Deep Dive: DeFi Yield Sources | Guy & Sam

Transcript

the growth of tokenized t- Bill products is like um precisely because the major stable coins are not providing any uh permissionless yield into the ecosystem and so this growth will continue as people demand more Capital efficiency 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 for informational purposes only and the views expressed by anyone on the show are solely our opinions not Financial advice our guest and I may hold positions in the companies funds or projects discussed all right everyone welcome back to another episode of B curve today I'm joined by Guy young witha and Sam mcferson spark guys welcome good to be here yeah guys this is gonna be a fun

one uh we are gonna be doing a deep dive on all things defi um so we're going to be talking about different sources of yield we're going to be talking about American defi uh baby and uh yeah we're also going to be talking about some of the upcoming plans for both spark and Athena uh so this should be a lot of fun but uh before we get into it I uh or maybe starting from the top here I actually want to talk about the different sources of yield that exist in defi today and I think that's going to uh flow nicely into some of the partnership that Athena and Spark um uh the partnership between Athena and Spark today and I say maybe can I kick it over to you you know we were talking about kind of these three large sources of yield that exist um in

dii r large or that are available for defi protocols to tackle so you kind of just give us an overview of what those three buckets look like yeah sure and uh I'll run over them historically so um originally the yield sources in uh defi so maker was one of the first uh defi projects uh that emerged in 2019 uh multic collateral die was launched and the yield sources uh at that time were primarily coming from uh crypto over collateralized native lending and this is primarily against eth and uh Bitcoin um so this is you know I think a lot of like OG users are familiar with this uh you lock up your eth into a CDP and then you could mint die and then you're paying interest on

this loan and this is the source of yield so this remains today as one of the three uh main main large sources of yield in the space uh more and then in 2022 we saw the onboarding of um real world Assets in particular tokenized treasury bill products which provided the uh risk-free rate on chain um this was essential for reducing the amount of capital that was outflowing during the bare Market of 2022 to um stable coins were providing no yield at that no base yield at that point and so Capital was exiting the system to go into treasury bills and so by tokenizing these treasury bill products we were able to uh stem these flows a little bit and

this again this is the second uh major source of of yields so uh t- bills over collateralized uh crypto lending and then the most recent uh Source uh so this has been largely in centralized exchanges uh like segregated from from Defi and Athena was the first project to do this at a large scale which is to tokenize this uh funding rate on chain um so that uh people could get access to this who have capital in Defi and this this bridge did a did a number of things that were great so this is another for uh maker it was another yield source that that we could tap into and at a very large scale too so this is uh the scale of centralized exchange funding

rates is is actually far bigger than than even D5 so this is a huge uh liquidity sync that we can put put our funds into and then for users of a centralized exchanges this provides some interest rate relief um they're able to leverage more um and not be paying as uh as high of fees so it's a mutually beneficial relationship all around and guy before I Ki it over to you here Sam but follow-up question for you is can you just talk a little bit about the quantum or the amount of yield in each of those three buckets and you know know there was a a pretty large pivot uh for folks who don't have the full history of um sky at the time maker when there was this kind of shift into in this Embrace of rwa so can you just

give us that little bit of the the history of uh sky and why that decision was made and then talk about the relative size um of each of these different yield buckets yeah okay so going back to uh again the beginning of maker uh the original um so it was always imagined that would our our W would be required to be collateral for uh Dy um run from the beginning has been saying this but in the in the original launch of of Dy uh the the main collat the only collateral actually was uh eth so uh at the time there was more demand for leverage than there was for people holding uh d right up until March uh 2020 when we had the black Thursday event and that in that case uh the

demand for d uh became higher than the amount of demand for leverage on the other side and so the dollar Peg broke upwards and the only way to bring this uh back down is to onboard uh something that's like a higher form of money basically so usdc was on boarded to bring the peg back down in line or else the product uh would have failed this is this is required so this is a first sort of look at what is the demand for leverage uh in in Defi and from that point onward the demand for leverage is is uh is less than the demand for stable coins stable coins have far surpassed the amount of uh uh demand there than on the other side so you cannot support a stable coin and scale it purely based on

um leverage alone so what that size is today um you know it's on the order of like 10 billion uh is um 10 20 billion um and so it's it's sizable but it can't cover everything and this is largely split between uh Sky uh the Rebrand of maker and uh a a and Sky hold most of the uh crypto over collateralized lens on chain now uh the other then then the other liquidity uh sync is uh is t- bills so this is well stable coins originally and then this was moved to t- bills because this provides the risk-free rate um but it's effectively the same thing it's it's ultimately collateralized by t- bills in the back end and this is scalable to basically

Infinity compared to uh you know hundreds of trillions like this is this is huge amount um so effectively you can consider T bills infinite um and then more recently with the centralized exchange funding rates access uh this is more on the order of uh like uh you know many tens of billions of dollars the guy can comment more on the uh on the exact scale of this but yeah it's it's it's much much bigger than def5 yeah I think Sam's right there so um open interest roughly across like BDC eth and soul in the market right now is roughly $110 billion and the interest rate is actually slightly higher than like lending rates that you see Within defi so if we're trying to express this

as a sort of what's the gross cash flow opportunity or like the amount of Revenue that you could possibly fit into a stable coin using these sources I think the back of the envelope in my mind at least is you've got roughly 10 billion within like defi leverage and that's as as Sam pointed out predominantly captured by spark and and RV and that's roughly paying like 8% annualized on 10 billion so call it like 800 million of of gross cash flow and then within CI you've got 110 billion which is annualized roughly in the last year at 18% so so that equates to like $9 billion of Revenue um in across that entire market so the CI Market is uh almost you know whole order of magnitude larger in terms of just the um the gross

