Unchained Ep. 933 Summary:

Arthur Hayes and Adam Schlegel on Why Private Equity Is Crypto's Next Big Wave

Host: Laura Shin
Guests: Arthur Hayes (Co-founder, BitMEX; CIO, Maelstrom) & Adam Schlegel (Head of Private Equity, Maelstrom)
Date: October 28, 2025

Episode Overview

This episode explores why private equity (PE) is poised to become the next major trend in the crypto industry. Arthur Hayes and Adam Schlegel unpack Maelstrom's new $250M PE fund, detailing their thesis, target deals, differentiation from crypto VC, and the broader maturation of the crypto business landscape. They also weigh in on recent news, market dynamics, and the changing face of crypto adoption, from company buyouts to the evolution of centralized finance players.

1. The Rise of Private Equity in Crypto

Background and Strategic Rationale

• Crypto Business Maturity: The sector now has "dozens of companies that are $50 to $100 million plus in revenue and 30, 40, 50% plus EBITDA margin. So these are actually quite good targets for a controlled buyout strategy." [00:00] - Adam Schlegel
• Fund Structure: Maelstrom is seeking to raise $250 million for a PE vehicle targeting established, profitable crypto companies—moving beyond VC and seed funding.
• Changing LP Appetite: As large institutional investors look for sizable opportunities, traditional VC’s small deal sizes and risk profile have become less appealing compared to operating, cash-generating businesses.

2. Evolution of Crypto Investment — The Third Cycle

Arthur Hayes’ Framework

• Cycle 1: Early funds like Pantera simply offered "crypto beta" to institutions unable to engage directly.
  "They said...we're just going to buy bitcoin for you because...you're too...You can't figure out." [05:06]
• Cycle 2: ICO and then VC boom—high risk, mixed quality, and now compressed returns.
• Cycle 3 (Current): Institutional adoption (ETFs, nation-state reserves) but large VC funds are unable to deploy meaningfully due to deal size and stage constraints.
• Gap in the Market:
  "All this dry powder sitting around...but also this ecosystem of…highly profitable companies. They're not massive, but they're intrinsic to how capital markets work in crypto…" — Arthur Hayes [07:39]
• PE’s Role: Maelstrom aims to professionalize, scale, and eventually sell to bigger growth equity or strategic buyers (e.g., KKR, TradFi entrants).

3. Investment Focus and Deal Sourcing

Geography & Opportunity

• Underserved Regions:
  "A lot of the most important crypto companies are not American, they're not European...venture capital take out Beijing essentially doesn't touch." [00:13], [16:02]
• Selection Goals:
  • Focus on undercovered, profitable businesses globally, not just in New York, London, or Silicon Valley.
• Sourcing Discipline: Maelstrom has spent a year building a proprietary deal flow funnel. Always open to founder outreach:
  "The search never stops. We've got a bit of a short list right now." — Adam Schlegel [15:17]

4. Differentiating from TradFi and Existing Crypto VC

What’s New for Investors?

• PE Offers Scale:
  "We're not trying to raise a billion dollars to try to do 5,000 deals at $1 million a clip, right? This doesn't work." — Arthur [20:07]
• Product Fit for Institutions: Both crypto-native and "crypto-curious" LPs want larger, operationally-focused, less risky, and more familiar products than VC funds with illiquid, early-stage tokens.
• Operational Leverage: Maelstrom leverages its network to "blow it out the water" operationally for portfolio investments. [20:52]

5. Deal Structure, Fee Innovations, and Stakeholder Roles

How Will the Fund Operate?

• Hub-and-Spoke Model:
  • Investors enter through a $250M anchor fund with discounted fees, then can opt-in to individual SPVs for specific deals. [31:43]
  • Anchor LPs get fee discounts; new SPV investors pay standard 2/20.
• Entrepreneur Qualifications:
  • Targeting control deals (51%+), $25M+ revenue, preferably with high margins.
  • "We're not looking to do minority deals...This is 50 plus percent, 51% control." — Adam Schlegel [34:23]
• Arthur Hayes’ Role:
  • Focus on network, recruiting world-class operators, and acting as an industry spokesperson. [30:48]

6. Market Timing and the End of the “Crypto Four-Year Cycle”

• Deployment Philosophy: Bear markets = best entry points.
• Valuation Environment:
  "We've seen valuations becoming quite frothy...deploying in the bear, we'll get the best of both worlds."—Adam Schlegel [15:17]
• Cycle Disruption:
  "I wrote an essay...about how the four year cycle is dead..." [36:25]
  Valuations and deal flow increasingly detached from BTC/ETH price cycles, opening up idiosyncratic opportunities as founders exit for personal reasons.

