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

First principles, I think the disruptors generally accrue most of the value, not a hard and fast rule. And secondly, I see a genuine business case in the market that we are ultimately going after that is like based in like a credibly neutral platform with transparency, which you can only achieve like if the actual infrastructure is on-chain.

Nothing said on The Hive Mind is a recommendation to buy or sell securities or tokens. This podcast is strictly for informational purposes only, and any views expressed by anyone on the show are 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 Ceteris Paribus for our institutional research arm, Jan Lieberman, managing partner of Delphi Ventures, myself, Jose, who leads Delphi Labs, and we have a special guest, Kaladora, from Osteum Protocol, or Osteum Labs, I guess. Kaladora, do you want to do a quick intro on yourself and Osteum for those that don't know, and then we can dive into markets?

Sure. Thanks for having me, guys. Uh, excited for today. Um, I'm Kaladora, co-founder and CEO at Osteum. We are building the best place to trade tradfi on-chain and the only place you can open up a $50 million long or short with up to 100x leverage on the S&P, NASDAQ, Tesla, gold, oil, and, uh, basically every other global market under one hood. So every market, one wallet, one interface, uh, trying to make the most seamless place to trade tradfi with your stablecoins per wallet. So, um, yeah, awesome.

And so let's, let's start with— we're going to dive into TradFi and real-world assets, I think, for the, for the rest of the pod. But let's start with, with markets. It's been kind of a weird, weird market. Uh, BCC briefly touched all-time high and then kind of, you know, went down, promptly went down like 10%. Uh, today's been a weird day. How are you guys? There's a lot of people I think, or there's been a few people at least calling for us being in very late stage cycle, right? I think Ro from Hack had a good post about it. Some other people have been saying it too. I think most people seem to think we have 3 to 6 months left. That's like the consensus I'd say on CT. What's, how's everyone feeling? Where do you think we are in the cycle? Yeah.

The 3 to 6 actually feels probably about right to me, but it's really hard. It's really hard because you have so many competing— there's like these people that'll tweet these, uh, top signals and it's like zero top signals hit, right? But then you kind of see a lot of this stuff going on, uh, the fact that like all the tradfi money is coming into Olympus DAO, rappers Um, like obviously Chamath's thing spooked people the other day. Um, but you have all these— it's weird, you have, you have these, all these traditional, you know, things we would consider top signals, but we still have like this pretty big tailwind coming. And I guess the case that you would make if you're really bearish here is that we kind of just front ran the entire rate cutting cycle, right? And then when the rate cuts actually come, like, it's all been front-run. But like, there's, there's some of that you just literally can't front-run, you know, just with the dynamics, uh, like the actual money changing hands. So I don't know, our research team had a good report on like the TGA refill thing yesterday or the day before, um, so I think there's like decent amount of liquidity getting sucked out of the market for the next month or so. Um, you have the Jackson Hole thing this week. I don't know, people are just like very— it's just classic like CT that, uh, I don't know, I feel like a week or two ago everyone was calling for like $16K ETH and now people are saying the cycle's over.

So yeah, it's hard to go too, too far in advance. I mean, you can say 3 to 6 months. I don't know what that really offers the market, right? Like if you— somebody says 3 to 6 months versus 12 to 18 doesn't really change your behavior, right? You're just, you're bullish now and you kind of just take it one week at a time. Equity-wise, right, the recent earnings season, I think doesn't really get spoken about how strongly that went, right? You had record forecasts for what was supposed to, for earnings this quarter, and they were all beat. By record margins, right? And you have really strong guidance going forward. So you had like the, the spread between the expectations and reality was wide, and expectations were really high, and you had a, a large breadth of beat too, right? It wasn't just a handful of, of players. So I think the equity market is really strong. The, the— I, I think the, the Olympus DAO metaphor is, is is like, you know, half right. But, but ultimately the big thing is that these vehicles are increasing the surface area of demand for crypto. And so I think you need to use the— you need to kind of keep those equity tailwinds in mind for these DApps. Yes, the mNAVs are compressing on a lot of these, but it's also partially because the underlying asset's going up, right? So the NAV in the denominator has been ripping. And so sure, those, those are going to compress. You had the recent Saylor pivot, which is a double-edged sword, right? So the pivot being that he previously said he wouldn't do any equity common share sales below a certain MNAV, and then he kind of went back on it. And equity owners, you saw some people kind of crash out on Twitter saying, you know, you lied and now my common shares are worth less. But I don't know. I think you can kind of argue it both ways where he needs the flywheel to kind of keep going. And so there was some backlash there. The MNAV gradual compression is probably one of the bigger bear signals, plus like how much was already deployed, right? So the question is always where is this large incremental bid going to come from next? And if you don't really see that, that's when a lot of the kind of the fleetiest holders will get out and there's a domino effect. So it's definitely a concern. I'm in the— I'm personally in the chop for a couple of weeks to a month camp and then resume strength into the end of the year. Right. This is just typically a seasonally quiet period. As people are away. And you've also just had a big run-up, so you kind of need to digest. There needs to be some profit-taking. There are clear signs of exuberance. I mean, ETH gained just an insane amount in market cap in a very short period of time. So there's going to be some natural profit-taking. It helps for ETH that people are throwing out these astronomical targets, right? Like, you need that in order for this to keep going, because if everyone's saying, I can't wait for $6K ETH, then, then, you you know, people are going to be selling.

6K, I'm hearing 15K. Well, Tom Lee thinks it has a 100x, right?

If you say 6K, then like no one's going to be buying here. But if you're pitching an insane target, then you can, then this thing has wheels. So yeah, I'm basically in the chop for a little while camp and then resume up only. And so you kind of want to just pick your positions, don't get blown up, don't get overextended. But there are going to be some assets that outperform. And so it's just kind of trying to get good entries on those and then holding.

I'll focus maybe a little bit more on the macro. I think like consensus seems to be that like Q4 is going to be up-only season or like late Q4 going into end of year. I, this is, I'm totally ripping this off of one of my guys, but on the team, his, his perhaps contrarian take is that high rates are like stimulative for risk assets. Rather than the inverse. Um, from like a very simplistic perspective, uh, the take is, you know, with high rates, you have people with lots of assets that are sitting in treasuries just getting basically a stimulus check, uh, on a regular basis that they're just reinvesting into more risk assets, which drives up prices. And, uh, I think there, I mean, there's like probably two things at play. Like one is like, maybe that's true. I'm not sure. And the second thing is people actually just like front-running an anticipated rate cut. So I'm actually like short to midterm more bearish, but on the long term, I'm, I think, much more bullish than is consensus. If you look at the net inflows into the US in terms of foreign investment, they're actually at all-time highs. All the sort of, you know, panic ends, I guess, around tariffs have largely been proven, proven wrong. And I, I still think there is no, like, there's no second best market. And you see this, I mean, the S&P, NASDAQ have like more than recovered and hit new all-time highs since the original tariff news back in, in April. Um, so I, I, uh, I would say I'm probably a little bit more short to like next quarter, more bearish than is consensus, but long-term over the next like 6 to 12 months, um, more bullish. I think, I don't know, there seems to be this like like, I don't know, tribal view right now that like, we're right at the end and like, we're right at the— there's like, we're hitting all the top signals and like, we're gonna get one last final pump and then like, it's over. It's— yeah, that's like the kind of predominant nihilistic view. And I would be less— I would be a little bit more— yeah, more negative in the short term and more optimistic in the long term.

Yeah, I think the The interest payment is a good, honestly, contrarian bear case. I know people have been talking about that for a while. Um, I mean, I think it's just like, it's a stimulus check.

Like it's a regular stimulus check that people like that the people who are sitting on the most treasuries are just like plowing that into more risk assets. So like, that's just cash that comes in regularly to, you know, to prop up risk assets further.

