Crypto’s Flow-Driven Market Has Arrived | Shaundadevens & Kunal Doshi

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my opinion with like these assets that are like value assets. I think the question asks why are they value assets? Are they value assets because their revenue has just increased so much and their valuation hasn't caught up or are they value assets because their valuation has just like bled for years and now they're at at such a like low market cap that they look like they're like out of value. Um, if that's the case, which I think is the case for many assets that they're just like they have good multiples because price has gone down. I would take the opposite approach and I would say it's probably way better to lean into strength. Lean into assets that have already proven like inside this crypto niche they've gotten flows.

And then you you make the argument that when Trafy comes or when institutional flows come, they're going to take those same names that we've been bidding up, but they're going to bid them with size. Nothing said on Xerox 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. Pocachio Ryan and our guests may hold positions in the company's funds or projects discussed. >> All right, welcome everyone to another episode of CRX Research. Uh today we have a bit of a different episode. Uh neither Danny nor Buatcher are able to make it. So I'm going to be your host

today. I'm joined by Shondaanda and Canal. How are you guys doing? >> Yo, I'm doing great, man. Glad to be on the pod. >> Nice. >> Likewise. It's going to be a good one. >> Yeah. Awesome, guys. Uh so I wanted to start with some market talk. Um Bitcoin is down roughly 17% like year to date. NASDAQ uh the S&P and AI equities are reaping at the same time like this week we saw the worst day of outflows for uh BTC uh in the year. So I mean what is the market trying to tell us? I want to just pick your brains on that. Uh how do you interpret like BTC outperformance

when equities like AI uh related stocks are ripping? I just want to get your thoughts on that. Yeah, I mean the way I see it last year specifically there were two main drivers for the price of BTC and that was one you had the influence from the ETFs and two you had Sailor buying. And I feel like this year it's kind of shifted into the ETFs actually selling and Sailor being the only one who's buying. And if you look in the last like 28 days, the ETFs have sold more than Sailor bought even though he's had like record strikes selling and buying BTC. So it's kind of we saw a dynamic last year that institutions were buying through the ETFs and Sailor was buying but now it's kind of like only

Sailor is left buying while um everyone else is selling the ETFs. >> Yeah. And I think outside of that it's you also got to look at retail flows right I mean right now most of the retail is just chasing these semiconductor plays or any AI plays. So if all the capital is going there then there's much less capital to flow in crypto markets. But yeah, even within crypto markets despite BDC's underperformance, there are select names like we have hype, Zcash, uh a bunch of plays like cards even. So those have run well. So it's been a lot more selective in nature in where the capital is rotating in crypto markets. And yeah, the other thing I would be thinking of like looking at the equity market performance, yeah, it's been great. has

done really well. But at the same time like a lot of like let's say the S&P 500 it's now at a overbought level and your put to call ratio it's also heavily skewed towards calls. So at least in the short term there's a lot of optimism in the market. A lot of things already being priced in. So yeah, the concern I would have for BDC or maybe the the EDF flows are already front running this but yeah maybe there could be like some shortterm uh underperformance in let's say the major indexes itself and if those fall then I'm sure like BTC will will yeah pull back as well. So that's a risk I'm at least looking at.

>> Yeah, that makes sense. Underperforming while the market is like ripping and underperforming when the market is also going down the great asset. Okay, so Austin Barak had a great tweet recently which is this is not the market to be hiding in BTC and so far he's been like directionally right at least in crypto markets. So a handful of names have decoupled from the broader crypto and outperformed because of fundamentals and idiosyncratic catalyst. I'm talking about like obviously hype uh Zcash cards Morpho etc. Um the push back is I don't know if we're in a paradigm where majors can just keep bleeding while select

assets just sustainably swim against the current if that makes sense. Um so can SE I morph and others just keep outperforming like the majors uh while they remain weak? Uh I don't know what what do you guys think? Like do you guys buy the don't hide in BTC argument or is this like just like late cycle uh dispersion that we're seeing? >> Yeah, I mean that's a that's a tricky question, right? But on whether the outperformance can continue, I guess you would want to think of like okay for these assets like where is the next marginal buyer, right? I think they've done well. A lot of people have already piled cash on. Okay. So, where's the

next pool of capital coming from? And from a lot of them, maybe you the answer is not so clear, but I guess the answer is clearer for token like Hype, right? Hype is Hype's own marginal buyer. And I think Shonda also posted like uh I think he posted a tweet yesterday or today on how the DATs have actually purchased quite a significant supply of hype just in the last week or so. So yeah, I guess I would be more comfortable in uh hiding or owning a token like Hype when the marginal buyer is more clear as opposed to some of the other tokens. Yeah, sure they could do well, but yeah, just from a flows perspective.

