Where Are We In The Cycle, ETHs Outperformance & The Perpification of Markets

Transcript

First principles, I think the disruptors generally acrew most of the value, not a hard and fast rule. And secondly, I see a genuine business case in the market that we are ultimately going after that is like based in like a credibly neutral platform with transparency, which you can only achieve like if the actual infrastructure is on chain. >> Nothing said on the hive mind is a recommendation to buy or sell securities or tokens. This podcast is strictly forformational purposes only and any views expressed by anyone on the show are solely our own opinions, not financial advice.

[Music] Hi everyone and welcome to another episode of the Hivemind podcast. The goal of the podcast is to provide an inside look into what we like to call the deli hive mind. Bringing together some of our brightest minds from each of the divisions to share insights, alpha and [ __ ] posts. Today with with us we have Cedarus Parabus from our institutional research arm, Yan Lieberman, managing partner at Delphi Ventures, myself Jose who leads Deli Labs, and we have a special guest Kalidora from Osteium Protocol or Osteium Labs I guess. Kaldor, do you want to do a quick quick intro on yourself and and Ostium for those that that don't know and then we can dive

into to markets? >> Sure. Thanks for having me, guys. Uh excited for today. Um I'm Kadora, co-founder and CEO at Oium. We are building the best place to trade TRFI on chain and the only place you can open up a $50 million long or short with up to 100x leverage on the S&P, NASDAQ, Tesla, gold, oil, and uh basically every other global market under one hood. So, every market, one wallet, one interface. Uh, try to make the most seamless place to trade Trady with your stable coins per wallet. So, um, yeah. >> Awesome. And so, let's let's start with we're going to dive into to Trady and real world assets, I think, for the for for the rest of the pod, but let's start with with markets. It's been kind of a

weird weird market. Uh BCC briefly touched all-time high and then kind of you know went down promptly went down like 10%. Uh today's been a weird day. How how are you guys there's a lot of people I think or there's been a few people at least calling for us being in very late stage cycle right I think Ro from from hack had a good post about it. Um some other people have been been saying it too. I think most people seem to think we have three to six months left. That's like the the consensus I'd say on on CT. What's How's everyone feeling? Where do you think we are in the cycle? Um, yeah.

I I uh the 3 to six actually feels probably about right to me. But it's really hard. It's really hard because you have so many competing. There's like these people that will tweet these uh top signals and it's like zero top signals hit, right? But then you kind of see a lot of this stuff going on. Uh the fact that like all the tradey money is coming into Olympus DAO rappers. Um like obviously Chimath's thing spooked people the other day. Um but you have all these it's weird you have you have these all these traditional you know things we would consider top signals but we still have like this pretty big

tailwind coming. And I guess the case that you would make if you're really bearish here is that we kind of just front ran the entire rate cutting cycle, right? And then when the rate cuts actually come, like it's all been front run, but like there's there's some of that you just literally can't frontr run, you know, just with the dynamics. Uh like the actual money changing hands. So, I don't know. our our research team had a good report on like the TGA refill thing yesterday or the day before. Um so I think there's like decent amount of liquidity getting sucked out of the market for the next month or so. Um you have the Jackson Hole thing this week. I don't know. People are just like very

it's just classic like CT that uh I don't know. I feel like a week or two ago everyone was calling for like 16k ETH and now people are saying the cycle's over. So >> yeah, it it's hard to go too too far in advance. I mean, you can say 3 to six months, I don't know what that really offers the market, right? Like if you somebody says 3 to six months versus 12 to 18 doesn't really change your behavior, right? You're just you're bullish now and like you kind of just take it one week at a time. Um, equity-wise, right, the the recent earnings season, I think doesn't really get spoken about how strongly that went, right? The you had record forecasts for for what was

supposed to for earnings this quarter and and they were all beat by record margins, right? And and you have really strong guidance going forward. So you had like the the spread between the expectations and and reality was wide and expectations were really high and you had a a large breadth of of beat too, right? It wasn't just a handful of of of players. So I think the equity market is really strong. the the I think the the Olympus DAO um metaphor is is is like a you know half right but but ultimately the big thing is that there these vehicles are increasing the surface area of demand for crypto and and so um I think you need to use the

you need to kind of keep those equity tailwinds in mind for for these dats. Yes, the MNAVs are compressing on a lot of these um but it's also partially because the underlying assets going up, right? So um the the NAV in the denominator has been ripping and so sure those those are going to compress. Um you had the the recent Sailor pivot which is a double-edged sword, right? to the pivot being that he previously said he wouldn't do any equity common share sales below uh certain MNAV and and then he kind of went back on it and equity owners you saw some people kind of crash out on Twitter saying uh you know you lied and and now my common shares are worth less but I don't know I I I think

you can kind of argue it both ways where he needs the flywheel to kind of keep going and and so um there was some some backlash there the the MNAV gradual compression is probably one of the the bigger bare signals. Um plus like how much was already deployed, right? So the the question is always where is this large incremental bid going to come from next? Um and and if you don't really see that, that's when a lot of the kind of the fleetiest holders will will will get out and and there's a domino effect. So it's definitely a concern. Um, uh, I I I'm in the I'm personally in the chop for a couple of weeks to a month

camp and then resume strength into the end of the year, right? This is just typically a seasonally quiet period as people are away and and you've also just had a big run up, so you kind of need to digest. There needs to be some profit taking. There's there are clear signs of exuberance. I mean, ETH gained in just an insane amount in market cap in a very short period of time. So there's going to be some natural profit taking. Um it helps for ETH that that people are throwing out these astronomical targets, right? Like you you you need that in order for this to keep going because if everyone's saying I can't wait for 6K ETH, then then you know people are going to be selling >> 6K E. I'm I'm hearing 15K. Well, Tom Lee Tom Lee thinks it has an 100x,

>> right? If you say 6K, then then like no one's going to be buying here. But if you're pitching an insane target, then then you can then this thing has wheels. So, um, yeah, I'm basically in the chop for a little while camp and then and then resume up only. And so, you kind of want to just pick your positions. Don't get blown up. Don't don't get overextended. Um, but there are going to be some assets that outperform and and so it's just kind of trying to get good entries on those and then holding. >> I'll focus maybe a little bit more on the macro. I think like consensus seems to be that like Q4 is going to be up only season or like late Q4 going into end of year. Um I this is I'm totally ripping this off of one of my guys but

um on the team his uh his perhaps contrarian take is that high rates are like stimulative for risk assets rather than the inverse. Um from like a a very simplistic perspective. Uh the take is you know with high rates you have people with lots of assets that are sitting in treasuries just getting basically a stimulus check uh on a regular basis. So, they're just reinvesting into more risk assets which drives up prices. And uh I think there I mean there's like probably two things at play. Like one is like maybe that's true. Uh I'm not sure.

And the second thing is people actually just like front running an anticipated rate cut. Um so I I'm actually like short to midterm more bearish, but on the long term I'm I think much more bullish than is consensus. If you look at the net inflows into the US in terms of foreign investment, they're actually at all-time highs. um all the sort of you know panic ends I guess around tariffs uh have largely been proven proven wrong and uh I I still think there is no like there's no second best market and you see this I mean the S&P and NASDAQ have like more than recovered and hit new all-time highs since the original tariff news back in in April.

Um, so I I uh I would say I'm probably a little bit more short to like next quarter more bearish than is consensus, but long term over the next like six to 12 months um more bullish. I think I don't know. There seems to be this like I don't know uh tribal view right now that like we're right at the end and like we're right at the these like we're hitting all the top signals and like we're going to get one last final pump and then like it's over. Um it's yeah that that's like the kind of predominant nihilistic view and I I would be less I would be a little bit more uh yeah more negative in the short term and more optimistic in the long term.