7. Due Diligence and Operator-Led Growth

• Thematic Investment: Focus on trading infrastructure, analytics, core services supporting crypto capital markets.
• Robust Diligence:
  • Deep operational audits, technology/code reviews, management and legal assessments.
  • Involvement of seasoned Web2/Web3 operators as diligence partners/advisors.

8. Notable News & Industry Commentary

Coinbase/Echo Acquisition

• Western Exchanges Chasing New Issue Markets:
  "Binance has a very healthy new-issue market....Coinbase is buying this business to do that."—Arthur [44:23]
• The Founder Exit Myth:
  Many assume a clean exit; in reality, acquirers often pay mostly in stock, tying up founders for years. PE can offer straight cash alternatives. [45:30]

Perpetuals (Perps) Market Shakeout

• Hyperliquid vs. SEXs:
  • DEXs like Hyperliquid succeed by returning revenue to token holders (unlike dYdX's model).
  • Centralized exchanges (“sexes”) are going zero fee to crush new DEX competition in a commodification battle.
  • Prediction:
    "In five, ten years, we’ll all be trading on a decentralized perpetual exchange." — Arthur [51:25]

Binance Competition

• Is Binance Losing Its Edge?
  Hayes: Binance is still dominant, not truly challenged by Hyperliquid volume yet. Users must read the rules—"If you can't even...understand what the fuck you're trading, you deserve to lose every satoshi in your account." [53:01–56:17]

Prediction Markets

• Standing Out = Distribution & Liquidity:
  "Can you bring prediction markets...beyond elections?" Kalshi, Polymarket, and Limitless must solve for market depth and easy capital on-ramps. [57:25–59:05]

Stablecoin Outlook

• It’s About Distribution, Not Product:
  "I could build a better Stable Coin than Tether…zero clients...cost of acquiring a client is so fucking expensive." — Arthur [59:46]
• Top 3 Dominance: Tether, Athena, Circle will own 95%+ market share. Regionals/local entrants likely uncompetitive.
• Business Model Nuance:
  • Tether/Circle are rates-sensitive; Athena’s revenue is uncorrelated (based on demand for leverage/yield in crypto).
  • In a falling rate environment:
    "Athena does well when rates come down and crypto goes up. Tether and Circle do not." — Arthur [61:50]

Distribution & The Stickiness Problem

• Coinbase, Robinhood, Stripe: With regulatory opening (Fed accounts, bank charters possible), only those with true, sticky client relationships will compete with Tether.
  • "Anyone who's going to succeed will be them. It's not going to be…XYZ engineer...You're a zero." [66:17]

9. Memorable Quotes

• On the true opportunity:
  "I'm looking for the cheapest thing to make it more expensive. There's a lot of great companies that are integral to what crypto is that don't get any sort of recognition because they're not based in [major hubs]." — Arthur [16:02]

• On VC’s limits:
  "The products out there and the returns...aren't really that impressive. ...We're not trying to raise a billion dollars to try to do 5,000 deals at $1 million a clip right? This doesn't work." — Arthur [20:07]

• On diligence:
  "We go through and we look at everything, we turn over every stone... armies of lawyers... we bring on a number of consultants..." — Adam [28:00]

10. Timestamps for Key Segments

• 00:00 – Rationale for PE strategy; business maturation
• 05:06 – Crypto investment cycles, industry evolution (Hayes explainer)
• 10:51 – On strategic buyers: TradFi’s challenge entering crypto
• 13:55 – Sourcing deals, what they’re looking for
• 17:40 – Sector gaps, ambition for PE to drive maturation
• 20:07 – What makes Maelstrom’s PE structure different
• 26:20 – Due diligence processes
• 31:43 – Fund / SPV structure & fee model
• 34:23 – What type of entrepreneurs/companies they’ll acquire
• 36:25 – End of the “crypto four-year cycle”; market timing
• 42:40 – Reactions to Coinbase x Echo; founder exit myths
• 48:43 – The perps battle: DEXs, SEXs, and the future
• 53:01 – Binance’s challenges; “read the manual” ethos
• 56:44 – Prediction markets: who wins?
• 59:46 – Stablecoin landscape: why distribution trumps design
• 65:07 – Distribution challenges for U.S. fintechs vs. Tether

11. Closing

This episode offers a candid, insider perspective on how private equity can bridge crypto’s profitability and operational expertise gap—giving founders and investors new options while accelerating the sector’s maturation. Maelstrom bets that the next big returns won’t come from seed-stage moonshots, but from scaling serious, overlooked businesses around the world.

“We’re doing this now because we’re not seeing anybody step in and really kind of take charge...As we demonstrate that we’re successful over time, other people are going to go, ‘Hey, I think that’s a pretty good idea.’” — Adam Schlegel [18:44]