Institutional Adoption in Crypto: From Narrative to Reality | Roundup

Transcript

I think genuinely new stable coins will benefit existing stable coins because they need to be paired with something on chain like how is that not glaringly obvious to these folks um and you know I will there be a thousand stable coins that end up working probably not maybe like there's 10 but like each of those things will have either a different client base a different Geographic focus a different yield profile a different backing standard like there is room for more stable coins hey everyone quick shout out to today's sponsor namada namada is currently entering phase three their mainnet roll out so make sure you check it out by following the link in today's show notes we'll talk more about namada later today but for now let's get started hey everyone quick disclaimer before we get into today's episode nothing said on bell curve is a

recommendation to buy or sell Securities or tokens this podcast is for informational purposes only and the views expressed by anyone on the show are solely our opinions not Financial advice our guest and I may hold positions in the companies funds or projects discussed all right everyone welcome back to another bell curve you got Michaels one and two fans unfortunately uh we're just virtual this time as opposed to our glorious in-person live uh we got a couple of those recently it's been fun uh it's been those have been nice the last last couple months two inperson pods um I also uh I we'll see but I doubt that we've got 104,000 live streamers uh whereas whereas we did from

d t of people listening to this podcast that that definitely hit some records yeah we had I think when the big man came on it was we got over three like 370 or something like that concurrent which is yeah pretty good yeah but um it's actually we were joking um we we were running about 15 minutes behind and uh Jack Oher uh Jack from scale um was every so everyone was kind of waiting for Trump and then everyone was like who is this guy Jack that's talking about scale so it's very funny uh but yeah I'm curious like what did you guys I mean I did a whole recap episode already with

Jason on just like takeaways from the conference but yeah what did you guys I mean obviously institutional corner of the world definitely a good amount of excitement I don't any takeaways or thoughts from your guys standpoint in the week I mean I I think one one narrative is uh we've been saying for years now that the institutions are coming I think the new narrative is the institutions are already here it's it's they're B they're super excited they're bowled up yeah um yeah I mean look the the stable act or or the genius act for stable coins is going to be seminal um there's going to be positive movements on other policy fronts as well um that just is going to clear a path for every major financial

institution in the world to start to in incorporate or integrate into Defi and that is a huge thing it's not going to happen overnight and we are an industry that has the worst patience of any industry I've ever seen and people will expect it will happen immediately just like we expected that the SBR announcement was going to be a massive teawap that the US government puts on like uh people have crazy expectations but I think if you zoom out and you you kind of like see what's going on um it's never been more exciting markets don't represent that and so maybe that's another Narrative of just like I've been describing it as The Tale of Two Cities um youve got on one

end markets feel like they're in the gutter and honestly a lot of that I don't think has to do with crypto specifically or or even within crypto it's specifically mcoins um but once you actually pull back the layers and see what's going on underneath some of the most important stuff is happening so uh D for me at least was furthering of all of that perspective um being able to hear people talked about it you know I think it was Fidelity or or Black Rock being like yeah we're going to tokenize assets we're put them on ethereum and talking about you know major banks in the US starting their own stable coins um all of this stuff is you would dream of this in

2021 um and now it's actually coming to fruition so very very exciting markets don't represent the excitement so let me get your guys take on this because this is I've heard on a bunch of other podcast people ask this question is okay uh stable coins are here there's going to be a bunch of RW on chain but what do I do with that right I don't really know how to get exposure to that idea and if you don't have access to private Venture deals I sympathize with that view what do you think about the Robbie from Black Rock was speaking at Das about how uh stable coins coming on chain could be a bet on the L1 token like something like ethereum um so I kind of of two minds about this and in one instance I could

see something like usdt or usdc competing with eth as like the the money uh like competing for the money use case on chain um but the other is if you end up generating a whole bunch of fees and if people are holding you know uh stables and you you do marginally more trades on the decks and that generates fees also there kind of like a fee argument and a moneyness argument and you know I'm curious how you guys think about when all these stables and rwas exist on ethereum like is ether good play on those assets being issued on chain or how do you view that whole interaction um I would say yes um and maybe even just to take a step back like you know stable coins are are a subset

of rwas in my mind at least and um so Apollo launched their private credit ETF uh I think early March what do you think the inflows to that product are I can't actually articulate what the value prop is of why Apollo is issuing there like you know private credit's super hot like it's like it's like the biggest narrative in traditional Finance right now what do you think are can't don't cheat all right I'll answer it5 million from Apollo which manages like a hundred billion dollars um and so like people were saying like why is like the Biddle you know tokenization Grand Prix

thing so newsy like it's like Rock has $2 billion in its treasury product on chain and like you know Eric funis was tweeting about this same with James SE fans can you just describe what the Grand Prix is just yeah yeah so the Grand Prix is Sky allocating a billion dollars of their treasury um into these various products to get you know a some diversity out of just like the usdc that they have but b a little bit higher margin in terms of like you're going to get 450 basis points versus 4 or 390 from Circle um and so like you know it obviously jacks up their profitability does a bunch of different things but like this is the first big wave of

tokenization and right now between Athena and Sky that's like 60 or 70% of all the Assets in Biddle and so like that's that's like a huge win for them in the context of like people are launching private credit ETFs and getting like low single digit millions of inflows when you're like an Apollo and so it represents this entirely new Vector of growth for them and I think what people are realizing is like the people who are going to make rwas and tokenization real are the handful of dows on chain today that have a [ __ ] ton of capital to allocate most of those are stable coins and so like basically just talking about sky and you know Athena as well kind of leading this tokenization wave um and I think that's massively bullish and it's going to

happen on on eth and you know I know Athena has their converge chain um Sky frankly has like more of a an ethereum Centric L2 Centric approach to it but like liquidity begets liquidity and like if you tokenize Clos and put them on some random chain with no money on it it's like you might as well have not tokenized it at all and so I do think kind of there is this uh the thesis kind of espoused by Kyle Sani at multicoin which is like this Global State machine in some ways it makes sense in some ways it doesn't the ways it doesn't make sense is like why do stable coins need to be on the chain with all the meme coins it's like that one doesn't make as much sense but like the clo should be on the chain with the stable coins so they

can Market make between each other so they can create the looping environment it's important for that to manifest and I think it's super bullish eth I think it's super bullish sky and and Athena um and I also think like whoever the trafi recipient of these assets is is going to have a pretty huge business okay could you guys explain this to me one thing I don't have really clear thinking on is I'm trying to get a sense of right now the way that um collateral management happens for these especially centralized issuers is off chain all right so usdc has a portfolio of offchain treasuries and you know you assume that Circle just does a good job of managing that risk but uh one thing that I have a less clear intuition on is I saw a guy from Athena tweet that 90%

