Lao Bai Analyzes the Next Round of Crypto: VCs Will Disappear, Market Predictions Are Overvalued

From primary VCs to cross-asset traders, after putting down the "hammer" of blockchain.

Written by: Victor

In August 2026, Crypto is at the bottom of the industry: the market is in a deep bear phase, exchanges like BitMEX and BitMart have announced the cessation of trading operations, and previous star products like Zapper and Fantasy Top are shutting down one after another, while DEX and DeFi have been hacked consecutively. More critically, talent and funds are flowing massively into AI, and primary market VCs are starting to clear out. At this moment, 168X invited Lao Bai (@Wuhuoqiu) to discuss why Crypto, despite winning, makes everyone feel like they are losing. What stage are we at now, and what opportunities remain in the next cycle?

Lao Bai has ten years of experience in network engineering and entered the crypto space in 2017 because he wanted to buy BitShares. He has since conducted research and investment at Amber, ABCDE, and OKX Ventures, and his research scope now spans AI, semiconductors, and traditional finance on-chain. He has narrowed his focus within the crypto space to stablecoins, perpetual contracts, RWA, and prediction markets, which he believes are the few tracks that still have PMF (product-market fit) in crypto. In this nearly two-hour conversation, Lao Bai provided a series of clear judgments: issuing tokens is essentially a liability, not financing; the species of Crypto VCs will disappear; the ceiling for prediction markets is far lower than that for perpetual contracts. He believes the era of treating blockchain as a hammer and seeing everything as a nail is over; the two strongest inventions in this track are not a new public chain but stablecoins and perpetual contracts. Robinhood, he argues, is the ultimate form of all exchanges.

1. Lao Bai's Investment Evolution: From Engineer, Primary VC to Cross-Asset Researcher

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Victor: First, could you introduce yourself, Lao Bai, and share your experiences? What tracks are you currently interested in?

Lao Bai: Thank you, Victor, and thank you, 168X. My previous work experience started as a researcher at Amber, then I became a research partner at ABCDE, and later spent a few months investing at OKX Ventures.

Currently, my personal focus has actually narrowed down. Within crypto, I have concentrated on a few tracks such as perpetual contracts, prediction markets, and RWA, which I believe are among the few tracks in crypto that still have PMF. My other energy and time have expanded to U.S. stocks, especially AI-related U.S. stocks, and some other investment opportunities. Recently, I have been particularly interested in options, as they have greatly expanded my understanding of how to express an asset, whether in terms of price or value, so I have been researching this area.

2. Treating Blockchain as a Hammer: Why Most Star Tracks Are "On-Chain for the Sake of Being On-Chain"

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Victor: From 2017 to now, we have gone through several cycles. You previously wrote an article analyzing Web3 Games, mentioning that "we once treated blockchain as a hammer, seeing everything as a nail," and that many things in the world do not need to be financialized. Based on your past experiences as a VC and investor, how do you view the development and evolution of these projects over the past cycles?

Lao Bai: I want to elaborate on this question; I think it's a particularly good one. When I was doing primary investments, I had this feeling: whether as a VC or a founder, many of us were making the same mistake of treating blockchain as a hammer and seeing everything as a nail.

If you start from the first principles of blockchain, setting aside terms like decentralization, privacy, and censorship resistance (99% of users actually do not care about these), the core value of blockchain is actually what Li Xiaolai or Lao Mao wrote in an article back in 2017: blockchain is the world's first network that enables peer-to-peer value transfer. The internet allows us to transmit information, while Bitcoin, or blockchain, enables us to transfer value, not just information. How does it achieve this? Simply put, it prevents the infinite copying of information (copy-paste) through a technology that prevents double spending. You can even think of blockchain as an evolved version of BitTorrent, just transformed from a peer-to-peer download network into a peer-to-peer value transfer network. An important feature is that the assets on it can be programmed.

If you dig into Satoshi Nakamoto's earliest posts around 2009 to 2012, you will find that his initial vision was actually to carry more assets on top of Bitcoin after its success, including invoices, bonded contracts, etc. So Bitcoin had envisioned doing what Ethereum later accomplished, but Satoshi Nakamoto retired, and Vitalik Buterin emerged, realizing what Bitcoin initially intended to do with Ethereum.

This is also why I was particularly optimistic about BitShares in 2017. At that time, the concept of bringing real assets on-chain was proposed by Chang Jia, and I thought blockchain should do this, so the first altcoin I bought was BitShares. But looking back now, BitShares was too early and became a martyr rather than a pioneer. By the end of 2020 and into the DeFi Summer of 2021, as asset prices skyrocketed, I also got carried away and forgot the original intention of "assets need to go on-chain."

However, by 2024, I felt something was off. I mentioned in an internal meeting at ABCDE that upon reviewing, I personally believed that the valuable tokens I identified were all about enhancing the programmability of the entire blockchain network. From Uniswap V1 evolving to V2 and V3, Aave also went from V1 to V2 and V3, and later to Morpho and Pendle, we have been continuously enhancing programmability, as well as the speed and capacity of the entire network, which is the Infra aspect. But where are our assets? I found that there were almost none. We tried NFTs, GameFi game items, inscriptions, Ordi, including the current memes, and ultimately found that none had long-term asset attributes and value.

As for game items, it was initially promoted by Vitalik, who mentioned in 2017 that finance and gaming were the first two scenarios that could be implemented. As a result, we thought of treating game assets as RWA assets to go on-chain, but unsurprisingly, this has already failed. So six months ago, I wrote an article titled "Why World of Warcraft Succeeded While GameFi Failed." My point is: anything that can be scaled can definitely be industrialized; there is an impossible triangle involved. Even if you let assets in World of Warcraft circulate freely like blockchain, World of Warcraft would still be destroyed by studios, let alone our chain games that have no playability.

