HIP-3 Market Design and Felix’s Role | Charlie, Felix Protocol

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Nothing said on Zerox Research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and any views expressed by anyone on the show are solely our opinions, not financial advice. Pokio Ryan and our guests may hold positions in the company's funds or projects discussed. What's up guys? Welcome back to another episode of Xerox Research. Today I'm joined by Shondaanda um from Blockworks Research and Charlie from Felix. Charlie, how you doing? Good, sir. How are you? >> Good, good. I um I forgot that in pre-recorded you kind of have that awkward phase in the very beginning when you have to read the small talk, but we can avoid it. Um I hope all of the listeners have had a happy holidays. Um,

I guess like just to dive right into it, Shondaanda, you've recently been writing a lot about these kind of hyperlid hate posts a little bit specifically regarding outsourcing and decentralized NASCA. Do you want to kind of run over it a little bit and then we can allow um further discussion to take place? >> Yeah, but first I got to clarify it's definitely not a hate post just uh like kind of taking a more objective stance. Now we've had almost a year of this outsourcing model and um I mean this is in regards to something I recently wrote which was looking at the HIPP one and two outsourcing of spot right so in the beginning of the year this was done with

unit like listing Bitcoin ETH and in the beginning it worked really well I think unit did a really good job because there was one team kind of monopolizing it was very straightforward thought it was efficient. I think there were two risks with this outsourcing model. One was that hyperlquid is giving the reigns to the teams to build it and you need to have trust that the teams are going to do a good job and then the second fear was that you might lose some of the revenue because you split it 50/50 and in the beginning this wasn't the case right it was only unit doing it at peak I think we saw that they did 10% of global crypto spot volume this was mainly with BTC and ETH and also they

just like killed it in terms of the new launches right XPL uh but now that they've kind of pivoted more towards the equities and the pers I think holes are starting to emerge in the outsourcing model. So if you look at the top 100 spot assets by market cap, only 10 are actually listed on hyperlquid. And if you think like you want to onboard retail, you want to onboard normies from Reddit and your exchange doesn't even have XRP, BNB or link, right? Stuff like that. Um I think in the beginning there were a lot of auctions happening in Q1 2025. We saw almost 25 mil in auction revenue. I

think that was one of the main um things that Hyperlood wanted to kind of monetize this asset listing on exchanges in a way that was very murky and not transparent in the past. But now in Q4, we saw that there barely any auctions happening for spot. Revenue is down to like less than a million. And there's a lot of confusion about how this is going to go forward, especially if unit doesn't monopolize it. Like I see that there's a zero, there's a zero, there's BNB1, ton of different deployers that are doing it now. They're probably not going to share revenue with Hyperlid.

And I think just from a UX perspective, it's kind of confusing and I don't really know what's the path forward going ahead. >> When you say not going to share revenue, you mean they're not going to give 100% of revenue, correct? >> Yeah, exactly. So, it's like the 50-50 split right now. Units basically using it to buy back hype. So it's essentially 100%. But going forward, if it's not going to be unit, there's going to be revenues basically cut in half. >> Yeah, I realize we kind of throw we're kind of throwing Charlie into the deep end here with kind of very big topic and um Charlie, if you want to go ahead and >> No, it's a great topic. Um yeah, it's something that we've been

thinking about a fair amount. Um, I think it there's a lot of different dynamics at play with spy spot on Hyperlquid. A couple initial ones I would bring up and I think Shotty you touched on them um, briefly are the the cost to deploy these markets are the ticker cost, the the bare tier cost and the lack of ticker flow on Hyperlid. So, we can dive in with those briefly and then go into more nuance things after. But on the ticker cost side, I mean, as people know, it costs to deploy a spot asset on Hyperlquid. You have to buy the ticker when a Dutch auction that runs every 31 hours and then you can deploy your asset. Um, aside from any sort of initial liquidity costs per normal,

there is a ticker cost that you pay. Um, and that cost can range, but yeah, I think you're pulling it up here or something, but um, yeah, so these costs can range. In recent months, they haven't been quite as bad, but when Hyperlquid Spa was just getting started, I mean, maybe you guys can remember, like there was the God ticker that was purchased for, I don't know, it was just under a million or over a million dollars. Um, and I I think in part that it was done with a good intention of, okay, let's sort of limit spam listings or bad listings of spot assets. Um, but also it came with a downside of I think it limited other deployers coming in

period and seeing look it cost $100,000 or $2,000 to deploy an asset on Hyperlquid. I'm not going to do that. And people kind of wrote it off that led to kind of a write off of Hyperlid spot overall which I think we're still facing today. And so I think there's just some of these um kind of unintended consequences that happened from having that as the mechanism for deploying an asset. Um along with that I think we see today there's less of an incentive to deploy new spot assets because there is just less of spot taker flow on hyperlquid period. I think hyperlquid is still viewed almost 100% as a perex. Um it's trying to go to this platform model. Um you know obviously there's hypervium protocols etc who have deployed on hypervium. Um there are now

teams building on hyper core by HIPP3. Um, but it's still very much it's a purpose first ecosystem, purpose first place. And so I think on the spot side, uh, there's just, uh, there's not as much taker flow on these spot markets. And so it's like, okay, well, if I look at a market like ENA, which unit recently launched and you see the volumes and it's doing, you know, very sub subpar volumes volumes, that would not really make sense to do a listing. Um, especially if, you know, you're going to go give back revenue. Uh, it's really like, is this even worth it? And so I think yeah to your point there is a a question there around well maybe this is only worth it for if the core team does it because they have other incentives to do it as opposed to trying to economically align a third party who

where the incentive might not be there. So yeah, I guess those are some of my my thoughts overall, but yeah, I think it'd be good to to chat more on the points you brought up, Sean, and also just dive into like the alts space at large because you brought up link and XRP and B&B and I think XRP, B&B are are one bucket, but then there's also the more DeFi native alts and I think there might be a discussion to be had around like whether or or what your guys thoughts are on where those go this year relative to where they went last year, which was basically down only. Um, and so I wonder if like if that hurts further sort of a building up of a decentralized spot ecosystem because it's like will these spot assets keep losing and so sort of a a nent theory on our side has been well