>> Yeah, I think the uh the interest payment is a good honestly contrarian bare case. I know people have been talking that for a while. Um about >> I just think it's just like it's a stimulus check like it's a regular stimulus check that people like that the people who are sitting on the most treasuries are just like plowing that into more risk assets. So like that's just cash that comes in regularly to you know to to prop up risk assets further. >> Yeah. I think what would be interesting is like how do we see I mean the macro is one thing like I'm not I'm not going to be able to call macro trends and like the NASDAQ and the MAX 7 have been taking a pretty big beating this week and so that's honestly a lot of the reason why you've seen so much crypto

weakness right but for crypto itself um like where do we think this goes from here the like the past it's like The dispersion thing hasn't gone away. It's still there. Um, ETH came back with this DAT thing that honestly I didn't really think these DATs were going to work in big size for anything other than Sailor. Um, and now people are trying them on every asset. It's like, do you need a Daters though? Like who's who's actually buying the DATs? Is it like is it the people who believe in the greater full theory of the debts or is it like people

who are actually buying the debts because like it it is their best way of getting exposure to these assets. >> Yeah, that's like the there's like two fundamental reasons people bring up that kind of make sense to me. The first one is that uh they're better for staking than ETFs, which is true. Like especially if you look at ETH, there's like a 14-day queue to unstake now. And so if you're an ETF and you have to handle redemptions, it's kind of like a non-starter. And so these treasury companies can stake it all. They don't have to worry about redemptions and that risk. That that makes sense to me. I think that that is worth like 0.05 on the on the >> I don't think most people who are buying DATs are even thinking that day or buying DATs because they think other

people are going to buy DATs might be thinking about that but not the people who are actually buying DATs. >> I think it depends on which stage you're talking about, right? Let's see. You have the initial seed stage. there's, you know, investors that are coming in at a good MNAV, bankers getting good fees, uh, and and people with just massive bags in the underlying that that that want to kind of shift potentially some exposure from spot to to debt and and trying to get some convexity on on the play. Um, anyone buying around one mnave, which we haven't really seen much many of these come down to that value, that's when I think you can do some of the more, you know, when you're thinking about the staking component, but but buying at anything above 1.2 going to mnav that's like five years of staking

yield, right? So, I mean it it doesn't the math doesn't really make sense there and then I think everyone above that is just momentum traders and and retail and greater fool. So, uh yeah. >> Yeah. So, the other I was going to say so that's like one that the the staking thing is like one thing people pitch which again I'm like okay this is true but it shouldn't resolve like two mnavs. Um, and then the other one is that tra all these funds can't buy commodity ETFs and it's like the access thing. Um, but it's true like it's hard to really tell if those funds I mean I guess when they do their filings like every quarter you can you'll be able to tell. But yeah, is it just like retail

for the most part? I mean it's a lot of money that's gone in. So like I'm talking about not the privates and the pipes just like >> combined market cap of all the deaths like excluding MSTR. >> Uh we actually have this on our portal. Um the ETH is 10 bill the soul's 1.1. >> Okay. >> Um looks like it's 15 outside of Micro Strategy roughly. >> Yeah, that's >> uh Yeah, >> that's helpful.

Yeah. And then there's some alt ones which are a bit smaller. So, but this is the thing like does it's like does your token exist now if it doesn't have a DAT, right? Um like obviously there's been some follow through to some select alts with ETH ripping, but you haven't seen like broad ETH like DeFi is still outside of ENA that had a good month or so. um like all the DeFi coins are still they're trailing ETH pretty hard. Um it's not like any of the ETH infra things like L2 tokens or if you want to call Ian or any of that has done well.

So yeah, like where where do we go? Do you think we do you think Tradi is actually just running down like that alt season chart where it's like you start a Bitcoin, you go to ETH, and then you go and they're just doing it with DATs? Like do you think we're going to kind of get that natural flow? >> I don't think all DATs will be made equal, right? I I think certain ones with more compelling structures will will certainly outperform whereas others that are pure greater fool will will kind of keep going until you know the music stops or or just you're running out of the next buyer. um is yeah you've seen that even even you know your your typical like Pepe ETH beta has not

really moved that much right so it's really been mostly just ETH and and you haven't really seen that before whenever ETH's shown this degree of strength but I think at the same time you know the there wasn't such a concentrated bid into ETH and nothing but ETH with where which is what you're seeing with these vehicles typically it's like okay you know all season's kind of coming back and everyone front runs by by going longtail immedi immediately. >> Yeah, I think the Hyperlid one and the Athena one are the ones outside of uh the majors that I think could get a decent bid. I know because like Hyperlquid's just hard to buy for people. Um it has fundamentals. It's like pretty easy to understand for for

people too. And then Athena is just like a stable coin pure play exposure that all you have on public markets is Circle. Um, and I think it could c catch a bit for that reason. Are there any others that you guys have seen that seem compelling? >> No, I'm I'm assuming we're going to get some big soul ones, right? I think >> Yeah, I think that those will be good. Yeah. >> Who do you think should run the soul one? I honestly think it should be Sony because I don't think anybody I don't think anybody >> there is no second best. >> Yeah. Like nobody can pitch Salana like him and I think that he does have a lot of respect within trifight crowd. Um, I know a lot of people in crypto don't like him, especially uh the Ethereum community, but like he explains it very

well and he's very convincing and I think that if you were to maybe I'm biased here because I'm more bullish than ETH, but like I think his pitch on Soul would be a lot more compelling for Tradfi than Tom Lee's, which is like, you know, >> his pitch is kind of like easily falsifiable and like that's kind of the risk with it. It's like it's >> pitch is pretty I was like >> it's like a good meme but it's like >> I don't know. I went to read I I watched the bank list because I was like >> I never never listened to him pitch it is it seemed weaker than what I expected honestly. He he was he was just like fundamentals don't matter. They haven't mattered for ages. It's it's cheap at 3500. Like I don't have any modules or

anything but I don't think those those matter and like we haven't used those at Fund Strat for ages. Um, it's the stable coin chain. Like I don't know. I think I find it hard to imag like the the all the 15k ETH calls. It'd be like bigger than like Meta and Tesla, you know, at at at that price. It's just hard to imagine like you finding Yeah. I don't know. The thing is he he's been he's been really bullish at he's been he's generally like, you know, a bull, but he's also been >> a a targeted bull and it and he's been right a bunch and and so >> like the most right. Right. And so he's really monetizing that credibility that he's built up with this vehicle is what

he's kind of doing. And and so people are, you know, he's nailed all the the MAG7 stuff. He's nailed all the S&P calls. And so it's like, all right, and he's nailing this so far. So people are going to follow him into this trade. >> Do you think there's no you can't buy ETH here expecting that the cash flows will ever justify the valuation, right? And like that's not the pitch anymore. It's do you think it's going to become a store of value? And I don't know like my my it's like my personal opinion doesn't actually matter if ETH is like money or not, right? Uh like none of our personal opinions really matter on this. It's like will the market decide will like society you know deem this to be a store of value and so uh it's like very hard you have to just

believe right like I find most of the >> I don't know that the pitch is like is ETH going to be a store of value I think like I I actually think the hard part of like the narrative crafting here is that like crypto people are very accustomed to the argument of like ETH is a world computer like it's a protocol it's a platform like people are are very familiar with that concept it's like a base layer that other people are building on top of and like maybe doesn't directly acrue the cash flows of everything that's built on top of it but it has value as like the the layer upon which like things are built uh as like some neutral settlement layer like that is not a narrative that people are f people are like either familiar with like this is a store people are very

familiar with the store of value argument on the bitcoin side and people are very familiar with the like cash flow is like good DCF but the like world computer protocol thing is not I'm not saying it's uns you definitely sell it to normal people, but it is like a different type of narrative. Like I think as crypto people, we like take for granted that that's a thing that people see intrinsic value in that is not necessarily relatable. The concept is somewhat confusing for like a non-crypto native person. I think >> well, we've kind of gone full circle on the pitch, right? This was kind of the pitch in 2021 when when you wanted to pitch the flipping. It's like it's like Bitcoin, but you can do stuff on it. And that's basically what it's come back to again.

