's co-founder is a deep cryptographer, which is why I placed my bets. But it’s not just Scroll; many projects on the entire L2 track have faded into a no man's land. Can you name an L2 that is performing well? Vitalik’s article about the L2 roadmap earlier this year itself is an acknowledgment of this; the market has long been aware of this issue. The price performance of Optimism, Arbitrum, ZKsync, etc., reflects the problem. Scroll now has a market cap of $8 million and a fully diluted valuation of $45 million, which is below its first-round financing valuation. What a terrible situation.

Jason: Can it come back? What does it need? Where does the trading volume come from?

Santi: This reminds me of conversations I’ve had with many infrastructure providers: they are a melting ice block whether they want to admit it or not. In 2017, with no users and no data, you could sell dreams. Any founder, whether Elon or Scroll, has to sell dreams first before cashing out. The crypto space has long been in a "suspended period" of white papers and attempts, and the market has been patient about it. Today it no longer works. A year ago, I said there would be severe divergence between the "propertied and the propertyless" in the crypto space, and that divergence is now very large; you can see it when comparing the activity levels of Hyperliquid to other projects.

Three Investment Lines and a New Cycle of "Protocols Truly Going to Zero"

Santi: The category of neobanks is quite popular lately; Plasma (a stablecoin dedicated chain), Ether.fi are all in this, and Aave also has its own neobank attempt. As an investor, I have three main lines, reflected in my personal holdings:

1. The demand for stablecoins outside the U.S. will continue to grow and is far from being satisfied;

2. The world will only become more turbulent;

3. There is a serious affordability crisis globally.

These three pillars all have paths for realization on-chain, and I’m laying out my strategy accordingly.

But for most other projects, it’s tough. Solana’s REV has also dropped from a peak of $500 million to $20 million. What can bring Solana back up? Underlying, some good things are happening; Western Union has chosen Solana for a pilot, and the team and engineers are impressive, genuinely thinking through problems. But in my conversations with these teams, I feel you must go for the jugular, using capital or unconventional means to pin yourself down as a lasting protocol.

Finally, I want to say that I believe this round will actually see some protocols reach zero—not just settling into dust, waiting for the next round. The past thinking was "hold onto dust, it will turn to moon," like when Lend merged into Aave. This round won’t be that widespread. The market would rather concentrate funds onto Hyperliquid and Bitcoin.

The Next Round of Three Narratives and the RWA Trend

Jason: Besides Hyperliquid and Bitcoin, what else do you think ordinary people might be interested in or have heard of?

Santi: Stablecoins and prediction markets are hot topics, but currently, there’s no token for prediction markets.

Jason: There’s a lag in these topics entering the public consciousness. What we’ve been saying is: last year’s three hot topics were perps (perpetual contracts), prediction markets, and stablecoins. Projects focusing on these three areas can secure funding and users, while those outside these lines are crushed. This year there will be new three topics; I just don’t know what they are.

Santi: Will there?

Jason: I guess there should be. Tokenization (stocks on blockchain, real-world assets) has already been overused, but it will be one of the three major hotspots this year. Recently, I met Daniel (founder of Tokeny), and the ERC-3643 standard he is spearheading is becoming the mainstream standard for RWA. RWA is a key focus this year. I think we should discuss more how traditional issuers are active on-chain and what they will do. I believe these activities will happen on public permissionless networks.

Santi: Jamie Dimon’s trajectory of change is quite interesting; from being completely against crypto to now clearly leaning towards "blockchain we can work with." The gap between his stance and Larry Fink’s (CEO of BlackRock) has never been smaller, and it’s narrowing every month. He has been strongly opposed to the Clarity bill, once publicly attacking Brian Armstrong (CEO of Coinbase). I believe TradFi is stalling before Clarity passes, wanting to ensure that the bill reflects their views.

Jason: Jamie Dimon mentioned on CBS that they are considering "prediction market services."

Santi: What do you mean by prediction market services? They just want to come in and take a commission. However, everyone wants to do prediction markets. To me, a prediction market is just another form of derivatives and CDS (Credit Default Swaps), and the boundaries are becoming blurrier.

YouTube Comment Segment and Closing

Jason: The YouTube comment segment is here; I haven’t read it for a while. Should we read bad comments first or good ones?

Santi: Let’s hear the bad comments first.

Jason: Comment one: "I like Santi. That so-called full-time crypto guy who completely missed Hyperliquid." Comment two: "I like Santi, but he sounds like he hasn’t used DeFi at all; it's been years since he last earned yield; why should he talk about this?”

Santi: I never said I’m qualified.

Jason: Comment three: "Santi is many things, but absolutely not a contrarian investor. He excels at telling us things that have already happened, not at predicting the future."

Santi: That’s a solid criticism.

Jason: Comment four: "Just letting you know that Empire is my favorite crypto podcast; I'm living in Bangkok, so I can’t come to DAS." That’s a valid reason. All the bad comments are directed at you; no one criticizes me.

Santi: There are also people discussing your looks and good opinions. Rob (Rob Hadick, Dragonfly Partner) even had the whole Dragonfly team help you delete negative reviews.

Jason: Any content recommendations for this week?

Santi: Leopold Aschenbrenner’s 4-hour podcast; I just finished listening to 2.5 hours. There’s also a podcast featuring Amazon VP Ethan Evans that everyone recommended; I'm planning to listen to that.

Jason: I'm going to revisit David Senra’s Founders podcast and his founder interviews. I've discussed the episode with Tony Xu from DoorDash many times. I just finished listening to the episode with Evan Spiegel (founder of Snap), which was okay. Some people naturally have the "it factor" for storytelling, while some do not. Tony Xu has it; Evan just barely has it.

This week’s "it" recommendation is Allbirds (a shoe company that has gone bankrupt and been sold). They created an AI, allbirds.ai, which is a ChatGPT shell that responds "shoes shoes shoes" to any question. The stock soared tenfold yesterday.

Santi: When this kind of thing happens, we can be sure we are closer to the top than to the bottom.

Jason: My weekly content is watching Seinfeld for the first time. After a day’s work, I only have 20 minutes to let my brain shut down; a few things we're working on recently haven’t been made public, and the pace is fast, so in those 20 minutes, I often can’t finish a single episode.

Santi: How disconnected from culture am I? I’ve never seen a single episode of Seinfeld. I didn’t watch TV at all when I was a kid.

Jason: Do you have a TV in your room now?

Santi: No. I don’t have my phone in the bedroom either.

Jason: I don’t have it in my bedroom either. When I bought this house, the previous owner had a big TV on the wall, and I said, "No TV in the bedroom;" I should have kept it.

To conclude: we want to make Empire better. Next, we should talk more about publicly listed companies engaging in interesting crypto-related businesses, including Better (a mortgage company), Figure, Klarna, and Western Union. Besides Hyperliquid, this may be the biggest trigger point of the next cycle as traditional companies start implementing. I've been chatting with the Framework team about how to position Better; I’m still researching Figure, and there are some interesting things happening.

Santi: A few days ago we also had a call with the Figure team; indeed, it's interesting.

Jason: Alright, that’s it for today. Thank you all for listening; keep roasting us in the comments section and on Telegram, see you next week.

Santi: Have a great weekend.