Can Solana Catch Hyperliquid in Perps? | Luke & Sam

Transcript

It's really interesting to see like how certain teams have caught up to like how they need to list assets. I think a lot of people focus on the tech. People love focusing on the tech. It's like, oh, they have like a Yeah, that's a lot better. But my thesis was that they're going to continue to list assets really, really well because they outsourced it to the right team and it was correct. I'm like on the Solana side, I think they definitely don't have the right things and that um it's not infrastructure built for purps and trading. Nothing said on Zerox Research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and any views expressed by anyone on the show are solely our opinions, not financial

advice. Pokio Ryan and our guests may hold positions in the company's funds or projects discussed. >> What's up, guys? Welcome back to another episode of ZeroX Research. Today, I'm joined by my sweetheart co-host Danny, as well as Luke and Sam from the research team. What's up, guys? How's everybody doing? >> Doing great. >> Yeah, doing well. Thank you. >> Fantastic. Thanks for having us. >> Thank you for coming on. All right. Last time I had on Carlos and Luke and we started it this way and I think they couldn't catch up. So, I'm hoping that you guys are able to catch up, but typically when me and Danny first get on the podcast, we try to share a little bit about how we feel about the market.

Um, who is more confident in their view on the market? Who's been right for the past month? Luke or Sam? Let me let me hear like which one of you thinks they're better at it and then I want some marked commentary. >> We've been sharing our thoughts on on the morning call for for quite some time now. So I'll defer to uh Danny and yourself, Baka, for for who's been more right. >> Okay. Um you want me to pick? That's fine. Um, I'll go with uh I guess Sam because I feel like kind of what you've been writing about recently is a bit relevant. We've been talking a lot about you've been very very popular up on Salana Twitter. Um, particularly because you you're you're one of the few people

on this podcast particularly that is positive about Salana. Um, how have you felt about the dominance of of uh God's chosen currency hyperlquid versus something such as Salana and the per market? What is um yeah, maybe like discuss a bit your thoughts over here because I know you've been doing some work on it. >> Yeah, I mean I did write a piece on Salana per couple months ago. Um obviously in the last month there's been quite a bit of traction in regards to the Salana Foundation really pushing a few protocols. Um but obviously Hyperlid is the dominant platform at the moment um by quite a margin. Um and that margin seems to be compounding as we can see in

the price recently. Um, but a few protocols I've been looking into have been Phoenix, Bulk, um, Bullet, um, as well as a few others like GM Trade, um, that have a poolbased model. Um, but obviously Sana has a range of architecture constraints that they're trying to solve. So I see it as like trying to contextualize their road map and if we can get the architecture right, if we can get more developers into into the space, can Salana essentially create a platform where you can have multiple actual viable hyperl competitors all in one ecosystem. So that's how I'm kind of thinking about it.

>> That's right. One of the one of my um simple understanding understandings is that one of the reasons that Hyperlid has done particularly well is because as you mentioned the AR architecture of it or the infrastructure behind it is kind of purpose-built for it. So they have um primarily the the thing that they offer is that makers don't get sniped and they don't get ruined. Um versus on Salana there's no I guess safety measures for them which can might kind of make it difficult um because you don't have priority as a maker and you want to have priority or else uh you might get picked off from toxic flow. Is this something that they're trying to solve? I wish we had Carlos on here as well because I know he kind of geeks out when we talk

about this but is something you've looked into. >> Yeah, I mean that's one of the main things. So obviously Slana is a general purpose VM. Um and it's also a leader based system as well. Uh so there's no none of these guarantees essentially are ingrained into into the protocol. Uh which is very difficult to do from an architecture point of view to have a general purpose everything in one chain while also doing the things like you said. But there are I mean the team Sound of Foundation as well as a range of other infrastructure providers are actively aware of this. Um I guess BAM by JDO is the most obvious one. So they are focusing on sport at the moment. Um

but they're essentially using BAM plugins such as the maker priority plugin to have their own dedicated lane um for makers. And to put it very simply, and the theory here is they'll focus on sport and then eventually they'll focus on things like per um in order to have like the best of both worlds, having your own lane while also being staying in this monolithic system. There's also the Anza road map with constellation. So that involves MCP um and there's also Alpenlow um which should be coming out this year. Um and they are more focused on the performance of the network which should help as well. Um but yeah there are a range of things that are happening but it's no

easy problem to solve. >> Yeah I can imagine. Interesting. I didn't know that. So I knew that BAM had something with drift happening but I assume that is not as I guess maybe do you want to give a very quick intro on how BAM works specifically with that like throughput lane um that priority lane for cancels? >> Yeah. So BAM itself is just another type of block builder. So jido obviously I have the jido client. Now this is the second jido client essentially jit bam.