cash flow that's produced from demand for leverage and then I think the other piece is that it's also growing quicker than defi so um yeah if you just look at the the size of the derivative Market relative to market caps um open interest has increased at roughly a ratio of 1.5x to the underlying and so if BTC doubles um over the course of a year the size of the deriv market actually tripled in that same period of time and so this is one of those interesting things which is even though the Market's growing actually like the Tam for capturing the basis within CI is growing quicker than and the underlying spot assets yeah that's super interesting I I guess follow on question to that is how do you guys expect these uh sources of yeld to change across different Market Cycles

like how has it responded in the past right if there's a if the derivative R of open interest on Sexes is you know Bitcoin doubles and open interest triples should it work the other does it work the other way in Reverse um and I guess same for the more defin native like over collateralized lending market like how do you expect those sources of yield to change um as market conditions change um yeah I think uh what we saw last cycle I think it was actually it was I think it was uh a good indication that we're near the bottom was when we're trying to leverage Loop like stable coins on chain and I remember like the T B rate was actually higher than where you could borrow in defi which um I think is just a very very good sign that you're close to the

bottom um so yeah I think generally both per funding rates and defi rates in the last cycle did actually dip below where where you could you could sort of achieve um holding just straight T bills um I'm not sure we sort of get quite as extreme uh in the next bare Market I think we're really living in a pretty unique moment in time in terms of How High risk-free rates were um you know just looking on it on a multi-decade period that really was one of the highs that we've seen um relative to crypto rates in general uh but yeah obviously the demand for leverage shrinks when you get into a bad Market but I think even when you look at it like on average during some of the worst years you still typically tend to get paid slightly higher than than uh risk race yeah and

um I can comment on the onchain so yeah historically for uh maker um yeah as guy said the obviously the demand for leverage drops in a bare market and it explodes during the bull market um like so makers still uh able even in bull market except for like very peaky moments Maker's actually still able to maintain this uh large excess of of cash and actually targets a 25% cash Reserve which is like fairly High uh if you look at um Regular like reserve banking uh this is like a this is a this is a massive number and we keep it so high uh precisely because crypto is so like uh crazy volatile right so like

people like once the bull is in full swing like uh they don't care how much they're paying that much like they just want to leverage and so you really have to start uh like turning up the rates to uh when you start running out of liquidity which uh will happen during like really peaky moments but normal steady state um uh Sky these days is uh more like a mix uh with like onethird T bills onethird uh crypto over collateralized Lending on chain and then um it's going to move up to about a third uh well not quite a yeah not quite a third uh exposure to uh the basis trade on centralized exchanges so it's this like nice mix between uh the three

and you get uh nice properties of liquidity pretty good yield um and diversity of collateral today's episode is brought to you by Ledger the global leader in digital asset security celebrating 10 years of innovation Ledger is trusted by 7 million users secures 20 % of the world's digital assets and Remains the most secure Hardware wallet for your crypto and logins follow the link in this episode's show notes to grab your Ledger today so do you guys think it's possible you know guy I know you were just mentioning that like there's a pretty good bottom indicator last time when funding rates dip below you know the cost of borrowing on an exchange dip below uh you know the risk-free rate of treasuries um do you think it's possible to look at any of these U sort of indicators around yield to determine where we are in the cycle

like on a longer term basis I know people love to look at funding rates as kind of a almost like an RSI type indicator right which is this is a little bit overbought or oversold at any particular moment in time but is there a way to kind of more on a macro or secular level look at some of these um I don't know different indicators of yield to tell sort of where we are on a longer term basis or what do you think about that yeah for sure um I think twice in the last couple of years when you've seen funding rates go below treasuries it was literally within two weeks of like the stone cold bottom so I think it happen as well towards the end of the last summer that we saw we OB had that unwind before Trump came in and again we

saw funding actually average around 4% um in those final weeks just before we did botom then and then equally you know theena uh likes to advertise the funding when it's extremely high and every time that we're sending out a tweet to say it's 50% funding or whatever it is the market seems to nuk like the day after just sort of and go through um notice that as well so it definitely is an indicator I mean um for like mathematical reasons you can't even sustain the market when the funding is that high it's just like literally you're going to run out of money at some point to sort of afford the financing um and so yeah I think it's a very solid indicator but I'd also just encourage people to at least consider the fact that Athena has sort of changed those Dynamics and and you know metrics or

Frameworks that you had before and after the existence of Athena should be reconsidered just because it is a pretty large piece of the market right now and so um you might look at the market and not think that it's that overheated compared to the same like heris stics that you had last cycle but that's also because there's $6 billion of shorts from Athena that make it look less overheated and if Athena wasn't there um it would be be more obvious and so I think there is a bit of um well Athena's existence essentially sort of disguises some of the overheating within the market um just because um without us that the the funding would be that much higher yeah um I guess final question for you guys just on that middle bucket of uh real world asset yield so treasury yield

um obviously there are different types of stable coins which share yield back to users as well like what do you what do you guys ultimately think is um you know the end state for that is is it basically just like a steady climb upwards right now like any thoughts just in terms of I actually don't know the total amount of treasuries that exist on chain is it roughly like I think it's like 20 30 billion or something like that I shouldn't guess uh publicly on a podcast here but like any any thoughts in terms of like how big that bucket ends up climbing maybe in like a one or twoe time Horizon yeah I think this uh trend of seeing uh the growth of tokenized T products is like um precisely because the major stable coins are not providing any uh permissionless

yield into the ecosystem and so this growth will continue as people demand more Capital efficiency um so yeah I expect this trend to just continue and even Beyond so t- bills are just the low hanging fruit I expect expect rwa growth uh to move beyond that eventually corporate debt um tokenize like I mean I'm a big believer that everything will just be tokenized like once we get this uh so there like there's this big uh lift that has to be done to get everybody on chain but once that happens uh like everything's just going to move over pretty quickly after that so uh yeah of course I I expect rwa to continue to grow and to become uh a huge asset class within within defi yeah I'm maybe have a slightly

