The State Of Crypto Lending | Membrane Labs

I think we had sort of the worst, in the last cycle, the worst type of centralization in the space, and I think it's better now. What I mean by that is you had players like FTX and Three Arrows, they were sort of put on a pedestal in the space where people didn't ask questions and they're just like, "Oh, it's FTX or it's Three Arrows." And so you had the worst type of centralization or counterparty risk in crypto where people saw them as very creditworthy, and yet if you actually looked under the hood, there was kind of nothing there.

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All right, everyone, welcome back to Empire. We are very excited. First off, we have great guests, James and Carson. Welcome to the show.

Thanks for having us.

Yeah, but not, not as important as the guests, but this is our first official in-person in our new studio at Blockworks. So hopefully more of these. So we'll see how this one goes. This is a nice test run.

It's a great studio.

Yeah, appreciate it. Okay, so this is state of the union for like lending, lending and borrowing and crypto leverage. And the reason I wanted to do this episode is last cycle was very like a leverage-driven cycle. And I think we all— a lot of us have kind of understand what Genesis and BlockFi and Celsius and FTX— I really have no idea what's going on with the lend and borrow market now and what, what leverage looks like in this cycle. So that's what I want to do with this episode. Maybe, James, I could throw it over to you to just refresh my mind. Like, tell us about—

you don't have PTSD.

I do.

Which is why I need you to explain it, not me.

Tell us what happened in 2020, 2021, and then with the blowup in '22. Like, how did this— tell me about like the cycle from a leverage-driven perspective.

Yeah, I think— I mean, well, even now, I think most cycles or a lot of the cycles are driven by a lot of leverage. It's just a function of crypto. You have a significant amount of leverage taken on by retail and institutions. We see that in the wild fluctuations in prices on exchanges and the market. We see violent moves up and violent moves down. A lot of that is leverage in the system. Specifically to 2022, Terra Luna, one of our favorites, just really had an epic blowup with a loss of credibility and a loss of support for its stablecoin system. What ended up happening is you had a very strong over-the-counter lend-borrow market, obviously Genesis in the middle of it, among others. You also had a significant number of retail lenders, BlockFi, Celsius, Voyager, all taking in a significant amount of deposits and looking for yield. That was the trend at the time. When a lot of that money gets put into a system like Terra Luna and then confidence is lost in that system and there's a massive, massive, massive unwind, well, all the money leaves out the door and whoever's left holding the bag is left with a significant number of losses. On the back of Terra Luna falling apart, we saw Three Arrows Capital go down. FTX was a casualty of that. Celsius was a casualty of that, Voyager. We saw all these dominoes falling, and because of the interconnectedness of these markets, and also frankly, just a lack of underwriting standards, a lot of these loans have been made on promises and trust and not necessarily significant due diligence or any at all. A lot of that and having that be kind of in the shadows led to a lot of money moving on-chain in the form of TVL that ultimately was left holding the bag when something like a Luna-Terra blows up. Obviously, there's a lot of carnage and collateral damage that impacts the system and then a massive loss of confidence over the next 2 years, basically into 2023, 2024, when now we see lending kind of take back off.

Carson, you were running, I think, Tokamak at the time. During this last cycle and then now obviously running Membrane. Who were the players in the game then? Talk to me about the interconnectedness between a Three Arrows, a Genesis, a BlockFi, a Gemini Earn program. How are all these players connected? Family offices, hedge funds, retail, how are they all connected?

Yeah, it's a great question. And I think just to layer on for a second to what James was saying, and this links to your question, 3 additional things that I think exacerbated the problem were that all of these different lenders in the space were effectively being run as venture-backed technology firms. So rather than being very focused on risk and underwriting standards, there was pressure from the board as well as their investors to just write more and more and more loans. So they were giving uncollateralized loans. To your point on kind of these players and how they interfaced with Three Arrows, there was a lot of concentration risk because Three Arrows was sort of seen as like a Goldman-esque figure in the space where it's just like, they're creditworthy, it's fine. Like, if you're going to try to write more loans, they have infinite appetite for capital. Just lend to them. And so you had sort of this pressure to write more loans. You had a lot of concentration risk in Three Arrows, which obviously went under post-Terra Luna. And then additionally, if you look at the operational standards that these places had, even if they were kind of underwriting in a positive way, which a lot of them weren't doing, they were generally running everything in spreadsheets is what we've seen. On the Membrane side, we've taken a look at all the operations because we've tried to build a better solution for the lending market. And most of these groups were using spreadsheets. They weren't updating their LTVs in real time. They weren't margin call— like if they were margin calling, it was something that would happen once or twice a week with an analyst looking at it and maybe calling up someone trying to post more collateral. So the situation was ripe for that kind of collapse, I guess, when the first kind of domino fell. So you kind of had Three Arrows— sorry, you had Terra Luna sort of cascade into Three Arrows getting wiped out. You then had all of these groups sort of interconnected generally in an under or uncollateralized way.

So tell me about the flow of funds. Like retail would give their money to BlockFi, BlockFi would lend that money to Genesis, Genesis would lend it to Three Arrows so they could trade. Like, walk me through how a dollar moved through.

Sure. So you can kind of think of BlockFi, Celsius, to a lesser extent Genesis, as kind of retail aggregators. So the way they get their capital or their deposits or kind of who's lending into them was generally retail. So they're aggregating capital from retail. Retail, of course, is sitting on Bitcoin or Ether, and in less, maybe less likely scenarios, stablecoins, they're looking to get 4% or something on that. So they deposit in, that gives them their supply of capital. And then a BlockFi or a Celsius goes and lends, and they lend out some, in some cases to retail. With retail, they're generally doing it overcollateralized, but then they'd also be lending out to the street. And the street was meaning the street, meaning the prime brokers, the crypto street. Yes, the crypto street inclusive of Three Arrows. And Three Arrows, just the amount, and you probably have better ideas on the actual size, but they were so systemic in this entire thing. So when they went down, most of those were directly affected. And if you trace it back, it was retail capital that was in these, these venues that then were being lent out to the likes of Three Arrows.

