Is Ethena's Yield Sustainable? Protocol Risks & Scaling Strategy w/ Founder Guy Young

Transcript

I spend more than half my time speaking to people about this risk and uh I honestly just do not even VI it in like the top two or three risks within the whole sort of Design Within Athena if we hit a bare market tomorrow like yields come down funding goes negative whatever it is USD Supply is going to shrink massively right you built an insurance fund that's like with a reference to two billion and you're having to pay it out on a size that could be like a billion or half a billion or whatever it is um so yeah the the the funding one I'm I'm sure I'm going to continue having to sort of speak about it uh but like just speaking completely openly on my side it's just really not the one that's STP my list withed up of the Wormhole Foundation stewards of the Wormhole

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downside protection with new protected staking rewards optimize your soul stake with marinade by hitting the link below Avalanche is a smart contract PL platform that has a novel consensus protocol subnet infrastructure and the hyper SDK toolkit which allows web free developers to easily launch custom powerful blockchain Solutions you can start building today by checking out the link below before we get into today's episode just a quick disclaimer the views expressed on this podcast by either myself or any guests are their personal views and do not represent the views of any Associated organization nothing in this episode should be construed or relied upon as Financial technical tax legal or other advice all right let's jump into the episode what's up everyone welcome back to another episode of zerox research we have an awesome episode lined up today with guy

the founder of Athena which is a protocol that uh probably everyone has heard of by now unless you've been living under a rock or been off of crypto Twitter for a while but we're definitely excited for this one thanks for coming on guy no worries thanks having you guys yeah so today we are recording this it is uh Monday April 8th so it might be a couple weeks before this airs and as a reminder you can use code 0x research10 ata.com blockworks research.com for 10% off your annual subscription but guy we spoke about seven months ago so we can be sure to link to that in the show notes where you explain kind of the fundamentals of Athena and how it works so hopefully we don't have to uh go through all of that exactly um as we already have done but uh Athena has gone through quite a bit

of stuff over the last uh six months since we talked so some big Capital races launched mainnet added Bitcoin as collateral type recently grown USD supply to the billions and of course you dropped Ena the token at the beginning of April um so how surreal has this process been and you know considering like how quickly it's moved and candidly speaking from your point of view I'd love to get like what have been the biggest challenges so far yeah I think uh We've obviously been pleasantly surprised that I think uh people took as much interest as they did uh in what we're doing I think you obviously spend your life like building something in the hope that people actually care about it so um I was slightly I would say t taken back by I think some of the divisiveness around

the project so it feels from what I see on my timeline and you guys tell me if you see differently but it does feel like you sort of split opinion uh pretty much like 50-50 down the road where some people think it's a worthwhile product that should exist and then others think uh well I'm sure you've seen all the negativity uh from multiple different angles so I think from my perspective it's just more actually getting used to um when you move from like dealing with your first 100 users uh who tend to be people who are like your your first like true fans who think it's like a great idea uh to when you move to then like 100,000 and a lot of people don't like what you're doing it's just a thing that you need to get used to and I think um we were just sort of going through that

process as a team um and getting used to it going back to sort of like the scaling right you guys have scaled a humongous amount in the past six months what are some of the key challenges you have run to whether that's like operational risk like sort of infrastructure yeah I think um what's actually in this this I think applies more broadly to projects outside of Athena but actually what is quite interesting about like crypto investments in um in general is that like they tend to be able to scale um like a the speed of software so you don't need like 10 more people um when your tvl has gone from like zero to two bilon like if you put the right system in place and you've actually built what you should have um it doesn't uh really matter how how large your tbll is

relative uh to the actual individuals that are there on a team so I think that's just one of the more interesting things about crypto in general and why these can actually be so valuable um I think the the one piece that we've obviously always kept our eye on is uh what percentage of of like the the derivative Market in general are we actually contributing to because ultimately that is like the constraint around how large USD can grow in a safe and secure way um we're obviously quite fortunate with the market timing where obviously when we were coming out you had a lot of the bullish sentiment around um you know the ETF uh ETF uh like launches and stuff like that which obviously just helped a lot of the derivative growth and actually like the funding rates to be pretty favorable uh so I think we obviously recognize that

well I'm very proud of the team in terms of the way that they actually executed but like there was a huge element of lock in terms of the way that our growth um actually came out to Market and I think we just need to recognize that piece as well so um there hasn't actually been like huge uh scaling challenges on our side uh because we'd actually I think done the work in the months leading up to like our public launch to sort of do all the testing and stuff um on Main net before we fully opened up to the public and that was a pretty intentional decision on our side yeah speaking of that open interest kind of like being the um I guess the the scaling restraint so you're at 20% of eth uh per Global open interest roughly to give or take a few percentage

points probably where is that threshold would you say yeah we we roughly think about this as somewhere between 30 to 40% so a lot of the exchanges start to actually cap you out in terms of your percentage of open interest like roughly within uh that that area um I'm personally of the view that you don't would to be pushing this to the absolute extremes I think um this is obviously a reasonably new like primitive within uh within defi at least and like um it's just not within my personality to actually just want to push these things uh harder and faster than they should um so I think that like on the eth contracts we sort of like getting up up close to to where that sort of limit is um but I'm sure you sort of saw the news that we put out with BDC last week that's obviously just