95% of the incremental demand for Biddle over the last three weeks came from usde I haven't verified that but that's interesting if that's true and I'm just wondering is there an advantage for a stable coin issuer at all of having that collateral tokenized and existing onchain as opposed to just being offchain with some custodian like bny melon or Anchorage or whoever well I I think if you're even putting anything on chain it's still gonna be custodian in some like there's still going to be that what you still have to have is basically the analog to digital connection where and they're all digital but the analogy is basically how do you make sure that

there's an audit trail that the the t- bills are actually in the account that they say they are that they're earning the yield that they say they are you got to be able to connect that Oracle Solutions help with this um audit committees with these Within These Dows help with this being able to put it on chain is an important element when it comes to things like looping or being able to use it as collateral within D5 for these Dows if you were to say hey um we're going to take the Dows Treasury and just like send it all to JP Morgan and go buy a bunch of t- bills with it um that's a less I would say Crypton native approach than being able to say we're going to take these assets we're going to transfer them to usdc put it

into USD we're going to buy the t- bills then we're going to tokenize the t- bill representation on chain put it into whatever the Dow ecosystem is and this token represents the account that holds all the t- bills that's earning all the yield and we can verify it we can audit it monthly statements get put on chain etc etc that's the type of ecosystem that I think we're referencing um where you have a digital representation onchain of what those offchain assets are you can have all different types of assets maybe these are nfts of bespoke private credit deals or even real estate transactions like you could represent anything on chain but it still has to exist onchain it's controlled within the Dow treasury it

holds you know a connection to that offchain asset but then you also get the yield that flows through it as well um and I I think that's you know kind of the world that we are seeing play out especially in the sky ecosystem they've been doing this uh for the last couple of years with their t- bill product um and I can't remember the name of it and you maybe remember the the third party that was kind of facilitating all of it um BL Tower Ander it's like Anda but yeah it's block tower block tower was the was kind of the operator of it and androma was the the kind of the firm that was doing it um so I all of this stuff already exists but it is there there is sort of like a looping element that you get when you put things

on chain cool yeah that's what I was curious about this episode is brought to you by namada namada is the shielded asset Hub rewarding you for protecting the multichain shield your data across any asset and any chain and get shielding rewards for helping strengthen data protection for everyone to learn more follow the link in the description below this episode is brought to you by marinade marinade is a high performance staking delegation platform that brings both liquidity and security to the salana network by connecting Soul holders with the best staking rates on salana follow the link in today's show notes to learn more okay uh speaking of uh well I want to talk about uh just Venture Capital but before since we're already talking about stable coins one so there's actually a big week for new

announcements of stable coins so they're basically four announcements here that are somewhat interesting there's one uh usd1 which is a new stable coin that comes from World Liberty f um which is I think on ethereum and binance smart chain interesting and then there is a joint uh new avit which is the stable coin of custodia which is Caitlyn Long's Bank out in Wyoming and Vantage bank and I gu maybe this is a little bit wonky but I find it it's just a tokenized demand deposit right so you're not it's not collateralized with anything it's just a literally a dollar deposit at a bank on chain which is pretty cool um I think uh s go ahead Sor ised it on ethereum

too and it's on ethereum yeah ethereum so respect state of Wyoming is is talked about issuing their own stable coin also uh I believe on ethereum and then Fidelity is launching announc that they're going to launch a stable coin so tons of it's sort of what we've been talking about the last couple weeks I feel like what you know in this world of new issuers who's going to play in that game and whatever and yeah you're starting to see a lot of new issuers very quickly very different types of issuers as well so it's great I think there's a subset of VCS that are tweeting things like we don't need another stable Co and we don't need it's like there's no need to be gatekeeping things or being nervous about your portfolio like if your portfolio is good like it will do fine um but I think

genuinely new stable coins will benefit existing stable coins because they need to be paired with something on chain like how is that not glaringly obvious to these folks um and you know I will there be a thousand stable coins that end up working probably not maybe like there's 10 but like each of those things will have either a different client base a different Geographic focus a different yield profile different backing standard like there is room for more stable coins um do I think anyone will displace The Big Three probably not um but you know I don't think we should be like gatekeeping this opportunity I did see a funny tweet though that was like you walked up to the convenience store and they're like sorry sir we're accepting JPM USD and uh

py USD and actually we've got a 5% off uh for any AMX USD like great look would you no that's not going to be how it works that's absolutely not how would you spend MX USD versus something else if you got some sort of benefit from it 100% if we if we get to that state we we have lost I right I think that's hyperbolic no I no no average consumer is going to care about what type of USD they're using at all that that is like if if we have gotten there like the product experience is completely messed up wait but can you can you solve that with some sort of can

you abstract that all the way and exactly and this is the point you you abstract it like as soon as you move JP USD out of JP Morgan's wal Garden it becomes I don't know usdc or USD or usds like in defi you get to choose which one you want but I think there will be layers of abstraction just in the same way that when I hold dollars at a Wells farger account and transfer it to a JP Morgan account are actually any dollars that go between those two Banks it is just like a a debit and a credit and two corresponding accounts like that's how transactions work like we will figure out nostro and vro for stable coins but right now I I think in the way that it seems like things are trending you

you've got a war of all the major fintechs or the war of the major financial institutions being like Oh my USD is going to be the most important which I think is good for right now but it it won't last last and uh if we get to a consumer experience where you're having to choose which form of US dollar you're using to pay with we have we're in trouble well Michael what do you think about what I was just thinking as you were describing that is credit cards do some version of this right where they're trying to incentivize their user base and Merchants to accept their card right like you do kind of have something like that um there's at least an analog and it wouldn't like one I never really thought about this before until I'm just

talking this through live but one advantage for banks here right if your your entire world of deposits of potential deposits only have existed domestically thus far now you can actually have an entirely new international world of depositors and it might actually make sense to subsidize those depositors right in the beginning it's just customer acquisition cost right which is you could either try to pair up with Merchants to get discounts for anyone using your stable coin or you could this and this is in this the Hagerty act which is apparently payment stable are not going to be allowed to offer yield to their users I don't know if you guys saw this and have thoughts on that but I agree it from the perspective of uh from the perspective of that's a huge pain in the ass from the user experience I agree but maybe