Okay. So my understanding— let me maybe repeat what I just heard and tell me if I got it right. So retail person, I've got maybe $10,000. I've got $10,000 of Bitcoin. I want to make 4 or 5% on that Bitcoin. So I'm going to go give it to Gemini for Gemini's Earn program or Celsius or Nexo or BlockFi. BlockFi says, all right, I'll give you 5%. BlockFi then takes that money. They then give it to Genesis, let's say Genesis. And again, I don't know if, I don't know if Genesis is, is the BlockFi here, if then BlockFi is giving it to Genesis, but then they, or I guess maybe you could skip Genesis here. They then go give it directly to Three Arrows who says, I'll pay you, I'll pay you 8% or 7% because I can make way more than 7% a year with that money. So BlockFi makes the 2% spread. They pass 5% back to the retail. Three Arrows does a bunch of stuff on-chain and degenerate gambling and stuff like that because they think they can make way more than 7%. But as soon as the thing that Three Arrows is investing in blows up or doesn't make money, then the whole thing cascades back to the retail user who gave money to BlockFi. Is that right?

Yep.

That's all. That's yes. And you had folks like— and we learned this post facto, but you have folks like BlockFi and others who were actually trying to earn yield themselves. So it wasn't just lending it out. It was also maybe doing basis trades. If you recall, that was the whole Grayscale ARB. There was a lot a lot of, you know, basically mini hedge funds sitting inside of some of these depository institutions, which is kind of what, you know, they ended up being. Or in some instances, a Celsius would outsource the asset management to a Three Arrows or someone else to earn that yield, clip a coupon. But yeah, that's roughly what could go wrong.

Yeah, in hindsight, in hindsight, it's great. We all think in hindsight, it's like, that's nuts, like that we're doing this. But there's all this leverage in the system. People are farming it, doing the, doing the basis trade and Grayscale, given to Three Arrows, they're doing degenerate stuff. Terra Luna blows up, or then, then, I mean, the market starts to unwind. What, November '21, prices start going down. That hurt. That hurts the initial group, I would say. Then Terra Luna blows up. What, May or May, I think it was, of '22. That hurts things even more. Genesis, Genesis blows up. I mean, then the whole system's wiped. Tell me why it didn't remain isolated. It felt like the whole industry was so interconnected in a way that it shouldn't, or maybe it should and that's just how finance works and everything is interconnected. Yeah, tell me how you think of that.

Yeah, I'll start on that one. So I think there's probably two things that led to that result. So one is that they are interconnected in that often credit is extended or these groups are actually lending between themselves. So you can have at any given point in time, if you just take BlockFi, Genesis, Voyager, Celsius, that group, they're usually trying to find end users because they're usually going to pay the highest amount. There isn't another middleman, so they're trying to find those consumers of leverage or those people to lend to. But if they don't have that in a given time, they might look between each other and say, okay, what are you in the market for? So there is lending between these venues, and that's what made the entire street, with the exception of a handful of players like Galaxy, blow up. Additionally, then it's as soon as not only from Terra Luna going under, but also the entire, I would say, financial street within crypto of all those players goes under, all of the confidence is shaken to the core. Everyone retracts. There's no leverage available in the system anymore. Now, all the things that usually can drive token prices, asset prices, Bitcoin, ETH, etc., the wind just gets sucked out of the sails there because you can't borrow anymore and you can't lever up. A lot of these things, as you mentioned earlier in the discussion, are leverage-driven in these cycles. Cycles. So that's why everything cascades out. You then have people even leaving the space where they pack up shop and go home. A lot of groups become bankrupt. And it also cascades through to the end hedge funds. If they were consumers of that credit and then their lenders go under, often they are impacted as well.

Yeah. I also think maybe the numbers were large, but the players were smaller than maybe it is today. But I also still think we still are in a highly leveraged market. And I think crypto is very reflexive. When the price is going up dramatically, Everybody is kind of— I want to say lazy, but they're content with, you know, putting on kind of similar trades that exist when only the market's going up. And so when everyone is in the exact same trade using the exact same leverage and then everybody's trying to get out that same door, you know, it's bound to kind of go wrong. And that's why I still think we have violent swings higher and violent swings lower in today's markets because the same dynamics are still there. It's just, you know, we didn't— we didn't have an epic implosion as of yet like a Terra Luna. You know, that kind of set up, set things off.

Yeah. Well, we'll talk about later maybe the as of yet, because I want to hear your take on where we go from here. So maybe the last thing on the last cycle was I've also done the same, talked to like risk managers at the Genesis and BlockFi of the world. It is shocking to me the how they were running these things. Like, I think if somebody— I mean, you'd fall on the floor if you looked at the spreadsheets that were running several billion dollar loan books. What did you— I mean, Just, I mean, tell us about this.

Yeah, it's so—

I mean, this is where Membrane was born.

Yeah, exactly. We really, ultimately, we built Membrane because of what we saw, or we built the lending capabilities on top of kind of Membrane's netting and settlement technology because of what we saw there. And that's everything was, you know, the technology choice was, do I use a Google Sheet or do I use Excel? That's— I'm like only slightly exaggerating here. Like everything was in a spreadsheet. Things were being updated. I would even say based on loan terms changing, they weren't always updating their spreadsheets. So even they didn't always even have a full kind of view of what their loan book was, much less the price and the sort of TVL or the collateralization of these things.

And with loans, just because I've never really been in this game, are there like contracts and you're sending a doc you sign for a loan usually, or is it just like handshake deal?

Yep. No, everything is contract, at least on— and later we'll probably get into this, but there's, you know, there's obviously—

Like back then, was it?

Yeah. So there's bilateral OTC lending, which is what we're talking about versus kind of centralized exchange or DeFi lending like Aave. So an agreement between the two parties and that spells out everything, how margin calls work, how collateralized they are, when like, when you need to top up margin. But the fact is, then operationally, they weren't really adhering to any of that.

They weren't updating the spreadsheets based on all this.

Correct. So it might be that they started with 150% collateralization, they were overcollateralized, and then they're supposed to margin call at 110%, and they might be at 70% and no one even realized it, like, because they just weren't updating these things. Or they had one person on the team that was managing that, maybe also doing derivatives trading. So it was just undermanned and no tech sort of support.

Yeah. So master loan agreements govern the bilateral lending relationship. And the issue with these documents, and particularly in crypto, because I think people are trying to be overly conservative, or at least now they are, is that they're bespoke. They're different for every single loan. Everybody wants a different kind of clause in these contracts. And so, you know, what I think— and we can get into this later— but what I, what I do think is one of the impediments to creating a more robust and liquid sort of lending market and what some of the DeFi protocols have done is the harmonization of those terms. In this bilateral market, there's not fungibility between these contracts. You have these bilateral relationships that spawn like a spider web, as in traditional finance, and it creates a scalability factor for a market to exist in the lend-borrow that's not quite there. That complexity is very difficult to program into software and to monitor in real time and the complexities around it. It.