>> Yeah, I mean I think a lot of the hiding in BTC comes from the fact that this cycle the marginal buyer has been Trafi. Like all the flows have come from tradi that's why equities are doing so well. And in like the beginning of the cycle BTC was the only asset with the ETF, right? So it was the only one that could kind of get these institutional flows. But as the cycle progressed, we got more and more assets getting their ETFs. And then we got the DATs, right? The DATs were buying BTC. Then DATs moved on to ET and Saul. But now again, it's like hype is also getting their DAT. So the argument that previously existed, which was BTC was the only one positioned to capture these tri flows, doesn't exist anymore. and they're like a different vehicles to get exposure to hype and

different like beta altcoins that you couldn't get before. So now it's more of a more of a question like what assets do you want to fundamentally pick because of their underlying growth or narratives rather than like what assets can you actually access as stratfi? >> Yeah, that's a really good point. Like much of the story about Bitcoin has been like it had the only structural funnel to track five flows and Bitcoin ETFs were tremendously successful when they launched in like 2024. Then ETH became the only other asset with like a structural funnel to let chat flows and like the ETFs and but ETH didn't really outperform until like the D thatos uh came about like in like the summer of

last year. Um in my opinion that are like incredibly stupid. Uh like ETF is a much better structure to just get exposure to the underlying asset. Uh but I could see some of the arguments like in favor of them. Um the only profitable DATKA or the only DATKA that has like kind of positive unreal unrealized P&L like as of like this spot recording is probably hyperlid strategies. I don't know uh Shondaanda if you have some numbers on them and like uh this the flows like they've been contributing over the past few weeks to to hyperlquid uh because it seems like hype is no longer just a fundamental story as you mentioned it's just a flow story right

now so you have like the assistance fund buybacks you have like hyperlquid strategies buying uh millions of dollars per week you also have like 21 shares and bitwise ETFs going live in the US like they've been tremendously successful as well. I think it's the most successful ETF launch uh for a cryptorelated uh product since the BTC uh ETFs went live on a relative market cap basis. So what do you make of like this uh ET like this Trafy flows uh and what is the story that TRFI is like uh hearing that that makes Hyperlid you know so attractive? Yeah. So just just to contextualize again the success of

the hyperlquid ETFs in the first 10 trading days, hype had the strongest debut of any crypto spot ETF. So the ETFs accumulated 1% of the circulating supply compared to BTC that did like uh 6%. Right? So it's the most successful until now. And then in addition to this, you also have the DAT spying and um so just hyperlquid strategies, if you look at their disclosures last week, they bought $82 million of hype, right? If you take like the average amount the assistance fund has been buying like 2 million a day, they bought like 40 days of assistance fund flows in a week, right? So even though the ETFs were

super successful, more successful than PTC and other um assets, the DATs are even buying more than that, right? So it's insane. And I think it's like what I hear a lot of people say, especially Trafi investors, is the story of Hyperlid is just so simple, right? It's a blockchain that's powering 247 trading of any equity asset, any instrument with a price feed, and it's just extremely profitable. and you're seeing the emergence of like different types of markets that just don't exist in trifa like 24/7 trading and now preipos and that's just a very compelling story.

just I I I guess I wanted to ask Shondaanda a bit on the debts like I'm I'm curious do you know what's their uh market cap to NV premium like I just wanted to understand like how much of how much is the market willing to pay in premium to uh get access to these stats and uh yeah that's the first one I wanted to know and the other one like I heard on the thousandx podcast today as well it's I think it was a last week episode but they're saying like you know how CME's group's market cap uh is like 100B right hypes FDV is 50B Then, you know, is the trade as attractive now as it was like when it was like at $20? Yeah. Should people like let's say I'm a hedge fund today.

Should I still have a major allocation in hype or is that trade less attractive now? >> Yeah. So, I guess I guess that's two questions, right? The first one is what's the premium to NAV? And hyperlid strategies is still trading at a premium. It's around 1.2x NAV. And I think like the really interesting thing was in that week where they accumulated $82 million, you would have expected their cash holdings to decrease, right, as they purchased more hype, but they actually increased in the same week their cash by 43.4 million and they now hold 126 million. So that's incredible demand. Could also be the fact that that's being used as a vehicle for Trouty to like get exposure to hype. Um on your second question like I think

