Green Candles, Pendle Boros, and DATs

Transcript

Heat. Heat. [Music] [Music] [Music]

[Music] [Music] [Music] [Music] [Music]

Hey guys, welcome back to another episode of OX Research. today joined by uh some relatively unfamiliar faces on the show. Um we've got Luke Leisure from the research team. Uh glad to have you on Luke. Uh few and far between appearances. And then uh Mark and Carlos, uh frequent members of the show from the research team. How's everybody doing today? Yeah, all good. Um price is up. The weather's good by me, so I'm very happy. And the weekend is right around the corner. So yeah.

Yeah, good. Um, trying to keep up with everything that's happening this week, but like it's a bull market for sure. Yeah, staying busy and uh some of the coins are bid, so it's a nice way to to go into the weekend. Yeah, 100%. Markets uh are exciting. Um, we've got a new pretty new hire on the team as well asking this morning, why are markets up? Um the classic kind of question in crypto needs no reason. Uh it was pre-ordained. Um I guess other exciting news before we get totally into the topics for today. D London coming up. Uh our next kind of Blockworks

conference event. So uh Blockworks Digital Asset Summit D is back uh in London October 13th through the 15th. Crypto's premier institutional event. um top speakers from leading global funds, financial institutions, DeFi protocols, crypto companies, and policy makers, Think Black Rockck, Circle, Coinbase, um the UK Parliament, even um Athena, some of your favorites will be there, uh all under one roof. So, um people like Guy Young from Athena, uh Rebecca Regal Labs, and of course, some of us from Blockworks Research, though I don't think we know yet. Uh we know Mark will be there. uh he's based uh locally, so that's an easy one, I think, for him to drop by. Uh the rest of us kind of TBD,

but I'm sure you'll see some of us there. So, um there is going to be a VIP dinner October 13th, open to speakers and VIP ticket holders only, which will sell out. So, use code 0x100 for 100 pounds mimate off at checkout. Uh we want to see you at DS. Uh so, go ahead, get your tickets and you'll see some of us there. you'll see Mark there. Uh he's a fun guy to hang around. So definitely worth the trip to see him. Uh especially if you're over there in Europe. Um I don't know if have you guys I've not been to a DAS. I've only been to Permissionless personally. So um maybe if you guys want to share some thoughts on prior DAS's get the you know what's

exciting about them or just favorite uh experiences from prior DAS event. Um, I've been to two DASEAS so far. This will be my third. Um, it's definitely more of an institutional uh event. You know, people wear suits. Um, not not your typical crypto conference. And I think, you know, the topics the topics is, maybe I'm a bit biased. I love them. They're around stable coins. They're around tokenization. They're around integrating blockchain services into the quote unquote real world, even though I hate using that term. Um and I think these kind of conferences and I mean I don't want to shill it but like Blockworks D is is where deals get done.

Um there's there's a lot of networking and a lot of like the like you can come away from these events knowing that something has shifted the industry forward. So it's one of my favorite ones to go to. Yeah. I was at D New York City this past March and it was probably uh my favorite crypto conference I've been to. the quality of attendees and speakers is incredibly high. So just the nature of the conversations you get to have with people there is particularly invaluable.

And um there's really no uh froth. The conversations and discussions are very measured, levelheaded and focused as well. So as Mark said, great place for deal making. Love it. Well, uh, like I said, not our usual code, 0x10. It's 0x100 this time. 100 pounds off 100 pounds off, uh, tickets. So, check the link in the descriptions. Uh, find them find them, uh, at the DS website, wherever wherever they are. I'm sure the producers have that figured out. Um, and hopefully we'll we'll see some of you guys there.

But, uh, outside of D, I guess we we hinted on it. The markets, um, are are kind of excited right now. ETH is at or approaching 4K. I think it's it's been sort of a while coming for that one. Um, DATs are kind of still doing crazy things. Tom Lee is on his tour of uh kind of the trady media scene uh to extol the virtues of, you know, treasury companies and and ETH. Um, Mark, I know you shared some kind of interesting data um and information around kind of relating Bitcoin or at least crypto to um some other sort of like stockbased metrics from, you know, sort of like

where we're at from uh or at least correlation to sort of like risk-taking activity, I guess, which I found interesting. Um, as well as just like where deal flow has sort of been at in the crypto markets. It feels like a good time to maybe dive into that. You know, you said earlier, you know, we're definitely in a bull market, so maybe it's worth kind of going over the numbers and um really taking a look back at kind of the growth that we've seen. Yeah, for sure. Um a lot there. Um let's let's look at um something interesting I found was um the relationship between Bitcoin and gaming stocks. I used um VANX esports and esports ETF as a proxy here. And we see like the ETF came out in 2018 and since 2018 it's had a 98%

correlation with BTC. I don't know what this means for BTC. I mean I think it's like it's you know high risk high reward you know gaming stops you know for gamings to go up you need a lot of consumer discretionary spending. Maybe for Bitcoin you need a lot of investor discretionary spending. Both are you know representative of a risk on environment. So I mean the correlation is pretty strong. What this what this chart here doesn't perfectly show is that late 2023 there was actually has been a reduction in correlation like there's been a bit of a divergence from Bitcoin and these gaming stocks. Um, and I think I'm positing that that's because of the digital gold narrative and then the expectation of the ETF launch and then the actual ETF launches and then

the institutional flows coming in. And that's why BTC has kind of diverged a bit from not only this ETF but then also the other altcoin markets. And then interestingly enough, I was just curious and I we don't have the chart here, but I was looking at alt coins versus that same gaming stock and it was a weaker correlation like 78% still still still meaningful, but then I I lagged it by 90 days um the gaming ETF and it showed me that and then the correlation went up into the 80s depending on the year frame and it kind of showed me that gaming stocks might actually be a leading indic indicator of the altcoin market. Um, which I just thought was interesting and

again just probably more to do with like macro what what's going on in the macro environment in terms of like high interest rates and where cons you know quantitative tightening or easing and where where we are in that part when that stage of the market. Um, but I I I posted this on Twitter and then I mean I I I think even Carlos asked me does this correlation to gaming stocks mean that Bitcoin is a meme? You know, it feels like to to have such a high correlation with game is like, you know, some somebody up there is using a controller and, you know, moving up and to the right with both of these both of these classes.