This episode is brought to you by zkSync. In 2024, zkSync took a step toward a multi-chain future by transforming from a single L2 into an ever-expanding network of zkChains, the Elastic Network. To onboard the whole world into crypto, many specialized chains must be able to coexist, work together, and share liquidity. Institutions and global financial leaders choose zkSync for unmatched security, scalable infrastructure, better onboarding, gasless transactions, and privacy-first design. Join over 20 chains including Abstract, Sofon, and Cronos in the Elastic Network today. Behind zkSync is the zkStack. It is a one-stop platform for building private blockchains on Ethereum. The stack solves all the typical privacy, regulatory, user experience, and deployment concerns of blockchain without compromising performance or security. Join the Elastic Network today at zkSync.io/empire. Thanks to zkSync for making today's episode possible.

Okay, so give me the— now that we're, what, 2 years post-blowup or 2.5, 3 years post-blowup? What are the— what did we realize? What was the— what were some of the, like, fundamental problems of that? Like, was it mainly focused on the tech? Was it focused that there was only a few small players? Was it that the lenders were venture-backed companies and actually lenders probably shouldn't be venture-backed companies like, yeah, assess the problems, I guess.

Yeah, I think there's 3 or 4 issues. One was, was the venture-backed nature, not that they shouldn't have taken venture money, but the fact that they were being valued at tech multiples and they were just incentivized to write more loans, more loans and not consider risk. That was one issue. Second is lack of technology in order to track these things in real time and in order to take more margin, take more collateral when the market moves. So they were, you know, writing these things in very volatile assets, not just Bitcoin and ETH, but alts as well. And when those things took nosedives, they needed to, to, to take action. The fact that they were also seeing a number of players in the space as more creditworthy than they actually are was also a major issue. So again, that goes to Three Arrows and others. They were seeing that these groups like, hey, you actually don't need to post collateral at all. You're Three Arrows. It's okay for me to just lend you like $25 million and I don't need to take any collateral. Well, there, even if they had the operations that could, that could manage sort of the duration or the lifecycle alone, they still were screwed effectively when, when Three Arrows went under. So I think all three of those things exacerbated the problem. I would say in terms of concentration, that was some of it, but there really was a handful. Like right now we're actually seeing the market get built back up and kind of to the number of players there were before and hopefully beyond soon. But I think those other three things were contributing more so than the—

Yeah, I think for me the main thing was just a very weak level of underwriting standards. I mean, when at that time during that point in the market, I was at Galaxy now not running the lending desk, but running BD, but was, you know, had visibility into it. And a lot of people don't talk about it, but it was very well managed. All the loans were overcollateralized, so no losses were really taken during that time. So if you were managing your book correctly and you had appropriate risk management, you know, throughout your, throughout your business, throughout your lending business, you were actually okay. And we also saw that in DeFi. I mean, DeFi operated exactly like it should because it had Granted, it might have been more violent than it needed to be because of the auto liquidations, but at the end of the day, those were properly risk managed by either institutions or organizations that were able to risk manage appropriately. So for me, it was just too much leverage to too little creditworthiness, basically.

Yeah.

Two things I'd layer on that. Yes, I think one of the big learnings too was that DeFi, even though a lot of people immediately were like, "Oh, Terra Luna collapsed, this was a DeFi issue," I think during the subsequent bear market and when lending really dried up, the one spot where you did still see activity was in DeFi because DeFi really did function like it should have. And I think the last point I'd make is I think we had sort of the worst, in the last cycle, the worst type of centralization in the space. And I think it's better now. What I mean by that is you had players like FTX and Three Arrows that were seen as like, they were sort of put on a pedestal in the space where people didn't ask questions and they're just like, oh, it's FTX or it's Three Arrows. That happens in traditional finance. Maybe it should, maybe it shouldn't. But you have banks and institutions that have been around a long time. So they do have the processes and people internally in order to kind of manage their risk. And so you had the worst type of centralization or counterparty risk in crypto where people saw them as like very creditworthy. And yet if you actually looked under the hood, there was kind of nothing there.

Interesting. Okay. Tell me about today. So we're recording this start of March '25. Who are the Who are the players?

Who are the people borrowing?

Who's lending? Are there new BlockFi's and Celsius's that popped up where people realize that that business model doesn't make sense? Who are the new funds that borrow the most? Who are the big lenders? Yeah, walk me through the state of the market.

Sure. I'll start and then you can go maybe deeper on this. So I would say since the 2022 market that we were talking about till today, the answer was credit dried up in a big way. The players were sort of gone. You had a few players like Galaxy that did survive because, as James was saying, they had better risk management on their lending desk. But then we've seen over the last year, new players step into the space. There has been demand again for leverage, and there hadn't been enough sort of entities to, or lenders to fulfill that need. And we're seeing a lot more step in. So to your question on who's filling the void of Celsius and BlockFi and Voyager, I think it's important to note that their inherent business model was not flawed. So when we talk about who sort of steps into the space, It's not that that in itself has to be a risky endeavor. It was more what was under the hood and how they were operating that was the issue, but doing retail aggregation of deposits and then lending out is a great business model to get in and is one that more people should get into. I think James can probably talk on more who's doing it. One of the ones we've seen step into that void and I think doing things at scale and in a much better risk management approach than what was done in the past is Ledn. There's others that we're seeing now as well, both crypto natives as well as in TradFi. If you want to expand.

Yeah, so I think in terms of— let's just break down the borrowers first. I think we have kind of 3 main categories. One, you know, and they remain roughly the same, which is the first category would be sort of our individual borrowers that are long crypto and they either want to get leverage or they need money for work, for working capital, or they want to live their life and they don't want to take a tax sting. That still exists, you know. So centralized finance à la the exchanges are really servicing that area. But also, as Carson mentioned, and somebody like Ledn, a customer of ours, has really stepped into that space and grown dramatically because of all the, the exits from that space. The second group of folks, I would say, are sort of asset managers and institutions that are trading, that are market making, that want to get leverage for similar things as they did in 2022— basis trade, market neutral strategies, want leverage on those, on those strategies. And then the third would just be miners and corporates and wholesale lending. And I would throw into that actually, and I guess it funnels into the second category, but you've got strategy borrowing from public markets, miners borrowing from public markets, but then you also have a big private market for lending, wholesale lending into the Falcon Xs of the world, the Hidden Roads of the world, and the centralized exchanges. And they prefer to do that because they can write a bigger ticket. It's something they can underwrite and understand. There's available financials for them to underwrite. They understand the business models. So that is what I would say on the borrower side. On the lending side, we mentioned Ledn and others have stepped into that retail side of the market. The exchanges have ramped up their lending and still providing leverage. We've had new entrants come in that I think are really interesting. And I think a trend that we'll see is more custodians getting into the lending game. We recently announced we're working with BitGo on their Prime offering. But we think that's just the beginning because there's conversations we're having with other custodians where, you know, they view custody fees as not necessarily a race to the bottom, but compression in price. And so what else can be done? Well, services around either trading or lending and otherwise. And so they will need additional pools of capital to come in. And we've seen where regulation is much more defined, like Switzerland, for example. There's been a bunch of Swiss lenders and banks that have stepped in, that have come in to provide credit facilities to those folks. Folks. Signum jumps out as a name there. That's been basically what we've seen there.

