Hivemind: Crypto Feels Stuck, BTC DeFi & Ditching Staking

We are firmly in this point where people don't believe— they're not gullible, like, they— and they don't believe that the kind of like hot potato game will go on.

And so, yeah, I think that's really healthy market dynamics.

It is, it is.

Like, the way it's happened has been just like kind of depressing.

Like, why do you think ETH has been so bad for like 3 years? This has been like a slow transition to this kind of market where people want to see real, like, fundamentals.

Nothing said on The Hive Mind is a recommendation to buy or sell securities or tokens. This podcast is strictly for informational purposes only, and any views expressed by anyone on the show are solely our own opinions, not financial advice. Hi everyone. And welcome to another episode of the Hive Mind podcast. The goal of the podcast is to provide an inside look into what we like to call the Delphi Hive Mind, bringing together some of our brightest minds from each of the divisions to share insights, alpha, and shitposts. Today with us, we have the usual cast: Ceteris Paribus, head of our institutional research arm, Jan Lieberman, managing partner at Delphi Ventures, and our ventures associate Duncan, also known as Flood Capital. I'm Jose Macedo and I lead Delphi Labs, our protocol, R&D arm. So, um, we— nothing ever happens, but it seems like World War III almost happened this weekend. Things were briefly looking, looking pretty bad, but as of Wednesday, um, at 4 PM Western European time, things seem good. There's a ceasefire that's apparently being being respected. Where do you want to start? Want to talk about that? About Circle hitting $300, like the market cap briefly going above the amount of outstanding USDC. Seems like TradFi is bidding. Yeah. Where do we want to start on markets here?

Wait, so is that the current status? There's a ceasefire because Trump had that clip the other day where he was like, they broke the ceasefire, and I'm fucking pissed at both Iran and Israel.

It looks like it's still on.

Yeah, but like, the market's caring less. Like, um, I guess, I mean, like, crude is— or like, yeah, like, Texas is there. Yeah, crude is down a ton.

Yeah, it seemed very perform— like performance-based, um, or performatory, right? It was, it was just like a telegraphed attack on a, on a base where they told them ahead of time so you can evacuate, and then just an attempt to save face. And we've kind of seen that before, which is kind of bullish, right? It, it's— it seems like the goal is to seem as if you're doing something rather than actually leading to World War III. But yeah, I mean, I'm not going to try and pretend I know what's going to happen next, but I think historically Nothing continues to happen.

Yeah, I think like what was— because I think some people were saying that like Trump, you know, wants a war, but based on the clips I've seen of him, he seems—

who says that? I just like, there's like nothing. I feel like there's nothing that indicates that he's— that he wants a war.

Yeah, I think it's just like a talking point that people are like, oh, like Trump, because like the military parade on his birthday and like posting all these videos on like Twitter and stuff. Or like Truth Social trying to get people riled up. But based on what he's actually said, clips I've watched, he seems to be like pretty frustrated with the situation and is like looking for peace. So I think that's like re-encouraging because like obviously after the US like struck Iran, it was like pretty scary, like, oh fuck, like what's gonna happen? But since then, you know, yeah, the Telegraph attack, oil's like down like $13 a barrel.

I think that like This is— first of all, this is always inevitably going to happen at some point if Iran didn't voluntarily, like, denuclearize. And I think the rest of the world might, like— some of them will condemn it and everything, but I think deep down they're, like, happy that the US kind of, like, did this. And so, like, I think the reason why the market doesn't care too much is because they think there's, like, a medium-term catalyst that's kind of been taken, taken out. And so I guess we'll see over the next few months, like, what the long-term implications of this are. But Iran is never going to, like, attack the US directly because it'll just kind of be over for them pretty quickly if they were to do a real attack on the US, right?

So I don't know, their biggest threat was the Strait And yeah, but isn't it like China gets like all their oil there? They would just try and just buy elsewhere. It's like 5% US oil through there and 50% China, I think is the quote. But, but, you know, it's, it's a global market. Yes, it's fungible. They would just buy it elsewhere and price it prompt.

By the way, as of right now, it does seem like the ceasefire is being respected. There's been no exchanges for 24 hours apparently in Israel. Like people are back, bars are open. Um, yeah, and, and Iran declared the war chapter closed, apparently.

I think Gen Z streams went from like 1,200 live viewers to like 50. So I think people— that's a good indication of what point the war is.

Biden could never— this is, um, another indication of something only Trump would have been able to accomplish.

I think that, um, I don't know, my takeaway from this is like To be honest, I was not kind of worried at all during this whole thing. I kind of figured the US attacking would kind of put an end to it. I feel like crypto's kind of desensitized me from a lot of these like world events. Um, I guess like the volatility of world events, you know, obviously if things actually escalated to like full-on nuclear war or something, which I mean, you can't really plan for that anyways, but I don't know. I think that's my takeaway, is crypto's really kind of like hardened me emotionally to not like overreact to stuff.