I mean, it's an interesting like it's an interesting comparison. I would never have thought of like like doing a correlation between Bitcoin and gaming stocks. Um I was surprised he was so like so high like 90%. That's that's too high for me. But like uh I I think you mentioned that in recent times he has decorrelated now. Yeah. As in it's still correlated but not as much as it was prior to like prior to the launch of the ETFs which I think is good. I I'm maybe like you would this this correlation is makes you feel a bit uncomfortable and I and I hope further divergence continues.

Yeah, I guess you've had the ETFs and then probably in in more recent times you've had a bunch I mean you've had Sailor Bid, but then you know all of the additional kind of treasury vehicles that have come online which I don't think there's any um you know indiscriminate buyers of like gaming stocks uh pushing up those prices in the same way. Um I think another interesting one that we we have on the blockworks research um dashboards around crypto deal activity is um total level of like fundraising um funding venture funding M&A debt financing uh in the industry and it's you highlighted this uh yesterday on our subscribers only call for block research subs mark but just to

see that we've nearly it's what just under that what 6.3 billion u month that we had um at the end of 2021 um have nearly eclipsed that kind of like you know all-time high month uh in in deal activity. Um obviously there's some big ones here recently, right? Pump Fund um raised a ton of money that in one huge deal um which has probably contributed significantly to this kind of this wick on this candle. Um it'll be interesting to see if this is kind of like a one-time thing or if we see a continuation of like the amount of deal flow we had over the past um couple of months now. um and if this trends higher or whatn not because I do think it's

interesting to point out that you know we've talked about IPO activity on previous episodes with uh James Kristoff. And uh the takeaway there was that 2021 was like a massive blowoff for overall IPO deal activity and we're still way away from those levels um seen in 2021 in aggregate but uh at least within crypto we're like kind of back at at the highs seemingly. Yeah, for sure. I mean, I hope it doesn't mirror that 2021 period where it's just a blowoff top. I I'm hoping I don't know. I don't know if this sounds bad. I'm hoping this is the peak here and it just kind of steadies to similar levels we saw in like June, May, you know, let's just keep it let's just keep it steady steady, lads, right? Um and I mean, and

another big thing here is it was the Michael's sailor raise for their preferred shares. Uh it was Marathon, one one of the biggest BTC miners. They raised nearly a billion dollars in 0% convertible notes. Um and that's a lot of debt financing. And I and I did mention Marathon too. Marathon is an interesting one for me. And I I don't want to shill it. It's just interesting. It's just it trades last I checked it was slightly be below NAV, which just means all you get the Bitcoin at at cost and then you get all of its mining business, its real estate, its IP, its rigs for free. It just it seems like a very interesting one. But yeah, hopefully hopefully fundraising picks up, but we don't have a repeat of last cycle.

Yeah, good call out. If it's uh it wouldn't be as exciting if that if that was kind of the blowoff top kind of spike right there. We'll have to see how the next few months fare, but um at least right now, I mean, have kind of mentioned it the past few months like have very much been a revival of IPOs and ICOs. Um, not that we really need to dive in there, but I think it just kind of highlights this fact that there's like a lot of, you know, capital that's like excited again to get into these deals. Um, whereas the past few years it's, you know, was virtually zero. Um, compared to, you know, where we were in 2021, uh, times. So, um, feels worth calling out that point. Uh, before we jump along and I wanted, we brought Luke on to talk about a very special topic

today. Pendle Boros, um, is exciting. Before we jump into that, gonna do a quick shout out to our sponsor for today's stream. Uh, quick shout out to Aptos. Apttos. Bitcoin DeFi is heating up on Aptos. With nearly 400 million in BTC assets on chain, Aptos users can now earn yield on their Bitcoin via EchoABTC and OKXBTC without the typical bridge risks and high fees. Thanks again to Apptos for sponsoring today's stream. Let's get back to the show. Um, all right, Luke, I want to lead you in on this. Um, and maybe we can start with just a quick um, coverage of Pendle, what their product is kind of generically and then the launch of this

Boros product um, what that means and sort of, you know, what we're looking at and um, I guess the big high, you know, that's been what maybe one one two days now um, since the launch. So, kind of covering how things are looking so far and and where they're going. Yeah. So Pendle has two products right now. The V2 markets which has been the core offering over the past two years which is basically a yield market for uh any onchain yieldbearing instrument. Um basically allows you to hedge or speculate on underlying yield of a certain asset. And that product has found blockbuster success um particularly in recent months with

growth in USDE and basically headline metrics for uh Pendle's V2 markets are all at all-time highs and it's seeing great success on that front. Um if you look at this yeah chart here, Pendle TVL made new all-time high in the past few weeks and a majority of this is driven by the growth in the USDE supply which is now just around 10 billion um up 70 75% in the past month. So we see that like 53% of all USDE ends up getting utilized on Pendle and it ends up accounting for about is that 66%

of Pendle's TVL. Um and it's really a killer listing and like a match made in heaven um between the USD or SUSD instrument and the market that Pendle offers where um the yield bearing asset has very low variance in the principle but very high variance in the underlying yield. You know anywhere from four to 36% um yield what we've seen over the past year. So Pendle basically gives you a market to um long or short that rate and they found killer success with it.

