David Choi & Conor Moore: USD.AI - Financing the Future of AI Infra

Transcript

You're now plugged in to the Deli podcast. Hey everyone, welcome back to the podcast. I'm your host Jordan from Deli Research. I have David Choy and Connor Moore here from USDAI. How are you guys? Great. Doing well. Doing great. USDA is a synthetic dollar backed by AI and deep pin hardware assets. We released a report last week on the portal that's a great primer. Um it's defin it's free right now, so definitely go check that out. Connor and David are here to provide some additional color on the vision for USDA and how it impacts infrastructure finance. How about we start with some quick intros and background?

For sure. Um I guess I'll go over the team real quick and then pass off to Connor for just kind of our um earlier journey. Um I me Connor and I we both met at Deutsch Bank. Um kind of coming from Trafi. Um I think it's also the pattern in all of Deli as well. Um kind of escaping Trafi. Um but we work we work together on on real estate investment banking. Um I I personally moved into like the early ME scene um back in like 2017 2018 um where it was like the earlier attack surfaces before it was even called ME like um gas bombing for ICOs or like LP sniping for like unis swap did a lot of venture over the years um and uh yeah I guess my focus on the team is more on DeFi and redemption design um with this like

traffici plus me experience um Connor's background um is after Deutsche he he also focused on real estate private equity and like structure it. Um so all the way from tenant management to like asset asset distributed asset management to uh fail funny style debt um aggregation uh more focusing on the physical assets the cash flows modeling and like the credit structuring um for the lending primitives that we're inventing for USDA. And we have a third co-founder as well with a call. Um he's actually kind of like the perfect um perfect background for USDA in that he used to work at 21.co uh back in like 2013 2014 right when like Bitcoin mining was moving away from the GPUs towards AS6. Um and you saw the first like firsthand industrialization of the crypto mining infra and how like early

debt was introduced um to mining um for Bitcoin mining specifically. Um then he worked at uh DRW working on FPGAAS for HFT um and uh um we we also did MEB together. So kind of he focused on the smart contract system design and like hardware level risk um on the team. Um and yeah, we we all came together um uh in like late 2021 and early 2022 originally to focus on um low liquidity assets, but um Connor will explain that. Yeah, I can give some more kind of background on on our path. So when we started the company we were really looking at what was happening in DeFi particularly a unis swap compound as sort of these 0ero to one moments in

financial innovation where you actually had you know tremendous improvement 10x 100x improvement in in execution but it was always for you know AMMs for swapping liquid tokens um uh CDPs and um lending markets for barring against liquid tokens. It was all kind of catered to liquid tokens and we thought there would be sort of a next wave of financial innovation happening on crypto rails particularly for illlquid assets. So think capital markets, debt capital markets, you know, equipment financing, um financing businesses, the things that we had experience with in our past life

in traditional finance. And so we started the company originally it was called Meta Street started in 2021. Um basically over the last three years have done about $400 million of loan volume but we've always struggled to kind of find the right uh collateral pair for what we're doing. And what you've seen in, you know, the RWA space is there's a lot of adverse selection problems where, you know, for example, if someone's tokenizing real estate and trying to get a loan on chain, you know, you you typically would ask like why are they not getting a loan from the most robust debt market in the world, which is like real estate debt. Um, and so, you know, we've really struggled to find like the right collateral pair. And I think in

the last kind of six to 12 months, what we've realized is deepin networks and specifically the hardware that underpins these networks is a really natural fit for onchain financing for illquid assets. And so we started this uh separate vehicle called tactical compute which is a basically an AI mining network in partnership with aether and beam. And the whole idea there was to basically raise capital and buy GPUs or get access to GPUs to earn yields from these decentralized AI networks. And in that process, what we realized was even though the cash flows are quite good and we were super well capitalized, it was

basically impossible for us to finance that vehicle because you're earning cash flows on chain. So you you're procluded from, you know, what a bank would be able to do or private credit fund because fundamentally when you're doing things onchain, you really need an onchain capital source to pair with what your uses. Um, and that was sort of the the inception point for USDA. you know, the previous few years of doing structured credit products for illquid assets paired with kind of this new vertical within deep specifically for AI but also for telecom you know deepin assets or energy um networks where all of them are really capex intensive and at the same time you can actually