Yeah. I think what would be interesting is like, How do we see— I mean, the macro is one thing. Like, I'm not, I'm not going to be able to call macro trends. And like, the NASDAQ and the Mag 7 have been taking a pretty big beating this week. And so that's honestly a lot of the reason why you've seen so much crypto weakness, right? But for crypto itself, um, like, where do we think this goes from here? The, like, The past, it's like the dispersion thing hasn't gone away. It's still there. Um, ETH came back with this DAT thing that honestly I didn't really think these DATs were gonna work in big size for anything other than Sailor. Um, and now people are trying them on every asset. It's like, do you need a DAT though?

Like, who's, who's actually buying the DATs? Is it like Is it the people who believe in the greater fool theory of the DApps, or is it like people who are actually buying the DApps because like it is their best way of getting exposure to these assets?

Yeah, that's like the— there's like two fundamental reasons people bring up that kind of make sense to me. The first one is that they're better for staking than ETFs, which is true. Like especially if you look at ETH, there's like a 14-day queue to unstake now. And so if you're an ETF and you have to handle redemptions, it's kind of like a nonstarter. And so these treasury companies can stake it all. They don't have to worry about redemptions and that risk. That, that makes sense to me. I think that that is worth like 0.05 on the, on the mNAV premium.

I don't think most people who are buying DApps are even thinking that deeply, or they're buying DApps because they think other people are going to buy DApps might be thinking about that, but not the people who are actually buying DApps.

I think it depends on which stage you're talking about, right? Let's see, you have the initial seed stage. There's, you know, investors that are coming in at a good mNAV. Bankers getting good fees and people with just massive bags in the underlying that want to kind of shift potentially some exposure from spot ETH to DAT and trying to get some convexity on the play. Anyone buying around 1 mNAV, which we haven't really seen much, many of these come down to that value. That's when I think you can do some of the more, you know, when you're thinking about the staking component, but buying it anything above 1.2 mNAV, that's like 5 years of staking. Field, right? So I mean, it doesn't— the math doesn't really make sense there. And then I think everyone above that is just momentum traders and retail and greater fool. So, uh, yeah, yeah.

So the other— I was gonna say, so that's like one— that the staking thing is like one thing people pitch, which again, I'm like, okay, this is true, but it shouldn't result in like 2 MNAVs. Um, and then the other one is that trad— all these funds can't buy commodity ETFs, and it's like the access thing. Um, but it's true, like it's hard to really tell if those funds— I mean, I guess when they do their filings, like every quarter, you can, you'll be able to tell. But yeah, is it just like retail for the most part? I mean, it's a lot of money that's gone in. So like I'm talking about not the privates and the PIPEs, just like the combined market cap of all the DAS, like excluding MSTR. We actually have this on our portal. The ETH is 10 bil, the SOL is 1.1.

Okay.

BTC looks like it's 15 outside of MicroStrategy, roughly.

Yeah, that's—

Yeah.

Yeah. And then there's some alt ones which are a bit smaller. So, but this is the thing, like, does— It's like, does your token exist now if it doesn't have a DAT, right? Um, like, obviously there's been some follow-through to some select alts with ETH ripping, but you haven't seen like broad ETH. Like, DeFi is still outside of ENA that had a good month or so. Um, like, all the DeFi coins are still— they're trailing ETH pretty hard. Um, It's not like any of the ETH infra things like L2 tokens, or if you want to call Eigen or any of that, has done well. So yeah, like, where, where do we go? Do you think we— do you think TradFi is actually just running down like that alt season chart where it's like you start at Bitcoin, you go to ETH, and then you go— and they're just doing it with dApps? Like, do you think we're going to kind of get that natural flow?

I don't think all DApps will be made equal, right? I think certain ones with more compelling structures will certainly outperform, whereas others that are pure greater fool will kind of keep going until the music stops or just you're running out of the next buyer. Yeah, you've seen that even your typical like Pepe ETH beta has not really moved that much, right? So it's really been mostly just ETH. And, and you haven't really seen that before whenever ETH's shown this degree of strength. But I think at the same time, you know, there wasn't such a concentrated bid into ETH and nothing but ETH, which is what you're seeing with these vehicles. Typically it's like, okay, you know, alt season's kind of coming back and everyone front runs by, by going long tail immediately.

Yeah, I think the Hyperliquid one and the Athena one are the ones outside of the majors that I think could get a decent bid? I know, because like Hyperliquid's just hard to buy for people. It has fundamentals, it's like pretty easy to understand for, for people too. And then Athena is just like a stablecoin pure play exposure that all you have on public markets is Circle. And I think it could catch a bid for that reason. Are there any others that you guys have seen that seem compelling.

Now I'm assuming we're gonna get some big SOL ones, right? I think, yeah, um, I think that those will be good.

Yeah.

Who do you think should run the SOL one? I honestly think it should be Samani because I don't think anybody— I don't think anybody—

there is no second best.

Yeah, like nobody can pitch Solana like him. And I think that he does have a lot of respect within TradFi crowd. Um, I know a lot of people in crypto don't like him, especially the Ethereum community, but like he explains it very well and he's very convincing. And I think that if you were to, maybe I'm biased here because I'm more bullish SOL than ETH, but like, I think his pitch on SOL would be a lot more compelling for TradFi than Tom Lee's, which is like, you know, his pitch is kind of like easily falsifiable. And like, that's kind of the risk with it. It's like, it's his pitch is pretty I was like, it's like a good meme, but it's like, I don't know.

I went to read, I, I watched The Bankless because I was like, I never, never listened to him pitch it. It seemed weaker than what I expected, honestly. He was, he was just like, fundamentals don't matter, they haven't mattered for ages, it's cheap at $3,500, like I don't have any models or anything, but I don't think those, those matter, and like we haven't used those at Fundstrat for ages. Um, it's the stablecoin chain. Like, I don't know, I think I find it hard to imagine, like, the, the, all the $15K ETH calls, it'd be like bigger than like Meta and Tesla, you know, at, at that price. It's just hard to imagine like you finding, uh, yeah, I don't know.

The thing is he's been, he's been really bullish at— he's been, he's generally like, you know, a bull, but he's also been a targeted bull, and it— and he's been right a bunch. And yeah, so like the most right, right? And so he's really monetizing that credibility that he's built up with this vehicle is what he's kind of doing. And so people are, you know, he's nailed all the, the Mag7 stuff, he's nailed all the S&P calls, and so it's like, all right, and he's nailing this so far, so people are going to follow him into this trade.

Do you think— there's no— you can't buy Ether expecting that the cash flows will ever justify the valuation, right? And like, that's not the pitch anymore. It's, do you think it's going to become a store of value? And I don't know, like, my, my, it's like my personal opinion doesn't actually matter if ETH is like money or not, right? Uh, like none of our personal opinions really matter on this. It's like, will the market decide? Will like society, you know, deem this to be a store of value? And so Uh, it's like very hard. You have to just believe, right? Like, I find most of the—

I don't know that the pitch is like, is ETH going to be a store of value? I think like, I actually think the hard part of like the narrative crafting here is that like crypto people are very accustomed to the argument of like ETH is a world computer, like it's protocol, it's a platform. Like people are, are very familiar with that concept. It's like a base layer that other people are building on top of and like maybe doesn't directly accrue the cash flows of everything that's built on top of it, but it has value as like the, the layer upon which like things are built, uh, as like some neutral settlement layer. Like, that is not a narrative that people are from. People are like either familiar with like, this is a store— people are very familiar with the store of value argument on the Bitcoin side, and people are very familiar with the like cash flows, like good DCF. But the like world computer protocol thing is not— I, I'm not saying it's unset— you definitely can sell it to normal people, but it is like a different type of narrative. Like, I think as crypto people, we like take for granted that that's thing that people see intrinsic value in that is not necessarily relatable. The concept is somewhat confusing for like a non-crypto native person, I think.