different opinion here I think I'm quite bullish on like non-t treasury based asset growth going forward so I think when the rate cycle continues to sort of um compress as we go into the next couple years I think we will see a bit of a Chase for yield at some point and you might see like tokenized high yield credit funds and those types of things emerge on chain and I think this is actually a pretty interesting design space actually for hybrid instruments between you know you can make something that looks and feels a little bit like a stable coin which is say like 80% backed by normal treasuries and then 20% by some sort of high yield um credit instrument that sits in the background and if you think about it that's kind of what like tether was doing um many years ago when people were worried about them

which is you'd take a little bit of duration risk on a piece of the backing which you are comfortable is not going to get redeemed and you sort of run a little bit of risk on that side and get paid for that duration risk while you have the rest sitting in something that's a bit more liquid and redeemable I think we will see some experimentation there and like the natural Catalyst for that is just rates on T bills coming down I'm quite bearish though on just um token I bills as just like an attractive product within crypto in general I think they're useful when you start to put them in useful places I think one example here can be when you're trading derivatives on exchanges to be able to use it as collateral and and sort of get paid on on your collateral side that's a

useful piece but I think most of the growth that you've seen on chain um when it's not sitting within a more useful asset like um you know usds um stable coin where it can actually be useful and used for different things it's kind of just like Foundation striking deals with some of these rwa providers to you know you scratch my back I'll scratch yous type thing and throw in like $20 million and it sits there on chain and I'm just not that convinced that that's a market that's got 10x growth left in it um I just don't think people turn up on crypto and think I want to hold something that's paying me 4% um and I think the history of crypto is actually you've got to live on one of the two extremes you're either like the most liquid and safe stable coin in the space

or you're like the higher yielding higher risk one and the sort of like Middle Ground of like trying to do both at the same time you kind of don't really have a user base on on either side so um I'm I'm generally quite bearish on just the growth of like normal vanilla tokenized treasuries sitting on chain unless they're used for purposes like collateral or within within a stable coin yeah I don't know if you have a respon to that Sam but that and God just to see if I'm digesting that point correctly is okay there's like kind of two different categories of stable coin here um and also there are instruments sort of like USD here like USD in a sense here or maybe the analogy would be money market funds in trafi which is an actual stable asset right which is like a one like a

$1 type asset but you're getting yield on it and there's uh room for experimentation in terms of the stable coin issuers to yeah maybe take a little bit more duration risk or do something interesting on the fixed income side to juice that yield and then share it back but ultimately like it's more interesting to have a stable uh instrument as opposed to something like treasuries which uh they pay you some sort of but also there's like you know capital appreciation or you know the value can kind of sell off as well um is that roughly what yeah I can uh so I can comment a little bit so I think I actually don't necessarily even disagree with what guy was saying so uh I like I I agree that tokenized t bills as a product of like a user facing product uh will not be that popular um because you

know I agree like why would you come on chain right now to hold a t- bill product it doesn't make any sense really collateral it makes a lot of sense for and so I think the growth will be as uh products like usds which have uh multic collateral backing um again we like the demand for holding usds is larger than the capacity that we can put into uh crypto over collateralized lending and um we could put it into the funding rate but there are like um risk trade-offs and stuff like that so we want to have a wide variety of sources to to sync this uh deposit um deposits in into um and so T bills provide that excess like basically infinite capacity and so for

that specific use case I think there will be growth um and then my other my I was more talking about longterm I think right now it's it's hard to make an argument that yes uh rwa like I'm struggling to see where exactly they come in but I believe that uh just due to the uh improvements in capital efficiency um and economies of scale the blockchain in general um once we reach this sort of inflection point RW will just because everything will be finance will just be on chain and so it won't be defi trafi everything's just going to be on chain because it's much more Capital efficient and so that's when we see a lot of RW coming on chain just because

everybody else is playing there but that's more long term got it okay understood um okay I I want to talk to you guys a little bit about uh maybe Sam I can kick it back to you here and I want get a sense of you know we talked about these three different sources of yield right maybe some uh you know like 9 billion in um Revenue that's coming from the uh the the CI side of things and the funding rate and then you know roughly a billion or something like that so maybe call it1 billion do of Revenue here that's flowing into uh D5 from the combination of over collateralized lending and uh CI funding rates I want to get a sense of like what the different actors are and how that ultimately ends up getting dispersed in between different protocols and maybe Sam could you just describe

like the spark liquidity layer and a little bit of the relationship and dynamic in between Athena and Spark and how you guys are working together here yeah okay um so uh let's go back to last year when we first onboarded Athena which was March of uh 2024 um so we were able to get that online uh pretty quickly we saw that uh Athena you know this was a new yield source to us and at the time that we were going through like a little bit of a bold whatever you want to call it moment for a couple months there and so we wanted to tap into these uh the funding rates that were like I think at the time they were like 60% it was like it was obscene um and so we wanted to deposit into there pretty quickly

however Athena was pretty new at the time I think there was only like about one billion in deposits around there um when we were originally discussing this and so um we wanted to proceed out of an abundance of caution um just because uh we want to make sure things are safe for usds folders and so we used uh Moro uh lending infrastructure to provide a uh junior Capital buffer um in between um usds holders and uh Athena so basically the way this works is there's three parties involved there's the uh depositor which is um spark there is the uh issuer which is Athena and then there is this third party which is um people

are take who want leveraged exposure to the Athena yield and so they're willing to take this junior piece in exchange for higher yields than even what uh sde is providing the downside is though that if there's some like dpeg or like insolvency or something like that they're the ones that are going to lose everything first um so this is the tradeoff and so um spark was able to deposit uh it went up as high as 650 million it's still actually hovering at about their um 500 600 million uh in exposure um and then there was enough demand for people uh leveraging in the market to uh bring it up to that level that we were satisfied with and uh then we could gain uh sort of not quite uh