there's something you could even imagine a yield product which just Aggregates like you have some stable balance in your wallet you go to a merchant and that's offering a deal and they just swap in and out or something like that I'm sure someone will abstract this away but but uh keep in mind you know Visa Mastercard MX are payment rails they're not b Banks uh they are data data networks and if you had to not only choose which card you were going to use at the point of sale but if you also then had to choose which bank account it was coming from and then which type of dollar it was coming from that is that's the poor experience that I'm referring to okay you're absolutely right about that y I want to use my Visa card here and get the 1.1% Back Rewards whatever

but like now I have to choose between seven different stable coins that are attached to my VC account like no that's not work so that that's more of what I'm referencing there may be some interesting consumer payments experiences and and look I I worked on payments for like five years I I think the payments ecosystem is extremely efficient it's extremely entrenched and it's not going anywhere unless there's an act of Congress that basically breaks up the oligopoly of the payment networks it's not going to move um and yeah I I generally think it's going to be really really hard to do point of sale payments with stable coins unless it's something Visa who integrates usdc or another asset and then uses stable coins on the back end which I think they there was

some rumor or some report that apparently uh uh worldcoin is working with them on some crypto wallet to integrate usdc we'll see um but there there is kind of a question as to like what did consumer payments look like I generally don't I I think the if we if we take like the 10,000 foot perspective on stable coins you basically think about what are the different use cases of stable coins consumer payments they don't exist right now that's not something that I expect to be able to walk up you know to the local convenience store swipe my card and have it be something that facilitates uh you know usdc transf transfers on the back end that's like maybe we'll get there eventually but that's not something

that's real right now consumer payments when I'm paying for things that are in a more business context like we sometimes fund Investments with usdc versus a wire transfer like being able to send usdc is actually a lot easier if you've got an educated kind of like Crypton native person on the other end way easier to do that than like wait the two days for the wire to go through so that that's one aspect I get I don't have to do this that much but crossb payments is something that I think is really important and and widely used um and so that's a huge use case for stable coins but I think the other one is and this is maybe more in the usds yield stuff that we can talk about

um being able to look at a stable coin as more of like a a real world asset that has yield denominated or yield generated from it and that's Bas basically what usds is um you've got a diversified approach of assets that are earning yield and you can earn that yield if you stake that asset in the sky savings rate for instance um and so I think that there's an element of well let's think about the use cases payments going to be hard to break into consumer and and especially point of sale um I think the biggest use cases right now are cross border uh for currency and then a real world asset for yield what did you think then of this so the full draft of the hagri genius Act was

released I believe yesterday we're recording this on Thursday and saw that it was going to be any interest payment uh to Holders of stable coins uh the exact word is prohibition on yield uh permitted payment stable coin issuer may not pay interest or yield to Holders of its payment stable coins um so obviously this is beneficial to usdt and usdc also potentially beneficial to Banks um if they were to issue stable coins as well um so some people are saying it's a little bit of an incumbency protection move here like what do you guys think um so I do agree does benefit usdc and usdt the US um I generally think think

there like you know there's the there's the there's a bunch of things in these bills one is like the yield pass back the other is like what is the backing of the stable coin and and I think like you know tether is not 100% treasuries I I believe circle is probably close Circle will probably get there I would say that tether probably will have like a like a usdt America stable coin or like a usdt office in the US where it's like kind of like a different stable coin that's offered specifically to us people and you know basically what that means is like you're able to offer it directly to centralized us exchanges um because I think they at the end of the day will be the people who have to comply with like offering stable coins to their users um

so that's one thing um the other thing is um internationally with MAA um there are uh different standards for stable coin issuers and one of which is um and there is kind of like a Cory in the US legislation and and I think it's mostly on the market structure side is you know if you're a decentralized issuer if if if the issuer is unknown and and you can read the the maker Sky usds M legal opinion um you are effectively um you're allowed more kind of creativity around what your backing is or is not uh you're also allowed more creativity frankly uh to distribute yield because you if you

think about ethereum and and it passing yield to its users um in the context of the stable ingenious bill and the market structure bill it is allowed to do so because it is decentralized and so I think that's kind of more so how usds and ssds specifically will comport with the law um but I think this legislation will effectively bifurcate a lot of things into you're passing back yield or you're not you're decentralized or you're not and and what Michael and I were talking about yesterday when we first read some of the comments about the bill is like a lot of the CD stuff is kind of challenged because like if there's means testing for decentralization in the a6c letter to the SEC and I think that has a pretty

strong chance of becoming something close to law uh where like if you're like you know talking to the centralized exchanges trying to get your you know stable coins back or your collateral back or whatever you know you're not decentralized and then you are a an unregistered security and be an issuer of a centralized token in the US so it's it's like there's going to be start L's uh you know basically dividing these things going forward just out of curiosity though what is the link exactly between decentralization and being able to pass yield back like why why even as a centralized issuer shouldn't you be allowed to pass yield back if it feels like that just benefits your customers right a strong sorry it's what it's what a bank does there's a stronger argument if you

if you are uh not a centralized operator that you are that you're basically a security you're just a you know a um common Enterprise and being able to pass back yield um is security like okay I don't know if I like that that much but I I get it I mean but I also think I don't know should it would be good for you i' would like to get yield pass back to me well right then then you have to be decentralized it's like if if you were to be a centralized operator and everybody who I mean there's still questions on the implementation of this like you get 9% uh with usdc on coinbase right now is is that is that yield pass back I don't

know you're staking your sky in the sky savings rate how is that different from getting 3.9% back from coinbase it's not it's the same thing so like is there like does that qu does that count as yield Passback or is it something where the user has to take a specific action to get the yield to then you know with with that asset unclear um so like there's tons of questions uh but generally if you are um it it look it it looks and feels a lot more like a money market fund which is definitely a security versus a stable coin which is not a security if

everybody who owns this asset is able to earn the yield and I think that's the argument of decentralized then I mean the a16 z letter and the eth status as a commodity would imply that those rules don't necessarily apply to you if there is no control right and look we're we're not we're not policy makers we're not lawyers a million different like like wait what about this one what about that one totally totally totally yeah and to get the yield in ethereum staking you have to stake your eth like there there is an action that you have to take and I think that that's also kind of a core component to this uh at least to to the means testing here is like it's not just uniform like