Um, yeah, I mean, it's, it's, uh, the market bounced back, at least Bitcoin. I, I'm, I'm in the camp that I think most people are pretty not bullishly positioned relative to where you'd expect us to be when we're kind of approaching all-time highs like this. And, you know, partially because we've just gotten rejected off this level so many times, and, and it's been really profitable to, to trade the range, um, and it seems like people kind of continue doing so. But just the sheer amount of inflows between iBit and And, um, the treasury plays is insane. Like, IBIT's doing, uh, yesterday was $450 million or something like that. Each day has been 9 figures of just inflows. And, and that's, that's real buying, right? Just based on kind of how the creation redemption stuff works. And so, um, you know, that's money flowing in. And then you also have these treasuries that are popping up left and right, and you're likely going to have a big one out of the London Stock Exchange soon too. Um, and so these seem like they're kind of continuing, right? On one hand, you had Saylor that kind of slowed down. He did the, the big raise through the CRDs, and then, um, which is just like another stack on the, uh, in terms of prefs. But then after that raise of like $1.2 billion, he deploys like $25 million So there's, I think there's always this fear of how tapped is Saylor on that front. And ultimately you kind of need BTC to roll higher, uh, just with, I think, the converts. Eventually these guys get worried about the leverage level, and so you kind of need the underlying to rip for that, for that to refuel. And so, um, I think, you know, having all these other buyers pop up is huge. I just don't know how much more selling there can be at, like, because this is money that flows one way, right? These treasuries are not trading this. They're just buying it one way. And so I'm curious to see how much supply there is realistically to be absorbed at these levels. Like, I'm kind of just expecting to wake up one morning and be breaking through all-time highs.

But, and on your bullish positioning comment, do you think that's more a function of like people are actually like not invested, or they're just kind of like invested in like alts, whereas like all the real action has been like BTC, Coinbase, Circle, like you know, that, that sort of thing, like MicroStrategy?

A bit of both. I mean, I think there's more cash positioning, but this is kind of anecdotal, right? There's no real great way to gauge it, so it's just chatting with people. But I think there's a decent amount of defensive positioning in general for their portfolio relative to what you'd expect at this level. I think it's just because, uh, the worst stuff and just how many times we've rejected all-time highs, and it just it's been profitable to trade the chop. And, and so, and it makes sense, right? If you're wrong, you just buy back slightly higher, and then if you're right, you do pretty well. Um, and, and it's, it's pretty self-reinforcing. Yeah, yeah.

I mean, I think most people have just got wrecked on alts though, right? Yeah, a few people have been the BTC and hype, despite what Twitter will have you, have you think.

Um, and clear, and, and Circle, sir, got in before the first halt.

Yeah, it's, it's, and it seems like all the, the, if the genocides happening in the, in the stock market historically, like crypto has, has kind of moved after that actually. Um, you know, once like IPOs opened up last time, I believe it was like 2020, that the crypto real bull run started pretty soon after. Do we think it's the same this time? Like there will be material— and obviously there's been hype and there's been pockets of outperformance, but do we think there's going to be material alt outperformance this cycle?

I don't really see how the equities can continue to just go so insane and have none of that spill over.

Um, I think it's just like an access to capital thing, right? It's like there's so much money sitting in places that can easily access Bitcoin or these like crypto companies, whereas like actually getting that into alts is like significantly more friction.

Right?

Like, who do we think is chasing the Circle stuff? Yeah, it's probably a decent amount of retail, but also probably a lot of institutional money initially was driving behind it, where it's like you just don't really have that ability to come in.

It's funny, like Pump used to say back in— he used to have this line like, every single stock, commodity, and asset will be tokenized. But it looks like actually every single token will be equitized.

Well, did you see today that Solana is going to have SpaceX trading on-chain?

Really?

So like private investments are coming on Solana. It's kind of cool. But that again is more crowding out of—

Who's doing that?

Native. Let me see. I posted it a couple hours ago. It's by— Republic is doing it. They're called mirror tokens, which is kind of funny. Mirror. I'm not sure if they're backed or something.

You know, the—

Wow, you know, it's so ahead of its time.

The HR meme. It's like Do Kwon doing mirrored securities. Let me call HR and then this guy's doing mirrored securities. It's fine.

Well, it's funny how like, yeah, putting equities on chain, even like 6 months ago, you go to jail right away. Now it's like the only thing that was in like 20—

no one was doing that. It was probably 2021 or 2020. That was like— Mirror was early 2021.

Mirror was, was— yeah, no, it's 2020 that it went live, I think.

Yeah, it was the first.

Yeah, yeah, more so when it was like prominent. Mm-hmm.

So I had a very, um—

it also doesn't seem like it's bad. Like, it's, it's unclear. Like, there's a thread in this one of Mert's tweets, people are talking on it. And if you read the terms, like, what exactly am I buying?

Nothing.

You're buying a debt security from Republic. So it's like, sick. If they go bankrupt, then it's like, it doesn't seem like you're actually buying the— like, I don't know how this completely works. If they're gonna like own, maybe they own a certain amount and then they're only gonna write these debt securities across what they have, or if they're just going to get a bit YOLO with it. I don't really know. Yeah, got to look into that more.

Yeah, I think back to the alt performance thing, it's like, okay, you've had basically a lot of people in the past few years who have gone on-chain or just into alts have just gotten crushed. So they don't have money to recycle. And then you have, obviously, a ton of new supply. We've talked about that for a long time. The unlocks are actually starting to hit now and ramp as these projects launched a year or two years ago. And then you have just the friction of not being able to get in this big institutional money into these alts, whereas something like a Coinbase or a Circle or a CoreWeave, you know, have— obviously CoreWeave is not directly crypto anymore, but a lot, a lot easier access to that capital. And same with like MicroStrategy, these treasury plays, iBit. So it's just kind of a tough situation. What will actually make alts run is like more money coming in, and I don't really know if institutions are like near the point where they want to start bidding alts, or like maybe in kind of Q3, Q4 you'll get fund inflows just because like crypto as a whole is picking up. So you have some bigger liquid funds coming in and bidding some of the higher quality names. But it's kind of hard to recreate the scenarios like in 2024 when we had the big bull run, because that was like the new meme things popped up, ton of retail money into there. 2021 was different. You kind of need a catalyst to get a bunch of new money in, and it doesn't seem apparent, super obvious, other than maybe these fund inflows.