Um it has around 30% of stake at the moment with the normal client having the other 30% of stake. Um so that's like the block building and the big difference between the normal judo client is that it orders on fees per cu. So it starts to give a bit more consistency. Um, and a bit of context for why that's the case is at the moment with propm there's the a fee/cu uh game at the moment where essentially every player is trying to have the most optimal uh maker updates to provide like the least amount of information as possible because the blocks roughly favor that sort of priority. So bands block is essentially just trying to ingrain that more steadily into the

protocol. And then you have on top of that is the plugins which is the first one's the maker priority plugin which uh they're working with essentially a bunch of prop AMMs and so essentially marker makers on the chain in order to give them more consistent uh maker oracle updates. So, BAM's the core and then you have the first plugin make a priority plugin which is going to be for spot which has already come out around two weeks ago but the road map here is to have like five to 10 plugins all helping with a range of things from sport to per uh a better execution environment for everyone.

>> Yeah. Does that add latency to the Solana network or no? That's not really an issue. I assume if you're just adding a bunch of out of the out of protocol functions and plugins, it's going to add at least some form of additional latency. Um, it's a good question. I don't know exactly for sure, but from my understanding, it's pretty tacked. Like they use TEES um and a range of other meth methods to have this side lane. Um, but it should all be within the 400 millisecond block like no problems. like their goal is to have lots of Philly 50 millisecond ticks. Um, which BAM is helping to do as well.

>> Yeah. Something to ask Lucas Brutder next. >> I wanted to get Sam's viewpoint here. Like I I feel like the contention at this point has been sort of like time to market on some of these things. And so I guess what I what I find interesting in some of the conversations I've had is that um talking to some of these one block building teams but two like teams now entering per or propm teams like some of the f feedback from them has been that like actually some of the main challenges with doing persps out sooner. So my initial response to that is like so why didn't they? And then two, it's I think what Jetto is doing with this these band plugins is

interesting. It's like probably a good step in the right direction considering the needs that these propm um and market makers have. But it's kind of like the same question like we propm kind of like popped up and gained dominance very quickly and it's been now what maybe 18 months since like this propm trend has started. And I almost wonder like like why so slow to get this plugin out the door or a similar uh type of product out the door. Like it feels like everyone is seeing what's happening and then 12 months later it's like okay now here is the product that solves that. So I'm just I don't know. I'm wondering why it takes so long just to get something out that everyone knows is needed.

>> Yeah. No, it's a really good question. Um maybe on slide four um is one of the charts I have that kind of distinguishes tracking error um for BTC per is on Binance versus a range of protocols. Um so I do believe I mean as we can see here the main yellow line was Drift. Um and you can see there's been a fairly large tracking error um while it was still running. Um, and that's Drift was the closest thing before Phoenix to actually having a purp exchange being fully on chain that isn't using the pool based model like Jupiter or GM trade.

Um, so essentially you're using a central limit order book here. Um, as you can see here, like they never were able to be that accurate when you compare to Hyperliquid and Pacifica being essentially off-chain platforms. Um, and then with Phoenix is the blue line that is the start at the start of the graph. They've been I mean Fenix in my opinion is one of like the strongest engineering teams out there and to to essentially to have a high performance per platform all fully within the VM is something that really hasn't been done before. Um so they have a range of things that is above my pay grade. But my general thesis is um they've been working on this for a year. if they can

actually prove from a bunch of architecture metrics, tracking error metrics that they can be as performant all within the VM um that kind of that would help validate the Salana thesis and we're not quite there yet. As you can see that blue line compared to like Hyperlquid compared to Pacifica. Um but it it is a large improvement from Drift. Um but yeah, to your point um it does seem a little like too little too late. Um, I mean, we're probably a long way away from any endgame end state for pers, but yeah, to your point, there's a lot that needs to be done. Um, there's also better go to market strategies that we haven't really seen successful in