finance these assets because you're earning cash flows on chain um and so that was basically what led us into wanting to build USDA which fundamentally You can think of USDA as it's a yield bearing synthetic dollar. Um, and the the yield is coming from hardware assets that are being collateralized into loans. So, GPUs, telecom, energy, you know, these are capex intensive asset types. the operators of those assets can basically get a loan from USDA and pay interest and that interest is what goes to paying yield out to the USDA token holders and those USDA tokens can then be you know proliferated through the rest of DeFi

borrowed again swapped etc. Um and so it's really a cryptonative structured credit product for illquid asset types within kind of the these deep pin network ecosystems. So this is DAI meets internet capital markets and this is this is real capital productive capital not you know uh cryptonnative capital markets. Um can you help me establish the market for this a little bit? What dependent sectors what what uh what sectors is this applicable to and what's the the total size that um of this market? So I guess we can start from like all RWAs like crypto native RWAs and just really focus on deep in SS sector and that heristic is just really finding that

green field of like hey good credit but like um kind of under underbanked in a sense um and among that even um you've seen this you've seen this behavior among uh deepen protocols where they're focusing on scale um we call it like a bit of a deep deepen tilema where they either balance out scale price or uh data fidelity or just like quality of of output within the within the asset itself whether they're providing compute or they're providing energy. Um a lot of them are trying to lower the barrier of entry from the incremental user by lowering the price which naturally lowers sacrifices quality. Um so the the the areas that we really focus on are um sectors that have expensive hardware um

things that are actually valuable like you this is a there's a good reason why LLMs are not powered by um consumer grade hardware. it's it's run by H100s and and and things like that because um it's designed to be productive. It's not designed to be cheap. Um and that that kind of heruristic is exactly what that is really good for because it will make good cash flows in the future, but um it will definitely have higher barriers of entry. Um and so we really underwrite the hardware itself and like what it it's actually valuable for. Um we don't necessarily underwrite the deepen network. That certainly helps in terms of bolstering the cash flows, but we we really look at the hardware and hardware quality because the hardware is mostly semifundable in a sense. So once you underwrite one, um there are some

nuances between maybe one uh H100 and a data center in Texas versus one in Europe, but generally they're pretty similar. Um so we probably look at things that are above that 10k per asset range um to start off because it's just the most scalable and it's also where the most need is in terms of um this capex story where it is cash intensive. These these pro these protocols or these um miners want to grow. they can't get financing and these deep networks are just inflating their token um all the way down because they're trying to compensate for that initial growth hurdle of like um participants putting up that much money in order to um get their money back which they call the payback period when it come when it

comes to the concept of mining. Interesting. Yeah. One of one of the coolest parts of USDA I think is is the unique problem set that you guys had when when building this. So this hardware doesn't mark to market. that there's a lot of unique um issues with the game theory and the default process that you have to solve for. So you guys sort of created this oracle free DeFi structure from the ground up and from a product perspective, not from a philosophical need, right? Um so can we can we go over like USDA structure at high level and and what makes up USDA? Yeah. Um I can go over the like very high levels and the details we can kind of split up. Um but there's really three pillars that kind of like establishes that. um the you know Oracle is lending

is the base structure um but that's really supported by these three categories that makes it all possible um because you don't have an oracle like a single source of truth based on like a very you know marked market which is like how frequently something's marked in the market right um we have three mechanisms um one and they can be kind of separated as the entry um the risk scaling and then the exit as like the um allegory here and the first one is we call caliber is like uh it's an acronym for like how we tokenize assets in a way that I think is superior to many other methods because we actually deal with a physical asset something you can pick up and like put away um and not no SPVS and no like shrouds of uh of uncertainty.

Secondly, we have uh this modular underwriting system um which um we can go into in a minute, but that really focuses on how to scale up the various underwriting processes of different hardware um globally in the world um that actually powers these AI networks and what we give the physical loans to. And lastly, we have the uh the QEV design, which is uh an acronym for Q extractable value. This is inspired by, you know, Flashbots's um you know, MEV boost um which kind of mimics um this Q that is invented. Um it's we kind of view like these liquidity um uh liquidity blocks as like uh block production in a sense where people are competing in a blind market to exit the redemption. Um that way um this is a little more game theoretical and how you

