The Future of Stablecoins & Synthetic Dollars | Arthur Hayes & Guy Young (Ethena)

Transcript

you've just started to see you know bald Like Larry f going on CNBC talking about like fiscal responsibility and all sorts of other that we've been banging on drums for the last like 15 years like the Salesforce is just starting around the world of hey you know put your assets here we'll protect you against inflation you maybe made 10x on some shitcoin that you bought and you so that now the shit's going to Thousand Times Higher like this it's not even not even there yet hey everyoneon if you have been listening to Empire you know that Santi and I are fed up with unaffordable fees and frustrating transaction speeds that make the onchain experience basically unusable so the arbitrum team reached out and they showed us the platform they

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Empire all right everyone welcome back to Empire we've got guy from Athena labs and we have Arthur Hayes joining us so Arthur guy welcome to the show thanks for thanks for having us yeah yeah f for this um Arthur I thought it'd be fun to actually pick on you to start um you've been writing about stable coins for uh I don't know as long as I have been reading you whether it's like you know the I remember the Luna Brothers piece from 2022 uh there was an article from 2021 talking I you know that I remember when you were writing about stable coins like the height of the last Market basically you were calling for a change in stable coins I'd be curious like what is your story of um both thinking about stable coins but also like meeting guy and getting involved in in

Athena yeah so I mean stable coins and tether was kind of the pioneer of this back in I don't know 2015 when they were when they started whatever it was right so back when I used to trade a lot more and you know be more involved in the exchange scene you know when I started in 2013 after MTG failed then banking became a really big issue for the entire crypto ecosystem and exchanges lost bank accounts like I remember back in the day bitfinex had an HSBC account and you know you had major Banks unb out to probably their compliance departments had crypto exchanges that were using them but once MTG failed and that whole show uh went down and there was more scrutiny

around crypto you started seeing banking become a lot bigger issue for a lot of the major Exchange es so they played this cat and mouse game where you know for a time it was Taiwan where all the exchanges without some Taiwanese banks that were cool with crypto and then the Taiwanese Banks corresponded Bank in the US said we don't want more crypto so they kicked everybody out and so it became this constant back and forth and into the breach Ste you know tether which was like Hey what how are we're able to do it we're able to keep a bank account you can stuff some dollars here and we're going to give you this US dollar token that's going to ride around the crypto ex ecosystem system and basically you as the exchange don't need to have baking relationships and that was very important and obviously you

have exchanges like binance binance I don't even know if they have a big account even today started no big account still has no big account probably uh and they you know their whole order book was based on Tether pairs so stable coins as a concept of we want to bridge how do I get Fiat into crypto when the banking system is hostile for obvious for obvious reasons there's this stable coin thing and so you know tether started very small and obviously now it's like 100 billion AUM and my whole I guess problem with tether is not that they're Shady or they're lying about the reserves or any of that fud that you hear on the internet I think tether is a great business it's run very well our problem

is that tether relies on the banking system to exist if the banking system says we don't want to have this Proto US Dollar Bank servicing crypto it's very trivial for them to cut off all the making relationships with tether we know the five banks that they deal with um it would be literally a phone call from any regulator or any major Bank saying we don't want to have tether in the system anymore and boom tether's gone right and we get to deal with that show the dpeg redemptions blah blah blah trading Mayhem so we have this great product that we need as crypto ecosystem yet we're relying the trafi to give us access to this product and so my thinking was well why are we doing this we have derivatives we have crypto we

don't need to use the banking system we can create a synthetic Dollar by combining you know originally my thought was Bitcoin and a short short Futures Contract or short Perpetual swap the inverse um types that were margined in Bitcoin and we can create this synthetic dollar and we can use a synthetic dollar throughout the ecosystem for anyone who wants to park um money into crypto into a crypto dollar that can ride on the ecosystem when they don't want to own Bitcoin or ethereum or any of the other uh shitcoins and so I've written about this concept you know many times in different flavors throughout the many years that I've been you know writing the crypto treater digest and then I penned this article dust on AC crust

calling again like we have this this big issue in our ecosystem in our Market structure we're relying on Tether and circle and first digital and you know binance USD when it existed these companies I just hold dollars in bank accounts to power a lot of the trading pairs why don't we use something that's owned and operated by one of us where the exchanges themselves are owners and the exchanges themselves have a vested interest in making sure this survives because they want to make more money and so it's like well why don't we just revive this concept of the a synthetic dollar that's created with crypto and a short Perpetual swap position and I wrote this article about a year ago and I you know guy read it and sort of started working on it and we kind of

cross paths and the of 2023 and sort of you know the rest is history so guy did this did Athena come out of that post or did you did you have the idea and you basically brought it to Arthur and he's like you're like I know you're talking about this I've got this idea or is it hey you've got this idea I think I can go build it it was actually slightly earlier than that so it was um it was that Luna Bros um piece that you actually mentioned just after Lun went down in 22 that was actually when I sort of resigned for my job and start to to think about a thema more seriously but it was when um at the beginning of last year that and put out the Doss and crust that's when I I started to step it up a

bit more seriously and like put put a team around it and that kind of stuff so it had been something I've been thinking about for a while uh we' seen like previous iterations of this similar idea on chain in the past where they tried to do it like purely using decentralized exchanges and I found that like just um intellectually a very interesting um type of idea on chain and um so yeah it been something I've been thinking about for a while but it was only really until um a year ago when we we start to really work in seriously nice Arthur why do you think this is the right I I remember that um I think it was the SAT the the dust on the crust it was like one nusd equals I think it was $1 of Bitcoin plus short one Bitcoin USD inverse per

something like that but um like why is this the right model there's there have been so many there's been like the Luna model obviously there's that's a whole different debacle but like there you remember basis from 2018 there's been like these algo stable coins like there's been like a whole varet of basically stable coins that have launched like why is this the model that you've kind of like set centered on as the as the right one so the first thing is um I don't think that we need to be decentralized we's a the the stable coin itself we want to take this Fiat money thing that is definitely not decentralized it's useful to us in our ecosystem yet we don't want to rely on the baking rails so let's take the decentralization aspect out of it if

once you remove that then your the space of what you can do becomes a lot easier we have these exchanges centralized entities they have a vested interest in trading in crypto happening um much more efficiently to generate more fees and they need a a Fiat pair for some of their um for some of their trading pairs so and they also offer derivatives so why don't we use these exchanges these products that are battle you know hard battle hard and tested right the Perpetual swap you know bitmax launched in 2016 it's been very successful every single major exchange has a per swap most traded product ever in crypto history let's use it it works there's a funding rate we have history of it we know how it behaves in bare markets and bull markets let's combine the two the math obviously works and let's create a

synthetic dollar for real and Trust the centralized entities in crypto that have a vested interest in this ecosystem surviving to safeguard this system and so I think that this has always been a great idea it's just we have to be hit in the head a few times to sort of come around and saying well let's trust ourselves to build something that we want to use for trading can we talk about like prior iterations guy you alluded to this um in a decentralized context of like a tokenized hedge fund so like can you just go through maybe prior fall starts and why they didn't work and and what about Cena is different and gives you conviction that it will work yeah I think uh we saw two examples so one was uxd on salana back in 21 and there was another project

