Hivemind: Record Liquidations, Auto-Deleveraging, & Biggest Post-Crash Winners & Losers

Transcript

I got the big alert that your account has been uh liquidated, which which wasn't super fun. And I kind of just sat there at my my computer and just looked at the screen and I I just sat there for a few minutes. I was like, "What just happened?" And like even over the weekend, I I really wish, you know, you can screen record your computer. I would have loved to like go back and just like rewatch that because it it really will be like like go down in the history books especially for us degents because I mean that was I mean co crash was big but this was something I' I'd never experienced.

>> Nothing said on the hive mind is a recommendation to buy or sell securities or tokens. This podcast is strictly forformational purposes only and any views expressed by anyone on the show are solely our own opinions not financial advice. [Music] Hi everyone and welcome to another episode of the hive mind podcast. The goal of the podcast is to provide an inside look into what we like to call the deli hivemind bringing together some of our brightest minds from each of the divisions to share insights alpha and [ __ ] posts. Today with us we have Cedus Parabus who heads up our institutional

research arm. We have Jason, also known as 3x liquidated, who's the head of macro at Delphi Research and a regular guest on the hive of mind. And for the first time, we have Flip, who is an associate at Delphi Research and kind of our perpet expert who is up all all weekend writing a post on on on what happened after the craziness on on Friday. So excited to talk through this with you all. And I'm I'm Jose. I lead Deli Labs, which is our protocol R&D and incubation arm. So, this was a pretty wild Friday night. Um, I I tweeted that I think it's like the craziest conditions I've ever experienced in crypto. Like, crazier than COVID, crazier than crazier than Luna, crazier

than FTX. Um, the damage was pretty extensive. Um, there was 20 billion in in liquidations and that number is probably under reportported, right? because Hyperlquid alone I think was 10 bill in liquidations and and Hyperlid's like a quarter or so of Binance's OI. So if you assume that those those APIs were reported properly, maybe we're talking like 50 billion plus in in in liquidations. There was like 1.6 million traders liquidated. Um insane levels of volatility like there was coins dropping 80% in in in seconds. There was like gas spikes on Ethereum. E I think gas hit,000 bucks. Uh, Binance was down for nearly an hour. Lighter was down for

five hours. Hyperlid had a lot of had uptime, but obviously the the it triggered ADL. Um, I think after the crash, open interest declined by over 60% when I checked like in obviously it's USD denominated. So, you know, it it doesn't account it accounts for the price drops too, the sort of notional price drops, but still it dropped by nearly 50% on Binance alone, which is just just wild. Um, and so there's a lot of theories about what happened. Um, a lot of great threads on Twitter, a lot of people digging into it. I think we're going to we want to discuss that today.

But to start with, maybe we can go around the horn and and ask like how did you guys experience this? Like how did did was it did you get hurt? Was it was it painful? And also then like what do what do you think happened? And maybe we can start with with uh with you, Flip, since since I think you're probably deepest in the weeds on this. Yeah, it was it was uh it was tough. Like I my per my per uh portfolio was was unfortunately liquidated and I was I think I was net 1.7x long. Um, thankfully it wasn't a huge percentage of my portfolio, but it was it was quite, you know, I was sitting there and I just gotten off the phone with my wife and I'm I'm just watching things tank and I'm just sitting there and I've I've

got like a a sizable long on Pingu and then I've got a sizable short on on Zora and I really I really thought they were going to be a little bit more delta neutral. Um, but the just because the size of the pingu position, it just like I was I was starting to rush to like put more dollars into my per account and to keep myself from getting liquidated cuz I could see like the red line on Paradex. I can see it just like keep inching down a little bit because that first order was falling faster and then it just it it didn't quite happen and you know I got the big alert that your account has been uh liquidated which which wasn't super fun and I kind of just sat there at my my computer and just looked at the screen and I I just

sat there for a few minutes. I was like what just happened? And like even over the weekend I I really wish you know you can screen record your computer. I would have loved to like go back and just like rewatch that because it it really will be like like go down in the history books especially for us Dgents because I mean that was I mean co crash was big but this was something I I'd never experienced and very different than Terra Luna also um just because it was crazy these altcoins I remember looking at trading view and I had all my alts pulled up on the right and a lot of them were 70 to 90% down and I thought they were you know somewhat decent altcoins and the liquidity just disappeared. Uh bid ass spreads were massive. You couldn't get filled. I had friends who

were trying to bid, you know, had stink bids in that, you know, most of them didn't get filled because there was no liquidity or their their actual like price that they got in was, you know, 5 10% different than where their limit was. So, it was it was quite quite crazy and I feel I feel really bad for the uh the people who are running Delta neutral. um you know their their long was on on lighter for instance and their short was on on on hyperlquid and then ultimately got ADL. I think that's really tough to see because it you know they wake up that morning they see the big crash like oh crap my my longs probably got stopped out or liquidated you know it's whatever but then they show up and uh on their their longs and there's or the shorts and they're just

like wow I just I just got screwed. Um so that's really hard to see. So, I'm excited to see how different teams go about uh playing with their aggressiveness of ADL and other things that they they might introduce because this evidence that we >> Yeah, >> I I think we'll get into ADL actually because a lot of people were confused about this and I think some of our pro members requested a uh Eli 5 explanation from Cedus. So, we're gonna we're going to go go for that later. But maybe first, how Yeah. How about you, Cedus and Jason? How was it for you guys? >> I'll let someone else do the ADL thing. But uh for me um yeah to be honest I wasn't like feeling too hot and so I took like a little nap and then I kind of like woke up and I

looked at my phone and there was a message from flip and it said do we still have jobs on Monday and I was like what like what's going on? And then I kind of like pull everything up and then I go and I'm like looking at the charts and it's like yeah stuff has crashed a lot. But it at that point to me it didn't look like too crazy, right? Pump was at like 45 or something like that. Soul was like in the 190s and then I start going to like the deli reads chat and I'm seeing like someone got filled at like 015 on pump and I'm like what pump went down to like 015?