exit the pool. Um but yeah, those are the three main pillars which can which we can go into. Um but uh I'll let Connor take the first one. Yeah. So let me talk a little bit about caliber because this is a a really kind of critical component for this to all work. So what what we did here is we basically in order to execute a loan the loan is happening onchain and in order to execute a loan we have to have an initial legal contract that's basically tokenizing assets. Um and so what caliber stands for is collateralized asset ledger with insurance bailment evaluation and redemption. But basically all we're doing is in order to execute a loan the borrower has to sell the assets

to a subsidiary of Peran Labs which is our Delaware CC Corp in order to get their loan. And the reason we do that is because this allows us to get a master insurance policy over all of the assets because the assets are actually technically legally owned by us. And then once they've sold the assets to us, they sign a se a separate contract that's a bailment that basically gives them the the rights to operate and profit from the assets. And in that bailment contract, what we do is we say the balor who's the the rightful owner of this is actually this holder of this NFT. And so there's no loan agreement that's ever happening offchain. The only off-chain component is what we're doing

with um this tokenization and subsequent bailment contract. But then what this does is it gives us the ability to put property rights completely on chain. So that NFT is called an electronic document of title and it fits under UCC article 7 and it basically is just a way for people to transact and have an electronically native deed to an asset. So once that's that exists then the borrower can post that deed as collateral and borrow from the pool. From there on every p every point of property rights exists solely on chain.

And the reason this is really important to us is because when you think about the RWA space it's a bit handwavy in terms of what tokenization really means. And what I mean by that is you'll see a lot of products that have some underlying loan agreement that then gets rolled up into a fund structure and then that fund is then selling some portion of its fund into some tokenized entity to then sell onchain. The point is like your property rights do not exist on chain. They exist offchain and then hopefully these various intermediaries that you're interacting with are going to honor that and we don't really like that. So what we're doing here instead is putting 100% of the property rights on chain. And then when you think about

what's happening ultimately is you're you're putting this, you know, tokenized um yield product out into the world. But we want the users, the buyers of that token to be able to drill down into every single loan and you'll be able to see exactly what's happening at all times and see that that is completely onchain and you have complete, you know, actual property rights in that case. Um the the next part to mention, so that's basically sort of this legal construct that's underpinning everything we're doing here, which is called Caliber. The other part to um to kind of like really dig into is what the the actual underwriting process looks like because USDA is going to be supporting, you know, everything from Neoclouds and

GPUs all the way to telecom assets, power assets, EV chargers. So any of these deep pin networks that have sort of this hardware infrastructure component to it. And so obviously it would be you know a lie to you know basically present ourselves as experts in every one of these possible categories. I was just talking to guys yesterday that are doing weather stations. Like obviously I'm not an expert in weather stations. So what we're basically doing and this kind of builds on the original metaru meta street pool structure is for every primary origination market there's two tranches the first trunch is the first loss position and that's basically 5% of the capital stack and then there's the

second trunch which is what is actually going into the USDA back gains. So that first trunch is the first loss and that the the capital that goes into that first loss position is also the underwriter and originator of those loans. So that you have some alignment of interest in that that first loss position gets some outsized return in in exchange for you know originating these deals and underwriting them and putting up that first loss capital but they also you know bear first loss. If there's defaults they're the first ones that would lose their money. So that position is basically held by you know experts in the specific subject matter that we're looking at. So you know there's a a first loss underwriter for the GPU

space. There's first loss for EV chargers etc etc. Um and then David probably should talk about QV because that was really his his baby for sure. Um and QV was kind of a an analysis that was made from past attempts in terms of uh a lot of these blue chip RWA protocols that claim to have good collateral but oftent times and do end up debugging. Um because even blue chip collateral can become pretty toxic if it's not managed correctly with the maturity schedules. Um and QEV I guess in summary is uh is really an arbitrage venue where participants can actually profit um from DPEX. Um and that's kind of like the main heristic in terms of how I designed the entire um

redemption queue. Um oftent times redemption cues are first come first serve which is whatever available liquidity there is. Um it's whoever like redeems first or it's like some white list system which is a little more opaque. Um for us it's uh it's we turned it into a market in a sense where every 30 because these assets that we deal with have extremely high amortization. Um that's very that's more of a feature than it is a bug. Um because what that means is the loan the loans amortize as well um at a at equal or faster speed. We prefer faster um and that means that every single month um there is a large cash up um from the principal uh repayments and as well as the depreciation which mimics the