This episode is brought to you by zkSync. In 2024, zkSync took a step toward a multi-chain future by transforming from a single L2 into an ever-expanding network of zkChains, the Elastic Network, to onboard the —world into crypto, many specialized chains must be able to coexist, work together, and share liquidity. Institutions and global financial leaders choose zkSync for unmatched security, scalable infrastructure, better onboarding, gasless transactions, and privacy-first design. Join over 20 chains including Abstract, Sofon, and Cronos in the Elastic Network today. Behind zkSync is the zkStack The Stack. It is a one-stop platform for building private blockchains on Ethereum. The Stack solves all the typical privacy, regulatory, user experience, and deployment concerns of blockchain without compromising performance or security. Join the Elastic Network today at zkSync.io/empire. Thanks to zkSync for making today's episode possible.

Do you think— it seems like the lenders, there's three big buckets. It's actually the custodians, who are fee compression. They're layering. We saw them layer on trading services in the last couple of years. Now they're layering on lending. Then you've got the exchanges who've got all the capital with them and then, you know, they layer on lending as well. Do you think that we'll see traditional capital markets players like the, I don't know, the Goldmans or the JPs or the big PBs from the traditional world start getting into this game?

Yeah. Well, actually, one, one group of people we didn't mention that are actually really big lenders are the actual layer ones and protocol and foundations. Yes, I wanted to go here too. So that's another one that we didn't mention. So forgive me, I skipped that, but they're huge, right? Giving loans to market makers, really kind of—

We can come back to the institutions. Let's actually double down on this because I don't think people understand how, what this game even looks like. So when a TGE happens, you have to lend out your tokens to a market maker to make a market. Take us as detailed as you're able to go on what happens there.

Yeah, sure. Effectively, market makers will need to be sitting on exchanges with inventory because they have to actually hold cash to sit on the exchanges. And there needs to be active liquid markets that exist both in DeFi as well as on centralized financial exchanges. So in order to do that, they need inventory of the local token. Now, there's been a bunch of advances that have made one-sided TGE events and liquidity pools possible. But, you know, historically the model and still exists to this day is a foundation will lend their token to a market maker. It'll usually have an option embedded on top of that loan and the market maker with that inventory. In some instances, if the foundation's leveled up enough, they're lending actual stables for them to actually hold that on the exchange. There's a significant amount of leverage provided in that way to be able to provide double-sided markets on the various venues which care to that particular entity.

What does the option set?

Yeah, I can dig in here. So generally, these things have sort of two pieces to them. And as you would expect, the foundations are usually the— especially for kind of recently TGE'd tokens, it's sort of the only place you can get the token. So it makes sense that they're the kind of lender in the market. It's generally a loan with 0% interest. So it's, I would say, strong-handed in favor of the market maker. And then they usually have an option that depending on kind of the size and scale of the of the token project, as well as sort of what the past financing history is of the project and valuation. It may be in or out of the money. In other words, let's say the token's trading at $1. It may be something where they have a call option, the right to buy the token at $2 or above. And generally, it's an option where they need to make markets for a year. And then after the end of sort of that year period, then they can exercise the option to buy the token. So they're hoping that it goes above $2. They then exercise their option, which lets them buy at $2, and then they sell it on the market at $5. Now, some— Which is the nice incentive.

The foundation likes that because it's an incentive to hit a certain price. Correct. But then on the timeline, if you see like, oh, Wintermute is dumping, it's because of this, right? Because Wintermute, maybe— I'm not picking on Wintermute.

Yeah, just as an example. Yeah, yeah. Yep. And then to go to the other side, if it's a foundation or a new token that doesn't have much clout, they often have to write ones that are sort of like give these options that are either at the money or already in the money. So if they're trading at a dollar, they might have to give ones that are at 75 cents. And that's just a function of like, what will the market makers sort of take to do this to make it worth their time? And I know that today, the exchanges generally also are taking more than a pound of flesh, where in the past, it was like easier if you go back to sort of the last bull cycle. Right now, it's something where if you're going to say the tier 1, tier 2, like Asian exchanges, I think they are taking $250,000 to $750,000 either in cash or the underlying token. So, it's this game that they have to play not only for lending out for market making purposes, but also to even get on the venues in the first place. Place.

This feels like a short-term game that just can't last forever. Right now, if you're a foundation, you have to give X percentage of your token supply to a lot of the exchanges. If you're small exchanges, you might take 25 bips or something. If you're like a Binance, you might take 5% or something like that, or 2% or 10% even. And then, so that's one bucket. And then the other bucket are these loans that are heavily favored towards a market maker. Feels like this is not the endgame of how this should work.

Yeah, I think I would generally agree. I can't tell you exactly what it goes to next, but I would say that most of the groups, I think previously when DeFi was booming, more groups were exploring doing more of their liquidity over in the DeFi side. So they would incentivize a Uniswap pool or SushiSwap pool back in that vintage. And the way they would do that is they would allocate a certain amount of their treasury, again, still in tokens, but so that it could attract put a nice enough APR or yield on the actual LP pool, and then they would do less with market makers.

You're saying put more instead of going to the market makers, create basically like a Uni pool or something like that?

Yep, correct. And I think that at the moment, the reason why you're seeing such market maker and exchange favorable terms for these deals that foundations make, it's just because right now volumes on a trading perspective, not necessarily lending, but on a trading perspective in DeFi are still very muted. They're very subdued compared to what they were last cycle with the exception like in 2024 meme coin trading in Solana. But for governance tokens and foundations, they see that, hey, where there is activity is on these centralized exchanges. And so I do think that over time, some of that might go back maybe at least to a balance. Maybe it doesn't go pure DeFi again, and that should balance out so that the deals are a little bit more balanced between the market makers exchanges versus the foundations and token.