RWAS are the new alts for the near future. But yeah, I guess curious to get your guys thoughts on on that as well. Yeah, I have. So, just to like give some color, um, hype 24hour volume is 61 mil. This on spot assets. Um, hype USDC, UBTC USDC is 36 mil, EU USDC is 21 mil, and then anything after after that is sub 10 mil on the 24, which is very low volume. Um, so I have two things. one is regarding the I don't want to say fragmentation but like the UI issue that Shondaanda mentioned which is um I don't know BTC USDH and then BTC USDC

um it's not even BTC it's UBTC USDC technically but the front end shows it as BTC USDC so does hype per liquid need to be a bit more um opinionated as a front end um is one thing and that kind of ties into this decentralized Coinbase, NASDAQ thing that we can chat about later. Um, another thing is like you mentioned, it's like a lot of alts have been down only. Um, and is the issue that they need to keep listing assets that are just launching. Um, like Monad did okay, but to be honest with you, I think Salana did more volume on Monad day one. Um, Hyperlquid made more money than Alana did on Monad, which is

another thing that we can talk about, but I think that's mainly due to the per side anyway, not due to the sponsor. Um, and then if you are only following on those, like if you're only doing newly launched assets, at what point do you do like the backlog of assets that Tron mentioned? Like link is a big one. Um, I know they're now slowly starting. To me, ENA feels more like a not a strategic listing and a backlog listing, but more like the Athena theme is quite close to all of Hyperliquid. Um, clearly, so maybe it's like due to that as a reason.

Um, which isn't a bad thing obviously, but it's like there's definitely more things to list before Aphina, right? Um, not not anything against Athena. Um, so it's like there's different things to consider and I guess if you're leaving it in the hands of one team, they might be slow in listing and they're very much like they want um volumes they want and some of these assets just won't break them. Like if you listed link right now, if it exists, I doubt it's sub 2 mil. Like I doubt it's above 2 mil volume. Um and another thing here is like do funds want to hold assets on hyperlquid as an exchange on the spot side right like funds will hold

custody of assets on some certain centralized exchanges not all of them and they'll hold it on certain blockchains not all of them um maybe that's the issue as well like maybe people just don't want to buy um spa assets on Hyperlid and hold it on Hyper liquid. Um, and that's where like the majority volume comes from, I assume, is from funds. Um, no, >> it might be the case. I mean, I think, um, one thing there there is an an argument you made if if you can build enough liquidity around these listings that they can be cheaper listings than on these sexes, which charge pretty egregious fees. Like I think some people

think about Robin Hood, they think, "Oh, the Robin Hood model, it's free trading." But actually, Robin Hood does not use the Robin Hood model for their crypto markets. Like I think, uh, don't quote me on this, but I believe something like either the the base fee or the average fee is something around 75 bips on a crypto trade. Um, which is obviously quite high. Um, and so it's like, well, it's it doesn't take that much to still earn great upside if you're a spot deployer in Hyperlquid and be significantly beating down that fee. Then it's just a matter of, well, how do you get that liquidity to a place where someone can get, you know, at parody execution on a hyperlquid spot purchase?

That's an open question. And I think also part of the issue with the current listings like uh Sean, you mentioned the AB zero and the link zero listings. And I think um those those things were done without a third party marketer maker to my knowledge. Um which obviously there are benefits to that. But a con is it's just inevitably tougher to to get that market off the ground. And yeah, it's just um it's it's difficult to then set that as like a precedent for more spot deployers to come in when they see, hey, other spot assets didn't do well. It seems like only unit assets can do well, so therefore I'm not going to deploy any assets. Um but that I guess that's you know part of the issue. So um yeah a lot of different things in there.

>> Yeah. Uh another thing with the alt side here is I agree with you on the fees. They can definitely compute. Another thing with the alt side is Felix doesn't have a token yet and neither does Hyperland and Kinetic is the only one that has a token so far. Um I need to check what their volumes are but I can't imagine it's horrible. Um and also it'll just continue to improve, right? Like as they launch new things, they have markets, etc. coming up. So, we'll see how it goes. But, um Hyperlquid as an ecosystem is still relatively nent. A I know a lot of um tokens that are trading on other chains are um mainly their own native assets.

And Hyperliquid's kind of in this weird place where it's just like trying to pull liquidity away from other chains and like making them tradable on its own chain, which is a very like good goal to have, but also eventually um these protocols need to launch tokens and then people are going to have to trade those and maybe that's a better way to um I imagine there'll be more volume on those as opposed to like trying to onboard AVAC and link and stuff which I don't know. There'll be a lot of trading volume for those. Yeah. No, I think it's a good point. Um, yeah. Either you have to do something net new and have a net new offering or you're just going to try to win on cost. And I don't think winning on cost is ever that fun for the long term, but it's Yeah,

it's a very good point. So, >> you have something you want me to pull up? >> Yeah. I mean, I don't know if it's still relevant though, but um, >> what do you want to talk about? Run us through it and then we can switch over. No, I I so I mean what I wanted you to pull up is still just related to what we're talking about just kind of going over the things that I mentioned in kind of a visual form like showing the decrease in uh revenue how these like auctions were super hyped in Q1 and now as uh you guys both pointed out there's not really much demand for various reasons right um I think also to the point of like just

being confusing From a UX perspective to the user that trades, I think it doesn't make sense to list markets if there's not going to be enough liquidity, right? Or at least to display to the user because now until now it's been pretty good. The model that we're going to see going forward with various suppliers is going to get even more confusing. And I think something that's understated is the risk of custody, right? Because when you take asset into Hyperlid and make it tradable, you have to have that bridged asset. And when you're just trading something on the front end and you have no idea how it's set up in the back end, like is it a multi-IG? How are they doing the bridges? That's a real risk for trading.