But perhaps more exciting over the past week is um basically Tuesday 1100 p.m. Eastern time, Pendle uh released their Boros market which looks a lot like an onchain classical swap market and um swap markets in Tradfi are enormous. Um, interest rate swaps account for over 500 trillion in notional open interest. Um, it's enormous. It's highly liquid and yeah, so Pendle's Boros offering uh looks like a swap market and they're they offer a swap market for basically

any interest rate that can be inbound via an oracle and they're starting with perpetual futures funding rates and um the perpetual futures markets it's about a 100red billion in open interest across costs all coins, all exchanges and that markets paying, you know, several to tens of billions in funding rates annually. And OROS basically gives market participants a way to long or short or hedge or arbitrage those rates. So they they've ran it as kind of a gradual roll out. Um they started with

just two markets uh the Bitcoin and the ETH market on Binance with a September maturity. And between just those two markets, they started with a 10 mil OI cap on each. Um they've lifted it to about 15 to 20 um mil per market and they're raising the leverage cap from 1.2 to 1.4x 4x I believe and like early metrics are I would say particularly promising. Um it's always a joke to kind of annualize 24 hours of data. Uh but the data we're getting right now uh is particularly

promising. When I checked and ran the numbers this morning, um these two markets did about 15 million in 24hour volume. Um, and depending on uh the fee tier that that you're extrapolating forward, I get quoted at 75 bits on the UI. I would expect like a blended uh fee rate to be closer to to 30 bits at scale. Um, but 15 mil in volume, you're looking at over five mil in annualized volume. At 75 bips, that's 43 million in in revenue.

at 30 bips, that's 17 mill million in annual revenue. And this is just looking at first few days of data um on only two markets that have kind of small open interest caps. Um I'm of the mindset that they can one they can list Bitcoin and ETH markets for more exchanges. um bybit, OKX, Hyperlquid, they can list more maturities for those same markets and they can list more assets as well. Um so they've barely scratched the surface of their TAM

wi-i which at this point in time is funding rates, but it can be a lot larger than that um in time. And like I seeing the early success, I think there's a pretty clear path where you could have a few hundred million in open interest across all markets on on Boros and you could be putting up 60 billion in annualized volume at assuming a 30 bips uh fee fee takeake. That's 180 million in annualized revenue, which would be uh multiples of the 50 million they're currently making on just their V2 market. So, yeah, early early

success, very promising. Um, I think the market was kind of taking the under on this going into the Boros launch despite how, you know, telegraphed or anticipated it was. Um but yeah, the repricing on Pendle over the past two days, it's up about 40% from when uh Boros launched. Um depending on how this data continues to come in, right, it's hard to extrapolate a 24-hour look back to a 365day time frame. Um but depending on how that shapes up, what additional markets uh they list, um other assets, other maturities, other exchanges, and we continue to get data come in. I'm I'm

particularly optimistic that uh yeah, this this will exceed my bullcase projections from what I had earlier. Yeah, I think uh you make an exciting case there around the potential to expand the product offering um you know more maturities, more assets. Um I guess maybe the caveat there is you'd expect to see most of the you know the volume and activity around the largest few markets. So um maybe you kind of have to index a little bit to you know if you expand out the maturities offerings for BTC ETH soul you know XRP hype take take your top assets what have you um that's

probably going to be the bulk of uh you know the trading volume but still maybe there's something to be done in terms of uh you know fees by market size or something along those lines um to where those maybe longer tail assets still serve um some meaningful revenue. you know. Yeah absolutely. They they went after the the most logical markets first. Um but I think you know there's also there could be a strong case for good product market fit with the longer tail assets. Um Dogecoin you know whatever is beneath the top 10 even if they have higher variance in the funding rates um than you know that's a better fit for something to hedge and

speculate on um than what might be offered in the majors funding rates. And h how does this like complement or like can it can canalize the product like they already have like with PT SUSD? I know you have some interesting thoughts on that. Yeah. So I think it's um it's complimementaryary in that it basically expands the market that Pendle can service um like open interest and funding rates for um centralized exchange perpetual futures is like totally new and unique from what uh V2 has found success with. Um, that being

said, like the SUSD market on Pendle um kind of already looks like a swap market for funding rates. You could think of the yield on SUSD as that proxy for um what the fund what the funding rates are paying. And if you want to short that rate, you buy the PT. If you want to long that rate, you buy the YT. So there's probably already a lot of um volume and fees that that Pendle is capturing from that sort of activity on the SUSD markets on Pendle. Um that being said, what I think it remains most attractive about the V2 offering for SUSD is um the principal tokens for the

the SUSD. um if you can buy an SUSD PT at you know 7 to 30% fixed yield to maturity um or sorry fixed return then like that's an incredibly attractive instrument and you can't get that sort of zero coupon bond instrument through Boros. Um we continue to see that reflected in in DeFi utilization where now over uh 81% of the total PTSUSD supply is utilized as collateral on money markets. Um and those instruments exhibit the highest

utilization um as collateral out of any instruments within crypto. So yeah, I mean that like that synergy between Athena, Pendle and A is incredibly interesting. Um like it has been discussed a lot over the past week. At least we have discussed it internally over the past week. Um, like something that I'm like super interested about is like if you believe SUSD or USD supply is going to continue grinding up and it's going to continue being utilized on Pendle and AB like what protocol benefits the most from this like three-way synergy between

these between these like my intuition is that it's Pendle just because of the size of the of of its market compared to RAB which has like 60 billion in deposits and like I I haven't looked at the figures like but I would guess like PTS make up like 5% at most of their like deposits whereas for Pendle it's obviously that's their whole thing. So I don't know how you think about like this the synergy between these protocols. Yeah, I would say um Athena, Pendle and A like all win in this environment where USDE is is growing its supply. Um looking at basically like the

sensitivity of the inputs to like topline revenue for all three of those. um that I kind of came to the conclusion that like Pendle would have the highest sensitivity um and growth in revenue like per unit of increase in the USDT supply like relative to the fully diluted valuation of that of that protocol whereas like Athena is around 10 billion FD FTV right now I think um and Pendle was down at 800 100 mil FTV a few months ago. It's up to about 1.3 now. Um and I I think they're generating

I don't know it might be it's the majority of their swap fees are coming from the SUSD markets right now. Um perhaps we could look at this chart on uh I think slide seven PT collateral and top money markets. Yeah. So since a listed the PTS um they've gained you know if we updated this for another 48 hours I think it's around 3.4 4 billion in PT collateral and you can borrow against these instruments at uh 80 89 to 91% LTV depending on your debt stable coin and looking at the borrow capacity across those PT markets there's uh no

borrow available left um all depositors have pretty pretty much maxed out the leverage and there's definitely a ton of looping going on which also So embeds some risks. Um but like for every dollar in PT deposited, there's call it 89 cents in active loans paying 5% uh APY um blended between USDC and USDT and USDE. This probably looks like um a just opened up a line item that's giving them an additional 20 million a year in um in revenue from that interest take rate.

