'The Crypto User Is Not That Loyal At All': Guy Young on Ethena's New Neobank

Transcript

It's nice to see you and congratulations on the recent launch of Athena Pay, your new Neo Bank. Um, it's a really interesting launch because Athena for a long time has been seen as very crypto product and um, it even, you know, had both centralized and decentralized aspects. It kind of uh, just was its own unique animal and it very quickly became one of the most successful non-reserved back stable coins. So I'm curious to hear why you decided to also launch an EO bank. >> Yeah, for sure. I think um it's part of a broader theme I think uh just from the lessons that I think we've gathered through the last cycle which is uh I don't have as much confidence that like

all the money that we thought would turn up into DeFi and operate on chain is eventually going to come here and uh you know operate in the same way that we have in the last uh five years. I think I've increas increasingly become the uh you know formed the view that uh DeFi probably just plays a role in the back end for a lot of uh you know userfacing front ends that actually control the user in the distribution. So I think you've seen that kind of trend in the last uh year or so with some of the vault products for example like you've seen um you know integrations into Morpho uh with Morpho into Coinbase and Robin Hood and I think that those are just very good examples of kind of the role that DeFi plays as providing better infrastructure better products in the background to you know a centralized

front end where tens of millions of users actually sit and I think that this was a bit of a learning for us which is just looking at the data from this last cycle uh versus uh 2021 one uh D5 TVL actually didn't even break the peak of where we were in 2021 and it was actually you know 30 to 40% below the peaks uh uh that we saw even four or five years ago and to us that was just a very important data point which kind of told us that we needed to go out and meet users where they are in a form factor that they're used to which we think is you know a mobile app that anyone can access uh to be able to to interact with these products so yeah I think it's kind of culmination of a few different things one is just a recognize

uh you know recognizing that uh you can't just operate on chain and expect that the whole world is going to turn up and get used to interacting with MetaMask wallet and uh you know finding your your DeFi DAP and you got you need to go meet users where they are uh to try and control the destiny of your own distribution in a more meaningful way and I think that that kind of segus into the second piece which is um I think Athena's done a decent job of integrating into important distribution platforms you know in the last two to three years. So integrations across some of the names that I mentioned earlier with Robin Hood and Coinbase, Binance, Bybit, etc., etc. And uh while that's you know extremely helpful to try bootstrap your growth in the beginning, I think in an end state if you're going

to control uh the end user relationship, that's a much more valuable place uh to be in terms of being able to extract a margin and actually you know grow revenues for the business. And so while that is you know still maintains uh one of the most important sort of like growth vectors that we have in terms of uh integrating in the back end of other people's you know products and platforms uh we thought that the opportunity here was so big for us to go and try do that ourselves direct uh with this type of product and uh and you know thought we couldn't ignore the opportunity to go and try it at least. >> So when you were considering a neo bank there must have been some other options that you looked at. Why did you um you know what were those other options and

why did you end up settling on Neo Bank? >> Yes, I think we've taken different product directions which have been mistakes in the past kind of spending time on things which uh were basically just distractions and I think we're too distant from the core DNA of things that we uh you know think that we're good at which is basically money, Satan's products and uh pieces related to that. Uh and for us, yeah, I think it was just uh the emergence of this category when it came out. It just felt like the first kind of non-speculative application that you could just genuinely um imagine more than 100 million people actually using um outside of crypto. Uh and so yeah, when I saw the product category come out, I think a key question you need to ask yourself

with these type of things when you're trying to take, you know, a new direction or try to build out a new piece of the business um alongside what you're doing is a does it produce like a 10 times better product for the user on the on the end and then if you're successful in doing that, does it create like a 10 times better business rebuilding the stuff on crypto rails? And I think for us, like the answer to both those questions were like a resounding yes. Uh and then it basically just came down to like do you have a reason to win that market which is kind of the piece that we ran through I think in the beginning around uh you know why why does Athen uh reason at all to try and compete within this market and uh for us the answer there was around the savings

yield and actually owning kind of like the yield infrastructure in the background. So, um, yeah, I do continue to believe, uh, the addressable market for this is huge. And we're actually, you know, as cringe as cringe as it sounds, like extremely early in this like product category here in some senses, right, people uh, it's very obvious that like stable coins and exchanges could be 50 to$100 billion outcomes as you've seen with like the Binances, the Coinbases, and then the Tethers and Circles uh, between the exchange and stable coin categories. Uh this to me just feels like a very similar one where you look at a revolute in a new bank at a very similar sort of valuation range of hundred billion dollars and then you look at the actual product itself and just say you can do this better when you're rebuilding it on stable coin and blockchain rails. Uh and

