LIVE: Aave, Polymarket, LayerZero | 0xResearch

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[music] [music] [music] [music] [music] What's up, guys? Welcome back to another

episode of Zurax Research. Today's a very, very exciting day because I think this is the first time we've had the second time we've had anybody from Advisory on um with the rest of the analyst folks. Uh everybody say a warm welcome to Sylvia. Sylvia, how you doing? >> I'm doing well, man. Thanks. Thanks for having me. First time. >> I'm very excited. Thank you for Very good. Thank you for coming on such short notice. The a debacle happened earlier today. So I wanted to get some um I guess prepared opinions as opposed to what I would say I typically do which is very much like oh X party is wrong. Let's just go ahead

with it. So I'm happy I'm happy you could make the time to come on. >> Yeah. Yeah. For sure. For sure. And um >> go ahead. >> Yeah, know regarding the the other stuff, it's not super prepared, but as I talking older, I'm really happy about this. Um there are some details that need to be better understood. Like this is a big investments. Um and it's more than 30% of the treasury. So it has a big impact on the runway. And uh what I think it makes sense to do is to stop doing buybacks and cover with the savings these investments in growth.

>> Yeah. >> Um so you get like stable solid runway and you grow as a fintech company. I don't think that Revolute Rump and others they do they do buybacks right and a did 35 millions of buybacks something like this in 25. Um now that the proposal like aligns better all the parties I think buybacks are less necessary and if revenues from fintech uh started to come um it will be like an example of like an entity that has protocol revenues front end revenues everything flows into the treasury treasury is controlled by the token so I think we are very close to something that even uh traditional people can

invest into and uh so yeah I'm happy about that and um the only thing will be to to take decisions to to manage the treasury so that this is like actually sustainable but overall I think that's great and I don't really understand most of the controversies that every time we get this proposal follow >> I think that makes sense so I have maybe like before we really really get into it I'll give a short rundown of what I think the general like process has been ACI is very very involved like Mark Stellar is very involved with a DAO. Um, ACI or A Chan initiative was the one that decided or I guess voted for

buybacks. They were behind this buyback movement and so far $20 million of a token has been bought back. Um, one historical criticism not just for a but I guess for like all let's say D5 1.0 0 protocols has been that there's been and all D5 protocols really is that there's been a significant um difference between the lab side and the DAO side in which sometimes the labs benefits more than the DAO side um I think most of the time that's the case um and this is maybe like the third proposal from the big boys I would say like unis swap is a big boy morpho is a big one um a is also a big one that's

been like we very much want to combine DAO and labs to align them and then right everything until here is completely accurate. I'm not misrepresenting anything. >> Yeah. Yeah. Yeah. 100%. >> Um the opposite side of what you said which is like combining the two is I guess ACI's criticism of the labs is that not everything that the labs does is constantly public. So they're a bit and the spend is it's it's $50 million. Is that for one year or is that for like five years?

>> Yeah. So this is a point from already the proposal is this is an annual budget which we're going to try to renew every year. And this bring up this brings up like another point which is I think a general like lack of it's not a lack it's something I wish to see more a general longer term view. >> Yeah. >> So like two three years give us the revenue targets the cost target the break even point. Um so even like without disclosing every costline item just like having an idea of what token holders could expect by starting this process because um the the worst case scenario is that we we do this and next year there is whatever downturn and the

proposal doesn't pass and so you just like throw through money you're just born money without any uh good good outcome. So that would be my my critique to this uh the only thing I would say. >> I think that makes sense. And this idea of like because you said we don't want to see costs line by line but a general idea would make sense. I imagine eventually these guys will have to do line by like I think the most common feedback that I've seen and what the the A labs response has always been like oh like this is just a temperature check.

We're not posting the full proposal yet. has been that um well there needs to be line like it's a lot of money to ask for and I guess people don't really know what it's going to go towards right like they should be doing some form of I guess more line by line analysis I'm not sure like it's it's generally this is something that I think it's only in crypto because if you do like whatever fund raise and I don't think 25 millions or like the 50 millions is a big amount for what they want to achieve. You don't need to do like line by line cost in a time sheet.

