Bitcoin Seasonality, Capital Flows, and New Stablecoins | Roundup

Transcript

Q4 is kind of where all the action tends to happen and like we we were talking about this yesterday, but I still have Bitcoin pencled in for two to 250K by end of year. That has not changed at all. Quick shout out to today's sponsor, Katana. We'll hear more about Katana's 1 billion CAT campaign later today, but for now, let's get into the episode. 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. Blockworks Digital Asset Summit is back in London October 13th through 15th. We'll have top

speakers from leading global funds, financial institutions, DeFi protocols, crypto companies, and policy makers all under one roof. Think Black Rockck, Circle, Coinbase, and more. Follow the link in today's show notes to buy tickets and make sure to use code bell 100 for 100 pounds off at checkout. See you there. All right, everyone. Welcome back to another bell curve roundup. You got Michael's one and two, Vance, all the fellas. Bonera with my mom mother son trip in Italy. Uh it's lovely. Yeah, did Florence Sienna and then we're here for a couple more days and then and then we're out. But mom, if you're listening to this, I'm sorry. We have not taken you to Italy.

Florence is, I think, one of the coolest cities in in Europe. Yeah, it's awesome. It's awesome. They had um I mean, I did one of those like tours of the the Duomo, that big cathedral before it opened. Um Brunolesie. Yeah, exactly. His tomb's in the gift shop. I'm sure he'd be pumped be pumped about that. Really? They put his tomb shop. Well, they put the gift over his around the tomb. Yeah. Yeah. Real estate in there. But you know what's cool about that is they, you know, they they finished this ma the throne was a massive cathedral at the center of Florence. They finished it uh with just a massive hole in the middle. Uh they didn't have the technology, but they just believed that

someone down the line would figure out how to build a dome like that. And then literally just held a contest. This guy figured it out. Built it in 14 years. First one in a thousand years. just the cool the herring bone um connects in on itself brick structure uh is how they're able to do it because none of the trees were big enough because every other dome you had to put a tree across to be able to hold it in from caving in on itself and they couldn't find trees big enough. How do you have this much know? I just came from there, so I knew the herring bone thing, but how do you just have this off the dome?

No, I I actually took some Renaissance man. Yeah. So, I actually taught a class at Yale, a guest lectured a class at Yale on Renaissance architecture. Don't encourage him. Oh god. Um, all right, fell. Should we uh I I would love to get your guys' take on um well here I'm actually going to share this chart. Uh but this is the type of thing that you always see um around October which is people talking about October and seasonality. Uh so this is a chart from Ryan Rasmusen over at Bitwise. Uh Bitcoin seasonality average monthly performance. Um, and as you can see, it's basically, you know,

challenged in August. And the only negative month on average is September, down 5%. But historically, the end of the year is up, you know, October's 27% returns, 38% in November, December. Usually I look at these charts and think there's a little bit of woo woo stuff going on here, but I'm curious if you think Yeah. to uh I I like this chart. I also like uh Julian Timmer, the head of Fidelity Macro, posted this chart where he said when Fed has cut rates close to all-time highs, it's like 27 for 27 that you're like 10 to 20% higher. There's there's literally like no data to suggest that being bearish is correct. And yet everyone on Twitter is bearish. And this

is I I don't even know. Maybe we pulled back a little bit in September. It it was technically down. It was technically down maybe a few percent, but like the October uh October is the best month for crypto. And if you think back to prior years about what you were doing in Q4, you know, you have the Thanksgiving where everyone meets up and they're like, "Holy like we're up a lot. There's Christmas. It's like a similar vibe." Q4 is kind of where all the action tends to happen. And like we we were talking about this yesterday, but I still have Bitcoin pencled in for two to 250K by end of year. That has not changed at all. And Micro Strategy is rallying. STRC, which is his perpetual preferred issuance, which actually gives him money to buy Bitcoin, is now back at

par so he can issue more. Um, and he could get included in the S&P in December, right? So, and sorry, I think August was technically down and September was technically up, but we hit a low in September, which was basically the call. It kind of like tracks the trend that everybody's been thinking. Um and I I think the the sentiment here is like there are some structural differences in each month. Um the first one is I I think end of quarter or end of year for mutual funds is 930 which means that there's a lot of kind of like tax loss selling and restruct and and repositioning. Um that leads to September being a down month. And

obviously that's not Bitcoin specific, but when you have down financial markets, usually Bitcoin trends that. Um, at least to a certain degree. Um, and I think historical precedence is kind of what's leading people in this direction. Like one of the things that I think about is, and I I there's a lot of pundits out there. There's a lot of people that have, you know, hundreds of thousands or millions of followers. Um, and when when is it that they make a prediction that's correct or when is it that they make a prediction and then lead the market with that prediction?

It's like sort of cause correlation. Um, but when you've got millions of people following you and you're calling for, you know, a selloff in September and October, um, how much are you affecting the markets with, you know, tens of millions of people watching you? And then there's also the reverse of that like when the platitudes of like sell in May and go away. This was an exceptionally strong summer for crypto. Like when we were in Italy, Michael, usually when we go on vacation, everything nukes and we're not really able to enjoy our vacations. That's why I had vacations.

Jesus Christ. I was in Japan for the tariff tantrum, which was maybe um the I mean it was such a great vacation, but it was just like this justosition of like the worst possible price action and the most beautiful possible place. But the the learning that I have from I'm diverging from my original point. The learning that I have from the Trump tariff tantrum is things can change so quickly and so dramatically. Like Michael, we were like, you know, ETH is at whatever 1300 and like we're like, man, when when will it get back to 4K? It's like that could be a few years.

Guess we'll have to just sit tight and kind of buckle. It's like the end of the year and it's like 4,500 about to break alltime high. Wild how fast things can change. Yeah, it it you think it'll take months or years and it ends up taking weeks is the other the other thing. Um, and yeah, my my base case here is that I don't know what the price target is, but I I would say we're looking at a 50 to 70% move in Bitcoin by the end of the year. That probably puts it somewhere between 180 and 225, I think. Um, and I think that there's a lot of um elements that lead to that.