a huge scalability unlock for for us to be able to do a lot more there um roughly like open interest at the moment sort of like oscillates between 10 to 12 billion um and BTC if you exclude like the $10 billion sitting on the CME is roughly at 25 billion at the moment so you've got like an immediate two and a half X from where we are now where we think we could do this uh pretty safely with Bitcoin and then other assets like salana have been um pretty impressive in the way that the deriv market is growing uh this year um so I think that there is actually an opportunity to do that at obviously smaller scale uh but I think the economics are actually pretty interesting as well uh to have this uh the same sort of Cash and Carry put on with salana um so yeah that's sort of

like our view which is 30 to 40 is like if you really want to push it um extremely hard but I think 208 to 25% of post money open interest uh is is sort of like where we're targeting as a team and we're not going to be pushing too much further beyond that I had a followup question on the open interest side say it's the end of the bull market and like just before the end of the bull market ad you know was 20% of global e per oi and because of like a market wide flush or whatever if oi decreases by say 60% and now AA makes up 50% of like um E oi is that something you guys would like consciously and actively adjust or do you hope like the market forces will

play out the yield will come down and like sort of like Supply will contract and thus Athena oi would also contract accordingly yeah so you never get like forced out of those positions if that's sort of where you're get into that question where it's like you you're sort of forced into being a higher number than you um than you were before that type of slush um so you wouldn't actually get told like you need to close these down I think one piece though that people do forget about Athena and this sort of applies to that risk that people talk about more generally with negative funding is that you you always have the option to basically just close down the positions and actually just sit in usdt or dollars um or potentially like an rwa way if you feel like that's a direction that this sort of needs to go at a

certain scale um and so I think that's just one piece where people talk about negative funding risk is if like users are not going to respond to it um or like the Athan protocol can't respond to it um it's really not that big of a deal to basically just close it out and wait it out and obviously in the process of doing that closing out of positions you do allow that funding to to sort of moan revert um I think the other point around this is that actually post like when when you do see like lower funding rates is generally after those huge flush outs that's actually when people got carried out and if you think that that's like a longer downtrend that's obviously when you see less um um positive like funding rates going forward so I do think that there is a sort of natural unwind there

where like the lower rates just lead people to to redemptions as well I read some of the risk studies that you guys conducted maybe six or so months ago and the recommendation from even third parties was about 30 million in the Insurance Fund for every 1 billion of outstanding supply of usde would you stand by those uh projections is that kind of like the Baseline you guys are still working off of yeah this was obviously done by an independent third party and uh they they obviously have done the work uh around it I personally had like a very slightly different view to to the view that they had but it wasn't like miles off um it was slightly slightly smaller um I think we are we've obviously just been through a pretty um incredible growth spout at the moment and I think we are in the

process of sort of topping up that Insurance Fund to get it closer to those levels that were described um I think we do have a bit more flexibility now that you're obviously live with the token and your ability to sort of like manage their treasury um uh afford you the the ability to actually just think about that a bit more strategically now than you could as like a a private company um and so yeah going forward now that is a piece that we're thinking about a bit more deeply at the moment um having said that the speed at which we're adding um dollars into that Insurance Fund uh is uh well I'm happy with the rate that it's sort of coming through so I think last week was just under $6 million a week of like pure cash that was added to that Insurance Fund um and just the sort

of dynamics of how the air drop farming at the moment is going you guys might have noticed that um you're essentially seeing uh the the yield basically goes like in full to people who are staking within SSD but the portion of people who are not staking are essentially forgoing that yield uh to to go into the Insurance Fund and actually build a safer product for everyone else um and so it's just during this period now you see a pretty low stake rate um across the theer I think it's roughly at 25% at the moment and that just sort of helps us U build up that buffer at the moment as well in terms of risks like I do see a lot of people like pointing to the funding risk as like being the primary one but I I would honestly challenge that Viewpoint and say that like a

centralized exchange going insolvent and not being able to pay out uh one of the short legs of Athena's per position being an even bigger risk than the funding rate because you've already mentioned some of the things you could do to combat that would you agree with that that opinion of mine and and if so like what is the maximum amount you hold on a given an exchange for a specific short leg and like I know they settle every eight hours so like what would this actually look like in practice if it were to play out yeah I think um I I completely actually agree with your view around the negative funding I spend more than half my time speaking to people about this risk and uh I honestly just do not even view it in like the top two or three risks within the whole sort of

Design Within Athena I think another piece that people forget outside of um what I described around your ability to disclose the positions in s dollars um is also just thinking about like the Dynamics of what is the size of your liability when you actually reach that scenario so let's assume that we actually walk into a bare market like right now uh You've Got 2 billion of USD Supply at the moment and you've been building up that buffer when times are good and your balance sheet is actually pretty large at two billion um if we hit a bare market tomorrow like yields come down funding goes negative Whatever It Is Us Supply is going to shrink massively right and it's going to happen pretty quickly and so you built up this buffer which was like with reference to a balance sheet that was much larger and

then when you actually come to having to pay any of these liabilities when USD supply has actually shrunk you've built an Insurance Fund that's like put a reference to 2 billion and you're having to pay it out on a size that could be like a billion or half a billion whatever it is um so yeah the the the funding one I'm I'm sure I'm going to continue having to sort of speak about it uh but like just speaking completely openly on my side it's just really not the one that's top of my list um to get to your question around the the sex exposure piece roughly we are trying to Target like um open interest distribution across the market so uh roughly binance is in the order of like 50% of of market share and then you see bid andx sort of number two and three

