Hyperliquid's Weekend Edge, TradeXYZ Rumors & Why 97% of Tokens Fail

Transcript

Nothing said on Xerox Research is a recommendation to buy or sell securities or tokens. GMGM and welcome back to another episode of Zerx Research. Joined today by Shondaanda Devans and Carlos from the Blockworks Research team. How are the vibes today, guys? >> Doing all right, man. >> Yeah, doing great. Uh Shondaanda put in the high bottom yesterday with his report. So that's good. >> He's been uh he's been known to set the floor on on that ticker. So he's doing a doing the Lord's work out here. But it's been a pretty eventful past uh past few

weeks in risk assets. um particularly the NASDAQ with some major sell-offs in AI related names whether that's meggaap tech or some of the memory tickers. Um they're kind of trading like crypto. Uh they many of those names were were up a few hundred% uh year to date and then they got cut in half over the course of a month. Uh we saw VIX trading up above 20. Then NASDAQ volatility Vixen uh cleared 30.

And um now that the dust has settled a little bit um found out that Leopold Ashen Brener of situational awareness was um running quite a levered book. uh for for many of these tickers, he had pretty highly concentrated um exposure. Uh he would be in some of these names over 5% of public holdings. And what we see now is he he was running probably 4x levered on um on some of these names.

And unfortunately, he became the main character, which can become a a curse in liquid markets. and the main character uh always needs to get taken out of the game and that's exactly kind of what happened. Um got margin called as as some of these names started to uh start to sell off and get cut in half and he needed to to sell his book um in one big block trade to Citadel and uh and Ken Griffin stepping in to to take the other side of that book. So once kind of that news came out and the dust settled um kind of the risk was taken off and many

of those names rallied 20 to 30% over the course of the next day. Um, but one thing that's interesting is one of his large holdings was SKH Heinix. Um, I believe a a Korean memory name that Leopold had pretty big exposure in. And during the course of this sell-off in SKH Highex, uh the hyperlquid market for that ticker uh experienced kind of a a um brief liquidation moment where uh market price traded a significant deviation leading to some liquidations.

Um Shondaanda curious what the mechanics were for this liquidation and like what really happened in the market micro structure. >> Yeah. So I guess to contextualize we have to understand SKH highinex is not just like one of the many markets traded on hyperlquid is actually probably the most traded HIPP3 market and it was the first non-crypto asset to be the most traded asset on hyperlquid. So it overtook BTC. It was the first that did that. Crude oil, silver, all of them came close but nothing was as much as skinex. And essentially what happened was in the switch from the internal weekend to the pre-market regime uh

there was a print on the underly underlying pre-market that was used as a reference price where one trader traded against the empty book at the time and within one print dropped the price 30%. And because hyperlquid's oracle price is referencing those underlying markets like it stitches together pre-market, market and postmarket regimes in that period it was using the pre-market price as a reference. So the oracle represented that value which was not accurately projecting what the asset was trading at right and because liquidations on hyperlquid use the mark price and the mark price is basically the input of three things. the oracle the oracle plus

some smoothing and the local midpoint as soon as that oracle was 30% below you saw this liquidation start on hyperlid and that then drives the prices on hyperlquid even lower so even though that did like very quickly correct because there was a period in which the hyperlquid market was referencing this thin print a lot of liquidations occurred during that so the question is is is this a fault of hyperlquid. Is this a fault of trade XYZ? I mean, it's definitely not Hyperlquid because they're not managing the oracle and the mark is the question is is it trade XYZ's fault? You can also argue that it's not really their fault because their oracle accurately represented the

price of the underlying and someone had manipulated the underlying price. Um, they still did end up giving a refund to everyone who was adversely liquidated at that point. But I think it just it does raise an interesting question in terms of how safe are your open interest positions during periods of less liquidity because that whole portion of positions that are built up during the main trading hours are still subject to liquidations and they're only as strong as like the um period of weakest liquidity. Right.

So, Trade XYZ came out to make the decision to refund or or paper over some of the losses of affected traders on this market. Um, believe the dollar figure was in excess of a million that that they're paying out. I'm curious, was this the right move by trade? Um, or do you think it can lead to like perverse incentives? No, I think it is the right decision. Like firstly, we got to understand a lot of the success with trade XYZ and their HIPP3 markets even relative to the other deployers that are now launching USDC markets is that as a trader, you just

know that a trade XYZ market is going to be liquid and performant and you're going to have a good experience trading on those markets. And even if there's some doubt whether it's directly their fault or partially their fault or whether they're not at all to blame, they're still just putting forward a president that like it's very very important for them that traders have a good experience. And I think it just further strengthens the trust that traders have in their market. And it also shows why their markets are just doing so much better, right? It's like you just know you're going to have a good experience.