firstly we have to we have to get to like a fundamental disagreement that we might have which is FDV is obviously not the right metric to use to value hyperlid supply right I mean like that 38% that was earmarked for future emissions and growth that's in my opinion it's not going to get released and even if it were to get released it's going to be released in a way that it's like positive EV to existing holders right you can't think of it the same way as supply held by VCs or a team that's going to dump. So then you're left with like what um around 50 let me just I think the outstanding supply is like market cap is like 32 billion right um

but even then I think like the more accurate thing to do is because you can argue the team is going to sell or not but that's all like up to your interpretation. I think the most important thing is what's the amount that's actually circulating now? What's the structural demand from the ETFs, the assistance fund, and the DATs? And in the short, medium, long run, is there just going to be more buyers and sellers? And I just think that yes, that trend is just going to continue. There's not enough sellers of the asset. And there's like clear telegraph flows that are going to keep accumulating. And as long as that continues, the asset's going to go up. So I think probably like looking at it from like price to sales something like that just doesn't give it credit of like the structural flows and imbalance it has on the demand side.

>> That that makes a lot of sense. I guess I just have like one last question about Hyperliquid which is okay we've se we've been we've been seeing like this millions of dollars in flows like by pressure of course uh and obviously Hive has performed incredibly well but now it's kind of like uh struggling to surpass you know the $60 mark uh so so who is absorbing all those all those buy flows if that makes sense like uh who is selling in your opinion and like do you think like cryptonatives are are selling now and taking profit. And is this a scenario like you know ETH uh summer of last year where the that co produced like an incredible outperformance but

then after that that coid is over then you just see uh the asset go down or is it something more sustained in the sense that you think ETF lows will continue trending upward over the coming like weeks and months? Uh I know this is a bit of a speculative question but just wanted to get your thoughts. >> I I think the difference with like the DATs specifically in Eid like they were structured in they took an asset that was incredibly distressed and in my opinion it lacked any narrative or other reason to go up and they just slammed like billions of dollars into it and then of course the price went up and the price was only driven by the narrative of the DATs, right? Like how much money do they have left? How much more are they going to pump into the token? And

then it's it's such an incredibly obvious top signal when that that runs out of money and runs out of ways to continue to accumulate the asset, right? I think hype is like very different in the sense that the that are not the only buyer and they're also not the only narrative pushing it forward. It's like they already they started accumulating hype that was already doing well in terms of revenue. It already has assistance fund and also from a price perspective, it was already trending upwards. Um, I I do think you'll see less of these like violent moves because of course if you contextualize just the sheer amount of volume being bought compared to like the assistance fund, it is incredible, right? I said it's like 40x um what the assistance fund buys, but I don't think it's going to be the

same obvious talk. I think you'll see probably more maybe like a range we form another range once that's run out of um money, but I definitely don't think it's going to be such an obvious telegraph top as we saw in Eve. And and to the the other point of like hype's performance, I think is being dragged down by BTC right now. I think if BTC was like a little bit more bullish and we saw a little bit more risk on appetite, it could it could move much higher. But it's just um it's hard for alts to kind of trend upwards cleanly, especially break alltime highs when like BTC is going down.

>> Yeah, that's a good point. I I wonder what high's performance would be now if BTC were doing well, but I guess we'll never find out. Um, switching topics a little bit like obviously perbs have been one of the best performing sectors uh privacy as well. Uh, but I want to talk about like one of the worst performing sectors over the past few weeks which is uh lending. Uh, and within that sector, Morpho has been like incredibly strong. Uh this week Morpho just announced the Morpho midnight white paper which is basically a non-custodial protocol for fixed rate uh fixedterm credit markets. Uh the high level idea is just isolated permissionless markets

with fixed maturities. Uh lending and borrowing happen through credit and depth units with payoff structure similar to zero coupon obligations. Um it it is interesting to me because there's always been this intuition that for DeFi to mature, we needed to move away from this like variable balloon payment structures into like this like fixedterm fixed rate markets that could attract like more sophisticated like lenders and borrowers. Uh we've already seen some players in DeFi kind of move towards that structure like for instance Maple uh lends to institutions at a fixed rate. uh these institutions of course post over collateralized BTC positions. Um you also see Sky to some

extent provide like fixedterm credit lines to agents who then deploy into yield strategies and now Morpho is pushing into this like fixed rate fixedterm uh design space. Uh do you think this will be a material catalyst uh for Morpho over the next few months? Do you think that we we are still early and how do you like compare like the positioning of Morpha today versus let's say Ana after all the drama that a has been through over the last few months? I I know that Kunal you might have some thoughts. So uh let's kick it off with you.