Um, but I I think the biggest thing is is just like historical precedence. Um, and it being, you know, structurally something that aligns with STRC, Micro Strategy in general, being able to raise more capital in December, mid December. I mean, it was very unlikely that they were going to get listed in the S&P 500 in the first go. Even, you know, Robin Hood didn't even get there. Um, but the second go is where Robin Hood actually did get added this last time and now it's Micro Strategy second go. Um, and so if it's not really with Micro Strategy, it's not really a question of if they get added, it's really a question of when. Um, and so if it's December or if it's March, I don't think it really matters that much. Um, obviously December will probably lead to

a very excited end of year in terms of price action because now every single person who has a a 401k is going to be able to own is going to own Micro Strategy by default and therefore Bitcoin directly essentially. Um there's just a lot of huge catalysts on on the horizon. Um and I I think you know the other sentiment um that I would also describe is that with positive trajectory in more of the crypto macro markets what we are seeing is more um I'd say excitement and fundraising from some of the crypto venture funds which I think has a lagged effect but it does have some effect in

terms of you know where is the capital flowing um because there's sentiment and there there's obviously price action. But I think the big thing that drives all of this is flows and so when you have a structural inflow happening like what these digital asset treasuries companies provide or or something like getting you know added to the S&P 500 that's just the structural flows um effect. Um but when you have billions of dollars that is starting to be raised and and you know some of the some of the best performing funds are going to be the ones that can do it first. Um and and I think a lot of these funds, you know, have been working on it for the past year. Um but I wouldn't be surprised if you start to see announcements of, you know, 300, 400, 600 billion dollar funds being raised,

which may be smaller than the 2021 finishes that they raised previously. Um but that's fresh capital coming into the market. Um and I I think that that ultimately also kind of bolsters everything too. Hm. You know, you guys were we were talking about on um last week's podcast like that we're so far away from being bubble territory in crypto. You guys get asked that a decent amount like is there a bubble in crypto? And I I had a conversation with a buddy of mine who's raising um this week and they're they're trying to raise you know somewhere in the neighborhood of like 50 60 uh million and it they're backing into like in order for their you know usually want a lead for that that would take down like half the round and there's just like a handful of funds

that can do that in crypto and and I was just reminding me like man that that's so interesting because yeah like in AI you could get that that's like chump change right or even tons of other industries, right? Well, I I would say that the AI people that come out of the AI labs that we talked to and we funded a couple we funded one very high level team that spun out of uh OpenAI, I think we can say it. Um and they are consistently impressed by the ability of crypto to marshall capital.

Yep. Really? They're like, "Holy like you guys can do like big seed rounds. There's like the tokens that are super valuable. Well, there's all like because like a lot of um at least at the highest level of open AAI like they are capital constrained. Even the hyperscalers are capital constrained. Not that crypto can answer that at the scale that they're looking for. But for the kind of smaller foundation model labs and the smaller compute efforts um I think those are pretty capital constrained still like there is this power law dynamic of the anthropic round I forget what they raised at I think it was like 150 or 350 350 no that was open AI anthropic was like 150 200 but like literally every even like fundto

fund that are usually investing in venture funds we're doing like SPVS to get into that and so there is this giant sucking sound that has mean has meant that like the the kind of earlier stage AI is is somewhat capital constrainted. I I would also say like in the same way that crypto has been this case for the last half decade or decade um people are also starting to realize that AI investing is going to look and feel a little bit probably um I would say crossover fund like where you are doing the series A's the series B's maybe even the series CDE of large uh high potential uh investments but you're also evaluating do I want to just put this

into something that's going to be highly liquid like an open AAI hundred billion dollar round that I know I could sell in two to three years or do I want to you know as crazy as it sounds who when I raise a fund to go after AI investing do I want to just buy some Nvidia stock because it's been doubling or tripling every two to three years um and it doesn't seem like that's stopping and I can sell that any day I want I think that there's this evaluation where it's hard for us you know as fiduciaries to say hey we're gonna charge you 2% to hold Bitcoin and ETH, but we could be investing in things and buying liquid assets that look a little bit further out the risk curve that basically our LPs don't know about or don't have access to. And like that's that's

exactly what they're paying us for. But I I and so it' be harder sell to say, hey, I'm going to raise a venture fund and I'm buying a third of it with in uh putting it into Nvidia stock. But I do think that the profile of these investments looks more similar to crypto than any other private kind of thesis area of traditional venture capital. And and I think what that does is it changes the landscape where early stage venture for AI is still pretty pretty capital constrained to Vance's point. You're not going to be able to go off and raise $50 million, but crypto is the same way.

Like you're not getting five biders or you know something like that for a $50 million round. you're getting like where it previously was, you're getting one bid for like a $10 million round, now you're getting two or three, maybe four, but nobody's interested in the massive rounds. And so it's this, it's still capital constraint, which is why it's not bubble territory, but it's definitely relaxing where there is more competition, um, frankly, that we just haven't seen in the last year. Yeah, that's good to I mean, yeah, the AI dynamics I'm less familiar with. I just see, you know, crazy uh headline numbers all the time, but definitely less in the weeds there. But but you know, when you've got OpenAI and a half billion of secondary at half a trillion

dollars, like those numbers are gargantuan, but there aren't that many like $250 million series A's in in AI. What do you know what AI's or OpenAI's revenue is roughly at this point? I think they're the first half of the year was they were annual they they had 4.3 billion of revenue which means that they're probably on pace for anywhere from like 15 to 20 by the end of the year. So massive it's tripling every six months and I I was thinking about this today but like the reason why people are fading open AI so much is because we have not seen a consumer hit in 15 years. like we just don't have any

muscle memory for holy everyone's using this. They have a billion users. They're all paying like between 20 and $200 a month and they're adding ads and they're adding an enterprise business and they're doing all this other AGI ASI stuff. Nobody has a prior for that. And as long as that is going to keep going up, like that's going to drive the next epoch of the internet. Crypto is going to live downstream of that. It's going to finance it. It's going to coordinate it. It's going to be new type of capital market for it. like crypto does not need to nor should it be expected to be the next epoch of the internet. Um but we have a very solid trend powering that and crypto fits very neatly downstream of it. So it's exceptionally bullish for crypto that AI is doing well.