then the interesting piece of that is that you don't really have an incumbent within crypto who's had the scale and size of a tether and a binance to sort of crush you if you're if you're trying to compete with them. And so I think it's was the very first time since I've been in this space for the last four to five years where you feel like the size of the outcome can be that sort of like hundred billion dollar um sort of ceiling that I was describing, but you don't actually have an incumbent within crypto uh who's there to sort of stop you getting there. So yeah. >> And how do you um plan to so like in in that space um there is still a neo bank attached to tether and I know that they also just launched but obviously tether has so many inroads. So, how do you

think about competing with Plasma? >> Yeah, I I don't really um view it as competition at all. We're quite friendly with the teams. I'm an investor in Plasma as well. Uh I think the as I said, the bigger picture here is how do you find the 100 million users who aren't operating on chain right now. I think Plasma have done an amazing job of a making a product that just looks and feels like really great. I don't know if you played around with the app, but the actual sort of design and just attention to detail to the whole thing is actually uh incredibly impressive, I think, from uh from our perspective. Uh but yeah, I think like trying to compete over the 50 to 100,000 uh people who who are using the app right now kind of misses the bigger picture of like where this thing

can go in an end state with new users uh uh coming into the space. So um yeah, we're not too focused on uh yeah, trying to fight for scraps. I think uh uh with the existing users who are here, it's really like a race to see who can who can get to the to the millions and hundreds of millions of users. Yeah. So this is obviously a really different product and um you know you had already spent years building Athena and uh that you know was kind of more um well it it wasn't userfacing directly right and so you probably had to either make a lot of changes or learn a lot of new things to try to own this customer relationship.

So what are some of the changes that you've been making? >> Yeah. Um, I would very likely challenge I think maybe the premise that we've never kind of gone direct to users where I'd say in the beginning we were kind of direct to uh direct to consumers and direct to users where we had no integrations whatsoever and when we first launched it was kind of just in DeFi to the DeFi native user base that got us to I think the first sort of two to three billion dollars before uh we ever sort of integrated into any meaningful distribution platform and then yeah the second leg of growth definitely came through those integrations that I was describing and now we've kind of come full circle again to where weed started in the beginning which is uh trying to go back directly to the user. Uh so there definitely is

like a different DNA in terms of doing that and I think even just the product and the look and feel of these apps is actually just completely different to you know normal applications that you see uh operating on chain just from even like a basic design and product perspective. Uh so that did require kind of hiring in and bringing in a new team entirely focused on building out his product with a lot more experience from building these kind of apps you know in fintech and having had that experience doing it before. So yeah, I think it's really just like a team composition piece where uh this has really been the only piece of Athena alongside the security team that's actually grown in the last year where we've added sort of like 25% of the total headcount of Athena to just focus on this product and

they've all come in new to to build this. So uh it definitely is a different type of DNA for building these products and uh yeah I think you uh you need to recognize that to do that well >> and since it is something that will sort of mimic fintech apps that already exist and already have many users. How do you think about competing in that space? Yeah, I think that there is like a a sequencing to this entire thing where uh you you kind of need to a recognize that the crypto user base is not large just from like a numbers perspective of users who are actually operating on chain and trying these products. So even the most successful examples of these applications that exist there now are sort of in the 100 to 150,000 users in

total. Uh but the interesting data point there is that they're kind of 10 times more valuable than a normal fintech user just because everyone is so much more uh you know so much more wealthy and has such a higher propensity to sort of spend and consume and save. Um so even if you just look at the average revenue per users for some of the existing crypto near banks versus normal fintex it's quite literally one order of magnitude larger. And so I think the view that we have is that you know the ultimate end goal of this is not to just have 100,000 users within crypto but it's also a mistake I think to ignore that user base in the beginning just because a that's where we have existing users who trust us and trust the products that we bring to market um you know having interacted with us over the

last three years. Uh b because the users are that much more valuable from a revenue perspective. you should definitely focus on uh you know trying to capture them in the beginning if you can. But then at some point when you feel like you've sort of saturated that market and grown into you know the majority of existing users who are trying these products on chain there's just an entirely different I think sequence to that which is then trying to expand to normal users who are using these products in place of normal fintech apps outside of the normal crypto bubble. So I definitely don't think we're at that stage yet. I think we still have a 6 to9 month period to sort of fill out that first piece of the sequence that I was describing. Uh but the end goal for us is definitely not to just try uh better serve the existing

