Arthur Hayes is the founder of BITMEX and the creator of perpetual contracts in the crypto market. Let us first learn about the story of the man known as Xiao Hei and his recent views on DEFI, which has led to the birth of new applications in blockchain in 2020. It is like people entering the Alipay era from the bank card era.
Arthur Hayes' story is not only a legend in the cryptocurrency world, but also an adventure that spans the world of traditional finance and cryptocurrency. His rise, peak and controversy are like a complex drama, full of ambition, wealth, power and legal entanglements.
Unlike SBF, who comes from a white elite family, Hayes is a black child from the Rust Belt. Born in Buffalo, Hayes showed interest in the financial world from an early age. Later, he was admitted to the Wharton School of the University of Pennsylvania and joined a top investment bank on Wall Street after graduation. He initially worked as an ETF derivatives trader at Deutsche Bank, and then moved to Citibank, where he continued to work in derivatives-related fields.
With the financial experience accumulated in his previous work, he saw the huge potential of the Bitcoin derivatives market. In 2014, he co-founded BitMEX with Ben Delo and Samuel Reed. The full name is Bitcoin Mercantile Exchange, which pays tribute to the Chicago Mercantile Exchange CME. Its headquarters is located in Hong Kong.
Their original 100x leverage trading function attracted a large number of trading gamblers in a short period of time, and also made BitMEX turn losses into profits. Hayes was also given the title of "Crypto Wall Street Wolf". At its peak, BitMEX's daily trading volume reached as high as 8 billion US dollars, bringing BitMEX 4 million US dollars in revenue in a single day, with outstanding ability to attract money.
In 2018, Hayes spent a huge amount of money to rent the 45th floor of the Cheung Kong Center in Hong Kong, with a monthly rent of more than US$500,000, making it the most expensive office in the world. At the same time, it also became neighbors with world-class financial institutions such as Goldman Sachs, Barclays Bank, and Bank of America. Hayes himself also enjoys a life of luxury, with supercars, private jets, and vacation villas becoming the standard symbols of his wealth.
Hayes has a rebellious and flamboyant personality. He not only openly "fought" with regulators, calling regulation an "obstacle to innovation," but also responded to various accusations in public with sarcasm. With the rise of BitMEX, problems gradually emerged. On March 12, 2020, the cryptocurrency market staged a "Black Thursday," with the price of Bitcoin plummeting by more than 50% in 24 hours. A large number of BitMEX users suffered liquidations and suffered heavy losses.
In order to avoid these charges, Hayes once fled to Asia, and frequently appeared in Thailand, Singapore, Hong Kong and other places, becoming a "fugitive in the currency circle". Some people jokingly called him "the 007 of the crypto world". Despite the lawsuit, he continued to maintain his playful style on Twitter, and even jokingly called himself a "banker's nightmare" on Twitter, without showing any embarrassment.
In 2021, Arthur surrendered to the U.S. government and reached a settlement with the Justice Department. In the end, he admitted some of the charges, paid a $10 million fine, and began a six-month house arrest in the summer of 2022. During house arrest, he still talked about cryptocurrencies on Twitter and blogs from time to time, but became cautious so as not to further anger the Justice Department.
His story is not only a microcosm of personal adventure, but also reflects the madness and turmoil of the entire cryptocurrency industry. Although Arthur Hayes is no longer the CEO of BitMEX, he is still active in the cryptocurrency arena.
He frequently publishes his views on the economy, cryptocurrency and the future financial system on social media. With his sharp market analysis and bold predictions, he has attracted a large number of fans and opened up new ways of doing business. Of course, people have mixed opinions on his views.
Recently, he published his views on DEFI, which are consistent with my views on DEFI. Let’s take a look at his full text:
1. DeFi is emerging from the trough of disillusionment
DeFi experienced rapid growth in 2020 and 2021, sparking high expectations as many believed it would revolutionize the traditional finance (TradFi) sector. However, like most new technologies, early hype led to disappointment as its infrastructure proved to be immature, leading to a decline in 2022.
However, like any revolutionary movement, DeFi has become stronger, successfully crossed the "Trough of Disillusionment", and started to climb to the Peak of Enlightenment. The Gartner Catalyst Curve framework is effective in showing this journey, and DeFi is currently showing signs of a revival.
After two years of correction, key indicators like Total Value Locked (TVL) are rebounding, as is evident in the chart below. While the improvement in certain metrics is partly attributable to rising crypto asset prices, DeFi platforms have also seen a significant increase in trading volume, almost returning to 2022 levels, proving that a recovery is indeed underway.
