0xResearch Cross-Post: How Ethena is Redefining Digital Finance | Guy Young

Transcript

And if you aren't thinking about how are your products actually being tailored to face into institutional flows of capital, I think you're just going to get left for dead actually. And if you're still playing these sort of circular DeFi games of just moving the same chips around, um you're going to have a pretty hard time in the next few years. So that's really our initiative to take the core product set that we have and build purpose uh purpose-built uh products and infrastructure for those flows of capital to come and chain and interact with our core products. Yeah. This episode is brought to you by Arkham. Arkham allows crypto traders and investors to look inside the wallets of the best traders, largest funds, and most influential players in the crypto markets. Today, we'll hear more about Arkham later in today's episode. Quick shout out to Permissionless 4 coming

this summer to New York June 24th through June 26th. We'll have speakers from all across the industry, including Hayden Adams, Kyle Samani, Guy Young, and more. Get your tickets today by following the link in today's show notes, and make sure to use code Bell10 to save 10% on your purchase. See you there. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed. Hey everyone, this week's episode is a crossost from ZeroX Research. We sat down with Guy Young of Athena Labs to discuss the growth of

USDE, the launches of Converge and Ethereal, new products such as USDTB, and more. Enjoy. What's up, guys? Welcome back to another episode of Xerox Research. Today, I'm joined by Guy, uh, founder of Ephina. Thanks for coming on, Guy. Yeah, thanks for having me on. Um, before we get started, you guys expanded quite a bit, um, both the USD product and you've started building out new products. Do you want to give a short introduction on what you guys have done over the past six months and maybe we can go from there? Yeah, for sure. Um, so yeah, Athena came to market around just over a year ago now with our first product which was uh USD. Basic idea behind that came from Arthur Hayes's original blog post called Dust on Crust. And

essentially it was tokenizing uh the basis trade uh in a format that sort of looks and feels uh a bit like a digital dollar but obviously looks quite different to normal stable coins in terms of the risk profile and construction behind it. Um so yes, I guess we came out in in March of of last year. We scaled it to just over6 billion dollars in the first year since we were live, which was the fastest growing dollar asset that we've seen in the space. And um I think the piece that interested users the most in terms of that was just the funding rate that was being captured within the asset itself.

So uh you know SUSD produced roughly 19% annualized in 2024 on multi-billion dollars of capital. And so the interesting thing of that is what else can you start to build on top of an asset uh that has like a structurally higher return. And I think we started to see you know quite a bit of D5 innovation that was built upon that whether it was in applications like Pendle a morpho all these different things and uh yeah Athena I think is sort of moving now from um an issuer of a single product into something that's trying to be a bit more like a platform where we can start to take that core product and innovate on it uh further.

And so the thought process here from our perspective is that there's really like three $50 billion plus opportunities within crypto. uh one is creating money and you know stable coins or bitcoin fall under that category. The other one is an exchange uh so I think you can look at binance and coinbase and see that quite clearly and then uh the third one is uh uh chains like salana or ethereum that managed to build proper ecosystems on top of them. I think the most interesting thing of Athena is actually that we sed a very interesting nexus between those three different opportunities which is in the construction of building money with USD we also control you know the per market uh by having the largest sort of um accounts or balances that sit on the centralized exchanges when it comes to

the hedging flows that sit behind USD so it's a very interesting like second order thought to have which is what happens when you control that much flow within the market and can you be using that in a productive way to bootstrap other exchanges that are building on product and so we have uh a new exchange called Ethereal that's coming out or is actually just launched as test test net with a few users uh just this last week and the core idea here is like can we um you know provide a platform that new teams can come and build on USD as a product and actually support them with with the backing that that Athena has and then the the sort of third piece to the puzzle is converge which I'm sure we'll jump into more detail but the idea here is that we're teaming up with uh

securityize who is the tokenization partner or chosen partner for black rockck Uh so they sort of brought their B product to market and are the chosen partner that they'll be doing you know everything else that that Black Rockck and that their other institutional partners do on chain and the idea here is we're really trying to force the convergence pun intended between uh DeFi and trify in the same place. I think the the view that we have is that the inflows of institutional capital into the space is the single most important narrative of this entire cycle and like going forward and if you aren't thinking about how are your products actually being tailored to to um uh you know uh face into institutional flows of capital I think you're just going to get left for dead actually and if you're still playing these sort of circular DeFi

games of just moving the same chips around um you're going to have a pretty hard time in the next few years. So that's really our initiative to take the core product set that we have and build purpose uh purpose-built uh products and infrastructure for those flows of capital to come and chain and interact with our core products. Yeah, perfect. That makes a lot of sense. I think um maybe let's start with converge. So clearly very different to other L1s as in it's going to it's built with securityize. I assume you guys are going to have permission validator sets and it's going to be more of a permissioned L1. Correct. Yeah. Yeah. So, we've literally just put out the the tech roadb uh now as we're jumping the call.