So, it's an incredibly attractive listing for the money market. Um it's high margin, generates a ton of active loans per per dollar of collateral deposited. And I think it's interesting just to see how a has completely won this whole market. Um despite being like the third mover behind Morpho and Oiler who own that market historically. A runs the listing and they go from 0 to 80% market share in PTS. And if we look at the next chart here, um, A has only listed the USDE type principal tokens, which is like a subset of, um, the total TAM of PTS that are

originated from Pendle. Whereas Oiler and Morpho through permissionless listings are able to list that longtail of PTS whether it's like a USR uh PT or Lombard BTC restake principal token. Um Oiler and Morpho uh currently list those. A does not. Um but a still has 80% market share and underwriting against this collateral type. So, it's really I think signals that like liquidity modes can be particularly dominant where um the deepest PT pool on um on Morpho

cost you 9% to borrow against that um when the PT might be priced at 11%. Whereas, if you do that same activity on a is costing you five to five and a half right now. I yeah I totally agree with that and it's perhaps a knock on the modular thesis like that we had in money markets. Another thing that I find interesting is like just highlighting that the appetite for looping uh fixed yielding instrument like PTSUSD is significantly higher than just looping the underlying asset by itself. like a like I remember November 2024 they listed SUSD and they progressively

lifted caps and then it reached about $1.2 billion in deposits. But then that that strategy proves to optimal for looping because the yield itself is very like uh volatile. So you not only have the risk of borrow rates going against you, you also have the risk of the um instrument you're looping going against like like it's also volatile. So so that's one thing. And then when they listed like BTSUSD, they instantly gained like as as Luke mentioned 80% of the market share. I know they recently have also listed like also um implemented like a USD SUSD loop product like what is the difference between that

product and just looping the PTSUSD asset. Yeah, I think your um your collateral type on the liquid leverage product gets boosted incentives. Um whereas if you're a PT holder, you basically forego that. So there's some um some extra coupon those depositors are are going to receive that's is indeterminate. Um so that liquid leverage product gives those borrowers the ability to kind of retain that optionality um with subsequent distributions whereas like the PT borrower base does not.

Yeah, seen huge success out the gate. I think it's 1 point 1 1.5 billion in deposits and over a billion borrowed um on the liquid leverage. Yeah, I think to these points um Carlos, you hinted at it like this um idea that the the modular kind of lending strategy might be able to kind of edge its way in to uh this this marketplace. It seems like from what we're seeing from a kind of despite being later to the game on some of these asset types and um even if they come later with a mod their own kind of modular markets, it seems like it it may not matter like they're they're potentially entrenched enough to um kind of continue dominance, assuming

they, you know, continue to, you know, even if they're six months, a year late on these uh product drops, it's like ju, you know, just come into the market after the fact with the uh you know, the newest best and greatest product type and uh you know recapture the market share. Yeah, it seems like it seems like that the modular players can really win in offering markets for like the fringe or longtail instruments um like the ones mentioned previously. But then the issue is like those aren't the big fish markets. The big fish markets are the SUSD principal tokens.

And I'm sure from AB's perspective like that's the most important one to win um as they have and as they have the the success to show for it. Yeah, agreed. I was I was going to say that sounds almost Appleesque like you're not you're not the latest and the best. You let other people do the R&D for you. You see what works and then when you're ready you launch it yourself. [Music] Yeah. Yeah, I mean there's very much this like um slight premium nowadays for like uh battle I guess you could call them battle tested like entrenched protocols where you know you you you give up some of the fringes you know potential reward um for reduced risk of you know

operating on the protocol u and it see you know a certainly has that reputation at this point compared to you know a moro morpho or an oiler that are you know more recent and I guess Oiler has had its own um issues in the past to deal with as well. So seemed warranted to that extent at least. Cool. Uh anything else maybe to highlight on Pendle or Boros before we hop along. Go ahead Carlos. I have a question for L that I'm not sure about this but are they still using the AMM for for Boros or they're using another mechanism for the swaps?

Um, I believe they have uh it looks like a limit order book for um for traders, but then there's also these passive vaults where you can supply liquidity on a UNIV v2 style. Um, so I'm not exactly sure on the implementation at the moment. uh the docs didn't have the most detail on what that looks like, but yeah, we'll be eager to dive into that and what the the vaults can offer with uh TN on the pod next week.

Nice. Another thing is they uh they built it on arbitum. Um whereas like the majority of uh Pendle V2 markets are concentrated on Ethereum. Um, I think that was an interesting design design decision to see, you know, a major ETH application, try and build like a new new core primitive on arbitum as opposed to the L1. Definitely think it's a better decision. Um, I mean gas fees on uh Pendle ETH mainet can be pretty egregious sometimes. Um, but I also think, you know, it's it's one step

closer to all the capital on hyperlquid and I think there's some benefit there. I mean, especially if you're if you're building a limit order boot like it's impossible to do that on e mainet I think. So I I do agree arbitrum was the best choice. Like one last thing on Pendle like they also launched on Hyper EVM, right? Like I'm curious to see like have you seen a lot of traction on that uh deployment? Yes. Um I believe hyper EVM Pendle deployment has crossed 100 mil in deposits and just a few weeks. I think the deepest pool is the kinetic K hype.