Yeah. And I think some of the innovations that we've seen, at least in this cycle, is more about— and meme coins are all about just single side of liquidity. You know, you don't need to give out loans. You can bootstrap liquidity with novel pricing mechanisms. And we're seeing that across DeFi. So ultimately, yes, I think the market self-corrects and most of it can live on-chain. But, you know, until the market moves further away from CeFi and centralized finance and over into the DeFi world, then, you know, we still are kind of stuck in this world where if you want liquidity on an exchange, you need the big market makers to—

Yeah. Yeah. Tell me, maybe, James, going back to the question about institutions lending, I'm curious if you think this will My view.

So when you say institutions lending, you mean the bigger regulated banks coming into the space and sort of—

and non-crypto natives, I would bucket it as.

Yeah, I think so. Let's take CeFi and DeFi. So in CeFi, I think, you know, we had seen some of these shoots in 2022 of bigger banks stepping in and actually lending against— in very limited cases, lending against Bitcoin, Bitcoin specifically. That's kind of where they're willing to play because there was a little more regulatory certainty, if you could even call call it that at that time around that. So they could gain some level of comfort doing that. What really needs to happen is there needs to be a global set of harmonized rules in and around how regulated institutions can touch crypto, physical crypto, in order to lend, to be involved in this market in a much more bigger way other than regulated venues like CME, et cetera, at least to trade, but also lending, I I think we're starting to see them now really step into this. And we've seen that with them, recent announcements around custody services. But I do think we're getting there as more and more of these dominoes fall into place in terms of the regulatory regime and just getting comfort around, okay, what am I allowed to do? What am I not allowed to do? And then that takes us into DeFi. And I think there's a difference between systemically important banks versus on the fringes and other asset managers that can kind step into the space. I think in DeFi, the big issue in terms of, you know, you know, why would these big guys not want to be on Aave? I think because there's a big pile of money there waiting to be borrowed, right? You know, a few billion dollars in there. One, I think it's the KYC AML situation. And, and can, can the market coalesce around scalable products that enable folks to basically signal who they are and have institutions get comfortable around that? I think I think there's novel things we're seeing around ZK proofs that might be helpful in that, that might lend in that as well. Then I think the second thing, honestly, which in my opinion is actually might even be bigger, is it's very difficult for a major institution that has fiduciary responsibilities to its customers to put $500 million worth of collateral into a DeFi protocol and then see a smart contract get hacked by the Lazarus Group and then have run off into the sunset. I think there could be some interesting dynamics at play around how can we keep money on-chain but maybe in a qualified custodian? What sort of interesting dynamics can we have where money can feel, in the same way that Copper Clear Loop and others have kept money off exchange? I mean, I know that defeats the purpose.

No, we saw with the Bybit. I mean, this was a— Now, $1.4 billion is a lot of money, but it was was drastically better because it was held in Copper's Clear Loop, right?

Exactly, exactly. For the folks that had money, yeah, exactly, on the exchange. And so that's what I think we might be headed into that world unless there are some sort of security guarantees that can get there around insurance. But really we haven't been able to see that make work yet.

And I'd layer one more thing onto the traditional finance institutions coming in. So I would kind of separate it buy side versus sell side. So meaning kind of the banks and then the funds. I would say last year in 2024, we had a number of groups, again, probably more on the buy side or credit funds that were exploring coming into crypto lending, but it seemed like they were not quite ready to make the jump. And we've had a number of those even in the first quarter of this year circle back to us, where now I think with the change of administration and what looks like some more clarity on the policy side and hopefully incoming, they're willing to kind of jump in. I think compare contrast that to the sell side, meaning the actual banks, they're going to need to wait until there's actually the clarity. So the promise of upcoming regulations is not enough for a big bank to come into the space But I know like right now, the stablecoin bills, for example, that are making their way kind of through the House and the Senate, I think that could unlock sort of the first layer of this. And then you might see more of these fringe banks come in, then eventually the G-SIBs.

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Yeah, I actually think this is like way more important than people realize, because on a personal level and at a corporate level. So the reason it's important— and I don't, you know, I don't see anyone really talking about this— and the reason it's important is because I mean, like, I went and applied for a mortgage right in '21 through Wells Fargo. I mean, they— my wife calls me Mr. Zero because Wells Fargo thought that my— I mean, like, 99% of my money's in crypto, basically. And they were like, yeah, and I run a crypto business, which they did not enjoy. So they, they basically diversify. They basically— yeah, right. Yeah, not in 2021. I should have I should have.

I should have. That's not how I was thinking back then.

But, but yeah, they basically treated me as a zero because they're like, yeah, you've got all these, all these Bitcoin and stuff, but like, we don't, we don't treat it as anything. And then at the corporate level, like, let's say, you know, Blockworks was sitting on $50 million of Bitcoin, we could take— I mean, like, let's say we banked with JPMorgan or Wells Fargo or Bank of America. If we go to them, we're like, oh, look, $50 million of Bitcoin, super liquid. You could go get out of it. It's a very liquid asset. They're again treating that as zero right now. But once we get, once we get these regulations, I think you could see corporate financing and mortgages, all that kind of— it's a massive unlock that nobody's thinking about. I think huge unlock.

And just the fact that Bitcoin and ETH and stables and all these things are so liquid, I think that they're going to— when they get comfortable, they're going to get really comfortable with it because they're used to lending against things that they have to then shop around and they're liquid. And yeah, and so these things, like even if they're volatile, there's always a market for it.

Yeah. And people will pay a good amount to borrow against.

Yeah, that's what we were saying is that we're starting to see a lot of really savvy credit funds funds, whether it gets spun up in the space or offshoots of larger funds, because the yields are so attractive. So obviously that'll compress and there's pent-up demand. So we'll continue to see more of that.

Yeah. Um, what are the— how do you see— so there's basically DeFi, CeFi, and like OTC. If you had to break that up into like market share, where's the market share today and how do you see that developing?

It's a great question. It's a tough question only because, um, not everything obviously functions like DeFi. So I think those the right high-level buckets. DeFi, obviously, you can look and you can say, yeah, exactly, X billion on Aave, and then you look at Morpho and Compound and all those things and you can total it up. On the OTC bilateral market, that's much more of a, you find a couple different players. For example, if this was back kind of when James was at Galaxy, he'd probably have an idea then, oh, it was this size, and then you sort of extrapolate, okay, there's 4 other big lenders. And so that's how you try to get your handle on. But the truth is, it's a very opaque market. No one knows exactly the size of the bilateral OTC market. And then the centralized exchange market generally is also very opaque, except that you can see, you often have a feeling for how many assets or how many balances are on a given exchange, and then you can do some sort of back-of-the-envelope. So I think the general, and it's changed, I think in the past, if you went through the last bear cycle, there was very little happening for bilateral OTC. Until, say, 2024 at some point. And then I think when we did some sizing, we figured this was kind of like mid-'24, that there was $50 billion-ish, I think, when we were doing some sizing exercises last year in the— so that would sort of be of available lending capacity in the OTC bilateral. I think it's much higher now because it's gone up. But at that time, it was sort of probably on the order of magnitude or maybe— sorry, on the same order of magnitude or maybe a 2x to what was happening in DeFi at that point in time. I mean, us alone, we've done $5 billion in loans this year. To give some color, you guys have done $5 billion of loans.