So, I know you haven't had time to look at it. Uh it was very unfortunate timing. Um no, the idea here is we it's not going to be a fully permissioned validator set like you would see within an L1. Uh the way I'd characterize this is that if you really think about a sequencer for the L2s that are in production right now, in many senses, that is the most permissioned version of an execution environment that you can imagine, right? Which is like if Coinbase doesn't like your transaction, it's not going through. So I think that that's actually the most extreme version of what permissioning actually looks like. Uh what we have in place is actually so we're using the arbitum stack to start with with a few customizations that we're going to be making uh to really push the uh the performance of the EVM like beyond what

they have out of the box. Uh but that's like the base execution stack that we're using. And the idea here is that the uh the validators that would be playing a role within this network is actually more of a safety mechanism for institutional capital where if something if hits the fan in some way and there's been a hack or something on the chain, they can actually sit at the most sensitive piece of the chain which is essentially the bridging of of capital outside of converge into other places where it can be swapped for ETH or whatever else and and sort of be taken away. And so the role that these validators will play is actually as a safety mechanism uh on the layer zero DBN side where essentially if something goes wrong on the chain and one of these institutional partners has some sort of

loss or hack or some sort of issue with North Korea whatever it is uh you have the ability to actually throttle flows in and out of the chain uh where required through through the bridging um piece and so really it's actually just getting them involved from a security perspective more than anything else. Yeah, that makes sense. Um I have a question regarding asset issuance and now it's going to work on converge. Um I assume that real world assets like trad bridging coming over that's going to be issued on converge. Um what happens with USde the contracts that are on Ethereum is that going to be moving around? Yeah.

So uh we we do plan to actually open up like native minting on converge as well. But uh for us it looks a little bit different I think to most applications because if you're a dollar issuer you don't actually really care where you're issuing the asset. It's kind of like if there is demand for this asset on Salana on Tom or wherever it is you your job is actually just to produce the asset and then deliver it where there is demand. And so sort of the concept of like native minting for us is slightly less important because really what's happening is like the asset flows that are coming into Athena are actually just being sent to custodians that are holding these assets you know facing centralized exchanges on the other side.

So for us it it really doesn't matter too much if like the actual native minting is happening on ETH Salana or Converge wherever it is. It's really just a gateway that sort of USDC and USDT are flowing into into Athena. But yeah, we do plan to sort of provide that functionality um on on Converge just because it's obviously going to be the home base for a lot of what we're doing. That makes sense. Um and in terms of non USD assets, what are you um planning on offering that isn't currently available elsewhere? Is there anything like are you going to bring in private equity credit? Is that something in mind? Yeah. So, I think the really interesting piece about this is that Athena and SEC securitize sort of come from two pieces different pieces of the market, right?

have Athena with crypto native assets which we're trying to package up in a format that we can actually export out into tradi while securitiz are taking tradi native assets and packaging up in a way that we can bring them into crypto and then wrap financial primitives around them that that makes sense. Um and so we I wrote about this in the blog post that I put out at the beginning of this year but we have this product called IUSD which is coming to market uh relatively soon. The basic idea around this is that we're actually taking the core USD product and then wrapping it up in a compliant format which has basic permissioning and KYC restrictions around it. The interesting piece about this is that it actually opens up basically any any trady entity in the world who manages money to basically just say we're going to set up an

investment structure that sits on top of this and if you want to get exposure to the underlying you can just send fiat and that's like uh all you need to do. Um so that's really going to be like the core asset that we're delivering to uh to converge. We believe that like the demand for this type of product in Tradfi specifically is not like5 billion dollars. It's like north of 100 if you can do it properly. Um you know producing mid- teen returns on dollars is really like the killer product that you can actually export out of crypto into into trfy and you know taking that asset putting in converge and then asking ourselves a question of what else can we do with this in the same way that we've built all of these defy applications and financial infrastructure around the core USD asset. You can start to actually deliver

that for trifi. So I think the most this like most basic example here is actually think about what we've done with Pendle, right? Which is just turning like the floating rate of interest with USD into something that's fixed. You know fixed rate of 12 to 15% for Trafi. There's just an insane amount of demand for something like that. But you can't actually deliver it to them if you have like non KYC users who are buying like the YTS within the Pendle. And so this is a very key piece for us which is saying take all the stuff that we know already works and has product market fit but deliver it in a format with our assets for traders to be able to to come in and consume it. And that's kind of the basic thesis of what we're doing there. Um and then from the from the

security side sorry just to answer your question directly yeah their ambitions obviously extend like far beyond what they've just started with with treasuries. I think it's like the full spectrum of trying to bring equities on chain. I think you're going to start seeing like I know we've already seen that with a few of these per taxes now who are sort of starting to explore per equities. I think that's a super interesting idea that's going to be there's going to be something very big that comes out of that. Um and then yeah different forms of private credit along the spectrum of like T bills are the most vanilla to everything else. I think there's a very wide spectrum of interesting assets that you can bring on after that and then start to attach the type of apps that we already have on chain. Arkham was created to make