everybody who owns the shares of a company that issues a dividend gets to participate in the dividend whether you like it or not and same with a stock buyback and there is an element of um value being transported back to ethereum in the form of a burn so that's more akin to a stock buyback where everybody gets to participate in that but um it's sufficiently decentralized at this point which is which is you know the gold standard of what that decentralization means test will be if it's not everybody who gets the the yield Back and You're staking it and you're locking your tokens you're not able to use it then that's a totally different proposition I think one thing that I missed a little bit as well just about

stable coins in general and why they are very good for ecosystems is it just cat like the more Stables that you have just catalyzes a lot of other activity like guys tweet about it driving rwa issuance I found super interesting um yeah so maybe there's not a super easy direct way at least in the short term to bet like to buy something that goes up when more stable coins go up but it it should just bring more activity and opportunity and cool stuff on chain look if if you're interested in stable coins the the approach that we have taken at least is there there's kind of two ways of getting decentralized asset exposure to stable coins the two ways are the rails that they run on so either the

blockchains or the l2s or the infrastructure providers for the different um stable coin ecosystems this may be ethereum this may be ethereum this could be another chain you know that's going to be where a lot of the payments uh for other asset for stable coin assets live uh and then the other bucket that we look at is the actual issuers themselves you know this could be Circle uh Circle Equity tether Equity if you can find it uh or or it could be the issuers of other you know decentralized assets as well NADA is the shielded asset Hub rewarding you to protect the multi-chain built to give you full control over sharing your personal information namata brings data protection to existing assets applications and networks namada ends the era of transparency by default

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of custodial or non-custodial yield integrating staking rewards into salana Financial cial products or leveraging marinade best and Market rewards rate for revenue and treasury management whether you're in defi trafi or somewhere in between marinade has something for you to learn more about marinade follow the link in today's show notes all right fellas uh I would love um actually you know one more crypto story before we I want to talk about VC is just uh hyper liquid so um okay so let me let me try to relay the story as I understand it okay which which is all right it all started with a way back when way back when with a little meme coin called jelly jelly uh issued by one Sam leson uh from slow

Ventures and you know a very low liquidity like low cap low liquidity uh meme coin and um I think it's like $20 million market cap around the time when this all started and someone took out a short position on hyper liquid to the tune of around $6 million and then someone else uh began to B Bally manipulate the price of jelly jelly on other venues pushing that price up they forced that position into liquidation so then it got passed onto hyper liquid itself there was a toxic position so there's also just as like a quick overview there's the hlp which is this Vault that kind of the value proposition of hyper liquid in general is they they uh they list assets very quickly and

they let you B Traders uh trade basically uh whatever they want and so if no one wants to take that position then this h P Vault will do that and be kind of a back stop although there's some Nuance to that as well and so this got passed on to the protocol and then I think the it looked like they were it was like they were looking at a 15 between a 13 and a $15 million loss and uh the founder at hyper liquid Jeff I said there the 16 different validators had convened uh and decided to override the price of the Oracle they reset it they paid out some 700 Grand to traders that lost in that market because of that override and the attacker lost a their their profit um so yeah just additional additional fun data points there's 16

validators 12 of them are controlled by non-team members four of them are controlled by the team um within two minutes all 12 had aligned on the same perspective um that seems like a very fast conversation questionable at best um but the I mean yeah so where where the story continues is they decided that the treasury was going to repay the hlp holders as opposed to giving them uh you know 12 or I think it was2 million of losses instead they decided to cover that so they made hlp hlp hole and the trader had like a 700k loss uh other

interesting data points are the account that made the trade was funded by binance and okx um is that confirmed that that it was it was funded by them or at least that's what I saw last I yeah I well I just will'll say it allegedly because I don't know if that's actually the case but I will say also I think B at least binance listed Perpetual futures um for jelly jelly around the time of which you know would have driven the price up and exacerbated the loss to hyper liquid so coincidence War Games weird don't know so look yeah go ahead well okay so here's the so to te this all up right there's a lot of shenanigans here uh I've seen two

uh perspectives represented uh one is that this is you know a centralized exchange cabal coming out and attacking the decentralized exchange the other is look the you know the mask is off here this is not a decentralized exchange so you know if there was Market manipulation and bad practices that's illegal we shouldn't condone that but also you can't team up and say hey this is the big centralized Guy versus the decentralized guy because this clearly isn't decentralized so i' be curious like where you guys fall probably maybe somewhere in the middle on that but I would I would say it's you know it's I don't think hyper liquid has ever you know said that they're decentralized so

oh they they call themselves The decks really well that's just not true but like respect to the product you know it's it's it's a good product um the problem with being centralized but I guess also decentralized is that like the the I guess the litmus test is maybe like kyc and like this game of whacko you have to play if it's like hey stop shorting jelly jelly we kicking you off okay it's gone hey stop shorting this random other it's like you just like at least with centralized exchanges you got a kyc they knew who you are they can kick you off if you try to get back on they can stop you and so I don't know like picking sides between like binance

and Hyper liquid it's just kind of silly they're all just exchanges to to us at least and one of them has a token and frankly like we don't own it maybe that changes at some point but like as of they both they both have tokens got tokens all got tokens but um I don't know like hyperli would needs to a change the risk model and the other thing that I've noticed is that hlp is down from like 600 million to like 200 million um and I don't know how much of liquidity that drives on the exchange but like I know for [ __ ] sure when be chain launched they were shorting that and so maybe it's nice that they don't have quite as much size um and that they're getting kind of pushed around a little bit more um I think that's

probably good for the ecosystem but I do think like you know bance trying to inflict more losses on not only hlp but all the hyper liquid users is like I don't I don't think we want like coinbase wouldn't do that you know we can't have the biggest companies in our space like hunting each other just like it's a bad look in general yeah o overall bad luck if if that is the case I think it's also um look it's really hard to run a pers d uh Dex exchange it is um just as much about the infrastructure that you build and how fast it is and how you get the growth how you get the users as it is about the risk management and how do you list things how do you D list things like

jelly jelly like nobody's thought about that in probably a month and it only was probably thought about for a week you know total like it got listed but then it just got left and when you have these kind of like you know uh uh orphaned uh markets just sitting there like they're right for the taking because nobody's looking at it nobody's paying attention and why is it that you have the ability to go you know 30% open interest uh based on the market cap of a single you know ill liquid token like that that shouldn't be allowed so like kind of a call to Arms I think in terms of hyper liquid upgrading its risk uh you know parameters and and policies um if if they really do want to do this uh and