There may be you know the way it works there may be some like expenses that you you need specific approval for but it's in the best interest of everyone that the execution stays like lean and coming up with like cost item for everything will be like an extra super overhead. Um, so I don't I don't know if like I'm just a centralization maxi, but I believe that in a very like lean execution. Um, and I believe to to be able to vote me with my wallet. So, um, in my case, I usually, you know, I like the proposal, I buy, I don't like it, I sell. Um, and if the team is doesn't align, it's not align with the token, this is no reason for me to to buy generally. [snorts] Um

so and here the economics alignment the the old things the treasury looks like there is an incentive um and so I don't as a token holder this is my personal opinion I don't need and want to see line by line I wouldn't look at it uh in the detail maybe Sylvia just to dig into the detail here on your viewpoint it seems like prior conversations around obvious specifically have been this push poll between obviously token holders the DAO and then the labs team and there's been a difference in terms of okay fund the labs team but then maybe the labs team also captures the revenue streams from some of the products they create um and

that's kind of caused a tension in the sense that it doesn't make sense to fund them if then also they get to keep all the money for all the things that they build anyway. It's like they're sort of kind of running away with it versus it seems like this proposal there's an intention to say okay fund us but all the money that a products make then go to the DAO and then the DAO continues to sort of decide how to fund its operations going forward whether that's paying labs or someone else but probably labs for foreseeable future um from your POV like that's that's the correct direction forward like you like seeing this general change from labs was kind of doing its thing and where it could um was maybe keeping some of the revenue

some of the revenue would go to the DAO. I think this kind of aligns things more just more generally like streamlines things under one kind of roof. >> Yeah. Yeah. No, that's true. The this is very good and actually I think uh the previous problems were um sorry I got some noises some dogs in the background. Sorry >> angry dogs. [snorts] Give me give me one sec. Should be better. And um yeah, I was saying yeah, this is very very positive and uh it's actually maybe more important than the the founding piece.

And uh I actually agree with the previous controversy about like this one piece that that would that was like fishy and I didn't like that. Um, but it's great to see that in a in a few short in a short amount of time, the the lab kind of like rebounded and they turned around and they they came up with this new new framework. Um, and I guess it's really hard to do it to to do like every part has these different incentives. So you cannot there is only you can get only to a point like to a point where it's not perfect. Uh but you are aligned to the best of your possibilities in 2026 with the

regulation we have. Um so I think yeah it's I'm super super supportive of that and I have not seen like any any other voice on this point. So this is like general consensus that this is the first part of the proposal is very good and people are discussing on the numbers basically of like how much you're do we want where do we want to invest like disclosure and the the length of the proposal and so like procedural stuff but the substance is is very good. >> Yeah, I think that makes sense. Um, and in the proposal they kind of outlined this new direction for A. Um, so it's a kit, the card. Um, and then there's a

few other things. To me, it seems like A's really started to focus on their end a bit more. I think like the past two years have been kind of dominated by Morpho in terms of mind share. Um, I know like V4 is supposed to come up and it's very exciting. Um, yeah. Do you have any like thoughts on that? Do you think A's direction is correct? I know Horizon we laed as probably the correct way to approach it internally. I'm not sure if you guys have a different opinion on the advisory side. Um and just like generally curious if you think these steps that they've outlined that they would take with the 50 million make sense or if there something else that you would want to then want to see them focus on.

>> Yeah, interesting question. And I think the the way I think about it is AI is a growing cryptoc protocol and a nent fintech platform and the fintech platform side you have a retail product the lab the app and card and institutional products including RWAS. So they have a lending protocol business which benefits from all of these um and they they have they are like starting to get into the the distribution side. I think this makes a lot of sense because the margins of of lending protocols and lending platforms are generally like low and distribution still tend to be king and capture a lot of fees. Um even though lending protocols are like good

businesses um still with the the tiny markets we have on chain now it's$und00 million business so um it's it's very very relevant. Um I think the the the strategy totally totally makes sense and there is like a wide space. Uh I'm not sure that this is like more for other players. There is like a strong super strong competitive dynamics. I think it's it's more around the the market is so wide. The time is so large and crypto can offer so much more than fintech and we are realizing this. Um so it's it's not going to be like an easy go to market or like immediate with immediate success but I generally

think this is the right direction. So I think neo banks will be distribution channel for lending protocols um and will like increase the financial freedom of people like around the world. So if they can open the door of the stock it's it's great and uh I'm supportive of that. Um, yeah, I agree. I'm curious like what you think about I was so there's this like very popular Gwart tweet, right, which is like it seems like you guys just built a lot of open source software so that like Robin Hood and stuff can just take it and use it.