We've kind of gone full circle on the pitch, right? This was kind of the pitch in 2021 when, when you wanted to pitch the Flippening. It's like, it's like Bitcoin, but you can do stuff on it. And that's basically what it's come back to again.

It's a good pitch. That, that is the pitch though. Yeah, that is the, that is the pitch.

I don't know.

I, I, I believe you want to get into like sustainability, right?

Like Bitcoin will the block fees won't— the subsidy won't work over time.

ESG Bitcoin.

I think that right now it's a lot of beta chasing to Bitcoin. There's a lot of interest in this asset class. It is true that the most stablecoins are on Ethereum, right? And when you see something gaining momentum like this, it's kind of like ape first, research later, right? And so when this all kind of settles down, and I don't know when that is, like maybe it's now, when kind of the momentum settles down, then we'll start to get a real understanding of how this new capital is interesting and is going to value something like ETH, right? I think bull markets are very hard to have these kind of discussions around, like, what is the long-term fundamentals? How should we value this stuff? Because a lot of it is really just like completely flow-driven. It's like you saw TIA last year, right? It went to $20. Everyone's tweeting like modular money and all this stuff. It's like none of that ever made any sense, right? But it had so much momentum that you just like come up with these stories and then you think more like critically after.

So yeah, you want to enter this bit? Setters.

Well, basically, this was Kyle Dorf just going off on this to me, uh, like a week ago when I spoke to her. We've seen a lot of these, uh, there's like, you know, RWAs, bringing RWAs on-chain is, is a big, uh, it's a big narrative, it's a big, um, you know, area of growth for the industry. You've seen things like Robinhood bring these stocks on-chain, you've seen people bring on these private assets like SpaceX There are some, and those, see, these are like spot assets of these RWAs, right? And if you look into the legal structures of these, they're kind of like convoluted. You know, the SpaceX one, for instance, is essentially like a cash forward from the companies who's issuing them. So it's kind of like a PERP in that sense where you don't have any governance rights. You don't actually own the underlying. You're owning this like synthetic representation with a 25-page legal document. Right. And so I think the debate here is like with bringing RWAs on-chain, when you're talking about just RWAs for like pure trading, are people going to, you know, are we going to be using these like, these like spot assets or is everything just going to be kind of like perpified? And so maybe, Caldor, you can kind of— obviously you're on the perp side— why you think the perp is like the clean way to kind of do this.

So I'll make the argument, I guess, for like where we are today in the market and then like maybe longer term. Right now, like if you're trying to serve an existing DeFi customer base, people who have a wallet, let's say, At a base, like, like at a minimum, people want to trade, like people want to trade stuff. They don't necessarily want to sit on some tokenized version of the thing that actually doesn't give them governance rights, nor does it give them a right to like the underlying dividends. Um, so basically it gives them, it's, as you said, it's kind of like a shitty version of a PERP. Uh, you can't short it and you can't trade it with leverage, but it doesn't give you any governance rights or dividend rights either. There's like. The use case for that, or like the demand for that is really like few and far between, I think. And yes, I think there's, there's like some decent arguments around like, okay, you could use that as collateral and like put it in a lending pool or like loop it and like do some interesting DeFi stuff. I just don't think like the opportunity cost of doing it with like that sort of asset and the benefits that it offers versus like any other asset in DeFi, I just think is it's not a compelling enough use case for that to be, I think, for there to be like real demand. Whereas when you see like what people actually do want to do, it's like they do want to punt on Tesla around like the Robotaxi news. Like they do want to punt on like the NASDAQ based on what Trump is saying about anticipated, you know, tariffs. Um, like people largely want to, want to bet on stuff directionally, uh, long or short, and then like adjust leverage based on their confidence or whatever risk tolerance. And I think on the perp side specifically, like perps, or, and I'm going to use, I'll say like perps or perp-like instruments because I could go more like deeper into this, maybe technically on the difference between like a proper order book versus like a perp-like instrument, but I'll just put them under the same category for now, is like very clearly the instrument of choice, like for retail. I would say like given the option between perps and options, retail picks perps. Um, perps are like the, obviously the largest like retail derivatives market in crypto. It's like 70x larger than the options market. Um, and actually in every country where you see a perp-like instrument, so it like a CFD is basically, is very similar to a perp in many ways, largely offered outside the US. US people are like usually less familiar with it, but it's the largest retail derivatives market in the world. Um, they're like, they don't expire. You can go long or short, you can use leverage. There's no funding rate, but they, they offer a lot of like the same characteristics as a perp, or the same benefits as a perp does. In every market where you have the option between that perp-like instrument and an option, the perp-like instrument or the CFD is always the more popular one. The only two markets where options as like a retail derivative exceed volume on the, on like, are the largest one are like US and India. And that's just because the other instrument is like not exist. Um, so it's very clear to me that like a sort of like levered flexible, like capital efficient instrument is clearly the optimal instrument if people actually want to just express like short-term directional moves, swing trades, scalp, whatever it is. Um, and that most of the— not to say that there aren't going to be— there isn't going to be a use case for like these tokenized versions of these assets, but I see that as being like more for an institutional use case. And once there's like native issuance of this stuff on-chain, so you start natively issuing a bond or whatever it is, and it entitles you to the same, you know, governance, to the same rights as the underlying, that's when it starts to become very useful and interesting. Although I will caveat, like, there will be more restrictions because I have a very hard time imagining that the US government is going to allow, you know, if North Korea gets their hands on your Apple stock, that they'll have, you know, voting rights. So I think there, there'll be some caveats to like whether you get full, full rights just by virtue of like owning the the token itself. I don't think it's going to be indiscriminate. But I basically see, I see like, that's the world I see things evolving to. It's like tokenized thing that actually gives you like rights to the underlying, but there'll be more constraints around it. And then a synthetic version that is like capital efficient leverage, long short, and like appeals to basically the, it becomes like the dominant retail derivative. And I genuinely believe, I think a perp or perplike instrument will become the dominant retail derivative for all these TradFi assets. It's so obvious.

I agree with that for sure. I mean, once you use perps, it's just, you don't want to go back to anything else. But I'm curious, why would the perps not have the same restrictions? Is it because it doesn't— Because it doesn't entail anything.

Like if I have the perp, a perp is a synthetic instrument that doesn't allow me to redeem for the underlying thing. Like just because I have a BTC perp doesn't mean I can redeem it for like, you know, BTC and I can do something with that. Like, Same. If I have— if I'm just, I'm just betting on the price change on Apple, that, that is less of a concern. Okay. It could, in theory, the market becomes really, really big. It can influence the underlying to a degree, but that's very different from like, I have voting shares in a company, in a US company. And like, I'm a North Korean, but futures are regulated financial instruments as well.

Right. Just different regulations. But yeah. How do you see that?

Yeah, they're, they're different, but I mean, Oh yeah. I mean, this gets complicated, right? But like, yeah, futures are regulated because like basically all of the sort of large markets in the US are regulated. But I think for a very different reason, like commodity futures are regulated in a very different way and for a very different reason than like, you know, the equities. Um, the, the, if you think of, I think if you think about it from the perspective of a regulator, like I would, I would be far more concerned about someone being able to, I mean, what if you did like an activist, what if a North Korean group did like an activist takeover of like a US company and like installed someone from there? Yeah. From, from their, from their group like that, that seems very concerning. If you kind of someone betting directly on the price and like getting that right. But not having any underlying governance claims is like, oh no, no, no. Like from a risk perspective, that's like, I would be much less concerned not to say that they'd be thrilled, but like, that's much less concerning.

Would love to double-click on kind of, you know, the model you guys went with. Um, you know, I think one initial concern with equities perps is the funding rate, and particularly the cost just being prohibitive for an asset that's much less volatile than crypto, where people are more comfortable paying those rates because of, you know, the returns that you can potentially generate offsetting them. Um, right, so funding rate usually is long paying short. You guys use a rollover model where, you know, both sides pay and are paying you guys. And I know the, uh, the annual fees, the annual equivalent fees there are much lower than your baseline funding rates. Um, yeah, I would love to kind of, you know, have you just expand a bit more on that model and kind of how you then balance the, uh, the long-short skew, uh, which is probably like the next question that would come up as, as, as a way to kind of, you know, battle test that mechanism?