Um like how? And then I start looking at then I'm trying to like figure out what this stuff is actually trading at. And then I realized that like I'm pulling up like Coinbase charts. It like soul is trading at like 200 on Coinbase and it's trading at 180 on Binance. And I'm like what the what the hell is like going on here right now, right? It was just like that was the wild thing for me here is everything was like so disconnected for a long time like an hour two hours you had prices on all the exchanges be like completely different right um me personally like I don't trade per so it wasn't like too bad from that

perspective like spot positions went down and stuff but whenever whenever we get these big kind of blowups actually don't do anything. Um, I kind of just like like I don't use the blockchains. I don't like do anything. I kind of just like watch stuff happen because I don't think that I can really do anything that's going to like I kind of just let stuff shake out. Um, but yeah, like when when the stuff was so dislocated for so long, that's when it was kind of like weird. And it was specifically on Binance. Um, and then you're starting to think like, oh, somebody on Binance must just be like blowing up or something and

is just like liquidating all their positions. And then you saw USDE started to go down on Binance and then that started triggering more stuff because like that's not what started this. It's still really unclear. >> It's clear that it wasn't what started it though. I think like the the time series is pretty clear that like USD peg 20 minutes after the the bottom of the of the wick. >> I honestly I honestly think that this was just too much OI in all coins that I mean Jeff Dorman had a good post on this about how it trades like high yield bonds and liquidity the bids just kind of evaporated all at once and it was like this technical crash that kind

of like got out of hand. Um, and I don't know if we'll ever know the true driver. Like the thing is, you don't know how any of these liquidation engines actually work, right? Even even for like hyperlquid, okay? Like hyperlid is on chain and every like onchain. Um it like you can see positions, you can see how much was liquidated and everything but still like the source code and everything you don't and obviously with the centralized exchange >> the ADL formula is also like open like you could you could in theory derive your place in the ADL queue I believe on hyperlquid using their their ducks like >> yeah I mean hyperlid is definitely way

better than the centralized exchanges when it comes to this but even still like especially with the the big centralized exchanges like you don't actually know how they're liquidating the positions, right? >> And so, >> and then obviously once like so many people use Binance as an oracle, um, then it kind of just made stuff worse. So, that was my perspective. It was kind of just like, um, and the thing is like the majors didn't go down that much, right?

So, >> it depends on the platform. I just mean from a spot perspective. Yeah. >> Right. Like so somebody who >> and I'm not saying and I'm not saying like and I'm not like saying like per are bad or anything. I just like don't personally trade pers because it's just something I'm not like good at or whatever. But like the the spot positions didn't actually go down like too much, right? Like it wasn't actually that massive of a move. It was mostly like on the majors. It was mostly like the alts. Um, I think what what you really what really came to the forefront after this whole event is like we've talked about this whole consolidation thing over the past couple years. And we always talk about

the consolidation with like price and everything, but it's like liquidity too, right? Like this consolidation is not just the price of these assets. It's like the whole market structure around them. And there's just like no bid for so many of these things that might trade at like some high paper market cap, but when someone needs to step in, like nobody's willing to step in to be the bidder of like, you know, Adam, which went to a penny, right? Um, so that's the biggest takeway. I I think it was Yeah, I think it was a but anyway, Jason, maybe you can you can uh jump in with your your thoughts if you have

anything to add. >> I mean, I can't there's not too much to add on uh you know, kind of what happened. I guess we'll get into the the Athena thing and the uh and ADL a little bit more in a sec. But I mean, yeah, for me, like I I was actually just getting back from from running a couple uh errands and I just like walked inside and everything was just like kind of nuking and I was like, um, what am I really supposed to do? Like I didn't really have like a like a good uh game plan, right? Like I was kind of expecting like a a decent little wash out to like like 110 or something maybe. Um but like yeah and I just like really

wasn't expecting it. Kind of caught me off guard. Um I had some fairly low leverage positions that were pretty big notional that were already on that just um pretty much went to zero by time I like sat down adjusted my chair like you know took some eye drops to like make sure I wasn't dreaming. Um and then tried to buy something that got liquidated within like two minutes of opening the position. I was like, "All right, you know, I'm just going to not light more money on fire." And then I tried to send more money over to Hyperlid to buy things when um when when like I I was like kind of comfortable to buy things because I was,

you know, pretty low cash balance by that by that point. Um and it took a while to get money onto uh onto Hyperlid as well because because that [ __ ] wasn't working. So like nothing was like working across the board. Um, I think buy bit worked. I think Hyperlid worked. Everything else kind of had issues, but like even getting money there wasn't wasn't easy. Coinbase didn't [ __ ] work. Um, I was trying to buy pump there too didn't work. Just didn't nothing worked really. Um, at least things I was trying to buy. So, it was just like kind of shitty. Like obviously like it was a pretty big hit for anybody that had any amount of leverage, right? Like I don't know, somebody had that threads like 1.3x or above you you you your your positions

got like it's like [ __ ] insane, right? Like >> and it was the perfect storm with like the perp decks farming spree. Like so many people >> he brought everybody from the trenches to these per deckes just to get nuked in one >> rinsed on memes getting rinsed on per >> Yeah, we got to go back to the animals. >> It was alltime high. Like I've never seen anyone and I was feeling like kind of bad because I I've been meaning to like start farming lighter for ages and I just didn't get around to doing it and then I was like [ __ ] hell. I would have definitely gotten wrecked on on this one. And yeah, this there was a bunch of laziness that actually like saved me because I I yeah I was I was gone all day and then I came back

someone sent me a screenshot of like Athena like 20 or you know 25 cents. I was like what the [ __ ] just happened? and I went on my my computer and just started looking at stuff and yeah, I just missed like the real the real bad wick but I just yeah I was like fortunately I think enough times passed now but I was like somewhat bearish over the last few weeks and so I had some cash and so I just started bidding [ __ ] Um just I think over time in crypto those times are like the scariest to bid but you just have to bid I think. Yeah, if you have money in there, you have to >> if you're long stuff and you're not a trader, right? You're like long well you're long stuff with some fundamental like long-term basis. You just have to

bid these like negative 30% liquidation days for selling. >> So, I I just did a bit of that. >> There were plenty of top signals too. We were learning Chinese us Americans were learning Chinese memes on B&B. Like there were there were plenty of frothy signals there for us. >> Yeah, sure. for minus 10% not minus [ __ ] 80. >> I also was trying to do the the USD trade. I was trying to do the USD like because I saw USD I think at 90 something cents and I was just trying to figure out where I could get pers to like lever up on the on the on the trade because I just thought it would going to be the best like risk return. Uh because they were I I saw they were like continuing to do redemptions one to one

and like mechanically unless they got ADL which maybe we should get into next. Unless they got ADL, I kind of knew that uh they should be doing better here because also that the dislocations on the per versus spot markets were absurd, right? Like some you had you had some of these things trade like 10% below, right? Like the and so for them when they're closing out the per positions, they're just like collecting collecting that delta. >> Um so I figured they'd be more overlized. Then yeah, guy had the the the tweet. He was really on top of it. Um, maybe we can go into Yeah, I mean I think the USD and like Athena discussion is interesting. Maybe we can start with just like ADL because I think a lot of people were surprised to find out that this was a thing. Uh, to to know that