And then I'm curious what you think about like we mentioned Revolute a few times. a Morpho's model right now fits a lot better with a Revolute as opposed to a I think the way that they would want to approach it potentially just because to me morpho feels more customizable. Um and B if they want to do some consumerf facing thing. Um I don't know how well they can compete against I don't know Revolute for example or whatever like a Robin Hood cash or something like that. And I know I don't know if this you guys spend a lot of time on this on advisory so I'm also happy to like Yakob Shondaanda or Danny if you guys have any thoughts on this as well but like curious how you

think as we've realized that we're not displacing fintex but fintex are just going to use this as their back end how much consumer growth we can see in these products like a and morpho and stuff. Yeah, I think the the thing is a as the crypto platform can never think the this up from first principles and um so and they can be like months and even years um like um anticipating like the moves over re and others. So now like if you think about the the consumer experience of a lending platform as a like supply capital type of experience I think yes this is like very in line with what

others can do but I think um we are seeing another trend this week uh like borrowing against stocks and borrowing against stocks is impossible for it users around the world even if you are like us and it's accessible only to ways like institutional uh Bank A cannot see stocks you have in bank B. If you want a loan, you can use that on your brokerage account. And so this kind of net new uh consumer experience can can be like the playground from for the crypto apps and can be the the the wedge to it market share. I don't think the the like the having like a saving product to to make

3 4% with euro or USDC is very appealing uh tremendously appealing but it's really only a starting point. Um so uh that that's my that's my view but uh on the other end I see that the revolution of this war will um there will be like fierce competition like in this segment. >> Yeah I I think that makes sense. I will say that like that's the first time because I think historically composability has been like oh you can take like whatever your Olympus bonds and deposit them into like invectus and then make it work but I think this is the first instance of like I would say composability that I think makes a lot of sense and it's the first time I've

seen that feels like we used to talk a lot more about democratization of finance and we don't really talk a lot about it now but what you mentioned I think yeah like you can do I think institutions can do that and also I think in private private banking you can borrow on your because you have a very close relationship with your banker but I mean in regular life you just can't borrow in your stocks it's not a very easy experience so I'm very excited about that as well um I think Danny I don't have any other questions on a unless you have a magical diet tribe that you want to jump into. Uh I don't have a magical diet tribe but maybe Sylvia if we could talk to so like there is some push back and I heard you mention earlier on that um maybe a bunch

of it you don't align with maybe some of it you do. Um obviously the I think we talked a little bit about the amount of funding like for the year and the difficulties of raising a proposal every single year. Um there's uncertainty in that but uh Mark Zeller raised he raised four main points that he called out. one was that this is like a bunch of big issues kind of all tied into one proposal and he thought that that doesn't necessarily make sense like maybe you should break them up. Um I don't know whether that makes sense or doesn't since it's sort of like one broad big strategy. Um I can kind of see the reasoning there. Um and then another one he had was um full wallet disclosure as well as independent revenue

verification. Um, so some about kind of breaking things down and like maybe like I'm curious your takes on a couple of these. So like does would it make more sense to break out each of the pieces here like what the strategy is kind of like how much the funding amount is you know then how the revenue and and the app kind of rollouts roll into that procedure afterwards as well as like do you think there's more transparency required kind of across the board in terms of who owns what? um you know who's voting with which tokens and how how the labs and the DAO are sort of integrated in that way.

>> Yeah. Know these are these are very delicate um questions and uh and there are each of these like has its own like merit and point. Um I don't know if um like I'm not like expert enough on the governance process to know if it makes sense. So like the I think that the path that makes more sense is like to prove this and then like enforce a bit later like some more transparency and some more measures. These days with platforms like accountable like ZK ztls solutions shouldn't be hard to verify revenues of change. So it's all everything is feasible but um yeah my worry is that it risks to

you know slow down the process. Um so what I would like to see more is like there like more trust between these parties uh so that they can like speed up the process. Um and yes like apply these transparent measures but um it's hard to you know digest everything uh all at once and it's even maybe it's harder to you know split these big in decisions in many subd decisions. Um, so I I see again like I see I see the points. I'm I'm not sure about the the disclosure of the wallets uh to be honest. Something that I haven't thought um about enough. But uh um I think this

point makes sense, but I don't think these are points that would make me like vote no to to the proposal as is. Uh right. Um it's not perfect. Um but I really would like for this to proceed and to to know that revenues will go to the to the to the to the talk to the to the treasury to the DAO. Um and then okay you know I I cannot trust hubs that in the first months in the first year they will will not I don't they will not like hide or consider revenues or do shady things. Um that's what I want to to think that's my my approach on this.