It never really is apparent. Forehand is kind of the thing. I don't know, I see both. Like, you know, there's been so many times that people have said crypto is dead, and it makes perfect sense when they're saying it at the bottom where, you know, all the narratives seem tired and stuff, and then it just sort of— something new pops off out of nowhere. And then once that happens, people start making stories of why it will always keep going up, right? Or whatever it is, meme supercycle, or or, you know, DeFi taking over.

I mean, dude, when PumpFund came out, I was like, there's no fucking way this product works at this state of crypto.

Yeah, exactly. I mean, we passed on that.

Yeah.

Anyway, I think that, I think that like, but the other side of this is for me is just that it does seem like we need actual, like, a technological innovation or new narrative. Because for me, I still believe in the original kind of crypto thesis. And like, I think stablecoins are— I think we're going to need censorship-resistant assets. I think eventually they're going to do capital controls, and that's probably closer than ever. And then you really see the appetite for crypto drive up. I think you're going to see in the meantime, like, hyperdollarization. All that stuff's going to happen with stablecoins on-chain. So I'm bullish on all these fundamental, like, developments.

But do you think the big beneficiary is of the capital control stuff?

Uh, Bitcoin.

Okay.

Yeah, yeah.

I mean, like, like, self-custody.

There is no second best.

Yeah, I mean, I think ETH and, and, like, DeFi will too, because, like, eventually, if you have capital controls become just a normal thing, and without being too tinfoil hat, I do think, you know, that, that will be just a normal thing. Like, every country will have, like, capital controls as fiat. It's sort of like a historical certainty almost. Then I think crypto will, will actually have a use case. And, and also, like, you'll need DeFi to do things with your, with your assets.

What about, like, Bitcoin DeFi? Is that something that— I know there's, like, actually a lot of—

yeah.

Legitimate projects coming out. What, we invest in Citria, right? Yeah, with that.

Yeah, I'm really bullish on Bitcoin DeFi too. It's just early.

Um, it's slowly happening. Like, there's, there's a lot of, like, and stuff.

It's gonna be more for, like, stablecoins and, and, like, lending.

Like, it's hard to do perps or anything to degen just given, like, 10-minute Like, you know, I think the majority of Bitcoin DeFi will be on like scalable L1s and stuff. Like SUI has actually gotten a decent amount of Bitcoin on it. Solana has like Bitcoin restaking now on it. A lot of these L2s have like Coinbase's Bitcoin and other wrap. I do think you're slowly seeing this. You have been over the last year and it'll probably just continue to like get bigger. I'm not sure if the actual Bitcoin rollups themselves will be these hubs of like Bitcoin DeFi. Maybe. I think if these turn out to be like real rollups, right? And not these like fake rollups we have today, but if they're like real rollups that are actually on Bitcoin and they're good, then you will probably see some like purists.

Yeah.

Actually use it. But I think for the majority, you're just going to see these wrapped versions kind of get issued on a lot of chains and you're starting to just see it.

It's interesting. In simple terms, like for someone like Citria or like Alpen Labs, um, I know those two are like big names in the space, or even what Starkware wants to do with like OP CAT. Um, like what is the diff— like what are the big differences from those guys versus like just wrapped BTC?

Well, like Coinbase's Coinbase BTC is just Coinbase is issuing it, right? And so your Bitcoin is just—

Custodied by Coinbase.

Yeah, custodied by Coinbase. And then if you get proper, like actual ZK proving that it's backed by, you know, it gets locked on the Bitcoin L1 with like a proof. And then when you move it back to the Bitcoin L1, you get the proof and it kind of is like, you know, it's decentralized, right?

So that's like truly like non-custodial Bitcoin on— you know, yeah, yeah, yeah.

I think the big product is just going to be yield. Um, like, there's trading— people don't really want to do— I mean, some people do, but I think over time there's an aversion to it because they just want to kind of hold it, and most people end up losing trading. And so, like, the, the more, uh, friendly product is just going to be something, um, that provides yield. And so like that'll probably be what brings in, ushers in a decent amount of BCC DeFi.

Yeah. In hindsight, I kind of wish I just went full BTC yield farming at the beginning of the year because there's actually been a decent amount of opportunities with it and it's like a solid asset.

Right.

Yeah.

And you can put it on like, you know, yeah, you're taking smart contract risk, but it's like, you know, I could have some on base. I could have some on Solana, I could have some on SUI, like, whatever, wherever else. Um, a good question, like BTC and stables and just—

do you wish that you just went like all in BTC at like, let's say like $20K or $30K versus like—

no, I think I— but I do wish at the end of last year, beginning this year, you know.

Yeah, but like, do you wish you did that versus like actually like trying to like make investments instead?

I don't know. It's boring, right? Like there's a part of you that wants to do other stuff. Yeah, you might underperform.

Well, how am I going to become a better investor?

You might underperform, but you're going to be like more mentally—

Just get a hobby, man. Highly expensive hobby.

What do you do?

I underperform Bitcoin for 16 hours a day. I read a lot of research and—

But it's like, how are you going to become a better investor if you don't, you you know, try.

Yeah, uh, I think you go through periods though, man. Bitcoin, come on.

Bitcoin's definitely gonna have a period where I think now you don't want to be— now I think other stuff's gonna perform more.

But yeah, you think other stuff's gonna outperform Bitcoin?

I think you have to measure your performance over like years.