Regarding the star tracks of various cycles, I think there are a few categories. One category, like BitShares, became a martyr too early, including Augur, which was Ethereum's earliest prediction market and also fell victim to being too early and having the wrong timing. Another category involves execution not keeping up, like the earliest DEXs, Bancor and Kyber, which were later overtaken by Uniswap.

Victor: Bancor seems to have shut down recently as well.

Lao Bai: Yes, that token is considered a failed project, and everyone has already accepted it as such, so whether it shuts down or not is of little significance. Therefore, when I look at projects now, I basically differentiate: is it blockchain for the sake of blockchain, or is it blockchain to serve business and reduce costs and increase efficiency? The simplest way is to remove the tokens and see if the product stands on its own. You will find that Uniswap stands, Aave stands; but projects like Axie Infinity and STEPN in GameFi do not stand at all. So we can now consider projects that do not stand without tokens as not being on the right development path. Ultimately, you still need to clarify what traditional finance cannot achieve that blockchain solves, and then see how it reduces costs and increases efficiency in real society.

3. Why the Token Issuance Model Has Failed: From "More Meat, Fewer Monks" to "More Monks, Less Meat"

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Victor: So when you evaluate projects now, you mainly look at whether they have PMF and whether they can generate cash flow. In the past, token issuance was a model that allowed VCs, retail investors, and various industry roles to participate. Why did token issuance work in the past but not now?

Lao Bai: I think token issuance worked before because the industry was in a very early stage, and everyone could give it a high valuation based on "market dream rate." Even if you currently have no users or revenue, as long as KOLs and VCs believe your business model can work in the next five to ten years, we are willing to give you a high valuation. The retail investors' pursuit of these tokens follows a completely different logic from investing in stocks; it is entirely based on the judgments of KOLs and various VC institutions. For example, if you received funding from a16z or Paradigm, retail investors would recognize the institutions' views, and after the project team issued tokens, retail investors were essentially buying a kind of "market dream rate option" for the next five to ten years.

The second reason is that there were not enough projects on the market at that time. Funds pouring in could amount to hundreds of billions or even trillions, but we only had dozens or a couple of hundred projects, which is a typical case of "more meat, fewer monks." However, this state cannot be maintained for long. Later, more and more project teams entered the market, and more and more VCs were established, and everyone began to create PPTs to seek VC funding endorsements, then high FDV, low circulation, locked control, allowing retail investors to become the last link in liquidity. When this situation broke through a critical point and turned into "more monks, less meat," the entire cycle was disrupted, liquidity could not be sustained, and it became what it is now.

Victor: Many communities still discuss whether projects like Polymarket, which already have strong cash flow, still need to issue tokens. People say OpenSea failed to issue tokens at the right time, which led to its decline against Blur. Do you think this logic is correct? Can Polymarket use token issuance to capture a larger market and surpass Kalshi?

Lao Bai: From the perspective of retail investors, you could say that Blur succeeded at that time, and OpenSea failed because it did not issue tokens at the right time; if it had, its valuation would have been at least ten billion. However, from the perspective of Polymarket or OpenSea themselves, having such strong cash income means there is no need to issue tokens because, in essence, the tokens you issue are actually your liabilities. For the project team itself, issuing tokens does not necessarily maximize their financial or brand commercial value. Moreover, I understand that Blur is not necessarily a project that is doing very well; it just temporarily surpassed OpenSea during that period.

Polymarket can indeed surpass Kalshi in various aspects such as traffic through token issuance. However, taking recent months as an example, opinion had a token airdrop from late last year to early this year, and its trading volume was almost on par with Polymarket. But after issuing tokens, both the trading volume and the tokens have nearly dropped to zero. Therefore, from Polymarket's perspective, they actually do not have a pressing need to issue tokens; it could go either way.

4. Why do seasoned investors feel like they’ve lost despite Crypto clearly winning?

Victor: There’s a situation now where many VCs and retail investors feel that Crypto has already won, with Bitcoin entering the mainstream, ETFs being launched, and Wall Street increasingly recognizing it. But why do seasoned investors in the industry feel like they’ve lost and aren’t making as much money as in past cycles? Is it because Crypto is gradually being co-opted by traditional finance, leaving retail investors with fewer opportunities to participate?

Old Bai: That’s indeed the case, and I think both statements hold true: First, Crypto has matured; second, the ambition of Crypto to transform the world has indeed diminished. In other words, we initially aimed to create a new Crypto world from scratch, but we have gradually become reformers and vassals of the existing financial system, somewhat like the feeling of Liangshan being pacified in "Water Margin."

If you could travel back in time seven years and tell VCs, founders, or retail investors from 2018 and 2019 that stablecoins have become a crucial dollar infrastructure globally, with a scale of hundreds of billions; that Bitcoin has ETFs and pension funds and institutional money are buying; that Crypto companies can participate in IPOs; and that RWA is genuinely entering the traditional financial system, with companies like Stripe, Visa, and BlackRock deploying Crypto infrastructure, creating public chains, and developing PayFi. People from that era would surely feel: We have won.

But from the asset perspective, we indeed have not won. We no longer see another DeFi Summer or altcoins multiplying fifty or a hundred times. Over the past decade, the creation of on-chain native assets, from NFTs to inscriptions to various memes, I believe we have also lost. We have ultimately only built a track for on-chain finance, and now we are starting to bring native assets from the real world onto the chain.

However, we have two remarkable inventions: one is stablecoins, and the other is perpetual contracts. I think these belong to our significant victories, truly Crypto Native PMF.

Mr. Z: I resonate with your comments. A few weeks ago, I saw Haseeb, the managing partner of Dragonfly, say that Crypto is gradually maturing. He believes that in the next decade, there may no longer be Crypto VCs, just like in the mid-2000s when we invested in IoT and social platforms like Facebook, and now no VC claims to be investing in those things. Do you think that in five or ten years, Crypto VCs will no longer exist?