>> Yeah, this is I will say one thing is like Solana has done relatively well with being a space for asset custody. I think BAS has also done relatively well just because it has the Coinbase branding and name behind it. Um yeah, I think as more and more people want to custody assets on Hyperlquid, I think it's the it's the thing that will be improved. I think people forget about how little people wanted to hold assets on Solana given the amount of downtime that it had for a really long time. Um and now it's like starting to become more and more trusted. It's it's an issue that can be solved um and I think will be solved. It's just dependent on Hyperlid staying up to date

as well. like unit can't give up on spot listings. Um it has to just keep listing assets and I think if there is incentive for it to do so with new listings, it will continue to do so. The main issue there is still like ticker fragmentation. I don't know how else to say UI fragmentation. That's like an issue that would that requires hyperlquid to be a bit more opinionated. But on the other hand, I mean, centralized exchanges have the same issue, right? Like there's BTC, FUSD, there's BTC USDT, BTC, USDC, all on Binance, and people somehow figure out which one they want to trade. Um, so it'll all end up being okay.

I um unless anybody has anything to add on to that, I want to talk a bit about HIPP given that we have somebody very close to HIV free. Yeah, I mean maybe before we go into that I'll just ask one more question pertaining to spot and it's going to be to Charlie. Are you guys thinking of venturing in this space as well and listing tokenized stocks? Because I feel like we talked a lot about the benefits of HRP3 markets, specifically holding perpetual equities, but there are downsides like funding rate, um, things like that. And I think having stocks on chain on an order book is something a lot of people want. Uh,

is that something you guys are thinking of building out? >> Yeah, it is something that we're we're looking at. Um maybe you saw the article I put out but it's something that we've been exploring a bit. Um I think overall like through through our experience with HIV3 and even before I think there's just a lot of demand for like you said holding spot assets or spot equities on chain um and the benefits of okay if there if this is where I can easily buy you know the the assets that I currently have do offramp and then go buy my brokerage if I can buy those on chain there could be a lot of benefits there both on the cost side and then also just ease convenience um but then also new things you can do with those assets. So, a big thing for us is

potential to add new types of collateral on the borrow lens side. Um, this is a a cool unlock to that that it's totally net new from what's been been done in DeFi before. So, it's something that we're pretty interested in. Um I think the main question on the spot adequate side over the past I don't know ye year maybe two years has been there's no liquidity for these and it's a pain to try to bootstrap liquidity for one of these assets in a you know an AMM somewhere on Salana and then there's you know maybe a million dollars of total liquidity and I go to try to place a 300k buy order and I'm facing you know 10% slippage on my order. It's like well that's untenable. Like I'm not I'm not going to place that order. I'm instead

going to bridge off and buy equities elsewhere. Um, so yeah, that is something that I think once it can be done in a way where you don't have that liquidity issue and you're able to buy basically at parap execution for an order onchain versus an order offchain. Um, I mean it's without a doubt a product I would like to see. Um, and so I think yeah, we're we're pretty keen to see like what what we can do there. And this kind of relies on an external party, not you guys bringing spot liquidity elsewhere as well such that you can >> Right. Most likely. Yeah. If if we were to I mean in theory we could become you know an issuer ourselves um and get set

up like that. But I think that's a a different process than what you know we're looking at. So >> yeah. I can't imagine the the legal complications that arise with that. it know it would be an enjoyable process for you guys. Um I um I think I Okay, so HIP free we now have everybody competing over the same pie. Um some are doing well, some are not doing very well. Um how do you see the competition shape up? Um, do you think another thing is USDH is good enough of a now Max Fi Fij I still don't know how to pronounce the last name, but he's a friend of the pod and somebody I really really like. Um,

I'm very excited about native markets. I think what they're doing is cool. Um, do you think it's enough to steal away volume from some of the larger players to offer this fee rebate? Um, and if not, how do you see the smaller competitors compete with the big ones? >> For sure. Um, so I guess touching on the competitive landscape first, I think it's it's been pretty, you know, obvious and apparent that trade equity has been dominant across HIPP 3. Uh, just market share-wise, mind share-wise, markets deployed. Um, and yeah, I think they they've been really great with it. Um I think as far as other people coming in

obviously right live now there's us venuals hyena um is it or is there and then oh the market's uh soon not live yet um and then yeah obviously like setting the stage also there's one USDC exchange that's XYZ one USD exchange that's hyena and then three with markets coming uh US exchanges, Felix Menchu's markets. Um I think it's um it's an interesting landscape for sure. I think it's definitely uh difficult to find a unique area, but I think it kind of goes to show overall

that I I think HIPP 3 itself is sort of a microcosm of per in general and that I think to win in HIPP 3, you have to find a unique user base, you know, and the alternatives you can find some sort of product advantage that's distinct enough or uh durable enough that it can't be easily copied, but just deploying markets It's that these markets are so um easy deployed I guess you could say in some ways so fungeible that to try to get durability as a market deployer it's it's not going to happen like you if someone deploys a good market and it's doing well other people will go deploy that market because there are fees to be had there's at least some revenue to be taken from that and so people will do that um and