called Lemma who tried to do the same thing on ethereum um I think the very basic answer to your question is uh the derivative Market is just like nowhere near as big um to think about scaling this in a secure way on chain so just for your context like Ci vers D5 um open interest is roughly like 30 times larger um and you can't even really think about like dexes as a single po of liquidity because all the main dexes are actually split across different chains and it's very difficult to sort of pull that together into a single Source uh to actually use as as one pool of liquidity uh so the very simple answer is that it's basically just impossible at the moment even with the market having grown since then on chain to do this uh even like beond nine figes of size um I think

we also looked at what was done and I think was actually done um it was slightly Reckless I think within like the risk management so to do this like product on a single venue uh I think is actually quite dangerous because uh when there's a single venue that can be um uh where the funding can actually be pushed down by either just like the project itself or other people on there it doesn't allow you to sort diversify that that funding risk across different um venues and so if you said to me you could only do this on binance which controls like roughly 40 40 to 50% of the the sex open interest now I still wouldn't do that product if it was just on binance which is um you know 15 times larger than the whole of defi uh together so uh yeah it was very explicit

trade-offs that we made which is we thought that users would value scalability and a product that was actually useful at size over some of the decentralization pieces that um those other projects offered and uh we thought that that was um if we were honest to our users around the trade-offs that we were making um we thought there was something that you could accept if we made some work around how we're interfacing with custodians so we can jump into how we're trying to reduce some of the counterparty risk to exchanges that was a very key piece which is trying to actually isolate the credit risk of the collateral outside of um centralized exchanges which we think is like a nice Middle Ground between D4 and CCO for those who missed our episode that we did a couple weeks ago on on atha maybe you could just kind of set

set the stage basically right so you guys launched like a month ago eight I think 800 million tvl 35,000 users um like you know kind of took over the narrative for a little bit can you just kind of outline Athena for anyone who who might have missed that and then we can get into some of the risks like except you know collateral side of things and funding risk and concept of a stable coin all all that kind of good stuff yeah sure so um it's roughly two two weeks ago from now that we came out with the public main head uh that was just allowing users to come in and and try the product with C ceilings as as we have opened up so we're pretty focused on um ensuring that it was a pretty secure roll out and not just allowing this to grow

um as as quickly as it could without constraints um so the idea is that users can come in they can buy either USD or or SD and we we've split up the tokens between in the same way the D and S have approached things which is you've got a stable unit uh which is like the synthetic dollar which is USD and then SD is where you stake that same token to capture um the yield that's being generated from two sources within atha so you've got the state de returns and then the bases from the Futures Market which are been being put together in in the same instrument I think what what we think is interesting about that is that I think crypto has like a bit of an obsession around yield but it's one of like the biggest dislocations where everyone's obsessed with yield but

there's no like real actual source of cash flow within crypto outside of basically people paying for ethereum Block space and paying for leverage that's really like the only place that people pay billions of dollars for like real yield um and so like really scsd you can just think about putting together the only two forms of scalable crypto yield in a single instrument and it it happens that like the output of that is a is a dollar like instrument so that's how we we split between USD and SCD and yeah as you said we've had um reasonably strong growth since we came out in about two weeks ago and just sitting at um over 800 million of of Supply at the moment cool um guy do you want to get into some of the maybe common criticisms about it so you guys launched and I think there's some of

like there's the funding risk criticism there's the I can do the trade myself side of things there's the custodial and counterparty risk maybe you could walk us through some of these like common criticisms and take and kind of debunk than one by one yeah sure so I think um the funding risk is one that I think gets people's attention the most but it's probably the one that I'm like least concerned around out of like all the different RS that sits around this so um the very basic idea here is that like uh there's usually contango within uh e and BTC markets where you're getting paid to short and like roughly the the market is is generally long and willing to pay for that leverage to be long so on the funding risk I think it's it's one that I'm actually least concerned around uh relative to I think

the attention that they got within the market um and the very basic idea is that um usually you're getting paid to to be short within crypto there's a natural long bias to the market and they want to pay for that leverage to get long so yeah naturally the the markets tend to pay for leverage to be long and uh e is obviously sitting on the other side of that trade where you're capturing uh the funding basis um from others who are paying for that leverage uh and are expressing like a long buyas uh you do see that flip three time so I think we can look back at 2022 as a reasonable case for how would something like this perform when when basically every large entity was in the space was blowing up and going to zero and I think one interesting piece was that

basically funding averaged like just around zero through that period it's not to say that like the data that you look back in time can always project what's going to happen in the future because obviously Athena is going to have a pretty material role in the market if we're successful in terms of how you think about that that break going forward I think what i' just urge people to do is actually just think about it slightly differently that I think everyone had this assumption that the thema is going to get so big and push the funding into negative territory but you've actually just got to think about uh the funding uh within the market is basically an exogenous interest rate to Athena system and people are just going to express what is the level of interest rate that they are happy to hold this product and if they are not happy to

hold it at a lower level they're going to be stepping out of the product and in doing so you have to lift the shorts which allows the the funding to mean about so I can give just like one example here which is the funding has been like roughly between 25 uh to as of yesterday 65% for shorting e there is going to be like a demand slope for everyone within the market where they look at this product ver as like RW or usdc in the market and they decide I am willing to hold Athena's USD versus these other products at whatever spread to like RW as an example and if that does get too close to other things that they can hold within the market they're going to be swapping out and just going into a different instrument and that has like a self correcting like piece to the

mechanism which is if people are happy to hold it at 12 and it gets starts to get pushed down closer to five they'll step out and and allow it to mean about so yeah I think on the funding piece um we see it as a self-correcting mechanism it's a market set rate and Athena is really just like responding to to demand and Supply in the market for for that interest rate all right I mentioned them in the pre-roll now I'm going to bring them up again it's arbitrum Santi and I are really fed up with these high fees and we're really excited to have teamed up with arbitrum for the next couple of months on Empire as the leading ethereum scaling solution arbitrum now Powers hundreds of decentralized apps across defi perss nfts gaming and a whole lot more the team has showed us everything

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wallet for free at Harpy doio Empire that's Harpy h r p i. iempire if you want it to be even easier just click the link in the show notes Arthur when you sat down and like reviewed this what what are what do you think are the what's the biggest risk to Athena like when do you think about this and in light of all the things that have gone wrong with stable coins in the past biggest risk is counterparty risk so Athena requires the centralized exchanges to perform their function number one function make sure that p&l is transferred between winners and losers so if Athena is a winner because the the market goes down on their short per or Futures positions they have to be confident that that penl can be paid out

and so what could cause that Pon to be paid out somebody blows up on the other side there's automatic deleveraging there's socialized losses something of that nature depending on how the different exchange operates so that's that's one issue the second issue is if the exchange gets hacked or steals the collateral um that athenia has put on on the platform now athenia has obviously try to mitigate that by using third party custodians but then you also have counterparty risk with the third party custodian have they built their Tech correctly blah blah blah blah blah right so it's it's a counterparty risk issue it's the same you know overarching risk that tether has what's who's tether's counterparty the U The US baking system so you choose one do I want to bet on