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That makes sense. Um, something you brought up is that uh, Trapi is going to be very interested in this dollar product that um, it'll actually not be like a five bill thing, but a 500 bill thing. Is there a limit to that that it can scale um just because of the way Athena works? For sure. Yeah. So I I've always kind of viewed actually the constraints for Athena have never actually been like a demand side problem. It's always been like a supply side one which is like how much capacity is there in crypto to sort of fill this at like interesting returns. Um I think the basic way that we think about this is really like Athena is a percentage of total open interest within the derivative market within crypto. um back in sort of December Jan uh the open interest within all of cryptos that

includes C5 plus D5 was roughly $ 110 billion and we see ourselves of being you know the normal constraint that we run into is roughly 20 25% of that number um so we yeah we're sitting there at five and I if we had set ourselves up with the right infrastructure to be facing trify have it as like collateral on Binance all these things that we haven't sort of achieved yet I think that we should have been like 20 bill of supply back in December Jan based on where the market was at I think the most interesting thing about this market though and you've seen it with the emergence of like a hype liquid and how how well some of these exchanges have grown is actually that the derivative market tends to grow at a quicker speed than the underlying market caps themselves. So if you just look at BTC

in Jan 24 is around 50k and uh when it went from 50k to 100k the open interest on BTC actually tripled during that same period of time. And so what what we actually tend to notice and the same thing happened last cycle is actually that derivatives grow at a quicker pace than the underlying market caps. And so it tripled when the price of BTC doubled. And uh again, I think that's just like another indication to us that yeah, we thought that we could be roughly 20ish bill in market conditions that were like favorable um a few months ago, but if BTC is at like 200K, that number is is like well north of that. Yeah, that makes sense. Um I have one more question before we get into Ethereal. Um in terms of staking, so you offer yield from staked ETH as well. Are you considering other assets or do you

think you need some form of stability for or like a maturity per asset to be able to do that? Like Solana is I guess like the example here. Yeah, we definitely could. I think um Soul's also a little bit more interesting just because the staking yield was quite a bit higher than we saw with Ste. I think um this is something that I've actually changed my mind on since we came out with the original product which was um when I first designed Athena staking rates on ETH were roughly 5 to 6% and that kind of drifted below three in the period of time that it took us to sort of like build and and ship the product and uh I don't know what your perspective is on this and I'm interested in your view but it has kind of got to a level now where I actually

think the return that you're making from staking ETH does not appropriately compensate you for the duration and liquidity risk that you're assuming while you do that. I.e. I just think the number is too small. So actually Athena, you know, in the beginning we're like 80% backed by like LSTs and now it's that number is like sub 10% and it's going like sub 5% essentially. It's become like completely insignificant versus what we're doing. And I think what I realized was actually that users don't want something that's like maybe 1% higher in yield but has like a little bit higher chance of like DPEG or some issue going on. they actually rather just have something that's you know 99.9% secure most of the time and uh they're happy to not be compensated with slightly more yield which I think is

actually the rational choice and so I think that's actually kind of where we landed with Athena which is uh we're trying to push a little bit less into doing riskier things which give you a bit more return and I think a lot of the competitors of Athena that are coming to market that's kind of the only angle that they're taking now which is kind of like we can take more risk than they can and I think our view is that we're at the size and we've created enough lindy and trust with people now said our only job is just like don't mess it up rather than um sort of push the the risk boundary too far. Yeah. Yeah, I think that makes sense. Especially if you're competitors realistically are offering two 3%. Um and that's for exchanges, you don't really have to take an extra

percent or two risk just because um you already have the yield. Um I have one more question with risk. Um, is there anything that you didn't account for when you first designed Ephena in terms it can be risk, it can be anything like something that really you've had time now the product has become lendy as you said. Is there anything that came up that you were like wow we could have never expected this like we should have had a contingency plan for this or we should have figured this out earlier or no? Um, yeah. I don't know if this is famous last words, but it doesn't feel like there's been anything that's like completely shocked us. I think the moments where people have seen hiccups with Athena. Um it's been, you know,

ideas that have been well telegraphed well ahead. So the stuff that you saw with PBIT a couple of months ago was obviously people's first thought at that moment was uh something's probably going to go wrong with Athena. And I think we sort of came out the other side of that with reasonably strong colors. Um I think the one thing that we did a pretty poor job of explaining which wasn't that intuitive was actually uh when the markets are melting down and you see like these huge liquidation cascades. I think people often used to think like how is Athena not having any issues in the background when per dislocating from spot by like 5% and and that kind of stuff. If you remember we had that like largest liquidation event in history around twoish months ago now uh when ETH like cascaded down to 2.2K. Um the

really interesting thing about Athena's design is actually that like during those moments you're actually positioned on the right side of the market because you're actually short the instrument that's dislocating to the downside if that makes sense because everyone's getting liquidated on the pers so you're short you thought you're delta neutral but actually you picked up like five 7% more unrealized P&L that you you didn't think should exist there in the beginning. So, I think that's been one thing that's been interesting to play out in real time, which is kind of like when you see these chaotic events, Athena can just close these per positions and actually capture like millions of dollars of revenue that we didn't actually expect to have uh while it was happening. And I think that was just another piece of the design which um we should have done a better job of

sort of explaining in the beginning, which is like people were freaking out every time the market was crashing while we're actually making more revenue during during those periods. So, uh yeah, that was one bit we should have improved on. Yeah, makes sense. Um okay back to converge. Um can you talk a bit about USDTB and how it sits um with USD? Is that going to become a core product? Is it going to be something else? Yeah, for sure. Um I think the view that we had here is that uh you know USD is backed by the per positions but then also just normal liquid stable coins for when a either funding is like unattractive and there to sort of protect from the negative funding uh environment or b just for liquidity uh