Yep. And and to double click into that Instagram was the last consumer product that had over a billion DAUs. It's looking like chatbt will get there in the next year or so. They're at 800 million right now. um which may be technically weekly activives, but I would imagine that it'll get over a billion um daily activives in the next year. Um Snap was the the closest that came to this, but never hit a billion DAUs. Um and yeah, there just hasn't been any consumer adoption category since um Instagram in 2010.

Have you played around with Sora at all from Chat JBC? I've I've not played around with it. I've seen all the videos. It's uh I don't know. Now you can kind of do anything and just say it was AI that did it and it wasn't you. It's like we're past the digital accountability phase where you can get cancelled for Did Sam or or yes or no? Did he steal the GPUs from Target? There's a Well, I'm not gonna say it. There's a bad video of Sam on the internet today. I I actually missed this. I'm uh I'm out of the loop here. What was What is the What is the Sam? There's a there's a video of Sam uh like it looks like it's a um you know like an internal camera um inside Target and he walks up to a a

shelf full of GPUs and he pulls one on the shelf and like puts it in his jacket pocket. Also like when you when when I at least use Sora the first thing I can think of is wow they must just be melting GPUs like they need more they need more data centers they like the adoption leads the investment leads the adopt it's like this huge virtuous cycle um it's so bullish like and and it is a little bit suspicious that like right when the equity markets needed it most the AI use case appeared um but Still, you know, if you read research reports about coreweave, everyone's like, "This thing's going bankrupt." If you read, you know, people go giving their takes

on the hyperscalers. So, like Oracle's going free cash flow neutral to build out data centers and like the hyperscalers are guiding too high. Like the boomers are really struggling with this idea that this is going to happen. Well, I think there's there's PTSD. Also, wait, one last thing. Muhammad Elrain, who ran PIMCO, very smart, who's once considered to be on the Federal Reserve Board of Governors. Um, today he came out with, you know, the gold and the Bitcoin trade. Some people are starting to call it the debasement trade. It's like, got it. You needed Bitcoin over 100K to get that going for you mentally. Like, there's so much more room to run on all of these themes. I I mean the the big the big thing I would call out is specifically people are

talking about in terms of the buildout and capex and all that with AI is that you're starting to see some of these deals especially the OpenAI um uh Oracle um Nvidia deal where it's like it's basically vendor financing which you know in in historical precedence with the build out of of the internet in the 90s was Cisco lends you money so that you can go and buy Cisco disco products and technically count that as revenue, but you have a loan with them. And it's this whole like circular thing that unwinds at some point because what you have to assume is that what you're building out is so valuable that you're going to be able to recoup far more than investment dollars in a period of time that you can pay off the loan so that

you don't get underwater. And what ultimately happened with the internet is we did the buildout. It's just that the revenue never really showed up or like the value of the network wasn't really as strong as we expected it would be. I would say what's fundamentally different this time is that the revenue is is pacing at a level that validates there needing to be vendor borrowing uh so you can build this out and and I think that the the PTSD is that I've seen this before. I I was there in the '9s and I'm not saying this but people are saying this uh th this is I've seen how this ends basically. Um, but that is just patently different than what we're seeing now where you're seeing Open AI

at a 10 billion or 20 billion dollar rate doubling every six months in terms of revenue. And I the unwind isn't really going to happen. I think it it may stall. Um, and we may get over our skis in terms of the buildout and and that may happen, but that's not an unwind. That's just a we've overbuilt, so we got to pull some back. Even Mark Zuckerberg said this on the last earnings call where he said if we overspend by hundred billion dollars that's 10 times better than under spending by hundred billion dollars and they can do it and and you know Meta is one of the companies, Nvidia's one of the companies. Nvidia's the other thing that's really interesting about Nvidia is they they don't really have flexibility in terms of what they do with the cash that they earn. They have the most gross profit of any company in

the AI space, but they've already hit regulatory hurdles in terms of buying more companies or expanding the scope. Um, and they don't want to do a a cash, you know, buyback of their stock because it's it's basically signaling to the market, we don't know of any other better way of finding a creative value for this cash. And so what they're doing is they're they're starting to give, you know, vendor financing to people so that they can build out this AI infrastructure. Like it does make sense. Um the the richest people on planet Earth have voted. We're not currently interested in your proposal as to why this will not work. The stocks are going higher and so are the coins.

The the other thing too about uh like Chad GBT and some of the like that this AI wave is that now we have the example of companies like Google and Facebook. Um like I was I was listening to some old interview with uh you know fund manager back in you know like late as and they were there was this big debate about is Google a media company or or a technology company and they couldn't box it so they couldn't apply the right multiples and you know the Google money print like the best you know money printer in the world hadn't been invented yet and so it's kind of like how much money would you not throw at the opportunity to have the next Google like people just did not really grock how powerful those network effects are So, I don't know. I think that's another

big difference. I heard Bill Gurley talk about this, too. It's just like you have the example of like the Googles and the Facebook that just ran away with it and no one could ever touch them again in their, you know, their areas. So, I think I think there's there's also kind of like a tangential point on valuation of of of crypto at this point where people can't figure out what multiple to ascribe to these things. It's and the range is infinity to like Gazum's PE. Like there's no like you can't even like use the median or the average. There's just no logic or framework for it. That will not always be the case. Um like one one example is uh like just like an equity comp for discussion is this

company called Hippo Insurance. And Hippo Insurance is like this exfint darling. it was like worth, you know, 4 billion and then it sped and it went public and it went down to like 250 500 million. Now it's back to a billion. Um, it's an okay business. They do a few hundred million of revenue a year. They're not profitable. They're expected to get to like 50 to 80 million of earnings by 2027, but it trades at a billion dollars because people have faith in the disclosures, in the management, in the actual underlying business, but it's not going to be a huge business, but it's still valued at a billion. Um there's so many things in crypto that if you applied that same valuation framework that they would be five to10 billion dollar coins and I think you know what we discuss is that

there's this group of coins that are at two billion right now. It's like you know Sky it's like GTO it's you know a pretty close um there there's like there's like five or 10 that are at two billion that I think are waiting for a valuation framework to get to 10. clarity, as we've discussed, is probably one of the things that gets them there. But like, as as much as people want to say that crypto is no longer early and there's no opportunity, I actually think the exact opposite. Like meme stocks like Rocket Lab are now worth $25 billion. Robin Hood's treating it as 60x PE. Like the stocks are way ahead of the valuation heristics of the coins.