>> Yeah. It's quite funny to me that uh the price wicked down to the liquidation price like probably a day after. So they would have probably been in trouble anyway. They they kind of saved at the end but by that liquidation week. Um looking at hyperlid like futures volumes, it looks like last week marked an all-time high of RWA volumes at 63% of total per volumes on the exchange. I'm curious uh do you expect that to continue trending upward or do you expect like crypto volumes to eventually uh bounce and make a majority of the volume again?

>> I mean it's driven by two things. First year crypto volumes are on the decline. I think in July the pure crypto volume was like 50% lower than last year in July. And of course, when you have new markets being added every single week and these markets are interesting to trade, I think it's just natural that like more and more volume is going to keep flowing through HIV3. Like especially if you look at new crypto assets, have there been any new launches in 2026 that are worth trading? It seems like it's literally just BTC, ETH, Saul, Hype, everything else doesn't really have a lot of volume versus like a global chat fun market where you can

list basically every single asset preo is just way more interesting and it makes sense that over time it's going to continue to increase. >> Yeah, that makes sense to me. Yeah, I'm I'm pretty firmly in the camp that the RWAS are going to be the more important sleeve of listings um in the in the long run because there's always a bull market somewhere. Sometimes it's in crypto, sometimes it's in the AI and memory t tickers. Um as long as you can list that through the HIP3 framework, uh Hyperl is going to be the place to trade that bull market. So I I think there's going to be points in time where the crypto listings, Bitcoin, ETH majors do make a

resurgence in their share of total hyperlquid volumes. Um but relative to the total opportunity that can be represented and traded in perpetual futures form. I still think that remains quite small. I'm curious guys. So, you know, Le L Leopold had for a long period of time like the hottest book on the board. He was early and right to um all all the best tickers over the past year. Uh would you rather run it up and get taken out like Leopold, uh Bill Huang, or Suzu? Um which character would you play?

I mean, between those three, I don't I don't know. Suzu was probably [laughter] good one. He's probably the worst, right? I mean, he was like getting sued and I mean, you got to ask yourself how much did they pay themselves while they were still making money, right? That probably influences the decision. >> But until now, it seems like uh Liverpool is doing pretty good, right? Like he can probably raise some capital again. Doesn't look too bad. >> Yeah, I think uh Suzu probably had the most fun with the instruments and vehicles and strategies he was using. Um Bill Huang probably as well with some of those those CFDs, but there's there's a

lot of lot of crime to what those guys were up to. Um, I mean, Bill Bill Wayne's losses led to um billions in losses for some of the the primary dealers. Um, but Liupole doesn't look like there's much crime to it at all. And you know, he still has a chip and a chair to to keep playing the game. Um, and you know, he had the hot hand once and um, I think, uh, it doesn't look unlikely that, uh, people are going to keep giving him money to, um, to play the game and bet. So, I I'd probably take Leo Bolzark myself.

>> Yeah, I mean, that that makes sense. I just don't understand why you have assets that go up like 100% year to date, then you still want leverage on that. Uh it's like it the risk management on some of these uh hedge funds just doesn't make sense to me. Uh but I guess you get greedy or just like get taken out by the market at some point. But yeah, like slow and steady for me is probably the way ladies liquor and leverage is how uh how many many men get taken out in the game.

Um, believe that's what what the the saying how the saying goes. Um, perhaps more drama that implicates trade XYZ. Uh, rumors hit the timeline over the past week that uh, Trade XYZ was raising capital and this kind of led to some fund FUD related to um, Hyperlquid. being, you know, the token where where all value occurs. Um, curious, Shondaanda, what's what's the T? What are you seeing in your uh in in your private DMs and access to to premium information? Like, did they raise and if

so, like what does this mean for our hype bags? So, I have absolutely zero information in like it's even to the point that I've like DM'd a few people that I thought would know and I've just been completely ignored. So, they probably think I'm an idiot for even entertaining the fact that it's possible. Um, I mean like Trade XYZ and Hyperlid are definitely in a strange place. one because there was just a correction to all-time highs and as soon as there's even a one minute red candle or one hour red candle like people just start to look for reasons as to why the price is going down and I also feel like it just it happens both when price is going up and price is

going down that people that have been sidelined and who've been coping throughout the entire move finally feel like okay it's their turn to like kind of clap back right they've been seeing all these things on the timeline they've been unallocated and now price is going down in their favor and um they're ready to make some noise as well. The the thing is it is like trade XYZ is very similar to Hyperlid in the sense that they're very minimal with their communications and because they aren't actively dispelling FUD or like seeing their side of story.