you know when people want their money back we're closing the positions and giving them dollars to be able to redeem from Athena. Um I think the interesting opportunity that we saw was that we obviously had reasonably good distribution with the centralized exchanges because they're you know investors in Athena but then also benefit from the flows that we bring to their exchanges via the the hedging uh you know portion of USD. And so the view that we had was that actually exchanges were the most important distribution partners if you're ever going to grow a dollar within crypto like you're dead in the water unless the big exchanges basically want to push your product. And there was nothing precluding us from basically taking that advantage that we had with distribution with them to say maybe users don't want USD, they want something that's actually just a bit uh

more plain vanilla and we could sort of offer that product uh very easily. The the more interesting piece is that like internally within Athena, it's an extremely useful product for us to be able to tap into like the borrow demand within uh DeFi. So you can sort of think about uh Maker Dow right now, right, is three different sources of yield. You've got Maker who's backing themselves with USD uh yield. They've got the T bills and then they've got like over collateralized lending within crypto. The interesting thing about what we can do with USDTB when it's in the backing of USD is we can actually lend that into RB for example and it allows Athena to actually double dip on the yields because because we own and control USDTB, we have the T bill yield that's coming through to Athena. But then in addition to that you're actually getting

the lending rates within Ave which can be like three four five 10% in the right conditions on top of that. And so it's actually a mechanism through which Athena can actually have quite a bit of backing of USD providing leverage into Ave and other places and then also collecting like the DeFi lending rates on top of T bill rates as we do that which allows us to sort of stack it together in the same instrument. Um so yeah I think it it was just a very neat product that sort of fit within our a distribution strategy. It made centralized exchanges happy because we created the product to sort of share most of the economics with the centralized exchanges. Uh it's not like a big profit center for us and it was also extremely helpful for us to internally manage like the backing of USD without leaking that value to to

tether or circle. Yeah, that makes sense. Um but it will not become the main product like you guys have no plans to compete with Tether and Circle. Um it will be a sidecart. Yeah, exactly. I think it's uh it's definitely not the core focus outside of USD. I think um I don't want to be too bearish on other people who are coming to market with new stable coins, but I think uh it's way too late now to try and compete with Tether and Circle with plain vanilla forms of stable coins. I think the network effects and modes that have been built up particularly with centralized exchanges are pretty much insurmountable now unless one of them has a major issue with fraud or like all of the exchanges go bankrupt or whatever it is. uh I don't really see a viable way that new

competitors can actually come in and the real reason for that is actually that the product is so commoditized right where you you there's only three things you can do you can either be a dollar and if you're not a dollar you're bankrupt like the next day no one's going to use your product uh you can be more liquid and it's very difficult to be more liquid than tether when it trades hundreds of billions a day and you're a startup and then the final one is like return and that that was really the insight that Athena had which was you cannot compete on those first two axes as a startup but from the third one you can do something very interesting which is kind of what the approach that Athena took and so I'm actually kind of really bearish on I know everyone's trying to create their own stable coin

there's going to be thousands of people who sort of take a swing in it I'm incredibly bearish on like their ability to actually eat into market share from tether and circle I think there's going to be a barbell outcome in the end which is either you want the most liquid instrument for payments and trading which is tether or you want a savings piece of technology that produces the highest return and that's Athena on the other side and to me that's like the vision of how I see the end state for for the market evolving going forward and then there's like a long tale of a thousand like subscale offerings after that. Over the years, we have seen a multitude of hacks, rugs, and bundled launches. The number one way that crypto traders can protect themselves and the wider community is through onchain analysis, knowing who is moving funds

and where those funds are going. Paired with their new exchange, users can see what the top traders are buying and selling with Arkham Intel and then trade on that information with Arkham Exchange. Arkham's exchange provides traders with the tooling and liquidity to take action in crypto markets based upon their onchain observations, bringing them the world's first exchange powered by crypto intelligence. To get started, follow the link in the show notes below. Ledger is the global leader in digital asset security, trusted by 7 million users and securing 20% of the world's digital assets. In recent years, Ledger has built a comprehensive ecosystem of products and services, making digital ownership more secure and accessible for everyone. Ledger's newest devices, Ledger Stacks and Ledger Flex, introduced the world's first secure

touchcreens, making it easier and safer to manage your assets. Alongside Ledger Stacks and Ledger Flex, they have also launched the Ledger Security Key app, offering a safer alternative to traditional password management. Follow the link in today's show notes to get started with Ledger today with Ethereal. Maybe before I ask some questions about that, do you want to give a short introduction on what that's going to look like? Yeah, sure. So I think um at the back end of last year we sort of had this initiative called like Athena's network which is just like a bunch of apps that we're trying to develop on top of our core product. I think the origins actually came from a uh slightly less fortunate part of like crypto history around I actually think that Terra Luna did a pretty good job of this and they didn't do many things that were very