the US baking system helping crypto to survive or do I want to bet on the centralized crypto exchanges to help this product survive and so you have to choose whichever risk that you want to take there is no risk- free in this situation uh can we double click on the funding rates and like a day like yesterday when there's a huge wipe out um like arth three of course like we have a lot of data on funding rates historically which you know you can model these out with like certain confidence intervals and you know uh but I'm curious like uh I noticed you guys I think updated the Insurance Fund part of the proceeds to make it larger um I may have seen an update like shortly after you launched um talk to us about like in

an extreme scenario because every time you think like you model it out like crypto always surprises me in terms of you know some Black Swan um happens and so how do funding rates like behave in extreme scenarios and in your mind like what kind of analysis have you done in terms of like what would be the worst that could happen when the Insurance Fund may not be as large but your tvl grows you know 10x you know know what is that relationship and you know what would happen in those extreme scenarios yes so I think um there's just probably two goodes to mention to this so one piece we didn't jump into in the beginning was um part of the core change that we made to Arthur's idea was actually thinking about placing Bitcoin with st ethereum as the collateral asset

within Athena's um backing to start with at least um and part of that it's actually less driven to like generate yield within the bull market because stti de returns are 3 and a half to 4% now it's not that interesting versus the basis that you capture within on the short side of this so of the composition of returns right now for SD it's like less than 5% right now is coming from stake e returns uh the reason it's actually there is for more of a bare market and if you do get to like zero or or negative funding that's actually your first line of defense which is you've got a positive interest rate there uh to help cover for for some of that and so if you just overlay the stake eth on top of the funding rate as well uh you and if you sort of split up like the days

that you look back in time it's roughly only like 10% of days out of 100 like 10 10% out of 100 uh where you see negative funding actually exceed um the state te returns so that's just one piece there which we think is like a helpful uh defense mechanism and actually just like a first margin of safety um the second one is around the sizing of the Insurance Fund we had a very interesting like moment in time at the back end of 2022 if you guys remember the merge there was a an Arbitrage show that was going on to get the East proof of work um ad drop where people were long spot and then short the Futures and then you'd collect the proof of work air drop and then basically dump for like a risk fre return uh that that's functionally very similar to what ethena is doing

which is like long e on one side and then short Futures and you actually just saw like the entire Market go down into roughly negative 100% funding territory for for a few weeks while people are doing that trade um and so if you if you run that out it looks very different to the type of risks that you see with like an algo stable coin which which goes to zero in 24 hours here you're you're you know you could be at the the bottom B there where these these exchanges like um uh cap out how negative the funding can actually be and roughly it comes out to to nine basis points of loss a day um uh on on in that scenario so we've sized the Insurance Fund and are sizing it uh with with that sort of scenario in mind um and the idea here is that on top of

all those mechanism that are there I would just point out that it is quite irrational for a user to see a negative interest rate and still remain within the product and if they decide that they want to step out into something that is either zero or positive yielding that obviously helps to to remedy the situation and it's a sub correct mechanism so um yeah I don't want to dismiss the risk it does exist but the risk is very different in terms of what you actually lose versus something like an Alo stable coin that goes to zero and I would also just say that you've always got to contextualize these risks relative to return as well so it's it's like a very like simplistic analysis to just say like usdc versus USD because with usdc it's it's like return-free Risk where you're taking the the risk of

a dpeg like we saw in March of 23 and you're getting paid nothing to be an unsecured creditor to to Circle while here if you're getting paid 65% like you were last week or 30 or 20 or whatever that number is you've got to contextualize like the potential loss that you could have in a negative like funding scenario relative to the return that you actually held through the entire life of this right so if in a year's time this is at 1.3 on susd and you lose nine bips a day in a negative funding scenario it looks very different to basically going to zero or comparing it to usdc where you get zero yeah I think that's a good point how do you think about uh obviously I think a apy was something that you know people were uh very interested in when you launched of course that is you know

fluctuating constantly now it's I think at like low 30s or 30ish handle um how does that behave over time and of course it depends on a wide variety of things market conditions and whatnot but as you scale like and you become a much larger buyer of like you know a greater share of these exchanges like how do how does that like if you were to like isolate perhaps other variables but like how scalable is this strategy is perhaps a question yeah it's absolutely not infinitely scalable like a treasury or or tether so it's ultimately constrained by the size of open interest for derivatives within crypto um at the moment there's around roughly 35 billion of just BTC andne uh

so that's just like the two majors you can also do this with like salano for example which is roughly one and a half billion of OI right now the way we roughly think about this and exchanges start to like cap you out in terms of the percentage of OI that you can actually sit on these contracts is roughly between 35 to 40% um of the post money um open interest so if you're looking at the market right now and just assume that you can be call it like 30 rather than 40% that's like roughly 1010 billion do of of open interest that that basically thinga could Pro provide to the market which is obviously more than in 10x where we are right now uh I do think that we start to have marginal impacts on funding rates um in the not too distant future from where we are now

so we're roughly like 9% of total eth global interest is sitting in Athena right now um and I think if we double from there we start to materially impact the funding rate um I think this is also just like a a slight misunderstanding from people where they almost it is a criticism that that yield is going to come down through time uh that is literally the point which is you've identified that an UNL Cash and Carry is paying you 25 35 65% that number should be lower like that's that is the observation of bethena and in the process of bringing that number down to something that makes sense I don't know maybe it's like 12 instead of like five on an rwa someone's going to create billions of dollars of value uh in that in that process and so we don't look at it as like that Arbitrage should be

closing down or that interest rate should fall we look at it as that is the opportunity which is to go and DEP something that makes sense so um it is also just another way that I've urge some people to think about Athena which is like you might think that the whole story that I that we're telling around synthetic dollars and and Arthur's like original Vision you might think that that's complete um I don't I think it's an important thing for the space you can actually just think about Athena as actually like an interest rate Arbitrage vehicle which is bringing interest rates between D CI and trfi in line uh one very basic example I can give you here is that you can go borrow die now at like nine figures of size for six and a half% and you can throw that in Athena for um 65 this week you can do

that at nine figures of size there are people who are paying 60% to be long in e p right now and you can put down e on maker and actually get paid 40 to 50% by borrowing die and then putting it into Athena on the other side there were obviously like Risk elements in what I've just described over there but that dislocation is just completely insane right that like you can borrow in in defi at six and a half and CI is is uh like almost 10x out right now so um really you can think about Athena potentially is just connective tissue which kind of brings interest rates in line and the supply of USD is just the balancing item which which makes that all fit together guy how long do you think it takes for so these basically three rates right you've got the kind of Trad five

rate you've got the CI rate and then you've got this D5 rate that we're talking about they're three very different rates right now how many years will it take for those to hypothetically they should they should basically converge over time um at least the CI and the Dy rate maybe not the Trad fire rate but how long will it take for those to converge um well I'm hoping Cena accelerates that right so we've been speaking about like the institution's coming for however many years and uh like Arthur was here doing I don't know when Arthur was and I remember reading some blog you can jump in that you yeah I was doing it back in 2013 it was 300% panom returns for that same AR you're doing you were doing this trade basically but you know this on bitcoin the first Futures exchange called icy

bit it was 200 to 300% um per anom returns doing Cash and Carry On lever Arthur do you guys ever think about launching an Athena like product when you're a bitmax we thought about creating a synthetic dollar within the bitmax ecosystem to do different things within our ecosystem but no we didn't think about starting our own uh stable coin and I think the GU point for this to be successful it can't be a bitmax product or a binance product or a w product or a bybit product it has to be everybody together because then you just get picked off as the one exchange that's offering the you know synthetic dollar rails for crypto and you you don't stand strong together so it can't be one