It's very very easy for like rumors to start and because this gets engagement, it just like takes off like wildfire, right? I'm reminded of the idea last week because right the week right before we had a similar FUD which is that trade XYZ is going to leave Hyperlid which to me is completely out unfounded and your argument would have to be trade XYZ is going to abandon every single thing that made it successful like its infrastructure layer is going to rebuild all of that from scratch. It's going to commit basically reputational suicide by leaving Hyperlid there. there's just no path to see that happening.

Um, but with the raise, I have no information. And I do think that they could probably be doing a better job in communicating it because there is an open secret. I I'm also not sure if this is true or not that they raised last year from Paradigm. So it just obviously because Hyperlid is this like community aligned chain with like antiVC grassroots um it it is going to be a topic that people want to discuss but other than that I have no information >> on perhaps the FUD that you know trade XYZ would leave Hyperlid um correct me

if I'm wrong but from my understanding it'd be much easier for Hyperl liquid to recreate the success of trade XYZ and replace them than the other way around. Trade XYZ, you know, leaving Hyperlid and uh replacing their success. that correct thinking or um >> yeah and it it's actually like in April I kind of read I kind of wrote something pretty similar >> where my idea was that it's possible Hyperlid is giving too much value away to deployers and the line of argumentation was it's going to be a 50-50 split for HIPP3 assets that basically make up all real world assets

and if you move forward one two years 90% of hyperl volumes is going to be real world assets which means hyperlink is going to split like 50% of its revenue with deployers and the question was is that role of market deployment um being overcompensated for in terms of revenue. I think there's definitely more merit to the fact that Hyperlid could inhouse trade XYZ than trade XYZ leaving but I think both are pretty unfounded. Like I think trade XYZ, Hyperlid have one of the most symbiotic relationships in all of crypto. We already discussed why it's difficult for trade XYZ to leave. For Hyperlid, if they were to kind of betray

their flagship deployer, it would basically prove to every party thinking about deploying on Hyperlid, building on Hyperlid or that already deploy deployed that like what they're building is not secret, and if Hyperlid wants to, they can just um take their success. So, so it seems to me like there's this agreement that's basically working perfectly and people are finding a way to get worked up and worried about it when business is just going to continue as usual. >> Yeah, that totally makes sense to me.

And why do you think uh there's fud around the race? Like what would be so bad about XY Z racing? And is it just because they assumed they would have a token eventually or why is it so bad that they would raise? I think one thing has less to do with the raise and more to do with concerns about transparency because Hyperlid is like the most transparent pro well one of the most transparent protocols and fair protocols in crypto and it kind of seems like if the flagship deployer is raising and that two raising in private while people are thinking that they can farm points while

people are assuming they're super aligned with hype and they they've built their own assumpion around the fact that the trade XYZ team is building value for hype. It kind of goes against that narrative. So there's nothing inherently wrong with Trade XYZ raising. I think like a lot of community members miss the fact that what Hyperlid did was generational. It was a once in a-lifetime thing that these people have done. It is not the standard way that you can expect companies to operate.

Like it's not fair to say trade XYZ needs to be held to the same standards as Hyperlquid. They need to be completely self-funded. They need to give away their token. But I do think it is fair to say that like because of the influence and the importance Trade Xy has on Hyperlid. fair to say that they they can be expected that they're more transparent about how they're operating in the background and what their true intentions are, which I'm sure is positive, but it would just help for them to publicly state that. And the second thing is in terms of I if they were to ever launch a token or a publicly traded equity that would undoubtedly be very

very bearish for Hyperlid because you're kind of you have now two investment vehicles to express your view that real world assets and Hyperliquid is going to grow. You're kind of fragmenting where that liquidity flows. That's still unlikely. But if if this is true that it's their second round, it just becomes more likely as as things goes on. And it's it's a fear that some people have. >> Yeah, I think that's the probably the most founded fear, right? Like racing, I don't think that's inherently wrong or like I I just don't get why it's such a big deal. But Trade XYC eventually launching their own token would def or their own equity would definitely be like publicly traded. gaming would

definitely be uh bearish for hyperlid or at least d draw some attention from it. >> Yeah. The the only way that a separate vehicle wouldn't be bearish hype is if they maintain the use of revenues to to buy back hype and not not their own instrument. And then in that world it kind of just looks like another hyperlquid debt which uh so some have seen phenomenal results. Um other dats in in other ecosystems less so.