Yeah. Like I think most people did not know this was a thing. And maybe I'm going to nominate Flip as our perex expert. And maybe you can go through just like the waterfall for most perplexes, right, of like the the insurance fund and then uh ADL. Um yeah, >> I think also before flip goes, the important thing to point out why ADL exists is because like none of these things have KYC and like there's they're not like you have to do ADL. So Flip, you can go into explaining how it works, but like I think a lot of people have kind of been missing that point. Like if you don't have ADL, like what do you do?

Right. It's also a very common like risk like engine piece in exchanges like it's it's quite common and people there's pros and cons to both like some some people prefer doing socialized risk because then instead of taxing your your traders who are who are in the green you just kind of socialize and everyone wakes up to a one two% cut and then over time they get you know their their plat their you know notional value starts to come back up to par as that gets paid out. But I kind of view it as like exchanges have three core functions and they they try to maximize each of these.

You've got liquidity, you have solveny and you have uptime. And like ADL is to help with the solveny side of things. And and how it works is like the pecking order is like, hey, you have liquidations on the order book, then you hit the insurance fund, and then you then you get ADL as like a last resort to keep the the exchange solvent. And so like it's it's great from a risk management standpoint for the exchange, but it just it just taxes users. And what happens is like once the insurance fund is like hey tapped out hey we can't fully liquidate this position then you start hey who's on the other side of that trade like who whoever was long you know pingu and who was short pingu like the whoever was long is you know getting liquidated but the fund doesn't have enough uh assets to liquidate it so then

it goes to ADL and so it's like okay who was short pingu we got to start trimming that based on their P&L percentage and leverage is is kind of how it works and that's just to keep the exchange solvent. So basically though, how it works is like um you're just netting them out, right? Um and it starts with like the the highest leverage is what they start to liquidate first, right? Because it's auto deleveraging, right? Like you're trying to delever the system. And so this will get into Athena after who like doesn't use leverage, right? Which is why they're at the bottom. But you start with like the accounts that have the most leverage and you start cutting them down. Um, I think one thing though that's very unclear is that these exchanges you you talked

about how like it hits the insurance fund first and then ADL. I think that's how it's supposed to work, but I don't think that's how it works, right? Because all these exchanges have like massive insurance funds and I'm pretty sure they went to ADL before that. Yeah, there's a lot of undisclosed things around like ADL and insurance funds like for for Hyperlquid and others like the logic and like the threshold for like when you get ADL is is not clear. And then also like the insurance fund like how many dollars are in there, where it exists, when does it kick in, when does it not? Like things like that aren't super clear, which is isn't helpful. And so like I think teams like lighter have come out and said, "Hey, we're we didn't do a good job of this and we're going to do a better job

of saying like, hey, here are our thresholds for ADL." And I think it it's quite interesting because it's it's very hard to find information on insurance fund like for the for the normal user like you have to quite you have to dig quite a lot to find it on on hyperlquid I guess high level is it where is it is it just longs and shorts have to balance obviously right on a on a per exchange so if longs get wrecked um you need you need to close you need to either find more longs to or or or you need to close some of the shorts right otherwise there's no one to pay out the shorts >> and this is where it gets interesting because you saw like lighter less aggressive on the ADL side. So, their LLP took a huge hit because they they were the market maker of last resort.

>> Yeah. What the hell happened with with lighter? Because I'm confused as to what happened with with lighter because LLP somehow ended up um short. That That's what's kind of weird. Um like what what I don't really get. Do do you know what happened there? Like has there been a a postmortem on lighter? the postmortem on that side isn't was wasn't super helpful, but their their LLP works more as like a a lastm minute market maker, a market maker of last resort. And HLP's kind of stepped away from that. Earlier on, they were much more they were doing a lot more market making and now they're not. Why why LLP is negative like like bearish right now like net net short like I'm not sure, but they're generally

speaking uh the the market maker of last resort. And that's why you saw like users on their platform like there were still some ADLs but they were less aggressive. So like there were some people running delta neutral with their their their long on hyperlquid short on lighter and like they actually woke up fine and like they were okay because the LLP took on more of the the losses and risk than the users versus like HLP's up you know 140% annual whatever right now something crazy. And that's because instead of the the vault taking the hit the users took the hit. And so like there's pros and cons about >> on on ADL. I want to give the actual like Eli 5 explanation, okay? Because I still don't know if people totally get it. So for a super simple example, say you have two traders, right? One is long

soul, one is long 100, one has $100, they both have $100 of collateral. Okay? And there's a 2x long and a 2x short. Okay? So those are with 100 $100 of collateral and a 2x. That's a $200 position. Okay? when the long when the when the price of soul goes down 50%. That long now is worth zero, right? Because the 2x levers the $100 got like wiped out to zero and the short is now in profit $100, right? So at that moment in time, they completely cancel each other out.

Okay? If you don't force the short to close there, which is what like ADL kind of does, and the long keeps going lower, then the exchange now is insolvent because it now owes the short more than that long was able to like pay out, right? And so essentially that's what the the auto deleveraging does is that there's no like transfer of like physical like the insurance fund is like physical dollars that is coming in to like bid it up. The ADL is like this. It's just like this math like canceling each other out sort of deal. Um and so shorts sometimes feel screwed because it's like oh this thing dropped 80% I would have closed it out down 80% but

they automatically forced me out at like 50%. Um and so in isolation that might not be the big that might not sound like the biggest deal to you like oh they still made like 50%. Like that's that's dope. Uh but it's the fact that a lot of people were running deltateneutral strategies, right? As we talked about earlier, how was like one exchange they had the short leg and one exchange they had the long leg and so they weren't end up being delta neutral because they got automatically like closed out, right? Um so I think that's like the best EI5 I can kind of do for it.