depreciation of the hardware. Um so I guess it's best to give an example. Um if for example this loan is advertises about 5% a month um because it's because that's just the way that the loans are structured. It straight lines to zero say after like 24 months uh 18 to 24 months um then what happens is that the liquidity that's cashed up again from the loan principle um decreasing every month with increasing cash every month um participants can then enter into an auction that happens every 30 days because every loan payment happens every 30 days. What you do is aggregate all these depreciation repayments um and you put it up for an auction. Uh we call these uh QEV boost auctions which is effectively every 30 days is a

synchronous auction um where you can put in a blind bid that nobody knows what your amount is um whether it's what and you can bid like you can bid like one BIP, two bips um and whoever has the highest bid gets the highest parata amount of liquidity into that redemption. So this is again a very big arbitrage venue where a participant can buy say SUSDAI which is our stakes version with like a longer uh redemption queue like um this 30 days specifically um and then enter into this queue um even though they bought it at a cheaper price and they redeemed it at par. Um and what we're really trying to uh mimic is just understanding the perspective of effectively an arbitrageer, a stable

coin, market maker or uh any participant and buying these assets in in the secondary but um making a profit in the primary. Um and that's why we made the redemption queue into a market where it is a little more game theoretical. The question is what's the nash in terms of how much a participant should bid in order to uh get the most amount of uh you know liquidity um for their position. Now if you don't bid at all that you know bidding amounts in terms of the this uh redemption queue is then just given back to all the participants in the in the market. So if you do nothing you just get supplemental yield um profiting off this like traffic tax.

Um and the blind nature of it is what helps amplify and stabilize the entire um entire stability of the synthetic dollar. Um yeah so that's kind of how QEV works um at a high level. We have more details obviously in your report and uh in our docs as well. Nice. So to summarize this, USDA is a vehicle for onchain users to provide liquidity to deepen operators who are essentially looping and caliber and the the rest of your process puts as much of this onchain as possible. And as as we've seen with other sort of real world asset projects, um there's a modular underwriting process that allows specialized actors to bring into the

USDI umbrella various um hardware types from various like deep deepen sectors. Um and the yield for USDA is the interest paid on these loans from the deepen bloopers. Is that correct? Y yeah, exactly. Um, and we're really trying to fit in, we're what we're really trying to do is like take a capital markets or I know we call it ICM nowadays, but uh capital markets is assets that are actually productive and configuring it so that it becomes um fitable into the money markets that we have because you can't take an NFT and put a you can't take a piece of hardware and put a so this is kind of this uh fungifying process I guess.

Nice. So um we we spoke a little bit about the game theory and like the default process. Can we double click on that a little bit as far as okay the the equity cushion and the amateurization process and like how for for people who you know may be concerned about defaults and losses for LPS like how can we do a quick overview of that process and and how we prevent um bad actors. Yeah. So we basically think of everything in lines of defense. So you have, you know, that the LTVs on the loans are less than 100%. So you have um, you know, 70% basically 50 to 70% LTVs day one. That means that you have a

30%, you know, 50 to 30% equity cushion. And that equity cushion is really the first loss, right? If a borrower defaults, the first person that's going to lose money is the borrower because they put up that equity cushion. The next line of defense is the first loss position. So the um the underwriter is going to then take the next you know portion of loss and and then finally you have sort of the the actual exposure of the protocol. And so what happens is every 30 days let's say the loans are three years long. So every 30 days the loans are going to amvertise by about 3%. And so that means that, you know, you basically are using these loans to

finance acquisition of new hardware. And so you're buying, you know, day one you have a 30% cushion. Over the subsequent three years, those assets are presumably going to depreciate by some amount. But because your loan is being paid down every month, you're continuing to maintain this cushion. And so even if the borrower ended up defaulting, you should have a profitable default scenario because the uh loan can basically the the rights to the collateral can basically be sold at a discount to what the fair value is. And so what happens is every 30 days these borrowers have to make these payments.