Salana as well. Um, but I would still argue where we haven't really seen the architecture be solved yet in regards to having it be as performant as these other platforms while being in the in the VM. I guess the one question that pops in my mind here is how does Soul compete with something like Hyperlid if what is happening is that we're moving away from maybe like super onchain degeneracy and more towards I don't know preipo stocks uh tokenized stocks per for stocks generally like everything that's offchain bringing them on um

crypto rails. How does Solana compete if it doesn't have a clob which um I guess propm could compete but it seems like they're not quoting a lot of stocks right so that where does that put Solana's um maybe the larger question here because they had a fantastic um last cycle like they were just doing very very well generally like 50 60 mil a month in RA um sometimes even higher um but majority of that was from meme coins I mean coins still do exist, just not the most um sexy piece of trading happening on chain anymore. Um Luke also would love to hear your thoughts on this

as as the goat of um general trading, but up to you guys, whoever wants to take it. Danny, you're also welcome because I've heard you speak about this before. >> Oh, yeah. I mean, it's a good question. I'd say on spot I mean Salana is very competitive if not probably like one of the best platforms to get execution on and uh to your point that has been on the prop AMM dynamics also paired with the DEX aggregator dynamics um and that's essentially seen like for example Soul USDC get much better execution than centralized exchanges like Binance so in my opinion that's the number one thing Salana needs to push

for at the moment because we've already seen the propm paired with Dex aggregator dynamics actually work. Um, so the way I kind of see it is they need to do everything they can to push this to as many pairs as possible um in order to have essentially and definitely the main um I guess advertisement of that you can get better better um execution than centralized exchanges um within Salana's platform which is also what uh Judo is pushing hard with the new JTX creating a trading platform that really highlights that um that's why I see Salana needs s to be um kind of dominating. And if we do get um tokenization of equities on chain and

stuff like that, um you could start to see for spot trading, Salana start to compete not just with um like Binance, but try to compete with trading equities um across centralized exchanges more broadly. >> Yeah. And with the hyperlquid case, it's very clear how they were able to escape, I guess, the cyclicality or self-referential nature of crypto trading volumes through HIP3 listings of RWAs stocks commodities preIPOs and things like that. And from the work Shondaanda's done, it's like quite clear that execution quality on those instruments

um can rival that of centralized venues particularly for small and midsized traders. So I think with respect to Salana like perhaps it is too little too late. Um but at the same time like if the developments that are being worked on um both at the network layer but then also um go BAM and the propm if those venues can deliver execution quality that could perhaps eclipse that on hyperlquid um that then there could be a compelling case that uh trading volume and activity will will grow material share there. Yeah, it seems like that's um kind of where the question has

shifted lately in this like spot versus per dynamic in the sense that I think previously like Bach mentioned there was a lot of focus on trading of spot assets especially with memecoins like there was no need like with memecoins you don't need a per because the these underlying spot assets are going up and down you know thousands of percent on their own you don't need to add leverage on top of that they kind of sort of were the leverage in the in and of themselves. Um, when it comes to tokenized equities, there's kind of the spot portion of bringing these onchain actually has more questions than than the per version in the sense that you have questions around, okay, what is ownership of this

spot tokenized asset actually mean? Do does it confer voting rights? Like if this entity winds down, like do I actually still own those assets or am I zeroed out? like I guess you have some of those questions whereas you know per is just comparing to the price of an oracle and if you're long or short you're going to get paid out accordingly. Um so I think there's like some shorter term benefits there on the per side whereas maybe the longer term kind of trend of tokenization will at some point convert more meaningful benefits to spot. We're just you're not going to see that now. And so that and I don't know maybe some of that explains kind of the I would say there's relatively like you know while it's growing you see some spot trading of like X stocks and things of this nature

still very small and probably small in comparison I haven't really looked at the volumes of those compared to like HIPP3 volumes but my guess is that there's maybe like an order of magnitude difference in the in the trading activity there. Yeah, I think Hyperlquid also got really really lucky because there was this whole silver thing where they were doing a lot of volume and then they did oil. Um, honestly like the Iran war worked out really well for them and then um obviously like all the AI stocks and everything else getting feed. are very very trade XY Z is very very good at like it seems like they they did the right thing

by outsourcing that to them. Not outsourcing it officially but like that entire thing being outsourced because Trade XYZ is doing a fantastic job of listing the right assets at the right time almost. And then they also like have strategic a good strategic priorities in that like the preipo stuff also did really much better than I think others have others have done for the longest time. I don't know if you guys remember this Sam I don't know how how long you've been in crypto for to be honest with you. Um something that we've never cared about before but because the pers for the longest time were eight assets. I don't know if you guys remember that was like uni link and then some random stuff and

it was all based off the DMX model. Um it's really interesting to see like how certain teams have caught up to like how they need to list assets. I think lighter also does a relatively decent job. Um I think a lot of people focus on the tech. People love focusing on the tech. It's like oh they have like a you know it's a lot better. But in my thesis originally hyperlid I wrote about this hyperlid not done April something 2025. If you put it on the chart, it's actually the bottom tick. I have to bring it up or anything, but um my thesis was that they're going to continue to list assets really really well because they outsourced it to the right team and it was correct. I'm like on the Solana side, I think they definitely don't have the right things in that um it's not infrastructure built