behind them on eth contracts at least and then pretty similar on BTC um roughly we just want to uh sort of reflect the open interest within the market and never be too overweight on on one side I think getting to your point though which is our use of like the institutional grade custodians for off exchange custody uh is obviously there to try and mitigate mitigate some of the risk around um the credit exposure that you have to to those exchanges uh it doesn't actually like reduce it to zero because as you said you've got the the exposure that's sitting there and in theory on a day that like a major centralized venue goes down it's likely that ether is going to be down whatever 10 15% on the day so essentially yeah the the exposure that you're holding there is somewhere between 8 to 24 hours

in terms of uh like settlement Cycles between these different venues and custodians where you would have lost like 10% of the move in eth on that day uh you wouldn't have actually captured that p&l so if you sort of run through like the rough numbers let's say you've got five centralized exchanges uh you split yourself like evenly between them so it's like 20 on each and then ether's falling 10% on the day you're actually kind of only uh at loss for like 10% times 20% of the entire sort of like USD backing uh so again this is sort of like a risk where I feel you can actually get your arms around it at least it's not something that sort of sends it to 80 cents on the dollar or like 50 cents on the dollar it is uh it can definitely sort of be buffeted up into single

points of of potential loss gotcha I appreciate that explanation um I want to ask a question about sort of e collateral from the dashboard this may be a few days AG but roughly 10 to 20% of Athena Eve collateral is actually in lsts is this risk management that you guys sort of deem necessary post launch and does it not partially negate the value proposition if funding goes negative the stake def yield will help offset it basically why not more of the eve coll in like liquid staking tokens yeah it's a really good point and I think um it's one of those things that I uh a we're going to be coming out with like a bit of a government post around this this week to actually just sort of like explain the team's Viewpoint and

how that's actually changed through time uh to actually just get people's opinions um in terms of how that sort of like managed going forward um it's a funny one because a lot of actually the risk that people Point towards with Athena and one that I've seen quite consistently is just thinking about the liquidity and duration risk that you're um sort of embedding within Athena because of using lsts rather than just raw eth so as you know all of these things are just trade-offs so um if you want get yield and return you're making some sort of trade-off in terms of the liquidity and duration risk that you're assuming with lsts um I think it is a bit of a misunder understanding from a lot of people that like they assume that steth equals eth and they are not the same assets at all and there is a reason

that you're actually getting paid uh that that yield in that return I just wanted to give you guys a bit of context in terms of the way that we thought about the product construction and like the context at the time this is like the beginning of 2023 when uh State def yields were like closer to 6% and like the the basis on shorting e was call it 6 to 10% and so you look at that and you're getting paid on both sides of uh both legs of of that transaction and roughly an equal magnitude and so to me that was a you know an interesting pickup relative to like the economics of of the whole product um at the time what we've seen for like a variety of different reasons is obviously like e staking go up massively through the roof uh the Returns on staking eth is like

roughly 3 and a half% now on on most most major lsts and then you've obviously seen the bases like expand n to 30% this year and so like the balance of like the returns that you're making in a bull market has really shifted from like 50/50 to like less than 5% or 10% of the total yield is actually coming from from liquid staking tokens but you are introducing this risk that a lot of people seem to be concerned around so I think my view here is that actually you've uh you've got the flexibility to go back into lsds at like a smaller Supply um let's say you do shrink in the bare Market to a smaller Supply you do retain that option to be able to go back and use that to to try and bolster the unit economics but I think my perspective is that during a bull market

people don't really care about 3 and a half% from lsts they just care about the basis from centralized exchanges and actually just solving for like a more liquid um and safer product in the bull market while sort of giving up some of that yield uh we think is actually a more prudent sort of approach at the moment so we're going to be coming out with how we try and Define and think about what that balance actually looks like uh but the thing that i' just like reinforce here is that it doesn't mean that you'd have zero exposure to lsds in the be it's just that you retain the option to sort of increase that that that allocation as you do get there yeah no I definitely agree with that point like taking receiving an additional 3.5% yield for whatever like additional smart contract risks that you're taking like

just never really seemed worth it even even in like a bare market like to me that was like a little uh crazy but sticking on the question of collateral just off the dashboard roughly like 30 plus perc of the collateral is in usdt and from my understanding like you guys that usct you open up like a you buy like either e for like Bitcoin spot and then you sort of like hash it out through the pur leg just like conceptually why does that count as usdt collateral on the dashboard instead of like whatever asset you converted that usdt into yeah I think um might be worth just like refreshing the tab that you're looking at now this is actually just as we're ramping up the BTC that we sort of

announced last Friday so the way that sort of BTC is introduced into this system is that instead of having to deal with actually using like native BTC or thinking about like complications of like rap BTC on ethereum uh it was basically just easier for for like the flow of funds to basically come through like usdt into three Athena's front end on ethereum and then we basically dealt with the execution in the background with um with the custodians and the centralized exchangers to then go straight into native BTC that obviously just helps to make it cheaper for users and and sort of like manage the the slippage and liquidity risk around it um I think think the one moment that you're just referencing there is that we'd Warehouse quite a bit of usdt getting ready for the announcement around BTC and I think if you refresh it now you'll