>> Yeah, that's a lot of questions to unpack, but I guess tackling the first one on how big of a catalyst this could be for Moro. Yeah, the way I look at it after the whole A kelp drama, I think people want a bit more certainty in uh what collateral is being used to borrow against their deposits. They want a bit more certainty in the rates that they're going to be earning and paying as well. And we saw quite a lot of outflows from a which still haven't recovered, right? And if I'm not wrong, a lot of idol, a lot of those capital still has it. Like some of it flew to Spark, uh, Maple and, uh, I think even Moro as well, but a lot of it has is still sitting on the

sidelines, especially from, uh, the treasuries of a lot of protocols. They're still holding on to their capital. So there is a demand for this sort of product. Obviously, it'll take some time to kick off, but yeah, I do think flows could be pretty decent, right? especially, you know, I mean, Moro has close ties to Coinbase, so I'm sure they could tap on some of the the connections there to to really get capital flowing. And yeah, I think there's a lot of interesting things you can do, right? Let's say that the looping trade becomes a lot more profitable when you can start locking in uh the rates that you're going to pay for borrowing stables. So, let's say that the most hottest looping trade right now is looping uh SDRC. So if you

know more if you can get some of these uh loans originating on the protocol for to loop this trade then you know you just need one sort of trade going right and then once it becomes an attractive destination for SDRC looping capital will flow there and then it's much easier for other strategies to come out from there. So as a catalyst point of view I can see material flows coming in at least maybe over the next let's say 6 months. But from a valuation standpoint, I I don't know. Do we want to have that discussion right now or we can just talk about the product first and then I guess we can discuss at the end whether we feel Morphos's valuation is fair to the fundamentals.

>> Yeah, I mean let's let's talk a bit about that product first. I think the looping uh point is really interesting in the sense that uh looping with a variable rate like can be a bit risky. uh we saw with a I know uh Sean that you have dug deep into this but like what what you basically say is that for instance in a you know USDC uh lenders or suppliers are just like subsidizing the looping trade or we're just subsidizing the looping trade for as USD. Uh my question with a fixedterm fixed rate structure is like who's going to accept uh you know uh a fixedterm rate and just let someone else like do

that looping trade. Do do you know what I mean? like it seems like you require much more sophisticated borrowers and I'm not sure like we have that in DeFi who can accept like you know like 3% so that you can run the looping trade on like a 4% which is what what you know USD for instance is paying today. So I don't know who's going to accept that that that low fixed rate in fixed term if that makes sense. I don't know if you have any thoughts on that. I mean, in terms of like the APR that lenders are paying or borrowers are paying, if you look at syrup, it seems like they're paying like a structural

premium over what you can get on a like fixed rate is always a little bit over what the A variable yield is implying. >> Yeah. But now now you have like what we're saying with Morpho is like can you supply like a fixed rate like for depositors if that makes sense. So let's say in Morpho will lenders just accept like 3% so that you can loop E syrup USDC and have like a profitable loop like I know the fix rate is is is higher for syrup USDC. What I'm saying is like who's going to accept that on the other side of the trade if that makes sense. I I guess yeah, your point is right.

They're not going to accept it, right? So, they're going to demand much higher rates and I feel like the the last hack drama basically now the market's going to have a higher threshold for like this whole looping strategy like lenders to this trade are no longer going to accept the yield that they're getting. And if the market as a whole uh start withdrawing the capital on Av and saying that, hey, I don't want to supply my capital here. of people are just going to loop it and again if I can't withdraw my USDC I'll get into this whole hassle again. So they start pulling their capital out of there and yeah start demanding higher rates then uh as a I guess industry as a whole the cost to loop the trade will will increase and there's going to there's not going to be a lot of like uh profitable looping

strategies right so the number of assets you can do that on probably starts to shrink so yeah the second order impacts of that uh yeah is probably going to I guess that's going to be a tough one for them to uh for people to loop the USD it's probably not going to as profitable as it was before. But you're right. Yeah, I do expect rates as a whole to increase for for this looping strategy at least. >> Yeah, I mean for me one of the main use cases is just like this permissionless market because more of us like isolated markets. So this made perfect sense for instance for the Coinbase integration where you know a Coinbase user can deposit BTC collateral and take out a USDC denominated loan. For me, this

integration like makes perfect sense with like Morpho Midnight in the sense that uh Coinbase could show in the front end that a user can, you know, deposit BTC as collateral and take out a loan at let's say 5% fixed rate for like six months. I don't know like uh you you pick your your own numbers, but that makes perfect sense for like these types of integrations where maybe the user isn't as DeFi savvy and they just want a simple product to use. like this seems like the perfect use case for me or for instance more Coinbase can tell to its user you know deposit USDC and get 4% fix for like three months or whatever.