the SSD rate but slightly below it um and then this kind continued on over the past year um as we gained confidence in the Athena protocol uh we onboarded uh pendal PT tokens um which would even provide even more boosted yield uh to spark in exchange for some duration uh risk in that pts are uh like fixed rates so um in the worst case scenario if liquidity dries up you need to hold them to maturity which means you have to hold these assets uh you know potentially for a few months so but the trade-off uh you know we we ramp the system up it's been working like a charm you know Spark's been able to get good Revenue Athena's been we're we're a good chunk of Athena deposits and so this relationship was

just uh great all around so what's happened uh more recently and uh we announced this a few weeks ago this is uh direct depositing into Athena so previously we required three parties now it is um spark directly uh swapping usdc for uh ssde so the protocol is holding it directly on its balance sheet and then um spark is able to provide the junior Capital um in the event of shortfall um as opposed to requiring third- party uh um users to do that so yeah this is the this is the new integration and um it's going to mean a lot of uh improvements in uh Capital

efficiency but also actually um there's there's an interesting trade-off in that when you are deposited into an onchain lending Market there's this like 10% you know 10 20% in liquidity that's always available that you can pull at any time but you need to wait you're dependent on these uh people who have leveraged up to repay their loans they usually do because you have to you the interest rates go up when you pull liquidity but you there's this like dance you have to do there's uncertainty with the liquidity that can be reclaimed now with these direct deposits we have much more certainty about when liquidity can come back and so we can plan for this so this uh we can deposit you know several hundreds of millions into this into ssde and then uh we know that when we need to

withdraw this even potentially all of it uh at the same time there's seven days and then we get the usdc liquidity so basically uh so e Evolution here kind of being you know relying on thirdparty depositors to take some of that risk that risk is now shifted into uh spark um but you know the advantage here and what it seems like the synergistic relationship is is Athena is kind of the conduit here for this massive source of yield and it feels like sky and Spark as well is sort of this allocator of capital into this sess of yield so spark and ultimately Sky end up benefiting from getting access to some of that Y and I that should flow into the usds supply somewhere down the line I would

guess through higher yields um and then obviously from the perspective of Athena there's growth in terms of just usde in general right is that like roughly kind of the relationship there kind of thinking about sky at the base here as a capital allocator and um and Athena as a conduit yeah exactly yeah nice right well very EXC I mean I I don't know if guy if you have any comments from from your side of things around how you see this relationship growing or anything like that no I think um Sam covered most of it there I think one of the more interesting pieces about this is that they've been extremely intelligent in terms of being able to design different Capital structures which allows them to um shift their exposure duration liquidity profile as they see fit so the idea of lending over collateralize is

actually very different to holding something that's liquid where you have exposure to the first loss but you have different trade-offs in terms of the risk profile and return that you're actually capturing there um and I think one of the more interesting pieces of Innovation that fell out the side of this was actually um think about like fix versus floating borrowing which really didn't exist at any reasonable scale before we came together to to work together with pendal pools so um this is just been one of the more interesting ideas this cycle which is um the funding rate is an extremely volatile rate um it can be 60% one week and negative five the next that's kind of like the range of what what you see and obviously people just have a different uh risk preference where they might want to

actually lock in something that's a bit more um defined over the next call it like three to six months um what's interesting about that is that some people can sort of like trade that exposure and something that looks like a or is famili you know comparable I think to like a fixed to floating swap which is kind of the piece that Pendle is providing there and then you can take that asset which is the PT which has a fixed rate of return over over the the maturity period and then actually collateralize that within Morpho to then borrow and loop and use within uh within defi so uh I I just think that's an incredibly useful interesting sort of development and it's really like it's really like the beginning of us actually starting to build something that looks a bit more like a real Financial system

because actually most of financial markets are dead Capital based markets it's not like around equities and that's defi was kind of all equities before it was just kind of like leveraging up your shitcoins or like trading your shitcoins in Unis swap that was kind of it um but I think with you know susd being brought into the market you now have this new source of like a fixed income instrument where you can slice and dice up the yield you can securitize the yield you can do fix the floating swaps and really what that enables is someone like spark or Sky to be able to look at this and say where within this Capital structureal risk profile do I want to get exposure and you can sort of like sell that off to to different people so really what we're starting to create here is like the very early Innings of

what is like the largest marker within trfi um and it's just it was pretty incredible I think from my perspective to just see these different money Legos sort of come together within defi and just work seamlessly because that was actually what kind of interested me about the space back in 2020 which was that was really the beginning of when we started to see all of this stuff happen with like a synthetics and a curve and all of these things coming together and it felt like this last year was the first time that we really brought uh that money Lego thesis in defi um like back at scale yeah you know the first uh season of bker that I ever did actually was on fixed rate borrow lend in uh Defi and this was like there there was a protocol back then I think called volts or

something like that which was basically you know trying to recreate or mimic um interest rate swaps in uh in crypto and I I'm not sure what ever ended up happening to that protocol but yeah it's a super interesting you know the the ability to borrow it's something that's not variable and it wasn't even this was pre Athena so you weren't even porting funding rates into def5 but it was just like the variable rate that you were paying on a or something like that was extremely high and made it very difficult um to either do like leveraged uh type trading or you know if you ever uh I don't know like a dow looking for different sources of funding right or some sort of protocol right like it's all Equity financing as well which is much more expensive than debt financing so I completely agree with you I mean

that's like a very necessary building block and it's cool to see it built out and actually a real world use case right here so very cool yeah and that scale I think that's one of the cool things is that sometimes these things are small science experiments that we do within Define we go oh that's like cool and academically interesting but um there's not many things that you do at this type of scale which which have that that quality as well 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 introduce the world's first secure

touchscreens making it easier and safer to manage your assets alongside Ledger St 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 okay I want to uh switch topics here and discuss uh a little bit of how you guys view the overall market for stable coins so you know guy you were just mentioning earlier that you see sort of two buckets which is the deepest most liquid most secure type stables and maybe you would bucket usdt and usdc in that bucket um and then you have Stables which which return a high amount of yield to users so maybe Sam you would bucket usds uh right in that bucket as well like returning 12% um I would love to get a

sense of how you guys carve up the world of opportunity here for different stables and guy I'm not sure if USD have if you would Define that as a stable or like uh how you just Define that product in general um but I also want to get a sense from you guys of I think one thing that we'll probably see over the course of the next year or two or three is uh different entities issuing stable coins right so we had I mean essentially the first kind of fin like usdc is almost an uh a fintech issued stable coin right if you consider coinbase a fintech their distribution platform is part of what has allowed it to grow uh so much but maybe you'll start to see now that there's a much more broad acceptance of defi in the US uh platforms like a Robin