then I think the one thing that is that that works well in XYZ's favor is I still think as you know as you can see in the amounts of supply USDC has a very dominant position on hyperlquid relative to USDH and so therefore when a USD market is deployed that market is doing well it's very simple for XYZ to go deploy that market as well and then users who are already sitting in USD or sorry already sitting in USDC to trade other markets it just is easy to go okay I'm just going to hold everything in USDC and I'll go trade this market and then obviously there's also the benefits of XYZ and you know speculation around some potential airdrop who knows if that's real or not Um so I guess those are some different dynamics at at play

on that end. Um I guess on USDH obviously we are yeah very close with with Max Max and co as well. Um and have you know continue to look for ways to support USH and they've been very supportive to us too. I think uh it's a bit difficult of a position for US and I'm maybe we chatted on this in in chat in the past or but I'd be good to get your guys thoughts on it. Um, but growth mode was certainly a a bit of a gamecher for USD and the value prop there given that USDH's primary value prop was to reduce costs. Um, but then costs went to zero for everything. And so it was uh a

bit of like okay well what's the incentive now to go switch stables? something that we kind of have realized over the past I don't know six to eight months I mean post you know USDH how stuff went into USD is there's a real stickiness around um stables and the stables that people hold even if it's almost negligible or free to swap in between there's just people this is my unit of account it's USC or it's US or it's USCT and not as many people will shift all around and so there has to be a real incentive for you to if you're going to shift your stables what's that incentive if on on the US side that the costs are zero across the board. So, um we're chatting with them in different ways and we have, you know, different kind of ideas of mind or things to um

help support that, but it's still it's still early and I think it's still a lot of kind of open questions um you know that we're working through that they're working through and that I think hopefully will be beneficial to Hyperlquid at large if US can do well and kind of bring back some of the the value of that float back to hype buying. But, um yeah, I think like that's kind of how we're looking at it. So >> yeah. >> Yeah, I know a lot there. But yeah, comparatively US some of my thoughts. >> I I think that makes sense. One thing with one thing of USDC is like I don't know what you guys hold on your personal but like let's say if you hold USDC on non-hyperlquid and you bridge over to Hyperlquid. You're not going to swap into USDA just to buy something, right?

It doesn't make a lot of sense. Um so I think they have an interest. I know Hyperlink was working on bridging for other assets. Um or maybe it's already live. Um to be honest, we haven't bridged in or bridged out in a while. So, I don't know. But, um one thing I'm kind of surprised about is we have USC, USDA, USC. There's no USDT, which I feel like should have been done for some time. >> You know, we we chatted with the uh the USDT zero team on it. Um and I think yeah the first thing was like I guess from the way I understand it USDT0 is sort of the extension of the US of the

Tether team into DeFi basically all things DeFi and we chatted with them and um we were kind of chatting around you know sort of incentivization around USDT markets and I think Tether holds a very uh a very firm stance on we take 100% of the treasury revenue and that is what it is and like it's not going to change and I guess like you on our side obviously you know US is 50% to hype buyback so it's immediately different there and then there's other things that um we could do but I think yeah part part of the reason was just I think um they've been less interested in finding ways to make USDT in particular more attractive at getting things off the ground than USDH USD or then obviously USDC is the default so

that one's you know an easy one to go with um I and then I think probably the other reason is I think probably the Tether team saw pretty quickly how competitive Hip 3 would be and so it it maybe it didn't make quite as much sense like Athena to double down on let's go find a deployer because they're looking at and saying okay well USDC is is dominant um what's a unique angle that we can take here to drive something net new and unless it's like a totally unique distribution ution partner.

I don't really know what that would be. And a distribution partner for them would probably be some sort of sex, but some sort of sex is not going to list hit three markets. So, like that's that's a non-starter. So, um I guess those are my thoughts, but I'm curious if you guys have other thoughts on yeah, why no USDT? >> Yeah, I um I would have expected it from USDT zero. And if you're saying it's probably not going to happen, probably doesn't happen. I um they don't need to um even USDC is kind of lazy. I don't think the pie is big enough for them. Um like they're not in I mean you saw this during the during the like governance process for the bidding the main picker and they were kind of lazy. Um they

didn't really do anything. Um they haven't done anything in months. So I think unfortunately the pie isn't large enough yet. Um maybe one day it will be and they'll become more and more involved. But also from my understanding USCT is probably relatively close to centralized exchanges as a distribution. I don't know how that dynamic works, right? Like I don't know how much power one has over the other. Um maybe that's part of the reason why they can't go fully into like another exchange. I'm sure they have some form of non-compete or ext like that type of an integration.

Or maybe they're just super lazy and they don't think it's like worth it because you have to compete with USDC and even the USDC amount isn't particularly large on hyperlquid. So it's like maybe it's just not worth it for them especially since they went on plasma and had eight bill in a week. So it's not like they're struggling to get >> right. No, I agree. Yeah, I I do suspect or I wonder if there's uh some sort of similar dynamic between, you know, USDT and Binance or uh Bitfex or one of the other sort of uh sexes and it's like a similar relationship like USDC and Coinbase. Um but I'm not I'm not certain on that.