If they miss a payment, then that deed, that electronic document of title, is basically auctioned on chain. And there are a number of resellers, whether it's for GPUs or other equipment, that basically are part of our network that would go come and and and buy those assets. And so those folks then have this opportunity where I get to buy this GPU that typically costs $100 for $70 and I can resell it for 95, right? or whatever those margins end up be becoming. And so that's basically the the whole flow. So you have sort of multiple lines of defense and then you also have on the depositor side this ability to basically exit pre you know

loan maturity because the borrowers have secondary liquidity or sorry the lenders have secondary liquidity for these tokens. And so you have kind of the benefit of what looks like, you know, a publicly traded token, um, but has access to these high yields where you can still get out, you know, whenever you want based on secondary liquidity and and these, uh, redemption proceeds. Got it. Okay. So, how about the value proposition for borrowers? Can we touch on that a little bit? A lot of that's a a source of confusion, I think, for a lot of these types of projects. So, how much more profitable is it for a borrower to lever up on the deep pin

operation than um like a vanilla non-levered position? Yeah. They're going to be paying interest rates that are quite high, right? We're targeting what 15 to 20% um interest on this. Yeah. So, it's it's honestly it's a super easy math equation where you just say as long as your unlevered yield, the yield that you're making without debt is in excess of your interest payment, that's always going to be a creative, meaning it's always going to increase your overall returns. So, if you have a 15% cost of capital and you can get a 70% LTV loan, uh that basically means you can add about two and a half turns of leverage to your returns. So if you were making 30 unlevered, you're going

to end up making close to 70 or 80 with with leverage. Um, and the main benefit is really not only for the borrowers, but also for the deepen networks themselves because the deepen networks are solving for a cost of capital. And right now, in order to attract, you know, hardware operators to that network, they have to give them these crazy yields. And those yields are inflationary. And as David was talking about, the, you know, end result is every single, you know, network token just gets punished because you're giving out so much an incentive and your network hasn't really stabilized yet.

And so if you can access leverage, let's say that the market clearing rate for these operators is, you know, 80%. Well, if you are if you have no leverage, then the deepen network has to pay out 80% APRs and tokens. But if you can access a debt market, then you only have to pay out effectively a 30% APR. So you the deepen network ends up reducing its emission rate by over 50% just because you have access to this debt market. Um the other thing that I think is really interesting as you kind of look not only to deepen related hardware but just general neoclouds and hardware operators. What we've seen is um you know there's probably about 200

Neoclouds. Neoclouds are just companies that buy GPUs, put them in a data center and rent them to AI startups. So there's about 200 of those and all of them have ra raised somewhere between five on the low end to couple hundred million worth of venture capital money. They're basically raising the most expensive cost of capital to then go and buy depreciating assets. Makes no sense whatsoever, but they don't have access to debt otherwise. um the credit market offchain does not really exist for this space barring a couple of really large players like coreweave. So you know in that case you also have a huge benefit right because you shouldn't be raising venture money to buy depreciating assets

you should be building out your software platform hiring people you know doing high return on on cost activities and so you know not even within the deepense space but also just general GPU as a service platforms are also like huge customers of ours because ultimately they can access credit and then for them it's really just a a scale game the the the number one Neocloud will end up being the biggest buy assets and that's just all it takes for them to to win or lose. So if you have access to debt markets then that means you can buy more assets which means you can bully out the other guys or acquire them or you know do whatever to consolidate power. Um so you know I I think there's huge benefits

obviously to borrowers to have access to debt markets because it just means that you can be more efficient with your dollars. Got it. Yeah. Um can can we touch on um the phased approach to scaling USDA um over the coming months and and years? Yeah. Um so initially I guess really the first few days of into our launch will be mostly in treasuries just to reduce the trash cash drag. So whenever somebody deposits uh or mints USDA with the USDC or USDT um they're minting treasuries as kind of like the base layer. Um and that's again whenever there's stale capital when participants

sadly earn the minimum yield. Um and then that's being then staked and that's once it's staked that's when it's viable for actual infrastructure loans. Um and our initial target is going to be 40% utilization during this initial um uh initial period where we're kind of um testing out um a few of the parameters in terms of how the protocol works. Uh our target utilization will likely be 80%. Um and we don't necessarily have like a PE stabil stability module like any money market would where it's like an like automatically adjusting to a specific uh target utilization. So again, this is uh this is kind of learning in terms of how the market responds. Um but right now we we will keep it at 40% utilization. Um unless