I I think it's a really simple I don't think it's a valuation framework. I think that's part of it. I I think it's market efficiency. like you you've got tens of high frequency traders or hedge funds, prop deaths that are trading these stocks with near infinite like near real time uh effect of any sort of filing or information or anything that they put out. Like they're literally watching the Edgar website on the SEC's website and they're waiting for information and then they're trading based off of that. Like that's how that's the efficiencies that we're talking about in in public equities markets. That just doesn't exist in crypto. And there isn't until we can trade these things like stocks or we can look at them with the same efficiencies

as the stock market, we're never going to have a robust valuation framework. And so it's really kind of like there isn't valuations that you can ascribe to this stuff because it's all basically growth and momentum or it flows. And you know, I I actually think one of the downsides to having cash flows back to your token is that what you provide and you've got a robust kind of like per market is what you provide is a very very strong cash and carry um element where you are incentivized to hold the underlying, stake it, earn the yield, and then short the per and that holds your price in line. And and that basically holds down any sort of value acral that you could possibly have. And I think that that's more instructive as

to okay, well, should we value this based off of like a price to earning? Should we value this based off of a growth metric? But in fact, it's it's just really valued based off of like how robust the purchase markets are and how robust people want to do the cash and carry because there's no incentive to buy it. Like there there aren't these prop deaths. So there's no kind of like reason for people to step into this trade. And so the flows are such that it's balanced. So it just like stays there. It's it's in stasis. Um, and I won't name anything but but there are a few assets that are like this where you know you're earning you're able to earn 8 10 12 15% but the price never changes and it's because probably the cash and carry is is the most utilized asset

access this asset provides. You know who um Yeah. Yeah. I just one final comment on this actually. You know who put together I thought a really succinct uh description of of kind of where we are in in crypto is actually Ansom. He had a really long post on this but this quote that stuck out of I simultaneously believe that we've seen the peak of crypto price action driven purely on specul speculation about future growth and also that we're entering the most bullish period for businesses augmented by blockchain rails. I thought that was pretty interesting. I mean like mostly crypto has been driven there's a great article on this like the uh Eddie Lazarin I think in Chris Dixon wrote back in like 2017 the price cycle of innovation like

price moves first and it gets everyone excited and then it pulls more money in and you kind of go through these speculative cycles that pulls capital on chain and then that gets invested in some good businesses yada yada but I I do it it feels like that to me too that maybe that cycle is starting to die down but you do have these monster businesses that aren't being fully valued um or like valued appropriately this episode is sponsored by Katana. Katana is a DeFi first chain built for deep liquidity and real yield by redirecting chain revenue back to active DeFi users. The 1 billion KAT campaign is live. Bridge and deposit directly into vaults in one simple click and start earning immediately on your Ether, Bitcoin, USDC, and more. Follow the link in today's show notes to get started. As always, investments in

blockchain technology involve risk. Terms and conditions apply. Do your own research. Speaking of um monster rounds, I was very curious to get your take on uh Flying Tulip. Um so Flying Tulip is a new project. There's there's a whole bunch of mega rounds here actually, which is yeah, companies finally being able to raise more money for the first time in a long time, but I was really curious to get your guys' take on this because this is a $200 million seed round. Um, this is another Andre project and Andre is kind of one of these very um, you know, colorful characters in crypto. Yeah. I mean, depending on who you ask, people say very different things. He's obviously a very smart guy. Um, he did innovate a lot on like especially decks

um, kind of incentive design. Like there are a lot of um, solidly forks uh, that have now found their ways into pretty like big projects. Aer Drrome is a is an example. Um but but uh here let me let me just describe what this is. It's like it's basically a full the quick backstory on Andre just to add a little bit more on him specifically is he created YFI Wi-Fi back in the DeFi summer days which was like a fair launch asset. You know this is back when sort of we didn't know what the regulatory certainty would be and so we knew that the SEC would be coming after things.

this was basically like an onchain hedge fund, but because it was distributed fairly, like he didn't have any ownership of it. Um, and so like that was sort of a test I would say in terms of can you have something that's just distributed fairly like a Bitcoin distribution where you stake it and earn it and it's all that you it's how the distribution 100% of the tokens go in that way. Um, but do something that's, you know, very questionable in terms of regulatory status like an onchain hedge fund. And so he kind of pioneered this. Um he also kind of disappeared and then it also came out that he was being sort of investigated or subpoenaed by the SEC over over what he was doing with YFI. I mean there there were like crazy times.

Not necessarily his fault. It was not his fault at all, but like there's a lot of backstory to Andre and sort of like one of the I would say DeFi crypto OGs. Um, and so he he's also been working on things since in different, you know, game ideas and um, now it seems like more DeFi ideas. Um, so generally I would say I'm I'm very happy to see someone like him kind of feel comfortable enough to come back into the ring and you try for a bigger shot because I think he deserves it. Um, but yeah, I'm I'm this is the biggest round I've seen um, for for a protocol.

I don't think it's 200 million of like equity capital. I think some of it is committed in kind uh or sorry not in kind or maybe it is in kind but it's for kind of like liquidity bootstrapping right I I was Vance can I go through I was actually going to go because it's kind of interesting mechanics here and yeah and then yeah um so it's a full stack DeFi uh you know exchange so spot per options lending that type of stuff but I'm reading directly here from Dan Ellitzer who actually you partic participated in the round and outlined the details uh so investors contribute stable coins ETH or other yield generating assets assets. That capital goes straight into a protocol treasury.