>> Last time we had you on, we talked a little Did we talk a little bit about BLP or was this a private message where I asked you about BLP? Um, I don't know. It's been It's been too long, so I'm not certain, sir. But we can dive into it now. >> What What is the I haven't looked into it. Yako, maybe you've looked into it, but if you also haven't looked into it, Charlie, do you um A lot of people said that BLP would be bad for Hybrid EVM and specifically bad for Felix and Hyperind. I don't think that's been the case. Uh I don't know what you feel like on your end, but to me it doesn't seem like it's the Nicholas. Um what do you think people should expect from I guess BLP

going forward and how do you see it fitting into the general landscape? >> For sure. Um yeah, so I guess for context for anyone who isn't aware of the acronym BLP is Hyperlid's native portfolio margin system um that they've been working on uh in about maybe two weeks ago, week and a half ago, late December. uh they rolled out the pre-alpha phase with a 5 million USDC starting with USDC only USDC supply cap um and then there were also caps on supply and borrow amount per account uh that were very low. I think it was maybe like 5k supply 1k borrow something like that. Um I think so far there's only been about been about 3.3 million USDC

supplied. Um, so not filling the cap yet. But again, the caps are so low and it's also just this kind of early testing phase. I think it's mainly just users testing. Um, but then also the the borrow rate is or the supply rate, the rate you're earning is very low. Um, so I guess like that's a bit of a background. BLP stands for I guess borrow le protocol potentially, but >> it was super revealed, right? What it sounds like. >> Yeah, I don't think it was ever officially revealed, but we just everyone just started calling it BLP, so ran with it. But um, yeah. Uh, and then I guess to your point around has it affected HyperVM or Felix quite yet? Um, has it hasn't really yet, but it's still very in this kind of gated early phase and so we haven't been able to see the

full extent of how it would affect. Um, I guess overall our thoughts are there's there are a couple a couple worlds with it. Um the first in the piece of conduct to lay out is that BLP unlike other portfolio margin systems on sexes. It's more of a traditional at least how from what it looks like right now. It's more of a traditional borrow lend protocol. So it's which essentially eliminates a lot of the risk from hyperlquid itself or hyperlquid sort of uh I guess liquidation system if that's what they're playing it. But um it's actually other lenders on the other side. It's not like this portfolio or the protocol is minting you margin. It's someone is lending USDC and you are borrowing USDC to go trade on margin. Um it's a it's a

different workflow. I think on on our side um there are certainly a number of Felix users that are doing a similar trade. They're borrowing stables against Hype Kype other more volatile assets to go trade more on Hyperlid. Um there are other use cases for a more generalized borrow protocol as well though that you know aren't the same as a port for large system. So it's kind of two separate products there. Um but so yeah that is something that we'll be actively monitoring to see okay do those flows shift. Um but the other kind of piece on that is the main catalyst for the flow shifting would be I am a portfolio margin user and I can borrow for cheaper on Hyperlquid or Felix or vice versa. I

can borrow cheaper on Felix and I can hyperlquid. Um, and it because of that, because of how the system is designed, it's all just it's a it'll be a rates question. So, if my cost to borrow on one platform is better than the other, I'm just it's easier to use that platform. And Hyperlquid has set up connectivity between HyperVM and Hyper Core in a way where it's pretty simple to transfer. So, if I borrow stables on HyperVM, it's about one button, one click, no gas to get over to Hyper Core. Um, so obviously if my rate is 2% or 3% less, I'm going to do that. Vice versa, if the rate is two or 3% less on Hyper Core, um, and I want to use just that portfolio margin use case, there's a good chance I shift my borrow there. So, um, I guess yeah, that's something that

we'll be monitoring. Um, I wish it was fully live right now and then we could discuss like, okay, what it's doing, but it's not. So, it's, you know, we're just kind of still speculating. But um thus far it seems like feedback has been um like relatively positive for BOP. Like not no major like issues that I've heard, but also I haven't heard haven't heard much. I think it's fairly quiet for better or for worse. Um but yeah, I guess that's our my thoughts. So, are you guys planning on building anything on top? Like, if we're saying there's some way that you can like there's a spread, right, between BLP and Felix, is there something that you guys are building to make it easier for the

user or is that something that you're considering building? >> Yes. Yeah. So, that is um in the works. Um, in the original or it's kind of like the main announcement message from the Hyperlquid team, they mentioned a couple different ways that Hyper EVM protocols can interact with Hyper with BLP on the Hyperore side. Um, one of which is kind of if you could do some sort like a HLP dynamic here where you basically tokenize a BLP position and then you can trade against that. I think that was uh somewhat interesting, but if HLP is any heristic, it's like it's it's an interesting thing in theory, but not super us or like something that people

have a ton of demand for in practice. Um, but what I do think people have demand for is you can find a way to essentially supply uh to BOP. And so we're thinking on some different dynamics on that side, ways we can do this. Uh it's it's not super straightforward. um basically finding a way to do that in a a way that you're not going to jeopardize users or being custodying funds or something like that. And so we're thinking through that, but um yeah, there there's there should be an interesting synergy where um we can allow lenders to get access to VP as well and then basically offer the best rates across Hyperlid's borrowing ecosystem. So um but yeah, still still early on that side um but in the works,

>> right? Good. I have one last question, Sean, before I'll let you ask. Um, this isn't related to hyperlquid. Well, it's kind of um with Morpho um if and when Morpho, let's say if I assume they will eventually, but they decide to take a fee thing, how does So, you guys already have a lot of products, so I don't think you have to worry and I assume you're going to be focusing more and more on different products, but how do you see that? because we we hear this thing about modular um lending doing really really well. Um I does morpho implementing a fee um to take into to buy back more for whatever

they want to do. Is that is that an issue that is that something that you guys have considered? Is that something you've spent some time thinking about? >> Yeah. Uh it's certainly something that we've considered and continue to consider. Um, you know, when we made the decision to work with Morpho back in November of 2024, um, we were assessing a number of options there and this certainly came up and it was something that we discussed a lot. Um, I think sort of our overall takeaway is that it will certainly depend what that fee is and then what the trade is in exchange for that fee. you know, if it's um what is the benefit on our side and I think uh there are multiple ways that the mor team has been really great to work with

to this point that I think um would justify some sort of fee and then I I think there are also uh different things that you know they can do to support protocols that would make doing a fee less uh you know less of like okay I'm immediately going to fork the protocol and go do something else. Um and I'm I I mean I know that they are thinking through that as well. Um, and so yeah, I think on our side though, like it's obviously it's like a consideration, okay, like would they do this or when, but we haven't heard any sort of word on uh if that would be anytime soon um or what again like what what that trade would be for return this fee, but um this will be enabled as well in tandem.