Uh that seems like a much more plausible uh use case than the looping uh for now like just for now in my opinion. Uh so yeah, I think that the Coinbase integration could be a really good like uh use case to test out like Midnight for a more like retail uh audience, but I guess we'll see like right now I'm not sure there's any indication on when more for midnight is going live. So we'll just be on the lookout for that. Okay. So I want to talk about the other angle that you mentioned Canal uh which was valuation uh from the point of view of the investor right like I did some napkin numbers recently on Morpho and it was trading at over 100x price to sales and

that's assuming a 10% uh pay rate right because let's remember that Morpho doesn't charge any fees today on the interest that it generates through the protocol uh by comparison I was looking at like other money markets like a Camino and Oiler and they were all trading around 17 to 18x price to sales while while other lenders like Sky or Maple uh and even Spark were trading closer to the 10x price to sales range. Uh so just my first question to you is like does Morpho deserve uh this premium? Like obviously it has done incredibly well. It has like the Coinbase integration. It is well positioned after the AVID drama uh or

the AVID fiasco. But like does it really deserve a 10x premium over like Sky and Abid? Like today like I think Morphos FTV is both higher than AV and Sky despite like they generating like 140 million or something in annalized revenue. So I just wanted to pick your brain on that. Yeah, my thoughts I feel like uh a higher multiple is justified but definitely not 10x higher than what other lending protocols are trading at, right? And my justification for a high multiple is exactly the points that you mentioned. Having that Coinbase integration is great, right? I mean Coinbase is one of the main menu venues for retail on boarding and just the

flows that you can get from this like a launched the app and let's say uh you you have something similar here you could definitely onboard a lot of like retail users and capital and I I guess the market is pricing in some of those flows and value it could unlock for Moro in the future but like a 10x higher multiple than the rest it makes no sense right and if I'm not wrong Moro also has token unlock talks down the road. So those will start to weigh in and yeah uh I I feel but even then right like in the short term like a lot of this is just a narratives game like this can go much higher until people's really start to like okay yeah now it's getting too crazy like it always like like this midnight thing if it could unlock

material flows material use cases then the market doesn't care that it's 100x price to sales it could still continue to rally but I I think that that at some point it always happens when let's say at some point they decide to turn on the fee switch and that's when the market starts to do all the the the the maths right they're like oh yeah okay now the price to sales doesn't make sense but yeah till then I I feel like if the story is right and the story right now for them is going right as the institutional platform for lending and borrowing to take place uh yeah it could still run but you're right to question that the valuation absolutely makes no sense for this protocol >> I guess it's it's something similar Similar to when you asked me about the

valuation of Hyperlid and does it kind of look expensive at the market cap like when you look at Trafi and the equities that are just ripping over there a lot of their valuations have become so disconnected from their fundamentals and from their revenue like they're also trading at over 100x price to sales and they're like established companies that have been uh operating for years and years, right? It it just proves again that the flows are the only thing that matters. They're investors that have a high risk appetite. They want to get exposure to things that are going to do well and like valuations are just moving up across the board. I think the time has passed where you can really get a company that's like cheap in terms of its revenue and the meta has shifted to

just you want to get access to high growth companies and you're willing to pay a premium and more than any like valuation metric. What matters is can you make argument that your revenues are going to be 1000x 10 years in the future, right? And if you can make the case that yes, there there's like a genuine pot that you can achieve this, then the market is basically willing to like give you huge premiums. Um, but specifically to Morpho, yeah, I don't I really don't understand why that is like the one asset that is kind of like decoupled from its fundamentals and is just trading so high.

>> Yeah. Yeah. that that that flows point is really good and that's kind of like a byproduct of the current like uh you know market conditions. I think that over the long term you could make the case that fundamentals like still matter and just like picking like the correct assets and like based on fundamentals still could outperform like just you know picking an asset based on flows. Um, I I do think that it's a good time to be a value investor uh in crypto, especially like in the token landscape.

I don't know what you guys think of that because yeah, I you can make the argument that it's all about flows, but I do think that there's probably never been a better time to be a value investor uh in crypto. Just wanted to get quick thoughts on that. >> I think in in select names, right, like those and you got to be like a long-term horizon investor. Yeah, I think that's the perspective you're going for, right? Like let's say you believe in in the product like some of these protocols are actually building like metad or pendal for example. Uh yeah, then you're right that a lot of the valuations uh could look interesting like even for a like uh let's say this whole they managed to come out of this drama and I mean some the the longest lending protocol out there tried and tested good catalyst

coming up in terms of the a v4. Yeah. So for a lot of these protocols, the multiple makes sense. They have long-term catalyst ahead, strong fundamentals, great investments, but you got to go there with the I guess I would say even like a one to three year time horizon for these trades. And you could even get better entry points in some of these assets. So yeah, I agree. You're right. But then your mindset for those has to be more longer run. And you could ask yourself in the shorter run, could they be better trades to put on than than these names, right? Like yeah, that's that's what I would think about.