for purps and trading which I think makes it difficult. Although the TAM is much bigger. Um if that's something like 1 to 2% would be really good. But um to add on to Baka like I think it's an interesting position now where we see hints of maybe both things getting adopted more broadly institutionally or from a regulatory perspective. Like there's kind of hints that like okay maybe the US and the CFTC will say that PERPS are allowed and will be become regulated products in the US which today you know you cannot offer per as a US you know exchange um you know Robin Hood

has EU per Coinbase has international per they do not have US pers um so there's kind of an interesting thought there of if Hyperlid's kind of the the key venue that Hyperlid and you know Binance But we know kind of the dynamic there east verse west and who the US favors perhaps um on like Binance versus like a Coinbase for example. Uh it's an interesting spot where maybe does a ton of activity come onto Hyperlquid in that scenario? You have to maybe ask the question around like do they have to incorporate a a KYC model as well and and offer that um to get some of that flow or not? I'm not sure. And I think you can maybe look at Salana on the spot side and like kind of ask some of the

same questions of okay, you know, Black Rockck and all these large managers are saying, "Yeah, tokenization is everything and we're going to tokenize all stocks and equities and and products that we have today." Um, and you know, they're waiting on some some regulatory clarity. Um, pun intended. And in that case, does you know looking at something like Salana where there is infrastructure with propm who are pricing these assets quite quickly like does that spot tokenized activity go to a Salana or does it get kind of built up and consumed like by the leading players today? You know, do the NASDAQs and the NYSE just kind of spin up some some nodes and kind of figure it out? I think

and I think you have to ask like we're kind of in the beginnings of asking those questions on both the spot and the perpide. >> Yeah. The third option here is Canton captures all of it and I become a super validator >> as James would say. >> Yes. Um I will say Sam you posted about this I think yesterday or today I don't know different time zones. Um but it was about humidifi's new pool thing. Um, I don't think they can use that for stocks, but I do think that there's a lot of prop AMM innovation happening on Solana and I think they would actually do quite well for um for stocks as well, but is that being done? I don't I don't I haven't looked at it much. I stopped

looking at propm data after Daniel Smith posted saying buy some just beat goonfi on propm volumes. I said I think that's enough for me for propm. Yeah, I mean for context, yeah, they've been one of the biggest players. Um I think around 60% of market share at the end of last year and now they're at around 20% of market share. Um but yeah that chart um which is slide 15 if we want to bring that up essentially highlights their what they call aquarium um where essentially they do these marker making deals with tokens that aren't as liquid like soul USDC that are a lot easier to quote for propm but because they pay some type of monthly

fee um and give them some capital um from the get-go um and as we can see here when the propm has started to quote on those sort of assets assets. You've seen this spread proxy I created become much tighter, more consistent relative to Humanifi's propm share. Um, and it just goes to show you that the ways this can extend to many more pairs. Um, and I do believe um, in regards to like the tokenization of equities, like Jupiter recently announced some deal with securitized as well as jump trading. Um I'm not sure exactly how the dynamics are going to work, but I'd imagine a lot of these players like Jupiter, like Securotize are getting ready for the Clarity Act, um to have market making

for tokenized equities from the get-go um and partnering with someone like jump trading um could start to see this like high quality level of execution um onto an onchain environment like Salana. Um so that's where I kind of see a heading. That's the bull case. we see like institutions um like you said use tokenized equities um and these prop amm dynamics continue to work um but like you said there's plenty of paths this could go down um so I guess we'll see how the next couple months turn out >> yeah some context there which I think is interesting is that I saw Alpha Q was quoting some of the pretocks um for a time period from what I understand with

a lot of these like early tokenized equity and like pre-equity markets today is that I don't know whether there are like you know written in stone kind of like handshake deals between you know partners on who should or should not be providing liquidity today but from my understanding generally speaking like Alpha Q was happy to quote some of those markets and then they stopped quoting some of those markets just based on what some of the incentives are today. So hopefully I think as those grow I think you will just naturally see like if there's a point at which you know whatever the current kind of incentives are on the trading volume and where the liquidity is provided for those markets um evolves a bit more I think we'll see

all the propms jump in because those are just like the retail players trading like spy onchain are not they're not arbing the price back to uh you know the NY or the NASDAQ like effectively on all these stocks um and I think they would you know some of these more sophicic icated players would be happy to if you want to call it properly price them or you know take advantage of of that opportunity. >> Yeah, I don't know you say that but Sean that messaged me the other week I was like hey do you think this block's going to work on on the hyperl because he was trying to arb prices between like three different venues. So there's definitely people attempting it. Um he might be upset that I called him unsophisticated but it's just the truth at this point

unfortunately. At the same time though, like you saw the um what the CBRS preIPO listing there and like of course like I think some of the early action there is people saying this thing's going to get bit up like let me get long. But by the time market opens like it was one to one because everyone goes okay like we're arbing out the price to what it's listed at on the NASDAQ. Like that that's kind of effectively always what it what it turns out to be. And I think that's what we see on the Salana spot side like as Sam has kind of mentioned in the relation like a lot of the comps are to like Binance VIP9 pricing and what what's the spread to that to onchain.