Hood or a black rock or JP Morgan or whoever issue Stables as well and I would love to get a sense of you know if we were to see a whole bunch of new issuers coming to the market how that would change things so yeah sorry I asked like three questions in one there but yeah how do it up today and how do you expect it to change in the coming years yeah sure um so maybe I can start yeah so uh as as you mentioned usdc and usdt they're uh dominant in terms of size and liquidity and all these things and this represents onshore and offshore uh banking systems um so usdc being plugged into the US banking system and then usdt being plugged into the euro dollar system and so from those you then have uh so those are the anchor points that connect uh into the uh US dollar

which is ultimately issued by the Fed so um as you get further down these these products in themselves are more like it's like narrow banking basically so uh people can deposit in them and then they're they're just putting it in like short duration treasury bills stuff like this that's like highly liquid and that's that's their job they're only meant to do that now we have this next layer which is um onchain stable coins um you know onchain synthetic dollar whatever you want to call it um it's kind of they all kind of rhyme a bit but you know subtle differences are important um this is more like the broad-based banking system on chain so uh really this will uh represent uh stable coins represent any dollar yield

instrument uh in the onchain economy and so this can be anything like the the collateral composition is what's important here so for something like uh usds it's a fractional Reserve stable coin um so it intentionally does uh the assets into higher yielding sources and attempts to keep this as I mentioned before 25% uh cash Reserve so that it's it's liquid enough for uh practical reasons and usds has been great in this regard uh it is never uh broken Peg with the usdc ever um and so we have a great track record there but we're still able to deliver this this pretty good yield

on the other side so you're not going to be able to get the you know the full yield of whatever happens to be the highest yielding Source at the time but you will get decent exposure to it well- maintaining High liquidity and this is the sort of Middle Ground that usds is aiming to be and so we F we think this is a very compelling product especially with um crypto overc collateralized onchain lending again has just been through the ringer for five years and there's been uh very little bad debt um you know between a and maker like this stuff just works and it provides uh pretty good exposure to uh leverage uh during bull markets um the funding rates are definitely higher um but uh there's

different trade-offs there that need to be made but onchain over collateralized lending is is just uh tried and true and so we we think this as a good significant uh portion of the usds backing is why we think it's a it's a fairly safe uh instrument um and why it's it's scaled to uh you know several billion dollars uh that are earning earning yield invest getting uh 12 a half% currently and the protocol is profitable right now it's not like we're paying this out of a deficit or anything um so like like the system works so I'm just looking at uh rwa XYZ here and I think the total stable coin value today is around 210 billion and between tether or usdt and usdc I think

that's roughly 180 billion of that so obviously the vast majority of stable supplies concentrated in kind of that first bucket of you know the narrow banking stable coin bucket um do you guys expect that ratio to stay roughly what it is today do you expect it to change over time sorry guy also interrupted you before you going to jump in there but do you agree with that sort of characterization of the world and like talk to me about that ratio do you see it staying the same shifting what do you think yeah I think we uh we do see a bit of a shift to um more interest bearing type of assets being used for these use cases I think people do over index on the story of tether um quite a bit and I think that they look at the

business model as the best business model ever created now but don't recognize the very unique pieces of history that sort of allowed them to exert the Monopoly that they do now and I don't think it can be recreated going forward um so I think the the issue here is that um the most liquid PA on binance are all usdt denominated so uh BTC usdt eth usdt and just those pirs on spot and per um trading pairs for binance Generate like not of 1010 billion of revenue for binance every year why that's important is that um it's an incredible note for tther because it does not matter if you're paying someone 4% on an exchange if they're trading 10 to 100 to a thousand times a day if

you're an hft or a market maker if you're saving one basis point on liquidity whenever you're making that trade and having to use usdt for the most liquid pair you couldn't care less about 5% a year you couldn't care less about 10% a year because it's actually around that liquidity piece to to be able to trade in which is really the the piece you're focused in on and really that is tether's mode uh to be able to extract what they can at the moment because exchangers don't want to uproot their existing business models and actually change the status quo which is sort of making them so much money um as it is and uh they know that people don't care about a little bit of yield versus that liquidity point so the reason I'm giving that context there is that I think every new entr into the market has

to think about the this axis in terms of trying to grow so um if we think about the three qualities of what a stable coin is trying to do um when you're a new startup or a new entrance coming into the market I'm pretty firmly of the Bel that you need to do something that's 10x better than than someone who's already there to even like begin to compete and so with stable coins you have you need to be stable at a dollar um it's pretty binary on that one you either are or you aren't and if you aren't then no one is ever going to use your product again uh the other one is like liquidity and brand again almost impossible to compete with something that's trading $100 billion dollar of volume a day with tether and usdc and then the last axis is return and that's

where you see guys like ourselves and Spark come into the market and say we can actually provide something that looks a little bit different whether it's the construction in the backing or the way that we're sharing things with users and that's sort of the angle that you have to push to to sort of grow and so any new entring into the market I think has to think about that final piece that I described there if they're going to be able to compete and I think the issue here is that a lot of the new fintech web 2 type players who are going to come to the market so PayPal obviously did and I think you're going to see revolute um Robin Hood all of these guys if you're ever going to be trying to push that asset outside of your own sort of like closed ecosystem I