Old Bai: I largely agree with Haseeb's viewpoint. In the future, as a VC or even as a trader, one should not treat Crypto as a separate industry or sector to worry about. Just as you wouldn’t say a VC is an "internet fund VC," the internet serves as a technology to support the business system; similarly, Crypto will also serve as a foundational technology integrated into your entire business model. When you need to use stablecoins or put some things on-chain, you might only participate in Crypto-related business projects or companies with 10% to 20% of your resources. It will be hard to claim to be a "Crypto VC" or to label something as a "Crypto project." I believe Crypto should gradually integrate into the real world like the internet, and we won’t need to worry about whether it’s a Crypto asset, Crypto project, or Crypto VC; these labels will disappear.

5. The Competitive Landscape of Perp DEX: The Four Dragons and HIP-3, Who Can Challenge Hyperliquid?

Mr. Z: This resonates with the current operations of Perp DEX like Hyperliquid and Variational, which use blockchain as a foundation to move assets on-chain. For example, using protocols like HIP-3, they allow deployers like TradeXYZ and Paragon to bring assets on-chain, enabling users to trade stocks from various countries 24/7. What do you think the competitive landscape for Perp DEX will look like in the next two to three years?

Old Bai: Personally, I am very optimistic about Variational. Beyond Hyperliquid, my second-tier favorites are Aster, Lighter, and Variational. The RFQ (Request for Quote) combined with over-the-counter hedging approach of Variational makes a lot of sense logically, and the team, founders, and the capital and institutional resources behind it are excellent.

I believe the market only needs four to five Perp exchanges, just as we only need four to five exchanges. Previously, there were Binance, OKX, along with some user favorites like Bitget, Bybit, and others. Ultimately, there will only be four to five that form a leading effect: Hyperliquid at T0, and Lighter, edgeX, and Variational at T1.

A few days ago, I was chatting with a friend who raised an interesting point. As the Perp and CEX in the crypto space become more like the leveraged contracts of traditional finance and stock brokers, many small to medium stocks with average liquidity may adopt the Binance Alpha strategy. The approach is to achieve 60% to 70% control in the spot market, continuously buying to push prices up, while creating a narrative, such as a traditional company that was about to fail suddenly announcing a pivot to AI or DAT (Digital Asset Reserve). At this point, a very high OI might be piled up on Hyperliquid or Binance, and the company's shareholders or stakeholders could exit through Perp. In terms of regulation in the spot market, you wouldn’t find any loopholes because the company is only repurchasing its own stock, buying but not selling, leaving regulators with nothing to say; however, selling would occur in Perp. This is a long-term regulatory arbitrage, combined with our Perp DEX, creating a new way for other small to medium stocks with average liquidity around the world.

Mr. Z: I’ve noticed that besides Hyperliquid, latecomers actually need different strategies. Hyperliquid already has many US stocks, and standard stocks like Interconnect and Storage should be available to everyone. For latecomers like Variational, should they explore Asian stock markets, such as listing TSMC, MediaTek, or Korean, Japanese, and Hong Kong stocks like Alibaba, Tencent, Meituan, and JD? Because they can’t compete head-on with Hyperliquid. What do you think about this?

Old Bai: For Perp like Lighter and edgeX, which have the same structure as Hyperliquid and are based on CLOB and market makers, they should indeed pursue differentiated competition. The Asian assets you mentioned, TSMC, MediaTek, and Korean stocks are all valid directions. I remember Mable is working on Trasia, which is focused on Asian assets. Another friend of mine is planning to jump out of VC to create a Perp targeting on-chain forex. We’ve been talking about this for many years, but it hasn’t materialized. If stablecoins reach a trillion level on-chain, then the TAM for on-chain forex is actually very large.

However, Variational and Ondo Perp are different. If you look at their slippage and liquidity, they can achieve better and more convergent spreads than Hyperliquid or even Binance. Hyperliquid essentially uses a single market maker to provide liquidity, while Ondo operates similarly to an RFQ quote, allowing for easy hedging with its TradFi. Therefore, Ondo Perp has better spreads and slippage on many RWA, especially on large stocks like Nvidia and Micron, which I checked before. The mechanism of Variational can theoretically also implement Ondo's approach, and the swap it launched last month has already introduced traditional TradFi hedging mechanisms for commodities like oil and gold. So I think these two have different mechanisms and could consider competing directly with Hyperliquid.

Mr. Z: Looking into Hyperliquid, TradeXYZ is still the leader in HIP-3, but there are also emerging players like Paragon, which have a clever strategy focusing on speed and efficiency, quickly auctioning off tickers to launch assets wherever there are market hotspots, and not creating a front-end interface, believing that Hyperliquid's front end is already sufficient. Are you keeping an eye on this?

Old Bai: I am paying attention, but perhaps not extensively. I can currently only see deployers like TradeXYZ and Paragon on Hyperliquid's front end. I noticed that some assets on Paragon are somewhat different from TradeXYZ, but currently, its volume is still quite small, mostly in the hundreds of thousands, while TradeXYZ often handles billions, showing a significant gap.

HIP-3's ticker was originally just a marker for a deployment opportunity, with the first three slots being free and subsequent ones auctioned off. What assets you want to utilize for these slots is entirely up to you. However, I believe this will likely create a leader effect, and it's not just a matter of user perception. The market-making aspect is not directly managed by Hyperliquid; it's TradeXYZ and Paragon who handle it themselves. If TradeXYZ's market makers provide excellent liquidity and spreads for the same asset, everyone will naturally gravitate towards TradeXYZ. This creates a self-reinforcing growth flywheel effect. Breaking this cycle is something that latecomers need to consider. Moreover, unlike Uniswap, where you can implement new AMM mechanisms, like Curve did with stablecoins using different curves for different effects, HIP-3 purely relies on the liquidity and depth provided by market makers, making it difficult to innovate in clever ways.