there's some flexibility and some obvious changes that could be made at the protocol level. Um but that's probably our our like stage two um when it gets to that maturity state. Um and once uh QAV launches with that as well. Now we uh if there is a governance token which obviously we're currently structuring um and where the protocol is actually decentralized um uh that's probably the next step after that where these parameters can be controlled by decentralized governance um a lot of our protocols already very well decentralized um technically um anybody can launch the protocol permissionlessly in terms of like different pools they won't have access to this um like large um capital vehicle but they could launch their own like individual borrowing

pools um permissionally ly. Um so in terms of uh the the steps after that um we would start decentralizing the income generated as well as the protocol management um in term which is typical for most projects in the space. Um as for the underwriting and the modularity in terms of other uh collateral types that we onboard um that's also going to be a stepwise process as we develop um these various uh sectors. The three main sectors that we're focusing on the beginning um is going to be um compute uh telecom and energy um where u the underwriting scales with um obviously more participation and more demand needs and I think a lot of those use cases kind of emerge once you do have the money as well are deposited and being

utilized. Got it. So out of the gate, it'll be highly liquid, but the yield will be lower. And then as as it becomes um increasingly composed of hardware, the yield will increase and it will become less liquid. And that's where the QEB comes in and potentially a governance token. Um can you share any thoughts that you guys have had as far as how you would implement a governance token and and what that would look like as far as utility and stuff like that? Yeah, and I just want to highlight the yields that correspond to the stages that I described of a minute ago to your point. Um, it depends really on the staking ratio because USDI doesn't generate any yield if you hold it, but you you're earn points in our points program. We call it cores. Um, so that doesn't make any yield, but you get um

obviously um the our our points program. And then the staked version if it's like a 50% ratio then it's just 2x treasuries. Um at a 40% diversified into like a hardware loans which you know range from 15 to 30 um predominantly in the higher teens. Um then the average waiting gets closer to like you know double the double digits like mid mid- teens. Um and at maturity it be something closer to say like uh 20%. Um and that's uh that's all contingent again on like multiple variables but and the type of loans that are issued. Um but generally all the loans that we do are have a hurdle rate of at least 15%.

Um and that's um very competitive even in web two like our trady lending markets. Um as for the governance token it is uh it the goal is that it does earn fees for maintaining the protocol. Um, for example, there'll be like an interest clip um all the way to um an insurance bond structure as well um which is still kind of being thought out um in terms of how that uh how those how that yield aggregates. Um but the more interesting part besides just you know um uh fe profit profit sharing is uh is how it kind of participates in terms of the governance of liquidity toward sectors that it wants to help grow. um it's a little curve- and curve inspired um but um you kind of gaining like in

terms of how you underwrite these assets all the way to feed participation risk tolerance um I think there'll be a point in time where a lot of the best hardware has to be financed by that like can you imagine a solar panel industry or data center industry without that it's just nearly impossible to envision um and where deep in protocols if they want to scale rapidly once they start proving out the initial hardware designs and that is actually industrializable Much like Bitcoin when it moved away from GPUs toward like AS6, you know, like even though it was more niche, um it was far more productive even though it's far more expensive, you saw a lot a lot of um um the growth story being shared with uh traditional finance and people really believed in that capex story. Um and that becomes a really sellable kind of a

um well scale scalable form of credit. Um and and that and that's kind of what we want to imitate in that um in that same story as Bitcoin where um you saw this massive industrialization of the hardware sector and that really stabilized the the Bitcoin price because now now all the miners were now just holding Bitcoin because they had access to credit. Um so what we hope is that a lot of these different participants um you know miners all the way from um bit tensor all the way to um say like dawn internet um and other like uh other emerging platforms especially in this DAI wave um ranging from you know prime intellect to like noose and these other ones which really do depend on like high

quality um compute um they will not only want access to compute but also credit um which helps scale um the wide availability ility of um of these resources on chain. Um so uh in terms of how it routes um I think that's a pretty interesting use case. Um but of course there's the base level which is at least the fees that's generated um from the origination all the way to the infra sharing. Yeah, absolutely. Um the the yield component of this is is very intriguing. I'm I'm curious how you see yourselves fitting into the broader crypto landscape. like do you see this um being more of a like intuitively categorized as a deep pin project or a defi project?

