The New Fed, STRC Stress, and Hyperliquid’s Rise

Transcript

Shondaanda to to loop you in. You have any any thoughts on the cards strategy and sailor can play or are you uh you just comfy and hype spot and you don't need a 11 and a half% dividend yield? >> Yeah. Well, I I definitely do not need a 11 and a half dividend yield especially when my allocation is mainly in hype. But what I do think is interesting is that in this stage of a cycle, it does seem like for BTC, a lot of the narrative is revolving around these treasury accumulation vehicles and the DATs.

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, Danny, and our guests may hold positions in the companies, funds, or projects discussed. Good morning all. Welcome back to another episode of Xerox Research. I'm joined today with Mark and Shondaanda from the Blockworks research team. And before we get into it, want to share very exciting announcement uh with some big news. Blockworks has acquired Misari and together combining the

leading crypto media research and data infrastructure to serve both sides of the market, helping asset issuers build trust and helping investors, platforms, and AI powered tools better understand and evaluate digital assets. So, it's a major step towards our mission of bringing more trust and transparency to onchain markets and we're pretty excited about what will come from this. So, with that, uh, Mark and Shondaanda, how are we feeling about the markets? Uh, we have a new FOMC chair or Fed chair with first FOMC yesterday. Um, how do you

think we're digesting this news? >> Um, hey Luke. Yeah, good to be here. It's been a while since I've been on this pod. Um, I was a little bit surprised about his the how hawkish I guess it was, but also how not hawkish in some sense I think Kevin Walsh was. Uh, particularly, you know, before he came became Fed chair, it was known that he was very adamant about uh shrinking the balance sheet, but then in his first meeting there was no mention of it. I I I listened to it and he was you know he was trying to make it clear that he wanted to be very factual just you know relay information that the market needs

right now and he wasn't really a fan of you know predictive you know like expectations Fed setting so it's just going to be a very different I guess Fed watching environment now >> yeah certainly some of the language used was he wants the Fed to respond to how liquid markets react to information rather than using the Federal Reserve to force markets to respond to the Fed. So, um it'll take some time to see uh see how he moves during the conferences and and how markets react to his language.

Um but at large, it certainly seems like he's taking a a firm stance on on price stability as the mandate and we'll definitely use the uh the policy tools accordingly to achieve that. So, we kind of saw the dot plot projections tick up. Um, there's probability of a hike this year where if we look back just a few months ago, uh, that really wasn't on the table. And, um, he he's done very well in his personal career. He he's had some pretty significant investments. uh a number of which included crypto like a quick look at historical disclosures mentioned like Salana, Optimism, DYDX, Polychain Capital. So he's had bags in

the past. Um so he's certainly open-minded to uh a lot of the tickers within within our industry, but he did need to divest a lot of those positions um before assuming the the position. So, uh, at large, I think like market kind of sold off a little bit. Um, some some modest downside yesterday, but, uh, we're we're back up in response. Um, the other exciting news, which is kind of the Fed watching of crypto is, uh, looking at stretch and what's going on with the stretch price. So, take a look at the chart here. Uh it's traded down to closed yesterday at about 89. It's

cleared 86 this morning. So decently off 100 the $100 par value. Um curious Mark what you think this price action and stretch is showing and u like what what's with this downside move? I mean I I would like to say it's sure it's showing that the yield maybe is not high enough um to to compensate holders for the risk uh you know and they the benchmark that you're looking at this 11 12% yield against is so far and you know we just spoke about a new kind of slightly hawkish Fed and we saw interest

rates rise already and so you know with rising interest rates the risk the the the assets further out and the risk curve need to offer more to attract investors. I would like to say all of this but then I know that 80% of stretches holders are retail based and then 20% comes from you know institutions putting it into their dividend income portfolios or money market funds and I I'm not sure how efficient uh retail market flow is. I think it's just more panic on panic selling on the downside of Bitcoin. And you know, I ran a correlation a downside correlation analysis between Stretch and BTC. And when when BTC has drastic