VI. Security as a Function of Time: Lessons from Ostium, Cream, and Perp

Victor: Recently, there have been some incidents with Perp, such as the TradeXYZ incident involving a Hynix flash crash, which Binance also experienced but with less impact. TradeXYZ ultimately chose to compensate all user losses, which was very generous. Other projects have also faced hacks or bugs recently, like the RWA project Ostium, which was hacked for about $18 million, and Paradex was also compromised not long ago. How will these security issues affect people's skepticism about DEX security, and can Perp be accepted by more traditional finance and investors in the future?

Lao Bai: I think this depends on two factors. The first is that time is needed to prove reliability, as 99% of users cannot look at your underlying code; they rely purely on reputation and time. Why is AAVE so strong and has such high consensus? Because it has never had any security issues as a lending protocol; the previous incident was actually due to underlying asset penetration, not AAVE's fault.

You will find that the vast majority of security attacks on lending platforms occur in the lending process: using oracle issues, price manipulation, or controlling votes to leverage a garbage asset as collateral to extract a lot of stablecoins. For instance, many junk lending platforms on Solana have been attacked multiple times, including the lending platform Cream, which I remember was attacked three or four times. I never understood why people still bravely deposited money there after being hacked.

So for Perp, I think there are two points. First, do not expand Perp's business to the point where you can collateralize certain assets or include lending. I remember Paradex, or it should be Drift on Solana, wanted to do everything—spot trading, collateralized lending, and Perp—ultimately leading to a breach in the lending aspect. If you are doing a Perp, just focus on doing Perp; do not try to collateralize assets to extract stablecoins. Once you do that, something will inevitably go wrong one day. The second point is that there is no alternative; it can only be proven over time. If four or five years later, Hyperliquid has never had any security incidents while others have, people will naturally trust it and be willing to deposit their money there, just like Binance, where user perception is completely dominated.

VII. Will Hyperliquid Engage in Spot Trading? The Ideal and Reality of Tokenized Stocks

Victor: Regarding spot trading, Hyperliquid has yet to launch any spot products. Do you think they might enter the spot market? If they want to follow Binance Alpha's approach to launching stock assets, would they need to engage in spot trading?

(Lao Bai's Note (Updated August 12, 2026): Based on community feedback and further verification, Hyperliquid launched PURR/USDC spot trading in April 2024 and has since supported spot trading for assets like HYPE, BTC, ETH, and SOL. This is a correction.)

Lao Bai: I don't think they will engage in native crypto spot trading. The impact of spot trading is currently too small; you can see that 80% to 90% of Binance's revenue comes from Perp, and within Perp, over 60% now comes from US stocks, i.e., RWA, rather than from native crypto.

So if you want to enter spot trading, you either need to launch a stock spot product, similar to Binance's bStock. I'm not sure if Hyperliquid will have something like "hyperstock" in the future; the possibility exists, though it is slim. But if they do, the only purpose would be to serve their Perp, allowing for spot-futures arbitrage and on-exchange hedging. Just like Ondo, which has excellent Perp liquidity because it has its own Ondo Stocks on the exchange, market makers provide quotes, and if you open a $1 million long position in Micron, they can simultaneously provide you with a short position as a counterparty, directly holding $1 million in Micron spot with zero latency. So if Hyperliquid takes this step, I wouldn't be too surprised, but they will definitely not engage in spot trading for crypto assets like BTC, ETH, or SOL.

Victor: If you had to choose between tokenized stocks and Perp, which one is the better model? Or are they complementary? For example, StableStock positions itself as a stablecoin broker, allowing people to buy stocks directly with stablecoins but does not engage in Perp; whereas Binance offers a full suite, including Perp, US stocks, and tokenized stocks.

Lao Bai: The ideal state for tokenized stocks should be "real stocks, combined with clear legal ownership, plus free circulation on-chain." This is something Nasdaq itself might want to do; I remember the SEC recently approved Nasdaq to create on-chain stocks. So regarding stock spot trading, StableStock, including BIT, which I collaborate with, may find their price competitors to be Nasdaq itself, although Nasdaq may not allow you to freely buy and sell with stablecoins in the short term.

However, from a practical perspective, the vast majority of users do not need clear legal ownership or real stocks; they just need a price exposure they can bet on, as long as this exposure can anchor the real stock price. Therefore, the most mainstream form remains Perp. This is also why I say that over 60% of revenue comes from Perp, with 60% of that being RWA. The ideal is that everyone is a holder, a long-term investor, like traditional US stocks; but the reality is that everyone is a gambler, needing exposure and then adding five to ten times leverage to open long and short positions wildly. Ideals are ideals, and reality is reality.

VIII. Stablecoins: The Greatest Invention of Crypto and the Global Extension of Dollar Hegemony

Victor: Next, let's talk about stablecoins. Recently, projects like Open USD have gathered traditional financial institutions like Visa, Stripe, and Mastercard, reminiscent of Facebook's Libra back in the day. What are your thoughts on the evolution of the stablecoin space in the next cycle? What kind of differentiated advantages would new projects need to emerge?

Lao Bai: I am extremely bullish on stablecoins; I believe they are the most important invention after Bitcoin, bar none. The biggest contribution of crypto to the world is actually stablecoins, not even Bitcoin. Bitcoin is mainly a game for a small number of large holders, institutions, and whales, but stablecoins are the technology that truly changes the world through blockchain.

Last year, we were discussing the stablecoinization of debt. Last year, it was $36 trillion in national debt, and now it's $39 trillion. Everyone is thinking that stablecoins should reach one to two trillion before 2030, at least helping to eliminate two trillion in US debt and lighten the burden on the US government; in another ten to twenty years, it might reach five to ten trillion in scale. You can see that on the B-side, Stripe and Visa are already involved, covering various scenarios from payments to interest generation; on the C-side, it's needless to say, stablecoins can be used to buy and sell various assets around the world. So ultimately, I believe stablecoins and tokenized US stocks will have a synergistic effect: dollar hegemony and dollar asset hegemony will penetrate into all countries and corners of the world through stablecoins.