>> Yeah, it's a good that's a good EI5. Um but why? Yeah, cuz cuz you would think that LLP and HLP would end up like long after this, right? Like they would be they would be they would be buying the the the bottom basically. So it I don't know what happened that that LLP ended up short. >> It ended up short the Yeezy token. It was the entire >> entire lie. So just bleeding that to zero >> which I mean thankfully like won't mess up their profits like that much like the yield it won't hit it too bad but you know but it's also like imagine if that was on like a much bigger like asset

like that'd be tough >> I think ADL honestly the the people that had the best ADL implementation was BitMX. I don't know if you remember if anyone traded on on BitMX, but they had like that you could see your position in the ADL queue like transparently back in the day. Uh which I think is like pretty interesting. >> He also turned off the exchange at pre primo times, right? That that helped too. >> I mean, if he was here for this one, we would >> redo. >> Huh. >> If he was here for this one, he would have just turned it off. We would have been good.

>> Yeah. Well, Bitex was posting. They're bragging about their uptime actually during this whole thing. Well, I I think that Q logic is like interesting. I think other exchanges should look into it. Like Lighter, Paradex, I'd really like they should look into that because I was talking to some market makers over the weekend. They're like, "It'd be nice to know where I was in like where I was in the queue on on when I was going to get ADLs." >> It feels like that is going to be the next we are going to get things are going to change after this. I think people are demanding a lot more transparency into like how these liquidations are actually happening. Um, and there's so much competition now in PERPS that it seems pretty likely we're going to get this. And yeah, the ADLQ thing. I'm sure we're going to start to

see exchanges put this ADLQ. Now, maybe I don't know if there's like some there's I don't know if putting all that public if I haven't thought about like the downsides of that like maybe people can be like hunted or something. I'm not totally sure. Maybe somehow you can make it private so like only the person who actually owns the keys to like that account can see where they are in the position. >> You can hunt an ADL because it's a it's a systemic exchangewide thing, right? Like ADL happens. So I think you'd have to if you'd have that much capital there's probably better ways to hunt someone. I don't know. Maybe I'm not thinking about it.

>> No, I'm just thinking like there might be downsides that I don't know. I'm thinking if there are like really no downsides to making it public and the only downside is that like the team has to put in extra work to make this thing a feature >> then I think that it is something that the market is going to start demanding more. Um so speaking of ADL maybe we can move on to Athena because this was a big topic over the weekend. Um, ADL was was an interesting one that I think Shoku was the one that said that Athena had a special arrangement with the exchanges to not get ADL, which um I don't know that that's the case. Like I don't have I've never heard of that before and I've been pretty deep with in in the Athena docks and and and stuff. I've never

heard of that being a thing. Uh I believe Athena is just naturally much lower down the waterfall because first of all they're they're running unlevered, right? It's like a 1x leverage and and because they're like constantly sweeping like settling and sweeping any profits back, right? So like naturally the two things that put you highest on the queue are like how levered you are cuz they're trying to unlever the exchange and then for some exchanges I think for hyperlquid specifically it's your your P&L like your unrealized P&L with the idea being and it's like there's a formula that's actually like on their dock somewhere with the idea being that you know if you've made more money it hurts you less right to to get to get uh to get closed out. And so I think Athena just naturally sits much lower on the queue.

And then it's also worth noting that as far as I could tell, there was no ADL on majors on any of the exchanges that Athena is on. Like there there was there was ADL on on on some of the the alts, but I don't think Soul ETH uh or BTC had any ADL happen on on on the major centralized exchanges. So it would never really have been a thing. Um, and then yeah, there was this whole thing that Athena like deped or like briefly briefly deeged on on on Binance like USD did. And yeah, I'm uh unfortunately somewhat of an expert on DPEGs uh having lived through like my more than my fair share of DPEGs at this point. And I think like Hiv had a good post about how

it wasn't really a DEG because it only happened on Binance. the price stayed um uh you know at 99 I think 997 on curve which is the most liquid venue by far and on by bit I think it only dipped down to to to something like 96. So I think that's a good point. But I do think at some point uh I think the main point for me is just that there's two kinds of DPEGs, right? There's one DPEG which is the secondary price on on dips on some venue. Uh and then there's second kind of DPEG which is um like you have actual impairment of collateral, right? And and the first one just isn't that bad and and it's going to happen to every stable coin at some point. Like USDC obviously had theirs in like May 2023 with the Silvergate Bank stuff. Um,

like Tether famously had one in like I think it was April 2017 or something like this. They were deped for like a few weeks. Um, because of the in one of the infamous like Tether FUDs. And I think these things are always going to happen. People are going to panic. They're probably going to get exacerbated by like liquidation cascades. Um, and and so like I expect at some point USD will also go through a proper like uh DPEG of those. Although I don't think it has. I don't think these ones qualify so far. But what you really want to worry about is like when your collateral gets impaired, right? And again, like for for real like collateral backed stable coins in crypto, um I don't think this has ever happened. I think the closer was was Maker in Black Thursday where apparently, you know, Paradigm came in and bid the ETH in the

auction kind of >> I mean USDC actually if they didn't get bailed out like the collateral was impaired for that in March of 20 >> USDC. >> Yeah. Remember the USDC uh Silicon Valley Valley Bank thing? >> Yeah. Yeah, but they had like 5 They had Yeah, they had 5% of their reserves in Silicon Valley. But then Silicon Valley Bank just just uh What happened there? >> Oh, it got bailed out. If they didn't get bailed out though, USDC would have been [ __ ] because everybody would have redeemed and they had to honor redemptions at $1. And so it was only worth like 90 to 95. So eventually it would have went to zero. Like even though it was like billions of dollars, I'm telling you if if they didn't get bailed out, like that all would have been redeemed. Like market makers just

would have redeemed like billions at a time. and they would have totally nuked the entire like define everything. Um, >> yeah, that's fair. But even then, it's like it's a it it's like a time thing, right? Like Silicon Valley Bank had the assets. Uh, it's just that they didn't like they they weren't going to be liquid for a while. I think they would have found some kind of debt facility to to be able to to like plug the I don't think it would have been a I don't think USC would have dagged from whatever it was. Like I think they had 4% of their assets or something on Silvergate. like I just don't think it would have been it would have been a proper D. But I I I get the yeah point taken. Um I I think the reason that people get so stressed

out is because the one and two like the the temporary DPEG of the price and the impairment of collateral kind of got confused because of algorithmic stable coins, right? Because the those are like confidence-based systems and so one can actually lead to two, right? like you can actually have if the thing trades starts trading poorly on secondary markets then people start selling it more you know more of the share token gets minted and the reflexive cycle kind of starts but that isn't the case with any other any of the like collateral backed stable coins obviously including USD so yeah I think that's for me the main point of this is is that like >> yeah I saw a good I saw a good post from I don't it was someone that like worked at an Oracle or maybe risk management

firm and they talked about how oracles these days need to be smarter about actually taking into account like the mint redeem function of these assets, right? Like if USD can always be redeemed one to one or if Binance wrapped ETH or wrap soul can always be redeemed one to one. And when I say always can be redeemed, I I know that that actually might not be the case at times which I'll like get into, but you kind of need to take into account like that factor, right? And this goes back to your whole impaired collateral thing.