Um it's been priced at about a 10% yield. uh whereas you know staked hype is paying I think 2 and a half%. Um but Connecticut has seen huge inflows in the weeks since they opened up deposits. I think it's around 600 million in Khip is now now staked. So yeah, the market's pricing about an 8% return on um Khype through through the airdrop distribution. But I think it's a really good and tactical place for Pendle to deploy their markets because like a lot of people are interested in airdrop farming these um these new applications on Hyperlid. Um and yeah that the market

offers perfect venue to basically like uh take leveraged exposure to the points that that give you the the airdrop upside. Um but then on the other side is you can take a a khype PT and borrow against it on hyper lend at you know 10% fixed um and then that's a pretty attractive instrument in itself um both for people who want the hype zero coupon bond exposure um but then also hyper lend to be able to underwrite against it.

I guess it also sets them up for um you know a boros opportunity in the future um to you know set up some markets around hyperlquid funding rate uh opportunities. Yeah. And that's that's one thing I'm eager to ask Tien next week is, you know, the Binance the Binance um funding rate settles at an eighth hour interval. And like if you look at the boro CUI for that funding rate settlement like it's it's pretty gappy and there are these big um step function moves from I'm looking at you know 10% down to 3% next settlement whereas Hyperlid updates that once every hour. So, I'm curious if like

the higher frequency of of updates um for that reference rate can uh I don't know improved capital efficiency and signal in the Boros market. Awesome. Yeah. Well, I guess uh this will serve as a little bit of a teaser for um I don't think that episode will come out for maybe a week now, but we will have Tienne uh from Pendle on the show um next week. Ask them all things Pendle and Boros um what they're cooking, what they're planning, um and kind of the future of of the platform.

So, that'll be exciting. Look out for that. And uh I guess thanks Luke for the kind of the quick background and overview there. We'll go in, I think, even more detail next week on that. Uh, before we jump along to our next topic, uh, let me give another quick shout out to our sponsors to today's stream. Uh, Aptos. With nearly 400 million in BTC assets on chain, supported by a secure, fast, and affordable MBM environment, Aptos has become the BTC growth chain. Appdos users can now earn yield on their Bitcoin via Ekko's ABTC and OKX's XBTC without the typical bridge risks and high fees. With support from Echko, OKX and STAX's SBTC, Aptos is the place to

go for the best-in-class yield on Bitcoin. Appreciate the support, Aptos, and our other sponsor for today, Algrand. Um, Algo Kit 3.0 0 includes all the tools and open- source resources you need to unleash the power and performance of the Algrand blockchain. Access a resilient network with instant finality, consistently high throughput and low fees, and layer 1 features like atomic swaps and native assets. No smart contracts required. Whether you're building DeFi protocols, enterprise solutions, or nextG DAPs, Algo Kit has all the tools you'll need to build faster, safer, and smarter. Thank you to Algrand and Apptos.

Let's get back to it. Um I guess one of the other big topics um that we we discussed a little bit before the show and maybe at the beginning as well is um the crypto treasury companies or DATs um as now everyone is calling them. Um it you can't have a trend without creating an acronym for it I suppose. So the digital asset treasuries um have become an incredibly hot topic. Um we do have a great dashboard on this thanks to the data team uh at Blockworks. Shout out to Dan Smith and those guys. Uh I know that was a bit of a team effort and uh relatively involved and I think they're still kind of expanding that out as we speak. Um but I know Luke, you've been doing some background um and looking

into uh some deeper research and maybe writing a bit about these companies. Um, and I know Mark, you said you you listening to Tom Lee at least for some of his insights lately, um, on kind of the maybe more from the DAT side of things, like the DAT POV on, uh, their operations. So, um, it feels like a good one to get into. I guess maybe I'll preface this by saying we've kind of talked about these at length. Um, some of the big things have sort of been like, you know, people think this is kind of like a blowoff moment for the market. you know, this like bid into these into these treasury codes that then are are buying, you know, Bitcoin, ETH, soul. It's you and alts kind of indiscriminately.

Um, and maybe pumping up the markets a little bit. Um, one of the big takeaways is that there's really not there's not like a ton of leverage here to like blow them up, per se. Um but there's a lot of focus around this idea of their um premium to MNAV or you know the the valuation of the business relative to the amount of you know cash plus assets um that they have. And so in most cases it's like how much Bitcoin does strategy hold relative to the value um that strategy is trading at. And obviously they have they've been employing some of these other vehicles now as well, right?

You know Sailor's got three or four different instruments um in kind of his tool belt at this point. um perpetual preferreds and like other sort of um maybe more yield focused products, kind of a combination of things. But um I guess Luke, I'd love if you have any um insights here from kind of starting to to dig into these guys if there's things you're looking at and we can uh kind of go through some of the data that we have on the on the Blockworks dashboard as well to kind of talk through what's going on here or what's interesting to look at.

Yeah, happy to. I think a good one to start would be on the Ethereum treasury companies dashboard. Um if we look at basically uh treasury company holdings um and how they've changed since June, uh these companies have stacked about uh 7 billion in ETH. Of course, the price has risen a lot during that time time frame, but still about 1.8 8 million units of Ethereum acquired during that time period. And this is also um this also occurred during the same point in time where Ethereum ETFs um were basically adding few billion in

inflows as well. So uh generally from my like portfolio management perspective I I would be much more eager to own the underlying asset that's getting bid by large capitalized players than to buy the treasury company um just because of operational risk associated with that. But like at large, I see great reasons for why these things should trade at premiums in point at points in times. Um but also great reasons for why they can and will trade at discounts um at particular points in times. So, like looking at just MA micro strategy on a year-over-year basis, like they've been

able to grow their Bitcoin per share, um, you know, fully diluted, assuming all all debt converts, um, you know, 7.3%, 74% 10% 7.8%. So, they're growing their holdings per share. Um, and that's in units, not in dollars, at like a pretty attractive rate, you know. Bitcoin's growing, call it 30% annually. Their cost of capital might be um 8 to 10%. And like they're basically just running that ARB. If you can grow Bitcoin per share, I think there's a reasonable um there's a reasonable framework there to, you know,

you should not value the company on the assets it holds now, but the value of the assets it might hold um three, four, five, 10 years down the road, which if they can continue to engage in these capital market strategies to go to grow assets per share, that justifies a premium to me. But then on the downside um a lot of this is basically downstream of not only like the underlying reserve assets realized price performance but also um how the market expects that asset to return out into the future. So at points in time where like these instruments might be drawing down 30 to