As for what it takes to be a new player, I think the bar is too high. New players can only be super players like Stripe, BlackRock, or Visa, who already control traditional payment and currency financial entry points or intermediary circulation links, to have the qualification to share a piece of the stablecoin business. Ordinary entrepreneurs are advised not to touch this area; it's a business that heavily relies on institutional involvement.

IX. Agent Payments and Machine Economy: Cloudflare's Traffic Inflection Point and Micropayments

Victor: The narrative around stablecoins and AI Agent payments was very popular last year, like x402, and recently Cloudflare launched an agent wallet. Earlier this year, Tether also launched a wallet, all aiming to promote Agent payments with stablecoins and the machine economy. Is this a feasible narrative, or is it more of a dream?

Lao Bai: This narrative is very feasible, but whether it relates to crypto is another matter. From two perspectives.

First, will the agent economy actually happen? I believe it will. Last month, the CEO of Cloudflare mentioned something during an interview: on a certain day last month, bot traffic on the internet surpassed human traffic for the first time. This occurred on a day in July and is a significant milestone. Previously, there were many bots on the internet, but human traffic always dominated. Now, as the world's largest gateway/CDN, Cloudflare's data shows that bot traffic has finally exceeded human traffic. The reason for this is large language models: if a human wants to buy a single-lens reflex camera, I might check five web pages and compare prices, resulting in HTTP requests based on those five visits. But if you ask ChatGPT or Doubao, "Recommend a single-lens reflex camera for five thousand yuan that can achieve certain functions," it may need to make five thousand HTTP requests to browse all relevant e-commerce and review sites online to provide you with the best answer. Therefore, the machine era is creating an explosive demand for network traffic, and the CEO of Cloudflare believes that in the next five years, agent traffic will expand another thousand times.

Second, he raised a question: the internet economy used to rely on Google Ads, where we completed the entire search and recommendation-based business loop through clicking ads. However, this model is broken when agents make recommendations. The only solution currently observed is that when agents scrape data from your website, they make a micropayment. For example, if you are an e-commerce or review site, and the agent uses your data in five thousand scrapes, it would pay you two cents. How would these two cents be paid? Most likely through something like x402, or through stablecoin-based solutions gradually rolled out by Cloudflare, Visa, and Stripe. It certainly won't be traditional Visa, nor necessarily crypto, but it will definitely be stablecoins on a certain chain. This chain could be Solana, Ethereum, Tempo, or Arc; we don't know, but I believe this is the scenario.

The Endgame of Public Chains: The Era of General Chains Ends, Institutions, C-end, and Gray Industry Divide the World

Victor: How will stablecoins and agent payments affect the competitive landscape of public chains? Currently, Ethereum is still the largest, followed by Solana, Circle's Arc, Stripe's Tempo, and last year there was also Plasma, etc.

Lao Bai: I feel that the next cycle will likely be "Caesar's to Caesar, God's to God," with everyone progressing together. If it's for the gray industry, they might still choose to use TRON and USDT; if it's retail investors, they will likely still choose USDC on Ethereum and Solana to engage in DeFi and memes; if you are an institution, B2B, enterprise payments, or foreign exchange, you will likely go for institutional chains like Tempo, Arbitrum, and a privacy-focused Canton, which is also developing very well. So, there are probably three or four institutional chains serving the B-end, while Ethereum and Solana serve the C-end, and TRON serves the gray industry; I think this is likely the landscape.

Victor: In the past few cycles, everyone regarded public chain tokens as the most mainstream beta, such as Ethereum and Solana. Will public chains still be the main focus for VC or retail investors in the future?

Lao Bai: Definitely not. Hyperliquid has basically set a benchmark for all public chains: public chains must serve applications. I am a chain, but I exist to serve a super powerful application, rather than to create a universal public chain. The era of universal public chains may have reached its peak after Ethereum and Solana, but we are still reluctant, leading to the emergence of Aptos, Sui, Monad, and MegaETH. Recently, MegaETH's Shuyiao tweeted that their MegaMafia incubation plan will stop and no longer fund new projects on the chain, deciding to enter the application space themselves. This indicates that the era of general chains has been declared over, and the future should be an era of application chains.

This is somewhat similar to AI: first, we need to build the infrastructure; we must lead with a version and get the infrastructure right, which has a very high valuation; now everyone is finally starting to pay attention to applications, PMF, users, and cash flow, and the crypto space is beginning to move towards a stock market-like model. Conversely, the semiconductor and storage sectors in the stock market are somewhat like the previous version of our crypto space, starting to "crypto-ize," which is why many people have failed by using two times leverage to go long on Hynix.

The Path of Large Models Towards "Public Chainization": Killer Applications and Insights from Palantir

Victor: Now large models are somewhat like public chains; the barriers to creating large models are getting lower, and the main battlefield is shifting to models specialized in certain applications. Do you think large models will develop in a direction similar to public chains?

Lao Bai: I think it already is. Look at China's six little dragons, like Kimi, DeepSeek, and MiniMax; they already have a public chain-like feel, with each large model having its own characteristics. For example, MiniMax's recent new model comes with an uncensored version, which has made many video creators happy. So we have already made our own characteristics in terms of technology, cost-effectiveness, and ethical review, similar to the public chain competition of the past.

Ultimately, who can break through depends on two points. The first is who can better integrate into the B-end. OpenAI and Anthropic have both established frontline deployment engineer teams, learning from Palantir's approach, aiming to integrate AI into enterprises. Because, as you can see, we are doing so well, but over 90% of enterprises only provide their employees with Anthropic, OpenAI, or Doubao, while the entire enterprise process and structure remain traditional. The overall improvement of AI for enterprises may be less than 20% to 30%, but for individuals, it may exceed 500%. Therefore, OpenAI and Anthropic are somewhat anxious and have decided to personally establish companies to help enterprises integrate AI into their workflows. The second point is that on the C-end, it depends on who can create a killer application; beyond ChatGPT, Codex, and Claude, can other killer apps be developed?