100 to 150,000 people who are trying these apps now uh but but sort of view it as more of a stepping stone to to going to much larger user numbers. >> And so because you know there are apps already out there that do this you know do what you're doing and have you know probably very loyal user bases. How do you plan to try to acquire those customers? Yeah, I think um one thing we've learned is actually the crypto users not that loyal at all. And I think uh you know when you have a better rate or slightly different functionality, it's very easy for people to switch over which is quite literally sending one you know sending a stable coin from one wallet address to another. Uh so that's one thing that's kind of great but then also uh very

difficult when you're building within you know uh onchain which is you can accumulate capital and accumulate users very quickly if your product stands out but you can lose them uh equally quickly when you know something new and shiny is out there that can attract them out. Uh I think the the core sort of like structural reason for why you know we as Athena found this interesting to do and you know can try answer that question of like why do you even deserve to compete or try and win within this market is um a huge piece of this product I think is like why is this actually a better product than what you can do within a revolute or something similar uh you know within web two and I think a core piece here is actually the savings uh you know rewards that you're actually generating on the balances that are

sitting within the app versus the 50 basis points that you're getting within a normal bank. And uh you know really what we've done here is actually just build a consumerf facing front end to our existing product set that's that's already been in the market for three years which is a dollar with a structurally higher you know savings yield versus everything else that's in the market. And so it's core to the DNA of what we've done already which is trying to produce the best savings yield on dollars at multi-billion dollar scale. And if you're able to do that, I think you have a structural advantage versus everyone in the market because everyone else is bleeding cash to try and pay up for these incentives on the savings yield that sits within the app.

And if you can just, you know, produce the best yield outright because of the product that you sort of own and you own the yield engine that actually produces that, we think that that's like a structural advantage going forward which allows you to actually just produce better pieces of the product um outside of that. So it allows you to sort of afford to do free on-ramps for example, which is something that Athena Pay offers on the side. It allows you to sort of afford the cashback piece of of the card spend. And a lot of these piece of pieces are basically downstream of actually owning and vertically integrating uh the yield engine and the dollar issuance with the app itself. Uh so I think that that's just like one piece that we looked at you know from the outside in which was the growth of

you know the pretty insane growth that we've seen in the segment of the market in terms of how many neo banks and also just the growth in terms of user numbers and spend. uh in some senses like the biggest beneficiaries of that weren't actually the NEO banks themselves. It was kind of circle and tether because all built on someone else's stable coin basically and they were able to monetize the NIM and uh the float you know at circle and tether and for us like in an end state we think that that's a pretty unsustainable sort of revenue structure if you're losing what should be one of the largest revenue drivers within the business uh to someone else. So yeah, there was just a few ideas there around, you know, why we thought having the experience that we did building USD was actually a pretty important like

prerequisite to uh you know, potentially competing within this market. >> Yeah, it definitely makes sense from a back-end perspective that um you know, you would have more efficiencies um that would allow you to compete better. But yeah, just in in the existing market, it's sort of a like a a question of how you get over the hurdle. One other hurdle that I thought of was, you know, there is a portion of this that's self-custodial and you're going after a market that is not crypto people. So, how do you plan to educate those users about like, you know, that aspect that's a little bit different and what that means for, you know, the behaviors that they should apply when using the app.

>> Yeah, I think the self-custodial piece is a very interesting one because people have taken different approaches here uh to actually bring this product to market. Uh for us I think it was actually a key competitive advantage which is actually creating every balance on the app being self-custodial but the user not being aware or not aware in the sense it's sort of being hidden from them but not aware in the way that they're interacting with the app that they're actually just holding stable coins in a wallet rather than you know fear sitting within a bank account. Uh the reason for that is that if you think about like the roll out of normal fintex um historically it's been like a pretty slow process which is every single country that you open up to you need to get a new bank account you know new fear

rails regulators need to sign off etc etc etc and that's like a 12 to 24 month process for most of these large fintexs to just open up a new region um uh to be able to offer their products I think one of the interesting things about this is that when you have user balances sitting within a self-custodial stablecoin wallet uh you kind of unlock the whole world just by default on day one because you know it doesn't require regulation and licensing to be able to offer a self-custodial stable coin wallet to users and so it's a very like strong accelerant I think to be able to be global by default on day one which is kind of what that unlocks and then I think the other piece is actually just the nature and type of financial products that are available within a self-estable coin wallet essentially

just plugging into DeFi uh which which you obviously just have less restrictions versus uh you know the regulation that sits around like a banking balance sheet Um, and you're kind of seeing this trend, I think, even across some of the largest exchanges and brokerages in the world, which is the move of like even a Robin Hood to be able to offer what is a very similar product within their own uh Robin Hood earn. They're essentially doing the same thing, which is plugging into a Morco vault uh with USD that's sitting within the collateral. Um, and so yeah, I think this is like a broader trend that you're seeing with even some of the largest and most established players in the world kind of recognizing the fact that being able to provide these products in a self-custodial nature um can actually just provide an outright better product for their users

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