Yeah, this is, this is a very good question and one we spent a lot of time agonizing over. So I think you can basically optimize for two things in like a nascent or in this sort of market. Like one is just actually reflecting all of the internal market dynamics, like in your exchange, your platform, reflecting your liquidity and market dynamics on the price and like the fees that you charge users to try to incentivize them towards a certain behavior. Or you can take a completely different approach, which is one that we settled on, which is optimizing for basically predictable pricing and predictable fees and abstracting a lot of that away and just giving the most predictable experience. And what we found was like, if you went for the former, there is no infrastructure built out right now to go and like arb funding rates on Tesla or like on gold or on whatever it may be. And so we had this terrible catch-22 where we used to have funding rates, by the way, on like everything. But we found that like, in order for the funding rate to be high enough to incentivize someone to come in and like build the infra and like take the other side and like, because you have to go and hedge on like IBKR on some underlying platform, rebalancing collateral is not as easy as just like sending money back to Binance. Like you have to convert it out of USDC back into fiat. Like that takes time. It costs money. Time is money. And so in order for the funding rate to be high enough to incentivize someone to do that, it also was high enough to disincentivize demand on the side that people actually wanted to trade on. And there's an inherent skew. I mean, like, there, there is just some— there's like inherent demand in a direction. Like, people generally are just long biased, or during a crazy market, maybe they're short biased. But like, you have to charge people— like, you have to pay people a lot to like take the other side, um, just naturally, especially when there's zero infrastructure built for it. Like, look how long it took for all this info with like Athena and for, for the basis trade to become like popularized. I mean, like the SKUs were really persistent for a really long time. So especially, and then like I'll add on top of that, a lot of our value prop is like all of these long tail markets in one place. We're list, we have stuff, I mean like Hong Seng Index and Nikkei and like, you know, uh, the German DAX and the FTSE. Like we have all this stuff so people can all trade it from one interface, but like building out infra, there's not necessarily volume. The, the volume is very sporadic on those sorts of assets. It's really dependent on what's going on in the market. So building the infra to have someone consistently, like whenever some, there is actual volume on, let's say the FTSE, but to consistently always be hedging that everything that's coming in is just like not realistic for where the market is at right now. It just is like, we just don't have the infrastructure that there's not, it doesn't exist. And so. Yeah, we used to charge funding rates and basically they would just drift so high before anybody came in to take the other side. They would drift so high that they would just disincentivize like demand on the long side and, and kill it. And I think anybody who's gonna build like a pure funding rate model will see that this is true. We went through it ourselves. Not to say that there won't be— people are being basically the basis trade on these new sets of assets, but it's gonna take time to get there. And if you, if your goal is to offer, like our goal's very simple. We want to offer the best, simplest, most flexible, most predictable trading experience in all these tradfi assets, which are stablecoins. So if we have funding rates that might drift up to like 80% a year on an asset like the euro that moves like, you know, 20 bps in a day, no one, like, no one's going to tolerate that. Um, so instead we do it a very different way. We just charge a fee to both sides as a borrowing fee. Um, and then what we've built out is, and this is like currently it's in beta, but it's going to be built out into sort of like a more full system. The pool right now is a settlement. It is like— does two things. Like, it absorbs directional exposure. The pool's like skewed long on gold, let's say. Um, and it is there to settle trades because there's not an order book. So it's, it's an asynchronous system. Like, someone closes a trade that's making money, you need someone to front that capital. Um, so the pool is there for settlement and directional exposure. But where it's evolving is basically where we will hedge out. There'll be a separate, like, a— this sister entity that we're piloting, basically hedges out sustained deltas in the underlying market. And then that allows us and LPs to basically pocket the rollover fees. So it's an additional source of like revenue for the protocol. And it allows us to offer a much more predictable cost for holding your position. That's like, it's around, like, it's around the interest rate, basically. Yeah, I think that answers your question.

But are there a lot of hurdles with that? You know, kind of the ones you basically described for why people won't rebalance on the funding rate side, or, you know, is it just— yeah, yeah, I would love to understand that a bit more.

I'll start maybe like a high level. So I think every successful exchange or trading platform has figured out how to monetize like two sources of revenue, like fees and flow. Um, if you look at Robinhood, right, they obviously payment for order flow, they're, they're passing on, like they're laying off that flow to Citadel or, you know, whoever's down the line. and they're paying them for that flow, which allowed them to subsidize basically the cost of liquidity and pricing and then cut fees to zero. If you look at Hyperliquid, they have an in-house market maker, which allowed them to basically monetize the flow that they're, that they're getting in, which subsidized the cost of their liquidity, which allows them to basically route a vast majority of fees, of their fees to buying back the token. And then finally, if you look at these offshore kind of like FX brokers that I was mentioning earlier, they do something even more direct. They literally just take the counterparty. They don't send the flow to Citadel. They literally just take the other side and then they parse it out and they figure out what they want to lay, what risk they want to lay off. If there's like a massive trade from some like super smart whale, they're not going to take the other side to that. They'll go and they'll lay that off with like a, with like a market maker, but they basically take it, take the other side to most of the flow. So I think like, and actually if you look at like the protocols that I think pioneered a lot of stuff in the space, but ultimately weren't able to monetize and build like really consistent, huge value to their own company. PMX is an amazing product, but unfortunately I think they leak a lot of value to LPs and we don't want to be in that position. That always happens if you actually can't monetize flow. They leak like 70% of the fees that they collect, their revenue goes to go and pay LPs. So only 30% goes to the token holders. And as a result, the implied growth expectations, then lower, there's a multiples question as well. But it is fundamentally the more you can expand your gross margins, for lack of a better term, dramatically to then retain as much of the fee revenue as possible or subsidize fees entirely the way Robinhood did. And then ultimately you build out other products that you collect revenue from. The more like profitable your business will be and people will pay a massive premium for a business that is like retains so much more of the fee revenue or has a way of like a really optimized way of monetizing flow to basically, ideally fully subsidize liquidity costs. And even better in some cases, like. Go beyond subsidizing liquidity costs. It becomes like an additional source of revenue that goes, that like adds to your margins. So like with that principle in mind, basically the idea here is you hedge out, like the pool is taking the other side. The problem with these like pool models, they like work most of the time, but like sometimes you'll just get a max. You generally want to be the other side. It's like generally a good bet to be an LP. But sometimes you get these like massive directional skews or a massive trade that actually like really, really wins. And the key is basically having infrastructure to go and lay off that risk in the underlying or with a partner that can accept that flow. Like that, let's say a mat, like a $50 million trade on the S&P short that is like, turns out might turn out to be really right. Um, so that you can just hedge out the really like tail risky large trades and then the pool takes the other side to like the majority of the other trades, which eventually, which like there's a little bit more like technical complexity in that, but it's probably not worth going into in terms of exactly how the fees flow. But if you think about it, like if you can do that, you hedge out the really big stuff for LPs, you keep— they keep the rest of the small stuff. And on average, that's a good trade, which allows you to basically subsidize the cost of the liquidity provided by LPs in that way. And then you collect the rest of the fee revenue. And ideally, like that's enough to go and pay LPs for that to be a good trade for them. And then all the fees go ultimately towards, you know, towards the company or supporting the network, however you want to frame it. So it's that kind of how we thought about it from first principles. Like you have to monetize flow if you want like a really good business with really good margins and every successful trading platform has done so, figured out a way just with different, different models. And we haven't seen this like on-chain. So tried to, besides Hyperliquid.