Victor: A few days ago, the CEO of Palantir mentioned in an interview that the narratives Anthropic is currently sharing with the public are actually things Palantir has been doing all along, which is quite amusing.

Lao Bai: Yes, so Palantir's stock price has been performing very well recently, as people realize that these impressive SaaS platforms are not so easily replaced by large models, and large models are not easily integrated into an enterprise's workflow.

The Truth About Prediction Markets: Completing the Gartner Curve in Two Years, with a Ceiling Far Below Perp

Victor: Finally, let's talk about the prediction markets that everyone is very concerned about. You have also invested in some prediction market projects, such as the prediction market 42space invested by YZi Labs. What do you think of the current landscape of Polymarket, Kalshi, and the overall prediction market?

Lao Bai: Yes, I just tweeted a few days ago about the four stages of prediction markets: underestimated before the election, Kalshi and Polymarket proving the feasibility after the election, overestimated before the World Cup, and now starting to return to rationality. You can see that Polymarket's volume has been declining since July 18 after the World Cup. So I now feel that if Polymarket is really valued at around 20 billion, or if it really issues a token at a level of two to three hundred billion, I would not hesitate to short it. Because from my observation, prediction markets are not on the same level as Perp.

At that time, we had many irrational imaginations about prediction markets, somewhat like "using a hammer to find nails." When I was at ABCDE, I discussed at least ten or more prediction markets, and everyone would imagine some scenarios, like friends betting against each other, using a prediction market to open a private room for separate betting. But in practice, the frequency of such friend betting scenarios is actually very low; it is not a PMF at all, but something people forcibly came up with to create a PMF for prediction markets.

In simple terms, a person does not have the need to express opinions and bet on their opinions for so many things. For the vast majority of people, it may just be politics and sports. And for sports, traditional betting already meets the demand quite well; for example, in Europe, America, and Australia, people enjoy going to stadiums to watch games or going to sports bars, where a bunch of people drink beer, watch horse racing or games, and casually buy a traditional lottery ticket worth tens of Australian dollars, feeling happy if they win and just losing a meal's worth if they lose. This is also why Kalshi has performed well in sports, but essentially, people's demand for these has already been largely satisfied by traditional markets and traditional betting.

Recently, I spoke with a founder of a prediction market tool; they are doing something similar to "GMGN of prediction markets," with smart money, money flow, hot markets, AI recommendations, etc., and I think they are doing very well. But when I asked them why they ultimately chose to pivot to Perp, they gave me several very sensible points:

First, prediction markets cannot benefit from the liquidity overflow bonus. One big reason why DeFi Summer was so popular was the zero interest rates and massive liquidity in the US, where liquidity overflowed from the US stock market to the crypto space, from Bitcoin to altcoins, coinciding with the explosive growth of DeFi Summer, which lifted the entire industry. However, prediction markets are fundamentally difficult to benefit from this bonus because they are a form of expressing opinions, not an asset form.

Second, the frequency of attention is not enough. Sports and politics have major events every few days or even weeks, but memes are different; look at why pump.fun is so successful, as it can catch new hot topics and memes every day. For example, the PNUT squirrel coin was a thing that happened every day; the frequency of meme token issuance is on a daily or even hourly basis.

Third, there is no ceiling without the "head effect". In the Meme market or traditional trading markets, many users follow others, creating a head effect. A typical example is Elon Musk's promotion of Dogecoin, which surged to a market cap of $70 billion, allowing some to achieve returns of hundreds or even thousands of times. The ceiling is extremely high, even infinite. However, prediction markets do not have such a ceiling; at most, you can increase a market's probability from 10% to 100%, which is only a tenfold increase at best. Moreover, the moment you place a bet, the market odds are already priced in, and the mispricing you can exploit might only be around 20-30%. Doubling your investment would already be a significant profit.

Fourth, the proportion of rational decision-making is too high. When you place a bet, you must feel that your IQ, information, or understanding exceeds that of others. I might place bets on Apple, AI semiconductors, or Intel yields, but I wouldn't bet on a hockey or football game that I've never heard of. You will find that each person can only bet on five to ten assets, which can be counted on two hands. But that's not the case with Memes; a trending meme can be known by everyone, and a single wallet address can quickly accumulate to tens of thousands, hundreds of thousands, or even millions.

So I find these points very make sense, which leads me to be less bullish on prediction markets compared to last year: I acknowledge that their PMF (Product-Market Fit) genuinely exists, but their ceiling is far lower than that of Perpetuals.

Victor: What do you think about projects that combine prediction markets with Memes? For instance, 42space, which you invested in, has introduced bonding curves and some Meme elements.

Lao Bai: I was actually very against Memes and never liked them. However, after seeing the form of prediction markets, I am not so bearish on Memes anymore. Rationally, I believe that Memes are a form that cannot disappear and will always have vitality. In summary, the biggest difference between the Crypto market and traditional financial markets is that we have more gamblers, and we provide strong enough tools for everyone to gamble. Crypto is also the market with the highest volatility in the world, which is its industry advantage. Many functions of prediction markets in traditional finance can actually be replaced by options or CDS (Credit Default Swaps); they cannot capture the share of options in traditional finance, and in the crypto space, they lack sufficient gambling appeal to meet the needs of gamblers.

I invested in 42space for two reasons: first, I have a personal connection with the founder; second, although I cannot confidently say that 42space will definitely succeed, I believe that "combining Memes with prediction markets to make prediction markets more appealing to gamblers" is a path worth exploring.

Thirteen, Robinhood's Clear Strategy: RWA for Investors, Meme for Gamblers

Victor: What do you think about the recent on-chain Meme craze at Robinhood? Recently, Robinhood's original native launchpad was shut down, and Uniswap launched a new launchpad pools.trade on the Robinhood Chain a few days ago. Although Robinhood focuses on RWA, a significant portion of its trading volume is driven by Memes. What do you think about the growth relationship between this chain and Memes?