Then over time the accounting procedures the the IR everything will improve and maybe we'll also play a role on that and um and things will start to be more transparent so it's like more continuous process. >> Yeah I think that go ahead. >> Yeah one last maybe to round it out on the A discussion is like what what do you think is the ideal end state for a as like an organization? I feel like in this conversation, the way that you're saying like Labs and DAO, they don't trust each other. It's almost like you're it'd be like if you're running a company and you had an employee working for you and you're like, I can't trust this employee. He might be committing fraud right now and stealing money from me. Um, so I need to

like safeguard him from doing that, but also let him ship everything for our product. And I'm curious like does I mean is the structure just at odds with the success of the protocol? Do you think that they need to like do something more drastic to fully align things or or is there a way out? >> Yeah, this is um this is a great point and uh I was thinking this morning this is like almost almost like watching something like co-founder like a reality show for co-founder conflict or some like hard situations in companies and so it's just not pleasant as a token holder or like participant in the industry to to to see that. But it's healthy, right?

in some ways it's healthy and I I do not have the answer to to the question. I I don't uh yeah to be honest I I don't know. Um but I think the what what I really would like to to see as a token holder is you know token being front and center um regardless of of of the structure and having like full alignment for for whoever is the decision maker and like I also have as I said like a personal preference for lean governance and like execution focused governance particularly when you want to go like into the more traditional segments.

Um so yeah but I also understand like how important it is to to have a protocol decentralized protocol immutability these kind of principles that make us makes made us grow in the first place. Um I think the ideally the end state is to have something that combines all these this protocol these products protocols under the same hat and the tokens benefit from it because all the other scenarios there will be like other tokens or or like more bigger role of the equity and I don't want to see that.

I think it would like apply a huge huge discount to the token um and the equity as well. >> Great. Um, so we'll last question on governance. If you were designing a governance system right now for crypto, a crypto protocol, would you design a general governance principle with a DAO and decentralization or would you not do that like no decentralization or just full decentralization? >> Yeah, depending on the product I would go but I would go for no decentralization.

um and try to you know do something similar to you know the the metad format or something where yeah there are very important powers to token holders there is alignment but the the the execution is like totally centralized and um I say this as like someone who previously like founded run startups um it's already very hard already So like I I hate to I would hate to have this over it um to think about. So I would definitely lean into a more centralized kind of system but with tokens to that represent

equity. So uh in some ways but yeah this is my pre preference. >> I think that makes sense and I think that is where go ahead Sean that used to have a take. >> Yeah. So do you guys mind if I share my maybe hot take controversial opinion because I feel like this whole thing is like pretty simil like it's pretty simple in what's actually happening. I think if you go back and you understand the relationships that labs and DAO had labs work pretty similar to a service provider in that they basically handle all the development and they needed to come to the DAO for funding. Um and we saw even earlier back with the proposals like a v4 a 2030 that the budget that the labs outlined was higher than what

the DAO was willing to give and in that sense a as a DA was like really strict. So if you compare it to unis swap foundation that got 150 million for incentives to pay themselves like inflated salaries and there was basically no due diligence done there. compared that to um AI labs proposal to like create a before that the DAO basically said the costs are way too high. Um and AI labs I think they ended up revising their proposal to a lower amount and working with that. But in my mind they always thought that they have more of an incentive to earn than just this revenue stream from the DAO. And the first kind of way this played out

was with a horizon where they were even considering I think uh launching their own token and airdropping some of that to the DAO. And then the second way this planned out was with um them taking some of the front-end fees, right? I think essentially it's a conflict where the labs think that the work they do is very valuable. They think that they can get paid more than the than the Dow is willing to give them. And the DAO kind of saw this that labs is trying to pay themselves in addition to the revenue stream that they're getting and they were not okay with this and now it's kind of consolidating and the solution is okay all the revenue is going to go to the token holders but you need to pay us more you need to pay us what they're worth. So I think in that sense it's

like a pretty simple solution to a pretty straightforward problem that labs wanted more than the DA was willing to give them. Well, there isn't a very straightforward solution unless the DAO decides to give them the money though. So, it is still I I think you're right though and I think there is some rightful questioning of like where the money is going. Um, and I think that's just partially because the lab side probably doesn't want to make everything super public, which is fair from them, but also I think the Dow side should have some more. I mean, the ideal scenario here is like a third party auditor probably who just like confirms with each other, but they don't make it

public. Um, I don't know, Sylvia, you probably have a more thought up thought on this, but yeah. Yeah. So what I see in the market is um there are a lot of platforms or WA platform for pro that for proofs of resource or rather like disclosure that there are several solutions. So I don't see a problem there. And by the way, I really like the the framing of Shondaanda on the like this view. It's it's really accurate. Very good.