think they're all going to struggle immensely uh because they don't understand why it is that tether is actually winning uh because of those those Network effects around liquidity so um unless you're going to try and compete in the same way that that spark and an Athena has um I think it's almost impossible to sort of shake up uh the existing like Market as you see it now okay I I want to get into the Athena bark angle here but before one thing that uh I was thinking about and or I'd be curious to get your guys' opinion on in general is uh you know exchanges as a form like a critical form of distribution for stable coins especially in the early days and if you look at usdc versus something like usdt um where those Network effects came from is obviously coinbase and circle have this

partnership the center Consortium and there's some sort of rev split essentially that goes on there and the the distribution that uh coinbase had in the early days is part of what allowed usdc to grow an enormous amount um and they're still kind of the dominant stable coin within like defi like even if you look at the the crazy amount of volume that's come from the trumpcoin um and like the stable growth on salana that's mostly been usdc not usdt um but also there's a little bit of a challenge now maybe from the usdc perspective where because other exchanges understand that coin base gets revenue from the USD from usdc then they're less likely to kind of push it on other exchanges whereas usdt was more of a neutral right

it wasn't associated with any one Exchange in particular so it allowed it to become the dominant pair on a lot of these offshore exchanges um I mean do you guys roughly see it the same way and then does does usct do you guys know if they share any of these re any Revenue back to exchanges or is that a completely closed door as far as I know uh no not to anyone yeah interesting wow okay that is a pretty good business then uh all right so talk to me about then um like what is going to be the uh what's going to be the impetus here for more of these yield bearing stable coins um winning over the long term and it is interesting I there's actually a really good interview on uh a blockworks podcast called forward Guidance with

this ex um Central Banker called or Sir Paul Tucker and he was describing you know he was this was a couple years ago he was describing why there was so much uh debt issue in the US around Co and he's kind of just describing the demand for yield bearing money versus non- yield bearing money and if you think about treasuries mostly is just yield bearing money right it is yeah that's essentially what it is um then there's more demand over time especially from institutions for money that bears yield or monetary assets that bear yield as opposed to non-yield bearing money so you kind of look at the relative size of the treasury market versus circulating like M2 um and it's very different so like how like what is the Catalyst that we need for yield bearing money versus non-yield bearing

money to change in crypto like what are we G like what is it going to take for us to see that ratio change yeah um like so I think these ENT are entirely different products in my view and so they can all coexist and there's going to be like especially with the uh yield bearing version so the the non yield bearing version the the narrow Bank version usdt and usdc those ones there you can't do any variation on that really like it's just like you have onore banking Offshore Banking that's the difference and their liquidity Moe makes them that they're dominant now so they're going to retain dominance unless something catastrophic happens um for the like onchain yield bearing stable coins um this is this is Broad banking

so it can the collateral composition um even though uh as we talked about before there's really only three uh scalable yield sources at the at this moment I don't think that's going to be the case forever and so as we onboard more and more assets like this is going to be highly diverse uh set of uh stable coins that are available to users on chain and as there should be like I think markets are healthier when there's uh competition um and so like having user Choice here is is very important and so like uh yeah I think there's just going to be like thousands of stable coins tokenizing every single uh dollar yield uh instrument uh that that exists and so

um you know this is why like uh Athena um and usds these are not they're both like um you know onchain stable coin synthetic dollar similarl looking products at face value but there are many there are many different properties between the two and we're optimizing for different uh user segments and so uh I expect this we're just the start of this space uh maturing in my view and that means a huge uh huge variety of options available to people yeah I think um I I read of my piece a couple of weeks ago which try to like actually segment what are like the use cases at the moment for um stable coins or like onchain dollars um I think the four different buckets we had were

um developing World store value and I think that the best example here is just tether existing on Tron at like roughly 60 to 7 70 billion dollar in size uh you got like the trading crypto collateral use case on CI that's roughly I think like 120 to 130 and then I think you've got like savings tool technology which is kind of the bucket that cleaner and and Sparks it within right now and then there's like payments which I think is clearly going to be big at some point in time but is um pretty much irrelevant at the moment at its current scale um I think that savings bucket that we're existing right now honestly has like a five five to 10x in the next couple of years of growth that's that's coming um and the real reason I think that we

haven't seen that grow is that we haven't actually had um or haven't like integrated ourselves in the right places to actually just be able to deliver that to normal people in a very simple way um and so if you go on like a Robin Hood or a revolute or whatever it is none of these like interfaces that might have some sort of tangental touch towards crypto are really plugging into like onchain sources of of return which you might see with something like an Athena or a spark and I do believe that like most of the use cases that you're seeing now for demand for for Stables are really like within the cry crypto ecosystem like trading on like native exchanges and that kind of stuff I do think that there's like a big piece of work on like both of our sides which is actually just trying to plug this in as

backend infrastructure into huge distribution channels that exist already and that can be like web to fintech there's a piece that I spoke about telegram around that that site as well um so I really do think it is a a piece of around distribution at the moment which is we haven't really got outside of the sort of like dgen crypto crowd um over the last couple of years for that kind of product yeah do you think some of these new issuers like if we were speculating on like the revolutes of the world or whatever um you know what so I I would guess that they would try if they were issuing their own stable coin it would be more along the lines of tether or usdc like stable coins but correct me if I'm wrong on that assumption is that what you guys think as well yeah do you think that mostly

they're going to try like if you had to guess at how this plays out I could see a world where all of them try to launch their own stable coin initially maybe one or two of them end up taking off most of them don't and then they just end up integrating other like the USD or usds of the world like is that roughly how you see it playing out or like do you think everyone's going to try to leverage their own distribution and launch their own successful stable and then a very small amount of those would work would that be the base case yeah I think that's right I think people are going to spend a lot of money and time basically just splitting up the market and bifa it into hundreds of different like of assets which actually just makes the net user experience worse um I just