In fact, some foundational DeFi projects, such as Aave, have even surpassed their 2022 peaks on multiple metrics. For example, Aave's quarterly revenue has surpassed levels seen in the fourth quarter of 2021, which was considered the peak of the previous bull market.
This suggests that DeFi is maturing and entering a new phase of productivity, ready for long-term scalability.
2. The new interest rate cycle will make DeFi returns more attractive
The recovery of DeFi is not only driven by internal factors, but external economic changes also play a vital role. As global interest rates change, risky assets like cryptocurrencies and DeFi are more attractive to investors seeking higher returns.
In September, the Federal Reserve implemented a 50 basis point rate cut, and the market environment will enter a period of low interest rates in the future, similar to the environment that drove the crypto bull market in 2017 and 2020, as shown in the figure below. Bitcoin (and cryptocurrency) bull markets are highlighted in green and have historically occurred in low interest rate environments, while bear markets are highlighted in red and usually occur during periods of soaring interest rates.
3. Finance: Still the Biggest Product-Market Fit for Cryptocurrency
The cryptocurrency space has tried a variety of use cases, such as NFT, metaverse, games, and social, etc. However, by most objective metrics, they have not really found product-market fit (PMF).
Take the following case, for example, even after the brief Bitcoin Ordinals recovery in 2024, daily NFT transaction volume continued to decline.
DeFi’s ability to operate 24/7, with low costs, high liquidity, and no need for intermediaries, makes it a more efficient alternative. The technology is there, the challenge is whether regulators will allow DeFi to disrupt the $10 trillion global financial industry that relies on inefficiencies.
Overall, TradFi’s marginal costs range from 6% to 8% in developed economies and 10% to 14% in emerging markets, which are ultimately passed on to end users.
DeFi eliminates these inefficiencies, it’s that simple.
Furthermore, the financial technology (Fintech) industry has seen little innovation in the past 15 years, which echoes Blockchain Capital’s research. While we have made tremendous progress in areas such as artificial intelligence and global internet access, Fintech is still stuck on outdated systems, such as the 50-year-old SWIFT system that all banks use, which typically takes 1 to 4 business days to transfer money.
Looking ahead, the 2024 U.S. election could bring regulatory clarity. A Trump presidency could bring crypto-friendly regulation, while a Harris administration, which has recently shown a more positive attitude toward the industry, could also maintain a positive stance. Regardless of the political outcome, DeFi's momentum is undeniable.
DeFi is just getting started, and the future of finance will be decentralized and conducted on-chain.
4. Improved UI/UX, Infrastructure, and Security
Security has also improved, with increasingly comprehensive smart contract audits becoming standard before deployment. Platforms like ImmuneFi encourage ethical hackers to discover vulnerabilities and security issues through bug bounty programs, ensuring they are fixed before they are exploited. These developments in wallet infrastructure and security make DeFi more secure and efficient for all users. This result is reflected in the significant decrease in DeFi hacking incidents over the past year.
With these improvements, DeFi is becoming increasingly vulnerable to mainstream acceptance, including institutional adoption, driving its continued growth.
5. Revitalize DeFi
Just as the European Renaissance reshaped society, DeFi will revolutionize the financial sector. The potential for innovation in DeFi is huge, and we are just beginning to see its impact. As more and more users and investors accept DeFi, the future of global finance will increasingly shift to on-chain, making the financial system more efficient, open, and accessible to everyone.
DeFi has the power to eliminate inefficiencies, break down barriers, and create new opportunities for financial inclusion. This is more than just a passing trend — it’s a fundamental shift in the way the world interacts with money. From global payments to democratizing access to financial services, DeFi is building a future where anyone can participate in the financial system.
Currently, the total market capitalization of all DeFi protocols is approximately $33 billion, which accounts for approximately 1.4% of the total crypto market capitalization of $2.3 trillion.
Data as of October 13, 2024
The growth and success of DeFi has been largely overlooked in recent market environments and industry conditions. However, this is about to change as DeFi protocols continue to grow at an astonishing rate and return the value of this growth to token holders, such as Aave's recent token economics change proposal. Market participants will further recognize the fundamentals and potential of DeFi and reallocate capital accordingly.
We expect DeFi assets to grow from 1.4% to 10% of the total crypto market capitalization over the next two years. As DeFi continues to grow, the market will refocus on its latest appeal and new potential.
At the same time, we also see that Tornado’s victory has also laid a certain foundation for the rise of DEFI at the legal level:
Ultimately revitalize the DeFi space.
(This is just a sharing of opinions, not investment advice)