Lao Bai: I think Robinhood's approach is very clear and impressive. They openly state that their chain is focused on two things: RWA and Memes. They understand what users really need. If you are a long-term investor, what you need are RWA assets, such as Micron, Nvidia, and SK Hynix; you don't need worthless VC air clones. For more gamblers, they want to play with high-volatility assets, so I provide them with Memes.

When Base launched, it also attracted users through Memes, as Memes can easily lead to hundreds or thousands of times growth in the early stages, naturally creating a huge attention draw. Therefore, Robinhood is very adept at this: first, they bring users in and settle funds. You might change your mind at any time, saying you made money on Memes and want to keep your money; what do you do? You buy some Nvidia on Robinhood. Their strategy is clear about what people in both the crypto and traditional finance circles are thinking and wanting to play with.

Fourteen, Exits of Exchanges and Talent Flow to AI: Why This Time Is Particularly Severe

Victor: Recently, many exchanges have announced the cessation of trading operations, such as BitMEX, which invented perpetual contracts, and BitMart. Many projects have also announced shutdowns, like Zapper and Fantasy Top, which were very popular in the last cycle. You have experienced several cycles; does this kind of situation occur at the bottom of each cycle? Is the exit of exchanges in this cycle particularly obvious?

Lao Bai: In fact, similar events occur at the bottom of every cycle, but this time it is particularly severe. In previous cycle bottoms, established exchanges like BitMEX typically wouldn't shut down unless there were security breaches. Projects like Zapper, which I personally used and liked during DeFi Summer, with real users and real value, would also hold up in previous cycle bottoms. But now you will find that they cannot hold on, so we are truly entering a maturation phase: the feeling that "growth can cover all problems" is gone.

In the past, if you could make money, or even if you couldn't make money but had new funds and new users coming in, everyone was fine. Now, there are no new funds or new user growth; instead, our talent is leaving, and users are leaving. All traders and KOLs are talking about US stocks every day. Without growth, all problems are exposed at once. Our circle has shrunk, leading to some exchanges and projects that could have held on now unable to do so.

Victor: Talent is indeed a significant issue. Recently, the co-founder of Sui announced a move to Anthropic. Compared to the cycles of 2017 and 2020, it seems that the smartest talents in the world are moving away from Crypto, but now it's the opposite. What phenomena have you observed around you? When might this trend reverse?

Lao Bai: I think we may not see a reversal in the next few years; I currently see no reversible possibilities for this talent drain. I was very bullish on blockchain for a significant reason: talent. In 2023, I even tweeted that at ABCDE, we hired four or five interns, three of whom were from Tsinghua University and one from Peking University; among my colleagues, Siyuan has a PhD in databases from HKUST, and Joy is from Pennsylvania. Over the past two years at ABCDE, I have discussed 1,300 to 1,500 projects, and about half of those founders are Ivy League graduates; I have talked to many founders from Harvard, Stanford, Berkeley, and MIT. As a "second-tier student", being able to discuss hundreds of founders from top universities in one industry is unimaginable in other fields, so I felt, how could I not be bullish on Crypto?

But that was in 2023, when AI and ChatGPT had just emerged, and it wasn't so obvious yet. Now, many people I know, including former interns and colleagues, have gone to AI. Beyond the profit motive, I think the biggest reason is that over the past five or six years, since the birth of Ethereum, we have had many interesting problems to solve, such as distributed consensus, open finance, on-chain trading, MEV, scalability, anti-censorship, and privacy. But by 2024, these problems have mostly been resolved. You will find that new projects from 2024 until now, whether a new chain or a new Layer 2, are basically the same: they create a Meme for traffic, develop a wallet, establish a tokenomics incentive, set up a liquidity pool, and create lending services, bringing Uniswap and AAVE onto the platform. Everyone is playing the same game, which makes it less appealing and less interesting. You let people from Harvard, Stanford, and MIT become copycats; besides not making money, they also find it uninteresting. But in AI, for the next five to ten years, we have countless problems to solve, just like blockchain did over the past decade. Therefore, from the perspective of problem-solving, I cannot find any possibility for AI talent to return to Crypto on a large scale.

Victor: Could Ethereum's innovation path have an impact? What do you think about Ethereum's development over the past few years? Many smart people came in with ideals, but it seems that the most idealistic things have been disproven, and these people are starting to leave.

Lao Bai: I think Ethereum has done quite well over the past few years. Many innovations during DeFi Summer came from Ethereum, including the concept of Layer 2 and the entire framework of smart contracts, which Ethereum developed itself; Solana is the only one that has entered from another angle and done quite well. Ethereum has essentially created a foundation, which still has some areas that can be improved, such as privacy, staking rates, decentralization, and using ZK for proofs, but these are all minor details.

In the past three to five years, we have tried all the strategies that Wall Street could think of on-chain, such as tranches, risk and return-based splits like Pendle, and extremely complex risk default swaps like CDS. But in the end, you will find that what is truly useful is just a DEX and a lending platform; overly complex things cannot be played on-chain. Pendle is considered quite innovative, but its innovation is essentially just bringing Wall Street's model over, with complexity just at the limit of what everyone can tolerate; more complex things like GammaSwap or those involving hedging, options, insurance, and CDS, I have discussed, but none have succeeded. The simplest options, I have looked at more than ten on-chain projects, and none have succeeded, with Deribit still dominating. Therefore, we have already played out most of the innovative things, and there aren't many issues that the smartest minds in the world are eager to solve; they are more interested in exploring AI.

Fifteen, From Crypto to US Stock Options: Three Cognitive Upgrades in Trading Framework

Victor: This year, you have invested heavily in AI and semiconductor stocks and often trade options. After switching from Crypto to the stock market, what changes and insights have you gained in your trading framework? Options were a relatively less participated area in Crypto; how do you use them for trading expression?