And so I think it will be interesting to see kind of like how people think about how did like a for instance hardcodes USD to one to USDT, right? Everyone was like see this is like why this was good in this situation, right? I think as long as like yeah as long as USD can be redeemed one for a dollar and and one to one is actually the wrong framing because there's no guarantee that USD should be a dollar anyways. It's not um like it could trade 95 cents if it like needed to, right? My point is that like there kind of needs to be a way to know transparently

when USD is actually no longer a dollar, right? with the mint and burn function which I'm like I mean Athena it's not like 20 it's not like every second or whatever you can totally see Athena's balance right like they kind of release it like every now and again so in a time of crisis like I don't think you actually know if USDE is still a dollar and so I think that's something that would go further in the market to like if you can kind of figure out that angle of it because you know the the USD peg risk is not

that it goes to zero right it's that it goes to like 95 cents because then you have just a lot of like under collateral looping and everything right um which is kind of what we saw happen on Binance a little bit like because it because it priced there yeah because it priced down then the market makers you know margin model started screaming false signals and things. >> Again, that's like the that's the worst because like Binance, they just done this this um promotion, right, where you could get like 12% yield for trading with USD as collateral. And so like USD balances on Binance were at alltime high. I think it was nearly six bill of USD on Binance. And that's an even worse one because you said there was like 1.3x

leverage or something, you would have get licked like on on here. Even if you had less than 1x leverage, you would have got licked, right? because your your collateral went down 35% and then your the anything you was you were long went down you know 80 to to 30% if you were just long major. I think anyone who was who was trading pers with USDS collateral just got like brutally licked and and then yeah like Binance was using um their own order book as the oracle which only had I think like 30 million in in depth compared to obviously Curve has hundreds of millions and and and so that was their mistake which they they' apparently changed um and it was going into effect a week from now which brings me back like US uh PTSD when the three pool was about to go into effect when

someone someone uh attacked it. I wonder if there was some some uh someone doing that that here too. Like >> yeah, I mean there's a lot of speculation that this was some somewhat of an attack. Um I don't know if we'll ever know. I think we're still learning. I think after these things happen, everybody really wants to like jump to a conclusion about what happened, right? And they really want answers right away. And then you see all these like I made this joke tweet the other day where it was like market blows up. CT knows one market maker and then you just start seeing all these tweets hearing winter hearing rumors that winter mute blew up and it's like this kind of stuff and also as an FYI like making a prediction that somebody blew up after the largest

liquidation event in crypto history >> is not a hot take. It's like >> that should actually happen. Like if it doesn't happen that's actually kind of the bold prediction. Like it would be so like so easy. You can just it's so easy to just start rumors in this industry. It's like I know there's this there's this rumor like everyone's like oh Jump lost a billion. They lost like 10 20% of their book. It's like I don't know man. Like maybe but people also just [ __ ] hate Jump and so you're just going to get those rumors started regardless.

Just like people don't like Wintermute and so they're the first ones where it's like oh Wintermute blew up. Um >> and Crypto.com. >> Yeah. Yeah, crypto.com. And it's like, listen, there's definitely a lot of people hurting that we might it might take more time to really come out of this. I don't like maybe I'm being naive here. I don't think that there's any like systemic loss to like the system the way that like other crashes have actually led to like all these big insolvenies and everything. I think like you know the thing that kind of as being as good or bad in your perspective I think the thing that the reality is that I think it was just like a lot of like

high net worth >> people who made a lot of money in crypto >> that got liquidated right and obviously funds did too that were doing this but I don't think the winter mutes of the world got hurt right obviously none of the VCs got hurt because they're not doing this Um, >> a bunch of liquid funds got got hurt. >> Yeah. Yeah, >> for sure. Um, but again, I don't know if like anything I mean, and we'll see. Maybe something will come out, but it like it does seem like it's kind of isolated. Um, >> I mean, the main thing is there just isn't the leverage in the system, right, that there was in 2022. you don't have

uh Alex Mashinsky going out and saying his thing is safer than banks and then lending to 3AC, right? Like uncolateralized like there's there just isn't the that you don't have that uncolateralized leverage in the systems to where even if I think one of these entities unless it was a centralized exchange obviously, but one of these entities going ins solvent I don't think has those like systemic >> Yeah. Yeah. Exactly. Like you had a lot of leverage but you didn't have at least it appears now you didn't have like the uncolateralized leverage, right? It's kind of just a lot of stuff was netted out and there was a lot of money kind of like ins incinerated and like transferred to the centralized exchanges.

>> Yeah. Who who transferred to? I'm kind of like struggling. I struggle with that like who who does because shorts and and longs are like one to one, right? So >> I think naked shorts that got EDL still did well, right? Um because if you actually look there's this thread by Storm at Paradigm and uh and I mean he was like narrative violation all the ADLs they actually uh liquidated them at the bottom which is like okay kind of makes sense though if you're going to force liquidate everybody like it's probably going to be the bottom right. Um but again, I think all the naked shorts would have done well here because they didn't do any socialized losses,

right? To like what Flip was saying earlier, they just got blown out. Um, and the exchanges, I think, probably made a bunch of money. I mean, did Hyperlid make like an insane amount? >> 40 mil, right? HLP. Yeah, I made a lot. >> And so like just imagine what like the centralized exchanges made. >> How do you like think about it going forward, right? So like you think about all the people that got liquidated, right? So probably a bunch of liquid funds, bunch of high net worth traders, bunch of just trench people too, right? Given the perpex meta that that we were talking about and how everybody's kind of moved over to farming that and those things,