>> It's a good pitch. That that is the pitch though. >> Yeah, >> that is the that is the pitch. I don't know. I I I believe get into like economic sustainability, right? Like Bitcoin will the block fees won't the subsidy won't work over time. >> It's ESG Bitcoin. >> I think that right now >> it's a lot of beta chasing to Bitcoin. There's a lot of interest in this in this asset class. It is true that the most stable coins are on Ethereum, right? And when you see something gaining momentum like this, it's kind of like ape first research later, right? And so when this all kind of settles down and I don't know where when that is like maybe it's now um when kind of the momentum settles down then we'll start to like get a real understanding of how

this new capital is interesting and and is going to like value something like ETH right um I think bull markets are very hard uh to have these kind of discussions around like what is like the long-term fundamentals? How should we value this stuff? Because a lot of it is really just like completely flow driven. Um it's like you saw Tia last year, right? It went to $20. Everyone's tweeting like modular money and all this stuff. It's like none of that ever made any sense, right? But it had so much momentum that you just like come up with these stories and then you you think more like critically after. Um,

so yeah, >> you want to enjoy this bit setters? >> Well, basically this was Kyle Dor was just going off on this to me uh like a week ago when I spoke to her. We've seen a lot of these uh there's like you know RWAS bringing RWA on chain is is a big uh it's a big narrative. It's a big um you know area of growth for the industry. You've seen things like Robin Hood bring these stocks on chain. And you've seen people bring on these private assets like SpaceX. Um there are some and those these are like spot assets of these RWAs, right?

Um and if you look into the legal structures of these, they're kind of like convoluted. Um you know, the SpaceX one for instance is essentially like a cash forward from the companies who's issuing them. So it's kind of like a perp in that sense where you don't have any governance rights. You don't actually own the underlying. You're owning this like synthetic representation with a 25page legal document, right? And so I think the debate here is like with bringing RWA on chain um when you're talking about just RW RWAS for like pure trading um are people going to you know are we

going to be using these like these like spot assets or is everything just going to be kind of like perpified? Um, and so maybe Caldor, you can kind of obviously you're on the perp side. Uh, why you think the the perp is like the the clean like way to kind of do this. So I'll make the argument I guess for like where we are today in the market and then like maybe longer term right now like if you're trying to serve an existing DeFi like customer base people who have a wallet let's say at a bas like like at a minimum people want to trade like people want to trade stuff they don't necessarily want to sit on some tokenized version of the thing that

actually doesn't give them governance rights nor does it give them a right to like the underlying dividends um so basically gives them it's as you said it's kind of like a a shitty version of a perp. Uh you can't short it and you can't trade it with leverage, but it doesn't give you any governance rights or dividend rights either. There's like the the use case for that or or like the demand for that is is really like few and far between. I think um and yes, I think there's there's like some decent arguments around like okay, you could use that as collateral and like put it in a lending pool or like loop it and like do some interesting DeFi stuff. I just don't think like the opportunity cost of doing it with like that sort of asset and the benefits that it offers versus like any other asset in DeFi. I

just think is it's it's not a compelling enough use case for that to be I think for there to be like real demand. Whereas when you see like what people actually do want to do it's like they do want to punt on Tesla around like the robo taxi news like they do want to punt on like the NASDAQ based on what Trump is saying about anticipated you know tariffs. um like people largely want to want to bet on stuff directionally uh long or short and then like adjust leverage based on their confidence or whatever risk tolerance. Um, and I think on the the perp side specifically like PERPS or and I'm going to use I'll say like per or perp like instruments because I I I could go more like deeper into this maybe technically on the difference between like a proper order

book per versus like a perl like instrument but I'll just put them under the same category for now is like very clearly the the the instrument of choice like for retail. I always say like given the given the option between PERPS and options, retail picks per um per like a the obviously the largest like retail derivatives market in crypto. It's like 70x larger than the options market. Um and actually in every country where you see a per like instrument. So it like a CFD is basically is very similar to a perp in many ways largely offered outside the US. US people are like usually less familiar with it, but it's the largest retail derivatives market in the world. Um they're like they don't expire. You can go long or short. You can use leverage. There's no funding rate, but they they offer a lot of like

the same characteristics as a per, the same benefits as a perp does. In every market where you have the option between that perike instrument and an option, the perl like instrument or the CFD is always the more popular one. The only two markets where options as like a retail derivative exceed volume on the on like are the largest one are like US and India and that's just because the other instrument is like non-exist. Um, so it's very clear to me that like a sort of like levered flexible like capital efficient instrument is clearly the optimal instrument if people actually want to just express like short-term directional moves, swing trades, scalp, whatever it is. Um, and that most of the not to say that there aren't going to be

there isn't going to be a use case for like these tokenized versions of these assets, but I see that as being like more for an institutional use case. And once there's like native issuance of this stuff on chain, you start natively issuing a bond or whatever it is and it entitles you to the same, you know, governance, it's the same rights as the underlying, that's when it starts to become very useful and interesting. Although, I will caveat like there will be more restrictions because I have a very hard time imagining that the US government is going to uh allow, you know, if North Korea gets their hands on your Apple stock that they'll have, you know, voting rights. Um, so I think there there'll be some caveats to like whether you get full full rights just by virtue of like owning the the token itself. Uh, I don't think discriminate.

Um but I basically see I see like that's the world I see things evoluted like tokenized thing that actually gives you like rights to the underlying but there'll be more constraints around it and then a synthetic version that is like capital efficient leverage long short and like appeals to basically the it becomes like the dominant retail d and I I genuinely believe I think a perp or per instrument will become the dominant retail derivative for all these tre assets. Um it's so obvious. >> I agree with that for sure. I mean once you use per it's just you don't you don't want to go back to >> to anything else. I'm curious why would the pers not have the same restrictions?

Is is it >> doesn't like if I have the per a per is a synthetic instrument that doesn't allow me to the underlying thing like just because I have a bit BTC perk doesn't mean I can redeem it for like you know BTC and I can do something with that like same if I have if I'm just if I'm just betting on the price change on Apple that that is less of a concern okay it it could in in theory the market becomes really really big it can influence the underlying to a degree but that's very different from like I have like voting shares in a company in US company and like I'm a North Korean >> but futures are regulated financial instruments as well right just different regulations but yeah how how do you see that >> yeah they're they're different but I mean oh yeah I mean this gets

complicated right but like yeah futures are regulated because like basically all of the sort of large markets in the US are regulated but I think for a very different reason like commodity futures are regulated in a very different way and for a very different reason than like you know the equities um the the if you think of I I think if you think about it from the perspective of a regulator like I would I would be far more concerned about someone h being able to I mean what if you did like an activist what if a North Korean group did like an activist takeover of like a US company um and like installed someone's you know from from their from their group like that that seems very concerning if you kind of someone betting directly on the price and like

getting that right u but not having any underlying governance claims is on on a like a from a risk perspective that's like I would be much less concerned. Not to say that they'd be thrilled, but like that's much less concerning. >> Would love to double click on kind of you know the model you guys went with. Um, you know, I think one initial concern with equities per is is the the funding rate and particularly the the cost just being prohibitive for a asset that's much less volatile than than crypto where people are more comfortable paying those rates because of you know the returns that you can potentially generate offsetting them. Um, right. So funding rate usually is long paying short. you guys use a a rollover model where where you know both sides pay and