Yeah, it's really cool. And one, question. Like, I definitely believe in this Perpification thing and that like it's one of crypto's just killer products, that and stablecoins. And there's been this discussion in crypto that like maybe we've invented these products and then TradFi is just going to come in and like make all the money off them, right? Whether it's with their own L2s, their own Stripe stablecoin or whatever, Robinhood Perps. How do you think about the advantages of like crypto-native, like non-custodial perps versus someone like Robinhood, like integrating perps?

Yeah. Also, I'm so happy to hear you using that word. I like came up with it at like, you know, 2 AM, like 18 months ago. And it's somehow like, it's entering the common verbiage. Yeah.

Is it perpification, not tokenization?

Yes.

Yeah, I like it.

Okay. I mean, this is a great question. I think If you just historically look at innovation, it's been driven by disruptors. It hasn't been driven by legacy participants. It's not to say that legacy participants don't figure out a way to profit off of it or integrate it into their exit, into their infra at some point if they move fast enough. But I think the real value creation does generally happen too. And if you look across industries, I don't know, Tesla's the winner in electric cars, not Ford. Like the disruptors who like pioneer the new tech, I think generally accrue most of the value. It's not a hard and fast rule, but that would be my like first principles pushback. And then the second thing is it depends on whether you actually think that people will value like the fundamentals of what a blockchain in theory should be able to offer and sort of the basic value prop philosophically of having like a system that's transparent and at least can be non-custodial where everything is traceable and that can be credibly neutral. I do, like, obviously people value convenience and all the, I mean, I think people are going to be on like mass onboarded. We see this with our own data, like through a Privy, like email type signup rather than like downloading MetaMask per se. And that is certainly going to be, that is more centralized. But if I look at what is, I'll just use our example of our market. I think Robinhood is obviously super US and now a little bit more EU-focused. I'm thinking a little bit more about these like international offshore brokers. They are incredibly non-transparent and black boxes. And the, the, the biggest like reason for churn among us, they have like a pretty high customer acquisition cost. And a lot of it comes from the fact that like their users don't trust the platform and they have incredibly high churn rates. And in what I was describing before, um, you know, the broker, like take, they take the other side and then they like lay off some of the flow. Because I take the other side, they like have a vested interest in the trader not doing well. And on top of that, they have like the ability to tilt the scales in their own favor. So they can close out, like they can close out someone's positions or they in theory can like kick a trader off. This is pretty common if you like read the subreddits for a lot of these platforms, like ClickSub, they can kick a trader off or like an arbitrary like terms of service violation. Really the violation is just like they had too much of a winning streak and the platform doesn't like want to have them on. If you can, like, if the biggest problem for a platform that drives their churn and their high customer acquisition cost is trust and the fact that it's a black box and that the platform isn't neutral, I think there's a really compelling business case for why a user would actually want to use an on-chain version of the thing where you can say, like, we can't kick you off, we can't arbitrarily manipulate your trades. The rules of the game are written out ahead of time. We can't change them. Not even like just, yeah, not just pure philosophically, but like there's a business case for it. I think that like necessarily means that like value will be driven to the ones that build this and like build, have an on-chain version of the thing, not just into the legacy players that are operating within their own black box, more legacy framework. It's kind of a roundabout answer, but first principles, I think the disruptors generally accrue most of the value, not a hard and fast rule. And secondly, I see a genuine business case in the market that we are ultimately going after that I think has not— that is based in a credibly neutral platform with transparency, which you can only achieve if the actual infrastructure is on-chain. Um, which is like not the direction that like Robinhood's going, right? Like they're, yes, they're putting like, they're trying to tokenize stocks, but they're not arguing, they're not like, they're not going out and saying like, we're gonna go build a fully on-chain perps order book where you can track every block. Like that, I haven't heard that.

Um, yeah, that makes sense. And, and how do you see like, um, Hyperliquid, HIP3 affecting like, because I assume I don't know, I have to assume someone's going to be trying to do commodities and stock pairs on Hyperliquid. Like, yeah, how do you see that? Is that something you guys would ever do? I guess it doesn't make sense for you right now, but yeah, just curious.

I get this question so much. So I would say Hyperliquid is not— we're not a competitor. Like, what we're actually going for, like, it's a different value prop. Like, we're I think people really conflate in crypto for whatever reason, like exchanges and trading platforms. Like Robinhood is not the NASDAQ. Like Robinhood's job is to provide traders the exposure to the best pricing and the best trading experience by routing trades to whoever is going to give them the best pricing, whether that's Citadel or Susquehanna or laying it off in the underlying market. That is, that is also our vision. Like our, our vision is like Robinhood for these markets on-chain. We are going to quote you the best pricing. And right now the best pricing is just in the underlying markets. I think like, okay, quick thought experiment, like how much, like how much top of book liquidity is there on Solana, like on Binance?

Within like 1% of spot or like bid and ask?

I don't know. Like, I don't know. Yeah, I don't even want to say because it's going to be— I'm going to look dumb.

It's like 500.

Wow.

Yeah. On Hyperliquid, it's about 300. So they're like within, that's like very close. How much do you think on like ES, like S&P futures?

500 mil.

That's like pretty accurate. Yeah. It's like 3, it's like 250 to 350 million depending on like, you know, whatever time of day. So it's like, orders of magnitude more. So like, let's say, conservative— I was like, try to run this thought experiment. Like, let's say through like HIP3, okay, Hyperliquid's able to add like ES future type, you know, S&P type perp. Um, let's say super conservatively, and it's like very hard to get people to quote prices on that, especially if the new— by the way, the new instrument is like fully a perp perp, for which there is no— like, that's a— that would be a net new instrument on the thing. Like, getting people to actually quote pricing on that is like not easy necessarily. Let's say it's like half of the top-of-book liquidity that Hyperliquid has on Solana, like $150K. That's like orders of magnitude less. And like, if you want to open a large trade, you will blow through the order book then, then like, you know, compared to what you would get in the underlying. So I'm not saying like in a, in an end state, in a world where like Hyperliquid does an incredible job with these, like listing these assets and figures out how to get like proper order book perps on this stuff. Like we would quote their pricing, but right now, like the one, well, it doesn't exist yet. And like, I don't see any path on any short timeframe where the pricing that you would get there would be even remotely close to like the pricing that you would get in the underlying. So we just fetch the pricing from the underlying market. We quote you that. And That's like what allows us to support these like huge trades. Like you can open up a $50 million NASDAQ long at like the real market price, basically very, very close to it. Like within a really small range for like 5 bps open close, like round trip costs. It's like nowhere else. And you get filled in one clip, like we don't do partial fills. So there's just like nothing that, that can compare to that right now. It's not to say that if you're like a tiny shrimp and you're moving, like, you know, you're putting a $1,000 position or something that you might not be able to get filled easily. Like, talk about when there's through like Hit3, there's some sort of S&P future listing. But I think for if you're moving anything in real size and you really care about execution, like nothing is going to be able to compare to the venue that actually quotes you the underlying market price. which is what we're doing. But if it becomes really, really liquid on chain, we'll quote that. Our job is just to like quote the best price and offer the best trading experience.

So why couldn't they quote you the underlying market price with, with HIP3?

What?

Why couldn't they quote you the underlying market price with HIP3? I, I missed that.

Cause they're, well, cause they're recreating their own, their own order book, right? It's, it's like the difference between like the NASDAQ versus Robinhood, right? Like the NASDAQ is like the underlying, it's like the exchange where like the books are being made.

Yeah. Okay. I get you.

Right. Like Robinhood is like. They're like the, the one that has like the relationship with the customer and their job is to quote you the best price and find that. And like, some of that best price, I mean, actually the way it works is like the, the market makers have to quote you at least better than whatever the national best bidder offer is, which whatever would be like the underlying order book. But like, yeah, I don't know, in crypto it's really strange. Like people, I, people think people are starting to internalize this with these like apps that are getting built on top of Hyperliquid. But like everybody who's like trying to build a, like plat— like a trading platform is like trying to be like NASDAQ rather than trying, like no one is trying to be Robinhood. Yeah.