No lockups, no team allocation. Every token issued to an investor is fully backed by the collateral that the investor contributes. Here's the twist. Every FT token uh comes with a per perpetual put option. At any time, you can return your tokens and get your original capital back. No expiry, no gains. If you exercise that put, your tokens are burned, supply shrinks, nobody else has anything to do. If you sell your tokens on the open market, your put protection is gone and your original capital gets routed straight into buying and burning more tokens for the market. So whether you redeem or sell, the mechanics are deflationary from day one. The catch investors are giving up the yield that they'd earn if they just parked their capital in DeFi investments. Uh that yield is what funds the flying tulips initial protocol subsidies. So your investment is really

the opportunity cost of your capital, not the principal. Um I will say also there is another risk uh which is that yield that he's talking to actually comes from rehypothecating. um into different yield sources. So there is also the risk that you're taking as an investor of uh you know anything basically like a run right and if too many investors try to redeem at the same time you might not be able to get all your capital out right which would or they'll be able to withdraw you. I mean I'm I'm less concerned with that so long as it's built in a way that doesn't have issues. Um I I look I think the meta narrative here is like as we're seeing with things like lighter and aster and obviously hype um building dexes or trading experiences still is like the most profitable thing you can

do in DeFi. Um maybe maybe you know technically stable coins and therefore lending have more total profit but I think the attention is on trading exchanges just because of the kind of the parabolic potential of what these exchanges can provide to token holders especially when you're talking about an investment case where you're basically just foregoing the opportunity cost for potentially parabolic upside. Um, and you you know, I'm I'm sure it's not a permanent, um, you know, put option requirement where you've got to keep the capital in there forever. I'm sure it vests over time. You probably just lose future put options if you pull your capital out um or if you sell your assets. But I I would imagine, you know,

the 200 million is definitely thought of as bootstrapping capital, not direct investment capital. Yeah. And sorry, Vance, I interrupted you. I don't know what you're going to say, but I also would love to I mean I think the knee-jerk reaction that I feel like is probably missing some nuance here is this feels like um a more professional or you know VC targeted form of yield farming like this is the same basic you know mechanics here of yield farming in a sense um you know I'm just curious if that comparison resonates with you know yeah I think the there's a huge market today for providing yield um and and that is like a different category than dexes. or pers, but some somewhat similar of a form factor. Like right

now, a lot of the TVL and DeFi is in like Athena where the basis is not, you know, 10 or 15% like it was, but they're kind of, you know, guaranteeing you that rate on like Othena or on the Binance deposit and then they're filling kind of the spread with like their token price and their their token value. Um, they're also doing things like, you know, unstaked USD that's eligible for airdrops. like all of that is just yield seeking capital. Um, flying tulip is also kind of a variation of this basis trade. And so like I think the ramifications here that the basis trade continues to get more and more uh crowded. Um, and so what that means is that you're going to be pushing more into like token emissions and and like

traditional lending yield to generate that yield. There's also a ton of capital on plasma seeking this yield. And I don't think any of this is a bad thing necessarily. I think it's just indicative of there are $300 billion dollars of stable coins on chain and they're looking for something to do and the first person that can actually put it to productive use and we're betting that a lot of that is going to be plasma is going to be a huge winner. Um but like flying tulip um and even things like superstate CC like you're seeing the commodification of this basis trade um which is going to lower borrowing costs but it's probably going to mute to Michael's earlier point the upside of a lot of these moves.

Yeah. Um, I mean, I'm personally interested. I, uh, I thought I was one of those people that got kind of, uh, nerd sniped by year back in the day. Um, I just thought it was super cool project. Um, and yeah, I think he was building at a time that was really difficult for crypto. I think a lot of those like early DeFi founders are just built different. Uh, the amount of risk that you had to take, not only just being a founder in a business, but taking on legal risk, like you could literally get arrested or something like that. You could lose funds. Yes. So, I'm I'm rooting for Andre here as well. Um, totally.

And, uh, yeah, I guess we'll see if it's a it's kind of a novel funding um, mechanism here, too. I don't know if this is a like a one-off or the type of thing that could catch on, but it certainly seems like it's somewhat appealing from the investor side of things. You can get your money out. Um, so I I think it's more aligned. Um, obviously it's more capital intensive. Um, and so maybe it's not as exciting to a fund that is limited in terms of capital. Um, but it may be interesting to platforms or, you know, non venture specific funds that have more capital.

Um, you know, Dan Eller with Nason is, you know, isru structured a little bit differently than traditional funds. Um, where he's doing more DeFi activity. Um, so it's it's kind of purpose-built for someone like him. How do we feel about the name flying tulip as the last? Not as good. Yeah. I mean, yeah, I'm not a huge fan either, but still still support. We don't we don't need to give the next on air project a ton of air time. Yeah. Okay. Uh all right. You know what I would love to get your guys' uh take on here is Keel. Uh so this is a Salon Salana focused focused uh star which just launched on um yeah on Salana. Uh so there is a roadmap here to deploy as

much as 2.5 billion into DeFi and RWA assets. Um so the new protocol will receive an allocation from Sky USDS stable coin reserves to deploy to Salana based DeFi apps such as Camino, Jupiter uh and radium. So this is the third uh star in the Sky ecosystem. As a reminder, the other two are uh Grove and Spark. And the idea here the the model which I'm going to you know try to explain you guys correct me but it's almost like a it's not a bank obviously but like the model kind of would be like a central bank and commercial banks right where there's the advantage if you're a if you're a star is you get you know kind of preferential funding and if you're sky you get to um you know shield yourself off from some of the risk and

also you know diversify capital to like maybe specialized lenders right who could generate more yield than necessarily just SC just one One specific call out and I'd say this is kind of a consistent um maybe misunderstanding that we've seen across the Sky ecosystem with you know Endgame coming to fruition now is that it's not you know leverage per se. Um what you're doing is you're basically renting capital from the Sky ecosystem and every month you're paying a fee uh to rent that capital based off of an interest rate. That interest rate is consistent across all stars but you're uh putting up what's called first loss capital. Let's say it's $50 million and that gets you uh two billion. So you have a 40x uh multiple on what you can

access, but every month you're paying 5% off of the two billion. And so you have to pay um basically whatever that monthly rate is uh back to Sky. And so if you for whatever reason are not making any revenues with the two billion of USDS that you have that you're using, um it's going to eat into your first loss capital. And as that first lost capital dwindles, you're not going to be able to access more USDS. You're going to have to start paying back some of that. And if you lose all all of your capital, it'll be recouped. Um, and you'll you'll have lost your first loss capital, which is a direct equity loss.