>> Yeah, I think that makes sense. I am we got to shift this away a bit because this feels like light speeded at this point. Um and it would be a shame to have Luke on the podcast without bringing up Pendle. It's almost illegal. Um Luke, you have been doing some work. Now I'm not even going to attempt this with Sam's stuff. I can at least like you know a little bit pretent say oh like make your priority whatever but with your work I I don't want to take an attempt. So Danny would you be so kind to pull up the pull up Luke's first slide and then Luke I want you to run over this like I'm an absolute idiot and then we can go from there.

>> Yeah happy to thank you Bako um just want to highlight some of the growth on uh stretch tokenization on chain. Um I guess to begin like stretch has been a huge story just in tradi markets by itself. Um it's grown about 100% from five to 10 and a half billion just over the past two months and it's been the primary if not the only facility through which strategy has been able to finance new uh new bitcoin purchases. And there's a lot of narrative and hype around uh tokenization and RWAS on chain in DeFi at the moment. Um but what's

kind of emerged is that actually tokenized stretch is quickly becoming one of the fastest growing uh onchain RWA listings um particularly with its utilization both on Pendle then downstream on Morpho. So yeah, this is a chart showing the percentage of Pendle's total TVL that is stretch related. So it's attributable to um assets issued by uh stretch related um token issuers.

It's risen from what was zero at the start of month of March up to close to 27% today. It's now uh stretch related instruments are the largest listings on Pendle flipping what were the historical incumbents of uh Athena, USDA, um KHype, uh USDG, things like that. So, uh there's a lot of traction there just just in itself. And I mean, Pendle's a yield marketplace.

um purpose-built for trading yield and uh stretch at 11 12% is certainly a pretty healthy and attractive premium to many other opportunities that exist on chain. Um but if we go to the next slide, um it's also still very much an incentive marketplace and an airdrop farm at the moment. So there are two uh primary issuers uh competing in the tokenized stretched marketplace. There's Apex which issues APXUSD and APYUSD and then uh Saturn which issues USDAT

stable coin and then SUSDAT which is uh the the stretch exposure. So Apex is uh definitely at the moment the front runner. Um they have the largest share of tokenized stretch and um and total deposits, but Saturn's really not far behind. Um and yeah, we can talk about their the differences in their approaches um and perhaps the risks that are associated with each. Uh but just going going to the next slide can look at the implied yields for something like uh Apex's

APYUSD. Um it's it's priced from like 17 to 19% fixed on an 11.5% yielding underlying and it's consistently priced like a a 600 basis points premium to the underlying yield. um entirely attributable to the points farming. So at this point in time, it's like it kind of looks like the hottest farm on the board. Um and a huge share of this traction. You can certainly you can certainly point to that. Um but at the same time we see now in total basically 3 to 5% of the total 10 and a half

billion in stretch is now represented on chain. Um so in terms of like tokenized assets uh stretch is perhaps um the most utilized uh in its tokenized form on chain compared to other things like uh equities through X stocks, tokenized treasuries, perhaps institutional funds. Um those might exhibit only a few uh several to tens of basis points of um the total underlying to be represented on chain. whereas stretch is now yeah in the in the low single digits utilization on chain and definitely think there's

some signal there um just also in the fact that at an 11 a.5% yield basically porting that into DeFi um it kind of introduces a new benchmark or hurdle rate um for onchain opportunities to need to compete against >> first of all I want to ask have we seen um I guess other I don't want to call stretch adapt but I would say it is adjacent a little bit it's in the same class if that makes sense >> yeah you could you could call it a a product issued by a DAT >> yeah um it's the only representation it's the most used representation on

chain right like there's just no comparison to it and there have not been previous attempts properly Well, Stretch itself is is pretty new. Um, >> yeah, >> you see Micro Strategy uh tokenized by number of issuers including X stocks, >> but not to the extent ever. >> No. And I mean this is this is kind of where uh DeFi can win is like stretch in X stocks form you get the stretch yield um perhaps with much less liquidity than you do in a brokerage account. So the benefits really uh distribution global access to those who might not have access otherwise. But