So think about what, you know, Bitcoin going from $100K to $200K is a fucking huge move.

It's like if it goes to $200K, I just don't see how shit is going to get insane everywhere else.

Like, well, that's what I mean. It's like if Bitcoin 2Xs from here, like, I have a really hard time seeing.

I think the risk is what you've been seeing where BTC has been chopping around $100K and alts are down 50% across the board.

Yeah, but that's like, yeah, that's classic.

So how much longer does this go on for? It's like, I don't know which week you're looking at though.

Like, right, if you first, like, middle of May was Incredible. Beginning of June was really good, and then just periods, if you're in them, you're getting smoked.

Yeah, yeah. Like, I didn't look at charts for like one week. I'm like, oh my God, what happened?

Yeah, I mean, it just seems like we've gone through some pretty horrendous headlines that you'd think would break BTC lower, and we haven't. Right. So it would have to be broader S&P bear market now at this point. Like GameStop just raised another $450 million through converts. That headline just hit. There's just so much of this.

Bitcoin is honestly just like fulfilled, fulfilled everything we could have ever asked for. It's like trades so fucking well during all this shit and like very little drawdown, like since the ETF launch. Like it's honestly been really impressive. And since Trump's been elected, I guess.

Yeah, I think people sometimes also underplay the ability— like, the fact that with BTC you can sell it whenever. And like, you saw this over the weekend where what was happening over the weekend, you might think like long term is actually bullish for BTC, but it's the only thing you can sell on the weekend. And so it kind of gets hammered a bit, right? Um, it's kind of like an underrated property that you have this liquid, liquid asset that you can just— it went to like 98 or something, right?

It's a feature, brother.

It is a feature. That's what I'm saying. It's like, I think so sometimes people see these dumps and they, they try and put a narrative on like BTC because it like dumped over this war weakness and everything. But it's like, well, it's kind of the only liquid thing you can sell and that probably overpowers other medium to long-term impacts, right?

So what do you think? Um, so I think Nasdaq and others are trying to get stocks trading 24/7, right? Which is great for their business, a lot more volume. I think like the latest estimates were something end of next year.

Why have they just like started doing that now? It seems like kind of crazy that they have like— they're deciding now to do that versus like they could have done that for so long.

I mean, first you needed this thing to become purely digital, which it has over the past like 25 years, I'd say 20 years.

Yeah.

And so this is really the only universe when that was implementable.

I just don't see how— like maybe, maybe SPY will trade with a lot of equity on weekends. I'm not sure, like, who's going to be market making it on weekends and everything.

It'll be good for the tradfi guys to now suffer the pain of you being exposed to drawdowns at any minute of any day.

Yeah, I think it's just not good for society. Close the fucking markets.

Yeah, I just think it does feel like crypto needs a new narrative to really catch hold in some, like, with some promise of fundamentals at least. For, for there to be another broad-based, like, alt outperformance. At least I think Bitcoin is going to be fine. I think, like, DeFi and stuff is, is going to be fine. A few other sectors are interesting things happening, but it's hard for me to imagine because, like, if, if speculative fever does— and I think there will, like, AI will be the biggest bubble of ever, um, but there it's just like you, you can bid, and especially like secondaries are getting more liquid there's Robinhood and people and like even crypto people trying to make this stuff happen on crypto rails, right? I actually think that's kind of bearish for all the shitcoins you can buy.

Yeah, I guess you buy real businesses with—

I don't know. I just feel like AI is really what's capturing people's imagination and not just imagination.

Like it has, you know, I would say Circle seems to have captured a lot of imagination recently.

I think I think that what's interesting is that it's like, yeah, Circle was like, it's like a very good example because it's like stablecoins are one of the, there's only like a few really clear use cases of crypto, right? And like Circle was like the embodiment of one of them and that's like gone berserk. But, you know, in some of the other ones that are not as clear as like how the value is going to be captured, right? Like the whole broad like tokenization, just like that term, like how is How is that value going to be captured or how is that going to happen? Uh, is not really any clean, many clean ways to play it. So, you know, we can be super bullish on that and like the regulations, like moving, you know, in the right direction for that, but it's not super clear how to play it versus like some of this AI stuff. There's like a lot more like clean ways to buy into it and feels like it's like more applicable and more happening now versus like, I think the outlook for crypto has like never looked better. In terms of more adoption. But just how to actually play that beyond Bitcoin and whatever Circle or Coinbase and stuff is less clear, I think, and some select other projects.

Yeah, I don't know. There's a lot of people, anecdotally and speaking to people, there's a lot of very burnt out people that really think crypto is dead. I think crypto is dead is almost like becoming, uh, somewhat like consensus among people who used to be full-time in the industry.

What do you mean dead?

I mean, it's, it's, it's a good question, but I think just like that you'll never get the, the circles getting—

I think the Ponzo are dead, like, like all the crazy shit that is like this hot potato game that people play. Those things die pretty quickly. Um, and so when I think when people say crypto's dead, they mean that kind of— yeah, I think those kind of games, which is not a bad thing. It's like, I think that— listen, I think it's going to become more boring over the years, right? And everyone who's kind of needed to get—

has lost their money.

You kind of need it to get more boring if it's going to last longer. Yeah, I don't know. Like, sentiment changes so quick. December, yeah, it was like the greatest bull market ever and like nothing would ever drop.

It could definitely be 4 years. Yeah, there's definitely going to be like another euphoric state of like craziness at some point. Like if Bitcoin like teleports to $150,000, like we're obviously going to get some pockets of insaneness, even like 120. Yeah, but it just feels like, yeah, like as Jose is saying, it's like the roller coaster thing is like, you know, getting smaller.