Um perhaps pivoting more uh to another topic on hyperlquid. um now had many months of I guess weekend price action in perpetual futures on this exchange um be it the RWAS or the commodities and with all this data um that we've observed and collected Shondaanda you've done some pretty extensive work on weekend markets on Hyperlid and basically their their ability to uh forecast or lead kind of the the legacy market open. Um so curious like what's

what's your high level look on how these markets have performed in in leading the legacy open? >> Yeah, exactly. This is something we've been looking at for a while. It started with the silver microstructure event where we noticed that although markets on the weekends were performing, they did not actually project where the market was going to go open. So there was no economically meaningful activity on the exchange. And that kind of started to change during the crude oil crisis where there was a ton of news that launched on the weekend and there was no other place to trade. And I think that kind of led traders to understand okay hyperlquid is actually a very viable way to express views on the

market even when the underlying is closed. And we had some preliminary findings during that period that this was the case but there was just not enough um weekends and data at the at the time. So now that a bit of time has passed, we looked through basically every single market that traded throughout the closure that did over $1 million of volume. And what we wanted to kind of ask ourself is if you were to take the pre-opening price on Hyperlid, which is Hyperlid's internal weekend price, and compare it against the Friday close, can you state with certainty that Hyperlid is consistently outperforming and reasonably guessing where the market

is going to open? And we found that that is indeed the case. So when the move was over 100 basis points, hyperlquid was correct, directionally correct 95% of the time. So if there was a significant move, you could look on hyperlquid at 95% of the time. The guess if it would be opening positive or negative would be correct. And if you were to look at the median reopening error, which is the difference between the Friday close and the first print, Hyperlid basically cut that reopening error by more than 50%.

And yeah, that's a really great chart because you can see the total accumulated error on hyperlquid, how much was avoided, how much it existed in traditional markets. And you can see that like for the mass like the majority of assets, the opening error was uh cut very substantially. >> Nice. So, so big picture like the price action on hyperlquids weekend markets like it it leads to positive price signal of how markets are going to open come Monday um as opposed to adverse signal like move it moving the other way.

>> Yeah, exactly. The key thing is that you could probably open a hyperlquid chart on the weekend and you could get a pretty good picture of where that market is going to open um when the traditional markets do open. >> Nice. So, you just um you just put out a report on this um in collaboration with Hyperlid Policy Center. Uh shout out shout out to the HPC for doing the Lord's work and preaching the good word um with with the regulators in Washington. Um I know there's been perhaps from incumbents in the legacy

space um some some push back on allowing weekend trading of these instruments. if you were to I guess like uh steel man or play the devil's advocate for um th those parties like what would be I guess the push back against supporting trading over the weekend. >> I think the push back about weekend trading isn't so much about the idea that market should trade 247. I think that's already established and it makes sense, right? Like risk news all happens 24/7. The markets don't stop on the weekend, right? It doesn't like

politics and economic news doesn't stop flowing on the weekend. It's more about the fact that the traditional stack because you need settlement and you need standard banking hours that they couldn't reliably offer 247 trading. But but I think it's pretty well established that 247 trading does lead to better market outcomes. >> Any other uh ma major findings from your research in this report uh you want to escalate?

Yeah, I wouldn't say it really is specific to this report, but it's more the fact that when you have a market that enables you to trade without certain um risk or requirements that hinder you to actually express your view, then it's just natural to expect that the prices on those venues are going to be indicative of the fair market value. It's the same thing with preipos where you can't trade them before they list on the NASDAQ. And though similarly f we found that um hyperlquid's pre IPO price is generally pretty accurate with what it's going to open at. It's even the same with some equities that trade over in Asia where

they're like controls of what you can do. Like for example, you can't short them. It just makes a lot of sense that when you remove those controls and you really allow the free market to just express its opinion of what the fair market value of an asset is that that is going to be a pretty reliable value. >> Yeah, I I haven't traded a um preipo market on on Hyperlid yet or equity like over the weekend. That being said, when I'm doing my my Saturday morning, you know, coffee and markets recap and uh I want like the most up-to-date and