exchange owning this thing it has to be Consortium of everyone for it to succeed yeah guy you your guys's position is very public I've noticed like you guys your website you a very very very transparent website I think you've done a great job with that the downside is that um your position is very public um and if I so if I'm as soon as I see that I'm like all right there's some hedphone out there that's basically trying to think about how to cause a Cascade and how to basically essentially hunt Athena's position down how do you um how do you think about can't Griffin where we need him yeah exactly exctly exactly like yeah how do the retail come on going a new mansion in Miami exactly he's donating that there's

probably um the first is like you basically don't want to go front run on like actual flows that are moving from inputs on ethereum before you actually executed the Hedge on the other side so all the stuff that you're seeing there on the dashboard is obviously got a time delay so people aren't actually watching exactly where that's going to to be executed but that's like on the margin where you'd be losing execution costs rather than something that's like systemically wrong with with USD itself um the type of attack factors that I've sort of read about um I don't think make a lot of sense and you guys obviously jump in if you disagree it would basically take like billions of do dollars of capital to um take the same trade as Athena and and like push down the market with billions of dollars of shorts and then wait until we bleed out

or they bleed out and there isn't really like a snap moment where you actually can short things so like the the reason that L was the most amazing short was was that uh you could short us but like the upside was one and the downside was zero and then you could also short Luna because that was going to zero as well um here it's like a slow attrition or principal and the capital that you're using to short is going through the same um attrition or Principle as well so I don't really know what like the outcome is of someone trying to do that yeah it be kind of uneconomically stupid to do it yeah yeah um I I wouldn't put put that um unless it's like a state actor that just has nothing to lose this is the one I saw yesterday said uh users of atha are lending their

assets Ste and may not get them back if the market dips which is extremely plausible given volatility there's no free lunch this would happen if Athena is unable to unwind its short position without losing much of its a assets because there wouldn't be enough market depth Athena's position is very public um very large not very Dynamic at some point more Dynamic hedge funds are going to force Athena out of its position which will cause a Cascade and severe losses on the downside or the upside is this person talking about yeah I think I can get to like the broad point of what they're getting to and when I did say earlier within the discussion that I was less concerned around funding um liquidity is actually the thing that um I spent more more of my time thinking about I think this is

what um that person is getting to uh so you can think about users coming into and out of Athena there is a cost of liquidity to get in and there's a cost of liquidity to get out it's the same way when you're using unisoft there's a slippage and uh if conditions are fine you can do that tight and if they're not you're going to have to pay up for that liquidity uh the same thing exists here which is you're putting in a liquid sing token or E and then you need to execute a hedge on the other side at some level of size and there is a cost to doing that on on the other side we as Athena pass through that cost to users on the other side we can never internalize that cost because of the precise reason that you're describing there which is if you

get to a moment when liquidity is extremely thin everyone wants out all those different types of things you can never internalize that negative equity to a theena balance sheet you have to push it on to the users as a transaction cost and liquidity cost to get in out um so really I think what they're going to there is that if everyone was wanting out at the exact same time of Athena you'd be needing to unwind um a lot of derivative positions on the other side and there are times that would be an expensive process we do have like a redeem fee that exists within Athena which is every time assets coming in and out we're basically taking basis points to cover for some of these uh costs and it's not like a it's not like a hardcoded number that sits there now it's actually us reading centralized

venues to say where can we actually unwind this now and we need to push on that cost to the user and so the way that that would be expressed is like um a bad outcome for a user is everyone's wanting to get out at the same time and basically the price that Athena is showing you that you can get your collateral back is like 99 and a half rather than 100 because there's like 50 bips of execution to get out so it'll basically be expressed by like the level that you can actually redeem the USD from the protocol and there's nothing that you can do to hide from these cost of liquidity it exists with all these things like like I mentioned with Unis swap uh the only thing I think that we can do is like be transparent that that risk does exist and there is like a cost

a cost of liquidity to get in and out um but yeah I think that that that is um something that's important to keep an eye on and I think one other element I'll just like address around this is um we we have like a a lock on the staking on chain so if you're going to be capturing the yield there's a 7-Day cool down to actually get your assets back out of the um out of the SD contract the reason that that exists there is you can think about this like a bank trying to manage its asset and liability duration mismatches where we don't have a perfect uh duration match on the assets and the liabilities because you do have some Ste or liquid staking tokens which are not perfectly liquid like like tether and your liabilities you need to make sure that they you know match up um in a

better way than basically just having on demand deposit that that can come out and so if you're Lo if you're locking users into susd which is like where we expect most users to be there's a sday sort of cool down from people saying I want my money back and then actually being able to effectuate that transaction which gives you time to sort of smooth out some of the um unwind that I was describing there so you can just really think about that like any financial services company that's just trying to manage asset and liability uh mismatches on on on their balance sheet well can you walk us through this decision to so the way that Arthur describes Athena talking about stable coins talking about a better tether and a better usdc the way that you talk about it is different I you don't really like I think you guys have kind of

rebranded away from stable coin more to like synthetic dollar or even synthetic internet Bond what's what's the rationale for that yeah I think um to be clear like the other projects are doing the exact same thing in 21 called themselves stable coins um k out with a piece to talking about like um solving the stable Co drem and all these kind of things so we didn't think it was that offensive uh to have the name when we're seeing like other projects sort of do the same thing for the last two years uh but people seem to have like an allergic reaction to this and it wasn't actually even last week it was um in October last year where Austin Campbell called us out um and I came out publicly and I said I actually agree with you which is we as an industry need to think about um the

way that we present products to to users and Market marketer to them in a more serious way um my personal View and this is just my view is that anything which is not like less than 90day maturity um t- bills or like reverse repos sitting in like a bankruptcy remote SB that is a stable coin and everything else should have like a different name uh the problem is is that we have like a pretty large design space for stable coins uh or like that bucket of like dollar denominated assets so um if you see something like a make a with a CDP all of these other cdps like liity Prisma um and a bunch of them that are out there now they've been trading at like 98 cents to 99 Cents for the last like six months not makeer all the other ones and so like what do we do there it's not not

a stable coin it's been a point below Peg for six months do we is that like a rule book about how we think about um naming these things I think the only thing that I'm I'm trying to get to here is that there is a large design space with trying to Target a dollar the peg has sort of stayed like closer to a dollar versus like 99% of what you've seen on chain I agree that we should think about the naming conventions being different but we also haven't come together as an industry to actually Define what is it that the way that we actually approach these things so I would be happy to sort of be part of that discussion but I didn't really appreciate some people coming out and saying who's being deceptive in the marketing or or misleading I think that we had been pretty clear like in the

document uh on the very front page saying that this is not the same as usdc and USD and if there we thought that like a synthetic dollar caped the essence of that better and people have different ideas um I'm happy to jump yeah it comes down to how I mean are people going to use it or not right if people are using usde like doesn't doesn't really matter what you call call call it I think it's like a and Arthur I thought you got I saw that you guys at uh malstrom are using it for um I think I thinku are getting paid us yeah up yeah um I used to think uh the biggest issue with like with teror just T coins in general was like usability if it's just Financial specul capturing yield certainly like there are better