see that there's close to half a billion of of BTC that was sort of added uh since since that period um so yeah at the moment the it's just sitting there as sort of collateral in that dashboard because that is obviously part of the backing uh I think one other piece just to make people aware of at the moment is that we do run a very small amount of usdt that's sitting there as like a liquid withdrawal buffer so in the same way that Lido has um like eth on hand for people to get out um like quickly without any sort of like Redemption queue uh we do have like liquid USD that's sitting at at the bottom of the stack which is sort of like replenished as people have redemptions and come out uh so that's just a way that we're trying to sort of

like optimize around the execution uh for people who are wanting to get out uh and so there there will always be some small portion of like USD that's sitting there because you do need to remember that um a lot of the contracts that we're using are linear Perpetual contracts so they're actually coll with USD and then the funding payments are paid in usdt as well so there's naturally like USD entering our system just by the nature of like the the contracts that we're actually using on the other side gotcha that makes sense really appreciate you for clarifying that um and then one last question on the cat site I don't think you guys would ever consider doing this in a bull market but in a bare Market would AA ever dabble in LRT protocol or is that just way too far out on the risk to even

consider the honest answer is I think we don't know enough about the market or haven't sort of like seen it behave uh to make like a strong view in that at the moment I think um my philosophical View at the moment is that uh the opportunity is big enough with what we're doing at the moment to not go like full D gen and I think that people um are sort of uh part of the concerns that you're actually seeing from people is a concern that we are just going to go like into full DJ mode and run this as hard as you can that's just not what I personally want to do and I don't think it sort of like makes sense with the protocol um at the moment um I do think you can do interesting things around like structured bolts where instead of

actually like putting it into the backing of USD you can use some of the infrastructure that we built uh to potentially do like a an llt like Pendle type setup where you actually just sort of like dollarize uh the way that that's been built um I think that's more of like a small side addition to the product rather than something that sits within the core product where we just want to make that as robust and scalable as possible um as as the core pie of what we're doing I also have like pretty significant concerns around the impact of like what ion there is going to have um onto Defi and like specifically around like the liquidity profile of defi going forward um and I think this is part of where my concerns lie with like the LST backing within um Athena as well which is I think um I is basically

just going to push the East staking rate higher than it actually would be in any normal circumstances without the existence of ion a and that obviously has like second order implications for products like ours which have been built on the assumption that stde is actually going to produce a sufficient return for the risk that you're assuming um that's just one thing that we're sort of keeping an eye on because I think there could be some like um less like Savory second order implications of like ion there specifically on like the liquidity profile of of defi going forward woro is the leading interoperability platform for multi-chain Bridges and applications with over 1 billion messages sent and 40 billion in value transferred wormo leads the industry in Cross chain message volume and total value transferred if you're a builder woro has an extensive

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check it out by clicking the link below Switching gears here you guys have absolutely like murdered BD in Partnerships probably one of the best uh teams I've seen do it honestly since my time in crypto so congrats on that but you have big Partnerships with certain l2s Peres Pendle and and other applications how do you go about prioritizing integration how hard is it to set up like can you just kind of speak to the BD set of things yeah I think um uh obviously the team has done like a good job I think getting it in front of the key people that matter um the way I sort of view these things is very much uh like that classic sort of power law where um whether it's like your relationships with people in CI uh big LPS or like def apps it's going to be like two or three

who have like 80% of the impact and then like everything else is just like slightly less important and I think you've seen that uh with with some of the Partnerships that we've done where I've just try and like Focus people in on uh like really identifying and and focusing in on who are the two to three key Partnerships that are really going to move the needle and then make sure that that's done uh in a really um like focused way uh it is it's pretty easy for us to integrate it's just like in erc20 that we sort of give to people and sort of give a bit of guidance around uh the integration uh it's much less involved uh than another project whether it's like a um a base layer that's trying to attract any Builders to come on or like a messaging protocol or

whatever it is uh really for us uh we can get Integrations done in like a day or too it's actually more more of the time is actually spent doing like Risk analysis uh with the other teams so that they're actually comfortable with what we're doing on ourside and so I think a lot of the people um who' seen the speed that that maker was sort of moving um on some of their proposals were a bit taken back I think with like how conservative they've traditionally been um as a protocol what I can say is just sitting on the other side of that they were probably the most diligent um counterparty that we sort of faed through this entire process includes like every investor that we spoke to or like um exchanger or whoever it is uh it was like a very detailed process where they were actually getting into details

that a lot of people hadn't um ever really surfaced uh so that that is where more of actually the time goes into which is uh just getting people um sort of like up to speed around the whole how the whole thing works following up on the topic of Integrations you know like there there's a few different ways that uh SCE or us is being integrated into various D5 protocols and some of that is just air drop Farmers or just average crypto users like looping the staking yield is is that something you guys like actively think about from a risk management perspective because obviously like for the stake de trade where they leverage de the yield there's like a potential for that to blow up and like St to significantly deeg are you guys thinking about like a similar type of risk uh for ssde and is that something

you guys are like actively managing or the same thing you're just like hoping Market forces will eventually balance it out um it is actually uh so I I don't think it's actually acceptable for a team to just say like these are permissions markets go ahead and do whatever you want because um like ultimately we're incentivizing a lot of this activity and if you're just going to recklessly like incentivize some of the more um like leverag is obviously just increases the risk in general like for the system and if you're just going to be doing that without like any thought for like second order impact I think that that would be pretty irresponsible for for us as a team to be doing I did put out like a thread on this on Twitter where um we did make clear that there are very specific nuances around USD which people should