>> Very good. We're gonna take one more framing from Shondaanda as well and that is specifically on poly market. You wrote you Shondaanda, you've been writing about the more interesting stuff within crypto. Not to say that a governance isn't interesting. Um but Shauna, do you want to kind of talk about your your thesis that you wrote on the newsletter today and then I can grill you on why it's wrong or why it's right? Yeah, I'd be more than happy to share my Poly Market newsletter and also why it relates to Hyperlquid. Um, and that actually prompted my like research into prediction markets is Hyperlquid's HIPP4 outcome markets that allows essentially

these prediction markets to be listed on Hyperlquid as well. And it started as me just doing napkin maths looking at okay if Hyperliquid were to capture 100% of Poly Market's volumes how much revenue would that actually be? Would it be a significant amount? And the answer was it would be very insignificant. It would be only around a 5% increase. So like 7.5 mil uh a quarter. And that's pretty surprising, right? When you think about Poly Market and you think that Poly Market is valued at around uh $9 billion. So my initial kind of the way that I saw it was either Poly Market is overvalued or hyperlid is undervalued. Um but as I begin to like

dig into it, I think it's a bit more nuanced than that. Um and I think the discussion starts when we consider what is an exchange like what is an exchange monetize? in exchange monetizers buyers and selling buyers and sellers meeting um it like the takers the retail are paying for instant liquidity and the makers that provide liquidity what they're paying for because they pay fees even though they provide liquidity they're actually paying for access to flow right and the reason you as a market maker want to pay for flow is because that flow can often have inefficiencies in that in it that you can exploit right like let's take the example that somebody is executing ing on Coinbase and they're buying at a

value that's way above the fair market value, you can then sell to that user and hedge your position somewhere else. So because of that, you want to pay for it. But the problem is that hyperlquid in general, the flow on hyperlquid is very institutional. It's very fees sensitive and there's not a lot of inefficiencies. PTC as an instrument is one of the most liquid instruments and there's not a lot of edge in being the opposite side to that flow, right? It could be informed flow from arbitrage bots from sophisticated funds. You're not necessarily trading against retail.

So what makes prediction markets so interesting is that they're capturing this fee insensitive retail demand and that is so valuable for market makers that they're willing to pay a huge premium for it. And the example that I wrote about was let's compare Hyperlquid's BTC market and you compare how much edge can you actually get from that versus Poly Market's new instrument which is basically just repackaging options as a gambling instrument like up down uh is is Bitcoin going to go up or down in the next five minutes and anyone sitting on their phone can tap that not understanding that they're buying an option with a fair value and that fair value might be 5 cents and they're

paying 15 cents for it, right? So, the edge there for market makers is huge. That's why it's way more monetizable and that's why these prediction markets have such high premiums compared to pers that have less um that are just more efficient. And in general, the framing is the flow that prediction markets are selling is retail. It's for stuff like sports. It's for stuff like um political events that's not fairly priced and if you sell that to market makers, you can charge a much higher premium.

I think I I have two questions. Um one is at what point does this go away? Um because I see that they're onboarding more and more market makers now. So I imagine eventually this is just not as attractive as it probably used to be already. I'm not sure how attractive it is now. The second one is um how much does sizing matter in this case? Because from what I've heard some of these pools just impossible to get in and out of. So if you've looked into that, I'd love to hear some of your thoughts on that.

>> Yeah. So I guess in in terms of how how long is this effice going to last, it depends a lot on who your user is that's trading. If it's an institutional user, it's not going to last long because they're going to wait. They're going to switch to a more sophisticated, more liquid alternative as soon as they can. But for a retail who's trading and thinks that he's paying zero fees, right, because his execution is being harvested, he doesn't understand that he's getting sub-optimal execution. So, as long as you can take that, charge a premium that market makers are going to pay, the market makers will become more competitive, but they're going to earn as much as they can and still pay the fee, right? So, as long as they can pay

the fee and still profit, they're going to they're going to make markets and the exchange is going to profit and the market makers are going to profit and the retail user who's trading is going to lose and and they're not going to understand why. >> I have one last thing for you. You said hyperlquid is institutional flow. I think that's not true. Maybe even for BTC or Eve I like compared to what is the institutional flow in that case or I guess like what what does institutional flow mean in this?