right? Um, so like what do you think that means for tokens going forward given the fact that I don't know 50 billion, 20 to 50 billion somewhere in that range got liquidated, right? Like that's a huge amount of [ __ ] money especially in a market that already kind of had a tough time of balancing all of the coins with the amount of capital available, right? So like obviously something like Bitcoin or ETH or whatever probably won't even really be affected because you have a huge you know institutional bid um from various you know angles but for everything else >> no I think it's just getting worse of what we've seen >> it's going to be kind of brutal and even the coins that I think have done really

well like the revenue meta coins right like >> they're not going to have as much revenue when all of their [ __ ] users are dead right like per per traders are are are wrecked right now. So like you know you'll probably see Perpex fees compress pump for example another coin that you know all of us like probably had a bunch of their users get wrecked in this as well. So you'll probably see less volumes less things in in those types of launchpads as well. So like what do you kind of buy? >> Yeah. Like I think this this I think people want this like consolidation thing to be a moment in time thing. I think this just like even pushes it a further leg more where again people don't want to hold

>> you've just seen it man it's like there's so many coins that I mean soul ETH and Bitcoin ETH got back over 4K soul got back over 200 Bitcoin got back to like 115 there's tons of vaults that are still like you know jetto I own a little jetto okay it's tra which is traded like [ __ ] soul beta Um, but it's still it's at like 113, you know, that's still down significantly from the 10th. Uh, Initia is at like 19 cents. It was at like 30 cents. Um, I'm just looking at >> Yeah, you need a you need a reason to hold >> 19 cents. No, >> Initia.

>> Oh, Initia. Sorry, I thought you said Celestia. My bad. >> No, I mean Celestia though, too. Celestia is a coin that hasn't had a bid, right? It's at 110. It was at like it was a decent amount higher than that. like a lot of these coins that just don't have structural bids or >> even the ones that did have structural bids are now probably not going to have as strong structural bids as they would have had prior to everybody getting liquidated on Friday. So like >> maybe I think Bitcoin like >> well no I'm saying outside of Bitcoin ETH and Soul remove those because those are like >> okay yeah those are what I'm trying to say.

>> Yeah. No, of course those will probably generally be fine to varying degrees based on, you know, debts and ETFs and all that stuff, but like literally anything else. Like what's what's your like bullcase for owning one of, you know, the myriad of altcoins you can >> I still think I still think it's the the consolidation and revenue coins. Like they they generate profit. They have real revenue. Like I still like like Hyperlid is >> But like wouldn't you agree that like they're going to probably generate less revenue? >> Absolutely. I think so. >> The bull case isn't as strong, but they don't have as much downside probably as the >> but like even if the bullcase is now less strong as somebody who owns like, you know, a lot of a lot of hype and and pump. Um, you know, I'm fing my bags

here. Um, what like if the bullcase is less strong and everybody's like, you know, anchored to a a stronger bullcase and a higher val like doesn't that just mean everything has to compress a little bit in those? >> I'll take I'll take I'll take the other side. I'll say, "Hey, hyper." >> I'm literally on the other side. I'm trying the other side. It's like on the other side, it's like, "Hey, hyperlquid had 100% uptime. They're still solvent." Like, DeFi actually did really well. And if Hyperliquid's historically traded at like a 25 times price to free cash flow multiple like maybe it trades at 35 times, maybe it doesn't even see a big correction and people is like, "Hey, I'm willing to pay more of a premium for an asset that is now getting Lindy effects." Like I think I think that's the way the market goes.

>> Yeah. I think to go to the well uh to maybe to go to the winners and losers then because I agree I think DeFi was a big winner here and I think maybe the biggest loser was was Binance actually um and so I think this the like because I'm with you Jason it feels like your customers just all died like a lot of these per taxes you know >> you killed all your customers like uh like it's >> thing is they have been dying for like two years. Yeah. Yeah. >> This is like an extension event. >> Yeah.

>> Yeah. Like and and like anyone >> Yeah. Like anyone who is levered at all, right? Which is kind of what you want like and certainly all of like retail >> point of being on any of these exchanges >> just got wrecked. Like even I'm I'm like more uh I'm I'm going to be much more careful on leverage going forward knowing that you know if this is h if this had happened sort of I don't know a month and a half or two months ago when I was extremely leveraged long um I I would have gotten wrecked you know so I think that's going to affect how people trade moving forward and like I think some people just don't have the the capital either to like they just got blown up like there's a few people that that I know or like funds that really

took like pretty big hits from this and painful ones where you know if if if it was just the prices as they are now they would have maybe taken like a a 30% hit or something but actually they blew up like 70 to 80% because of the the liquidations right um so and I think the people that that bid are generally not ones that are that are putting money back into the market I don't know I guess it was the market makers and the and the centralized exchanges so I I can see there being like just a bit of a a bit of a onchain like Ice Age like from this uh where where there's just less less people like cuz everything all the revenue generating apps uh are are levered speculation right whether it's

pump or or the per dexes or I mean mantle like everything is levered speculation other than maybe stable coins but even Athena is to some extent levered speculation right you need like positive funding for >> people use it as cash right like >> and you need people to trade to use it as cash so like even the stable coins to some extent or levered speculation. So, I do think that's bad. But, but the on the other side like Hyperliquid crushed it. Like they had 100% uptime where the biggest exchange that has like an eight-year history didn't went down for like an hour and like did they made rookie mistakes with their oracles like that that even DeFi platforms don't make you know like the the sort of worst DeFi platforms don't make these these these mistakes. Um, and then like their listing process is getting pretty like

uh you know taken out back on on on CT. people are realizing like they're they're getting 9% of tokens for some of these projects to list >> global >> and and when you ask like people with a low float high FTV they're like who who makes money from this because like first they blame the VCs you blame and like who makes money from this is BNB holders by the way they're the only people that get to realize that valuation like because the the launch pools and stuff these tokens are unlocked day one getting distributed to them so it's literally BNB holders are the ones who've been realizing all these valuations and dumping on on people. Um, so like I do think there's some uh I don't know if it'll because like nothing ever happens or whatever. Like that's

sort of should be your base case especially with with someone as big as an entity as big and successful as Binance. But there does seem to be the start of like these rumblings of people getting getting upset with them. >> This is a good this is like a big opportunity for Hyperlid. Um, and they did they did from my perspect perspective who again is like I feel like I'm pretty neutral on this cuz I don't trade per and I don't own any of the tokens in any of these. Well, I'm an angel investor now one, but like it's not live. I think Hyperlid like objectively did well, right? Versus like everything else. Um, and there's a lot of like I think a lot of some people are mad that they got like EDL or whatever,

but realistically like for the most part I think people are pretty happy with like how they handled it and their coms after and everything and this is kind of that opportunity when you're like what's the bullcase after like all their re all their customers blew up and everything. It's like well I think they could get more customers maybe, right? Um >> I think so. I think their the trust in those platforms and venues continues to go higher because of this. Like yes, their revenues will get hit, but I think their trust in in these platforms and DeFi as a whole will will increase.