So yeah, >> I think that makes us I forgot that you guys can just fork the protocol and do your own thing. So that gives you more leverage than or I guess not you as in like oh you guys are definitely going to fork the protocol but I forgot there's quite a bit of leverage that you can have and I imagine that they're also thinking for that. Um I just like I'm worried about we don't have to talk about this. The last thing I'll say is that I'm worried that Morpho is going to put itself in a place of unis swap at some point where like it really struggled to put on the P switch because um well it would take away money from other people who were important to them. Um I don't think

that's going to be the case. It's just like something we've been internally thinking about at block research like how these because with model epic it's relatively easy. It's one guy running it. it takes all the money. But with modular, it's more scalable, but tough to monetize maybe. >> No, I think I think it's a it's a smart thing to discuss for sure. I think um yeah really I think it'll it'll have to come down to um trying to ensure the product is so good that the product meaning everything from the protocol itself to um the kind of ecosystem around curators or people building on top of the protocol to uh

you know I guess the uh I guess network of the protocol and both on a personal level and then also just you know, as far as curious interacting with other participants in the ecosystem, like that has to be so so strong that it wouldn't make sense that I'd go elsewhere. I think it's getting to that place. Um, but I'm I'm sure like that's kind of in large part what they are thinking through and want to ensure is is the case until they go and then do a fee switch and then they'd probably do some sort of like maybe a gradual ramp up on the fee or a smaller fee to start and slowly something there. But um yeah, I guess it's kind of like it's we it's like we'll see. But I mean I think Morpho is a pretty excellent product and um it's been awesome like on our side to

work with. So yeah, I guess like that's uh what thoughts on Moro right now. >> Very good. Very good. I won't put you more through this. I have one last thing and then Yakob you can ask. I um Hyperbe attempted to do this. They attempted to create I don't know if they have already but they wanted to create a mobile app that allowed you to do payments etc. Um a released some form of an earn app recently. It's not public. It's semi-public like you need to know Mark's dollar and he needs to be nice to you. Is this something you guys are considering? Maybe not for the per product because I think it would be difficult and you'd have to go into builder codes which is very lucrative obviously but also very competitive. Um

but is um is some form of a card product or an earn product or something of those sorts interesting or is it again like too regulatory heavy to the point that you're like you know what let's leave it to other people or it's going to be the back end side? >> Yeah. Um I I would say it's certainly interesting um but just not something that we're focused on right now. Um, I think in part it's because sort of our our focus has been on like our our bio says our website like serving the trader. We're focused on basically power traders like that's our target user base. And so it's less focused right now on like the retail I guess normie audience as much. Not to say that that

isn't like maybe something that we would go pursue uh later, but just right now it would feel like a a major shift in sort of okay, what's our go to market on this if we were to do that. Um and then also same thing on like productwise uh UX- wise like we we are building for power traders currently and so to think that we'd also go build with someone you know who wants to go earn yield on you know 500 bucks and they're just testing out crypto for the first time would be a bit of a a different shift. So maybe something that'll be considered soon but um just not right now it's not a huge focus.

>> Okay, that makes sense. I also feel like it's kind of a lot of work to do do a mobile app if that's your maybe something down the line. >> Yeah, just to get back to the BLP, I think another interesting thing that I saw reading through the docs and I didn't really see it being spoken about much is that Hyperlid is going to have a taker fee on the interest, right? Like a 10% similar to a reserve factor. And I I wonder if that's going to be a significant amount of revenue for them because you then capture like 10% of the interest that's generated and that's going to be in USDC. So it's kind of a diversified revenue stream.

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As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. >> On the topic of that, maybe it's good to bridge into this idea that we've been thinking about which is hyperlquid's path forward, right? Like do they want to go for the more Robin Hood style method where they own the front end where they own the user where they have these different monetization touch points for example they have the BLP that they can monetize. They have the USDH where they get 50% of the revenues where when you own the front end you have these sticky users or do they want to go for this NASDAQ liquidity layer that I think they were signaling for in the beginning of the year I think they were like pushing to that more and I

think now slowly they've kind of realized the importance of this front end and they're shifting back to owning the user monetizing and I think BLP is a good example for this. So curious what you guys think there. >> Yeah. Boach, you want to go first? >> No, you have to go first because I need to not say something controversial. Please go ahead. >> All right. I'm excited for this. But um yeah, I guess um to the point on BLP, I yeah, I agree. And I don't think it's been spoken about. I do think that is part of um what I was saying earlier around BLP is like a it's a borrow protocol. It's not a traditional portfolio market system. goes to show like the take rate is there like it's the same thing on you know our side on

the morpho side like we have a take rate on borrow interest that's how we earn fees a has a take rate like so this is hyperlquid is now you know they're they're a curator now like they're taking a fee so um yeah I guess like there is certainly a dynamic there on the u NASDAQ verse Robin Hood equivalent and which which one to lean into. Yeah, I agree. It definitely seemed that there the emphasis was more on let's be the back end and the best backend starting the year and then you know you could you know call it competition but um other per exchanges coming online I think definitely forced a bit of okay we need to double down and own the interface as well because these these otherwise we're