when you have onchain issuers who are dumping points on a listing, um you get stretch plus 600 basis points of extra premium that you can harvest against that. Um continue continues to to show that like there is an extra benefit to users um to basically like take the other side of the points. Um, you can play the points and farm the airdrop. Um, or you can just take the other side, short the optimism that exists right now for the airdrops of these stretch issuers and get a very attractive premium on comparable

underlying exposure. Luke, are you seeing maybe to follow that like the benefits of DeFi here? Are we seeing yet kind of the classic uh leverage looping trade here on Stretch? like is it available for that? I don't know if if some of these borrow markets have enabled that yet. You mentioned Morpho. There's been some adoption. So I'm just curious like are we getting to the point where it's like oh this is the you know like you said this is the benchmark now let's leverage loop all these trades. >> Yeah. So Morpho right now is carrying about 100 mil in collateral exposure across the whole suite of stress related instruments both the underlyings outright but then also principal token exposure um similar to uh what we see on

Pendle where Apex is the largest Saturn in second I think we see close to 40 million in Saturn related uh collateral instruments on Morpho um close closer to 80 million for Apex related instruments. Um and definitely looping those there's an attractive spread. Um that being said like there is risk to uh to devaluation on stretch. Um historical realized volatility I don't think is indicative of what can be realized to the downside in the future. Um so I kind of see three primary risks to anyone participating in

uh the stress trade outright or the various flavors you can play it on chain which is yeah one's just the the kagger of bitcoin is persistently beneath the dividend obligation on the instrument. Uh two would be a suspension of the dividend payout um in which case it just acrus and then three would be the the dividend rate is toggled down um under under any of those three scenarios. Um I think uh yes stretch could trade well below its par par value of 100 um and well in excess of the downside

volatility it's is realized historically. So yeah, loopers right now are they're getting it while it's hot. Um but that's that's the risk they're taking. Can you and maybe can you quantify like I'm curious in the past like USDE got quite large. I don't know what a what a proper comp would be like. Maybe a usual like USD0 plus type token is maybe a better comp. But the size to which those markets grew and then obviously unwound like just an interesting comparison to see like if the level of adoption that we're seeing here is is comparable to what we've seen with similar opportunities in the past within DeFi.

Yeah, I would say Athena was definitely the largest in terms of um utilization on Pendle and the subsequent loop. Um we had basically like 80 to 90% of um Athena's Pendle related instruments were then posted as collateral on chain um to to run the loop. But for these stretch related instruments, it's it's a bit lower. it's maybe like in the 25 to 35% of total range. Um, so definitely a little less and I think I think think people running it are kind of more aware of the risk. Um, I would also say that

like the devalue devaluation risk of stretch is probably greater than that of USDE. Um, and I I think that might be reflected in the utilization. Look, you come here once every two months and we do a pendle thing, you know, and it's always super interesting because there you can make money on it, right? Like there is you can make money on the yield opportunities. But the thing is that I don't like yield. I like to buy tokens and then sell them if they or when they go up. How does this help Pendle?

Do you know like Pendle is in this precar not precarious it is objectively the best yield instrument on chain. It is a fundamental part of decentralized finance across multiple EVM teams. There have been copies on Solana. There have been copies on other copies here is a bit rude. The team's trying to rebuild it. But where do you see Pendle going over the next three months? And um how yeah you get the general gist of the question. >> Yeah. So despite Pendle adding um a few hundred million in deposits attributable to these new stretch issuers and it growing from 0 to 27%. This growth still

has not put a floor in Pendle's TBL um which has continued to um kind of bleed down into the right. So despite the growth of the lion item, there's no growth in in the aggregate. And I still think that's highly just emblematic of the broader onchain yield environment where if you're a marketplace for yield and most of the yields are um particularly adjusting for risk not competitive with trady rates.

It's just a difficult environment um for that sort of business model. But where it is constructive is it's quite clear new yieldbearing asset issuers consistently view Pendle as the premier gotomarket venue for bootstrapping liquidity and they will spend on incentives um for distribution on that venue. Pendle will continue to play that role. uh they have a deep installed base of users basically scouring the front end looking for incredibly attractive fixed yield opportunities.