like take um note of before they're actually using using it within these leverage money markets and even with the make a Down News that came out uh where they were talking about numbers of like 600 to a billion um we've made very clear to them and this came out in the blog paste that we put out today that we're sort of doing it in 100 million blocks as people sort of get comfortable and we're not going to be incentivizing more than that uh this isn't like me saying this to try and concern people it's just again these are like net new things that we're doing uh there's a lot of like new infrastructure and um um impacts around like Athena's USD where it doesn't make sense to sort of rush this I think for anyone um and we just want to make sure that we're being like

responsible actors within the space as well speaking of incentives you guys just launched uh your SATs campaign about a week ago and today just announced a 50% boost or some type of boost for Ena lockers can you guys kind of give us an overview of of what that looks like yeah I think the basic idea here was just trying to tie people's like ownership within Anna um to like the growth of USD going forward and just reward people who have sort of been um involved with the ecosystem and sort of like continue to actually support it so I think it was something that we've been pretty clear about in like the initial blog post that we put out uh where we just said this isn't supposed to be like a quick farm and dump and then sort of people move on afterwards we're actually really trying to align people for the

long term so we did put in um a six- Monon vesting on actually the initial air drop as well uh which I did think we're going to get quite a bit of push back for but uh didn't actually see that much of it I think people sort of understood just the speed at which we did uh the like initial um sort of like shards announcement actually dropping the token was actually relatively quick I think compared to a lot of other teams um and so I think people sort of like Get it that you want to put a bit of investing around that and just make sure you're a lineing incentive so uh yeah that's the only piece that we sort of introduced with with the token piece at the moment yeah yeah I think that vest made a lot of sense considering the the initial shards campaign was only uh six

weeks long so I think that's a kind of a fair trade-off there but uh you mentioned earlier that you wanted to post a governance post this week how are you thinking about um protocol governance like how active of a role will token holders play in setting some of the parameters some of the strategies like obviously this is a a new system so you need to be able to move nimbly as well so I imagine trying to form your governance structure is a bit of a challenge yeah and I think um this is something that like naturally happens at the beginning right where I think um actually holders sometimes want um the team to be taking a bit more Direction in the beginning and actually just guiding because they're obviously closest to the whole thing um around what their actual views are I do think that there's really interesting places

that that governance can actually play a role whether it's uh thinking about like the composition of like the Insurance Fund what is actually the allocation of like cash flows that are going into there and like even like the sizing discussion that we're having like earlier um all the things that we're talking about in terms of like composition of like new products llts does that even make sense these are all things that like ultimately the users are actually using the product and we want to understand like what their actual Viewpoint is in terms of like the composition and like Risk profile of it going forward uh so that that is the idea that they can play um a pretty significant role there in actually sort of like guiding uh where those parameters actually go jumping back to incentives how are you guys thinking about long-term incentive programs given that I'm

guessing the angle will be to scale Adena as large as feasibly possible and likely you need new incentives for every new type of collado you want to onboard maybe it isn't for like this boom Market but like two cycles later there's like probably 10 assets that you guys are running like the same trade and collecting yeld on how do you think about incentives in sort of like the end game of a Dina yeah I think um obviously at some point you run out of these things and so you've just always got to like acknowledge that um it's not like a never ending like gravy train for people to be involved in and like at the end you need to work out have you actually found a product that people actually want to use uh or or was it all just there like as a farming G gimmick um it

was something that I I did think about quite a bit when we did the the air drop so quickly which is um I think there's like a pretty strong inverse correlation between um team's own confidence in like the product Market fed of of what they built and how long they they sort of like extend out those programs and so my view was always like sort of um get get to the end of that first sort of season as as quickly as possible and actually see like how many people sort of like dropped off um immediately um I think I was like pleasantly surprised with how people sort of stayed on and I think the one thing that I would Point towards just is sort of like the long-term sustainability of what we're doing is we do fundamentally think that we've created like uh the highest returning

like USD denominated um asset in crypto like through the cycle um obviously that's going to be up and down and there's going to be volatility within that that rate but ultimately that that was sort of like the killer product um of why you saw like lunar and I think like anchor go up to the size that it was last cycle it was literally just put a dollar into an app for a 20% like uh imaginary yield basically um so we do do think that that is like uh actually producing a dollar with with uh one of the highest returns in the market is basically the the the like killer app of Defi and you can see that in the way that it's being plugged into these other apps because dollars are like the lifeblood of every every other sort of like app whether it's trading money

markets um uh even pep dexes uh they all sort of like need dollars to function and so ultimately we think that like yes you'll have incentives in the beginning but that's sort of like core piece of the product which we think has like a structural advantage to what other people are doing that's actually like the the piece that we need to lead on at the end following that have you observed any interesting like user Behavior patterns like the six to like eight week period of USD or like anything that's caught your eye so far I don't know why I mentioning this one fast but I think the most interesting one was like we obviously dropped a bit to the some of those nft communities which you might have seen um and they've been like complete Diamond hand so like I think the M ladies for

whatever reason have like completely held on to that like free free air drob that came through which I was just quite surprised from in general um we've obviously seen like a bit of a migration from like people in the staking USD contract into basically just like overweight now on on trying to find the points I think that that was sort of like a result of us as a team actually just doing what we said we're going to do um is quite interesting to actually just see uh the market response where they were like uh surprised that we even uh basically just did what we outlined that we would do um and I think that sort of like doing it in the way that we did in the first season and a little bit of people's trust that um sort of the way we would do this going forward