It's like order flow front ends versus like order flow servicers kind of, or just like the actual, like the market where like the trades are being matched.

Like the, the exchange platform versus like the. The platform that manages like the user relationship and like quotes, quotes, prices, pulling in quotes, prices that other people are like delivering or making on other venues. So, so yeah, so I mean, I mean, just to answer your question on like through Hyperliquid, right? Like if, if they're trying to create an S&P future perp, right, they're going to have a, they'll have an index price, which presumably they would be pulling from the underlying market. This is actually a very interesting question. Are they going to pull the index price from the underlying market or are they going to pull the index price from a tokenized version of the thing? And right now I actually don't see how anybody is going to pull the price from the underlying market unless they have support for like out of— they figure out how to deal with out-of-market hours. Because underlying market is like 23:05 on ES futures, for instance, for S&P. So what do you do when the underlying market's closed? Like we have an answer for it. Like we have a, like our oracle feeds in the market hours. We check for that at the smart contract level. There's a function like before you execute the trade, we make sure the underlying market's open. If it's, if it's not, like, it reverts. Um, but like, what if you have infrastructure that's only made for like 24/7 trading? What do you do when the underlying market's closed? So like, this is why, for instance, on Hyperliquid, the, the gold perp is a Pax Gold perp. The price they're referencing for the index price is the tokenized version of the asset. The problem is like the tokenized version of the thing has like 10,000 times less liquidity than the underlying market. So it's way easier to manipulate. So now your PERP market can only be a tiny fraction of the size of, like, can only be a fraction of the size of the tokenized market rather than a fraction of the size of like the underlying spot market. So there's like a, there's like, you wind up with these like layers of kind of like liquidity problems, like, like the underlying market. If you can't reference that price, cause of ours, you gotta reference the tokenized price. But then the tokenized thing, like doesn't have a lot of liquidity. And then you have a free-floating PERP price on top of the tokenized thing, which then people also need to like, you know, you need to make the book on. So you have these layers of liquidity problems. Like it's not, it's going to, it's hard. Like it's going to take a long time. Um, you get to like execution on chain.

Yeah, it makes sense. I think the, I mean, the, the, the, the pure tokenization path is interesting too. And like the SEC seems to be moving towards something like this, or they keep hinting at like having some kind of. Tokenized equity and being able to make secondaries more liquid and stuff like this. It's just hard to see when that happens. But I do think eventually— I know Legion just announced their fundraising today. Obviously we incubated them. And I do think eventually an on-chain, like just IPOing on-chain does make a lot of sense because you can just go global immediately, especially for for like people that don't have access to, to the NASDAQ, right? Um, and like for all the local stock markets where it's just like, it's just so much worse IPOing even on the FTSE or on like the, the Portuguese stock market or whatever. Like it's, it's, there's just so much less liquidity, some like it's, it's, that's why everyone ends up moving to the US and, and IPOing there. And it's just like such a huge, such a huge advantage for the US. It just seems like for everyone else adopting like some kind of standard like this, like an on-chain standard where you could, we could somehow go global would, would make, would make a lot of sense.

But you're saying for all the countries that don't have the privilege to like come to the US or something?

Yeah. Yeah. And for all the countries as well, like all the, all like the, the European Union and like, um, you know, it's a big part of why we lose like late stage and, and like growth stage startups is they have to move to the US for both fundraising for VCs, but also for, for IPOing.

Right?

Like, they just didn't make sense to IPO anywhere else. Um, and it's going to be hard to make the European markets like competitive with, with that. But like, if you had a way to do it on-chain and just do it globally and, and like everyone can access it, I think it could be really cool. But yes.

Yeah. One thing I'll say on the RWAs for spot is, um, it would be nice to get like the big indexes. Spot on-chain, like SPY, the Qs. Um, I think just like being able to like borrow against those, right, and use them, uh, that's like the killer use case for spot RWA, um, is more so people that want to like hold them, put them in money markets, and kind of use them. I agree, for like pure speculation, uh, especially once you start getting to like individual equities and everything, that perps will always be the better model for that.

Um, the tricky part there is the business model, right? Um, holding perps for the S&P index, you're getting crushed by fees, right? That's just eating into your returns. So it's more for a trade. And then if you look at kind of the tokenized versions they still need to accrue value. And, and, you know, I think most of these models have been designed with you get 1 or 2% inflation in the asset as a way to kind of charge a fee, right? So you, you do get some of your gains eaten away. There's like, there's a fee in there embedded somehow, right? They have to keep, uh, they have to charge a fee for, for the tokens, right? And so, I mean, maybe there's a world where there's just enough appetite to pay that fee because it's their, their, that's the only way they get access and maybe it doesn't matter. But, you know, from the US perspective, right, it's going to be hard to rationalize it.

I actually, I was like, not entirely familiar with this. You're saying there's a fee embedded like into the inflate? How are they like, how are the economics just like different from like charging minting redemption fee? I guess at the stablecoin level, like you're collecting the yield and you're not passing that on. So like, that's a really awesome business model. I just would have presumed that like the, like minting and redemption fees.

The problem is if there's— if no one mints or redeems, right, if these things just trade hands and, and stay open, then, then you're not really getting anything, right? So you have to embed it in the form of, of some inflation into the, uh, asset itself that they can sell into the market to, to recoup. And, you know, then it's just like an asset management fee. And if the expected returns on the asset are 7-8%, then it's, it's hard to stomachy 1 or 2% management fee. But, or, or maybe it isn't, right? If, if like you're willing to pay that for the access that you hold a bunch of gold on chain.

And yeah, it's what's like the gold fee on chain versus the gold ETF?

Way higher. I don't, I forget the, I forget what the exact fee is. Pax Gold.

Yeah.

Okay.

I should probably move to Tether Gold. I think the fees are lower.

Sorry, I gotta run.

Yeah, just leave your computer on.

I hold the— yeah, I do the Pax Gold. I think it's— the fee is pretty high actually.

Out of curiosity, like, why are you holding— why are you holding Pax Gold like spot on-chain rather than like in a brokerage account?

Yeah, I just had most of my, uh, assets on-chain for, for ages, um, and only managed to transfer them out. Yeah, I probably should. Um, I just haven't got around to it.

Oh, I'm not advocating you do. I think that's, it's great. Yeah.

I also like having it on chain. I just like, I like having most of my stuff on chain. It's just easier to get in and out of things and stuff. Like, I don't know, brokerage. That's the other thing. Like, uh, we don't have Robinhood in, in, in Europe and brokerages are like a terrible experience here. Like, I don't know if anyone's ever used like Interactive Brokers or something like this. Like it's. It's just awful. I literally had to call support a bunch of times to do basic things. I've never called support on any web application ever. I was trying to convert my euros to dollars to buy this stock and it was like, you have to go in. It's crazy. That also makes me very bullish on the— and I'm curious, what's your take on the crypto exchanges that are offering stocks too? Like these tokenized stocks. Like, I know Kraken wants to offer it. I believe there's others that want to go into this, like, to be your full-service, like, brokerage. Like, the UX on crypto exchanges is— I've never used Robinhood, which I hear is awesome, but the UX on crypto exchanges is, like, way better than the trad apps, like, of all types, like the brokerage, the bank brokerages, the bank, the tradfi banks. Like, I know my thesis for crypto is always that you would eventually have just, like, all your assets on chain and just be, yeah, like you, you, it would be like a full stack and you'd be able to do payments from it and stuff. Kind of already have the pieces, but no one's really put them together yet. But yeah, I'm curious how you think of the centralized exchanges going after this.