and are paying you guys and I know the uh the annual fees the annual equivalent fees there are are much lower than your baseline funding rates. Um yeah, I would love to kind of, you know, have you just expand a bit more on that model and kind of how you then balance the uh the long short skew uh which is probably like the the next question that would come up as as as a way to kind of you know battle test that mechanism. >> Yeah, this is this is a very good question and one we spent a lot of time agonizing over. Um, so I think you can basically optimize for two things in like a nason or in this sort of market. Like one is just actually reflecting all of the internal market dynamics like in your exchange,

your platform, reflecting your liquidity and market dynamics on the price and like the fees that you charge users to try to incentivize them towards a certain behavior. Or you can take a completely different approach which is one that we settled on which is optimizing for basically predictable pricing and predictable fees and abstracting a lot of that away and just giving the most predictable experience. And what we found was like if you went for the former there is no infrastructure built out right now to go and like arb funding rates on Tesla or like on gold or on whatever it may be. And so we had this terrible catch 22 where we used to have funding rates by the way on like everything. Um, but we found that like in order for the funding rate to be high enough to incentivize someone to come in and like build the

infra and like take the other side and like because you have to go and hedge on like IDKR on some underlying platform, rebalancing collateral is not as easy as just like sending money back to Binance. Like you have to convert it out of USDC back into fiat. Like that takes time. It costs money. Time is money. And so in order for the funding rate to be high enough to incentivize someone to do that, it also was high enough to disincentivize demand on the side that people actually wanted to trade on. And there's an inherent skew. I mean like there there is just some there there's like inherent demand in a direction like people generally are just long biased or during a crazy market maybe they're short biased but like you have to charge people like you have to pay people a lot to like take the other side um just

naturally especially when there's zero infrastructure built for it. Like look how long it took for all this info with like Athena and for for the basis trade to become like popularized. I mean like the SKS were really persistent for a really long time. So especially and then like I'll add on top of that a lot of our our value prop is like all of these longtail markets in one place. We're list we have stuff I mean like Hong Sang index and Nikkay and like you know uh the German DAX and the Footsie like we have all this stuff so people can all trade it for one interface but like building out infra there's not necessarily volume the the volume is very sporadic on those sorts of assets it's really dependent on what's going on in the market. So the building of the infra to have someone consistently like

whenever some there is actual volume on let's say the footsie but to consistently always be hedging that everything that's coming in is just like not realistic for where the market is at right now. It just is like we just don't have the infrastructure that there's not it doesn't exist. And so yeah, we used to charge funding rates and basically they would just drift so high before anybody came in to take the other side. They would drift so high that they would just disincentivize like demand on the long side and kill it. And I think anybody who's going to build like a pure funding rate model will see that this is true. We went through it ourselves. Um not to say that there won't be people are being basically the basis trade on these new sets of assets, but it's going to take time to get there. And if you if

your goal is to offer like our goal is very simple. We want to offer the best, simplest, most flexible, most predictable trading experience in all these Trei assets, which stable coins. So if we have funding rates that might drift up to like 80% a year on an asset like the euro that moves like you know 20 bips in a day, no one like no one's going to tolerate that. Um so instead we do it a very different way. We just charge a feed to both sides as a borrowing fee. Um and then what we've built out is and this is like currently it's in beta but it's going to be built out into sort of like a more full system. The pool right now is a settlement is like does two things like it absorbs directional exposure. The pool's like skewed long on gold let's

say. Um, and it is there to settle trades because it's not an order book. So, it's it's an asynchronous system like someone closes a trade that's making money, you need someone to front that capital. Um, so the pool is there for settlement and directional exposure, but where it's evolving is basically where we will hedge out there'll be a separate like a this sister entity that we're piloting basically hedges out sustained deltas in the underlying market. Um, and then that allows us in LPS to basically pocket the rollover fees. Um, so it's an additional source of like revenue for the protocol and it allows us to offer a much more predictable cost for holding your position that's like it's around like it's around the interest rate basically.

Um, uh, yeah, I think that answers your question but >> are there a lot of hurdles with that? You know, kind of the ones you basically described for why people won't rebalance on the funding rate side or, you know, is there just Yeah. Yeah. I would love to understand that a bit more. >> I'll start maybe like a high level. So I think every successful exchange or trading platform has figured out how to monetize like two two sources of revenue like fees and flow. Um if you look at Robin Hood right they obviously payment for order flow they're they're passing on like they're laying off that flow to a Citadel or you know whoever's down the line and they're paying them for that flow which allowed them to like subsidize basically like the cost of liquidity and pricing and then cut fees

to zero. If you look at Hyperliquid, they have an in-house market maker which allowed them to basically monetize the flow that they're that they're getting in, which subsidize the cost of their liquidity, which allows them to basically route a vast majority of fees of their fees to buying back the token. And then finally, if you look at these like offshore kind of like FX brokers that I was mentioning earlier, they do something even more direct. They literally just take the counterparty. They don't send the flow to Citadel. They literally just take the other side and then they parse it out and they figure out what they want to lay what risk they want to lay off. there's like a massive trade from some like super smart whale, they're not going to take the other side to that. They'll go and they'll lay that off with like a with

like a market maker, but they basically take take the other side to most of the flow. So, I think like and actually if you look at like the the protocols that I think pioneered a lot of stuff in the space, but ultimately weren't able to monetize and build like really consistent huge value to their own company. KMX is an amazing product, but unfortunately I think they leak a lot of value to LPs and we don't want to be in that position. Like that always happens if you actually can't monetize flow. They leak like 70% of the fees that they collect the revenue goes to go and pay LPs. So only 30% goes to the token holders and as a result the I mean like the implied growth expectations then lower there's a multiples question as well. But like it is fundamentally the the the more you can expand your your

gross margins like for for lack of a better term dramatically to then retain as much of the fee revenue as possible or subsidize fees entirely the way Robin Hood did and then ultimately build out other products that you collect revenue from the more like profitable your business will be and people will pay a massive premium for a business that is like retains so much more of the fee revenue or has a way like a really optimized way of monetizing flow to basically I ideally fully subsidize liquidity costs and even better in some cases like go beyond subsidizing liquidity cost that becomes like an additional source of revenue that goes that like adds to your margins. Um so like with that principle in mind um basically the idea here is you hedge out like the

the pool is taking the other side. The the problem with these like pool models they like work most of the time but like sometimes you'll just get a max you generally want to be the other side. It's like generally a good bet to be an LP. Um, but sometimes you get these like massive directional SKS or a massive trade that actually like really really wins. And the key is basically having the infrastructure to go and lay off that risk in the underlying or with a partner that can accept that flow like that. Let's say a m like a $50 million trade on the S&P short that is like turns out might turn out to be really right. Um, so that you can just hedge out the really like tail risky large trades and then the pool takes the other side to like the majority of the other

trades which event which like there's a little bit more like technical complexity than that but it's probably not worth going into in terms of exactly how the fees flow. But if you think about it, like if you can do that, you hedge out the really big stuff for LPS. You keep they keep the rest of the small stuff and on average that's a good trade, which allows you to basically subsidize the cost of the liquidity provided by LPS in that way. And then you collect the rest of the fee revenue. And I ideally like that's enough to go and pay LPs for that to be a good trade for them. Um and then all the fees go ultimately towards you know towards the company or supporting the network, however you want to frame it. Uh so that's like kind of how we thought about it from first principles like you have

to monetize flow if you want like a really good business with really good margins and every successful trading platform has done so figured out a way just with different different models and we haven't seen this like onchain so tried to besides hyperlquid >> yeah it's really cool and one question like I definitely believe in this purpation thing and that like it's one of crypto's just killer products that and stable coins And there's been this uh discussion in crypto that like maybe we've invented these products and then Trafi is just going to come in and like make all the money off them, right?