wouldn't be there to just try like extract as much value as you could from from users which I think people have sort of got a bit used to um the last couple of like months and years within crypto with some projects sort of extending these things like much further than they should yeah I I did want to ask I mean this isn't you guys aren't the first to try a delta neutral product like this so what would you attribute to Athena's success versus previous projects that have tried and and really not reached anywhere near the same scale as you guys yeah I think it's it's more just like pragmatism around um focusing on like how do you scale that's always been like the big piece in my mind which is just like every trade that you're making uh try and solve for like scalability as

like the most important piece um and so like obviously the other projects who had done this fully on train uh had had obviously optimized for more of the elements around decentralization I just took a very strong view that actually people don't care about that as much um as we think they do and if you can sort of be open and honest with them around the trade-offs that you are making to sort of unlock that scalability it would be something that they could sort of like Get Behind so I think that's really the the only core difference and I think the team's just being like super focused on executing um like pretty as as quick as possible uh so that's just like the culture I've tried to instill with people which is just like ship fast ship like secure and just make sure that we're sort of like um focusing on

scalability the whole time jumping back to your governance question uh governance uh question you mentioned like a few things that uh token holders May potentially like have a say in like uh controlling whether that's like the Insurance Fund composition sort of like the collateral make up uh I want to say that historically da participants have not been the best quantitative Risk Managers by like any margin I think AR is like a great example of that and so do you trust Ena holders to act responsibly around like these various like quantitative parameters where like realistically you need like professional like quantitative Risk Managers to like do this job rather than like just token holders who more often than not act in

self-interest yeah and just to be clear on this one it's not sort of like um getting token holders to vote down to like the minutu of detail around everything because I think that's just like practically impossible and we've sort of learned that over the last few years of of um Dow governance um I think the Frameworks that sort of make the most sense and the ones that I admired the most from the outside in is setting up like councils that look a little bit similar to the way that sort of synthetics run things where you just have people who are obviously more knowledgeable in different sub segments and actually just like professional firms who are hired to do this whether it's like a k Labs or or gaet um all I'm trying to say here is that the governance like the the token holders can obviously have a contribution to

actually just like signal where do they they sort of like feel um things make the most sense and you obviously engage professionals to actually do the work and produce it so that people can sort of like make those decisions afterwards so yeah just to be clear on that one we're not like expecting um like deep modeling work from governance token holders un like the Insurance Fund it's just more sort of like guiding uh towards uh the professionals who obviously can't do that work yeah I definitely share that view with you um I think it's good to have Professionals in there making making decisions but I did want to Circle back to the Bitcoin collateral adding do you have any aspirations to Source yield on the underlying Bitcoin or do you think like nah like let's let's see how this goes first scaling up to like the full

capacity and then maybe go there or like at that point would you not even be interested in Bitcoin yield through like maybe like a babon or something like that and you'd be more interested in adding other collateral types yeah again with this I'm I'm just quite skeptical that you can like really get yield on bitcoin and scale um that one way you can do it is is uh what some of those CI lending platforms are doing which is basically just lending it out to hedge funds who are like shorting on the other side we can't do that because we're using the we're using like BTC as collateral to actually collateralize the Hedge uh so you can't go and re hypothecate those assets uh and lend it out and stuff and that's just not really what I um think is actually just like an interesting business um around Babylon

um I don't really know enough of like how you actually produce those yields at scale and I think that this is a bit of my uh I I think I is one of the most amazing ideas like in the last few years but I do have a bit of skepticism around like a real yield that can actually be produced on this at like $10 billion plus in size uh so it all sort of like works now when you've got the Aron farming when you've got um different projects are are going to be air dropping their own tokens uh which obviously give you like a paper yield but nothing that's like sort of like real in terms of projects paying like real cash flow for that yield um so yeah I think we can talk about these things in concept but I haven't seen any robust

analysis around how you actually produce real yield on on any of these sort of systems at like $10 billion plus insides I think uh from my perspective there's actually only two sources of real yield in the market add like $10 billion plus in size and that's basically uh ethereum blockas through Ste and then the basis on the centralized Exchange Market so I think we've already got access to the only two forms of like scalable real yield in the market um and everything else I think we just need to see like pay through for another cycle before you can actually work out whether it's um sort of scalable to the same to end speaking of scalable real yield like has you know actual treasuries been thought of like I'm kind of surprised given

where rates are that that's not an asset on the road map considering how many other products there are out there that tokenize treasury yield yeah it's obviously would be a slight like um violation of like The Narrative of what we're trying to do which is like produce a synthetic dollar that's outside of the banking system I think that there is maybe a question when you're at a much larger size uh which is like do you care more more about that narrative or doing a bit more of like what makeer DA's done and there's obviously just more scalability that you can do there but you'd obviously be dragging down the overall um sort of yield I do think it's something that uh we're probably going to have to make a tough decision around that somewhere towards the end of the bull market and into the baray where

it'll be interesting to see where sort of like funding and like crypto rates sort of end up uh towards the end of the cycle and this might just be something that you decide to do for three three to six months to sort of like get through uh the worst of it uh so I don't want to rule it out entirely I just think in the bull market there's like really no reason for like rwa to to exist um as a product and I think you've sort of seen that as a um in terms of their market share even like since October um like stable coins are up like 25 to30 billion from the bottom and uh RW have like lost 25% market share since then so I know it's like just a bit of a narrative that people trade uh but I think like if you just