So under the current implementation, like so far what they're doing is like largely a marketing stunt. Obviously the direct, like we believe in the same vision of the future. It's like, well, what we've been building towards. But, uh, I mean, I'll, okay, I'll give you another, uh, never thought experiment on, on xDox, for instance, like how, how big of a position do you think you can, like, how much xTokenized Tesla do you think you can like buy through xDox, like on Jupiter? Like what's, what's like the maximum liquidity available?

Like 25K. Like, I don't think it's a lot.

It's not a lot.

25K. Yeah, I think 25K sounds about right.

Okay, you guys undershot a little bit. It's something like half a million. But at that— at $500K, you're facing like an 8 to 9% price impact.

So, okay, well, yeah, that's kind of where I was going with it.

I was like, how much can you really buy without moving it?

That's like the max you can possibly buy, period. Not like the max you can buy without— okay, you, you like can basically buy nothing, like buy none without moving it. So if you try to— I think the last time I did, I did not think a week ago, um, on like a $200K position, you're facing like a 3 to 4% price impact. Uh, so like even with like $10K, you're gonna face— I don't mean you literally look like right now, like I don't know the price impact is on like $10K, but it's like, it's also not trivial.

Um, yeah, you need to scale out like you're buying a— selling a shitcoin on Gate.io or something.

Literally, yes, exactly. There's no liquidity on this stuff. And the thing is like, I mean, my view is like it's gonna get like worse before it gets better. It's like DeFi, like 2021, there's like USDC.e and like Wormhole Bridge USDC and like native USDC. There's like 10 versions of like 10 different stablecoins on like every chain and you like never know which one you have. And like none of them, it's like that, but it's going to be multiplied as like everyone has these tokenized stocks. I mean, even like eToro announced that they were like launching some tokenized stocks thing. Like I, it's going to be, the liquidity is being completely fragmented. It is, there's gonna be new versions of stuff. They all have different, people are like, the version of XDOX right now is like through exactly what you were saying, like a cash forward, like that you mentioned in the beginning of the podcast. Like it doesn't entitle you to, it's like through some like Liechtenstein SPV. It doesn't entitle you to like underlying like asset rights or dividends or like anything like that. So yeah, I would say most of what's been, we believe in the same vision of the future. That's like definitely where the world's going. But, uh, the implementation that's being adopted by like all of these centralized exchanges right now is this kind of like fragmented tokenized stock experience that doesn't actually entitle you to any like underlying rights and is basically cash forward. Um, and you can't open like any real, like no real size on this stuff. Um, so, um, yeah, I was going to say there was like one version that Uh, yeah, I think like the, the Denari version like makes more, like more sense because it does entitle, it gives you more rights. Um, and also actually I think like the centralized exchange has done, that's had the smartest approach. It's a very different one and it hasn't gotten nearly as much attention. So not as good from a marketing perspective, but from a product perspective, actually I think makes sense, is what Bybit is doing. Bybit has like, they started a partnership like more than half a year ago with MetaTrader. Which is like the trading software. I mean, this stuff is a whole other rabbit hole, but like literally looks like MetaTrader was originally launched in 2005 and like the desktop, like web app legit looks like Windows 2005. But nonetheless, still used by like tens of millions of traders around the world and is like how many traders like access their brokerage accounts through this like interface. And Bybit started a partnership with MetaTrader, Or you can use your Bybit credentials to like log into MetaTrader. They have a partner there and you can like trade these like FX, you know, crypto index equity CFDs. That has gone like largely untalked about, but I think it's by far the most interesting thing that people, that like is at the intersection among the like centralized exchanges, like at the intersection of like a crypto exchange and some sort of traditional market access. The tokenized stock stuff is just like. I don't know, we'll see what the numbers look like for these, but like, I mean, the volumes on X stocks are like almost nothing and there's no liquidity.

So, and is there a way to like hold spot, um, that's, that's going to be like more efficient from a, from a cost perspective, like long term, where you're not paying, uh, paying out a bunch in funding or borrowing costs that you see for people that— because I definitely see there's gonna be a lot of purification, but there's also, you know, if you're holding index funds or something as part of your allocation, you just want to do it in the most cost-efficient way possible. Do you think there's going to be a way to do that on-chain? It seems like there should be. I think I even saw some mechanism back when I was looking at the DeFi stuff more where you could kind of like, as a PERP user, you could almost like lock your PERP and you would like pay a lower funding because you're— yeah, but I'm not sure if you've seen anything like that. Like, yeah, to make perps efficient for that use case.

Um, you're saying like a perp, a perp designed for like a long-term holder rather than like a short-term trader? Or is that the question?

Yeah, yeah, yeah.

I mean, that's like kind of what we have, right? Like, we have— this is like, goes back to the question that Jan asked about like variable funding rates, right? Like, the problem is like, there's, there's one like which is like the absolute amount of money that you pay, and that there's also like there's a like predictability factor, which is like, if I'm holding this PERP and like suddenly funding rates blow out like crazy and I'm paying like 80% a year, like if I'm not checking my position, I can get completely eroded. So part of what we've optimized for is like a much more predictable fee and trading experience, like predictable liquidity, because you're getting the price that we're quoting you. That's very, very close to the underlying market and predictable fees where you're not facing a variable funding rate. That's like completely dependent on whatever the random like market dynamics are like on our exchange. We're instead charging you like a small premium on top of basically like the underlying market holding costs. And then like, yeah, pocketing that. And that's like to ensure that it can always be hedged if it has to be.

Interesting. So what's the cost, like the average cost of holding, let's say like a Tesla position on Osteum for a year?

So I can tell you right now, I'm like literally going to go to the interface. On Tesla right now, the 1-year holding cost is 1. 3-6% on each side.

Okay. Yeah, that's pretty decent.

Yeah. The fees will, like, we're still finding kind of like optimal steady state hedging costs and like demand.

Yeah.

But they're very low. So yeah, I mean, again, optimizing for, it's just like a very, very different thing to, we have optimized for being like the best place for whales to clear very large trades on traditional assets, like 2 to 3 orders of magnitude better than anything else in the market and predictable pricing and fees. And this is relevant. It's actually less relevant for crypto traders right now. It is key to our broader market expansion because, I mean, José, you're in Europe. You know, with a lot of these trading platforms, like Saxo Bank users, eToro, IG, Plus500, these platforms, they're not charging random variable fees. People are accustomed Like, I think one pe— one, I've like written about this in some of my articles. Like, I think one thing people fail to grasp is like, it's not just about charging fees that are on, but if you, if people have an alternative, like crypto evolved in its own microcosm where there like was no, like perps evolved in their own little world. Like market structure is to a degree path dependent. And so like, if there are alternatives out there, people might have a very strong preference for like doing the thing on chain. But if it's just like 100 times more expensive, like people won't do it. And so it's like not just about like, is the pricing remotely like close and like good and justifiable? It's also about the structure. Like structurally similar fees actually really matter. And like if you have, if suddenly there's like a whole degree of new variables you need to take into account when you're trading this thing, like, you know, you're used to holding S&P and like you just have to take into account, there's like the fee varies between like 1 and 4% a year, but now suddenly, suddenly there's a funding rate on it that might like totally blow out to 100% a year based on like random market euphoria or something. That is like, you're not going to be able to convince someone who has the ability to trade, to like hold their position with a very predictable fee to suddenly hold, like trade your thing with an extremely unpredictable fee, unless they're like an arbitrageur and they have like a strategy that's based on like arbitrage. Market inefficiencies. But like, that's not the market. We're like not trying to build the best place. We're not trying to build the most fun place for arbitrageurs to arbitrage market inefficiencies. Like trying to build like the best place for people with a genuine directional view that they want to take to express that market opinion. Um, which is a completely different thing to optimize for. Um, yeah.

We're a bit over an hour now. I don't know if you have anything else.