going to lose our user relationship and I think like you put in the article um which is very well done may I say sir um like you put in the article that think uh yeah you show that I think Robin Hood was earning maybe 10x the fees per dollar as NASDAQ was um which I think is pretty damning and obviously um in Hyperlid's case it's uh what they highly tout is these are the fees we make this is the revenue we make but obviously if if flow starts flowing elsewhere um those fees will not be there so how do we keep flows here where we have to own the user relationship um either offer the best liquidity offer the the best execution cost or own the relationship Um, ideally you can do both, but it's like, okay, well, which one of these is

more valuable? Right now, it seemed like it's probably the former owning the relationship. So, um, I I do I do think that we will see continued emphasis on the Hyperlid front end, the Hyperlid UI for the foreseeable future. Um, there's been some discussion around like, okay, the UI is getting too crowded right now. there's all these HIP 3 to players, all these different assets going on, different code assets, different um different offerings, but I just uh it seems too valuable still for them to walk away from that. Um so I I guess yeah, in my mind it it continues to look like decentralized brokerage more than decentralized backend, but um I guess

we'll see. But Doc, I'd like to hear controversial thoughts. >> I think it's not as controversial. So I have I agree with you. I think first of all lighter is the best thing that happened to hyper liquid in a long time. Um like I think the the fact that lighter is um focusing on shipping things under their own brand um no outsourcing means that hyperlid has to focus on the their own UI which I think is a good thing. Obviously, I think Robin Hood is this is not I think it's like factual that Robin Hood is a better business model than or Coinbase is a better business model than uh my controversial

take is that I think Hyperlid eventually has to decide on whether it's going to outsource or it's not going to outsource. I think unit is probably the best comparison like the best example of outsourcing without actually outsourcing in my mind and I'm sure that I will offend some people about this but uh I I think most people at least think or semi agree that unit is kind of a chosen um spotlister that um was not democratically elected and I don't think it has to be democratically elected. It's just kind of outsourced. Um, and I think they should continue doing things of that sort. If they're like, if outsourcing is out, if they have to outsource, they should do it in that

way. Um, as opposed to creating like this base layer. It's I also don't think that they would enjoy doing that because it means they have to do sales. And to me, the hyperlquid team doesn't seem like people who want to do sales. Like I can't imagine Jeff and I Inc. going around and saying, "Hey, we have the best base layer built on top of us." Um versus like focusing purely on a product. I think that's probably more attractive for that. Um the negative thing here is quite obvious is the hyper EBM side. Um how much can they compete?

Uh I am a seed investor in Kinetic. Um but it makes so much sense for them to just build out liquid staking. I don't think they will and I hope they don't but that is one of the logical conclusions and another one is BLP makes sense especially for portfolio margin. Um objectively I think it makes the most sense to to just like build it internally as much as possible. Um so not a very controversial take. I guess the controversial take there is that lighter is a good thing that happened to Hyperlid. Ethereum had Solana um and they just kept saying we're more decentralized. We're more decentralized.

Um, I'm glad that Hyperlquid's responses instead to build out core functions. I don't know how they're going to deal with the liquidity, the UI fragmentation. Um, the like I'll pull it up right now, but this is like objectively not a very beautiful I this is not a like this is objectively not a very very beautiful way of doing it. Um, and this is with strict like if you do with all it's a lot more um and not great. So I think they're going to have to eventually figure it out and one way for them to figure it out is probably to just rely more on builder codes. But on that end if you think about it like how much do you guys trade with in silicico terminal? Do either of

you ever use it? Like I think um sophisticated traders use like sophisticated as in makers use um mainly APIs and whatever they do like coding stuff. Um and I the proumer doesn't really exist for perists for meme coins like axim and stuff I would say is a proumer interface. Um, I think based, for example, based one, I don't know what is the official base 1x I will call it, is a good front end. I'm just, and they make a lot of money. I wonder if they make a lot of money because they have a points program or they're planning on doing a token or if it's because they actually offer it service.

I don't think Hyperl can rely on that. In which case, I think they need to um, so far they've done a really good job with the UI. Like I think Hyperlid even now lighter has had the opportunity to copy everything that Hyperlid has done and they haven't but they've done something very similar I still prefer the Hyperlid UI. Um even though the position sizes that I trade don't really matter like with the liquidity. Um I just like the Hyperlid UI and like even if Lighter had a points program. That's not to say that Lighter doesn't have a good UI. I like Lighter still but um they've done a good job. I think they have to figure out how to do the UX fragmentation, but apart from that, I think it's um it's mostly about they're going to have to eventually build up

more and more in house. Um and that's not necessarily a bad thing. It means that um protocols may struggle a little bit eventually. some other protocol and we saw this like I don't know not like there are some AMMs that launched on Hyperlid not recently but before that weren't necessary and they made a lot of money but like that was already probably too much for them to make like the blockchain needs to monetize as much as possible um by launching its own products or else you get I was so day one 26th of November mber. When did Monarch? I think 26th of November. Um,