Whether it's with their their own L2s, their own, you know, Stripe stable coin or whatever, um you know, Robin Hood per. How do you think about the advantages of like cryptonative like non-custodial per someone like Robin Hood like integrating per? >> Yeah. Also, I'm so happy to hear you using that word. and I like came up with it at like you know 2 am like 18 months ago and it's it's somehow like it's it's entering the common verbiage. Um >> purpation not tokenization. >> Yes. >> Yeah. I like it. >> Um okay I mean this is a great question.

Um I think if you just like historically look at innovation it's been driven by disruptors. Like it hasn't been driven by legacy participants. It's not to say that legacy participants don't figure out a way to like profit off of it or integrate it into their exit like into their infra uh at some point if they move fast enough. Um but I think like the real value creation like does generally happen to and if you look like you look across industries um you know I don't know Tesla's the the winner in electric cars not Ford. Um like the the the disruptors who like pioneer the new tech I think generally acrew most the value. It's not a hard and fast rule, but um that that would be my like first principles push back. Um and then the

second thing is it depends on whether you actually think that people will value like the fundamentals of what a blockchain in theory should be able to offer and sort of the the basic value prop philosophically of having like a system that's transparent and at least could be can be non-custodial where everything is traceable and that could be credibly neutral. I do like obviously people value convenience and all the I mean I I think people are going to be on like mass onboarded we see this with our own data like through a privy like email tech signup rather than like downloading meta mass per se and that is certainly going to be that is more centralized but if I look at what is um I'll just use our example of our

market I think Robin Hood is is obviously super US and now a little bit more EU focused I'm thinking a little bit more about these like international offshore brokers. They are incredibly non-transparent in black boxes and the the the biggest like reason for churn among us. they have like a pretty high customer acquisition cost and a lot of it comes from the fact that like their users don't trust the platform and they have incredibly high churn rates and in what I was describing before um you know the broker like take they take the other side and then they like lay off some of the flow because they take the other side they like have a vested interest in the trader not doing well and on top of that they have like the ability to tilt the scales in their own favor so they can close out like they can close out

someone's positions or they in theory can like kick a trader off. This is pretty common if you like read the subreddits for a lot of these platforms like click sub. They can kick a trader off or like an arbitrary like terms of service violation. Really the the violation is just like they had too much of a winning streak and the platform doesn't like want to have them on. Um if you can like if the the like biggest problem for a platform that like drives their churn and their high customer acquisition cost is trust and the fact that it's a black box and that the platform isn't neutral. I think there's a really compelling like business case for why a user would actually want to use like an onchain version of the thing where you can say like we can't kick you off. We can't like arbitrarily

manipulate your trades. Like the rules of the game are written out ahead of time. We can't change them. Um not even like just yeah not just pure philosophically but like there's a business case for it. I think uh that that like necessarily means that like value will be driven to the ones that build this in like a like build have an onchain version of the thing not just into the legacy players that are operating within their own um you know like blackbox like more legacy framework. It's kind of a roundabout answer but first principles I think the disruptors generally acrew most of the value not a hard and fast rule and secondly I see a genuine business case in the market that

we are ultimately going after that I think has not like that is like based in like a credibly neutral platform with transparency which you can only achieve like if the actual infrastructure is on chain um which is like not the direction that like Robin Hood's going right like they're Yes, they're putting like they're trying to tokenize stocks, but they're not arguing. They're not like they're not going out and saying like we're going to go build a fully onchain per order book where you can track every block. Like that I haven't heard that. Um >> yeah, that makes sense. And and how do you see like um Hyperlid Hip 3 affecting like because I assume I don't know. I have to assume someone's going to be trying to do commodities and and stock pairs on on

Hyperlid like Yeah. How do you see that? Is that something you guys would ever do? I guess it doesn't make sense for you right now, but um yeah, just curious. >> I get this question so much. So, I would say um Hyperlid is not we're not a competitor like what we're actually going for like a it's a different value prop. Like we're I think people really conflate in crypto for whatever reason like exchanges and trading platforms. Like Robin Hood is not the NASDAQ. Like Robin Hood's job is to provide traders the exposure to the best pricing and the best trading experience by routing trades to whoever is going to give them the best pricing whether that's Citadel or Suscoana or laying it off in the underlying market. That is that is also

our vision like our our vision is like Robin Hood for these markets on chain. Um we we are going to quote you the best pricing and right now the best pricing is just in the underlying markets. I think like uh okay quick thought experiment like how much like how much type of book liquidity is there on uh on Salana like on on Binance >> within like 1% of spot or >> like bid and ask >> I don't know like uh I don't Yeah I don't even want to say because it's gonna be I'm gonna look dumb.

>> It's like 500. >> Wow. >> Yeah. On Hyperlid it's about 300. So they're like within that's like very close. Um how much do you think on like ES like S&P futures >> 500 mil? >> That's like pretty accurate. Yeah, it's like three it's like 250 to 350 million depending on like you know whatever time of day. Um so it's like orders of magnitude more. So like let's say conservative I was like try to run this thought experiment like let's say through like hip 3 okay hyperlid's able to add like ES future type S&P type per um let's say super conservatively and it's like very hard to get people to quote prices on that especially if the

new by the way the new instrument is like fully a perp for which there is no like that's a that would be a net new instrument on the thing like getting people to actually quote pricing on that is like not easy necessarily. Um, let's say it's like half of the top of book liquidity that Hyperlid has on Salana, like 150K. That's like orders of magnitude less and like if you want to open a large trade, you will blow through the order book than than like, you know, compared to what you would get in the underlying. So, I'm not saying like in a in an end state in a world where like Hyperlid does an incredible job with these like listing these assets and figures out how to get like proper order book perks on this stuff like we would quote their pricing but right now

like the the one well it doesn't exist yet and like I don't see any path in on any short time frame where the pricing that you would get there would be even remotely close to like the pricing that you would get in the underlying. So, we just fetch the pricing from the underlying market. We quote you that. And that's like what allows us to support these like huge trades. Like you can open up a $50 million NASDAQ long at like the real market price basically very very close to it like within a really small range for like five pips open close like roundtrip costs. There's like nowhere else. And you get filled in one clip. Like we don't do partial fills. So there's just like nothing that that can compare to that right now.

>> Um it's not to say that if you're like a tiny shrimp and you're moving like you know you're put you're opening a thousand position or something that you might not be able to get filled easily like top of a book when there's through like hip three there's some sort of S&P future listing. But I think for if you're moving anything in real size and you really care about execution, like nothing is going to be able to compare to the venue that actually quotes you the underlying market price. Um, which is what we're doing. But if it becomes really really liquid on chain, we'll quote that. Our job is just to like quote the best price and offer the best trading experience.

>> Sorry. Why couldn't they quote you the underlying market price with with Hip 3? >> What? >> Why couldn't they quote you the underlying market price with Hip 3? I missed that. >> Because they're Well, because they're recreating their own their own order book, right? It's it's like the difference between like the NASDAQ versus Robin Hood, right? Like the NASDAQ is like the underlying it's like the exchange where like the books are being made. >> Yeah. Okay, I get you. >> Right. Like Robin Hood is like they're like the the one that has like the relationship with the customer and their job is to quote you the best price and find that and like some's that best price. I mean actually the way it works is like the the market makers are have to quote you at least better than whatever the national best bidder offer

is which whatever would be like the the underlying order book. But like yeah, I don't know in crypto it's really strange like people I people I think people are starting to internalize this with these like apps that are getting built on top of hyperlquid but like everybody who's like trying to build a like plat like a trading platform is like trying to be like NASDAQ rather than trying like no one is trying to be Robin Hood. >> Yeah. It's like orderflow frontends versus like orderflow servicesers kind of >> or just like the actual like the market where like the trades are being matched.