continuous information. Um say I'm charting the NASDAQ or a ticker on Trading View. Um, basically if I want the most up-to-date and continuous price information, um, I'm no longer charting like NASDAQ, uh, cash futures on Saturday morning. I'm charting the hyperlquid um and trade XYZ NASDAQ market instead because that's continuous and real time price information and ultimately like that's that's valuable to me as the analyst. So, so as hyperlquid markets

continue to develop and offer this superior price information and trading venue, um it's obviously been one of the few tickers to make new all-time highs during the bear. uh one of the the strongest performers um certainly year to date, but at the same time like the the picture is a little more bleak across the board. Um most alts are down 90% and the vast majority underperforming Bitcoin and Hyperlid. Uh, Carlos, you just shipped a absolutely phenomenal report um surveying basically the the

total opportunity set in um crypto instruments that uh at some point in time traded above $50 million market cap and evaluated their their performance in absolute and and also against Bitcoin. And to our listeners, I highly recommend reading this report from Carlos. um takes a very sobering look at just how bad it [snorts] really is for most instruments in in crypto. Um so yeah, Carlos, at at a high level, could you talk us through um the research you performed in this report and then also the the key findings?

>> Yeah, sure. So I initially started this because I wanted to quantify the effect of buybacks on token performance but when I was looking at the return data like I think a more powerful story started to emerge which is that most tokens not just tend to underperform but tend to draw down like 90% uh from their qualification price which in this case was 50 million but applying some robustness checks. also applies if you do other like arbitrary benchmarks like a 100 million or like 250 million market cap. So the the broad pattern is the same which is that less than 5% of tokens outperform Bitcoin over a long

window. Uh and if you only take tokens that have 24 months or two years of history, only 1.7% of tokens outperform Bitcoin. Uh so across the full universe the median token lost 97% uh from the month it first qualified meaning the the month it first had like above 50 million market cap. uh know that for instance some tokens debuted like at $1 billion valuations uh because obviously BCS had all the private upside and then when the token actually TGE it TGE at a really high valuation so that's what it reflects as

well to some to some extent uh but if we look at like some of the charts I think they're pretty uh illuminating like for instance this one looks at market breath. And what we see is that the number of tokens worth more than 1 million reach a new all-time high in December uh 2024 and it is still like higher today than it was in 2021. Uh with the 10 and 25 million tiers speaking alongside it. However, every tier from $250 million upward peaked in two in 2021 and never recovered. Uh so what you see is like kind of like a

pyramid that got uh wider at the base and thinner at the top in the sense that you had a lot of tokens uh that were launched uh as ventureback projects turned uh these events into liquidity events. And then you also had like the rise of palm fun and the launchpad era that created hundreds of thousands of tokens but not enough liquidity to sustain it. Uh so that's one thing uh that you see. Uh I think the other thing is just the altcoin uh underperformance versus bitcoin and that each token class is worse. Uh so if you go to the next

slide. Yeah. So just as a bit of context here like the inspiration for this chart is uh something called bintage analysis which is something that credit analysts use to evaluate loan books uh to see how well each performs relative to each origination cohort. Uh so what you see here is the default and the default is defined as the first month uh at or below 10% of the qualification price meaning uh that the token has drawn down 90%.

Right? Um so what we find is that the token vintages or each year tokens class resembles a deteriorating underwriting book in the sense that by month 24 uh 86% of the 2024 class had lost at least 90% of its entry value compared with 70% of the 2021 class and 18% of the 2021 of the 2020 uh class. So overall 73% of tokens eventually cross the minus 90% threshold with a median time to default of just uh 13 months. So I I think it's pretty damning as you can

see like each year the launch of tokens just keep getting worse and worse and you like liquid token investors are just getting crushed and I think this is especially brutal on retail investors uh who are just like hoping that al season is back again uh and you know the all back season the alt season is coming trade I don't think it's happening but uh and it's only getting worse uh for for these investors. So yeah, I'll just stop there and just uh ask for thoughts. >> Yeah. So look looking at like the whole opportunity set within crypto um it's like the the base case the the modal

outcome is near total loss. Correct. >> Yeah. Exactly. So, for instance, like in equities, you expect that if you just like bet on a random equity, you probably expect to underperform the S&P, right? But you're underperforming a benchmark, right? If you bet on a random token in crypto, you're kind of your base case is that you will draw down 97%. Which is obviously uh terrible. like it's kind of like BC style outcomes but in a in a public and liquid market and you don't have the upside to justify it like it is really hard to look at these numbers and speak to a person

that's maybe external to crypto and recommend another thing that just like buying Bitcoin and be done with it. like why would you put so much effort into picking uh into like picking tokens when you can just buy bitcoin and outperform 98% of the of the market. Um so I think like this put not this puts numbers basically behind the tokens are broken narrative and I I think it is true like uh we have seen a deteriorating uh liquid market and I think that we need to like first recognize the problem and then take steps to try to fix it.