>> Yeah. My my opinion with like these assets that are like value assets, I think the question ask why are they value assets? Are they value assets because their revenue has just increased so much and their valuation hasn't caught up? or are they value assets because their valuation has just like bled for years and now they're at at such a like low market cap that they look like they're um like out of value. Um if that's the case, which I think is the case for many assets that they're just like they have good multiples because price has gone down, I would take the opposite approach and I would say it's probably way better to lean into strength. lean into assets that have already proven like inside this crypto niche they've gotten flows and then you you make the argument that when

trady comes or when institutional flows come they're going to take those same names that we've been bidding up but they're going to bid them with size. I think um that's probably a much easier approach to lean into strength if you if your base case is that institutional flows just keep coming into crypto rather than trying to take like a contrarian bet and bidding something that hasn't gotten the flows. Unless you have like a good reason to believe that that's going to change, right? Like unless you have a reason to identify that the project is undervalued because of this reason and that's going to change, then I think that's a different question. But just buying something because it looks cheap based on multiples is something I would not do.

Yeah. Yeah. I'm I'm going to echo a lot of your thoughts. So, you're basically arguing for a momentum uh strategy and I do think that sometimes when we talk about like you know value uh tokens like it is trading it is actually trading at a cheap price to sales ratio because like forward-looking expectations are not really good. So, it is always like that's a really good point Shondaanda. It's always good to think about like forwardlooking what you think growth look looks like. I do think there are names that are like misunderstood in the current market environment especially like in the lending sector as Canal was saying I don't think like I agree that Moro is in a really good position but like is it in a is it in a 10x better position that other protocols I'm not

sure uh and I and I do struggle to see like they turning fees on and like not seeing some churn in in deposits or outstanding borrows. I could be wrong on that. Um but for instance, Oiler has been like kind of forced kind of forced its hand into like turning off uh protocol fees like to be able to compete with Morpho. They announced this I I think it was last week that they were no longer charging protocol fees which to me highlight highlights one of the core challenges of DeFi monetization which is like protocols can scale usage but capturing like the economics without hurting competitiveness uh hurts a bit especially when you're in growth mode as

you're currently seeing like with Morpho. Um but that was a really good discussion on lending. I want to move on to a kind of related topic which is uh Athena. Um I know Kunal you have thought deeply about Athena uh in recent weeks. Uh when people think about Athena they still think about uh the basis trade but looking under the hood Athena increasingly looks like uh an onchain asset manager or that's what I would call it like uh but maybe Kunal you can walk us uh through this. So, can you like how should people think about Athena today? Uh, is it still like just a synthetic dollar issuer? Uh, or is it

more like an asset manager? Like can you walk us through some of your findings? And I'm going to just share my screen here to show some of the slides you prepare for us. >> Yeah, I guess we could start from the top and then slowly get into the topic on what Athena was and what it looks like today. And yeah, the context for this is basically uh I think I'll be posting a research report one or two weeks from now talking about Ethe's upcoming update to their reserve backing strategy. We'll be looking at how correlated some of these strategies they proposed are to the basis trade itself.

What yields could look like and just do a back test of it, right? Let's say they implemented this one year ago. what would have susd and and see whether you know this is going to be a material impact from Etheina or is this just a nothing burger. So yeah, just I mean starting with the stable coin supply of Etheina, you can see that it has plunged off the cliff. It's you know at the peak in September last day it was 17b and now it's just slightly above 5 billion. So yeah, it's come down a lot and if we go to the next slide and part of it is just due to the yields itself, right? Since June 2024, yields have compressed materially and even in

the peak last year when I think Etheina hit 7 10 billion in supply it was slightly under 10%. And that was when you got the whole ETF was buying that co bidding up and the market was getting euphoric which really pushed the basis rate returns to be to be lucrative right but apart from those you know periodic spikes in it uh the yields have materially come down so now it's around 3 to 4% and a couple of reasons for it I think one reason is just the market has been very cyclical in nature you no longer get prolonged periods of outperformance which causes the basic basis trade to become uh profitable for a sustained period of time and the other