um they're they're the marketplace to to give traders the opportunity to get risk premium on stretch and historically like US US USD and SUSD has been the primary listing and there's a lot of incentives and sats being dumped on those markets. Um but at the same time like the underlying yield was elevated and also high highly variable um with low variable in the principle. Um right now with stretch uh that yield level seems quite sticky or stable. Um so there's low variance in the principle and low

variance in what is a high yield. Uh but where where the opportunity could perhaps lie longer term with the stretch related listings is if you're of the mindset that perhaps strategy is going to toggle the dividend yield from 11.5% down to 6% by year end. You're okay holding any devaluation risk on that instrument. you still want the yield, you can lock in fixed yield exposure at high duration right now out to November at 12%. Um, there in lies like the the benefit of the zero coupon bond and the

fixed yield exposure with with high duration. Do you think that stretch is potentially the first step towards more tokenized assets with um most more I guess equity flash bonds with some form of either variable or fixed rates coming on chain. Do you think like penal is going to be onboarding more and more of these products or do you think it's always gonna kind of be a little always like a little too crypto niche because stretch to me is also very crypto >> like it's offreen but >> I think I think the onchain user base um it can be quick to understand the

stretch opportunity um where you cons continue to see like negligible negligible utilization is something like ACRED um where if you check the numbers both on total holder count, transfer volume and then utilization of Acred uh basically like no nobody wants to use it or do anything with it on chain. Um so to that extent I think like stretch is a more appropriate listing and there are good reasons why it's more successful in the onchain utilization. Um but I think there there are going to be many more examples. One

uh or I guess to name two one would one would be figure helocks um the prime product on chamino where I believe s similarly is low single digits of of that um total market is represented and utilized on chain. Another one would be uh Henry and the reinsurance products which have seen significant collateral utilization um in addition to some trading on yield venues as well. So >> I'm very happy with these answers.

Danny, Sam, do you guys have any follow-ups? >> Do you think um in this yield sort of onchain yield environment? I guess, you know, we're seeing other asset classes come on chain and some of those are sort of flavor of the day type ideas. You know, the hottest stock gets listed on pers or tokenized on spot um or hottest preo options. Yield markets are a bit different, right? But I guess in that lens like I don't know what's the what are the next kind of big opportunities to come to yield markets in your opinion, Luke?

Like do you see corporate bonds being you know tokenized on chain and then you know you have markets on pendle around those or is that is that not interesting enough for DeFi? It needs to be more kind of like niche esoteric and probably like higher APY. Yeah, I think for Pendle V2, um it's primarily still going to be a a new asset issuers, um go to market and incentive marketplace. Um, it's hard to find any examples of killer listings on Pendle V2 that were not accompanied by uh significant incentives

um or incentives in excess of what would be available elsewhere like a curve LP position or a money market loan. Um, I continue to think Boros is the better positioned product to capitalize on basically trading volumes of high and variable yield. Um, they're explicitly like they're focusing on per right now, but their TAM is any interest rate that can be basically in inbounded with an oracle. um which is quite significant then the ability to trade that on margin means yeah your notional trading volume

can be much more significant. So maybe to ask it another way, Luke, I think is Pendle V2 is maybe doomed to be nothing more than an incentive farming kind of marketplace forever, but Boros is actually like like this dream that people have about this massive TAM for interest rate swaps on chain like that's Boros. That's not Pendle V2. >> Correct. I I wouldn't necessarily say >> V. Yeah, V2 is is doomed. Um because I I always think like airdrops are going to be an an everpresent theme and benefit of uh the the onchain economy. Um but in

terms of like what can what can see significant um scale I do think Boros is is the better product for that. Yeah, sorry. Maybe doomed isn't probably not the right word, but you know, more cyclical and prone to kind of the typical crypto kind of up and down market structure, whereas like it sounds like Boros could grow kind of outside of the crypto regime is is what you're saying. >> And that's what that that's what we've seen with Boros volumes. They've had not the best past 30 days, but um certainly since their launch in August, uh total monthly notional trading volumes have

been uh elevated, sticky. They've not drawn down um anywhere near draw downs of of some volumes on on other venues. Um, some of that's attributable to the fact that they can list the funding rates on things like Nvidia, oil, silver, gold, um, both on Hyperliquid and on Binance and present ARBs between those two. >> Yeah, I was going to say I think as long as there's airdrops Pendle because that's what um, I guess the less sophisticated usage of Pendle V2 is to just airdrop farm.

Um, and I think that is a very sexy thing for crypto and I think it'll continue to be. Um, instead of >> How do you guys feel about the idea that um, everyone is finding success within crypto by getting away from crypto? Boros can be successful by getting that necessarily correlated to crypto markets. hyperlquid pers going to stocks spot tokenized equities coming to Salana.