I'm extremely bearish on like anyone coming into the market and trying to like replace crypto native use cases where usdc and DT already exist I think there's just no incentive for people to swap out and that's what you saw with PayPal um having said that I think if you're operating in a net new piece of the market so I think payments here is a very good example where stable coins just aren't really used for payments in any substantial form right now but if you do see like a Visa and a PayPal and the MasterCard turn around and say hey we're actually going to replace like replace rails where there's actually like tradire rails at the moment and stable coins aren't touching it at at all and they sort of like force that to happen that's clearly an area that going to dominate it's just not going to be in

the existing use cases that we find now so I think it's like perfectly possible that you see one of these payment providers have a stable coin that's much larger than tether but that actually takes them sort of looking at their existing business model and tearing it up and starting a new with something else because a payments company and a stable coin business are complete opposite ends of the spectrum one is like a flow-based business where you're collecting fees per transaction and the other one is a balance sheet driven business model where you're collecting like a Nim on your on your stable coin so that's actually like the trillion dollar question for like payments I think in the next five years which is are you willing to take that risk to swap between a flow-based business into something that looks like stable coins um which is not an easy decision to make

yeah do you think they're going to try it uh I do yeah I think like PayPal's sort of like given the signal over there um yeah all right everyone listen up like I said at the top of the episode Unis swap Labs is rolling out the red carpet and launching a 15.5 million doll bug Bounty this is the largest bug bounty in the entire history of crypto to anyone that can find a critical bug with the Unis swap B4 protocol this bug R aims to make it the most rigorously reviewed code base ever deployed to ethereum now the Unis swap name is basically synonymous with security $2.4 trillion in cumulative volume has passed through Unis swap V2 and V3 without a single hack so Unis

swap V4 is dedicated to bringing that same level of security and transparency to the V4 protocol so if you want more information or eligibility or scope or Rewards or payout or any of that good stuff there is a link in the bottom of the show notes I highly recommend that you stop listening right now go to the show notes click the link head over and tell them that I sent you start earning money today this episode is brought to you by Moro Moro is the first and only defi protocol coinbase has integrated directly into their main app giving millions of users access to borrow against their Bitcoin on coinbase just as web two 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 Moro whether you're an individual

fund fintech or institution Moro is for you follow the link in today's show notes to try Moro today all right uh I got uh I want to change topics here a little bit and get your guys take on this whole American defi Trend so we had a trumpcoin and Melania coin and whatever else launched this week but there's also been uh there's been this broad push towards you know defi Renaissance but also us uh defi Renaissance and there's been early indications from this new uh political Administration in the United States the Trump Administration that they want to actually incentivize uh basically tokens to launch uh in in the United States and there might be some sort of preferential treatment for protocols that are based out of the US Etc and historically I

mean for the last couple years we've watched a lot of uh protocols and Dev teams and Foundations get pushed outside of the United States espe and that's been especially uh challenging for defi protocols and now it's sort of interesting to watch maybe um an enormous amount of incentives get rolled out for def5 protocols to operate out of the United States so I would love to get a sense like how real do both of you think this is I mean anything that you can share in terms of expansion plans into the United States um and like what does what does US defi really mean is that a meme is it real like how are you guys thinking about the whole thing yeah I mean uh it's great so like uh I think we've gone through these like phases like first they uh ignore you then they

laugh at you then they fight you and now you win so I think we've arrived at the now we win phase which is which is awesome and I think it's a testament to the um resiliency and Market fit of crypto the fact that we've been able to grow and uh Thrive um even despite the US government uh trying to do things such as operation chokepoint 2.0 where they were actively debank a lot of the uh crypto uh the banks that were um dealing with crypto companies and so this change uh like has just been amazing and so we're super excited to finally um start cooperating uh more with uh regulators and make sure this uh

space is safe um because I think regulation when it's done right it can be good um there are lots of scams out there in crypto and so um this is the nature of the permissionless blockchain and so finding uh getting more tools available so that uh this the we can grow in a way that actually transforms finance and makes people's lives better um I'm all for that so uh like we want to revolutionize uh traditional Finance make improvements um and improve people's lives from the status quo so having uh the us being more friendly here uh is going to be great for Innovation and uh we're yeah we're actively looking at the US now um we were very much avoiding it before um now

we're we're looking at getting uh more involved in the US yeah I think um e echoing Sam's comments I think there's no like immediate move from us to open up so at the moment have uh no us retail users um like within Athena and uh I think that that's a decision which going to be slightly slower and more measured if we want to sort of step back from that and change that going forward um I think we are opening up more of an Institutional product which might be able to access accredited investors that's within the us but I think that looks very different to like a permissionless an open retail facing product like you you've seen in the past uh but yeah I think uh I don't really think it's a meme I think it's very real you know Trump sitting there you know Trump Associated projects launching

things within defi uh the changes you've seen in the last 48 hours uh you know within the SEC and and cftc I think these are all just extremely positive like movements and um we're just very excited to start to actually operate in an environment which feels supportive for the first time in in many years yeah what do you guys think about the Trump meme coin i' be curious just however you want to take that question and you know does that mean and I guess maybe one more specific part of that is is it just the general take is that this is open season and this means you can do whatever you want do you agree with that from your guys perspective as protocol Founders and any like personal opinions you have on the Trump coin or what your reaction to it was yeah I've been going

through a few I've been kind of thinking about it for a little bit how I feel about it exactly um I on the face of it it's pretty cringe uh like what they did there um but this is the nature of permissionless blockchains you know stuff is going to come up that you don't necessarily agree with but you have to respect people's ability to do it um now in this case uh I I don't know I'm still kind of debating what exactly this means for everything it's a pretty pretty mixed bag so yeah I don't know I'm still up in the air B yeah I'm just wondering when I'm uh doing building a project instead of trading me points when moved in the weekend yeah yeah yeah I think that's what we were all looking at I I was telling you