>> Yeah. Yeah, I mean the problem is specifically for the retail audience that you mentioned, the best form of onboarding a lot of new users onto crypto is a bull market where tokens just do really well and everyone's buying and getting hilariously rich and telling their friends like, "Man, you got to try this." Um, and I think like that's how the majority of people got into crypto, right? They got into crypto because it was a way to make relatively easy returns. And even if that was for a short term and then you experienced a brutal bare market, you still had that period of outperformance that made you realize, okay, there's opportunity here.

Some people decided to allocate their time into the industry. Some people just DCA. But there was that motivation to stay part of the industry and see it through. But now, if your first experience in crypto is just buying a token and being down 98%, it's just not the same thing anymore, right? Like you can't expect any retail participation, especially when there are like stocks that are actually going up. >> Yeah. Yeah, if we if we think of how this data might compare to like equities, it's obviously not a like to like comparison. It's quite apples to oranges because in public equity markets um there there's

so much pre-selection and hurdles that need to be eclipsed before like the public can get exposure to that instrument. Um, and even more true for anything that's in the S&P 500, like the hurdle is so high just to have that ticker on the public market. And of course, there there can be some push back on that where, you know, it's it's too expensive for the issuers to u maintain those filings in their audits.

um things go public too late in their life cycle and the public can't get exposure to the wealth creation associated with it. Um but at the same time like there that degree of pre-selection can also offer a feature um where those capitalized and performant enough and high enough functioning to per perform audits and disclosures um that they have fundamentals to support their public listing. But with crypto, the opportunity set is it it's quite the opposite where the barrier to have a liquid instrument on the public market for the people to trade is zero. Um you

can spin up a memecoin. Uh you can launch a token pre-production. you need not have any revenue or product market fit or filings or audits um to have an instrument associated with whatever you're building or not building. Um I think that's that's kind of revealed in in this data here. Yeah, I guess the the one thing I would say is that there's probably not as much meme coins in the data set as you would expect here. uh in the sense that think about how many meme coins actually surpassed 50 million uh in the past like two years. I'm I'm sure there's a lot,

right? But it's not like thousands of them. Uh so this is already like pre-selected to some extent uh in the sense that I'm not taking every graduated token from from pom fun, right? I'm I'm putting in like a floor so that the data is not that biased towards tokens that you know for a fact that are like just lottery tickets and are going to zero. I think a lot of like tokens here are also like L1's like uh DeFi tokens like governance tokens like gaming tokens that launch in like I don't know 2022 and never went anywhere.

Um I think when you look at the sectorwide view is also quite interesting because you do have outperformers in some sectors particularly uh on centralized exchanges. Uh I think that's one of the most uh probably surprise not maybe not surprising but strongest findings of the report which is that exchange tokens were 32% of those long window long window bitcoin outperformers despite representing just 2% of the universe. So they were 16 times over represented relative to other uh sectors. And when you think about why that is uh first

well to centralized exchanges are very like profitable businesses but then there's also the fact that the defining feature of this tokens is usually that there's fee revenue that's routed to recurring by buybacks and burns uh for the token. So even though like I didn't establish that cowell relationship in the report and I didn't actually test it, I do think if one sector is represented by 15x relative to others uh and you see that they're sh they share this defining feature and that it is a profitable business after all then you you could make the argument that tokens with like really high revenue buyback

and burns do outperform perform other businesses and anecdotally you see that with things like hyperlquid um I mean pump the token hasn't performed that well but it is down less than sena from all-time highs so I do think that to some extent uh buybacks into the token are really an important thing here that probably merits like a like a future study just looking at it uh but I did find that this was pretty interesting >> in light of all this data um is alt season ever coming or like what's your view on Bitcoin dominance? I mean the the past cycle was very much characterized as one of rising Bitcoin dominance and we never never saw it

crater like we did in >> 2017 2021. Um >> what's your view there? Yeah, I think well first of all I don't think like to answer your question out season is coming but I think like two important lessons from this study is one uh I think it's important to not chase recent winners like doing some factor analysis uh it showed that both high momentum and high volatility predicted worse subsequent returns on both uh one and three month time horizon uh which is counter counter intuitive, right? You usually like high momentum, high volatility usually tends to attract the most attention from investors, but