Lao Bai: After switching to stocks, the three points that have impacted me the most are.

First, I will try to establish a more mature trading system. My previous trading was actually quite unstructured, primarily driven by narratives. After making some money during the DeFi Summer, I easily developed a path dependency, taking larger positions in altcoins that I thought were very creative. In fact, during the Luna crash in 2022 and the GOAT wave at the end of 2024, I lost quite a bit, even though I don't use leverage or trade contracts. I still incurred significant losses in these altcoin spot trades, which reflects my immature trading system—too young, too naive. When you invest in U.S. stocks with real PMF, real markets, and real users, it is completely different from investing in crypto, which is primarily driven by market cap, narratives, and technical fancies. You need to establish a structured trading system that considers drawdowns, capital allocation, and opportunity costs.

Second, you will learn to respect "not knowing." There is a dangerous habit in crypto, especially for someone like me who is an early-stage investor: after reading a project's white paper, researching data on DefiLlama, and chatting with the founder for an hour or two to dissect the tokenomics, you feel like you understand the project well enough to buy in. This is actually an illusion. In the U.S. stock market, you will find it much more complex: a company's stock price is influenced by revenue, profit margins, inventory, capital expenditures, macro interest rates, options positions, implied volatility (IV), supply chains, competitors, and a plethora of information that you simply cannot exhaustively analyze. Therefore, you choose to respect the idea that "no one can know everything"—this is a hallmark of a mature market.

Third, and most importantly: the ways of expression have diversified. The expressions in crypto are particularly simple and crude; if you are bullish, you buy the coin, and if you are more bullish, you use Perp to leverage long. If you win, you enjoy the rewards; if you lose, you have to work hard. However, traditional finance offers many more ways: if you are bullish on Nvidia but think it’s too expensive, you can sell a put like Duan Yongping; if you are bullish on SK Hynix and Micron in the long term but worry about short-term corrections, you can use a call spread. I previously bet on the volatility of SpaceX's second launch; although the strategy failed, the idea was to bet on volatility, not direction. If the rocket exploded, it would plummet; if it succeeded, it would surge, and at that point, you could use a straddle to construct an options portfolio. For example, if I hold a lot of semiconductors and AI stocks and feel that the market sentiment is overheated in the short term, I can buy some puts for protection. With so many ways to express your views, it helps clarify your thoughts: are you bullish on the asset itself, or are you bullish or bearish on its volatility, or are you bullish or bearish on its time? You need to clarify your thoughts before choosing a way to express them. This has had the biggest impact on me personally.

Victor: Speaking of assets like SpaceX, with Yushu Technology about to IPO and no stocks or options available yet, but there are pre-IPO contracts on Hyperliquid. How would you trade such Pre-IPO assets?

Lao Bai: To be honest, I don’t quite understand this, so I won’t participate. It’s a bit like how there were only pre-market contracts on Hyperliquid for SpaceX back then, but I didn’t participate either. Because this kind of thing is entirely a short-term sentiment game; it has no underlying stock, and everyone is expressing their views on Perp. Even if your view is correct, you could get liquidated at any moment. So I don’t participate in these pre-market Perps.

Sixteen, Advice for Each Role: How Founders, Traders, VCs, and Exchanges Can Stay at the Table

Victor: As we near the end of the interview, I would like to ask Lao Bai to give some advice on how different roles can survive the bear market and continue to stay at the table.

Lao Bai: I can break it down by roles.

For Founders, the landscape is quite different from when I was in the early stage. If you only have a good idea or want to bring a traditional finance play over, that era is over. Now, if you are starting a business, you may need more institutional resources, especially from North America, and you need to find real PMF and users. Even if you find that removing crypto makes your product better, then do it; you don’t need to sacrifice your PMF just to stay in crypto. As Haseeb said, crypto should gradually be integrated as a technical layer into your product. You should consider what users your product serves and what it aims to achieve, rather than thinking, "It’s a crypto project, so it must issue a coin and have a tokenomics structure"—none of this is mandatory.

For Traders, do not develop an identity tied to any market. You can be a crypto trader, or a trader in U.S., Taiwanese, Korean, or A-shares; it doesn’t matter. If there are no opportunities or volatility here, go look at another market to see where there are opportunities and odds, and place your bets where the odds are best and where you have the most advantage or information asymmetry.

As for my fellow VCs, I feel I don’t have much qualification to give advice since our own VC has closed down. But if I had to say something, it would be to learn from our lessons: don’t be a pure early-stage crypto VC; it’s best to combine early and secondary stages. I’ve noticed that the VCs who survived this round are those who have both early and secondary investments: when investing in early stages, you don’t have to issue a coin; you can invest in equity instead of tokens. In the secondary market, you can buy Bitcoin, Ethereum, or even hedge by going long or short on Perp, or buy Robinhood, Coinbase, or some traditional U.S. stocks. Don’t limit yourself to being a pure early-stage crypto VC; you are a VC.

For exchanges, I think the situation is the most severe. Exchanges can no longer see themselves as just crypto exchanges in this cycle. Your future competitors are no longer just Binance, OKX, Huobi, and Gate, but Robinhood, Interactive Brokers (IBKR), Tiger Brokers, and possibly even traditional banks. Users will only care about where the most assets are, where the best liquidity is, where it’s cheapest, and where it’s most convenient. The ultimate goal of exchanges should shift from "listing coins" to whether they can become an entry point for global risk assets.

So I previously expressed the view that Robinhood is the ultimate form of all exchanges in the future. Whether in the crypto space or traditional finance, there should be one place where you can do everything: recharge USDT, USDC, buy U.S. stocks, buy crypto, leverage, trade contracts, and engage in prediction markets. It should encompass everything, essentially like the WeChat model. Musk is also particularly envious of this Super App model; he has always thought that China’s WeChat is amazing.