guys before I think I picked the worst weekend ever to be offline from crypto so uh Mis generational wealth on this one but what are you gonna do I yeah there's a I don't know there's a way that I feel about it as an American there's a way that I feel about it as a uh someone who's building a crypto company based out of the United States and yeah I think they are pros and cons basically but I do think it's a I do think it's a relatively big inflection point for the industry overall at least us crypto on a four to five year time Horizon here I think it is definitely meaningful um all right guys I know we're we're kind of starting to wind down here but I wanted to ask a guy a couple of things um that you listed in your uh most recent piece or upcoming

things on the Athena road map so I know you're working on something that's a little bit more of an Institutional rapper for usde so um you know talk to us a little bit about that what is the impetus for that how do you actually perform that sort of transformation to make um your product more suitable for an Institutional audience and then maybe we can close on Telegram yeah I think um mechanically there's not that much that's going on except for adding um like basic permissioning around the the token itself so in the same when you're touching one of these tokenized uh money market funds or or treasury uh Bill products uh you generally can't send them to any address that you want to so like B P just one example here um you need to be operating within like a permissioned ledger that's sort of

maintained um by securitize on the other side and uh this is just like pretty basic like kyc uh requirements that you have from institutional players that aren't that used to to touching crypto rails and so really like the vision here is that a product like this you could argue as like one of the most natural fitting products for us to actually take as as one of the few products that you can export out of crypto into tra traditional Finance like um a dollar with a return is one of the most basic products on Earth but it kind of appeals to everyone whether you're an institution fund private credit fund or like a retail individual in Southeast Asia it's like that it really is like a town of the world and all we're trying to do here is just put in the rails where it's extremely easy for them to

get access they don't have to touch crypto at all so um you can just be buying the shares of an SPV that's actually managing a fund uh which is essentially just holding um a bunch of USD as the underlying and then that allows them to just be able to deal with fear directly into the fund get the exposure that they want when they want it and um I think yeah just open up a new product and and user base for us going forward yeah um and talk to us a little bit about the the expansion into what you're doing with telegram as well and I don't know if you saw the the news that telegram is uh becoming exclusive with the ton uh blockchain as their their sort of back end but I don't know if either of you guys have any thoughts or comments on that like the sort of

strategic direction that they're taking there but then also you know what the plans are for thetha to integrate into um into telegram yeah I think um no particular Insight on the um the ton news that came out but I think um our high level perspective on this is that it just represents a very interesting distribution channel so I think we're speaking about speaking about this through the entire discussion now but um you know there's nearly a billion people that are using Telegram in some way and these are often people who aren't interacting on chain or within Crypton native um apps that you see already and so for us it's really just trying to um hit both ends of the spectrum on one side you've got like Trad five players where you might interface with one entity who's who's looking to get

exposure for multi-billions and then the other side you know there's retail users who' want you know tens tens or hundreds of dollars of exposure to sitting within in an app that's extremely easy for them to use um so for us here I think it's just a very interesting net new distribution Channel where you can try and create something that feels a little bit more web to in like a Neo banking experience within telegram itself and all of it is powered by USD in the back end uh to sort of provide that infrastructure and I think it really gets to that point we're making out there which is these are useful products but we haven't been able to deliver them to normal people in the format that they're comfortable with for a long while and I think this is just one of the steps that we're taken to to try and

solve for that at the moment with with telegram yeah yeah with uh in terms of distribution for usds um this is the uh spark liquidity layer that we've rolled out recently is our multi-chain expansion which will include things such as taon so right now we're rapidly expanding out previously uh usds has primarily been on ethereum and so uh the spark liquidity layer is this um U liquidity management infrastructure this is the primary product of spark that uh exports uh stable coin liquidity cross chain so in November of last year we uh just deployed on base and so users on base can now swap uh their usdc native usdc into uh ssds and start earning this

yield they're able to do this uh one toone swap at a very large scale because the spark liquidity layer will move uh usdc from uh mainnet over to base to ensure that there's always enough uh exit liquidity such that users can feel comfortable getting it out getting in and out and getting access to this yield so uh we're going to be rolling this out to basically every major chain um you know base salana um optimism arbitrum ton bar chain etc etc um and then in addition to that uh we are able to uh on the allocation side we are able to allocate at to other protocols and this is what we're looking at for distribution moving forward so you know

a is uh is is the largest lending market and so we're able to uh deposit usdc and usds directly into their Market through the spark liquidity layer and start uh accessing those users on every chain and uh similarly on base we're able to deposit usdc into this newly launched uh coinbase uh market and get access to the users within the coinbase app and we were able to uh get there in day one because spark liquidity layer uh were able to react very quickly so this is the the infrastructure that's powering all of this including Athena including a including Moro cross chain everywhere um we're able to just balance out the liquidity across all chains maximize the

return uh that spark generates and um solve liquidity fragmentation in US Dollars uh in defi to within the capacity that um usds can uh hold which is about $6.5 billion right now awesome well very exciting guys and uh yeah I know we've got to end it here but uh Sam and guy really appreciate both you guys coming on here and chatting about all of this um if folks want to find out more about the spark liquidity layer uh the work that you guys are doing together or usds Sky Athena separately like what's the best way to just follow you or get more information or whatever it is yeah just um you can follow us on Twitter spark. or me hexan not um yeah that's probably the best way yeah and

for us it's Athena Labs we've got all the links on there which can take you everywhere you need I got a question for both of you guys so neither of your guys Twitter handles your actual names what's the story behind hexan not and lepto kurtic I I've never asked either you guys what are the what's the backstory there for the Twitter handles oh my God I made that so long ago honestly I don't think there's like I think hex code just I thought it was a cool name I just went with it there's really nothing more left than that yeah for me definitely regret making the name because I can never actually explain it on podcast like this but um it comes from like a a stats distribution so like when the taals are F fatter than you're expecting um and it's just like uh generally I think the

crypto is kind of like funnest when those taals are like fatter than you expect and that can be on the downside and then the upside as well so that that was like the background for me nice all right I love it guys I appreciate the real Alpha right at the end here so thanks guys for coming on appreciate you both have to do it again sometime soon cool thanks for having us okay [Music]