You're not lending, but you're on the—

No, no, we're on the lending side.

So who— let's go into Membrane a little bit. Actually, I should have done this at the beginning.

What is Membrane? Sure. So Membrane is basically an institutional platform for prime services. So users can use this to manage their loan books, their derivatives books, their trading books, manage all the margin and collateral associated with that. And then it's linked down to the actual wallet and custodian infrastructure. Structure so it can ingest all of those financial transactions, map that into debits and credits, and then people can actually operationalize all of that and move funds with their counterparties, et cetera, through the platform. So you can think of it as an institutional operations platform that either institutions can internalize and use it themselves, or they can also give a version of it to their clients as well. And so, for example, recently announced with BitGo, their Prime Services is run on Membrane as sort of the backbone to it for their clients.

Got it. So money is not flowing through Membrane. You're fixing, hey, back in '21, all the leverage was basically built up on spreadsheets. Now you're a platform for that.

That's correct. And then you're right that none of the money actually flows through us. They always bring their own custodians, their own wallets, their own venues, but they can link that in. This shows everything. And then you're able to sort of map in real time what the collateralization levels, the health of the loans are. And then people can sort of top up and manage all of the operations and lifecycle of the loan through remembering. Got it. Yeah.

Uh, $5 billion this year so far. Yep. So first 60 days, $5 billion.

Yes. Yeah. Of, of, of lending activity. And is that OTC?

Is that CeFi, DeFi? Is it who's— tell me more about that. That's all OTC. At the moment, that's all OTC by letter of offer. Who is borrowing and who is lending?

I mean, it's everybody we've just talked about, um, on this podcast. It's— I need names, Jason Yanowitz. I wish I could. Yeah, I got—

yeah, addresses. Yeah, yeah, yeah.

Yeah. No, but I think, I think—

and UBOs.

Yeah, it falls into the general categories we were talking about, which is it's, it's retail aggregators, institutions that are making loans to other institutions in the space. It could be foundations making loans. It's all of the above. It's kind of what we talked about.

But we're seeing— the reason I ask is because I think there's this question of like everyone has so much PTSD of 2021. So everyone's, you know, already asking, what's going to blow up the cycle? What's going to blow up the cycle? And so I'm curious how you guys think about that, like, because you see all the leverage. So what, what is going to blow up the cycle?

Yeah. So I'll say a few things with it. So at the moment, we see much more on the bilateral OTC side. And at the moment, we don't have the full connectivity into like AAVE and DeFi. We will have in the future, we're going to have more of that as well. And then the centralized exchanges are kind of their own black boxes. So I'll get to that in a minute. But on the OTC side, what I can tell you, the good news here is that we're seeing people generally with much better underwriting capabilities, meaning they are taking collateral. This is rampant in the 2022 crash was that everything, not everything, a lot of it was uncollateralized or undercollateralized. Here we're seeing mostly collateralized.

Yeah, we should say we probably do have adverse selection, right? Because people are coming to us because they want to apply higher lending standards. So there's obviously lending going on that's unsecured, undersecured. It's just we see less of that probably than the average bear, but we continue to think as markets get better and better, we'll probably see lending standards, as they typically tend to do, drop.

Just because it's generally people that are looking for better ways to manage their risk to then use Membrane. Now, to your question on where could things blow up, I think, or what happens this cycle, I think in the previous cycle, CeFi and DeFi were more disparate. In other words, it was through entities that these things were connected. And I think you have much more commingling of the concepts this cycle. So things that are DeFi in nature or wrapperized into a stablecoin, but on the back end, it's centralized exchanges. I think the mixing of these things may lead to interesting cascades. I don't want to presuppose this, and I hope this doesn't happen, but I think there's whatever does blow up eventually, you're going to have this—

Let's not think like that. Yeah. Positive thoughts.

Yes. But you did want to know sort of what could happen to this, and I think it's a little bit more blurry. This is separate from Membranum, from bilateral OTC, but I do think the line between CeFi and DeFi specifically has been blurred in the space kind of more broadly. Yeah.

By the way, not just crypto where there's blowups, like, uh, yeah, absolutely.

Yeah.

So were you gonna say something else? Um, yeah, I was just gonna say in terms of, and not that we're obviously rooting for anything to blow up, but I think Bybit as a harbinger for, you know, potential other foundational layers of crypto and seeing, um, you know, additional security breaches, that is an area where, you know, you just continue to, it's like whack-a-mole, you know? Uh, so that, that, does kind of worry me, particularly for institutional entrance into the space because there's a lot of concentrated risk, particularly in and around like ETFs and custodian providers. And just, you know, hopefully that system holds up really, really well. But just concentration risk in and around that too.

Yeah, I think Bybit, well, as you were saying, the Copper Clear Loop portion was, was a success story, but just the general shaking of the foundations again, like I know at a conference last week it was like everyone was talking again about about Bybit and just about risk again, which I think is somewhat healthy. But it's unfortunate that it has to be that event to make people talk about that again.

Who got hurt the most on Bybit? Was it retail or was it the foundations who had lent tokens to them or who?

I think, and I'll say I think that actually it was Bybit itself directly financially because supposedly they had enough to cover it. Like it effectively is just impacting their own balance sheet. But I think sort of where this— I think it really just hurts sort of all the central, really everyone, because confidence is shaken. And then I think I think honestly centralized exchanges. I think probably there's a lot of centralized exchanges even at the same tier, maybe even better than Bybit. I can't say this firsthand, but that probably have worse OPSEC even than Bybit. That was a very sophisticated hack. Yes, should they have been using Gnosis Safe? Probably not, but I almost guarantee you that there's exchanges that use far worse operating procedures. So I think it's not great for the centralized exchanges and rightfully so, has made everyone sort of skeptical again of this.

Yeah, but I would just say kudos to them for the way that they handled it. I mean, I wasn't that close to the situation, but coming out in front, being communicative, you know, we should only hope for when things go wrong that community rallies around folks like that and really kind of steps up.

I think it also woke people up to how much these centralized exchanges are printing. Yes, I've heard numbers like, you know, $3 billion in profit a year.