>> Yeah. >> I mean, Salana did well too. Like I know like people don't like to talk about what did well here because it's kind of like I think Mert had this good reply to Totally because Totally had like the three emojis on like something but I mean uh Salon did well man and it wouldn't have done it would have it would have shut off like two years ago right um fees like didn't get out of hand you could close liquidations you get your party transactions in um now Solana doesn't have the massive onchain per as other places, right? So, if Salana had a hyperlid level per exchange, that's a different test, right? Um,

but still it was ingesting like over 100k TPS. Um, it wasn't doing 100k TPS, but like validators were getting ingested with 100K TPS and it uh did well and like fees didn't spike so too much. So, I don't know. I'm still like super >> sorry, what's the difference? They didn't do 100k TPS. The validators weren't ingested. >> They were able to like process it in the validator. Like they couldn't fill the blocks with that many, but they were able to take them in without like getting flooded and and like overwhelming the validator client and like kind of like >> shutting down which has happened >> the networking work the networking layer. Yeah. When it comes to like the actual block, they still have like CU CU limits and everything. Um and so there's like a limit of how much transactions

you can like fit in a block. Um, but yeah, I don't know. I'm still I still think Salana is like just the best put together L1. Um, and I think that was like a good test for it. I think Yeah, I think Salon and Hyperliquid honestly were two kind of like winners from from what happened. >> It's like even if you look at the L2s, man, the L2 fees spike like crazy. >> It's like I don't understand how these L2s can't come close to Salana's throughput. It's like there's one [ __ ] like sequencer. It's like like why can't you even come close to Salana's performance? I don't get it.

>> Like you should be able to figure that out. >> I do think the Bruder like bare case and it's kind of the bare hole thesis that I was giving you in Montenegro, Jason. Oh god, I don't want I don't want to repeat it here because I don't want to fud our listeners, but uh just just that like crypto is not the best casino anymore. That's like the high level uh right the or this year it hasn't been right like and you kind of see this with with this like stocks are up a lot this year and if you were in stocks you took like a 3% draw down and then mercifully the markets closed and then uh you know everything everything popped back up on Monday and our our people in it's like the the Mel Gibson you know with the Passion of Christ meme like uh it's just

us like coming in on Monday like fully liquidated and it's so I don't No, like the the alts like still haven't recovered, right, to and like neither have majors to be honest, but like alts definitely haven't recovered back to the levels they were before this. And it's just like um at at some point it does start to be like reflexive, right? More and more people off ramp and start to chase other other casinos, I guess. Um and to to the extent that's the use case, it needs to people need to make money. They don't want to get liquidated and blown up. Um, yeah, >> trenches need that monad air drop to hit.

>> I was gonna say, >> oh, hip three. Hip three could be super cool, too. I think like bring in some some some some new liquidity. I think it went live Monday, right? That's that's really exciting. >> What are you What are you most excited about about HIPP 3? Like what kind of markets are you kind of most excited to see? Uh I'm I'm most excited about the USD markets just because yeah it's like another source of fees for for for Athena. But the honestly the most exciting ones I think are like stocks and commodities and like see them compete with with osteium. I think it's unit right that's going to be building that um like hyperunit.

>> Yeah. They've got trade.xyz right >> I think so. Yeah. >> Yeah. I mean, it's going to be interesting to see how they solve like the issues of, you know, while markets are closed and and and stuff like this. Um, but uh >> yeah, I think it'll be okay for like major indexes, right? So, like SPY and the Q's. Um, it'll definitely get diceier when you're talking individual names. >> Mhm. >> I think like getting a spy spot asset on chain that you can borrow against is actually a big unlock. I don't I'm not like a big fan of getting the spot stocks on chain like these X stocks with like get Apple on chain and all this. I think you start going to

individual names. It's just like liquidity and then you have like 10 different issuers. It's like have these guys seen what like the bridge and like stable coin wars were in like 2021 where you have like USD ly and everything and like that's kind of how the stocks are going. But if you just get like really liquid like spy or cues on chain that could be a pretty good product because you can build up a lot of liquidity in that. Um, and for most people it's like they can't borrow against their ETFs, right? Um, and now you can kind of put this on chain and start doing that there. I do think we're going to start seeing more.

I mean, we've talked about this how it's like you're always, Jose, you're always like, are RWA kind of like bearish for crypto? It's like, well, it's bearish for like valueless alts. Like, yes, it is, but that is still good for crypto overall. and that will just like further exacerbate this whole move. Um, it's funny though, man. Like I don't know. I'm still like not bearish and I know I'm like kind of a permutable but no, but I'm not like always like super bullish or anything and I'm not like I'm not like super bullish right now, but I still I don't know. I just don't see >> I think this is a good spot. I don't see like a massive I just don't think we're gonna get a massive draw down from here

for like an extended period. I just feel like there's so many good tailwinds. Obviously something like could kind of just happen like and and obviously if the stock market something happens obviously crypto is is is going down way more but um I don't know. No, I think it's just a hard market because it's it's even before this this crash last week. Like if you're a momentum trader, this has been like the worst year or two I think imaginable. Like every time you think something is going to break out to one way or the other. It just kind of like reverses.

And I think that's the other thing why this crash was I think the more I think about this. Yeah. people who have been like directional traders um and like futures traders and stuff and they don't hold like spot assets and they're not like them believers like Morad um they kind of got chopped for like a year or two and then this happened right and that's like pretty rough. Um >> and so I think this Yeah. No, I'm trying to I'm kind of just thinking now. Um, >> yeah.

>> I mean, haven't >> I was going to say, haven't most people been trained to kind of >> if you're not going to hold spot, you kind of have to be a momentum trader, right, over the last like six, seven years. Like that's in stocks too, right? Momentum has, you know, outperformed everything else um for the most part. So, so yeah, you get you get, you know, you get tricked into trading like this and then you just get chopped for a year and then nuked in one day. Yeah, it's >> Yeah, it's tough market. >> Insane.