those are the tokens that subsequently underperformed the recent boosters. So, I think that's one of the things that I I found surprising and like useful for an like an asset allocator. And then the other thing is like I don't think diversification makes sense in crypto today. uh I think it may reduce idiosyncratic risk but it provides little protection from systematic crypto market risk because the assets are very correlated between them like uh and so I think like a concentrated portfolio of like high conviction positions may therefore be more sensible than just having like broad token exposure and that's what I would focus on like just

finding one or two tokens that I really have a high conviction in and picking that exposure alongside Bitcoin. I don't think it makes sense to like have 10 15 uh uh tokens like that that may reduce like some media syncing credit risk but at the end of the day it's all correlated and and you're probably not getting compensated enough for the upside there. >> Yeah. So, I think the there was that the trailing 30-day outperformance um data tends to proceed forward 30-day underperformance is is like a pretty important point there.

It's like the outperformance or the alpha ends up being mean reverting. Um then then secondly like the investable opportunity set isn't as large as the quantity of tokens suggests it to be. Um it really is like a a much smaller set of instruments that are worthy of allocation and underwriting and conviction. Um one of which we know is hyperlquid fund has been comfy in that spot.

But is this is this a solvable issue? Um do we do we need alt season or can we just have our our 10 winners and crypto can still win? I mean I think it is like a solvable issue that uh I think everyone that is active in crypto understands the problem intuitively. I was just trying to put numbers like uh behind this story. Uh I think the block works transparency framework is a very good example of trying to fix that issue through uh disclosure. Um

yeah like what you see on on p like on on equities markets within with S1 or like 10K filings or whatever like the SEC requires. I think the equivalent of that for crypto uh would be very useful for crypto investors to just know like besting schedules like uh is demand for like this product being driven only by incentives uh like what are the market maker deals etc. I think uh that is very useful like disclosures that liquid investors need to underwrite these instruments and I think just the ma just the fact of filling like of filing the TTF signals that you as a team uh don't have that

much to hide right uh regardless of the contents if that makes sense. So just the fact that you're willing to provide like a TTF disclosure in my opinion already like picks you apart from from the rest of of the of the universe. Uh and then there are other like things right like you obviously have like outliers like hype which are teams that did everything right but then you have teams specifically focus on fixing tokens such as metadow uh whose ownership coins are trying to like strengthen uh token holder rights and like uh create alignment between uh the team and the token. So I I do think uh the issue is getting fixed. Um but as I

mentioned I I expect like to have like a few number of tokens outperforming. I'm not expecting to have like a Cambrian explosion of like tokens suddenly uh doing well. Would you also say that there's generally a problem like disclosures aside which we all agree that need to be improved that these tokens are just fundamentally overvalued and they are still overvalued even at current prices and it it just it's going to need us like there just going to be a lot of tokens that are going to die irrespective of what they do because they just came from a different market environment where you were able to kind of use that token before you found

product market fit to use it to kind of fund your operations. Um, and and now even though you're 90% from top like I just saw this like I don't want to name the token but like a token announced it's like annual financials and they're a hund00 million token and their earning was like 17k, right? So, I I feel like there's just a lot of tokens that have these financials and they just lack a reasonable growth story for you to assume that they're going to continue to grow just because the nature of crypto is that it's super super competitive. There's like very little mode that you can hold on to for a long time. And there are a lot of

projects that use very aggressive growth tactics like points, airdrops that can like very quickly take market share away from you. So, it's just the fact is that a lot of tokens just exist in a very competitive environment that um even if they were to disclose it, you would find even then it's still only a handful that you would want to buy at today's prices. >> Yeah, I think I totally like I totally agree with you. There's also like a lot of the tokens that were released over the past years or infrastructure tokens like there were a lot of like uh alternative L1's or L2s or whatever you want to call it. Uh and I think today we

can all agree that there's probably like three relevant ecosystems or like maybe a bit more but from the thousands of tokens that were launched I think most of them are probably going to zero over time. Uh on the other hand I do think there are a handful or maybe like 20 I don't know what the true number is but like there is a few number of tokens on like the DeFi sector for instance that they do have the fundamentals they do have like the growth story that you'd be looking at from like a liquid uh token perspective. uh but they are trading at discounted valuations um just because of the nature of of of what we just explained. I think for