falls, Stretch also sees that volatility increase. So Stretch goes from being an asset with a sharp ratio of three, four plus to, you know, low high single digits teens. um when when we see these when they see these massive downward moves in a matter of in matter of months. So uh at the end of the day stretch holders are still getting their 11 and a half% yield if they even if they bought at at at par at 100 if you if you bought below potentially even higher. Um Michael Sailor said that he's not looking to increase the the rates this month. Um and again that's that's management's discretionary so it's they can do what they want. I think that's

the right call because one, the market probably has a little bit of a an issue with how much is being put into stretch. And so I think sailor's trying to play both sides of the markets, but then again, I don't know. I'm doing the same thing that people are going to do with Kevin Walsh. I'm just sailor watching right now. So yeah, we'll see. Yeah, it's an interesting position where I I feel like more so than at any point in history, people are looking to strategy and like what levers they're going to pull as it relates to the Bitcoin price. Like in the same way we would watch the Fed or the S&P or the bond market perhaps. But so like down at $86

that that basically means the effective dividend dividend yield is around 13.3%. Um, so making some napkin math assumptions, like if strategy wanted stretch to be trading back at par given current market conditions, they'd need to hike that dividend yield up from 11 a.5 to to over 13 um for for the market to want the paper at at $100. Do you think that's like the right lever for them to pull um or like what what cards do they have to play at the moment?

So I mean even so in in in past months even we're you know we've been in a bare market since October and you know yet to date you know bit bit BTC has been trading down um MSDR has been trading down as a result and there's been more volatility in some of the preps. So I think right now it's a good idea to just hold not necessarily increase your rates to 13 because as I said it was it was retail panic selling not necessarily a clear market efficient signal because and then like I said there's the issue of too much being too much funds being diverted to stretch but my larger point is even in this downturn market uh sailor strategy was able to raise

billions of dollars enable to purchase BTC increasing the BTC per share, increasing the BTC yield. And so, you know, BTC is very cyclical as as we all know, and it seems like the four-year cycle is playing out with some slight nuances. And so, if if that's the case, it it might be best to play a wait and see game for now. um while the market just digests what's happening um especially as they just switch their dividend payout from monthly to bimonthly which should in theory add a little bit more uh stability to the price but again that remains to be seen what are you what are you thinking >> yeah so I think in in the overall

context um with around 10 billion in outstanding supply of stretch at 11 and a half% dividend yield that that kind of obligates them to um assume no ATM, assume no no cash proceeds from other financing. That's about 1.3 billion in Bitcoin they need to sell per year to cover that dividend obligation. And in the grand scheme of things, like ETFs are are moving around 10 times as much capital as like what that obligation would be for Stretch. But the way I see it is like the market may be increasingly concerned about the

liability side of uh strategies balance sheet um particularly coming from the stretch dividend obligation and when it's trading ba basically at a discount call it 86 on the dollar almost think it's a really good time to cheat some of their Bitcoin stack and be buying back some of that stress issu issuance. So it's like if you think of their their levers, the cards they have to play, like if they hike the dividend yield up to 13.3, that's that's only growing uh the liability side. Whereas if they can buy back and retire some of that stretch stretch issuance and reduce the

liability, I think that can almost like jawbone the market and assuage the concerns even if it means a few billion in Bitcoin sales and kind of the mindset they they need to retire some stretch issuance at some point in time eventually. So, when it's trading well off par like it is now, I think that's the right time to do so. Um, what's interesting about stretch compared to a bond is like it's not a 10-year or a 30-year bond with a maturity. It's it's perpetual. And um, as Bitcoin has drawn down, their their duration of dividend coverage has gone

from 60 years down to close to to 30 years now. So their their duration is um is kind of being crunched. So like a big sell and buyback I I think could do um do some work in assuaging some of the markets concerns right now. Unsure if you have any push back on on that strategy. I mean, I I I thought I kind of thought we were going to disagree a little bit, but I mean, I I think buying stretch at a 14% offer, whatever it is, 11%. I think that makes sense. They they did something similar with the convertible dividend, I mean, sorry, convertible bond where they bought it. I think I