I mean you guys I believe are um launching on arbitrum so that gives you sort of the yield and the defy angle and then like a lot of the salon ecosystem is this deep pin stuff. So like what's your vision for how this fits in to the broader crypto ecosystem? We do we do all the dirty work in the in the physical space to try to fit in the DeFi space. And I think generally like I guess the best patterns I've seen in DeFi that you know the the the most recent big success being Athena is really having vertical control over not only the origination but all the way to the distribution. So origination structuring and the distribution itself.

You also saw this with with Lido and why kind of that was like the market leader by a significant margin. So because you had the P2P validator for the struct for the origination and structuring all the way to the distribution of you know um Steve and Raphik D in terms of the wide ecosystem. Um and much like how we thought LSTI was different from uh DeFi everything's just DeFi at the end of the day. So I we we do view ourselves as a D5 protocol. Um now where we get the source of yield might lean a little more rwas might lean a little more deepen but at um a lot of the um our objective is to distribute the yield that we generate to the broader ecosystem and I we're trying to make the rates a little more competitive. Now there is a bit of a

sacrifice where there's a longer redemption period versus what we what we're normally used to. Um but I think the DeFi ecosystem is maturing a little bit. Well we already saw like the 7-day unlock periods for the vault. So as well as with Athena and so participants getting a little more comfortable with a little longer durations of redemption um and this is also why we deal with specifically hardware and we don't do any form business loans because a business loan is truly a you know a long a long-term loan and you can't really um redeem any value like during that period of of a significant value. Um so all the integrations that we have in in DeFi um we we are trying to be like the best rates on Fendle on the PT side all the way to making the looping a little more

sensible because there is a hurdle rate for DeFi um that you know will move move up and down but for us we are pretty close to fixed income because our loans are a little longer term but at the same time um um far more liquid than many other designs. And I guess this is also kind of like the um the way we view DeFi is that people usually say DeFi money markets in a single phrase. Um and I think that's kind of a flawed thinking thinking that money markets is the end goal. It's really just a the first step into a much broader ecosystem. Um because money markets traditionally move at this it it's capital that moves at the speed of money which means that uh the yields almost always compressed to

you know the risk-free rate um generally because everything gets arbitrageed very very quickly and you see this um if you're a T5 farmer like everything just gets a single digit super fast that's because we're giving loans against stuff that we call internet capital markets but it's not capital um money focuses on liquidity it focuses on um how much uh is traded and how much volume whereas capital does not focus on that at all. Um, capital focuses on things that are actually productive, businesses all the way to real estate to say hardware, um, equipment, things that are focused on productivity rather than liquidity. And oftentimes they're very very liquid um, where the daily trading volume is

significantly lower than this total uh, total total asset like representation um, in terms of you know thousands of times bigger. Um, and that's like a nice ratio to kind of measure is this really a capital asset or a money market. And I I think oftent times when you look at RWAS, people try and that's why a lot of people are leaning toward RWA because they're looking for this exogenous forms of yield to bring into DeFi to loop and to do interesting stuff with. Um, but to Connor's point earlier, you're getting a lot of adverse selection when it comes to RWA to come to crypto. Um whereas the best RWAs in crypto that people have really liked is actually when Trad buys an RWA from crypto rather than the other way around where crypto is buying an RWA

from from Tradfy if that makes sense. Um and the two best or three best RWS quote unquote has been T bills which is a great use case stale capital and like trading platforms so people just get passive yield. Um that's that's just seems fairly obvious. Bitcoin mining um it's almost like 25 to50 billion dollars is kind of hard to really measure like it's a lot of debt that FatFi absolutely loves and like to the point where even Micro Strategy kind of took this idea of convertible debt and made it which was really popularized by Bitcoin mining um and people love that capex story and you know Athena was really cool too because it was a yield that Trifi has never even heard of right this idea of uh delta neutral purse balancing because of uh of

this new um trading platform an inefficiency um where perhaps didn't really exist outside of crypto. Um and the this new category of equipment financing kind of follows the same idea of that Bitcoin mining story whereas a high capex industry you're mining Bit Tensor when you're mining something that's onchain all the way to um being familiar with that uh that capex story and I think it's something that Trai would actually want to buy along with cryptonatives and I think like David and I are both very much like uh decentralization maxis and believe that decentralized networks scale much better um and much more quickly than centralized players do. And so like when you think about what