>> So >> I'm I'm trying to understand how you define institutional flow because to me like yeah just general let's start with that and then we'll go on. >> Yeah. So I guess the way I would define flow is there's as a marketing maker there two types of flows. There's good flow which is like normally retail driven. It's uninformed and you can profit off of that by exploiting it. And then on the other hand, there's informed flow that's toxic and that those traders probably know something you don't and you do not want to be on the other side of it. I think just in general, any platform that has low fees is going to attract institutions. Like compare that to Coinbase where you pay like 50 basis points. Retail is trading on Coinbase.

uh retail is not trading on hyperlquid to the same extent and also the way you frame your marketing right I think hyperlquid attracted a lot of volume but did they attract a lot of retail users that are going to trade and provide value for market makers to take the other side I think there's a lot less of those on hyperlquid than they are on other chains that are like paying for marketing and they're really focusing on the user acquisition >> I really need to look into this more. My initial gut reaction is that you're wrong, but I also don't want to bring you on the podcast, tell you to explain something, and then say, "Oh, dude, you're [ __ ] wrong." So, I need to look into this and come back to you.

But, um, if anybody has any comments about anything else, I'm more than happy to discuss after the time being, Danny. So, >> I mean, may maybe I can like defend myself, which is I I could definitely be wrong, and that's one thing. um like I'm in the process of writing this report, right? So this this is a bit early. This is just based on my logical understanding of the platforms of Hyperlid of of Coinbase of Robin Hood and who their users are. And my assumption is that the average person executing on Robin Hood and Coinbase with those high fees is much less of a institutional trader than someone trading on Hyperlid.

I I maybe have a push back here. I'll just jump in because I think it's quick. The point that it's less I I guess I don't think the argument follows from the points you make around the fees are X, therefore the traders are Y. I don't think it works. Like if you look at Coinbase's revenue breakdown by retail versus institutional, you'll see they make quite a bit more from the retail consumer, but of course they they can also charge them a higher, you know, spread on a Bitcoin trade. and they know that their institutional, you know, if it's ETFs or other purchasers who are, you know, have to buy at BTC in size,

like they know they can't charge them 2% spread on a BTC purchase at 10 billion size. Like I think that's more just downstream of the fact of the way that sizing and like and like those trades kind of work. So I guess I wouldn't use that as evidence that like Hype or Coinbase are different in this way. Um, I think like the retail activity on Coinbase is probably more reflective of the fact that like they're a big company who's like done Super Bowl ads for five years in a row. Uh, and they have a mobile app that caters to retail users.

Um, which it doesn't mean that Hype, you know, could or could not have retail or institutional traders in in the same breakdown. Um, I don't know. I I think the probably the bigger problem is that you can go to the revenue statement from Coinbase and say, "Wow, they made this much from institutional traders and they made this much from retail." And you can't do that for really any DeFi product that exists. And that's maybe the harder part is that I think you like you could be right, but um it's going to take a lot more work to find out if you are or not. >> But maybe you could do that.

>> Yeah. So, so hopefully you guys will allow me to come on the pod again um in a couple of weeks when the report is out and uh back up my stance and I'll be able to take victory laps. We can time stamp this, play it in the background. Um it'll be a good time. >> Yeah, I'd be super curious to know like what how much money would they make with this with this business model, right, of selling selling flow and how this compared to the liquid model. um and traditional like other models. So yeah, I'm going to wait for that report from >> I think maybe the other question I'd have is like you take businesses that

are KYCed versus those that are nonkyced and I I like I would I'd probably lean in your direction that like I would actually believe that there is more retail flow on like a nonkyced venue just because of you know regulatory questions but that it might also be incorrect like I don't know it just you could I think you could define institution utional in different ways. Like if a fund is happen to trade size non KYC on a DeFi platform then like I don't know we we could mislabel them as retail hypothetically. >> I mean the way I see it is again an exchange is like monetizing inefficiencies in its flow and selling that to market makers like that's a huge

thing in Chadfire right like payment for flow. So in that sense, intuitively for me, it would be very easy to argue that these exchanges like Coinbase, like retail that are spending millions of dollars to pay for Super Bowl ads and get retail to trade on their platform are going to have higher retail audience, are going to have higher retail volume than Hyperlid that does basically no marketing. And I think the reason that people choose Hyperlid is because they know they're going to get the best execution on Hyperlid. People are not choosing Coinbase because they know they're going to get the best execution on Coinbase.

I like the I like the general idea of the report which is like looking for um I guess inefficiencies in Poly Market. I can imagine there there's a ton. Maybe you should maybe I'll get Noah on as well when you're doing this because I know he was trying to make some markets on Poly Market on the early days just to see how much edge he might have. Um I'm I'm curious, have you like tried to do some of the pricing things and realize that there actually is some of a gap? Like because he gave I would say a pretty clear example which is Bitcoin price by let's say Valentine's Day um up or down. Have you tried to price that or have you looked into some of the pricing and seen you know what this is like?