good but actually the one thing that they did pretty well was actually get different applications in the ecosystem to come and build around that core product and they identified these are the applications that actually make sense to grow demand for US and we're actually going to be supportive of different teams coming to build and actually like drive that outcome themselves. Um, so yeah, we came out with like a few ideas of different applications that we thought made sense to to build on USD. I think a perex is like pretty obvious here, right? It's like when these things do well, they they absorb billions of dollars of dollar demand. So I think like you know, Hyperlid I think got to two two and a half bill at the peaks in terms of USDC that were sitting in there and uh it becomes a very nice sync for dollars

when when it's going well. Um and then the other side is just a very nice match between Athena creates all this value for centralized exchanges with you know billions of dollars of hedging flow that sits there. Our ability to actually take that hedging flow and actually you know support in an exchange that exists on chain and help bootstrap it from the beginning is a pretty powerful way to actually get it from zero to something. You can kind of think about it as like the balance that sits behind Athena. It's not quite like an HLP because it isn't like sometimes taking like uh you know directional views on the actual underlying market but I think it's analogous in the way that we can actually provide liquidity into the exchange from the beginning at huge size uh to be able to sort of uh particularly on the majors as well uh to help to

bootstrap it in the beginning. So it's like a very nice matchup of like if the exchange does well USD grows as a product and then Athena can sort of support on the on the liquidity side. I think the most interesting thing as a just taking a step back is that um it kind of takes the two killer products of crypto and puts it together in the same place because having USD as your native token on the exchange means that you're you're you're implicitly like generating yield always when whenever you have a dollar on the exchange. And so this idea of capital efficiency of like generating 10 15 20% on your dollars while you're trading on the exchange or even just doing nothing and it becomes like your savings account. To me that's like a really killer product which is kind of taking you know dollar with a yield plus

per is the two things that that have really found PMF into the same sort of product offering. So yeah I think that's the the thesis behind it and uh uh the team that sort of working this exynthetics guys uh who yeah who have come to build the product. Yeah very cool. Um you mentioned something there where um Terra did well. I agree with you. I do think that they did well by having a bunch of products built on them. they had one flaw, but apart from that, I thought it was a it was a good system. Um, the way that they had mirror and anchor and everything. Um, Ethereal and Perex's make sense. Um, on con converge, are you going to have a like lending and money markets I feel like are a clear fit. Is there anything else

that you guys are going for? Yeah, for sure. Uh, so we got obviously RV is bringing their institutional product onto the chain by default. So that's where they're going to be launching it. It's called Horizon. Moro are doing the same thing where you know opening up for IUSD leverage USD leverage providing leverage into the exchange uh even like providing loans against private credit type of assets. So you know borrowing against a 8 to 10% Apollo fund with USDC on the other side. There's a bunch of different things that you can start to do when you bring private credit into those kind of environments. Um the other interesting one is uh insurance. So I don't know if you've seen uh this reinsurance. There's a couple of these projects that have come out in the last week where essentially you're able to collateralize reinsurance policies in the real world which are paying you 10

to 12% like roughly over the last couple years with SUSD as the collateral. And so what you're doing there is actually stacking together a cryptonative uncorrelated source of yield with a real world scalable enormous market and actually putting them together because you're actually collateralizing that policy with SUSD. So if you just put that product together and then tokenize that and think about what can you start to do with that later, it becomes like very interesting. um uh in terms of like other things that fall out of that. So that's one thing I'm pretty excited about which we haven't really seen succeed at all uh in in crypto so far. And I think the two other ones which um make the most sense to me uh Pendle has obviously got huge product market fit.

So like Athena contributed to like 55% or 60% of the TVL that's sat within Pendle and it's just a very natural product where all interest rate markets in the real world depend on like a dollar worth of yield and then you're sort of just swapping floating to fix. It makes very natural sense that like Athena is sort of the bedrock for the the stuff that Pendle builds. But you can actually take that a step further which is thinking about securization of the asset. So you can think about Pendle as actually being the most basic form of securization where the PT is like the senior piece of debt and then the YT is like the equity that sits at the bottom of the structure. But you can take USD and actually slice it up into three or four or five different forms of risk exposure and say if you want the AAA

like version of USD which is like over collateralized by all these things we'll pay you 6% or whatever for holding that and you can actually just take USD and do what everyone has done with mortgages for the last 30 years and slice and dice and be able to sell them into different pockets. And again I think this is something that would be quite interesting to try for them to to sort of pick uh risk exposures to the asset. And then the final one um we've got building is uh Maple is bringing like an institutional product on there to think about underlized lending with USD. So one of the reasons that the underlized lending market has not resurfaced since last cycle is that there is a very basic cost of capital difference between where are people willing to borrow dollars uh and where are retail people willing to

lend to someone like Wintermute. So the issue is that winter wants to pay 10 to 12 but the retail lender wants 15 to 25 because they view it as slightly more risky than it was last cycle. And the reason that there's this gap in the middle is that circle is taking 4% in the middle and because they're lending the USDC but circle is making that 4% strip in the middle. If you replace that entire sort of lending structure I've just described there with USD. You can actually take the embedded yield of USD and say we'll give you like winter will pay you 10 and then USD will pay you 10 on top of that to the retail user. And so now you actually have a way that credit can actually flow into the system because you're reaching like the minimum cost of capital that the lenders would