these kinds of players uh disclosure could be beneficial for for for adding investor confidence. Um and yeah like I I I do expect most tokens to underperform and I agree with you. I just think that uh there's never been more value in like being a fundamental investor and trying to find like the few few tokens that will outperform by multiples uh from here. I mean it's like you guys all know that I basically only write about hype, right? But it's it's not that I'm fundamentally only a hype bull and I have tried to write about other tokens recently and it's just I'll research

them for a bit and then I'll really just come to the conclusion it's not something I want to hold or write about. So it it it is a hard environment. >> Yeah. And there's also a like hype is unique in this like just from a statistical perspective as well. um from like tokens that launch from 2023 afterward uh just like 1% or something like that ever delivered that 10x return in public and I think hype was one of them along with uh I think there were other only other two tokens that were non memes that did it on that scale which was uh virtual uh the the AI launchpad and then

mix finance I think it's called which is like a pers deck which I don't think it's doing so well right now. Uh but those were the only three tokens uh after 2023 that delivered or give you gave you a 10x opportunity uh in liquid markets. Uh and obviously hype was the most successful out of those out of those three. So I do think like hype in that sense it is a once in a cycle uh event. So, so yeah, I think uh I think that that does speak volumes to also like the community high pass and and whatnot.

>> So, the TGE game is tapped out too many tokens at too high valuations. The the base case outcome is basically default uh near near total loss of capital. uh newer tokens are defaulting at a faster rate. Um yeah, it's it's it's pretty bleak, but there there are a few pockets of of outperformers. And um in terms of like whether or not this is solvable, uh I think it's it's just like a fact of capitalism that the market will will self- select and sort for who

the winners should be and um who who the winners are not and do so through fundamentals, buybacks, token holder rights, disclosures, transparency until ultimately like the opportunity set can hold itself to the same standards and a similar degree of pre-selection that that we see in um established equity markets. So, well, Carlos, thank you for the work you did in that that research piece. Um it's definitely I I would view it as a as a must readad um to kind of like take a step back and appreciate just how bad it

really is. um for a lot of a lot of longtail instruments. Um but also just you know set set the expectations for the liquid investor as to what are the risks you're actually taking um by allocating to this space and like what what's the bar that needs to be exceeded for you to justify underwriting and taking the risk of near total loss of capital. So perhaps on a more optimistic note um as we look to wrap, what are you guys excited about in uh in the week to come was top of mind um for the bulls?

I mean I guess I I I guess we didn't discuss this but yesterday uh there was a decision market that uh was concluded on Metadowo that someone tried to drain uh Umbra's treasury by $1.6 6 million and decision Marcus defended the attack uh with success uh and the attacker ended up losing like uh 130k uh that they spent like trying to manipulate the market. I think that's pretty exciting uh for me. And then uh what what I looking forward in the next week, I think there's another permissionless uh ICO happening on the Futario platform of Metadata. Uh it's not that I'm

particularly excited about that specific ICO, but I have noticed a recent peak uh in ICO activity over the past month and I think it's only going to accelerate from here. So I do expect uh that to be a particular like I do expect that to be an important theme uh in Q3. I'm looking forward for USDC revenue that's going to start recruiting Hyperlquid on August 26. I feel like especially looking at Coinbase's earnings and seeing how important stable coin yield is in terms of their overall revenue. I still feel like people are discounting just how material those

flows are going to be. And it also it's another thing of answering the question, how do you monetize HIPP3 volumes, right? because maybe you don't directly monetize them by fees. You may also indirectly monetize them with priority fees, uh, reading and being able to write parser to get access to arbitrage opportunities that exist on those markets. But I think a lot of people are misunderstanding that those markets, those users drive a lot of inflows to the protocol and that USDC is going to be monetized exclusively by Hyperlid and Coinbase and Hyperlid gets 90% of that.

and also uh HB4 markets I would say look out for outcome and it's going to be really exciting to see how like sport markets are one thing but having financial markets on like earnings and those type of related things in the same environment where you can actually trade the markets themselves I think we're going to see some interesting things take place >> new market creation on hyperlquid uh more money hitting the hype tape for the hype bulls and token holders continuing to be protected through uh Metadow's capital formation and conditional market framework. Um all great things to see,

plenty of reasons to be bullish on. Um yeah, I want to thank uh Shondaanda and Carlos for coming on this week and and sharing their thoughts and research. And thank you to our listeners for tuning in. We'll see you next week. [snorts] Nothing said on Xerox Research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Luke and our guests may hold positions in the companies, funds, or projects discussed.