Um, and so there there is I would say a different type of risk model than what you've historically seen with, you know, traditional leverage in crypto. Um, this is more like a banking relationship where if you lose the shareholders equity of your bank because you you made bad loans or you know you had to pay your fees to the Fed funds uh to the Fed uh central bank um you know your bank go bankrupt kind of thing. Um so it's a very very different model. I I think this is a huge step forward for Salana Defi tweeted this, but the main thing that they do not have that Ethereum had in its early days is a stable coin allocation protocol. Something that you can take and generate stable coins

against native assets like Soul, but that can also just terraform the entire landscape by providing lending liquidity into things like Camino or things like Jupiter Lend or things like Drift. And they are even though people don't realize it, one of the largest depositors into each of those protocols today. So the progn like if you're like I see a lot of people doing this like oh man we need to do like we need to get stable coins can we like announce PayPal coming onto Salana it's like okay it's great it didn't really add that much this is something that Salana as a defi ecosystem should get behind because the more that you put into this literally on a risk capital basis you can get 40 to 50x leverage as long as you're doing safe fixed income like products and you can grow your chain and like that's the

thing that's really different about Sky and that entire ecosystem is that they're actually in a position to do something about all of these adoption questions. Um, and it's not just like trying to create a retail fervor like that's just not a like going door to door and asking people to deposit stable coins onto Salana probably not the best use of your time. Better use of your time is getting behind projects like this and actually forcing them to contribute more to the ecosystem by putting more in yourself. So, I'm super excited for this and this will also be the first demo of the layer zero uh sky bridge which is super cool. because it can do math across blocks, across chains. And why that matters is because the minting and the burning, especially across chains, is like a huge staple

coin security threat model. If you can actually figure this out, that's that is that is a technological step forward for the space. Do you guys have a sense of how stars are going to differentiate? like you know my my kind of vague understanding here is even between Grove and um and Spark is there's one one that's more of a focus on RWAS which is a Grove I think and then the other is more focus on kind of onchain opportunities maybe KE will be focused on Salana um but I'm just wondering is is the idea that each of these things will be separate is this a perfect competition thing you know where it's like when the joker kind of cracks the pool queue over his knee and throws it in and says tryyous you like

I'd love to do that at framework sometimes but no um I think there is uh there's first of all think about it in terms of like part of the competition is who can raise risk capital if you're a Salana team and you get Salana behind you you can probably raise quite a bit of Salana risk capital and the Salana Foundation is backing KE so shout out to them for really taking the lead on that it's amazing one one quick point of clarification there's internal and then external first loss capital internal is like you raise from a venture fund and it's permanent. External is basically you're lending assets to get a lower effective rate, but you can put assets into the first loss capital, right? So one is like how much risk

capital can you raise and like you can think of like really big stars that take you know kind of small risk at large scale and then you can think about smaller stars that are taking a lot higher you know credit risk or duration risk that are just kind of trying to be a lot more profitable on a smaller basis there's then you know the credit mix that you're going after is it uh for Grove it's traditional finance for Spark it's onchain capital on Ethereum for Keel it's Salana there's a lot of different verticals and thematics you can have for lending But I think you know the there's going to be a lot of competition which is good because it'll grow the capital base that everyone's working with. Um but you know all of this is a huge step forward where you know you have these USDS stable

coins that are printed, they're allocated, they're generating profits, they're recycled back into the star surplus capital buffer which is then compounding. And so that USDS is consistently generating which is another thing that like when you think about stable coins is hard to reason about. It's a lot of people sell Salana or ETH and then they take the stable coin and they bring it to their bank account into into their real world. Having these things stay and compound is a fundamental innovation that that Sky has been able to come up with and you know we uh there's going to be you know things like the plasma star which is pretty pretty soon up here and we're adding credit into that. Um and it's going to be a lot of our strategy in terms of these different chains is let's get some stars spun up. Let's get risk

capital into them and let's really grow those chains from a credit perspective. And that is, you know, at least part of the bullcase for Plasma, which has seven billion dollars of stable coins on it. Like imagine what you could do with that if you had 30 40x leverage in a safe way. It's it's pretty incredible. The the only things I'd add are we kind of think of it as like a 2 by two matrix. there's ecosystem across you know the horizontal then the vertical is basically like credit type and whether or not that's like different types of risk but it should also be types of uh duration as well. Um you know one thing that we don't have a good represent representation of right now on chain is long duration lending. Everything that's lent on chain has to be something that basically you can recall

instantaneously. But what if we were able to say like, "Hey, we're going to lend you at a fixed rate for a year or two years or three years." You'd be able to go after such different types of lending opportunities. And you know, it's people like Maple who can have, you know, bespoke contracts with these different platforms that can have an agreement with, you know, a counterparty for a long period of time because they have the balance sheet to be able to do that. Um, but if you were able to do that in in a more bespoke way, you'd be able to have that go direct through Sky. Um, and Maple is also one of the largest recipients of Sky Capital. So, I would imagine it kind of happens simultaneously. Um, but thinking about different types of credit, um, I I think is, you know, another vector of growth

for Sky. The the the thing I love about, uh, this strategy that we are aggressively employing is that we can share it with other people. It's not zero sum. It's not proprietary to framework. Uh, it's an open source software ecosystem that's focused on growing stable coin adoption. And like I'm sure there's some venture fund like listening to this podcast that's like oo how can we like replicate this or like do any of this come join us come come work with us on this help us capitalize these things. It is going to be a far more productive use of your time than trying to like wish cast your way to adoption on a chain. And you know this is going to happen to plasma next.

This is where we're going. We're telling you right now. So there there's really no secrets that we have to hold with this stuff which is cool. Shout out to today's sponsor Katana. Katana is a DeFi first chain built for deep liquidity and high yield. No empty emissions, just real yield and sequencer fees routed back to DeFi users. Incubated by Polygon Labs and GSR, Katana is launching with notable ecosystem of primitives, assets, and partners like Morpho, Chainlink, and more. Katana's 1 billion KAT campaign is live. Bridge and deposit directly into Vault in one simple click and start earning immediately on your Ether, Bitcoin, USDC, and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research.