actually have to get this done. So it becomes more interesting, right, when USD is more is proliferated better across centralized exchanges and market makers actually want to take USD to trade it on sexes. But then even more so because Ethereal is obviously going to be denominated in USD itself, you can actually use this as a conduit to just get a lot of liquidity into market makers hands to be able to provide liquidity um onto onto Ethereal as well. So I really think this unlock in the undercolateralized lending market which is really uniquely enabled by USD's like embedded return um can be a pretty interesting uh like return in the market for a piece of the market that I think actually is desperately needed versus um last cycle. Yeah. Yeah, I think that makes sense. Um, one thing I I think I have to ask is on this entire expansion

towards underolateralized lending or like slicing and dicing USD, I feel like there's two viewpoints that people hold. One is like we're introducing way too much risk into a system. The other is we need credit expansion so that crypto can grow. Um, I assume you're on the side of we need credit expansion. But what do you think about the other side which says this is just too much risk that we're introducing into a system? Yeah, I think it's actually pretty fine uh so long as you're being honest about what the risks look like. So people leverage themselves up uh on a every single day and they take like you know 10 15 20x leverage looping ste looping all these things and like that's kind of the nature of what happens in permissionless financial markets like people are going

to take it too far sometimes. Our job is actually just to provide and make sure that the underlying asset itself is as safe and secure as possible which is like I never make you know cause a DPEG or some issue with the underlying USD but then you I think you know everyone's adults and they need to you need to be accepting of the fact that like in permissionless markets they're going to take things they're going to get liquidated on an exchange they're going to do all these things but that's really like it's their loss and then someone else's edge to sort of buy in that moment and it's uh yeah we we don't want to be irresponsible in in terms of encouraging things that we think are fundamentally unsustainable. But I don't think it's like fundamentally unsustainable that winter gets a $50 million loan from a platform. Like

that's not something that makes me lose sleep at night them having that sort of exposure. And I think it's actually a bit of the issue that we've had with in DeFi in the last three to four years, which is no one is actually really trying to experiment and push the boundaries on anything. Like we're we've almost been, you know, when Athena first came out, if you remember, I remember a lot of the sort of like risk analysis firms were like, "Oh, this is insane. you should never put it on a money market. You can't leverage leverage this up. And it was just a very strange reaction because it's like your job as a risk analyst is not to look at something and go this isn't a T bill so we're not interacting with it at all. It's actually your job to look at it and go

yes the risk profile is different but you're also getting paid a different amount. What is the appropriate way that we treat this asset? I.e. it's more haircuts you know lower loan to value these type of things. And so that's actually our job is like the whole finance is trying to work out how do we price the risk of a bunch of different things. Our job isn't to say like you can never do any of this. Um and so yeah I I I think it's sort of held back a little bit of innovation since last cycle which is we've almost been too scared to try anything in many cases. Um and we've sort of just stuck to the same primitives and sort of recycled them in the same ways. Yeah, that makes sense. I think you guys also got a little unlucky because obviously the terra situation

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borrow against their Bitcoin on Coinbase. Just as web 2 companies like Google, Amazon, and Meta were built on internet protocols, the largest financial companies of the future, such as Coinbase will build on decentralized protocols like Morpho. Whether you're an individual fund, fintech, or institution, Morpho is for you. Follow the link in today's show notes to try Morpho today. I guess back to Ethereal, are you worried that it's going to cannibalize um some of the relationships you guys have with per sexes um or with sex? I I assume with sexes it'll be fine, but I saw that like you bought a ticker on Hyperlquid. Um, and I assume you're going to be integrated into more Dexes going forward. So, do you think that's Yeah, I think um yeah, I think the approach that we've always had is

like we've been um I think pretty good at actually staying neutral across the space. Like Athena would never actually succeed if we're just like a Binance aligned dollar or like a buy bit or whatever it is. I think you actually need to be neutral across the entire space. So, we're obviously there to support Ethereal because they're building on our product and it's great to see that someone wants to build and grow your product. So, you know, uh the fact that basically Hyperlquid has basically just got pure USDC sitting out the uh through the entire exchange and it's very difficult to change just naturally means it's going to be harder for us to get the same outcome there even though we're obviously pushing uh to get to get USD as a ticker on the hyper core. Um so yeah, I think that the view that we have is that we're pretty

neutral across these venues. we want to support them all and like Athena actually only works when everyone is sort of comfortable with the fact that um we're being integrated broadly. Um but yeah, I I also think the specific way that Hyperlid's been designed, it's quite difficult for Athena to use its product in the same way that we have with centralized exchanges. Um the reason for that is like the most successful use case is on something like portfolio margin on a buy bit where you can actually put down USD collateral collect the yield while you're trading and then trade anything on the derivative platform like underneath.