>> Yeah, I mean so that's what um that's what we did in the newsletter, right? We took the five minute yes or no BTC market and we looked at it basically as um a payout function of yes or no like two options and that has basically you can derive a mathematical price based on the price of BTC the volatility um and the time to expire right and based on that just like an option you can price what is the fair value of this contract and if you plot the fair value against what retail is executing at. You can see that it's way higher than the inefficiency if if someone were to just

express that view with a long BTC position. And the fact is that they're sometimes overpaying by 5 to 10x what it's worth, right? You you would never pay 500k for one Bitcoin if you want to go long. But if you're buying a contract and that contract is trading for 5 cents when it's worth one as a retail, you're going to buy that because you don't you don't know better. >> Yeah, I think that makes sense. Um, this is one of the few topics that has excited me enough that now I might spend today looking into if there's any inefficiencies.

So yeah, >> it the the way to think about it is you're just repackaging these financial derivatives to gambling addicts in a way that's fun and in a way that they don't know what they're paying. Right? So when you don't know the fair value of what you're paying, you have no idea how much you're losing and how much bread spread you're eating. >> I'm so sorry, Sean. I actually have to pause you there because technically we can't say that it is a gambling product because their marketing is very much positioned towards them being an investment product. So let's just be careful with how we speak of it. Sorry they're they're providing valuable pricing information to people who are

living >> everything man >> impacted areas you know like for example bomb threats they need that to inform their decisions. I want to ask I because I don't know if you've made this point exactly yet, but I guess is your is your follow on thought that like this implies that you should see the growth of more institutional flow to these prediction market products because there's there's a spread for them to to make money on essentially like you're saying like if retail users are paying you know 10x more to to be long BTC on this like option contract essentially versus long some other product um then there's a ton of opportunityities for more market makers to exploit that basically.

>> Yeah, 100%. So, so the way it works is that this profit is going to be split by one the exchange that charges a fee for market makers to take this flow and then it's going to be taken by the market makers itself. Right now, I think the way that um these platforms monetize is per contract it costs 1 cent, right? But even with this fee, there's still a lot of inefficiency and that's going to close. But this one cent can probably stay. Um, and that's very significant. Like Robin Hood in last quarter, they made like 430 mil from prediction markets, which is it's a huge amount.

>> That's ridiculous. >> Okay, nothing more on the prediction market side. Last thing for the day. We don't have a lot of time and I'm kind of happy about that because I don't have a lot of thoughts on this. >> I'll drop I'll drop a quick correction on the Robin Hood number. That was their annualized run rate. So, not one quarter, but what the what the quarter projected forward. >> [ __ ] on, man. Don't >> still a big Hey, it's still big number. So, that's fine. >> You're muted.

>> This is the most embarrassing thing that can happen to a podcast. Can you hear me? Very good. Um, Layer Zero announced their upcoming blockchain, the zero network. Now, I there's a bunch of details about it. Everybody can read it. Um, I think like the few most interesting things here is like a they claim that Citadel took a position position position in the zero token, which there's two things here, right? Like number one, they either didn't take a position in it, they were just given free tokens, a possibility. B, if they took a position, I can't imagine how much like money these guys, Shauna, you're about, you're talking about like

toxic flow and then it's like this is like I can't imagine how much money they're going to be making on crosschain whatever intense or messaging settlement stuff like if they are taking a position in it. Um, and then last up, I did some research on this a few weeks back back. My like initial premise was layer zero is just so overvalued. Bridges don't make enough money. I think you have to short. And then I looked at their numbers. Their numbers don't look great revenue-wise, but like we talk about this a lot and Sylvia, you kind of mentioned this as well, like just purely from a growth thing where you just don't buy back the token. First of all, they buy back the token, which I don't think

makes a lot of sense. But purely from growth, I think layer zero has come to dominate the interoperability and the settlement space to an extent that I don't think anybody has comparatively. Um maybe chain link to an extent, but to me they're like businesses kind of very different. Um yeah, curious if anybody has any thoughts on layer zero first of all and then also curious if anybody has any thoughts on the zero chain and if nobody has any thoughts I can just keep talking.