mechanisms than others like yours is better than Tera for sure like anyone that is contesting that is just hasn't read through and thought about it clearly uh or an algorithmic stable coin um but like can you talk more about like there's this concept of like usability brings further stability um you know can we see to you know as you guys were using at Arthur like how much of like composability is is a focus here Integrations with other D5 protocols um you know um do you ever think that of course there's a cap to how much you can grow today but over time if if the market keeps growing then you know this could be much larger um yeah what's like the end goal here um and from a BD

standpoint how much of is it is it a focus today or will those things just kind of solve themselves as you guys continue to grow yeah I think um on the composability pis is like that's actually what's interesting about um I think Jana had a comment earlier which is like why can't I do this myself um the answer is like your grandma can actually do this trade if you like hold a hand on a Sunday to put it on uh that's not what's interesting anyone can put on the trade themselves what's interesting is when you tokenize it and you put it into an instrument that's actually liquid and composable and allows you to then plug it into different areas of both CI and D that's actually where the magic starts to happen so I can give you just like two examples here which we're um basically

um pushing quite hard for at the moment is uh very basic money markets of the moment where you're putting down some asset that has a yield and your ability to borrow that at a lower cost of like liability and then lever that up in some way to get an interesing post leverage return that hasn't really worked in defi for the last two years because there's only really one source of like dollar denominated return which is basically like looping rwas and so the cost of borrowing usdc should converge to rwa rates and there's not really like much of a trade to do here um if Athena's USD is producing 25 35 nors of that and you can borrow dollars from defi six and a half um your ability to actually start using money markets in really interesting ways is completely unlobed by this by this new asset um another one

that I'm incredibly excited about is think about um yield bear and collateral on both Dex dexes as as collateral to actually margin the per and then on Sexes as well um so if you're trading a per and then paying the funding on the other side uh it's an order of magnitude increase in capital efficiency to actually be able to put down an instrument that's actually capturing the basis from another exchange and then paying you while you're sort of longing another asset so this is something that working on with synthetics on chain which I'm I'm pretty excited about for uh for the next quarter and I think that this is actually one of the largest growth areas that people don't understand about tether is that there's $20 billion of demand for tether where the only use case is putting it down for margining a linear Perpetual on sexors

and so when you go to the largest trading funds in space and you tell them that instead of holding a $100 million of tether and getting paid zero you can be earning 10 to20 million on that it's actually quite a big deal um and that's kind of why there's been a few trading firms who I think have been involved in in the growth that you've seen in the last few weeks that that's all that's to say is that like the point you're getting to there is actually the key one which is the trade is the least interesting thing about Athena it's actually composing and plugging this into both Defi and CI which is what I personally find interesting about it and I think the the BD question you're getting to there is that actually I think a big mistake that a lot of the onchain stable like assets have made in

the past is that um they ignore CI as a distribution Channel um and there's maybe 10 20 30,000 people who are sitting on chain doing stuff every day there's 100 to 200 million people sitting on these centralized exchanges and every success story of a stable coin has been distributed through an exchange who basically forces the product into their users hands and so if you think about the real like nature and fabric of USD it makes a lot more sense for a centralized exper to be pushing this because they're getting trading fees as we're executing the Hedge we're using their liquid staking tokens and growing the tvl of that and bringing like yield to their balance sheet and then we can share some of the yield with them as a distribution partner and so if you ask me like what what are the big Avenues of

this could grow I think one is is like yield bearing infrastructure within l2s where I think that that's going to be a big theme this year whether it's like blast or what other s copying them um and then the second one is per collateral on centralized exchanges where centralized exchanges are actually doing your job for distribution and pushing the product for you there because they're incentivized to do so yeah yeah definitely um so I think you brought up a really good point like so if you're holding usdc or tether there's certainly a lot of risk there uh whether you want to believe them or not but you're not getting paid and they're making a whole lot of money in the back end I mean coinbase started disclosing a whole lot of money I mean tether is like the what the top treasuries tether makes $62 million

per employee in 2020 the most that's nuts that's crazy ever in human history exactly coinbase started disclosing their uh net you know interest income recently in the last quarter now recent the streets waking up to that as a user you're not getting paid um do you think that you'll force their hand if at some point you become big enough do you think like usdc particularly or tether will have to share some of the um the yield that they're clipping back to users otherwise or do you think the users are not just as sophisticated um arth might have a different view to me I think uh us CES already buckled on that basically which

is um you might have seen some of that marketing spend that they're doing on coinbase where you're getting 5% Aven um and they're doing that in different Pockets which on like as public so um even though tether is uh whatever 3 to 4X the size of usdc at the moment um I think they're more than 10 to 20x more profitable because tether like truly internalizes the full full 5% but usdc is is paying out um I would expect like almost half of that to to the distribution partners that they're working with based on the numbers that you seeing from coinbase um so yeah I think usdc is buckled and part of the reason there is that actually I think usdc holders are much more interest rate sensitive than USD holders so I saw a pretty incredible stat which I hadn't realized which is the overlap of usdc

and US holders it's only 4% in terms of wallets that are actually um holding the same asset which is just an absolutely tiny amount and actually us is like generally asian-based entities who are sitting outside of the regulatory apparatus of of the US while USC is is more um plugged in over there and so if you think about a USD seed holder when rates went from 0 to 5 there's an enormous gravitational pull for Capital out of crypto into treasuries basically and usdc was just an incredible off ramp to go and actually capture that um and so I think that's part of the reason that you saw them actually Decline and they face a lot more pressure when it comes to um internalizing that yields because their holders are actually more yield sensitive um and then the second piece to that is the real reason I think

t one is that they were like they got the Holy Holy Grail I think which is basically their money on exchanges and it was the point that Arthur was getting to which is when you're the trading PA on all of these major um sex venues and you like BTC usdt eth usdt on binance that's just an incredible mode that's so difficult to to unsee because uh you don't really care about um holding like a yield for 5% when you're buying tether to go in like long an asset that's going to move 5 to 10% on the day and that that really is the mode for tether which is it is actually money um on on these on these exchange rends so um who knows I don't think the cycle will ever get to the size that's like north of 20 or whatever it is where they actually feel

threatened by us um uh I think te basic just has such a strong r that they they probably weren't ever be paying out that yield USC I think is a different story yeah I want to talk about the minting and redeeming process um this was something that came up quite extensively when right before FTX collapsed like Sam was like going into a lot of detail like they were actually one of the few and uh when there was the tether fud comes up like every every other year or so and uh you just going to T but I I think you guys are requiring users that are minting and redeeming to kyc but anyone you know can go buy it and curve poool Frack whatever it is uh in the secondary Market

um can you comment on who is actually going through that process now what kind of entities what kind of players are getting involved and what are the just going back to risks like the like how cumon or the latency in that process I'm just kind of curious if you just spend a minute talking about like the whole minting at redeeming aspect yeah yeah sure um maybe I can just give you context for like three reasons why we actually did it and then uh we can jump into those pieces so uh the first was actually just around um security so this is like the most sensitive piece of Athena which is we're printing you USD and you're giving us an asset if we're mispricing that asset that's how you like uh lose money um if you're if