Right now like all of the stuff as you know on on Hyperlid is USDC margin and so you can't actually collateralize like an entire portfolio with a different asset and then trade the rest. Uh so it would sit more as like a a savings account within the the sort of spot side of the exchange which is kind of the use case that you might have now. But just in terms of the way it's designed right now, it's quite difficult for Athena to actually be like a really core piece um of the exchange, which just naturally means it can never grow that big. There is my view. Yeah. Yeah. It's a bit unlucky. Hopefully they change that soon and they add extra stable coin. Um all right. Um I have not too many questions left, but this one is something that um multiple people wanted me to ask you about, which is a lot of

money markets hardcode USD to one. I I know you just answered saying we're all adults here and people need to figure it out themselves. Um do you see this becoming an issue ever eventually or do you think it's it's up to the protocols and they should deal with it like it's not your responsibility? Yeah, this is definitely a very nuanced uh topic. I think um my view is that actually we should design something that looks that kind of toggles between the two. So the very high level issue here, right? We can even use steth as an example here rather than USD because it kind of applies to all of these like synthetic assets to the underlying. The issue is that you don't want to liquidate people when there's been a temporary dislocation in the price which you know is incorrect, right? So whatever you've

manipulated an order book that someone's feeding in the oracle or there's a flash crash on a curve pool which you know you know the underlying is still there and it should trade back to par. So what you really want is actually a time window where it is attached to something which is real and then we can actually do a home a human overlay to say um either this thing is now insolvent to some degree and you need to like readjust the oracle or it is fine. So I think the very basic example that we can look at with USD is it actually makes more sense I think to hardcode it to one as USDT for all periods of time but then you have some sort of multisig step in which is saying like if we've hardcoded it to one but we can see within an hour this

wasn't just like a funky liquidation on the exchange like literally they've lost 10% of the balance that sits behind here. You need a way to step in and then resolve that so the whole thing isn't getting um drained on on the other side. So I think there is some balance between these two pieces where you're wanting to solve for you know 99% of the time when you're having issues it's probably going to be that former bucket of like there is just an oracle issue with something that's been manipulated and there's not like a fundamental insulty that's sitting behind the asset and you should like design for that to be the case for most of the time and then in those situations where it isn't I think uh it's one of those cases where I think actually just humans stepping in to overlay on top of it is actually the

most sensible outcome that you can find. Yeah, that makes sense. Um, what about you? What's your view on? Because I know it is very divisive. I think it's fine to hardcode it to one. That's my like very simple view. I agree with you. It doesn't make a lot of sense because like you said, there's oracle attacks, there's manipulation, things just go like this all the time in crypto. It's just the way that like the market's not mature enough to be able to handle everything all the time. Um, I think you just hardcoded to one. Like you said, it makes sense to have somebody look over it. Um I think people in general just like to look at things like you said this is especially from the risk side and we have our own risk side. Um so I'm sure they can speak better on it but from what I view um

sometimes we don't we we want to be more theoretical than practical and we want to say all right this should never be like this when I don't think it like markets don't work that way. I don't think you can build on like crypto and be like oh we have to do everything the ideal way. Sometimes you have to take it some risks to make it work in practice. Yeah, that's my view. Um, we saw a few competitors rise up um against I guess like if competitors um and something that they do is launching the USD um or like their equivalent of it the risk. I know you mentioned that Pendle does like there could be an eventual Pendle product where there's

like they're slicing it. Um, is this something that you guys think you'll ever support on your end or do you think it's unnecessary? Yeah, potentially. I I don't think it's a bad idea at all to be honest. I think it just slightly transforms what what the products are trying to do. Um, I think one thing that we did find find was that actually when you're trying to take it into places where the real distribution sits and that's something like centralized exchange for collateral, telegram to all of their users and stuff like that. the more financial engineering and complexity that you put into the product, the less easy it is to get into those places, if that makes sense. So like even getting people off of zero when it comes from just like maybe it's not just T bills, it's something else that's sitting in the background, that's an enormous lift

to actually get people comfortable with what you're doing there. And every time you add on a new layer of like this is being tranched or this is like people just feel like they're being screwed over in some way when you're adding this complexity and uh they don't want to actually think about it. Um so I think the view that we had was that well I I think it's a perfectly fine idea. I don't have an issue with the way that um I I think it's resolved that you're mentioning that's designed their product like that. Um and I think it's a worthwhile thing that people should be doing. I think the different view that we had was actually just that simplicity and telling a better an easier story to distribution partners who could actually help you scale it from five to 20.

That's kind of the goal that we're after. And whatever marginal benefit that you think that you're sort of gathering um within that design, I don't think sort of offsets that distribution advantage that I think you'd find. Um just keeping it simple. That makes sense. Um, what do you see as the biggest risk to Ephina over the next year? Is it competing stable coins, regulation yield compression? What do you see it? Yeah, I think it's like probably just general market dynamics because Athena is obviously pretty reflexive to the cycle in general. like the growth profile of Athena looks quite odd where you have these periods of extreme growth where it's adding like three or four billion in a month like more than ETFs and then months of just like flatline and uh and sometimes some bleeding out. Uh so I

think uh for that reason and it's obviously just like you know very much tied to the interest rate cycle and and sort of like froth within crypto. Um, I think that that would be the more painful thing on our side, which is, you know, you do all this work to integrate and find new platforms and that kind of stuff, but without the market sort of being behind you, it's hard to sort of like keep up with the growth that we had in the same way uh of of last year. So, I think that's just more of my the things that we sort of think about, but like unfortunately, it's something that's completely outside of our control, which is just the general, you know market um um yeah, strength of the market. So uh the one thing that we did find as well was that during those low periods