Like, but it also, it also, you know, going back to the point to the point that you had made earlier, which I think is very interesting in terms of bigger institutions coming in. Their comfort level with those types of exchanges is basically zero. They're not going to interact with crypto markets on those types of centralized exchanges. We're going to see, in our opinion, a proliferation of ECNs, dark pools, and other places where you can confirm and feel comfortable about the sanctity of the assets. And maybe that's an area where we start to see green shoots and a lot more leverage being applied there, which we're starting to see a lot more That's where the institutions are going to come. They're not going to come to the Bybits, Binance of the world.

And the sanctity of who is borrowing this money. Right. That was— I remember when Compound launched their institutional product and then Aave launched, I think it was called Aave Arc. Yes. And it's like permissioned DeFi and you'll know who's on the other end. They didn't work. No one took to it. Yeah, they didn't work. Right now, a lot of the—

but kudos to them for taking a swing because that's what we need. That's what we do.

A lot of the lend and borrow is overcollateralized. Like if you look at like Aave, then— but I'm curious, like the future of undercollateralized collateralized lending, especially on-chain undercollateralized? What has been preventing this and what is needed?

Yeah, it's a tough problem because I think right now you have these different worlds of fully off-chain and sort of the trust us model that usually happens in traditional finance where you have to just provide balance sheets and all that stuff. And then in crypto, Generally, if they actually want it properly overcollateralized, it needs to be in the smart contract. So you need to paint between those two spaces, meaning you need to allow people to show assets in a way that still has recourse in some way, but without actually pledging them into a smart contract. So if you can have a model where the assets can be in someone's wallet or custodian, and via tri-party or an account control agreement, there is some recourse in the event of default, then you can start doing under- and uncollateralized lending. Collateralized. I think you have thoughts on that.

Yeah, no, I just think that needs to be linked up with, um, uh, with the sanctity of how we hold assets. But in terms of, yeah, so to your point around, um, on-chain credit, I think we need a lot more credit scoring. The question is, is if a lot of those assets live off-chain, um, it's very difficult to, to kind of get those things on the same page. So I think, you know, hopefully as RWAs, as, um, other tokenized stocks, as things start to move on-chain, you'll have a better chance of encapsulating all the assets that could stand as collateral or all the assets that could represent creditworthiness for a particular entity. But it's just hard at this point to see without it being walled garden because the issue you have is that money is in a wallet, but then in the next second it's not. How do you prevent that? There needs to be guardrails and rules around being able to lock up particular assets and have recourse to them in the event something go sideways.

I was playing with this thing called Ethos Network. It's on Base and you basically, it's invite only and you get scores based on how many transactions you've made on chain, who invited you, who you're connected with on Twitter, how long your Twitter account's been around, who interacts with your post. I actually don't fully know what goes into the score, but they give you a score and the first thing, and then you can review people and then you can actually vouch for people too on the platform and then you can downrate bunch of people. I've seen people tweeting about it as like, oh, it's cool. It's kind of like Kaito Yap Score V2. But the first thing I thought was like, this is on-chain credit for a lending platform. Yeah.

I would also say there's some interesting developments in and around, for example, what Drift's doing where you have the ability to pledge assets into a vault behind a trading strategy. And then the next step would be, okay, how do you verifiably prove that that entity is actually executing those trades? Almost like proof of trade if the trades are not taking place on-chain, if they're taking place chain. You know, how can you verifiably prove that this is actually what's going on under the hood? And, you know, and keep those assets safe and keep them kind of in a place that, you know, ultimately at the end of the day when something goes wrong, you can adjudicate sort of an asset seizure.

Yeah. What do you guys think of these vaults like Morpho Vaults, Drift Vaults? Like, I'm like, I'm sure a bunch of other people have vaults, but it feels like that's where a lot of the retail will flow. I know, uh, Ledyn and Arch both have great platforms, but it does feel like more flow will go into these vaults this year than ever before. What do you think of them? And like, what is the risk of these vaults?

Um, I think like everything, it's always the, the actual protocol or the smart contract, um, risk. But I think the core concept of vaults is very powerful, um, especially for retail, like you're saying. Um, because if, for example, it's an ERC-4626 and you remain composable with, um, with the rest of DeFi, which is what everyone wants, so they want to be able to take advantage of whatever the strategy is being run in the vault, um, and then still be able to pledge that as collateral elsewhere. So I think that's an interesting thing. That's sort of one of the models by which Membrane's infrastructure more on the bilateral OTC side can also plug in there. So if you get a receipt token from one of these vaults, then within Membrane, as long as you can find a counterparty that's willing to do it, you could borrow against those positions as well. So I definitely think on the DeFi side, vaults are and will continue to be the future.

Yeah. What I find really interesting about those vaults is take, for example, a macro hedge fund. Given an assumption of a given strategy, but you don't actually know what they're holding on any given day and you don't actually know if they're actually performing the strategy. Only post facto can you. But these vaults, if there's a verifiable way to look at trade history to understand what's actually going on in those vaults, then there's real-time risk management around different strategies that are being executed. Or if you're a KOL and you're on a centralized exchange, is there a way to verifiably prove your trading strategy strategy so that any of us could back anyone else that has a verifiable trading strategy and they stick to it once, you know, your money's out the door and you've lent it to that strategy.

Do you guys— so I'm looking right now at Genesis's Q4 2021 numbers and they're just shocking. It's $50 billion in loan originations, $12.5 billion in active loans, $31 billion in spot volume traded, $21 billion in derivatives traded. So 2 numbers relevant for this conversation are $50 billion in loan originations, again, just in Q4, $12.5 billion in active loans.

Do you guys think we get back to those numbers this cycle?

I mean, I think as we talked about before, I— to me, it's entirely levered to markets. If markets can continue to be strong, can continue to perform well, and we don't fall off a cliff, which things have been really tenuous here recently. I actually think, yeah, I think now it won't be tomorrow, but I do think that over time you'll have more and more money coming in, more and more safety being provided to folks around how they lend, more and more providers stepping in like custodians, et cetera. I think we can get that high. I'd also be curious, and I didn't see anything recently, but there's also publicly available figures for Coinbase puts out a report, so does Ledn, that are that are really informative. And I'm curious what those numbers are at the moment. Forgive me, I don't know off the top of my head, but yeah, I don't see any reason why not. But I do think it is contingent on the actual markets behaving.