50% annually which is well within the realized return profile of most of these instruments. I don't think public market investors would want like a leveraged or beta to that complex where you're you're basically uh compounding downside returns. And I think those points in times you'll you should see a discount. Um in terms of like the tail risk to all of this. Um Mark has done some great research on this. Like the leverage ratios aren't absurdly high and like Michael has the big whale in this market. He does have a particularly favorable cost basis. Um, so I don't see like tail risk

of uh like huge liquidation flows as much as just the inflows roundtrip and become outflows at less opportune points in time. And I think those less capitalized players further out on the risk curve who in turn have less share of the total float um would probably be more prone to seeing those outflows. Um, so I'm not particularly concerned at this point in time that that you'll you'll see the tail risk manifest. Um, but if you start to see the realized return profile of the underlying assets begin to deteriorate and you know look look more negative then um the growth in assets per share is positive. Uh you'll

start to see some discounts on the board. I'm very happy to have you on the dark side now. Look, I James Kristoff is not going to be pleased. Um, but yeah, I've been saying it's it's not as it's not as leverage, not as risky as people are make have been making it out to be. I think we're still suffering from, you know, Galaxy FDX PTSD from, you know, the SDN wine trade from back in 2021. Every everything is is scary until until we get more comfortable and understand the risks a little bit more.

even even you know you you talked on length about you know s umina and susc and and pendal and a lot of people thought you know was going to be the next lunar for a long time and then now it's one of the biggest players right so I think as as more education happens as people start to wrap their minds around this and maybe understand a little bit better um the risk might become a bit more understood and then I agree with you I I think this is a winner a few winners market like you know there's in BTC, there's, you know, Michael Sailor with with Micro Strategy or Strategy, sorry, and Meta Planet and maybe a few others. I think the same thing is going to happen with ETH. Um, you know, just going to be a few winners. I think that's probably how it

should be. Um, and you know, the risk really on the tail end, especially from the operational structure. You don't know how was it a spark, was it a pipe, how much are they going to dilute you, what early investors going to get, like a lot of that stuff matters as well. So, I'm not saying it's risk-free. By no means am I saying that um that a lot of that stuff does matter for investors, but I agree with you. I mean, like, come on, let's just buy the underlying asset. It's it's going to get the bid from everything. It's simpler. You understand it. You like enough said. Yeah. I think I do think the loose point around kind of sort of these operating as like a a beta to the underlying. Um in essence, the I think the concerning part is what you mentioned around the

potential reflexivity of like if we if we go back to this ETH um holdings aggregate holdings chart like these these ETH treasury codes these ETH DATs have accumulated a ton of ETH in the past few months and it's you know up near you know between 3 and 4,000 a lot of these purchases per per ETH um so any move to the downside looks very unfavorably to them especially if they're already trading at you know 1.1 1.2 to premium to mnav. um you could quickly see that trade, you know, sort of like at a discount and then it's that question mark that you raised of, you know, do we see some of those inflows turn into outflows and kind of add um

some some reflexivity to, you know, the ETH price chart or if you go down the line, you know, if it's the Salana chart or to the XRP chart, like these other smaller companies that are that have been doing the same strategies on um assets that are maybe near highs or at highs um compared to, you know, Sailor who's kind of been averaging into Bitcoin since, you know, for years now. Um, with much lower, I guess I say much lower, but I guess his his average cost basis at this point is now like 70 70k or so. Um, so which we were, you know, we saw close to those levels um earlier this year. You know, what low 80k high 70k range for BTC. So, like you said, um it's not un unrealistic to see, you

know, big 30 50% moves down for um a lot of crypto assets. And so, that seems to be the main concern, right? Would be a a volatile move to the downside. Yeah. Part of what I also think is kind of lost in uh the DAC code frenzy with um all these these new ones popping up via PIPE or Spack is just like the unique number of publicly listed US companies that hold Bitcoin or crypto on their balance sheet as a reserve asset.

like a lot of the ones we talk about like it's kind of their objective function to grow um assets per share, but I think like you're you've seen the number of companies grow by 10x from a few years ago. I think you're going to see more and you're going to see it from companies that um their operational objective is not grow Bitcoin per share um but rather they might view their instrument as um part of their balance sheet portfolio composition in excess of something like treasury bonds or money market funds. um because the return profile has been uh so superior to to

that of a treasury bond at at 4% or something. So yeah, 100%. Can would you classify Tesla as already in that category? Absolutely. Yeah. I I guess it raises the question of um you know why or if or why companies haven't maybe historically done the same with something like gold. um which has been you know similarly accessible and kind of outpaced the dollar um to a broad extent historically like it's not we love the digital gold narrative um but it's the same kind of idea here in essence right yeah it's a good question and honestly

I'm I'm sure my my biases and and moonmath on Bitcoin delude me um But like I I think a lot of it's like the supern normal return profile and um I think like if these DAT codes continue to demonstrate like a premium to NAV and that like the the market may price a premium on the equity by virtue of that company just holding the asset. Then there there may be some accretion for um shareholders by by holding some of their reserves in an instrument that's yielding well in excess of you know 4% on an annual return basis.