so we did have this period in 2024 where actually the supply shrunk by like 30% from like 3.6 to 10 and a bit billion dollars during that period and the thing that we found was actually that in those low moments you actually have that's the moment you have to lay the groundwork and the in you know the infrastructure for us to be able to then come back in the way that we did with sort of doubling the supply in Q4 of last year. And so we've had actually a pretty good period now the last two three months where we've been able to sort of lay the groundwork for more exchanges this IUSD institutional product um us launching onto telegram uh which I've written about on on the roadmap piece and so there's a lot of these different avenues now which didn't exist in Q4 and so when

the market does come back have a pretty high level of confidence that actually we're going to grow a lot quicker than we saw in November and December of last year and it doesn't really take rates being that high I think even like 15 to 20 um I'd be surprised if USD supply didn't like shoot 10 bill uh if the rights are there pretty quickly. Yeah. Very good. Um you guys had a fee switch proposal. Um what metrics are you guys looking at? I don't know if this is something that you can talk about. We can cut it out if you don't want to. But um no no yeah happy to. Perfect. What what metrics are you guys looking at? Um and what conditions will you have to see to actually implement it? Yeah. So I think um there there is a public piece on our

governance forum around like the specific um triggers that that we're looking at. I think uh the general view that we have is that actually like Athena is very early in its life cycle uh relative to most businesses. It's been around for like a year and I think sometimes you can actually hurt your product a little bit too much in the beginning focusing on like distributions back to the token rather than like pushing growth. And I think especially so with a business like Athena's where it benefits disproportionately from like size and network effects and modes than even something like an exchange. So if you look at something like tether versus Binance as an example, TA has like 70 to 75% market share while Binance has 40.

And the reason for that is that like when you're the dominant dollar, you just the liquidity benefits and being the largest compounds on itself in such an extreme way that you don't have to really do more than just exist and be the biggest and you continue being the biggest and compounding that growth. And so for us like you know uh without sounding cringe I just do feel that we're so extremely early in like the development for Athena and where we can go where I genuinely believe this product is going to be 20 to50 billion in the next few years and trying to take too much to capture value back to the token now relative to investing that into putting it on uh Robin Hood getting into Binance trying to put it into institutions in the US backend infrastructure for Telegram Revolute like there's just so many places you

haven't brought the product and have grown. it that actually I think that that money is in my view better sort of like spent reinvesting over there and you know different businesses have different you know like something like a pump fund it makes total sense that I think you can capture value back to that right now and there isn't like a ton that you you sort of want to grow into making the product bigger um and and building out that network effect so yeah I think it's just slightly different between different businesses but it's pretty clear right that at like uh even at not large size it spits off a lot of cash like uh 25% % interest rates uh or even like the averages that we saw in 2024 roughly annualized 18 19%. Even at like the five to6 billion dollars that we're sitting at now, it's not far off

of like a billion of gross revenue that's being produced. And so if you believe that like the you know the supply of USD can actually get to the numbers that I'm describing. It's clear that there is very clear path to a lot of cash being produced. I think it's just a different viewpoint that I might have or like longer time horizon in terms of what I'm trying to achieve here, which I think might be slowed down if you're too focused on taking cash out of that product back to the token. So, yeah, for what it's worth, I if I'm able to give like a public position, I will say I don't think you guys should do it. Like you said, you guys are I think in crypto we have a tendency to say, "Oh, I'm a token holder. Give me value as quickly as possible." When like you

described, you guys are a startup early company. you should focus on growing as much as possible as opposed to distributing. Yeah. But I think the one thing that people do want to know and we have done this is they don't want an equity code to sit on the side and be rugging token holders and actually taking cash to equity. So I think there's actually a sliding scale of what projects need to do. The first thing is you need to confirm to people without any any doubt that an equity company is not like trapping cash on the side that is not to the benefit of like the rest of of the system. That's something that has been confirmed already with with Athena.

We've never taken a dollar to equity and we never will. Um and then I think after that it's then a question of like okay how much what is the take rate? How do you think about the distribution that kind of stuff but I think at a very basic entry level if a token has not confirmed that it is not cycling off the funds to an act on the side in my view it becomes totally uninvestable and you shouldn't trust like what's going on in that structure. Yeah that makes sense. That's something that definitely needs to change. um just general uh structure and how it works and even like token unlock stuff. We don't have any information for a vast majority of projects. So um guy uh I think that's it. That's all I have. I um last question is what do you want what's your main focus over the

next three to six months? What what should people look forward to? I mean yeah there's quite a bit that we ran through um on this. I think um yeah I think the big focus for us is really getting getting this institutional product out and then shipping and converge uh so we can start to interface with those pools of capital. Um again I think the opportunities out there is just so much larger than what we've actually delivered to date. And I think um there's not that many product projects in the space who have a product that is almost purpose-built and actually tailor made for those pools of capital. And I think you know even sitting in I know you were at D a few weeks ago uh with with the conference I was put on uh with block works team and I think you know just walking around

there it became very clear to me that actually stable coins tokenized assets are kind of the only two things that trifi actually care about within the space that's that's kind of it and I think uh we just feel pretty well positioned with the product set and sort of direction that we're going here to try and capture uh what's going on with that theme. So yeah for me that's the the main focus at the moment. That makes sense. Um, guy, thank you so much for coming on. This was fantastic. Cool, man. Appreciate it, John. Okay.