and be kind of the everything is changed it just means that you're going to have a lot more issues like this can you continue to defend the hlp uh and make sure that they don't absorb the losses I think they've got a massive enough treasury to be able to do that they got plenty of capital to do it um but at a certain point you're like do you do you hope that you're not in the hlp when the big one one happens and they can't or decide not to cover the loss because they are they're also falling into a bit of moral hazard here if you end up continuing to cover these losses and that becomes the expectation okay so uh one thing also that's a a critical piece of information for this is that the back stop here is

an insurance fund which is denominated in hype which is the native token and that to me I don't know what your guys opinion I really don't like it sorry one one data point I maybe missed or or don't understand I I think it's the treasury who's who's paying back uh hlp not the Insurance Fund uh I got but but Mike is right that the Insurance Fund is denominated in in in hype in hype I mean look like a $6 million loss like just have heard like off hand that like you know Jeff's good for the money generally speaking um and and so is probably the hyper liquidity e system at large but I

mean I I don't know how to quantify this but the hyper liquid hlp pool being a third the size maybe means that like that exchange is like a third the liquidity um because right now like I think people love it because you can trade these these alts with with size on this thing and like hlp will kind of like take the other side um versus like if you're trading on spot binance like man like things are like thin right now like if you're trying to trade all it's it's like being a bull in a china shop like it's it's tough um and so I'm curious to see how that impacts it but yeah I I would say like as the centralized exchange Titans are battling maybe just like you know don't pick a side and just let it play out these are

usually like pretty short-term decisive contests where it's what and there's significant collateral damage as well okay so uh I I might have been Mist I'm pretty sure what back stops the hlp in the event of a loss is the Insurance Fund which is hype they might have made the decision to pay this out via the treasury but well I they find it and look it in the show notes uh but the idea of an insurance fund being denominated in hype in general is like we got to stop with the endogenous collateral stuff Cascade yeah and okay so I obvious I don't look Market manipulation is Market manipulation and it's ille if there was a legal activity then that should not be condoned and that's that's just bad we don't want people doing that but I will say um I've

man it's going to be a really unpopular thing to say but I've always been a little bit of two minds about like CZ and FTX right so let me let me draw a tenuous analogy here and call me out if this is wrong but the way that I looked at we talked about the relationship between Alam and FTX is remember everyone used to think that FTX had such good Tech and it turns out when FTX failed that they didn't have great tech there was just a hedge fund which was willing to absorb the losses of the exchange right so dooby-doo mask right so I mean is it's not super super different what's happening here right there's a desent there's it exchange it is of questionable decentralization there is a back stop right in the form of the hlp and there was a loss and so

what Cy look they're not even the same Quantum that I don't want the crime is uh taking customer funds and pulling them over AG I completely agree it's not nearly there was an actual crime in the FTX I'm just saying the construction of this mechanism right was is potentially faulty and what CZ did in the FTX case was he poked at a faulty mechanism and I don't know I mean like you could say like so so why why is it a faulty mechanism that's not where the crime existed that's not why it blew up the faulty mechanism was if Al incurred a large enough loss then it would actually be a problem right it could it could

absorb small losses and it was basically Sam was willing to run that trade because the equity that he could the cost of what he could sell the FTX equity for would more than make up for the hole and whatever he lost in Alama until there was a massive loss in the form of Luna right and and that's kind of the same thing here right like okay it's a $6 million loss today no harm no foul but that is a shitty mechanism and if there were to actually be a real Attack on this you could probably blow a massive hole in hyper liquid so so FTX Alam on the negative side and this is not the same I'm just going to make the comparison but maybe Citadel on the other side where they are they are you know payment for orderflow with cityel Securities but they also run you know a

30 plus billion dollar hedge fund like they are trading and investing at the same time so like there there is an analogy I'd say that exists outside that works uh with this model where you've got prop capital and kind of the market making capabilities let's say the the the areas that you get into an issue is where you have massive loss um and can't you know absorb that loss right that really frankly I think only half has happened in crypto relative to the size of these firms so maybe they're starting off on on you know a a more negative perspective just given how uh Wy these markets can be a12 million loss not going to move the needle but a billion

dollar loss like or a hack that would be difficult and that would be more scary um also we we've we've done a bunch of other like kind of like we've seen a lot of pers decks dexes come and go and they've all had their different liquidity designs one was the uh synthetics infinite liquidity back bad that was like those was like five years ago but it was just like yeah you can't let people trade unlimited size on alts yeah with with like any sort of funding rate is not make you right um so that's one another one was the virtual amm o which remember that one mhm and I I forget what they were called but um the

virtual amm is just like never caught up to the real price and so you you'd basically be able to front run or ARB or sandwich all these different bmm prices and that's kind of what hyper liquid is but like like the problem with like the virtual amm that we used to see is that like they didn't have any sort of capital to correct the imbalance nor any sort of hft Market maker to to you know facilitate that and Hyper liquid is kind of like pioneering like this V amm model um but like I I I think it's like in my personal opinion they did the right thing which is saving users from any you know more losses um it's just like one thing that we don't want like so what

they Mark the jelly jelly price favorable to them like [ __ ] the guy who is trying to you know manipulate the pricing like we should definitely be on the side of self- policing and saving users but what what will be the thing is like what risk model do they come out with next and and that may even push the entire per space forward if they can think of something that's like interesting enough so yeah I we have no bags again but I do think it's like I don't know I wouldn't bet against hyper liquid and also like getting in a fight with binance is terrifying so yeah even know what to think yeah I know there are a lot of like hyper liquid is one of those coins that's done really well and people have actually made money on consequentially people really defend

it right or there wased bag defense yesterday yeah 100% like guys like I don't know 12 $20 was the floor and then $12 was the floor it's like so hard to tell where these things bought them but that's definitely a fud event right there if Finance attacks you may maybe that was the bottom um yeah and I'm not defend like I have I like I think hyper liquid's been an amazing success story and I'm 100% rooting for it especially if this was real illegal Market manipulation that that's nothing to celebrate right it's just it's kind of an interesting thought I mean people used to talk about this too with George Soros and when he broke the bank of England and there were these faulty exchange rate mechanisms and