can't remember exactly, maybe it was 8% off par um with with their cash proceeds. And I don't see a reason why not to do it here the same way. I mean, strategy has many levers to pull and I think this is this this would be a good one. But then it where's that money going to come from? It's not going to come from stretch anymore. It's going to have to come from the common common shares. Um, and then if we start to sell in that magnitude, what what what does that do to the market? I I I know a lot of people think that the first BTC sale that 32 bitcoin I think it was which was 0.04% of their BTC stock that that sparked

this whole fair. I don't I don't necess I don't believe that. I think I think price drives narrative and the price you know was down for other reasons. um geopolitical like higher interest rates, inflation, um AI and SpaceX and these other other stocks sucking up liquidity. Yeah, thanks. I this chart just shows you I mean the massive dent in their stack after after that after that 32 Bitcoin sale. So I I I'm not I don't believe that that was the core reason or or the primary reason. I'm not saying it had no impact at all. I I just don't think it was the primary reason for the sell-off. So I I think you know uh Sailor's very good at this financial

engineering and if he's able to convince the market that this is the right play he you know he's trying to shift his mantra from being never sell Bitcoin to never be a net seller of Bitcoin. So if he can if he can get that message across instead I I actually agree. >> Yeah the the sales are really a blip on the chart. can barely see it. Um, compared to the ETFs that that have been dumping a lot recently, I think regardless like stress trading off par that that basically shows credit spreads widening. Um, so it's it's a sign of stress in the market. Um, the

moves back toward towards par. I think that's that's a bullish signal in itself. Shondaanda to to loop you in. You have any any thoughts on the cards strategy and sailor can play or are you uh you just comfy and hype spot and um you don't need a 11 and a half% dividend yield? >> Yeah. Well, I I definitely do not need a 11 and a half dividend yield especially when my allocation is mainly in hype. But what I do think is interesting is that in this stage of a cycle, it does seem like for BTC, a lot of the narrative is revolving around these treasury accumulation vehicles and the DATs. And actually that's exactly what's

happening for Hyperlid as well. And last time when I was on the pod um I mentioned that the main thing that I'm looking at for extended outperformance of hyperlquid is just hyperlquid strategies and the amount of dry power it has and the amount of hype it continues to accumulate. So for context if you look at sailor and the percentage of BTC that they own it's 4.5% of the circulating supply. Um, and Hyperlquid Strategies at that point when when we had the podcast owns over 10% of circulating hype. And what we noted was that they were buying upwards of 100 million worth of hype per week, but they were not losing their premium to MNAV.

And at the same time, they were actually increasing their cash holdings. Uh, so now what's interesting is since then, since we had that episode, they've actually added in two weeks 4 million more hype and they've increased their cash stack from 141 million to 150. So, for me, it's pretty comfy. I don't need to go into all detail and nuance about how to pay back dividend yield, um, if they should sell back equity. It's just as long as they keep having insane amount of dry power and demand from Trafi, that's obviously buying the stock and keeping it at a premium. And as long as they can continue to accumulate like way more than the assistance fund and ETFs, it's probably going to look pretty good short term for hype.

>> Yeah, at the end of the day, it's the it's the big flows that matter. So, Hyperlquid is a unique example where um at least for for Bitcoin, uh treasury company flows have fallen off and become somewhat poulry relative to the ETFs. But with hype, it's the opposite. um it's the hyperlquid strategies treasury company that's doing believe multiples more in in inflows compared to the ETFs and as you mentioned like it still has a a healthy premium um to NAV which has supported the the ATM facility um which is also like the most important facility for

these treasury companies to to accumulate. I'm curious if you have any thoughts on like why uh why hype is the very unique counter example in this market environment for um that premium to NAV. I mean I think firstly it has a lot to do with hyperlquid's diversification into real world assets right like SpaceX preipos and also listing the major commodities in that it it has like diversified flows but also it just has revenue that continues to go into the token and there were like a lot of fundamental positive things that happened as well right with Coinbase becoming a deployer for the treasury and things like that and I think at the same