you're mispricing the mintum redeem um and so for us like not having that fully open to the public is actually a security measure which is we know the counterparties who are sitting on the other other side there and if there ever is an issue with the minum redeem uh being mispriced we can actually go to that counterparty and say okay there's been an issue here and try and recover that so that's one piece which we just felt made the architecture sitting on chain U much more secure for users um the second one is actually just trying to abstract away complexity for users because we thought it was not very ergonomic for users to arrive uh with a liquid staking token and then swap that into Dollars um and so what a user is actually seeing is swaps from dollars into Dollars within an amm whether it's unop or curve

and then what you've done is actually abstract away the complexity of bringing in liquid sa tokens or eth into our system onto a market maker because you're basically just um ensuring that that Arbitrage mechanism makes sense where they want to bring you those liquid staking tokens uh to to close out the up so that's just another piece which we thought like conceptually users didn't like the idea of like swapping Ethan to Dollars you just want to be swapping dollars into dollars and and that was like another piece um for us there um so yeah that that's sort of the way it works and it's actually very it's it's similar and you can compare it to the way that tether and usdc do do their um uh approv parties where it's a known counterparty sitting on the other side it's kyc on the minum redeem and there

obviously freely um and permission LLY um transferable through defi afterwards Arthur would be curious to just zoom out from Athena and get your broader take on the stable coin market like what what do you think ultimately happens with stable coins like there's a so to run through maybe two or three examples like fed there could be fed stable coin right they probably won't don't want to do that because they make trillions of dollars in FX fees but there could be that uh they could try to shut down they could call caner Fitzgerald try to shut down tether they could go after Circle they could King make circle like what what what is your broad view of what happens in the stable coin space so what I don't understand is why what the political situation is in the back rooms of why like Jamie Diamond or you know

Solomon egg Oldman or one one of these guys doesn't have their own coin and do this trade because it's very profitable as we know tether makes so much money so the one issue is that the FED doesn't really like fully reserved Banks because when you just take in dollars and you don't lend them out you basically deposit those dollars of the fed and the FED has to pay you interest on them and this is costing the FED hundreds of billions of dollars a year and is red them unprofitable as they keep raising rates so tether Circle first digital any of these I call them physically backed uh um US dollar stable coins actually poses a profitability issue for the fed and the treasury because they were

they're just going to park the money in short-term money markets which is either interest on exess Reserves at the FED reverse repos and money market funds or you know treasury bills less than onee maturity this is costing the fed and the treasury trillions of dollars a year as they keep raising rates to fight inflation so to allow you know a j a JP Morgan or city Baker or one of these guys to issue one of these coins and obviously they would instantly have you know probably trillions of dollars flooding into them yeah we would love a 247 that tra trades on a public blockchain we hate coming to the bank on you know at 5:30 and we can't get our wire through right it's it's a service everybody wants it they refuse to provide it either because they

feel they don't have to or they've been told they can't do it I don't know which one of those it is but I do know that fully reserved Banks present a problem for the fed and the treasury in that they have to pay so much money to to keep reserves uh stagnant in the system so that's a higher level money market thing which has nothing to do with crypto which is why I think they don't like tether now does it mean they're going to call the to shut it down tomorrow well now they got a problem they've let tether grow so big it's I think the 22nd largest holder of treasuries the treasury market liquidity has declined you know since CO as the market has ballooned in size and so yes could you go after tether and you know call caner and Deltech and you know all

these other Banks and say shut them down sure they could do that you know two seconds and tether would be debanked but then what do you do with all those treasuries when everyone in crypto say Okay I want my money back today right I need to sell you know hundred billion dollars worth of you know of treasury bills the market is not that liquid so it's they've kind of themselves on the one hand they don't want to have fully reserved Banks like a JP or a city do this trade because then they're going to be paying them even more money on their excess reserves but on the other hand they've let tether grow so big that now it's you know bigger than most countries in terms of Holdings of treasuries and they can't easily just kick them out of the US dollar Financial system because of the

pandemonium it would cause in theery market so it all comes down to us politics I don't know how that how that gets resolved cdbc again it's an issue of does the fed or any other Central Bank want to bank the citizens directly and put all the commercial Banks out of business not even China is willing to put out put their commercial Banks out of business to launch a cdbc that people want to use so ultimately I think the cdbc thing well it would be a tether killer or you know this would be so useful to have your smartphone and connect directly with the central bank and move Fiat around instantaneously no kyc issues blah blah blah the the banks have such a strong

political you know Bull workk in every single major government around the world that they're never going to let themselves be dis intermediated by the Central Bank who's a regulator and so that's why we have wholesale cdbc which make no sense because they're not going to be used by anyone you know the banks just sending around some tokens around each other like never going to be used so I don't think cdbc is are what's going to sort of deth thrown um in the stable coins it's really going to come down to incentives from the exchanges and the users as as guys said tether doesn't pay out money they don't they they started so early they have such a mo of usefulness that they don't have to pay anyone anything but you know if I'm getting 20 30 40 50% holding usde as the user as the exchange

now the exchange can own some governance tokens okay well you know Gian Carlo and Paulo and all those guys at tether like where the my money and if they're not going to pay up then it starts to skew when you have these really really high basis rates does it mean that they're automatically going to start dumping each other no but you know we have Athen 800 or whatever it is million tvl with all these exchange partners all these pairs are going to come out on Sexes why is that happening because they have incentive to put it on there and you know you don't theth Throne tether all at once it starts very very small so I think there's all these confluent factors that the status quo of you know intense competition between algorithmic stable coins physical US dollars in a bank account synthetic US dollar stable

coins over collateralize things like that this we're just going to compete and compete and compete whoever offers the best incentives for the users in the exchanges will ultimately win I think that the you know overarching Fiat regulatory apparatus has so many issues in it among themselves that they can't resolve that you know kicking out tether a circle probably isn't what's going to happen yeah so much of the uh stable coin uh I guess landscape over the years has been you know there's countless uh bodies there and a lot of it has been like like unknown unknown uh that pop up and creep up in the

system uh I guess like Tera like everyone was going ter was not an unknown unknown yeah I'm not i r a paper like what the is this Luda thing why is it so valuable I have my analyst Ste paper and he and the the one of the first things he put out was a Google I don't know what the professor was and it was this algorithmic s coin D the paper it described verbatim exactly how F and I knew that thing was a piece of dog and I bought it anyway because it was going up I before it went down so don't tell me that you know this was it was written on on the internet no I said St I didn't talk about terara Tara the issue with Tera was that

everyone jumped into the the the trade was so juicy what they didn't factor in was the size of the door to go out was not growing so that room became incredibly it was like a frat party it was like thousands of people all of a sudden in the same room and everyone wants to get out at the same time it's not going to happen right so I guess like um what are some of the things that like you're going to be paying a lot of attention to to make sure that um you know is it who's showing up to Mint and redeem what kind of how Savvy they are what kind of players are showing up uh is it the exchange relationships the counterparty relationships like what are some of the things that in your mind could be like unknown unknown to your that might