there there people just debated this right it was on the one hand it was these evil hedge funds bankrupting countries and the hedge fund perspective was always it was your fault for making a shitty uh mechanism that someone was going to exploit so I don't know there there there is also maybe an element of this is playing with the big boys looks like right like this is Imagine imagine back in the day when they were [ __ ] slicing and dicing up Clos and shoving them into every little corner of the world that they could find and then it all blew up and they were like oh yeah we we actually don't know how it it all worked like at least the transparency here is like got it this all happened in an afternoon and the next day everyone's refunded and we're trying to build

something better like it's terrifying to think about the financial experimentation that happens in big Banks where just like they develop a nuclear weapon and they just shove it in their [ __ ] desk drawer and they're like hopefully this doesn't go off yeah like what it's crazy Traders AI enthusiasts and deons listen up the game is changing and desk is leading the charge to celebrate their launch desk is running a trading campaign with three major highlights 38% of their token Supply will be allocated to airdrops they're offering the lowest trading fees on Earth and finally they will be running a desk referral program the more people you invite the bigger your rewards will be to get started click the link at the show notes below and make sure to follow at trade ones this episode is brought to you by Moro Moro

is the first and only defi protocol coinbase has integrated directly into their main app giving millions of users access to borrow against their Bitcoin on coinbase just as web 2 companies like Google Amazon and meta were built on internet protocols the largest financial companies of the future such as coinbase will build on decentralized protocols like Moro whether you're an individual fund fintech or institution Moro is for you follow the Link in today's show notes to tr Moro today okay I had a uh I had so I saw an article in the Wall Street Journal this week or maybe it's Bloomberg about uh private Equity Lobby to be able to include that in 401ks and you know on the one hand uh you could you could say hey like a bunch

of gains have happened in private markets right it doesn't make sense to exclude retail from that the more cynical approach to that would be private Equity has run out of buyers for their bags and they're trying to stuff it into you know Americans retirements right like that retirement funds like that's the I I mean the truth is always somewhere in the middle here right and it depends on if they're fairly valued assets or not but I i' would be curious you know when you guys hear stories like that uh private private Equity so you know historically private Equity is you're you're buying at a company with debt it's anywhere from a mid-stage company to a late Stage Company um you are doing whatever you can to increase revenue and cut costs while you own that company you own that company for anywhere from three to five years and

then you sell it either to another larger private Equity Firm or you take the company public like that's the basic business model of private equity and historically you know some of the best firms are looking at High Teens to low 20s irr um but what is incumbent within this business model is a lot of debt and this is called The Leverage finance department at every Investment Bank and it's all floating rate and it's not fixed uh so it's Sofer plus whatever two 300 bips which means that when you've got a rate cycle like we're in right now the profitability of these business models goes way down and when that happens uh in conjunction with a very limited if if

not non-existent m&a market and a very limited if not non-existent IPO Market these private Equity firms are hurting uh pretty pretty badly um you know they can't get liquidity on assets they're holding them longer than they wanted to the the just the interest payments alone on these assets is starting to eat into uh you know the way that they build their portfolio construction I I have a friend who works at a large fund um they had to raise a separate sidecar fund to add to their existing fund and the entire purpose of the separate sidecar fund from existing LPS is just to pay the additional interest that they have

to pay on all of their portfolio compan no no more news like this so it's it's not good necessarily for a lot of these uh private AC firms now the best are going to continue to do well um but it it's going to be tough I think for the next couple of years for these firms especially you know when you've got structural change like a lot of these firms were very commercial real estate focused you know they were buying up buildings in San Francisco here and I think they're still you know looking at Commercial Real Estate but like that Market has fundamentally changed um where tier 2 cities are probably more attractive versus tier one cities for new new builds and you've got ample you know office space available in San

Francisco these days um and yeah at the same time you've got really really attractive opportunities on the data center buildout and sort of like the warehouse and and shipping contain or shipping infrastructure um with the Amazon and the AI effects um and so like you know there are massive structural changes going on with within a lot of these private Equity Industries as well um but yeah it is it is Bleak um I I would imagine I would chalk this up to they're looking for new LP bases because it's hard for them to raise there was a great Matt LaVine Artic uh maybe two or three days ago where he was writing on private Equity he said there's there's one way to think

about private Equity is in the 80s a bunch of guys realized that private businesses could be more levered which is a very funny summary of basically the it's literally what if anybody wants to read an amazing book Barbarians at the gate it's the start it's it's uh rgr abiso uh KKR um there's a terrible movie read the book instead um but it it is uh yeah it's basically you're taking out you're basically doing the mortgage uh that you do on a house 20% down 80% debt and you get a lot of Leverage with that and all you got to do is cut 10 to 20% costs or increase Revenue 10 to 20% and that 10 to 20% with 5x leverage becomes 50% on

that investment hey what do you that um okay could we talk about maybe just close on m&a and crypto and just the state of venture capital at large I there there were a couple of announcement over the course of the last two weeks I think we missed it um last week because of Das but there was a kraken um acquired for 1.5 billion Ninja Traders a Futures Trading platform I think that's the largest crypto m&a piece of activity ever what was the size 2 and a half billion or one and a half billion one and a half yeah one and a half um there's rumors of coinbase getting close to closing derit which is which is an international options exchange which

will be I mean that'll be fascinating to see do they keep it International or does that become something that's available to us customers um I look I think Bridge kind of like was the the go was like the the starting gun for all these businesses all these companies looking at crypto and all the businesses that are doing well but maybe not wanting to be Standalone businesses that are very attractive acquisition opportunities um I I think people look back on bridge stripe as one of the uh seal kind of like YouTube Google ask Acquisitions for the industry I agree um and you know the reason I think that's important as well just it oxygenates the market especially

in the later stage uh Dan tapiero um uh one of the lead investors at blockworks but also 1rt and 10t funds uh you know he I saw a headline uh that he was predicting some uh more m& or IPO activity this year potentially in the form of spaxs um and so yeah if you're an equity investor in crypto and there was no token launch like you've been sitting on probably pretty overvalued at one point private equity for a very long time with very few success stor stories and so I'd be curious because people have been talking about m&a and crypto for a very long time uh it hasn't really materialized but I think for the first time it does feel like there are legitimate Whispers of actual m&a activity and it 2025 being a big year for m&a and then maybe we could just