>> Yeah. I mean, it's crazy because gold the thesis is playing out, right? Like the thesis that got I guess most of us into crypto is is playing out. >> Yeah, gold is ripping. >> Yeah, gold >> still though. I mean, I think people are are are a bit too critical of BTC. It's like it went up over 100% in backto-back years. It's still fine. It's like, sure, it's underperforming gold this year >> for like the first time in it's like okay, gold's taken its turn. And gold is still a very different asset than Bitcoin. It's like 20 exercise. But, um, I don't think Bitcoin at all is like disappointing. I think it's perfectly natural to get a lot of

distribution like 100k just above 100k that's like a big psychological number. Um we'll see obviously the the you know sailor I don't know what the mnav is on micro strategy or strategy anymore. Um >> so so maybe before just summarize section before. So winners hyperlquid um DeFi generally is there anyone else you guys think are are big winners here and losers like Binance or >> Brett did pretty well.

>> We'll see if we'll see if Binance is a loser right now. I would say yes because it seems like if you've been on Twitter the last couple days it seems like for the first time people are really going at them. But we'll see if like in a month if this still keeps up. There's like a history in crypto of people just forgetting about stuff, you know. >> Yeah. One thing I wonder is why Hyperlid doesn't go after spot listings properly like um because it seems like that could be like super bullish. Um just just having like a a competitor to to Binance Launchpool. Um you know to where there's just some attention for these spot listings. I know they have their ticker sales and stuff, but >> yeah,

>> just just putting like products around it. >> I mean, they have the permissionless launches, right? Um I think they wanna they even had this tweet like today or yesterday talking about how they have they like they don't charge for listing fees and everything which everybody loved. So, I feel like it'd kind of be off-brand to start running the Binance playbook of like charging for listings. And >> they have permissionless launches on on Hyperlid. >> Yeah. You just you can you can list anything. >> Mhm. On the spot markets, you have to buy the you just have to buy a ticker.

>> Yeah. >> Yeah. >> Yeah. Ticker big uh Yeah. Big bidding warrant. The ticker. Can you sit on hyperlid tickers like people would sit on.com? >> I guess you just need like an underwriter economy, right? Because like what the Binance listing it's it's defin it's distribution and it's like the underwriting that Binance is bullish on this thing. So you kind of need like an underwriting market to to start emerging on top of Hyperlquid where you know someone buys the ticker and does a bunch of like marketing around it or something and and like launches it straight on on on Hyperlid.

>> Yeah. If you're going to if you're going to charge for listings, then you need to be a real underwriter and you need to like be selective and you need to like underwrite things that you think are going to do well and so like your your clients, your customers of your exchange make money, right? It shouldn't be this like you you just I mean, yeah, you airdrop the token to the stakers of your exchange, but it's bad for like >> the project or whatever, right? That's not how the underwriting process is supposed to be. you're supposed to like actually want the thing to do well. Um, which I could see Hyperlink maybe getting into, right? Um, and the market definitely needs that. Like even Coinbase again, Dorman, I know people like to [ __ ] on

Dormund because he's like DryFi guy, but he he I think he does have a lot of good takes on some of this stuff. Um, he was talking about how Coinbase, it's like Coinbase lists a bunch of dog [ __ ] and they don't list like actual coins that do well. Um, and it's like, so what are you right? Like as an exchange, don't you want to list assets that'll do well for like your customers, right? Isn't that kind of what you're trying to do? Um, >> yeah. >> So, there's still opportunity there, I think. Well, I mean, what Legion and Kraken are doing, which is like a shill for Yeah. Deli Labs, but uh that's kind of what they're doing, right? It's it's like Legion doesn't just allow anybody on. They try

and get projects that they think are good projects and then like Kraken working with Legion again, they want the same thing, right? They want the the ICOs that they have to to do well, right? >> Yeah. >> Um that's like a much healthier market structure. >> For sure. Yeah. I wonder if that's an opportunity for Legion just expanding because the whole goal is just to have distribution from everywhere, right? Like Crypto.com and Kraken and and like Asian exchange partners, everyone. So, I wonder if Hyperlquid is an interesting one to to tap into doing.

>> Yeah, I think for Legion, it's like you want people to feel like Legion, if they do something on Legion, they're not going to make a ton of money every time or whatever, right? but they want to know that it's something like legit and >> most of the time >> does you know do well >> cool guys anything else you wanted to to touch on I feel like we touched on most of most of what I what we wanted to get through but is there anything else you guys >> No I mean I guess for like just general things it's like what monad I guess did their airdrop claim and that'll it seems like mainet's probably going to go November I saw today that mega eth is

doing uh it seems like Monet and Mega Ether are both going live next month I would I would have think or at least before the year end and so that'll put a lot of again we've already talked about this whole consolidation thing and everything it's also like consolidation of users and liquidity and like what does it mean for like all these EVM chains with with like two very performant like I think Monet and Mega ETH are two very different EV EVM chains than kind of what we've seen. Um, and so what does it mean for other ones outstanding? Like does it do do these take users from Salana? Do they take users from Hyperlick? I I don't think so as much like Hyperlid user base

I think is more distinct. Um, but again this is like this is what does it mean for arbitum? What does it mean for bass? What does it mean for optimism? Like all this stuff, right? Um because we have new chains coming in. we don't have no users coming in right away because of those chains, right? Um >> yeah. >> And so how that shakes out will be important. >> Do you know what kind of applications are going to be built there? Like what why do why do people want to use Monabad? Like I think that's my thing is like hyperlquid pump like those like pitching that as like investment not investment advice like is is quite easy but like what's what's Monabad? Um, I

mean they've got like um like a bunch of sea law per stuff. Um, I think that what they want to do well on is the social apps, right? Which I think Bass and Salana right now are the only two places that have been getting these kind of like social apps. Um, because I think Fantasy Top is moved to like Monad, right? Um, and then yeah, I think that's uh the kind of the area that they would like to win in. Um, but we'll see. We'll see how it goes.

Awesome. All right, guys. Great episode. Thanks very much, everyone. And thanks thanks Flip and Jason for for joining. That was awesome. And yeah, see see everyone again in two weeks. Yep. See everyone. >> See you. [Music]