Speaking of stable coin land, uh I would love to get your guys' take on uh open issuance uh from Stripe here. So this is a uh so Patrick Hollson uh announced this uh this week. Um we're announcing open issuance to help stable coins go mainstream. So this is customizable smart it's a it's a platform basically for issuers. Uh so the what the features of this platform are it's customizable smart contracts issuance on any blockchain reserve management full control over mint and burn fees and out of the box interop with open other open issuance stable coins and compatibility across Stripe's platform um and they went live uh I guess the first big use case of this was cash which is uh Phantom's um own stable coin that they

issued via this platform. Um, I think this is pretty similar to Luca, if you're listening, uh, like M0 what they were trying to do. Um, I had some trouble understanding that business when he first described it to me, but it kind of clicked reading this. So, basically, the idea is the the bet that they're making here is that there are going to be a lot of stable coin issuers. Um, there are actually some challenges with being an issuer. You need kind of similar core set of infrastructure for all of that. And so, that's what Stripe is providing here. Um, I don't know if you guys have any hot takes or anything there, but I thought it was kind of an interesting They're changing the game by charging everyone 50 basis points to issue a stable. Let's go, Kings.

Yeah. I mean, we'll see. um generally I'm also in the camp that not every platform or company is going to need its own stable coin and that there are network effects and just the fact that you're creating standard and open kind of like platform for issuing your own stable coins kind of begets the thought that you think that there's going to be hundreds of these things and I just fundamentally disagree with that and and so I I I don't think that and Maybe they have like five or 10, but even still then you're fighting for market share with a bunch of other companies. And it's like, well, like with a terrible consumer experience, and I'm sure it would get abstracted away in

some way, shape, or form, but like I want to send you dollars over Venmo, but wait, I've got PayPal. So, I've got Venmo bucks and you've got PayPal bucks, but wait, they're owned by the same owned by the same company. Like, why can't these two things integrate? It's like well it's a great place for an intermediary that charges 50 basis points. Exactly. And look, I think the 50 basis points is actually 50 basis points on redemption specifically, but there will be some intermediary that steps in and like a curve that says, "Hey, we've got an AMM that is going to charge you some basis points." So, like, I'm going to send you a hundred bucks, but only $99.76 is going to come across. Al also the other take I saw this week from I think

Lily at the Salana Foundation who I do think is very smart. I just think she has a bad take on this is you know what happened to Hyperlquid is going to happen to Salana where we're going to like basically say hey USDC pay us yield or else we're going to kick you off. Um let's just like walk through the logic of that. So okay you you look at a liquidity pool with a bunch of USDC in it or like in Camino what what do you who do you call? Do you call Camino? They don't have the coins. you call the person who deposited. You don't know who that is. Okay, that that that doesn't work. Um and and just like the analogy of the USDHL, like USDH is like a very small stable coin. There's $150 million minted. I think there's six billion of USDC on that bridge. Like there's no one

to call. There's no mechanism to do it. Um and honestly, a lot of the stable coin providers that are putting stable coins on chains like Salana are losing money. They're having to pay market makers to put those coins on chain. There's a certain part of those uh issuers like Circle that may just say, you know what, it. You you can pay these market makers. Come up with your own stable coin. You can lose money on this. A lot of these stable coins that are on these emerging chains are not profit centers. You what you truly have to have to have the equivalent effect is that you have to have a ticker that you're selling or some universally recognizable abstraction in your ecosystem that you then put up for sale or or for bidding.

But until because you've already let USDC onchain to Vance's point, you can't pull that off because those are controlled assets owned by people who have you know their own private keys um or or some you know wallet structure where you can't just tell it you can't force it to get off. So I I I don't think it's possible. I also don't think it's possible to have a universal abstraction within Salana that's worth it enough to where you're going to get the same bidding effect that you saw with Hyperlid. Um the ticker system in hyperlquid is new and novel and interesting. Um and and that allows them to have you know the competition that they saw. Um but Salana doesn't have that because it's a generalized blockchain.

Yeah. I uh I mean I I didn't see this comment from Lily, but I feel like that would be pretty tough to enforce. Um for sure. There's there's not even a guarantee, right? Uh you know, to your point that USDH is what takes off on a hyperlquid either, right? like there could just be demand for other stable coins in theory. I don't know. Um I mean I do I agree, Michael. I don't really see a future where there's, you know, thousands of different stable coin issuers, but it does feel like there's an incentive for certain types of businesses like exchanges are good ones where there's just large cash balances um that are just sitting there otherwise. And if you could make those cash balances your uh issued, you know, white labelled stable coin, there's just a lot of yield that you can generate. So right, but I guess the point is like

what's the complexity level that is still good from a consumer experience perspective but aligns more with the business if it's you know a 2x2 of like the actual currency itself which keep in mind like not everybody wants to use USD many people around the world do but there are advantages to having a local currency version so that may be one abstraction but if you also crosscut that by the platform that you're talking about and Venmo's got Venmo USD D, VMO, Euro, Venmo, Brazilian Royale, Venmo Canadian dollars, Australian dollars, etc. And and then it's just like it's too complex and and you get liquidity liquidity fragmentation and exorbitant fees to transfer and that's that's a terrible experience. Um and and so

nobody will use the longtail of assets because if you cross cut it by platform that's going to be a problem. So I I do think that there is a cut which is local currency and there are unique things that you can do like look Brazilian Royale the the Brazilian bonds at least priced in Brazilian Royale are earning like 12 to 14%. Like you can hold on to that and pass back yield or have it be a business model that you know actually generates a sustainable business so that you can build something there um versus the four 4% that you get with USC. Um, so there are advantages to different currencies, but I don't think it's going to be crosscut by platform.