look at any of the data like no one's actually um sort of like growing that product outside of what uh Blackstone uh Black Rock brought to market last week you mentioned that there's like a potential that you guys are considering Soul as a next asset um but I know like just for this cycle like that's probably like the only asset left that you guys can generate like significant yeld at size on in the long term what does the inclusion criteria look like given that you know this is going to be a continuous process like every single like a few months you guys are going to be evaluating new assets every new cycle the total crypto market cap is going to be larger there's going to be like uh larger total open interest across the entire asset class how do you guys think

about like the inclusion criteria for new assets or more specifically new collateral yeah I think U roughly you kind of um it doesn't make sense for us to spend engineering time uh thinking about it if it doesn't sort of get to call it like 300 to $500 million um in terms of capacity for us to put it on um so yeah so kind of just cross like over $2 billion of of OI aquire recently um so that's sort of like in the ballpark of what we're describing there for an asset that that could sort of like sustain that amount I don't think you want to push it as like as high and as hard into um open interest uh sort of constraints as you did with BTC andne I think we just sort of need to see Soul play out as an asset for a bit longer uh

but yeah that's roughly how we think about things which is like low to mid n figures of capacity within the derivative Market um if that makes sense then then something to sort of like consider in terms of Integrations with uh SSD and USD itself is there any use cases that you'd like to see implemented that you haven't se seen yet that actually like really excite you like obviously we see I believe one per de is introduced it as a collateral type maybe it was intent x correct me on that if I'm wrong but that that's like super cool to me so is there any other things you can think of that you'd love to see uh built that is the one I was about to say so you stole my my thunder over there um maybe if I could just speak about that

one because it is like top of my list um we're going to be doing something very similar with synthetics which went up as like a sip last week um on arbitrum uh so that again I think is quite exciting to me because I think uh people sort of forget about just the size of the market for linear margin PS uh using tether so there's around $20 billion of tether we the only use case right now is just putting it down to to trade a p on the other side and the guys who typically are trading the most size in PS and kind of like forgoing as uh like the most interest are the trading funds who are most familiar with what a cash and carry is and sort of familiar with the the risk profile um so I do think that that is actually going to be one of the

largest organic growth activities that you see around SSD which is if you're holding $100 million of perss as one of the tra largest trading funds within the space uh it's actually a pretty big deal to not be making 10 20 $30 million of like annual revenue on that position that you are sort of like full going to to tether um and so yeah that to me is probably the most exciting growth Avenue after we've done all of what we want to do within defi which I think call it like 80% of the money market type integration are sort of there um this is like the big piece for me which is like centralized exchanges really allowing this as as pep margin collateral and then uh helping push that product for you as well in terms of Dow treasury diversification I view that as an

interesting use case obviously I would think most Dows would be you know hesitant given how novel the product is but considering you're getting 5 to 10x the yield even if you only put five or 10% of the treasury in there you're still doing pretty darn well is that an Avenue that you guys have I guess um spent resources pursuing or is that something that you think would just happen organically over time as the the stable becomes battle tested yeah we have actually had a few Dow treasuries hold like reasonable position so um mantle has obviously been a big support of us from from day one and uh they've got a Reas large position within USD as well uh there's a few smaller um projects as well some that used to be related to like Olympus um who are doing something similar um I do think it's

just a bit um more difficult to push these things through because as you as we were sort of discussing earlier Dow governance is not like the easiest place to just have like level-headed sort of like argument around uh risk ad adjusted like decision- making I think the point that you're making though is a very good one which is um people obviously sort of um try and compare the RIS of this to something that has like no embedded return at all uh like comparison to like a normal feir stable coin where I think that's um a pretty simplistic way to view these things where you should always be thinking about these things on risk adjusted basis is so where like usdc you got paid zero and then got like 10% hairer in the beginning of 2023 for like the privilege um that didn't seem like actually a

great trade to me while here like you can yes there are risks that are sort of associated to it but I think if you can size up those risks relative to the return I think most people sort of arrive at the conclusion that it's actually not a bad uh sort of profile to take on and so yeah I think uh it sort of makes sense as some smaller part of portfolio should never be like 100% of anyone's allocation to to Dollars um and and uh I think that that sort of makes sense as a diversification asset going forward as well for sure you mentioned uh intend X and synthetics are sort of like D5 protocols that are integrating s usde and you also mentioned that you know the end game is to eventually integrate this into centralized exchanges as like a margin asset what does that conversation look like what

are some of the factors that centralized exchanges consider uh when they're willing to integrate something as like a collateral asset given like the Bas is usct which is like this hundred billion dollar stable coin with a really long track record yeah I think they do similar things to this the whole time so even just one example like meth uh for example was allowed as collateral on byit not too long ago where you could actually just put down meth at like 7 and a half% yield and and collateralize that to to put on like actually a very similar delta neutral sort of trade that that ethena is doing at the moment um all of these things are just accounted for in the way that like money markets think about like collateral factors as well so if it's lower it and like the trading volumes aren't great and the

market Cap's not huge it's just not going to get treated like one for one like you see with usdt um and so I think all you really need to demonstrated that there is pretty significant trading volumes around these instruments and that people will actually um be excited to come and actually use the product on on the venue uh to sort of make it worth their well and then I think they'll just do a basic risk assessment around um where it actually collateralize that relative to like a one one times factor that you see with with usdt um so yeah I think that that's one piece and then I think the other one want to just consider here is that there's obviously scope for them to make a reasonable amount of money with actually like integrating SSD as a per margin collateral as well so if it's producing