introduce some fragility into the whole mechanism um they just are not that you're just not in a position to comment on now but maybe you have some theories of what those may be and you're looking out as you grow yeah I think um uh one is always just think about kind of body risk So that obviously exists as we said with different SE coins in different ways so we thought that usdc didn't really have um kind of body risk and then we sort of learned that there was actually very real counter po risk to like svb which is where the underlying assets sitting in the background so I always think about these things rather than saying we've removed this type of risk it's like really just transferring risks into different places and so uh we look at like the custodial setups that we put in

place um which is obviously one of the largest risks here which is if you lose your collateral whether it's sitting in a smart contract or a custodian or a centralized exchange that's the way that this this like materially goes wrong rather than like on the margin issues with with funding and that kind of stuff um so I think the the way I approached This was um as you know Santi like defi was like the first thing that I personally found interesting about the space that's like where I had all my assets and and what I was like initially drawn to by the space but I think we also got to like acknowledge that um like trustless interaction within defi is unacceptably um unsecure at the moment so I saw an into the block uh piece that came out the probability of default of actually just leaving your

assets within a small contract on ethereum is roughly like working out at like 7% per anom uh you get zeroed 7% of the time that you put your your money into a smart contract and yes it sounds like grade and paper that we're we're interacting with just smart contracts there's no like human interference and all that kind of stuff but actually just like empirically looking at the data and saying is it safer to have your asset in a smart contract a centralized exchange or an Institutional great custodian it's like unquestionable that the answer is an Institutional great custodian and so I know that it that doesn't like please people when I say that and it's not like with the ethos or Defi and all those different types of things but we looked at that as like an acceptable trade-off to um to to actually have users asset

sitting within that um which we think like provides inadequate like tradeoff so to me that is like the big one which is how you think about the counterparty exposure and I think we just looked at the data and could see empirically it's not a bad place to have your assets and that's the reason that funds you Pary uh hedge funds they have their money in custodians it's not like anyone that says not these a custodian is like full like crypto is these like tinfoil hat people that are not practical like custodian's like it's like a horor model you should be using custodian and you should be using a smart contract and everything at your disposal but yeah there just some people that are really extreme and not very practical but it's refreshing to see you guys being one do do you think

about like just the Insurance Fund um insurance has been one of the things that like hasn't really materialized like going to I don't know some you know uh third point or whatever and like have crypto Insurance products that's something that hasn't really you know flourished uh at some point I mean you have the insurance fund that you're growing you're taking a fee right and so that should grow over time but do you anticipate like Insurance players jumping into the fold here to provide an extra layer of security like that would be pretty cool I think yeah it's actually a really good point because um I think one of the reasons that Insurance within defi hasn't taken office because uh the cost of capital or like the return of defi got squashed so

significantly that there was basically no margin to like plug a jant in so if you remember like the very beginning of defi summer it was like 50 to 100% yield you could afford to pay NEX is mutual 10 20% like yourself we talking about back in the day yeah um but obviously when when rates went below five like there's not enough to like even feed a user loan like an insurance layer that's it's that so I think that like that is actually a very interesting idea here which is um if you're making super normal returns through USD and someone can actually underwrite that it's it's a risk that can definitely be underwritten um that could be like one of the first uh reasonable use cases for for an insurance rund here um I think the other thing just to like make people aware is that um doesn't only have to be funded

through like excess spread of the product through time um you know Lio did large treasury sales when when they were out with a token and you like had had um decentralized infrastructure sitting around it um if you think that this is a business that's producing a lot of cash flow which um as of the numbers that's like coming out this week it's one of basically the high the largest um Revenue generating apps on ethereum right now two weeks into being being live um it's not that difficult at ending to be able to sell um part of your treasury to people to actually try and capitalize that Insurance Fund as well so you got different avenues that you can sort of think about capitalizing that whether it's capturing a spread or actually um just selling you selling tokens for for our dollars um yeah Arthur What's um what's your take

on where we're at in the market right now this is the beginning of the bull market it's real fun the beginning the beginning this is just the beginning we're I mean I guess I don't know what Bitcoin is right now I have my charts up but we're close to all-time highs once we get past alltime high of like you know crypto market cap then it starts to get really really interesting because then you have a bunch of people who bought in 2021 who now are above water and they start doing silly all over again and I don't know what it is maybe it's gonna be dog with hat and Cat with hat and whatever you know up we come up with uh over the next 18 months to to relieve fools of their money um but we'll do it and it's going to be fun and I think

it's just beginning this is just the start and if you think about the ETF as this this Factor that's contributing all those Capital the way that people allocate to these funds like Black Rock and uh Fidelity it's the retirement account it's sticky flows it's not like they're going to go in they had to go into work they had to fill out a form from HR hand it back like tick tick tick tick tick which one what you want you want to choose like you're not you ain't doing that because Bitcoin went down 25% like you're too busy in your Tik Tok look at that thirst traps so I think like the flows are are sticky and it's we're they won't be sticky forever but we'll get to a

plateau of a level where okay everybody has allocated what they're going to allocate and now they're a little bit more price sensitive okay maybe the price drops you start selling things but we're not even in at that point right now this is just the start you've just started to see you know Bal Like Larry f going on CNBC talking about like fiscal responsibility and all sorts of other that we've been banging on drums for the last like 15 years like the Salesforce is just starting around the world of hey you know put your assets here we'll protect you against inflation you know obviously I have my issues with that but that's the narrative it's working it's the best selling product ever um for these ETF providers they're going to do more of it whether it's ethereum or salana or whatever allcoin so we're just

getting started we haven't even gotten to the fun stuff yet people are just getting back above water right so it's this is it's fun but it's is the beginning so don't think that you you know you maybe made 10x on some shitcoin that you bought and you sold that now the shit's going a thousand times higher like this we not even not even there yet what's your over under on ETF products uh e theum salana and then everything else after that over the next two years I think as many as they can get out they will right and so whatever the the framework is that whoever the new SEC chair or puts out for these us regulated institutions they're going to Max like they've just made so much money

listing you know Bitcoin it's you know not that hard I'm sure they have their qualified custodians or whoever it is whether it's coinbase now you have the banks lobbying The Regulators in the US to be able to custody crypto they're looking at why the should coinbase get all this revenue from our club we should be getting them money on holding these crypto assets so now the banks are involved like everybody wants to take their the little cut of of this ecosystem on the you know the Trad fation of of Bitcoin so I think they're going to try to list as many assets as possible because they're extremely profitable to do so it's not an ideological thing whether they believe Bitcoin is better than ethereum than the other one like it's money in they charge 20 bips or whatever it is on their

product and you know they they a them grows and they get a bonus and they're they go their buy their ass house the Haas or whatever they do so I think we just get more and more and more of these products whether or not they're successful at a certain point will reach saturation and they won't be successful anymore but we're is there a downside of this though of like the institutions buying up all our Bitcoin well it's if you look at the asset markets today passive investing taken to an extreme and right now it is and it is at an extreme is entirely terrible for Price Discovery what stock goes up the most the stock that's highly valued it doesn't mean the stock earns its rate of return it just has to have a

price that goes up so if I'm allocating a percentage of my portfolio to S&P 500 the stock that's worth the most gets the mo the most money not necessarily the stock that has the best return and so you see the dispersion of returns you know evaporate price Discovery evaporates and everyone just buys q's and spies right and so passive investing is a cancer when it gets to where it is right now in in trafi yeah we'll get to the same point in crypto where you know these top 12 um fund managers own you know 20 30% of the supply of crypto I don't know we'll see what will we do when that happens I guess it's up to the community you know the whole point of

this is that anyone can join I was thinking about it less than the light of like numberg go up technology more in the light of like your original stable coin thesis of look someone picks up the phone calls caner shuts down tether tomorrow is there like anything in the back of your head where you're thinking about that with Bitcoin and black rock or that's that risk has sailed no well I mean what what would they do blackre sell your Bitcoin okay cool then the price goes down whatever we had 95% price correction in Bitcoin before is not like okay cool I'll have another one and the new price the new floor is $100,000 Bitcoin rather than you know 20,000 or whatever it was 16,000 this cycle so I think what you what you said about the look I when I was a par like