Yeah, I was that it feels like a fair point, right? If if no one had ever done it before and then suddenly someone does it and the market gives them a premium for it, then every other company looks around and goes, we can get a free premium by swapping some of our, you know, USD reserves for crypto reserves. Um, and maybe the premium is even in the short term, but it's, you know, we can take the premium and and sell some ATM and kind of capture that and then, you know, hey, we got a we got a quick win. Yeah, I'm going to I'm going to agree with that. And I think this term is definitely overused in crypto, but for for that I think it it's still early and I think like I remember last year I think it was Microsoft's board put up

for vote whether they should consider adding Bitcoin to the treasury. Not add but consider adding that vote got shut down. But I think all of this is just the little you know crumbs that show you where where the direction is is headed. And you know some some um shareholders now have come out and said oh what would have happened if Microsoft had you know actually considered that vote maybe last year. And you always you always say that with Bitcoin with with any institution with any government who does this. And I think maybe another little Trojan horse is that I saw the SEC put out some guidelines allowing stable coins to be counted as cash and cash equivalents on the balance sheet for publicly traded companies and well any company. And so I think once that starts to get a little bit integrated more and you know

companies have some a wallet a little crypto I think it starts to slowly expand from there. So I think we're still early in this. I guess the stable coin the stable coin piece is interesting. um by itself though I don't know if there's enough there but I think to your point like longer term if it means that uh some of these businesses will you know kind of like manage funds on chain um there's like maybe a more meaningful longer term picture there. I do wonder though if that um you know is something that remains kind of on this like kind of crypto like DAT as a business

strategy versus your average you know company that that has you know operating revenues from whatever realized business that they're actually running versus just the sort of financial strategy of you know of taking in money and and buying crypto with it um and then doing things on chain. Um maybe maybe that gap will meld but it's hard to say at this point. Yeah, from treasure from a treasury management go I think it's a it has historically been more about career risk than anything else. But you know I said these are just the little little crumbles to a path that I've been seeing I'm sure all of us have been seeing for the better you know better half of a

decade now in in the space in general. Totally fair. I guess um maybe one last thing to highlight since I saw it come across the desk um just recently. Um there's been a bit of an IPO ICO kind of new mania going on again. Um and we just got an announcement from the Wall Street Journal that Trump is preparing potentially to IPO Fanny May and Freddy Mack later this year, aiming to raise 30 billion at a $500 billion valuation. um a bit interesting of an announcement. I I think it I mean it plays into a few things I think from the from the Trump camp, but uh goes to show that like this IPO excitement and uh and at least

onchain the ICO excitement um like we still seem to have some legs here. Um Circle remains, you know, elevated I think well beyond anyone in like on CT's expectations had for um the stock at its launch. Um, and we're seeing more crypto companies like try to go public um, recently. I think Bullish, which is the parent company of Coindesk, if I'm thinking correctly, um, is planning to IPO maybe next week or the week after. I'd have to check the dates, but um, that's another one coming up. And I know that Kraken and Gemini are potentially in the works. They've done some like initial filings to start digging in

there. Um and and I think the other big thing that we've started to see is like playing around with tokenized stocks on chain. Um now just recently there are protocols doing like tokenized preIPO um assets on chain. Um basically there's a bunch of like latent demand for people to bid you know assets and companies that previously they could not. Um seems to be seems to be the the thing going around here. Um, I don't know if you guys have any thoughts here. Like, are we personally looking at any of these IPOs? Like, is bullish on our radar? Are we just kind of like letting those play out? Um, I've been taking a look here and it it

really like Figma was another big one that that popped quite significantly and it's off from those highs. Um, like it ran from I mean I think the IPO price was something like $30. um went to like 140 or so uh maybe aftermarket on that on that first day and is now maybe back in the 80 to 90 range. Um maybe looking somewhat expensive, but regardless um you know IPOs are getting pops uh and crypto companies are looking to get on board. So is this something we're looking at more closely?

Uh I think I think I'm scarred from my time in TRFI where I just never really touch IPOs. I always wait for the dust to settle and maybe do a loop and and that has been especially recently to my own loss. Circle IPO Figma and when I saw Figma trading at 140 I was doing the quick math 50% of um Adobe's valuation with 5% of the revenue and I was just like the math isn't math and I think it probably is going to be a a good trade to to participate in the thing participate in these instruments. I mean there's clearly demand for them. Um but I don't know maybe the boomer in me is just going to hold me back.

when we're seeing like we're seeing more and more ICOs onchain as well, right? I mean, pump pump was the big one. Um, but there's been smaller, you know, there's been talk at least in the chats and internally around this like HeavenX that ran an ICO on Salana just just recently or was sort of like in they raised the money. They're in the works of of launching that token. Um, and there's been more platforms like Metiplex, Genesis kind of like setting setting one up. Metadow is kind of experimenting here. Um I guess believe although that's kind of been more memecoin adjacent but we've been seeing like this stepping slowly of like memecoin launchpads to like a concerted effort to have you know

launching of actual companies or at least cryptojacent businesses doing ICOs again uh on chain. Yes, make ICOs great again. I'm not a fan of tokens but I love ICOs. I this I mean this is what this is when I got into the space just having having access to new stage companies it just felt like early stage investing I get so you get so much of the upside there's not the same level of VC lock up I mean everybody knows this we're in the space I'm I'm gonna let I'm not going to ramble I'm going to stop Luke and Carlos do you all have any thoughts okay Carlos [Music] yeah so let's see the the announcement um what I like is like 247 access freely

transferable, no minimum investment, no paperwork, no KYC. Um I I like that you can get access to the instruments like on those terms. Um really for call it small fish or retail. Um and also see like use as collateral for loans, lend out for yield. So like that's something I'm I'm kind of interested to see how that develops. Um, I will not be a lender or a borrower myself, but at least like equities on chain. Um, I feel like you need better pricing structures.