Salana made $13. It's not sustainable. Like you need to have your own ways of making money um which is allowing people to trade BLP um and any other thing and like having controlled outsourced protocols that will ship all of the revenue into your main token. >> Yeah. No, >> no, it's >> that country. I guess I'm curious on that end. Um, and I think maybe you guys or some someone at Walks put out um piece on this a while ago and then it was reservicing, but I'm curious to hear you guys thoughts on the the buyback question and the uh yeah, this is so I will first of all say

two things. Blockworks advisory and blockworks research are two separate entities. I don't really talk to effort capital that much or anybody from the advisory side. They mostly work with protocols and most of our work is with uh the investor side. Um and on our end buybacks until very I think still today are the most efficient way to show investors that there is no difference between your token and your equity. Now in the future this might change. There might be regulatory changes and one thing I agree with effort Capital is that one of the misses of like regulatory is making token equity and like giving people the same right. It is impossible to do at this current stage of regulation and

it's going to need a lot of KYC stuff and etc to make it work which I don't know if we even want it to work. Um like there are still some people who don't want a KYC including me. Um which is fine. Um but So on that end I agree that if token was equity legally there's no need to ship everything into the token but until token is equity legally you need to show that the token is not some worth like it's a response to everything that's happened over the past let's say five six years in crypto because I think before nobody really even thought about it but like at least

over the past for you as it's been more and more a conversation. >> Yeah, I'll just quickly give my take as well from like more of the investment side of things. It is a reaction to like these unsustainable tokconomics and just so much supply being dumped from PCs that for a period of time almost everything felt uninvestable, right? Like you have either it's overvalued, either the tokconomics are terrible or there's no value being directed back to the token. And if you just say, "Okay, easy. we were taking all the revenue putting it back into the token. It's a very easy mental framework when you evaluate something. You can see okay they're making x amount of revenue there's this much percent of supply uh

circulating it's going to take out x per year and it's like gives you confidence that even if there's no marginal buyer right now because of the sentiment that because of the product's revenue it's going to eventually get to a point where um there's buy pressure just from the product they have. So I guess you would say it's it's less of um it's less of a question of is this sort of the the best use of capital which I think is what some people a question like oh is there something else that's higher EV to do with this capital and more of it sort of table stakes that you have to demonstrate to users that this token has some inherent value and this is how you demonstrate it and this is

the only way so therefore this is what you it must do is that is that kind of I guess >> I I think maybe a better way to do this would have been like if Hyperliquid said okay so it's 99% right now buybacks or 98% whatever if hyperl look on average 1 to 2% goes to HLP we will take 5% for um whatever growth um and then we will keep and then we will buy back the token with the remainder >> um like that is probably a better way um but on the other hand I don't think hyperlquid's a team that is really struggling for Um and if they don't like they have kind of done what

um effort Capital was David was mentioning in that tweet which is they are giving away 50% of fees for certain products or growth right like Shauna you have those figures about how many new users come from builder codes and I don't love like doing the user check um because often times it's not completely accurate but a significant amount of maybe not volume I think it's like 7 8% of volume comes from builder codes now which is not a very like low percentage I can't imagine non uh Binance front ends make up 8% of Binance's volume like that to me doesn't

seem reasonable um so I think there is some growth with that and they give up 50% of whatever like spot assets sometimes although So um that hasn't been the case. So they are giving up some revenue for growth. Um is there a better way to spend it? Should they be buying 98%? Probably not. But it's like a it's a simp it's a it's an outcome of the times. It's a consequence of the times like we had so many years of no relevance into equity uh no relevance of tokens that um I guess Hyperl would have to come out and say look like all of it goes to the token. Um there are some other teams I think that

probably shouldn't have done it like nobody expects um what was the other one I think Jupiter to do programmatic buybacks. um they should have, but they still had enough cash to buy out a bunch of other products. So, it's it's a difficult thing. Like, I I I agree with the general sentiment that um you can save some money for growth. I think they should. Um I think Hyperlquid eventually probably will and the token will go down for a bit, but in the long term, the market will realize it's the right decision to make. Um but also like the argument there was uh tokens have gone down despite the buyback. Um, I can't imagine how much tokens would have gone

down if there was no buyback. So, I think that's another thing. Investors care about what happens to the revenue and the supply unlocks realistically. Like that's the biggest thing that they care about and it gives them clarity on what happens to it. I think it's it's a much better way to do it than the way that some other protocols do. But I imagine in the future there will be more and more better ways. If we just had more transparency across how teams spend their revenues, I think Hyperlord wouldn't have had to do it this way. >> Yeah, it's interesting to think of uh think of the world where Labs launches in that um in a a nonopaque DeFi valuation world. But um yeah, I I

do think there's a there's a point to it, like you mentioned, where it's not like Labs is struggling for cash. And so if they wanted to go invest in different initiatives, it's it's not that they're hindered from doing so because of cash. I think it's more focused in an active decision on here's what we want to focus on or whether they want to maintain just a small team with limited focus or they want to expand to some, you know, Coinbased level organization. I don't think necessarily they're at least indicting the next steps after that. if they did want to expand. I don't think they're limited by cash per se. It's more focused on an active decision. But yeah, >> the thing is that everybody likes to run their organization differently. Like Charlie, I assume Felix is like you guys have your own way of doing things and

you either like want to build everything inhouse and that's like very clearly what you want to focus on. Or maybe you're like Coinbase where you just want to like acquire or like Jupiter also does this. They just buy up different products and bring them under one umbrella. Um, to me, Hyperliquid seems like they want to build out everything in house and that's like their eels. Um, so maybe they need that, but Jupiter probably needs the cash, so they shouldn't do automated buybacks. It's a very complicated. It's like very easy to look back now that prices have gone down and said, "Oh, you shouldn't have bought back." But it's it's a symptom of what the times were. We'll see how things change going forward. Um, Yakob, unless you or Charlie have anything else to say, I

think this is probably a good time to cut it because people tend to lose attention after minute 60. What do you think? Anything else you want to say? No. Charlie, always a pleasure. I'm glad we covered more of Felix today than we decided because I feel like you come on the pod and you're so kind and we just talk about hyperlid. But I will I have I'm happy my morpher question. um because some I don't really get lending that well, so I'm glad that somebody's able to explain it to me a little bit. Um >> anytime, sir.

>> But yeah, um thank you again for coming on and um to our listeners, I hope you all had a happy new year and see you all next time. See you guys.