We're having these pockets, but they're only lasting a few months, and then eventually the roller coaster has to like get on a new track because it can't loop anymore, and then we restart it.

It's going underground.

Yeah, yeah. I mean, I, I think it It's the loop expands on BTC all-time highs. That's like a reset for the euthanasia roller coaster.

But let's be real, a lot of this stuff doesn't make money. I think like I've been talking about this, I know you like maybe you guys have like disagreed with it over the last year or two, but, but the market has really been outside of like meme coins which people like to point to to refute this but it really has been moving to try and like value stuff off of actual fundamentals and revenue and like all the, all these, there's so many L1s and like L2 tokens that are just, you know, sub-billion now, which was kind of unheard of a while ago. There's like no bid for these things that, um, are just not generating money. The only things doing well are like hype and like before Solana, because why? Because it's generating, generating revenue, right? And like, we are firmly in this point where people don't believe— they're not gullible. Like, they— and they don't believe that the kind of like hot potato game will go on.

And so, yeah, I think that's really healthy market dynamics.

It is. It is.

Like, the way it's happened has been just like kind of depressing.

Like, why do you think ETH has been so bad for like 3 years? This has been like a slow transition to kind of market where people want to see real, like, fundamentals.

And I just, like, SEI is up, uh, I mean, I don't want to pick on SEI.

It's always weird shit.

I know, 60% over the last— it's like one of the top performers over the last quarter. And like, if you look at the things other than hype, like things that are, that are, that are performing, I don't think you can really say like— ETH was down for only for 3 years while we had like a meme cycle. Where dog—

I literally just said, how's SPX doing? $6,900, Jose, your top altcoin.

Honestly good, I think, right?

It's all right. $30, holy shit.

Yeah, God, it's doing pretty good.

But the people who buy meme coins are a different buyer group than ones who buy like infra tokens.

We're buying Believe over here.

What do you think, uh, I guess in terms of next revenue-generating app to drop is going to be Pump.

Yeah, Pump will be next revenue-generating.

Yeah, Pump at 4B seems like a great deal.

Yeah, probably. It's going to trade at, it's going to trade at a low multiple to its revenue, but even if it trades at like a Radium or a Jupiter type multiple, then that puts it, I think, like 8 or something like that. You know, if it traded at like a hyper liquid type multiple, it would be like 30 bil or something. But I don't see that it would—

it's only doing 25% of revenue, right? Rather than 100%.

Yeah. No, no, I think that's, that's even with that 25%.

Yeah.

Percent.

I mean, if the discount is just one, they're going to have a disgustingly large treasury to do silly things with. Um, right, they, they have the $700 mil they've sold to Seoul, and then another, you know, if they're able to raise the $1 billion, that's a lot of firepower to spend. Then you imagine the airdrop will be stimulative as well, which will supposed to happen after the initial launch.

But guys, Banana finally launched the web app and you can get it for $16 US dollars. This is a fucking deal.

Axiom, just the, the bot, I think.

So get it before pump reignites the meme coin supercycle and we teleport back to 80.

Yeah.

Do you want to go into the club stuff? Like, can anyone—

yeah, do you want to talk about this proof of governance thing? Are you interested in that? I honestly think it's kind of, I think it's kind of interesting because I could see a lot of like chains doing this.

Yeah. I mean, this was the John Charman post from ages ago, right? Like the—

Explain it super simply in English.

So in a normal like proof of stake blockchain, you get your token, you have validators, right? And then people stake their tokens to these validators and then you issue inflation to them. And then you can slash validators if they misbehave. And this is supposed to be like economic security, right? Like how the system gets a security. Basically proof of governance has like 3 main intuitions. First of all is that if all the, like, returns are just from staking, everybody will naturally stake, especially if there was like a perfect risk-free liquid staking derivative of the token, right? And then when everybody stakes, there's no real return because everybody gets diluted by the exact same percent, right? So that's the first one. The second one is that economic security from staking is a meme, and that the the actual, what gives a chain its security is not like the ability to slash a validator, but the fact that they'll stop earning fees if they act maliciously for like the rest of time. So if you're like some staking entity, right? And you start and you do some, and you like double sign or do something or whatever, you're going to get kicked off that network and you'll never be able to earn revenue again. And if that's like a very profitable business for you, you're not going to do that. And so that's kind of like the second intuition. And then the third one is that Proof of Stake is not actually permissionless to begin with. It's, it's actually, uh, permission because you need kind of like intrinsic permission from existing validators. Um, so it kind of takes these three things that are kind of true already today and then says, well, if this is the case, then you don't need stay, uh, like staking, you need to basically pick a validator set and then you just pay validators a very small amount of issuance to like, because it costs money to be a validator and run the chain. And then all like the REV is just burned. And so there's no liquid staking tokens, right? It's just like one token in the system. It gets all the revenue without staking it or liquid staking it because everything is just burned. And then you have like the validator set. And I don't know, it's like, there's been a pretty good back and forth on the, on the Celestia forum over this. I think that Celestia is like the right ecosystem to try this because they don't have like a DeFi ecosystem built up or anything. Like you can never transition like an Ethereum or Solana or someone else to this at this point. Cause there's, you know, JitoSol, state, Lido staked ether, like way over, right? It's, it's way too big, but it does make it kind of clean, right? If you just have like very little, basically zero inflation, it would be 0.25% a year of issuance that would go to validators. And then everybody else just uses the native token and you just naturally benefit from that burn. And then you only need the REV to be over like 0.25% to offset the inflation every year. Right.