is I think a lot of I mean the strategy is very replicable right and as more people enter the strategy of course your yields are going to compress so yeah then I guess that's why starting to think about yeah okay you know we got to start uh change changing our strategy up if we want to to increase yields and yeah so if we go on to the next slide it again shows So this is where we can see what exactly strategy they're running. As you can see uh from you know September 2024 all the way up to uh September 2026 2025 sorry like the amount of cash allocated for the basis trade has continued to decrease. The

spikes you can see periodic is just the period when it's more lucrative but you can see it's increasingly trending towards liquid cash right. So a high amount of the capital is actually I wouldn't say sitting idle but it's just kept in non-basis trade related strategies and I guess that's why Etheina started to think okay if we're going to sit on cash we got to you know generate yield somehow right so a portion of this uh if we go to the next slide has been actually deposited in lending markets the other portion is in USDTB which is basically earning treasury yields so so you're All right, Carlos, it's basically almost like an onchain vault or an onchain asset manager and yeah, we can look into some

of the uh areas where Ethena is deposited on the lending side. Even then, a lot of it is in uh so you have Mega ETH, you have plasma, you have uh Jupiter and Camino and the common trend is a a lot of these the high yields they're getting from this is because of incentives, right? Uh there's the USDG campaign going on that has pushed uh lending rates for USDG making the looping trade attractive. You have incentives on plasma. You have incentives on mega ETH. So even then you got to start asking the question that yeah a lot of Etheina's capital today is deposited in lending protocols and the yields they're earning today is is because of some of the incentives being

provided right. So as these incentives come down, how sustainable like the yield today is 3 to 4%, is that even sustainable? Will it start to come down? So these are questions, you know, we should we should discuss cuz if you look at the treasury markets now as treasury yields are going going up, isn't the better, no more easy strategy just to hold treasuries instead of USDE, right? like as a person depositing capital into Etheina, would I be comfortable taking all this risk on for like 3 to 4% or even 4.5% when I could possibly like you know get something much safer for 3.5 to 4% in treasury yields itself. Yeah,

curious to hear you guys views on this. Yeah, this is really funny to me because when you thought about Athena like historically it used to provide one of the highest like DeFi yields and it obviously did that through the basis uh trade strategy. Like for me when you think about like the largest yield varying stable coins in DeFi today I think of three assets. Uh I think obviously of SUSD but I also think of SkyUSDs and Maples uh syrup USD USDC USDT uh and both syrup USDC and SkyUSDs have outperformed Athena over the past few months and obviously they've done so

with like what you can call like safer strategies or like more easy to understand like yield strategies. So syrup USDC just lends to like uh or provides exposure to a pool that lends to uh institutions with loans that are over collateralized and mostly the dominated in bitcoin and as as Shondaanda was saying in the beginning that has yielded about like a 1% premium to what usually like lending markets pay. Uh so that has outperformed and then sky kind of has taken a different approach which is they abstract away from the end user like this volatility rates and they just set a governance

defined rate which is the sky savings rate. Uh in this case today it's like 3.65% which I think it's higher than SUSD. Uh and so for the end user it's great because they don't have to think about like variable yields. you just get that fixed rate for as long as governance like uh holds it together. It's similar like to a bank deposit and then the burden of excess yield just falls into like this capital allocators like spark over ox and gro to just like generate that spread and and make a profit. Uh so in my opinion like what Athena is doing right now in just like depositing into these like lending markets looks similar to what a capital allocator like Spark

is doing right through the Spark liquidity layer. Uh the difference is that obviously Spark is generating an excess yield that's uh above like uh 3.65% in this case. Uh whereas Athena is kind of just not being able to do that. Uh and and to me like it doesn't make any sense for like an end user like today to just hold USD unless you're like trying to go at it like from an incentives uh perspective. Uh but yeah, I don't know.

I don't know what you guys what you guys think. Like I don't know, Shondaanda, if you have any thoughts on this. Yeah, I mean like I I want to preface this by saying I haven't really done any deep due diligence into Athena recently, but like from my research before my takeaway was kind of that this like basis trade of like BTC that they were running, it was like highly profitable for a short period of time when there was just like so much demand on the per side and there was a huge um gap between the spot and the perb and you could really make like a good amount of APR from that. But ever since then, and that I think that was already a while ago, it's just not a lucrative trade to run, right? It's just for the majority of the

time, you see yields that are less than what you can get lending. And in certain periods, we saw that there was even negative funding and that it was unprofitable to run that strategy. And as a result, they've had no choice but to keep kind of like allocating less and less into this strategy, which in my opinion was kind of their core value proposition, right? Like this dollar backed by the funding trade, which was historically very profitable, that now is not profitable enough and you need to kind of just become a stable coin rapper. So now to me it basically looks like the old strategy is not lucrative anymore and they've essentially become a stable con rapper and I don't really see much value in that. I do think they still have like the optionality of