15 20 25% uh return uh it's not out of the question that some of these exchangers will just say well I'm going to keep 5% of that and only pass on the rest to to like users who are trading on the other side as well um so I think that that is one piece of sort of needs to be facted in there as well which is just like their incentive alignment behind uh pushing this as well feel free to push back on this question this just coming to me but do you think it's a slight conflict of interest if an exchange supports SCE as margin coll but at the same time the short leg of like the position is also carried out on the same exchange yeah that you do start to see like some circularity like fall into the whole thing and I think that is

something that we just need to like start considering a bit more deeply if that does start to grow in a very significant way I don't think this is going to be something you see at like 51 billion do of size on these venues they're going to be cing out as they would with any sort of like new typ of collateral coming through um if I'm being totally honest it's not something that I've like fully thought through in terms of the loop of that um yeah the the self- referential element of that whole thing uh but obviously the fact that you're actually Diversified across multiple venues and like multiple collateral types in the same instrument obviously helps to alleviate that wave I think you're just doing it on one venue with one just e is like the backing and then using that to trade e p um I think

that that would be um some like odd second order implication that as well when it comes to like I guess pegged products like liquidity is ultimately King so have you thought about protocol own liquidity and do you think at the same time that ethereum will remain like kind of the go to de facto home of usde pairs yeah I think um yeah as you pointed out liquidity is always and this is something I think we learned from like Lio and tether as well which is a lot of these um protocols or businesses um the biggest mode that they can establish is basically liquidity mode from like day one why is it that that's the case within crypto it's because everything has to do with speculation and like liquidity is like the lifeblood

of speculation and so if you're not solving for that um you're basically going to be at a disadvantage to someone else that does um so yeah for us it was like a huge piece of the way that we're incentivizing things early on where at the moment um I think on like the day that we came out this week we accounted for like 70% of of the C volumes uh was just through the USD pools um on like the I think was April the 2nd um and like quite consistently you're seeing USD put on like six6 to 900 million of onchain flows which is a pretty like astounding number relative to actually just the size of USD itself um so yeah I think liquidity is is huge this is like one of the key reasons why it's actually quite interesting for some of the larger balance sheets within the space which is

it has like a pretty reflexive nature to it in the same way that like Bitcoin only it becomes interesting to some people at like a trillion dollars in size uh certain assets only become like uh you can only touch them when they do become like X liquid and allow like some of the larger balance sheets to actually get in and out with with less liage so that is a core piece here and I think that if you do actually establish a proper liquidity mode around what we're doing and so of become the first person who is 20% of the open interest in the market that's actually the Moe around Athena that you're trying to build which becomes quite hard to actually like pass later on uh just one more question on the liquidity side of things I think one reason why liquidity is really important

for perhaps other assets such as like Stak de is because there's this sort of unknown like withdrawal SL unstaking period right and so people want that instant liquidity available so that they can swap out of this like Cote unquote like derivative asset whereas for uh usse that concern doesn't seem as Justified given that the Redemption process is like relatively quick and within a known time frame compared to like these other derivative assets so in the long term like how do you think about those liquidity Dynamics is it just like the more liquidity the better or like as long as us maintains its ability to redeem like relatively quickly then like onchain liquidity is like just not that important in the yeah I think like up to

a certain size it's extremely useful and then there's like extreme diminishing returns to like building the quity up to like you know multi9 figures on chain a lot of the time it's just sitting there as like wasted and unused um even as one example like the uniso pool that we have which is a pretty tight like tight range LP po um in univ V3 that was doing like $480 million of volume on April the second on just $10 million of tvl so you don't actually need a lot that's actually sitting in there if you're sort of running things efficiently in the way that we're pegging the um the AR mechanism to actually the Min and redeem contract with Athena um so it's really like additional liquidity on the margin is just if people want to be swapping like5 $10 million transactions in one go and can't be bothered to sort of like

work that through in an amm over time um but yeah I I tend to agree with you that I think a lot of people over index on having like these enormous like ID pools of liquidity sitting in curve and if you're sort of smarter around the way that you do that with some like tight Unis swap positions and stuff like that um it's not totally necessary and the go forward awesome well guy thank you so much for for coming back on and joining us do you want to share with the listeners maybe where they can find you on Twitter and and where they can learn more about Athena yeah uh it's Athena Labs on Twitter and then the websites um app.

Athena and then my uh Twitter handle is a bit long and complicated letic so I don't know if you could just maybe post a link to that one yeah we'll link to that one for sure we were actually joking before we're like we don't know how to pronounce this guy's Twitter name awesome guy well thank you so much uh best of luck and we'll be sure to get you back on here in the next six to 12 months for for a rerun awesome appreciate it guys thank you byebye we have teed up with the wormo foundation stewards of the worall protocol the leading interoperability platform powering Crossing transfers for over 200 100 plus multi-chain dabs Wormhole isn't just a bridge it's the leading interoperability platform for multi-chain applications so go and claim your unique wormo nfts just for zerox

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