Yeah, I just to layer on that, everything is— it's such a momentum trading or momentum-driven trading game in crypto, at least from the beginning and up until now, not a fundamentals game. And so as soon as markets go in one direction, the demand for leverage and just lending exacerbates those moves. So the flywheel connects. So as James was saying, if it gets going on the price movement side, you're going to see a lot of that going. I think you could blow through those numbers. Genesis was often seen during that time, you'd take that and you'd put a multiple of 4 on that, and that was the overall bilateral OTC just because they were so—

They were kind of one of the few games in town. It would seem like a lot of the volume really funneled in through them, and now that's much more diffuse and it's opaque because it's all living in not a report basically.

There's no one person putting out the report.

Yeah. But so just to use that as an example, I think you said $50 billion at that point. When we did, even late last year, when we did sort of the estimations on this stuff, the market already looked like it was almost at that level. So I think we're probably— we're not a factor of 10 off at least a month or so ago. I think right now, the demand for leverage is muted over the last 4 weeks, but before that, we were are already probably a factor of, I don't know, 3 to 5 from getting to the old heights. I think the question more is, will we blow through that by a 10x? I think is probably the real question. I do think that the way that you get much more lending and credit in the system is these custodians stepping in. I know James mentioned this earlier, but as they go from custody into other services, I think that sort of unlocks massive potential for all these people that otherwise are just sitting in qualified custody or cold storage or whatever that now are willing to interact with that market. That would be a huge unlock for just leveraging that. Additional regulatory clarity.

I mean, these are medium to longer-term things that need to get ironed out.

Is there a trading firm that you see becoming— it's going to have a horrible connotation. I was going to say the next Three Arrows, but not so obviously, but in a good way of just being— Three Arrows before the collapse. So, yeah, I'm actually reading the next part of this report, which is Genesis was biggest creditor to Three Arrows. They lent them $2.4 billion. Who— I'm trying to think in my head, who's— who wants to borrow $2.5 billion right now?

So luckily I can't, and I want to see what you think, but I can't think of anyone that's at that scale at the moment, which is good. Like, I think it's—

I don't want to name anyone related to Three Arrows. How am I going to put a cop there and say, oh yeah, these guys are just like Three Arrows?

But I know comparison to 3 Arrows. I'm like, who could even— like, the big venture firms don't need to borrow $3.5 billion or $2.5 billion. Like, the liquid funds, like, are way smaller and they're playing in, like, smaller coins.

Like, who? Well, I think that shows just the fact that, like— and I would throw one out, kind of unlike what James was saying, I would throw it out right now— there's really not one that I think is consuming at that level. And so that probably is just indicative of a more healthy lending market where it's not— where 70% of it's not going to one borrower.

Or less opportunities chain.

Yeah, I agree. I think it's like once the alts—

like if we do have an alt-driven cycle in '25 and everyone says, holy shit, I can make 40% instead of my— right now it's Bitcoin, SOL, meme coins, maybe you hit hype and that's it. But if the alts start running, then you see the funds say, boom, we're off to the races.

Let me borrow as much as you'll give me. Then we'll see the next 3 arrows, hopefully not on the blowup side, but on the size.

Yeah. And then James will tell us who it will be. This is a horrible segue into the next question I wanted to ask. I should have put a filler in between here, but if you ask 10 people what will blow up the cycle, I think the most common answers end up being like MicroStrategy got offsides, Athena, I don't understand it, but it looks a little sketchy to me or something. What do you guys think of these? Actually, maybe I'd ask about those two specifics because I think the reason I ask is not my personal takes, it's those are the most common answers of right now what will blow up cycle.

So I'll start on Athena and then maybe I'll look to you for MicroStrategy and just other concepts. So I think Athena is sort of the poster child, I guess, for what I mentioned a little bit earlier on the call about sort of the commingling between CeFi and DeFi. And I actually think what they're doing is very innovative. I think it's an interesting model. When I first saw it, I had the exact same probably reaction that you were just saying or that you've talked with people where it's like, oh boy, this looks scary. No, mine was, why didn't I think of that? Yeah, exactly. Or I didn't think of that, but that's Well, from a yield perspective, yeah, it makes a ton of sense. And then it's just the question of, okay, on these exchanges. Now, you saw with Bybit, it was like immediately everyone looked to, okay, is Athena okay? And they had things in Copper ClearLips. So I do think these models where you run these things but you hold them at a custodian can de-risk them significantly. I think it's like everything. If behind the scenes everything is functioning as they say that it is, then it might not blow up. But I've noticed in these things, anytime there's centralization, centralization, it's often the, where's the one thing that doesn't function exactly as someone says it does? And I'm not trying to say that that's the case with them, but that's always my concern with any of those kind of models where there's centralization. Behind the curtain, is everything happening and functioning? Can you verify everything or not? And if not, it only takes one sort of move in the market to all of a sudden unwind things. But I think that they've unlocked something that is quite novel. And as James was saying, kind of obvious in hindsight, But cool. I think it gets to the broader, this time there's more because of models like that, Athena and others, there's just more blending between centralized risk and decentralized risk. So I think that, or decentralized models. So I think if one of those exchanges gets hacked and if they don't have everything on Copper Clear Loop, then that's where you have to be concerned.

Maybe the last question here, Carson, I direct this at you, is there used to be these networks that linked the whole industry together. It was like what, Silvergate and— There's another one. And then now there's Signature. Thank you. Yeah. Again, PTSD. I'm blocking things out of my memory. May they rest in peace. Yeah. And then there's, you know, new ones that are getting created, like Fireblocks has their own thing and Clearloop, you know, BitGo has their own one now and Copper has Clearloop and stuff like that. How do you guys think about the, like, a settlement network for lending and borrowing in the industry? Because like James was mentioning, it's all one-off and here and there here and there. Have you guys thought about that?

Yeah, absolutely. So actually, the genesis or the beginning of Membrane, we really wanted to create sort of a settlement network. Yes, no pun intended. We wanted to create a settlement network that was custody or wallet agnostic, or really something that maps up at the services level. So one of the big things that we're doing looking forward with Membrane is as these custodians are trying to layer on services, trying to layer on lending, trying to layer on trading, Membrane can offer these services sort of in a walled garden in each of these so BitGo, and then if you go to A, B, and C, more custodians— eventually we want to link those together into a services network that connects these. There's all kinds of interesting things you can do to sort of de-risk the space at that point where funds can be held in qualified custody or cold custody at these spaces, at these custodians, but then you can access the lending markets, you can access ECNs, you can access credit between these, and in a way that follows rules almost in a sort of clearinghouse-esque model that, that unlocks some really powerful things. So I think that's where the space goes next and that's where we want to really evolve Membrane into is a settlement and services network between the custodians. Nice. Cool.

James Carson, thanks for the time, guys.

Thanks so much. Yeah, fun. Appreciate it. Thank you.