success looks like here, you have sort of the one of the best use cases of crypto bar none is capital formation at rapid speed, right? We've seen this many times over. So you have the ability to have capital formation rapidly with just oneclick deposit and mint a token, right? On the depositor side and then you have this modular underwriting. So you have a variety of underwriters and originators that can plug into this network and specialize in what their subject matter expertise is. The outcome here is tremendous scale. I mean much more scale than anything that we've seen in crypto except for maybe tokenized T bills. Um you know Coreweave did a $7 billion loan with Blackstone. To give

you a sense uh Coree now public but before they were publicly traded they did this loan at sofur plus 11. So basically 15ish% cost of capital for $7 billion. So the scale in this game is so large. Um you know there are very few DeFi protocols that ever get over $7 billion and that was a single deal. And so, you know, I think what success could look like here is really you have the benefit of rapid capital formation plugging into a monstrous TAM of assets that also can't really get, you know, great financing options. Um, you know, we we even like have been talking to

some family offices who are really interested in buying GPUs and financing those acquisitions through USDA. And the interesting thing is the main thing they care about is the depreciation benefit because they just want to take tax write offs on these big bulky assets. So it's its own financial product right there. Just creating a depreciation product for people to offset, you know, capital gains and income. Um but yeah, I think like the scale is just really important to highlight because it's so much bigger than what we've seen in DeFi. And so for us to be, you know, getting to billions of dollars of uh deposits would still be a a tiny fraction of what the kind of TAM potential is here.

Yeah. So, so the big idea here is that similarly to Athena and some of these other um you know major DeFi protocols that have come out over the years, it's it's we get this fundamental new source of yield that is less cyclical than a lot of these other sources. And then on the other side of it, you have a much better way to scale um capital in the real world with this with these deep deepend projects. Um so it hits both hits both sides. That's really interesting. Um I'm curious. So what are what are the immediate next steps for USCI? What are um when are you guys launching? I think I heard something about a private beta from the X account.

Um can you give me a little bit of a picture of the next next couple weeks and months and and how you guys are scaling up to launch? Yeah, absolutely. Um over the last few months um we've just kind of been building the borrower pipeline. Um and you know even even though it's been months that these people have been looking for borrow, they they're still looking for borrow because a solution just like fundamentally does not exist. Um we're finding use cases that um we realize we can be the salt the solution for um that just kind of emerge the more you get um your hands dirty in the space um all the way down even still in the the GPU market which you would assume is pretty efficient but is so extremely inefficient um not even for web 3 deep might be the wedge but even many web two

use cases um ma like major major brands major companies um and pretty very good credit in terms of uh it's a very green field of credit there's adverse selection is not really something to think about uh because you just get really good performing counterparties that just don't have that systemic um access um is is systemically underbanked. Um and frankly it's because the industry is so new. It's um the concept of using GPUs as like I would argue the most currently the most important commodity in the world and like people hear more about like how uh Nvidia chips are distributed around the world than oil. um especially given the AI race that happens today. Um so as probably the most compelling in the

world um it's uh the demand for it has been extremely high. Um so the the the demand side in terms of like the yield generation like how do we generate the yield that's been building up over time. We're still obviously open to chatting with participants on the borrower side who are looking for higher um higher yield generation through the use of that. Now, as for the, you know, the day five participants, um I'm guessing majority of your listeners on on Deli. Um we are um currently, um on ramp, uh in process of launching that private beta. So, our contracts have deployed um now just finished the audit, but now doing a few more steps in terms of making sure the front end everything is is uh um up to our standard. Um and that should be launching if everything goes

right next week. Um and this this program we have a course program uh which is our points program for participants who wants to generate this to access this new form of yield. Um and we are trying to make it very D5 friendly. So we do want to have the integration with Pendle having all the oracles up all the uh money markets um especially the modular ones um so yield organizations and many of the vaults in participation for people who want to either farm the yield itself or they want to farm the points um or both sense um and that timeline in terms of public launch will probably be closer to the end of May. Uh yeah I guess people can keep their ears out and kind of join our wait list. We have a telegram group and we have a Twitter so they can follow

follow us there. Um, but yeah, the launch is very soon and uh hopefully they'll see it on the recommended farming list on their favorite uh yield farming platforms. Yeah, I can't wait to see how this um how CT handles all the new yield opportunities with these uh DeFi integrations. That's really cool. Uh Connor, David, thank you guys so much for coming on the show. Um this was great. Very um very interesting stuff. Thank you guys. Thanks Drew. [Music]