>> I think the beauty of crypto is that it's like the official thing is like I think it's like a cockroach like you can't really kill it. It will just like become something that um it just like I mean we were chatting about this year and a half ago Danny. It just feels like it's the moment that you get adopted by the big boys and I don't know adoption is probably less is not as much as like we think it is with these banks and asset issuers and whatnot but it is definitely like kind of there and you see like stable coins adopting um not stable coins but like payments providers adopting it um and the moment that hap

that happens it's like it's less den and less um like cipher punk and a lot more like oh like you can get like a lot more efficiency if you use blockchain rails and I think the good products adapt to that as opposed to like oh like everything is shifting that way. I'm sure some are shifting that way, but I think um like Hyperlid didn't really change anything, right? Like the background is the same thing as per um it's just like if the per volume if the volume's coming from Brett oil as opposed to Sooie, it makes sense to just do that. And the same thing with Boros.

Like if I Luke, I actually want your take on this as well. like Pendle V2. I think that TVL is a bit over overestimated like that whatever the peak TVL um it was a lot of layer stuff now or like a lot of whatever I layer restaking stuff that made it pop that much in TVL. Um it's peak TVL was this past summer with the Athena loop. >> Okay, that makes sense.

>> Yeah. >> Um yeah. And then you just have to move away from that stuff at some point. Like I think products are just maturing as opposed to and the things that can't mature like NFTs can't [ __ ] mature. You can't rebrand an NFT to be more I would love it if they did. I love NFTs but just doesn't work. So that's my very mild take. >> Yeah. My my response Danny is like um this goes back to point made earlier about hyperlquid is generally across the board in the universe of liquid markets there's always a bull market somewhere and uh we know being in crypto it hasn't been in

crypto um for the past few quarters um that being said like I I maintain optimism that uh there will be one in theuture future. Um, and with regards to that, like the cryptonative and the cryptofocused can can capitalize on that and outperform. Um, but to the point that like if your business model is able to list or capitalize or facilitate trading for wherever that bull market is at that point in time, um, then then you're going to be best best positioned to out compete and capitalize on it.

>> I like that. I wasn't I wasn't fishing for a particular response. Like it this could be just the natural result of being absorbed into the financial system. Like I guess putting it another way and looking at it more optimistically. I would hope that the ideal outcome for crypto is not rough bare markets every 3 years where nothing happens and then a sharp spurt of like 10x growth and then bare market again. you look at, you know, traditional markets, the S&P for example, it's like just going up in a straight line forever sounds a bit more comfortable. So, you know, if if if crypto can start to look a little bit more like that by kind of turning into more of the the financial rails that power everything, that that

would be a nicer outcome, I think, for most people, at least easier to stomach. >> I agree. I' I'd love to see that. I just think there might need to be significantly more purging. um across the board before we can get to that that low ball up and to the right. >> That's a hot. So, I'll put you on blast here, Luke. You think uh we we still need some more time. What is that thing that people always say there's price based uh capitulation and we need more time based capitulation? >> Uh wouldn't surprise me. Um I continue to think yeah clarity act signed implemented um I is really going to lift the ceiling.

Um, that being said, I I think there's still growing acceptance that there's just significant market cap held in vaporware um across the board. And I I think dispersion um only increases uh out outperformance and up and to the right is going to be concentrated in a select few compounders. Um whereas vapor wear is going to continue to be um disregarded, ignored, and down into the right kind of as it should be.

Unfortunately, >> box, this is where you say hyperlquid after he says that. >> Yeah, unfortunately I have to grab a charger, so I can't say hyperlquid, but I can still say hyperlquid. Um guys, uh before we go, I got to say one thing to the listeners. Um a sad piece of news. I feel like I um to our listeners going forward I will only do one more podcast on Xerox Research and the remainder will be handled by the people you see on the screen as well as some additional people. Um I will probably also post in the Xerox Research chat. But

um if you ever I don't know I guess need me or anything you can text me in the Xerox Research chat. And I have loved being the host of this podcast and I appreciate everybody who listened. Um even if a lot of you gave some horrible comments sometimes. Um there are some best of hits which I might show during my last episode because there are some like really good ones. Um, but yeah, that's uh it's gonna be kind of a awkward thing for Danny, Luke, and Sam as well because I actually didn't tell them that I was able to do this. So, I hope it's fine that I did do it. But yeah, that's it. Uh, thank you to all listeners. And >> you heard it here first. If you're not

in the Telegram Xerox Research chat, you should get in there because that's the only way you're going to be able to reach Bach from now on. We're locking him in a cage. >> Yeah. Okay. Um, Danny, always a pleasure to co-host with you. Luke and Sam, thank you guys for coming on This Was Fun. Um, yeah, let's do it again, I guess, next month. This will be dope. Thanks for mask, guys. It was a pleasure. Cheers, guys. We'll miss you, man.