Yeah, I can see. I I I feel like Stripe's bet here is that we can get enough of the market and then make our own uh blessed, you know, currencies that um are issued on our platform interoperable, but that'd be their bet, right? Like I don't know if that's and you know, Vance to your point. Yeah, that's 50 bips and then it's like what are we doing here? It's similar to just 50, man. Just between friends. Um, okay. Last stable coin related question for you guys. Uh, Cloudflare, we didn't get to talk about this. Uh, they unveiled their net dollar stable coin for the AI internet economy. Uh, companies moving on chain. So, uh, this is Cloudflare, you know, super core infra provider to the internet. Um, and they announced on Thursday that they'll

launch this net dollar, a US dollarback stable coin designed to support payments for the agentic web, a term describing an internet where autonomous AI agents transact on behalf of others or on behalf of users. Um, I've got to take here. I'm curious. You know what I mean? I think I don't really think this makes a ton of sense. Um, and I think that people will just kind of look at it and say it's stupid, but I do think it's one of those things that I think you're going to see a lot of people try this. Um, and it's kind of like I kind of bucket it in the same way that everyone is going to want to launch their own chain. And you could yell to your blue in the face that that doesn't actually make sense. We don't want a

world of 10,000 L1s that don't interoperate, but it doesn't mean that people won't try because there's an incentive. People are like, "There's money here. um and I want to own this next platform. So, I think it's just, you know, one of a series of, you know, companies like this that we'll kind of sort of see a use case and try, but it's just indicative of the fact of how much more stable coins we're going to have. I don't know. So, here here's maybe like a a kind of a steelman case. Um I CloudFare has been around since like mid 2000s. They've they've like built this infrastructure that basically is sort of the in a lot of ways like the internet gateway for the internet where if you are running Cloudflare as most websites

do or some you know competitor to Cloudflare it enables you to not get DDoS attacked it enables you to have extra security like they they definitely have their they're hooked into a vast percentage of the internet um in sort of a minor way but but is still passing through um you know Cloudflare server servers. Um, and you know, going back to the original HTTP spec, we've talked about this I think before, but like there there is a gateway called 402 that is called HTTP payment required. it was in the original spec of HTTP because at the time when when you know Tim Berners Lee in 1993 was actually whenever it was um was actually developing this his

perspective was we need a native way of paying over HTTP just like we have every other format um for content distribution and that never came to fruition intermediaries took over and so that's why you have you know things like PayPal take it off because you have to do it through an intermediary on a website as opposed to having the protocol itself dictate payment I I I think also historically a lot of the kind of like core web people and and now even some of the AI people still have this outdated perspective that crypto is only use is for speculation and therefore it's a scam. Like Dylan Patel even to this day he's the AI, you know, semi semi analysis guy. He's like, "Oh yeah, that whole crypto thing like that's over.

That was a scam." It's like you're obviously not paying attention. Um, but I also know that Cloudflare people, especially Matt, who's the co-founder CEO, he's never really bought into crypto for a number of different reasons. And, and so what I would say is this is kind of a recognition and maybe like a light step in the direction of there being sort of a mayulpa of people who are core to the internet getting behind the concept of, oh, now that we have stable coins, and oh, now that it's regulated by the Genius Act, and oh, now that it's kind of like legitimized, oh, maybe this is interesting. like now it's okay. Um, and you know, they're going to be the lagards. They're going to be the ones that don't necessarily kind of hit the product market fit because they should have been doing this or trying

this two or three years ago, but now they're now they're attempting to do it. Um, and and maybe it'll work. Maybe maybe it is too late. Who knows? Um, but I I do think that they are in a good position to kind of enable a core internet payment experience that would resemble something that the intention of HTTP 402 was was supposed to provide. Um, and you know, they probably won't do their own stable coin, I would guess. Maybe they leverage USDC and maybe they just provide the rails or or maybe they want to take the whole business just like Stripe does and say, "Hey, this is only going to be useful if we own the stable coin and therefore, you know, we're earning the interest behind the behind the scenes." Um, who knows? But they they um have historically been a

detractor um and a naysayer. Um, so I think the one interesting element here is the fact that they are now at least semi- embracing, you know, the stuff that we've been talking about for the last five years. I agree. No, I think that last part is 100% positive, but I maybe I was just not following this though, Michael. What why is Cloudflare if there's something built into HTTP like a gateway that enables payment? Why is Cloudflare super well positioned to like couldn't anyone just build on that? to totally but I would say there isn't someone with as much reach uh across the entire internet as Cloudflare frankly has you know you could say like someone like an Okami or a CDN like them um but you wouldn't be

able to do this as like a Google because it it's only going to be for Google sites um but but the way the internet is structured it's like if like when we run a website or anybody runs a website you set up you know like your hosting service you had you set up kind of like your CDN if you're a content um rich uh website, but then you also set up Cloudflare, which is sort of your like anti- DDoS security um and it's basically like a name server that routes so that you don't have a direct ping to your server. And it it's basically like an abstraction layer between, you know, any sort of ping to your website www.wever.com and what your actual server address is.

and it'll be like I don't know some name namespacecloudflare.com is like what it actually routes through and it's abstracted away through cloudflare and that's just one of the services that they have but I would be curious to know what the exact percentage is um I would guess it's a a large large percentage of the internet is is effectively run like the protocol itself is actually run via Cloudflare also one of the things that makes it difficult is um if they have an outage, the internet goes down.

Yeah. Well, I mean, at the very least, it's cool that uh I I agree. I mean, it's good to see some of like the, you know, more core internet people get on board. And I I think those I think those uh those takes about crypto just being, you know, speculative or illegal money or whatever it is. They're they're not as dead as I would love them to be, but yeah, they're definitely, you know, getting less. they're outdated and you know I I kind of chuckle whenever I hear them just because it's like wow you you've really missed the last two years you've been heads down in some other direction. Um and so yeah recognition and in a bit of a mayor copa I think is welcomed. You know everybody can change their mind but they they're going to have to recognize you know in the same

way like look I I I feel similarly about Stripe. Stripe has, you know, been in this industry for the last decade and they've been building the largest fintech and payments provider, you know, the world has seen yet. Yet suddenly just now they're jumping into the space. Um, you know, where were they two years ago, three years ago, four years ago? Um, and they they definitely had negative things to say about the industry back then, but suddenly they've changed their tune and and they to point they want their 50 bips now. Yeah. How about 75?

Uh, all right fellas. My inbox is imploding slashexloding like bunch of I got to hop, but good to see you all. See you guys. All right. Cheers.