And so that seems fine.

It's like, I think it's like a, there's obviously there's downsides with it with like, oh, you're going to do off-chain chain, selecting of the validators and all this stuff. Uh, there's definitely some risks involved with this. I— but I feel like, yeah, for an ecosystem like Celestia, which like— yeah, it's based on the token validators. Like, it's like an off-chain— it's— well, you can do token voting, you can do token voting on-chain, or you can just do like an off-chain process. And if you do token voting on—

to like— what's that? Doesn't that just like gate the validators versus like—

Well, no, that's, that's the validation is already permissioned and proof of stake is like one of these assumptions that you've been going in with, which like we've seen over the years that you kind of need to get accepted by the rest of the validators to join. So it's not really permissionless already. This is like a critique by proof of work people that proof of stake is not permissionless. And so it's kind of just like agreeing with this. And saying yes, there already is this permission sense to proof of stake. And it already is, it already is like proof of authority as it is. So it's kind of like taking a pragmatic look at how everything actually operates today. Right? Like all these chains have the same validators a lot of the time too. Right? And so if they do some double signing on Solana, well, there goes their business on Ethereum. There goes their business like everywhere. Right? And so I don't know, I think it's— I think they should do it. I think Celestia should basically just try fucking everything at this point. One of their critiques was like, well, you had these people building LSTs on Solana, on Celestia, and then now that's going to be kind of like done in-house. And Celestia has been doing more and more in-house recently. And I agree with that critique. But at the same time, I think that this idea, Celestia's original idea was like, we'll just build it and they'll come. And that's been proven to just not really be true. And so I think they do need to like first party take in-house more and more. Um, it's really a good idea. I think it's, I think it's worth a shot, like considering like where that ecosystem is at.

So it's not like there's not, it's not like any insane take on that. That seems like pretty reasonable and it's Everyone.

It's also like pretty similar to what John Charb suggested back in the day for—

well, it is. It builds off of his proof of governance paper from like 2023. I think this is just the industry moving to more pragmatic, like, you know, what is—

everyone's going to cut issuance and like it's validators, like these validator companies and I love them, but they've just been printing money doing like a total commoditized service, but like literally printing. Like 9-figure revenues at scale.

It's like, how much— yeah, how much selling pressure does Solana get a year? That's the thing. It's like inflation, like $400 million. Exactly.

That just— it depletes risk appetite across the entire space.

Yeah, I'm not too sure. I mean, I think this— his argument that the validators validate because of future revenue rather than the threat of slashing is true when, for Celestia right now, like where there's very little realistically value at stake and shenanigans that can be done. I think it's less true as chains get bigger and there's more value at stake, honestly. I think then the PoS attack surface gets bigger.

I don't know, remember when Snoopy stole like 200 mil and then got slashed 1 ETH? It's like, is it even effective?

What?

I don't remember.

Low carb, low carb crusader.

How did he steal 200 million?

With like this MEV attack where he kind of like faked this bundle and then unbundled it and then sandwiched the other validator or whatever. And then they got staked, like they got slashed like 1 ETH, but they had stolen 200 mil or something. It's like the legal system is the real slashing at the end of the day. It's like the legal system is the real slashing at the end of the day.

If that's true, then like blockchains don't really matter at all.

Like how do you only get slashed 1 ETH?

Well, you can only get slashed 32 ETH max anyways.

Right.

Right. So it's like if you steal more than 32 ETH, then it's worth it from that. But if they did that, then again, they would never be able to like validate again.

But can't you just like go under another pseudonym?

You could, but then you could, then you, but the thing is a lot of these two are just all delegated stake as well. So even if you— yeah, it's like you're not losing your own money, you're losing your delegator's money.

It's like, anyways, that's where it kind of breaks down. Yeah, I think— I mean, this is all the critiques of sounds reasonable back in the day.

Oh no, I think it's like— I think it's— I like it when other ecosystems try different things, you know. I think it's— I think it's totally fair that— and fine for Ethereum to always want to have homestakers. Personally, I don't agree with that trade-off. But I think it's useful to have a system that's doing that. And let's say one day that actually really matters, that'll be like super bullish for Ethereum and we'll be thankful we have this blockchain that has all these home stakers on it. Right. I don't think that's a trade-off that like anybody else should make.

Yeah, no, I agree.

Make that. And I think for something with Celestia that is down like 95% and is really trying to like unfuck their token, that trying some of these, you know, even Solana with Alpenglow is taking some risks here, right? Where they're kind of challenging the normal two-thirds Byzantine— I shouldn't use that word— they're challenging the assumption of like malicious actors to like a more aggressive number, basically to make the chain faster and get faster finality and everything. Because they're like, in practice, you would never kind of hit this threshold. So I don't know, you're seeing more of this in the, going against like the pure theoretical research and more into like what we've kind of seen. Pragmatic. I don't know.

Jose, what's on your arm?

Like a strap? She had an injury. Yeah.

It's fine.

Skin injury?

No.

Elbow.

Elbow injury.

What happened?

It's an old injury. It's from Worlds at the end of last year. I got popped my elbow in the first match and then had to do a bunch of matches on it so it's a bit fucked.

I've been rehabbing my thumb. I've been doing all these— uh, I've been getting this putty. I've been rolling it into like straight line and then I've got these elastic bands and I've just been like doing reps with my thumb because it started weak man keyboard warrior.

No, I sprained it!

And then after Cameron started doing this.