>> Uh I don't know. I feel like this on the chain thing I I feel like it's worth >> talk about anything you want. [snorts] >> It feels worth throwing in the like you know why why a chain now? What what does the chain provide that um layer zero the platform did not I don't know we we love to ask this question why token why chain is it just because they need to because blockchain good so I will say one thing that was also kind of surprising to me um because from what I understand they already had a DVN system which basically provided them with everything they need which is like I other companies would

just run these networks for them or like in partnership with them and it would just make the entire settlement layer work. Um I will tell you why I think they're launching a chain. They want to issue assets through their chain. Like I think their entire premise over the past few I don't think messaging is very sexy business like crosschain communication. I do think settlement and asset issuance is very good. Um, Ethereum do I think from my and people can correct me if they're wrong. I think Ethereum dominates majority of that at this point like just raw settled asset issuance. I think probably layer 01 and I mean they have OFT but they also did USD0 USDT0 etc. I imagine they want to

move a lot of that on layer zero. >> Anybody agree or disagree? um reminds me on uh the narrative that Uni Chain had last year. So being the central liquidity um center of gravity in the optimism ecosystem, the super chain. So it's probably it's probably in the right direction. Um I wonder though like what's the strategically like what's the difference between uh you know doing partnerships with big assets and making them interoperable and like try to you know move the standard doing like another

another kind of strategy because growing chain is art and I don't know still don't know a lot about this this new chain but recently there there there hasn't been like super big success cases right Um, so I see >> yeah I wonder to what extent like I think that's a good thought from Sylvio like to what extent the path dependency that they sort of have taken to this point kind of locks them out from actually achieving this. It's like even when you look at messaging protocols like yes layer zero very large but like circle CCTP is probably still bigger than them and and it's just like they own USDC so they can kind of build out the stuff behind that

uh as needed and and sort of own it. Um and I guess you would think the same hypothetically of Tether but the fact that layer zero landed that partnership with with Tether to do like the USDT0 um feels pretty meaningful from that sense. So, I don't know. It it they're not like the asset owner per se of any of these assets. So, um how much strength do they really have to kind of like make their thing, their chain, their ledger be like the uh kind of central place where they're issued versus if it's Tether or if it's, you know, Black Rockck or pick your favorite thing that we want to bull post about. Um who is the person or the entity that actually owns the asset? um

you know legally or logistically. Um I don't know it just doesn't it doesn't I don't know if it really makes sense from that POV of uh you know circle is going to do what they want with USDC. Um you would think the same with Tether. Maybe in the meantime it just makes sense to partner um for a USDT zero roll out but uh you know at some point do they offiscate and and push out layer zero and do something else that makes more sense. Yeah, I think that makes sense.

Um, I'm just like what Sylvia said makes I've been thinking about which is a lot of these chains haven't gone well these recent chain launches and even with like I would say unis swap had still has a massive mo like however you define mo as they have massive distribution um it's like the first thing that people think of when they think of a deck I think that's probably worth quite a bit um they launched their own chain and it just did not work out. So, I'm not sure um how they're going to figure it out.

Um I guess like before we wrap things up, Danny, do you want to give a small um a small dash show given that you're going to be there and I'm not? >> Oh, that's right. We recently found out that Supreme Leader Bukacio will not be at DS March 24th through the 26th in New York City this year. Uh, for those of you who are excited to come out to DS, get your tickets. 0x200, I think is the code for 200 bucks off. Um, it's going to be pretty packed, I would say. Uh, thanks so much for Silia. Silio for joining us today.

>> Thanks so much for Silio. >> Silvio for joining us today. I appreciate it talking about A. Um, but for D, it's going to be stacked. Uh, crazy speaker lineup. I think pretty wild just the the crossing of industries regulators funds protocol teams, etc. We'll have, you know, folks from the SEC, CFTC, Tether, Binance, uh I think Black Rockck, uh >> yes, Black Rockck, obviously Black Rockck, all of the big boys will be there. All the big boys, >> everybody including >> big boys across tradi crypto fintech regulators all there >> including Shondaanda Deans who was going to be frame mogging the black rock guys.

>> Yeah, I was like I was going to say maybe starting the dash pitch by saying the supreme leader block isn't coming wasn't the best way to do it but um >> everybody else is going. He >> makes up for it. Shaun Deon is gonna be there. >> Shawn Devin is going to be there. He's 68 350. So don't stand too close to him. But >> nobody will mind that Bach isn't there because so many other amazing guest speakers and of course Shondaanda and other folks from the Blockworks team >> before anyone meets. I'm actually 5 foot six in person. So he just does this to to make it awkward and I meet people.

>> Yeah. Okay. Very good. >> 0x 200 200 bucks off. Get your tickets. >> Use it. Use it or lose it. Literally >> perfect.