Um like the the exchange platform versus like the the the the platform that manages like the user relationship and like quotes prices pulling in quotes prices that other people are like delivering or making on other venues. Um so so yeah. So, I mean I mean just to answer your question on like through hyperlquid, right? Like if uh if they're trying to create an S&P future per, right? They're going to have a uh they'll have an index price, which presumably they would be pulling from the underlying market. This is actually a very interesting question. Are they going to pull the index price from the underlying market or are they going to pull the index price from a tokenized version of the thing? And right now I actually don't see how anybody is going to pull the price from the underlying

market unless they have support for like out of they figure out how to deal with out of market hours because underlying market is like 235 on ES futures for instance for S&P. So what do you do when the underlying markets closed? Like we have an answer for it like we have a like our oracle feeds in the market hours. We check for that at the smart contract level. There's a function like before you execute the trade we make sure the underlying market's open. If it's if it's not like it reverts. Um, but like what if you have infrastructure that's only made for like 24/7 trading? What do you do when the underlying market's closed? So like this is why for instance on hyperlquid the the gold per is a pack gold per. The price they're referencing for the index price is the tokenized version of the asset. The

problem is like the tokenized version of the thing has like 10,000 times less liquidity than the underlying market. So it's way easier to manipulate. So now your per market can only be a tiny fraction of the size of like can only be a fraction of the size of the tokenized market rather than a fraction of the size of like the underlying spot market. So there's like a there's like you wind up with these like layers of kind of like liquidity problems like like the underlying market if you can't reference that price because of ours. You got to reference the tokenized price but then the tokenized thing like doesn't have a lot of liquidity and then you have a free floating per price on top of the tokenized thing which then people also need to like you know you need to make the book on. So you have these layers of

liquidity problems like it's not it's gonna it's hard like it's gonna take a long time um to get to like execution. >> Yeah, makes sense. I think the I mean the the the pure tokenization path is interesting too and like the SEC seems to be moving towards something like this or they keep hinting at like having some kind of um like tokenized equity and and being able to do like make secondaries more liquid and stuff like this. It's just hard to see like when that happens, but I do think eventually and like Legion just announced their fundraising today. Obviously, we we incubated them and I do think eventually an onchain >> like just IPOing onchain does make a lot

of sense because you can just go global immediately like especially for for for for like people don't have access to to the NASDAQ, right? Um and like for all the local stock markets where it's just like it's just so much worse IPOing even on the Footsie or on like the the Portuguese stock market or whatever. Like it's it's there's just so much less liquidity. So like it's it's that's why everyone ends up moving to the US and and IPOing there. And it's just like such a huge such a huge advantage for the US. It just seems like for everyone else adopting like some kind of standard like this like an onchain standard where you could we could somehow go global would would make would make a lot of sense. But >> you're saying for that don't have the privilege to like come to the US or

something. >> Yeah. Yeah. Yeah. And for all the countries as well, like all the all like the the European Union and like um you know, it's a big part of why we lose like late stage and and like growth stage startups is they have to move to the US for both fundraising for VCs but also for for IPOing, right? Like they it just doesn't make sense to IPO anywhere else. >> Um and it's going to be hard to make the European markets like competitive with with that. But like if you had a way to to do it on chain and just do it globally and and like everyone can access it, I think it could be really cool. But yes. Yeah. One thing I'll say in the RWAS for spot is um it would be nice to get like the big indexes spot on chain like Spy, the Q's.

Um, I think just like being able to like borrow against those, right, and use them. Uh, that's like the killer you use use case for spot RWA. Um, is more so people that want to like hold them, put them in money markets, and kind of use them. I agree for like pure speculation. uh especially once you start getting to like individual equities and everything that per will always be the better model for that. Um >> the tricky part there is the business model, right? Um holding uh per S&P index, you're you're getting crushed by fees, right? That's just eating into

your your returns. So it's more for a trade. And then if you look at kind of the tokenized versions, they still need to acrue value and and you know, I think most of these models have been designed with you get one or two% inflation in the asset as a way to to kind of charge a fee, right? So you you do get some of your gains eaten away. There's like there's a fee in there embedded somehow, right? They have to keep uh they have to charge a fee for for the token, right? And so I mean maybe there's a world where there's just enough appetite to pay that fee because they're there that's the only way they get access and and maybe it doesn't matter but you know from from the US perspective right it's

it's going to be hard to rationalize it. >> I I actually I was like not entirely familiar with this. You're saying there's a fee embedded like into inflate. How are they like how are the economics just like different from like charging minting redemption fee? I guess at the stable coin level like you're collecting the yield and you're not passing that on. So like that's a really awesome business model. I just would have presumed that like the like minting and redemption fees. >> The problem is if there's if no one mints or redeems, right? If these things just trade hands and and stay open, then then you're not really getting anything, right? So you have to embed it in the form of of some inflation into the uh asset itself that they can sell into the market to to recoup. And you know, then it's just like a man an asset management

fee. And if the expected returns on the asset are 78% then it's it's hard to stomach a one or two percent management fee. But or or maybe it isn't right. If if like you're willing to pay that for the access that you >> I hold a bunch of gold on chain >> and yeah it's >> what's like the gold fee on chain versus the gold ETF. >> Way higher. I don't I I forget the I forget what the exact fee is. >> Tax gold. Yeah. >> Okay. >> I should probably move to tether gold. I think the fees are are lower. Sorry, I got to run.

>> Yeah, just leave your computer on. >> I hold the Yeah, I do the the Pax Gold. I think it's the fee is pretty high actually. >> Out of curiosity, like why are you holding Why are you holding Pax Gold like spot on chain rather than like in a brokerage account? >> Yeah, I just had most of my uh assets on chain for for ages. Um and only man transfer them out. >> Yeah, I probably should. Um, I just haven't got around to it. >> Oh, I'm not advocating you do. I think that's it's it's great.

>> Yeah. I also like having it on chain. I just like I like having most of my stuff on chain. It's just easier to get in and out of of things and stuff like >> I don't know brokerage that's the other thing like uh we don't have Robin Hood in in in Europe. >> And brokerages are like a terrible experience here. Like I don't know if anyone's ever used like Interactive Brokers or something like this. Like it's it's just like awful. Like I literally had to to to call support a bunch of times to do basic things. Like I've never called support on any like you know like web application ever. I was like trying to convert my euros to to dollars to buy the stock and it was like you have to go and it's crazy. Um that that also makes me very bullish on

the and and I'm curious what's your take on the crypto exchanges that are offering stocks too like these tokenized stocks. Um like I know Kraken wants to offer it. I believe there's others that want to go into this like to be your full service like brokerage like the the UX on crypto exchanges is I've never used Robin Hood which I hear is is is awesome but the UX on crypto exchanges is like way better than than the trad apps like of all types like the brokerage the bank brokerages the bank the the trady banks like I know my thesis for for crypto is always that you would eventually have just like all your assets on chain um and just be yeah like you you it would be like a full stack back and you'll be able to do payments

from it and stuff. Kind of already have the pieces but no one's really put them together yet. But yeah, I'm curious how how you think of the centralized exchange has gone after this. >> So under the current implementation like so far what they're doing is like largely a marketing stunt. Um obviously the the direct like we believe in the same vision of the future. It's like what what we've been building towards. But uh I mean I'll okay I'll give you another uh another thought experiment on on XOXOs for instance like how how big of a position do you think you can like how much X tokenized Tesla do you think you can like buy through XOXOX like on Jupiter? Like what's what's like the maximum liquidity available?