close on yeah just like BC in in general which has been I was reading an article the other it's yeah very under under stress there's been kind of broad underperformance maybe outside of crypto uh VC like so yeah what do you guys think about the m& side of things and then be the VC industry I guess for large m&a um I mean I think a lot of it will actually come down to if cor weave does well in their IPO over the next couple weeks people are like we have a p IPO we have a p liquidity let's like be up the business different business lines more of a story to tell investors like core weave the AI data data center play bought this things called weights and biases which is like a kind of like AI

model I don't actually know what it is just like an AI model startup just to give it a little bit more flavor I think kind of ninja Trader and Kraken is kind of like a similar thing where they're just trying to like beef up their product offerings and and like different paths that they could you know talk through on an earnings call um there are a lot of small companies that are frankly like Aqua hirs I wouldn't even consider those m&a um but I do think that given the right IPO environment you are going to see a lot of like over a billion m&a into the the large companies of the world because like as Kraken starts bidding on these assets you know coinbase is hot on their heels with other ideas um and that man that Dynamic you know generally leads outcomes in m&a

in crypto yeah fully agree I mean we've got a couple of portfolio companies going through the m& process right now um it also like just as if anybody generally wants to think about it the way we break it down is there's sort of three buckets of m&a there's uh people product and business those are the three things that they could be buying and they kind of like increase in value over time you know buying a team um like in in traditional kind of Tech Aqua hires you know one to$ 1.5 million per engineer is kind of like the acquisition price and these are usually structured as like really good compensation packages at a

larger company um and and that's kind of like an outcome for a lot of companies that don't hit product Market fit um if you do start to hit product Market fit and you're buying the product that's where there's some deeper integration maybe you know um I don't know an example but maybe this would be like um spindle that was bought by coinbase you know doing an ads uh attribution engine maybe they maybe Bas wants to get into more of like the ads world and and they're going to incorporate um what they're building at spindle into the base offering um so like that's more of like you're buying the people and the product um but if you're buying the people the product and the business the business is you know how you get to a billion plus

acquisition um and that's where you've got something that's attributable to the Top Line maybe even the bottom line from day one um when you're talking acquisition price it's not just the the Strategic value of bringing that in like a ninja Trader plus Kraken or a derit plus coinbase but it's also the Strategic value of not having that live outside of you know the company um and steal market share away from the company in that respect um there's a lot of ways to slice it um but yeah I'd say uh yeah Advance like like to Michael's Point like how many people would want to buy bridge for their company you know like well how many

people could that's that's why you know it'd be like you know the third best in that category or the fourth it's like I would I could name probably five companies off the top of my head it's that Robin Hood is going it seems like the rest of the field is probably not far yeah I was just say they had they had an announcement this week too about banking y like they're getting into uh banking as and and they're doing a full push into crypto like the competition is definitely heating up in that space yeah I was gonna say Robin Hood has been conspicuously quiet on this front um I would imagine that they are either working on things or thinking about things like they're just not sitting waiting on their hands uh especially

with black making public statements about how excited they are about crypto um I I don't even know what you know the acquisition capabilities are but as Hood price goes up so does the opportunity set of what they can buy because that's the other part too is that if you're a publicly traded company you have your own token it's called your publicly traded Equity that you that you can use as a currency um but it it's it's goingon to be interesting I I think um maybe this dovetails into the Venture perspective but it's nice to see the m&a market starting to open up again because historically for traditional Venture crypto Venture is very different but historically for for traditional Venture that's like the vast majority of liquidity that you get

and if if you're in yeah unless you're doing like late really really late stage or if you're like a Founders fund or maybe an inuries and horowits you're not seeing very many IPOs even over multiple funds and so the vast majority of your DPI which is your distributions comes from m&a activity and just with um at least anecdotally what I have heard over the last Administration if there was any acquisition over I think it was 90 or maybe $120 million it got autof flagged by the Sherman Act um and so basically anything over that level had to go through the antitrust process which basically put a stop to any m&a um Acquisitions or Aqua hires or like these

you know4 50 million Acquisitions those were still going on but anything that really had size was was getting flagged and so the lifeblood of the Venture Capital industry r large has been at a standstill for the last four and a half five years and what does that mean now well we we' been talking with you know us endowments and you know there are some of our LPS and um one stat that they gave which is pretty pretty insane is that they they interviewed or surveyed all the The Venture portfolio managers at us endowments and um the the Venture portfolio managers who you know range hundreds of millions to billions of dollars deployed

into Venture Capital they said that 70% of them over the last five years have been cash flow negative which is crazy to think about uh because what that means is you know historically you would say okay the 2014 vintage Venture fund maybe it's got a bunch of things in it that go public maybe some things that get bought um in in like years five six seven eight uh those get the distributions which then fund the 2022 the 2023 the 2024 new funds that are coming out and so it's kind of like this you know process where you're recycling Capital well if you have no distributions that means there are no 224 vintages because they don't have any money to deploy into these new

funds and that's the world that the Venture Capital industry is living right now yeah exactly where there's no IDE Shane me but like precisely like there was some stat that I read that there's one US endowment that 2% of the entire endowment is in one company I'm guessing it's stripe uh or or potential SpaceX has enough liquidity but like that's an insane and and think about it these these Venture these uh endowments you know they're 10 20 3040 billion dollars but they're only allocating 15 to 20 to 25% to venture capital and and you know crypto is even as small percentage of that Venture book itself and so if you have a two to4

million Venture book and you've got I guess at that point 800 million of a $40 billion doll endowment is one company like that is an insane proposition um lot of lot of risk um so I I think broadly The Venture Capital industry is in a really really tough place we also heard U from one of our LPS another crazy stat which over the last 25 years there's been 3,000 Venture firms the vast majority of them are out of business at this point but over that 25 year period there are seven on average seven funds that those firms have had and you know every two years GI orate two to three years you're you're raising

a new fund the number of venture firms out of the 3,000 that over that seven fund cycle have had three 3x distributed funds is 21 out of 3,000 not even 1% so if you are and I think Venture Capital you know is is definitely in a tough place where you have to be in the top desile you have to be consistently delivering three to five but realistically like five to 10 x funds if you're not there you're not going to stay in business um if you're median you're basically like having to prove your worth and if you're below median which is basically the bottom 50% you're