I sprained my thumb and then I continued to lift and golf and everything. And then I started getting all this bad elbow pain because when I was lifting, I wasn't using my thumb. So then it was putting a ton of pressure on like my joints and everything. And then I was like, okay, I'm kind of fucking up my body. I need to actually figure out how to rehab this thing and like stop lifting for a little bit. So yeah, man, once you get like 30 up, you got to, you got to take injuries more seriously than you used to, unfortunately.

Nice.

What else? We can talk about the clubs. We can talk about the club. I don't know if I'd call them war clubs because none of them are real. I don't think that anybody is in the war against Hyperliquid yet, but they want to enter the war. They're looking to enter the war. I think there's some— yeah, there's— it seems to be— it's funny because clubs were the narrative with Serum and Solana a few years ago, right? And then they didn't really work on Solana for like multitudes of reasons. But now you're seeing them make a comeback. And so you've got obviously Hyperliquid, what has been extremely successful, right? Most successful blockchain since Solana and one of the most successful in the last like decade, realistically, right? So no, you're just seeing it more and more with— you got like Monad has Kuru, MegaETH has this GTE, you've got Bullet, which is like Solana's first network extension, Hibachi is like this private thing. So you're seeing more and more of these come up. I think it's going to be pretty hard for them to realistically get like meaningful amount of market share.

I guess a good question is like how much of Hyperliquid's volume now is like just organic people looking to trade versus people with like thinking there is like farming and airdrops and stuff. Yeah, some next airdrop. And then like how much is it? Yeah, just like these market makers taking advantage of like the organic volume, right?

Like, yeah, I don't know. It's a good question. I also think Hyperliquid has a lot of fish on it, right? Which makes it a great place for— yeah, social market market makers.

So like, I think you could probably get, if you were sufficiently hyped, you're sufficiently like hyped up, uh, as an airdrop, you could maybe get like, you know, 20% of hyper liquid volume, 30% of like people coming over and like farming, but then they might be doing like very farming-like behaviors. Like I've seen a lot of these ones have like very low open interest, but a ton of volume because people are just like, wash trading. So, uh, I honestly think open interest is a pretty good metric. You have to look at both open interest and volume, but it's also like Hyperliquid's super unique in that they didn't raise any money, and so they were able to give like this insane airdrop where I think a lot of these other ones won't be in the same position to do that.

Um, yeah, I think the main thing Hyperliquid has is that is like you can't fork the holder base that got made rich holding this thing. And I mean, it's a really good product, to be clear. But like, you also can't fork the holder base and origin story. It has like a Bitcoin-esque in the sense of just like, you know, a bunch of people who were like behind it and stuff. And I also think, like, I don't know, I think HIP3 is actually like really cool. And I think if it works out, there's a sense in which you don't really need another perp DEX. Because historically, the way that a new perp venue or even just a new exchange venue wins against an incumbent is just by offering a longer tail of assets, right? Whether it was Poloniex back in the day and then Binance and then Uniswap, right? And then FTX, get your perps on shitcoins and using shitcoins as collateral. And then obviously Jupiter, like meme coins. And I feel like with HIP3, if— I mean, obviously you need the 1 million hype delegation, but if it works, you can just spin up your pairs on Hyperliquid and get like 50% of the trading fee revenue, right? And I think realistically that's going to be more money for most use cases than you would bootstrapping your own venue and having to get users there and stuff like that.

Right.

So I think HIP3 makes it even harder for me, for someone to come in with a meaningfully like differentiated like product.

Yeah. I will say we should still remember that HyperLiquids custody model is quite degenerate and like, you know, there's a lot of billions of, has like billions of dollars in a hot multisig. So I think if you were to want other, how do you know it's a hot multisig? Yeah, it has no rate limits or anything.

All right, that's what you mean.

So I think like just, you know, I think people should constantly kind of be aware of that. I'm not saying anything is going to happen, but it's like, you know, it's not— there are some pretty big risks there. And I don't know, I think it would get kind of worrisome if this thing got like $10, $20, $30 billion in that. So we'll see. We'll see. I think a lot of these other ones too are trying to play the whole tech and like custody, especially the rollup ones, like, you know, but I think even those ones, they're still actually just like multisigs right now, the ones that are live. So it's like, you see this a lot with rollups where it's like, theoretically, they're, you know, way safer, going to have ZK proofs and all this stuff. But then you look how they're deployed today and it's like, oh, there's an EOA that does kind of everything. So yeah, I agree though, it'll be hard to compete with Hyperliquid on, on product at the point that they're at.

Yeah, product liquidity. Like, I think the only thing you can really compete on, even if you have like a similar product or as good product, which is like going to be impossible because you won't have the liquidity, is like these incentives initially. Unless like someone invents something new that hasn't been done, but I feel like in terms of perp trading use case, Hyperliquid is pretty good.

Yeah, I mean, I think the liquidity actually on the majors is not that defensible because you realistically don't need all that. Like, there's like an escape velocity threshold where, okay, trading a certain size that Probably applies to a billion dollars. Yeah, like that guy, no. But, but for 99% of the other people, obviously that's not 99% of the volume, which is the important caveat, right? This is the whole power law component, and that's why like the whale game really makes Hyperliquid valuable. But everyone who's kind of below that threshold, if you're not going to experience any slippage or, uh, or like equal or lower fees, then you're kind of incentivized to to trade on some of these other ones just for that future airdrop. Because all I'll tell people, the trading experience is the same and you're getting something. So I think, you know, you kind of have this long tail of things that'll probably slow down HyperLiquid's progress. But, um, I think eventually once the airdrop's done, then unless there's something else that's differentiating, you'll probably end up moving back, although I can see a decent amount of people being just kind of lazy and just keeping their money in a certain place once it's already there.