um you need better like redemption or arbitrage um features to like give those more liquidity and um I guess like redemption clarity to price them better because like right now you look at uh the Xtox market on Camino there's only like 1.5 million in um Xtocks posted as collateral which like I'd say is um pretty uh pretty is not that success successful and there's not much demand to borrow against those instruments. Um so like I'm unsure if that's the angle

that like needs to be offered. Um but like at large giving more people access to the equity like on those terms um I think is is a big improvement. Yeah. And then even with DeFi, what we've been doing for launches with auction mechanisms, the space is great at auctions. Look how much money Circle and Figma and these others have left on the table from their IPO pops. Like literally tens of billions of dollars that the company, you know, well equating to billions dollars more on these companies cash flow on these companies balance sheets which they can use for growth, right? I mean like direct onchain listings. I I think these these advantages need to be touted a

little bit more in the space. I don't think we're ready for it yet, but again, crumbles. Carlos. Yeah sorry. Glad to have you back, sir. Can you hear me? Okay. Yeah. Other thing that's interesting like that happened recently, I don't know if you discussed that, but is preIPO trading. Like I I think we've seen it we've seen that live on Solana today maybe that you can now trade tokenized preipos on Jupiter and then you also have like this virtuals or ben I don't know what it's called bench platform on the hyperlquid to trade p IPOs. I don't know if you guys have any thoughts on like trading like private equity on chain and how that might look

like. Maybe like my take is maybe it has more demand than just trading like public equities because public equities you can already trade that like on your regular brokerage account or whatnot. So it's maybe more directed towards people in like geographic jurisdictions where you don't really have access to like uh a regular brokerage account whereas preipo companies maybe have a larger TAM uh just strictly on chain. Yeah, I would I think I would generally agree there. Like it it feels like the um a lot of the growth for on you know regular onchain equities might come from

these platforms you know like a Robin Hood or a Kraken that offer it to a large customer base that maybe can't trade those assets um for one reason or another like you mentioned. Um whereas you know bringing an asset that's currently untradable by the public um into the fold feels at least in the immediate term like there'd be more like a little bit more latent demand from you know your your average retail guy um that's on chain. the the interesting part I don't know the the exact specifics of the um the roll out on Jupiter but like for ventuals for example um it's it operates as something of like a purpose market so you you know go long

or short and then you have um some funding there as a as a factor and really the the ways the way that you're like correct in that trade is if um you know I guess either of a bunch of other DJs get long after you or um the alternative being, you know, if a a next raise milestone at a higher valuation occurs or they actually go public, which like me personally, I I don't know that I would necessarily want to be long in paying funding for something if my expectation is like 5 years out this thing is going to go public at a valuation 10x higher. Um it would suck to pay funding for five years um on something that I'd, you know, want to

just hold and go long. I don't know if the Salana onchain version um kind of accounts for that and you just get to hold like a share of it and there's no um kind of caveat there from a funding perspective. That's how it seems at a glance, but I'd have to dig in further. Um I don't if you if you guys have thoughts there. Yeah, the funding is a deal breaker, but if it's if it's, you know, if if we can get these other platforms that already allow users to trade private equity like the hives and the moonfires and the Carters of the world and they just all use this as like, you know, the DeFi mullet, they just use this as a black back end and they plug it, they plug in for liquidity and then now it's not all siloed in

these different platforms. I think I think that is a great use case like I think and a lot of a lot of private equity I mean people are staying p companies are taking longer to IPO more now more than ever. Um and I think a lot of these private investors still want some liquidity and and I think bringing them onchain is probably the best technological and way to do that for all of its purposes. [Music] I guess maybe relevant one last announcement here. Um we knew something was coming from Coinbase. Brian Armstrong dropped um the roll out of DEX trading in the US excluding New York, which is uh always a funny caveat for them. Uh our goal is to make Coinbase the simplest way to access onchain

markets. You'll be able to trade millions of base assets directly in the Coinbase app. Support for Salana is coming soon, too. Um I do I feel like this plays into that idea um that you know you have these big platforms with lots of users um already trading certain assets and I think kind of exposing them to the onchain environment like seamlessly in the you know via the UX that they're already operating from um is where we'll see a lot of growth in if it's onchain equities if it's onchain preipo you know equities um all of those products combined we know that uh Coinbase is is looking in that direction as well to do onchain equities. So, um feels like there's kind of an inevitable

kind of integration of of these parts and pieces. Um and obviously Kraken, Robin Hood, they've both been making taking steps in that direction, too. So, um this this seems to be kind of like a confirmation of a step in that direction. Put all the things on chain, expose them all to your to your big user base. Um get them trading everything. Yeah, this should be pretty good for error drum now. Um, I imagine that's going to be like the liquidity back end for most of this uh trading. Yeah, I feel like you're right.

Yeah, that's a good shout. Thanks, Annie, for bringing this up right after my my point. Really nails the head there. I'm see I seeing Arrow is up 16%. Yeah, just had a little Yeah, there. So, good shot, Carlos. Yep, definitely makes sense. I I think you could probably go down the um the base application list who's uh going to be most impacted. Um you know, we we already had seen them do their their integration with Morpho. Um so to do like a DEX kind of aggregation uh makes sense. You would see Arrow have some excitement. So if there's other products to come in the future, then um you know, might be worth considering what other base apps could benefit. I guess uh more recently Zora has been one as well,

right? the they integrated the coining posts in the base app uh onto the Zora platform and and Zora caught a big um kind of move off of that news as well on top of their their new uh like flywheel model. So um Bass has has definitely been uh pushing up the apps within its ecosystem lately. Cool. Uh I guess if there's no other thoughts, I am happy to call it there. I feel like we covered all the things that were top of mind today. Any other big takeaways, gentlemen, or is it time to uh go touch some grass and uh enjoy the nice weather this weekend?

I think the silence. Yeah nobody don't speak too quickly. Agreed. It's it's grass touching time, but I'm I'm just going to I want to say this cuz I haven't said it probably since maybe January on this pod and I'm going to just say don't fade the ETFs. I haven't said that in a while and it felt like it was the wrong thing to say, but now I'm I'm I'm getting renewed confidence again. I like it. We'll leave it there. Uh gentlemen, enjoy. Hopefully, I mean, there's nice weather by me. There's nice weather by Mark. Hopefully there's nice weather by the rest of you guys. Um, I'm manifesting that for the global uh audience out there. Uh, and we will see

you all next time. Hey hey hey. [Music]