D5 fell closer to like what could be most problematic I or even something like tether but it's just your Point's an excellent one I think which is it just got to a point where it's just too big to shut down and like as you know what is the motivation to like shut down a Bitcoin ETF y like it just like I think like uh lobbies and I mean black rock is the US Financial system you don't just shut down Larry yeah he's making the most money Bitcoin Hef like you Black Rock and Nvidia are are now more interesting and and more important than the FED I mean it's just sort of like people listening toid earnings calls to higher degree yeah I'm done with Macro for a

while macro doesn't matter right fed Cuts fed hikes who gives a right tell me what that 3 pm or whatever time it gets released ETF flow was every day is more important than what the JP and lagard and all those do yeah Arthur what um just going back to like this cycle um all right so like a typical cycle typical with quotes around it was Bitcoin lead flows into eth flows into degeneracy flows into memecoins top run it back four years later this has been like salana runs then like Bitcoin runs then we jump over to meme coins like how do you think about just I don't know the how the how this cycle looks different than the last or how how it looks similar well I mean let's be in mind

like people lost a lot of money um in 2021 to 2023 right so people are just starting to like get get their mojo back so maybe that will be the cycle we're not even Sana is what at 110 or whatever it got it peaked at 250 right E's not at its all-time high in price terms yet bitcoin's not at its all-time high it's close to it right so we don't know what happens when all these coins recover to where people have bought them in 2021 you have all the FTX back holders are you know crying crying the blues because they got they got struck at the lows of the market right so it's going to take a lot of time and capital to make people feel rich again to start buying I mean I guess there was alien punks that sold

for some crazy amount of e I've got ether rocks so hopefully the Rocks go up too so I mean I think when we start seeing you know jpegs flying again then we're know okay this this feels like what we're after but I think we I don't think we're there yet it's people are still butt hurt like oh no it's there's going to be a big correction oh no like you know Bitcoin can't just like slice through the all-time high it's happening sooner than I thought but again people lost lot of money the the major institutions of crypto failed and got went under right so we're still not psychologically there at least on a you know a median level to believe that this is the start of the bull market people are still in disbelief what are the

sectors uh that get you most interesting interested uh from an investing standpoint is it you know crypto AI narratives that like are new as opposed to narratives that are old like Defi and game F or really hurt like you know and and so they probably have more resistance like going up because there's a bunch of back holders that are going to sell along the way as they like go back to par but are you more excited about just new stuff like crypto Ai and you know all that kind of crap I mean so the the AI thing AI is tough It's you know it's hard to make money in AI I think on on a longer term basis I'm an exchange guy I've made my money in exchanges I love exchanges I think the one thing and you know guy and Athena working on this as well is the interest

rate Market is I don't know 10 times bigger than FX trading Market we're just starting to see that market you know with how atha and Pendle interact and ethery and I layer points and all these things you know I'm super bullish on obviously I own a lot of Pendle I think that pendel or whoever captures the interest rate trading of crypto and builds a Bedrock of those products is going to be trading multiples of what bance is doing today on a centralized TR as just because the most liquidate Futures Contract in the world is not the S&P 500 it's the Euro doll Futures Contract I don't know how many krillions of notional trades every year but it's the Bedrock of pax americana's US dollar Reserve System is that Futures Contract

what is the one for crypto is it going to be something Athena eusd you know apy and Pendle something or other like that I don't know but I'm excited about that because it's it's a segment of the market that not very many people understand because you know the interest rate markets and money markets it's kind of complicated and opaque and they make you know the authorities make it opaque for a reason of how up it is but at the end of the day I'm super excited about that because it's not well appreciated I know where it goes in in the trfi sense we're going to move there just like you know derivatives when I started in 2013 no one traded derivatives few here and there now drud is is the majority of all all trading

volume I think we're going to see this but it's only the FX pairs what about the interest rates we have a native yield in eth now we have reaking igen layer is the hottest project of this cycle so far right and what is it it's taking that yield bearing asset and using it to secure other apps this is going to be the biggest thing I think in in this cycle is US starting to appreciate what interest rates mean we have a natively yielding asset like Ean it's powering obviously something like Athena and so that's what I'm super excited about and um yeah that's I I love that kind of stuff and I'm an exchange guy and markets person and I think that's something that I'm G to be sinking my teeth into uh over the next so 18 to 24 months guy two years from now who's the

who's the biggest customer of Athena is it traditional funds who want the yield is it crypto funds is it is it that I saw you guys were doing this go to market thing with l2s is it the users of l2s or I guess the L2 is the customer here who's who's the big biggest customer of Athena yeah I imagine it's probably a centralized Exchange um as as a user of our product and distributor to to their users um I think uh all those different Pockets that you outlined there um are interesting and they they sort of change through time so I think crypto funds are probably the lowest down on that that list where they can actually do this trade themselves unless they're actually taking the tokenized like issurance of it and then using it broadly throughout defi I think they find it less interesting because they they do do this

themselves and sometimes more efficiently because they don't have to do it at such large size um I do think the piece you're get into though with the try element was something that I was actually quite surprised about uh as we're going through this process now of trying to find Capital to come into Athena which is because you've actually replaced like the underlying asset sitting within the smart contract and it's sitting within institutional grade custodians that like tradire is actually used to so um a fire blocks copper all those type of entities uh they can actually engage with this in a way that they couldn't by by Leading money within a smart contract and so I've been pretty blown away I think by uh just like the types and of entities that are coming in from trafy and just looking at this as a very interesting packaged like dollar

instrument to to capture crypto yield in a single click um when that becomes incredibly interesting I think is actually when rates in the real world start to fall uh from 5 to four to three because you've got to remember like Athena's product here is actually competing with what is actually historically in the last like 10 years a pretty high risk-free rate uh the moment that this product actually like really shines is when rwa fall from five to four to three the rates on this product are actually negatively correlated to to rates in the real world and so thinking about this as like uh large scalable dollar denominated instrument where you've got negatively correlated yields that's actually incredibly compelling to to track by people if they sit outside of crypto as well and if you can package that up in a safe and secure way um I

think people are underestimating um the size of the flow that can come from that nice cool guys I think that's about it um guy anything we missed on Athena Arthur anything we missed on Athena or just General market sentiment that you want to share I mean bull market let's go it's party time that's how we're ending it good pod guys appreciate you coming on man congrats on everything with Athena uh Arthur appreciate your thoughts as always um thanks for coming on guys hey everyone Jason here thank you so much for watching today's episode wanted to take a quick second to thank today's title sponsor arbitrum we know you are

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