adding different strategies like maybe it's interesting to do the same funding rate with equities that are less um less mature so they still have higher yields. I think that's something they could explore, but like in the current state, it's um it seems to me pretty bearish, right? Just to just take all your supply and wrap and stable coins. >> Yeah, I agree with that. And I'm going to share my screen again because there's a really interesting chart uh by Canal here. Uh I think you hit the like the nail on the head there, Shondaanda, when you said like maybe the cryptobasis trade is not working anymore, but maybe you can like take that strategy and apply it to other asset classes. Uh I don't know Kunal like can you walk us

through what this chart means and maybe like what your thoughts are there? >> Yeah. So the thinking behind this chart was uh if you look at the paper Athena posted when they like they said that you know hey we're going to uh diversify our strategies they highlighted a couple of trades right so they highlighted the real world assets basis trade and if you read they said that they're mainly going to focus on gold to to kick things off and other than that you had institutional lending and you also had like other real world assets such as uh CLOS's and also lending protocols. So these are the avenues Athena is looking at to diversify yield. And then I basically uh looked at the the the last

one-year yields and kind of correlated it with the BDC and ETH basis trade strategy. So if you the the the least correlated trades were let's say if you ran the gold basis trade or if you use centrifuges CLLO those offered uh the highest diversification from the basis trade and the lending like on a USDC and Maple was still kind of correlated to the basis rate right which makes sense because the demand for stables is is higher in a more euphoric time of the market as opposed to when things are more lull. So it's still it's still uncorrelated. It's not as highly correlated. They still offer some sort

of diversification, but the better one would be gold or clo. And if you looked at some of the the returns that these other alternatives provide, it's, you know, almost close to the basis trade, right? So even if Athena diversifies away, it's not like their yields are going to meaningfully increase. It's going to shoot up and, you know, things are going to go back to normal. like just off the top of my head figures, it's going to be around four to 5%. So, still it's going to be close to where it's at now, but it will be a lot more stable. And yeah, on Sha's point on like, you know, diversifying to real world assets or equities basis trades, I looked into the data, it's just not

possible to do it in size. Like Ethereum is a $5 billion protocol. Like even for gold basis trade, it's you you really can't scale into it. And the problem comes in days of outflows, right? So let's say the day of tenten, Etheina saw, I think like a billion dollars worth of outflows and you need enough liquid capital to be able to to reverse those trades and you know uh pay back users and that's just not possible for like you know tread fire assets at the moment at least doing it onchain like I looked at Binance I looked at hyper liquids order book depth even for an asset like gold you you just can't do it. So that's a challenge they're going to face. And one of my conclusions from looking at RWA basis trades is that it's

just not scalable for Athena. Like if you look at Etheina's current like they tried to onboard Soul. So Soul is at least a decent alternative like a higher yielding basis trade strategy to to BDC and ETH, but it never went more than 0.5% if I'm not wrong of Ethereing. And that's the same reason because it was just not as scalable as it is for BDC and ETH versus like soul. So yes, the same issue for gold and other equities. You can try but it's it's not going to going to work. And for the other avenues where you can actually uh scale in size, those yields are also ranging between like four to six or 7%.

So it's not that you know if you move into that Athena's yield problems are going to be solved. They're still going to have compressed yields likely in the future. Yeah. Yeah, that makes a lot of sense. I wonder if they could like in the future because they've historically I think allocated a lot to like Binance. Uh I wonder if in the future they could use like HIP3 markets uh to run some of like these uh basis trade strategies. Uh but it remains to be seen. Uh I think we've covered a lot today. Uh I'm going to end it there, but before I want to bring out bring back the analyst of the week. Uh, and this week I I think no one deserves it more than Sam Schubert for his

phenomenal work on like Sena spreads and the piece he put out this week on like Sena spreads, the black hole begins. Uh, it was a really strong look at like Sena uh spot price execution versus centralized exchanges. I recommend everyone give that a read. Uh, if they haven't, we'll just put the link in the in the description. Um, yeah. Any other shout outs you want to to give to this week? >> Shout out Carlos for doing a great job hosting this episode. You've done incredible man.

>> Thank you Shondaanda. I appreciate it. Uh hopefully it's not a regular occurrence. But yeah, it was it was a really fun episode. U all right, let's let's end it with that and I guess we'll see you guys next week. Uh, have a good one and just uh please tell us apart in the comments if we did a bad job. But yeah. All right, guys. See you next week. >> Good weekend, lads. See you.