time the argument for why Chadfi would invest into that versus just holding the underlying is a lot of it depends on access right I think BTC was already very accessible for institutions if you want to buy BTC you can just buy it but hype until recently didn't have a ETF and it wasn't as easy to get access so maybe a lot of those flows went to the DA treasuries instead and that's why we saw them trading at a premium and able to purchase so much >> and on Hyperlid's fundamentals uh SpaceX launched Friday it going into the launch preo it was already one of the largest uh HIP3 markets um that only grew with the listing. So any interesting data you

have to to recap on the first week of SpaceX live on Hyperlid. >> Yeah. So the volume profile we see on these preipos is we normally see pretty standard amount of volume before the listing and then on the listing day we see a huge spike around like 20 to 40 times the volume that it saw on previous days. And one part of that is just like increased demand and um people want to get exposure to array but another thing is that as soon as the NASDAQ opens you can see into the book and before there's actually any trades going on you can see the implied opening price. So my theory is that and this is also why the prices for these preipos become incredibly accurate as you go closer to the listing

day that market makers with access to see inside the IPO book access to see where it's implied to open at are then kind of like arbing that price on hyperlquid and then the result is that we see hyperlquid prices are incredibly accurate and they're carrying sources of information that traders are integrating into the hyperlquid price. Um, in terms of volume, SpaceX was the third preipo market. The first was a CBRS and second was Q&T. And we already saw that it was doing much more volume than those in the preipo period is doing around $51 million versus CBRS that did around four. And Q&T that was doing like 3 mil.

So we projected it would be around a range from 1.1 billion to 3.6. And on IPO day it landed exactly in that range. It did $1.4 4 billion of volume and that has continued now that it's transitioned to a real market. I think yesterday was the second most traded asset on Hyperlquid after Bitcoin did 1.6 billion of volume. So yeah, incredibly successful launch. >> Yeah, pretty impressive. And like it's of course Trade XYZ that is the the deployer for this listing and through HIP3 um Hyperlquid outsources these these new market listings to these deployers. You put out a very in-depth

report um this past week kind of going pretty deep into the economics and competitive landscape um within Hyperlid's deployer ecosystem. uh wonder if there's any any data or thesis you want to share there. >> So yeah, I mean I think every everyone knows about how successful HIV 3 has been in terms of volume. We've also been like incredibly vocally bullish about HIV3 all the way back in November before there was any real market creation. It was just a concept of third party deployers launching markets and that has like played out really well in terms of the revenue in terms of the attention.

But I wanted to kind of approach it from a different way which is more theoretical about what does HIPP3 mean for hyperlquid like why does it exist and that is to kind of decentralize the market creation process and to allow hyperlquid to kind of have a modular stack where permissions and um the goals of each market layer are kind of distributed right so you have hyper core which is the market layer you have deployers that allocate these markets and you have builders on top that route flow to these markets and in that you want to kind of create a permissionless system. So, Hyperlid introduced a 500k hype requirement where deployers need to uh stake 500k hype that can be slashed

in case any malicious action occurs on their market and once they have that hype they can basically list for markets and uh list whatever assets they want and that's what led to so many real world assets. But what we've seen is that initially there was a lot of excitement from various different deployers who kind of saw this as their entry into hyperlquid ecosystem. We saw uh Felix venturals other projects like that source their hype often from the community and start listing their markets. But what we've seen recently was especially because growth mode lowered fees by 90% and a lot of these deployers used USDH which was at the time the alliance stable coin which gave

their markets discount and have now been discontinued that basically every deployer other than trade XYZ is not generating a high enough return one on their auctions and two on the barrier which is their hype stake that they need to put. Um, and we've been seeing that Felix, one of the HIPP3 deployers, has wind wound down. And then we saw Venules, the deployer that did preipos, also wound down. And one of the new listings, which is kinetic, that kind of does these listings as a service for deployers that want to source their 500k hype. They have got their first deployer, which is Borsa. And even that

deployer is struggling to get this dig. they have only around 10%. So our argument is that the basically the competitive dynamics are creating an environment where any deployer that isn't trade XYZ can't successfully compete >> rather than having I don't know 12 competitive deployers in the ecosystem. Trade XYZ is basically winning every market they list um particularly in duplicate markets. What what is it about trade XYZ and their implementation that allows them to basically be the dominant player for anything they list? Like why why haven't there been other examples of other deployers creating like the