>> Like 25K. Like I don't think it's a lot. >> It's not a lot. >> 25K. Yeah, I think 25K sounds about right. >> Okay. You guys undersshot a little bit. It's something like half a million, but at that at 500K, you're facing you're facing like an 8 to 9% price impact. >> So, >> okay. >> Well, yeah, that's kind of where I was going with it. I was like, how much can you really buy without moving it? Like, >> that's like the max you can possibly buy, period. Not like the max you can buy without moving it. You You like can basically buy nothing like buy none without moving it. So, if you try to I think the last time I did I did nothing a week ago. Um on like a 200k position, you're facing like a 3 to 4% price impact. Um, so like even with like 10K

you're gonna face I don't know you could literally look like right now like I don't know what the price impact is on like 10K but it's like it's also not trivial. Um, >> yeah. You need to scale out like you're buying a selling a shitcoin on gate.io or something >> literally. Yes. Exactly. There's no liquidity on that stuff. And the thing is like I mean my view is like it's going to get like worse before it gets better. It's like DeFi like 2021 there's like USDC.e and like wormholebridge USDC and like native USDC. There's like 10 versions of like 10 different stable coins on like every chain and you like never know which one you have and like none of them it's like that but it's going to be multiplied as like everyone has these tokenized stocks. I mean even like e Toro announced that they were

like launching some tokenized stocks thing like I I it's going to be the liquidity is being completely fragmented. Um it it is there's going to be new versions of stuff. They all have different people are like the version of Xbox right now is like through exactly what you were saying like a cash forward like that you mentioned in the beginning of the podcast like it doesn't entitle you to it's like through some like nation SPD it doesn't entitle you to like underlying like asset rights or dividends or like anything like that. So um yeah, I would say most of what's been we believe in the same vision of the future. That's like definitely where the world's going. But uh the implementation that's being adopted by like all of these centralized exchanges right now is this kind of like frag like fragmented

tokenized stock experience that doesn't exactly entitle you to any like underlying rights and is basically cash forward. Um and you can't open like any real like no real size on this stuff. Um so um, yeah, I was gonna say there's like one version that, uh, yeah, I think like the the dinari version like makes more like more sense because it does entitle it. It gives you more rights. Um, a and also actually I think like the centralized exchange has done that's had the smartest approach. It's a very different one and it hasn't gotten nearly as much attention. So, not as good from a marketing perspective, but from a product perspective actually I think makes sense is what Bybit is doing.

Bybit has like they started a partnership like more than half a year ago with MetaTrader which is like the trading software. I mean this stuff is a whole other rabbit hole but like literally looks like MetaTrader was originally launched in 2005 and like the the desktop like web app legit looks like Windows 2005. Um but nonetheless still used by like tens of millions of traders around the world and is like how many traders act like access their brokerage accounts through this like interface and um by bit started a partnership with MetaTrader where you can use your Bybit credentials to like log into MetaTrader. They have a partner there and you can like trade these like FX you know crypto index equity CFDs. um that has gone like largely untalked

about but I think it's by far the most interesting thing that people that like is at the intersection among the like centralized exchanges like at the intersection of like a crypto exchange and some sort of traditional market access the tokenized stock stuff is just like I don't know we'll see we'll see what the numbers look like for these but like I mean the volumes on X stocks are like almost nothing and there's no liquidity so >> and is there a way to like hold spot um that's that's going to be like more efficient from a from from a cost perspective like longterm where you're not paying uh paying out a bunch in funding or or borrowing costs that you see for people that because I definitely see there's going to be a lot of prepification but there's also you know if you're holding index funds or

something as part of your your allocation um you just want to do it in the most costefficient way possible do you think there's going to be a way to do that on chain it seems like there should be I I think I even saw some mechanism back when I was looking at the DeFi stuff more where you could kind of like uh as a perp user, you could almost like lock your your your per and you would like pay a lower funding because you're um Yeah, but but I'm I'm not sure if you've seen anything like that like Yeah. to make per sufficient for that use case.

>> Um you're saying like a a per a perp designed for like a long-term holder rather than like a short-term trader or was that the question? >> Yeah. Yeah. Yeah. >> I mean that that's like kind of what we have, right? Like we have this is like goes back to the question that Yan asked about like variable funding rates, right? Like the the problem is like there's there's one like which is like the absolute amount of money that you pay and that there's also like a there's a like predictability factor which is like if I'm holding this per and like suddenly funding rates blow out like crazy and I'm paying like 80% of year like if I'm not checking my position I can get completely eroded. So part of what we've optimized for is like a much more predictable fee and trading experience like predictable liquidity

because you're getting the price that we're quoting you that's very very close to the underlying market and predictable fees where you're not facing a variable funding rate that's like completely dependent on whatever the random like market dynamics are like on our exchange. Um we're instead charging you like a smart pre a small premium on top of basically like the underlying market holding costs. Um and then like you know pocketing that and that's like to ensure that it can always be hedged if it has to be. Um >> interesting. So what's the cost like the average cost of holding let's say like a Tesla position on AIM for for a year? >> So I can tell you right now I'm like literally going to go to the interface on Tesla right now the one-year holding cost is 1.36%.

On each side >> okay yeah that's pretty decent. >> Yeah. Um the fees will like we're still finding kind of like optimal steady state based on hedging costs and like demand >> but they're they're very low. Um, so yeah, I mean again optimizing for it's just like a very very different thing to we we have optimized for being like the best place for whales to clear very large trades on traditional assets like three orders of two to three orders of magnitude better than like anything else in the market and predictable pricing and and fees. And this is like relevant it's actually like less relevant for crypto traders right now. It is like key to our like broader market expansion because I mean like Jose you're in

Europe like you know with a lot of these like trading platforms like Saxo Bank users like you know e Toro IG plus 500 these protocol like these platforms they're not charging like random variable fees like people are accustomed to like I think one pe one I've like written about this in some of my articles like I think one thing people fail to grasp is like it's not just about charging fees that are on if you if people have an alternative like crypto evolved in its own microcosm where there like was no like pervolved in their own little world. Like market structure is to a degree path dependent.

And so like if there are alternatives out there, people might have a very strong preference for like doing the thing on chain, but if it's just like a hundred times more expensive, like people won't do it. And so it's like not just about like is the pricing remotely like close and like good and justifiable. It's also about the structure. Like structurally similar fees actually really matter. And like if you have I if suddenly there's like a whole degree of new variables you need to take into account when you're trading this thing like you know you're used to holding S&P and like you just have to take into account there's like the fee varies between like you know 1 and 4% a year but now sudden suddenly there's a funding rate on it that might like totally blow out to 100% a year based on like random market euphoria or something

that is like you're not going to be able to convince someone who has the ability to trade to like hold their position with a very predictable fee to suddenly hold like trade your thing with an extremely unpredictable fee. Unless they're like an arbitrageer and they have like a strategy that's based on like arbit market inefficiencies, but like that's not the market. We're like not trying to build the best place not trying to build the most fun place for arbitrageers to mark arbitrage market inefficiencies. We're trying to build like the best place for people with a genuine directional view that they want to take to express that market opinion. Um which is a completely different thing to optimize for. Um yeah, >> we're a bit over an hour now. I don't know if you have anything else.