I was going to say actually one more thing on the markets, which before, before we switch, which was like, I was looking up before this, like the divergence between like the winners, the winners in the broader market, both in like crypto and, and in tradfi right now. Um, I think, I mean, a lot of the story the last like, you know, 5, 10 years has been like the, the massive divergence between like, if you look at like the S&P performance with the Mag 7 or like the top 10 stocks, whatever that period of time is versus like the, the rest of the S&P, it's like insane. Most of the gains are being driven by like the very largest ones. And if you look at the story of this cycle, it's been something very similar, like Bitcoin dominance. Okay, finally, like ETH is now outperforming, but like has not been an alt season. It's been like the crypto market expansion. This cycle has been like almost entirely Bitcoin driven. Some of that is compressed a little bit. I was like looking at the numbers this like last half a year. It's expanded again over the summer with like, you know, ETH outperforming, whatever. And like the earnings on like a lot of the MagSevens have been like— Yan mentioned this in the beginning, but like the earnings have been Excellent. Um, this is like most recent earnings, but the first half of the year, the divergence has like somewhat narrowed. And so I'm curious what you guys think about this, like whether, whether this is just like, it's just gonna keep getting wider or, cuz I, I would interpret like a reducing divergence between like the winners and the broader market. It's just like a sign of market strength. It's like, cuz I, there's a way of interpreting it's like the economy's kind of like hollowed out, like the broader, like American economy is like unhealthy and there's like a a few really big winners, but like, to the winners go all the spoils.

Um, yeah, yeah, yeah, it's a good, it's a good question. I think my take is that if ETH isn't a store of value, um, then it's like one of the most overvalued sort of assets on Earth.

Okay.

Um, and so I think like, and, and that's like, I think what a lot of this cycle kind of relies on. Like, if, if ETH can, can really get to like $6K, $8K, $10K, like $15K. And that means people are to some extent, like valuing it as a store of value, like it's, it's, it's competing with Bitcoin to some extent, I think. And I think every L1, ultimately, the idea is that if you're the— if you win as an L1, then your token is the most trustless, like collateral asset on that L1. And so you should, like, win the store of value use case too. It's not what Tully thinks, but it's what Kalsamani thinks, right, about SOL too. And so I think if ETH does really well, I do think we can get like a massive alt season because suddenly all the other things can get priced that way too, right? Like SOL, I think everything else is almost priced like everything else, at least in the L1, which is where most of the value sits in crypto, is priced relative to ETH. I'm personally not making that bet, not because I don't think it's going to happen, but I just don't have conviction. Enough conviction to place that. But I still hold a bunch of ETH, actually, and a bunch of SOL. But I'm not like, it's not my biggest bet. My biggest bet is more on the application layer, like the Athena and the Hyperliquid that I think, like, I understand better and kind of see a path to it really being incredibly useful and generating a lot of cash. But there's a lot of smart people, like very smart people that I really respect in crypto that having insanely high targets for, for ETH. Like, and, and so, and I think if that happens, you will get like BTC dominance going down and you'll get like an alt season of some, to some extent. I don't think it'll ever be 2021 again.

Why do you think that ETH like doing incredibly well necessarily means an alt season? Because I guess like, and also what do you mean by alt season? Do you mean like a broader alt season, everything rips, or do you mean like just the high quality, like a, you know, Aave, Ina, whatever, like Yeah, yeah.

I think if— if I don't think we'll ever get an alt season where everything rips again like, like 2021, but I think, uh, if ETH rips, I think like all the L1s just, just reprice too, right? And then if the L1s— because the L1s are like everyone— the, the pricing model you have for, for SOL, I think to some extent, is always like it's a fifth of ETH or whatever, and it's doing, you know, like half of the of activity, or more of the activity, for, for a lot of, for a lot of the time. And like, I think it's similar with the, with other L1s. I think it's hard to value any of that stuff fundamentally. So I think if ETH does well, all the L1s do well, and then as the L1s reprice, all the assets issued on those L1s reprice too, and like everything just like moves up. I really think ETH is the key to like, uh, having any sort of alt season. Whereas I think if ETH doesn't do well, I think you'll just have pockets of outperformance of things that have real utility and value that that do well, basically.

I mean, it'll basically be the same as what we've had. I agree with that. Like, yeah, higher take. Also, like, a lot of the applications, like Athena Hyperliquid, the higher ETH goes, the higher Bitcoin goes, they can make more money, right? Um, and so cash flows are downstream of a lot of— yeah. And so this is like the big question now. Are L1 tokens going to be, you know, store value and network equity? Are they just going to be network equity. Um, you know, so yeah, there's ETH. If ETH goes to $10K, then like Bitcoin could go to $200K, no alt season. If ETH goes to $10K, probably alt season. That's kind of the way I think about it.

Do you think it mirrors like the underlying market fundamentals at all? This was like kind of part of the question too. Like, do you think that like the, cause it seems like, like this is like the same story everywhere. Like it's increasing divergence between like the winners and like the rest of the market. And that's clearly the case, like among the S&P and like the top stocks there. I just wonder whether, is it like being driven by the same fundamental drivers that there's just like a flight to, is it psychology? Like there's a flight to just safety. People just generally don't trust the rest of the market. They think most of it is like fugazi. And so they just like, they're going to invest in something. They're going to pick the winning companies or.

Well, I think that like a lot of this new capital, they're like tradfi money. They, they love their indexes. They're big like EMH believers and they go down the market cap list and they're like these, like there's a lot of tradfi interest in XRP because that's like a big market cap, right? And so I think that a lot of this new money is very early in on their like exploration into this whole asset class. Um, it's kind of funny because I think crypto over the last 2 years, investors, especially liquid managers, have started focusing more and more on fundamentals, like hard, like hard fundamentals, right? There's like the soft— I feel like my thing is like, it has a lot of these soft fundamentals that aren't exactly like, you know, quantifiable and like their way and how they should drive the price of Ether or something, but they are like fundamentals.

What's a soft fundamental?

Like Ethereum's decentralization. Okay. I see. It is censorship resistance. These things are actually hard to measure and how to hard to measure, like how much more censorship resistant is than something else. Like how much that, that extra censorship resistance should like go to ETH price and stuff like that. Right. And so these things are like very hard to actually. Kind of like value or reason about. Um, I feel, yeah, so it's kind of like, yeah, I don't know. Um, one thing interesting I just want to bring up, and then I think we should end it because this is like going pretty long, but, uh, Wormhole just put in a bid for Stargate.

Oh, really?

Which is like super like trolly slash funny.

No way. Yeah, there's like a higher bid than LayerZero.

Yeah, they're valuing it.

Uh, where are you reading this?

It's, uh, Wormhole Foundation Twitter.

Oh yeah, just Stargate just pumped.

Uh, it was at 12, it was like 20 minutes ago, so I don't know, it's kind of interesting because LayerZero, Stargate have always been this like, why are they two separate things? And then they did the offer, but, uh, seems like Wormhole's trying to fuck some shit up here, just get in on it. I don't know, I think it's kind of cool.

That is pretty funny. Damn. What I mean, Stargate can just do whatever they want though, right? Stargate doesn't have investors that aren't Layer— like, we're investors in LayerZero, and we also just got Stargate tokens as part of it. And I don't think— well, I guess Stargate has its own token holders that voted on the open market who would be able to vote for a higher proposal. And if Wormhole can just make LayerZero pay more, they win anyway. So it's like, it's kind of a win-win for them.

That's really funny.

I mean, unless they buy it, and then like the people who are working— I don't know who works on Stargate versus LayerZero, but Couldn't they just like peace out?

Yeah. Yeah, I guess they could.

I don't know.

Yeah, I don't know the details there actually.

It's kind of interesting.

The cap is 100 and— what is this? 180 million. Okay.

Yeah.

All right. Yeah. Anyways, we should end it on this.

Yeah.

I thought this, yeah, it was a good chat. Thanks for coming on.

Thanks for having me, guys. This was fun.

Yeah, yeah.

Purification.

Yeah. And thanks everyone for tuning in. We'll see you again in 2 weeks.

Yeah.