Yeah.

The other thing with Hyperliquid that is interesting is that they had given out this massive airdrop. So you have, and basically the only place to custody HYPE is on Hyperliquid itself. So if they have like $13 billion of capital in their native token that can only be custodied there and they gave it all to people who are like big perp traders, like they can kind of so like slowly sell that off and keep on trading and like that perpetuates the flywheel and all that hype has to like stay there versus like, you know, if you were to do a new exchange with your new airdrop and token and then you launch whatever the Lightr token or Bullet token, whatever it might be, and it has to like stay on that platform, then like there's a bit of— there's like stickiness there to, to that kind capital, especially if maybe like Hyperliquid enables like a low level of margin on HYPE, um, then it's kind of like you can't really leave because you have the lock-in with like maybe fee discounts or just capital being there. It's harder to leave.

Do, do you think like, uh, Hyperliquid is like a much better product than dYdX was? Maybe pre-Cosmos dYdX, like the, the kind of StarkWare one.

Functionally, as like, I would say, a casual user— Ian might have a different take— but I didn't think it was that much different, um, as like a casual user.

Yeah, me neither, which is why I kind of don't really rate my ability to predict what, what's going to succeed here.

Like, it was— yeah, it was definitely better in terms of, uh, liquidity on alts. 100%, like way, way, way, way, way, way better. But if I was trading like BTC or Solana or something on dydx versus Hyperliquid, it wasn't huge differences.

Yeah, yeah, it kind of goes back to that earlier point, right? It's just at a certain threshold, a certain amount of liquidity, which isn't that much, you don't notice a difference.

Yeah, the other, like, a good point to this whole like hype lock-in, like, of a lot of capital being there is, um, and I don't know if this has been like confirmed, but there's a lot of stuff going around on Twitter that I think Amber Group had just has like a massive BNB position that's like, uh, they can't sell, but it's like usable as collateral. So like they use it to like make markets on Binance as like an example of, of this kind of lock-in where it's like, okay, we can't sell this, but like we can make markets with it and make money that way. So like we're just kind of like forced to use it on this one venue. And I think like there could be a similar thing happening with Hype, like similar dynamics there, which like creates more of a lock-in effect.

Yeah, I think it's gonna be tough to unseat Hype at this point, especially with like all revenue flowing back to token holders. And you just have this you know, you can just buy hype.

Um, I think you can turn that on on other, like, ones too, though, for sure.

But yeah, those are different though, extracting a bunch, and you know what I mean? Like, if it was like with DYDX at the peak, it was like, yeah, taking the money and dumping the tokens.

Where you trade versus what you hold.

But I think they're not they're very— in my mind, they're very tied together in the sense that, like, Hyperliquid really, like, the market share took off once hype was out there and there was this army of people that got rich off it, were incentivized to shill it, uh, were incentivized to tell some of it and use it to trade.

Like, yeah, I think, like, that's a big— it's a big wealth creation event for their users to give them more collateral to trade with. More capital to trade with.

Yeah, exactly.

Yeah, I guess the other element is like when, when hype hits whatever degree of, of central, uh, centralized share, right? So it gains two ways: market share and, and, and, and growth of the space. And so maybe it hits a certain level of saturation where it's like hard to gain additional market share, but, and then you're mostly its growth is based on the growth of the space, then you could say it's kind of fairly priced, right? And then you have this scenario where people can look to other ecosystems because they want to run that playbook back.

Yeah. And then there's also the other point, which I like with these builder codes, like people building more front ends on Hype could be like a really interesting distribution outlet for them. That's like a whole other piece. I definitely think like how they're building the scaffold building with this like HIP3 and then like the builder codes and stuff allows people to kind of make the decision in their mind like, okay, should we just like monetize like pretty lucratively off these additional fees we can charge like on top of Hype and like not have to worry with like the whole fucking headache of building a perps exchange but like still get a big chunk of the economics?

Yeah, like even Ostium or something, right? Like you could build just Ostium on top of and you could build Osmium on top of Hyperliquid. Or like Athena originally wanted to build Ethereum so they could have an exchange which uses USD as collateral, or wanted to have someone build Ethereum to get an exchange that uses USD as collateral and as a trading pair. You could just do it on top of Hype now, right? It just feels like, yeah, really smart, I think, and something that makes it harder to compete on the long tail.

For sure.

What do you think the most impactful thing outside of stablecoins, just like money markets that we've had, just borrowing against—

yeah, the perp itself, the ability to mint equity perps, the ability to tokenize culture.

Jose, the tokenizing belief.

Yeah, I think probably minting tokens. Yeah. And being able to like associate like different utilities and cash flows to them generally is probably the most coolest, one of the biggest ones. But yeah, perps. Perps is funny because it wasn't even invented by DeFi.

But yeah, it's funny because like I don't even trade perps and it's like, yeah, what are you complaining about?

Being able to trade Bitcoin like from anywhere in the world, you know, during the weekend when everything else is closed is obviously like that's a really cool tool.

I mean, obviously self-custody of your assets is like for me, it's kind of like the whole like democratization of private banking in a sense of like that's why I said money markets. I do think that that's just something that like most people don't have the ability to just like borrow against stuff easily, right? Now that can obviously be used pretty poorly, as we've seen over the years.

But yeah, cool. All right, guys, I think we can call it here. Yeah, thanks. Thanks very much for joining us for another episode and see you again in 2 weeks.

Yeah, thanks everyone.