>> I was going to say actually one more thing on the markets which before before we switch which was like I was looking up before this like the divergence between like the winners the winners in the broader market both in like crypto and and in trifi right now. Um, I think I mean a lot of the story the last like you know 5 10 years has been like the the massive divergence between like if you look at like the S&P performance with the mag seven or like the top 10 stocks whatever that period of time is versus like the the rest of the S&P it's like insane. Most of the gains are being driven by like the very largest ones.

And if you look at the story of this cycle it's been something very similar like Bitcoin dominance. Okay finally like ETH is now outperforming but like has not been an alt season. It's been like the crypto market expansion this cycle has been like almost entirely Bitcoin driven. Um some of that has compressed a little bit. I was like looking at the numbers this like last half a year. It's expanded again over the summer with like you know Ethad performing whatever. Um and like the earnings on uh like a lot of the MAX Semens have been like Yan mentioned this in the beginning but like the earnings have been excellent. Um this like most recent earnings but the first half of the year the divergence has like somewhat narrowed. And so I'm curious what you guys think about this, like whether whether this is just like it's

just going to keep getting wider or because I I would interpret like a reducing divergence between like the winners and the broader market. It's just like a sign of market strength. It's like because I there's a way of interpreting it's like the economy is kind of like hollowed out. Like the broader like American economy is like unhealthy and there's like a few really big winners but like to the winners go all the spoils. Um >> yeah. >> Yeah. >> Yeah. It's a good it's a good question. I think my take is that if ETH isn't a store of value, um, then it's like one of the most overvalued sort of assets on Earth.

>> Okay. >> Um, and so I think like and and that's like I think what a lot of this cycle kind of relies on like if if ETH can can really get to like 6K, 8K, 10K, like 15K. Um, and that means people are to some extent like valuing it as a store of value. that it's it's it's competing with with Bitcoin to some extent, I think. And I think every L1 ultimately the idea is that if you're the if you win as an L1, then your token is the most trustless um like collateral asset on on that L1 and so you you should like win the store value use case too. It's not what Tony thinks, but it's what Kyle Samani thinks right about Soul 2. And so I think if ETH does really well, I do think we can get like a massive alt

season because suddenly all the other things can get priced that way too, right? Like so I think everything else is almost p like everything else at least in the L1 which is the where most of the value sits in crypto is priced relative to to to ETH. >> Um I'm personally not making that bet. Not because I don't think it's going to happen, but I I just don't have conviction um enough conviction to to to place that bet. still hold uh a bunch of ETH actually and and a bunch of soul, but I'm not like it's not my biggest bet and my my biggest bet is more on the application layer like the the Athena and the Hyperlid that I think um like I understand better and can kind of see a path to to it really being incredibly useful in generating a lot of cash. But

there's a lot of smart people like very smart people that I really respect in in crypto that um have insanely high targets for for ETH like and and so and I think if that happens you will get like BTC dominance going down and you'll get like an an old season of some to some extent. I don't think it'll ever be 2021 again. >> Why do you think that ETH like doing incredibly well necessarily needs an alt season? Because I guess like and also what do you mean by all season? Do you mean like a broader alt everything rips or do you mean like just the high quality like a you know a ena whatever like rips because it >> Yeah.

>> Yeah. I think if if I don't think we'll ever get L season where everything rips again like like 2021 but I think uh if ETH rips I think like all the L1s just just repric too right and then if the L1's because the L1's are like everyone the the pricing model you have for for sol I think to some extent is always like it's a fifth of ETH or whatever and it's doing you know like half of the of activity or more of the activity for for a lot of for a lot of the time and like I think it's similar with the with other ones I think it's hard to value any of that stuff fundamentally. So, I think if ETH does well, all the L1's do well and then as the L1's repric, all the assets issued on those L1's repric, too, and

like everything just like moves up. I really think ETH is the key to like uh having any sort of alt season. Whereas, I think if ETH doesn't do well, I think you'll just have pockets of outperformance of things that have real utility and value that that that that do well. Basically, >> I mean, it'll basically be the same as what we've had. I agree with that like higher take also like a lot of the applications >> like Athena Hyperlquid the higher ETH goes the higher Bitcoin goes they can make more money right um and so >> cash flows are downstream of >> yeah and so this is like the big question now are L1 tokens going to be you know store value and network equity are they just going to be network equity um you know so yeah this ETH if ETH goes

to 10k then like Bitcoin could go to 200K, no alt season. If ETH goes to 10K, probably all season. That's kind of the way I think about it. >> Do you think it mirrors like the underlying market fundamentals at all? This was like kind of part of the question too. Like do you think that like the because it seems like it like this is like the same story everywhere like this like increasing divergence between like the winners and like the rest of the market and >> well yeah >> clearly the case like among the S&P and like the top stocks there. I just wonder whether is it like being driven by the same fundamental drivers that there's just like a flight to is it psychology like there's a flight to just safety people just generally don't trust the

rest of the market. They think most of it is like Fugazi and so they just like they're going to invest in something they're going to pick the winning companies or >> well I think that like a lot of this new capital they're like try money they they love their indexes they are big like EMH believers and they go down the market cap list and they're like these like there's a lot of try to find interest in XRP and because that's like a big market cap right and so I think that a lot of this new money is very early in on their like exploration into this whole asset class. Um it's kind of funny because I think crypto over the last two years investors especially liquid managers have started focusing more and

more on fundamentals like hard like hard fundamentals right there's like the soft I feel like my thing is like ETH has a lot of these soft fundamentals that aren't exactly like >> you know quantifiable and like their way in how they should drive the price of ETH or something but they are like fundamentals soft fundamental like a non >> uh like Ethereum's decentralization. Okay, >> I see. >> Um it is it's censorship resistance. These things are actually hard to measure and how to hard to measure like how much more censorship resistant is than something else like how much that that extra censorship resistance should like go to ETH price and stuff like that, right? Um and so these things are like very hard to actually kind of like

value or reason about. Um I feel Yeah. So it's kind of like Yeah. I don't know. Um one thing interesting I just want to bring up and then I think we should end it because this is like going pretty long, but uh Wormhole just put in a bit for Stargate. >> Oh, really? >> Which is like super like trolly slashfunn. >> No way. >> Yeah. There's >> like a higher bid than layer zero. Yeah, they're valuing it. Uh, >> where are you reading this?

>> It's uh Wormhole Foundation Twitter. >> Oh, yeah. Just Stargate just pumped. >> Uh, it was at 12. It was like 20 minutes ago. So, I don't know. It's kind of interesting because layer zero Stargate have always been this like why are they two separate things? And then they did the offer. But uh seems like Wormhole is trying to [ __ ] some [ __ ] up here. Just get in on it. I don't know. I think it's kind of cool. >> That is pretty funny. Damn.

What I mean Stargate can just do whatever they want though, right? Stargate doesn't have investors that aren't layer like we're investors in layer zero and we also just got Stargate uh tokens as part of it. And I don't think well I guess Stargate has its own token holders that voted on the open market who would be able to vote for high proposal and and if wormhole can just pay make layer zero pay more they win anyway. So it's like >> it's kind of a win-win for them. That's really funny. >> I mean unless they buy it and then like the people who are working I don't know who works on Stargate versus Layer Zero, but couldn't they just like peace out?

>> Yeah. Yeah, I guess they could. >> I don't know. >> Yeah, I don't know the details there actually. It's kind of interesting. >> Is what is this? >> 1780. >> Okay. >> Yeah. >> All right. >> Um, yeah. Anyways, we should end it on this. >> Yeah. >> Um, >> I thought this Yeah, it was a good chat. Thanks for coming on. >> Thanks for having me, guys. This was fun. >> Yeah. >> Yeah. >> Perification. >> Yeah. And thanks everyone for for tuning in. We'll see you again in in two weeks.

>> Yeah. >> See you. [Music]