out of business and like that's that's basically just how the landscape is looking so the dispersion of the traditional Venture Market is happening you've got light speed you've got General Catalyst you've got you know they're raising multi-billion dollar funds right now um so they're obviously doing fine with their with their LP bases but it just means that there aren't going to be any other firms that can that can get there um within crypto all of this is to say it's very very different um mostly because the liquidity profile is very very different Cambridge I think it was Cambridge or maybe it was pitchbook said that if you were in a 2017 vintage Venture fund and you had any distributions 100% of that came from uh from crypto so over the

last seven years if you had any distributions from a venture fund 100% of that came from crypto which is why a lot of these LPS are excited about crypto right now is because you know we're not talking about 10 to 15 year hold periods for seed stage Investments we're talking about like five to seven year on average hold periods U and there's liquidity in the meantime time if you need to so very different proposition but traditional Venture uh along with lever private Equity um are are both in very difficult positions right now tough yeah I mean what do you what do you um attribute the the challenging environment to is it over supply of capital is it I saw someone was tweeting about this last week the

long feedback loop that it takes uh you know you're kind of in Venture for a decade before you know you're any good at it um companies are staying priv longer you know I I I think it's it's not it's not whether or not these investors are good like people generally know who the good investors are it's more that these companies are choosing to stay private longer and for the last four and a half years there was Zero m&a activity because everything got I mean think about the acquisition there's a$ 20 billion doll figma Adobe acquisition that got shut down um The Plaid deal got shut down got shut down yeah I forg you know that's like people don't understand that it isn't just like money that goes back

to those investors and congrats it's like money that goes back to the state of California which then funds the next venture fund to go off and make the next Investments so when you don't have that like the Innovation economy gets hit and that that's really the big unfortunate um Catalyst here is like it just means it's GNA be that much harder which means there's going to be less Venture dollars which means people aren't going to be able to raise and so it all trickles down do you think that that figma I forgot that figma didn't go through to Adobe was that a Lena KH era decision correct same with same with the Plaid one so man do you think that figma just caught such an unbelievably Raw Deal at the same time that chbt is making everything

Studio gibl fied and it'd be it's easier than it's ever been right to be a graphic you have to imagine that feels existential to them so hard to tell like I think figma is figma could be bigger because of AI or it could be a zero um it won't be a zero I mean there there like multiple billions of Revenue right I don't know there there's so much especially in web 2 right now it feels like there's more platform risk than ever in traditional technology like oh sorry your your job compan has been deleted because now we can you know I saw someone make like an old school block Works ad it's [ __ ] sick like that would literally 24 hours

did that he showed me the prompt I mean it took 15 seconds it was that wasn't a crazy prompt that was like I mean here here's what I will say uh just like getting back to the whole like Venture you know stuff discussion like if the cor we IPO does well the capital markets will turn back on there will be more m&a there will be more IPOs like and and I think like my guess is that someone from the Trump Administration is on the horn to like the big Banks being like hey so this is obviously an important IPO but like if the perception in the US is that the IPO window is actually closed like I think the drum Administration is not doing their job like there's a lot of vested interest for this to go well but I mean the over supply of capital is not

the problem with Venture it's like it's like you know like gun guns don't kill people like people kill people like there was people behind those dollars making core investment decisions and they were mostly Boomers um and I think there was just like this 10year period from 2005 to 20 you know 18 where it was just like oh you're like a reasonably smart dude in Tech like you probably have amazing deal flow just like please disabuse yourself of that notion yeah the I I do think the reason why it has taken effect is historically The Venture industry as an asset class was like a rounding error on the private Equity asset class and and now they are frankly like look at the breakdowns of

any of these us endowments and US endowments are I would consider them to be like some of the most sophisticated asset allocators uh especially the Ivy Leagues and they break out venture capital from private Equity now whereas that didn't used to be the case and they look at them as distinct asset classes because they're big enough and when you used to have like The Benchmark and even go back and look at the fund sizes of like the 90s Kleiner and Sequoia funds those are like three four 500 million Max and there's this concept in Venture which is an interesting one it's like what do you incentivize are you incentivized by the two or are you incentivized by the 20 and what that means is are you an asset gatherer or are you an asset

multiplier and if you have a smaller fund you obviously care more about the multiple because you want the 20% carried interest of the performance that you make whereas if you're raising $4 billion you get paid $80 million a year for 10 years off of that one fund isn't that great it it is a crazy math equation when you really break it down and you know some of the GPS at those firms are like well I could really fight my butt off to be able to get like a 3X fund or I can just kind of like ride this out at like a 2X fund and get paid million dollar a year for the next 20 years like ah it sounds easier to go option too so there is the effect of the denominator effect has taken over and

without distributions these endowments are sitting on massive gains um which just means they can't allocate to new firms and funds um so that that it furthers the problem but it is what it is now hey guys who would you guess is the new cover of Forbes Magazine Justin Sun yeah his Excellency dude yeah my only question on seeing that I saw that right before we hopped on my only question is how much did that cost I mean I like him on the cover I thought that was like entirely AI generated but devastated to hear it's real Forbes what are you doing the president's 8.5

billion do crypto savior Jus son do you know what Trump hates being spoken for or being told that you know you bailed him out or like all that [ __ ] any Goodwill he engendered he just deleted yeah I crypto's billionaire Barker like have you ever you ever seen Steve wickoff or like any of the cabinet speak about Trump or anything they're doing it's all it's always like Trump enabled this so we did it Trump made the decision thanks to Trump we did that none of it is like we bailed Trump out he made their wrong like Trump's gonna [ __ ] freak out when he sees this is my guess I agree with that I don't think he's gonna appreciate the uh bailout

comment at all yeah I don't think that uh I don't people monitor crypto Twitter I've had people from his team reach out to me on CT and you know different stuff like let's see yeah I I don't actually think you can buy for Forbes covers I could be woefully na even and wrong about that I would be if you can then well you're you're not you're not directly paying for it you're are paying an expensive PR firm to do expensive things that then get you in front of the people when am I gonna be on the cover of block Works bro should make a physical magazine oh I think there are actually a couple

of crypto doesn't Bitcoin magazine have a physical yeah yeah it does tal used right for it yeah wow you know what I so Pete Rizzo just recently joined uh blockworks the host of Supply shock and he was mentioning I think he was actually there for SL hired bolic um as a as an like as a which is that's a crazy statement to to make uh in general but yeah he used to write for Bitcoin mag so they've been around for a long time props of them all right fellas I think we can call it here this is a fun one yeah see you guys next week later