winning or majority market for a ticker? >> So for context, Trade XYZ was made by unit labs and unit labs already acted as a tokenization for hyperlid spot ecosystem. So back when they had um UBTC and UE that was done by unit labs that actually created the bridge and allowed for people to trade spot assets on Hyperlid. So they already kind of established their mode as like the deployer that's listing the important markets on Hyperlid because Hyperlid doesn't want to take on that role. They want to be completely focused on building the back end. Um then with that in mind they were also the first deployer to list their markets and crucially the other deployers uh Felix

and Kinetic at the time chose to list USDH markets um while Trade XYC went for USDC. And then you think about at the deploy layer, what differentiation is there among deployers, right? Like how many different ways can I list the same asset? for example, Tesla or commodities or like the major assets that you know people are already going to trade. And if most of the volume comes from the front end, there's not that much you can do. The previous deployers thought the one way they can compete is by using a different stable coin to get fee rebates and hope that some of the yield from USDH would go back into the markets to kind of subsidize them. Um, but that didn't work out right with Coinbase becoming a treasury deployer. So now

those markets are going back into USDC and what edge do you have to compete against trade XYZ that has already kind of like flawlessly executed on this vision which that's something we need to give them a lot of credit for is like they have done a really really fantastic job but it just means that there's no way other deployers can come now and and list these markets and the problem is as long as a deployer if you list a market that does sufficient traction trade XYZ can just list it off to you and majority of the volume will flow to them.

>> This isn't a hyperlquid specific thing though. I mean on across crypto if you look at all these sectors like taxes, RWAS, wallets, lending like it it typically is just one market leader and then maybe a second place position on both both of those protocols tend to own 80% up to 95% of the markets. I I I don't know if if it's I said it's not a hyperlquid specific thing, but it just might be a crypto specific thing just given the immaturity of the market and how new we are. But I mean, yeah, it it's still green field and I mean Shonda, I don't know. Are you expecting any further competition coming out anytime soon or or or do you see Trade XYZ as the dominant platform for let's just say the foreseeable future for the

rest of this year? Yeah, I mean the way that it's looking and the reason that I was prompted to make the report is that it's looking increasingly like that trade XYZ is the only deployer left bidding. So previously we saw that there are various deployers that were all trying to list their markets that they were bidding on auctions. But now in the previous months, trade XYZ has been like the only deployer still listing markets just because other deployers were not breaking even on um the markets they listed even after they already had the hype that they st >> is you know it's it's a it's not a dollar amount it's a hype amount that you need to put up for the to stake to bond right 500k and as hyperlquid gets more successful and even as trade XYZ gets more successful that means that hyper go up in price and that kind of

makes it even harder for new competition to So it in effect would make the problem worse. I'm I'm I'm I'm asking. >> No. Yeah, you're exactly right. And and the thing is that when you mention that there's a lot of sectors where there's one dominant competitor and the others kind of like fight for whatever's like remaining. I feel like that's not necessarily a bad thing. Like I think on one hand trade XYZ dominance has been like pretty successful for hype in terms of it's good to have one reliable entity that you can trust to list markets with precision and to do it well. That's really important and I feel like they deserve their dominance,

right? But I think that doesn't mean that we can't start thinking about making the access and the barriers to HIV 3 less intense so that it makes sense for deployers that want to compete for these lower markets that might get less volume that might be more niche because right now every single deployer has the same permissions and the same requirements which that works for trade XYZ that's listing markets that do billions of dollars in volume but if you want to list something more niche or kind of experimental that 500k hype is just way too much Right. >> Is there any discussion around that right now?

Any hyperlid community? >> Not really. I mean, the report we put out had two suggestions, but other than that, I feel like people are pretty happy with Trade XSD continuing to dominate. >> Yeah. I mean, it's pretty good for highers. So, yeah. >> Yeah. So, so as Mark mentioned like a a lot of these verticals within onchain applications, they show winner take most uh where the top player has like frequently above 50% of the revenue generated within that vertical than than the top two like a large majority. Um same thing seems to be playing out within the HIP3 deployer sector. So like

on on this issue um basically as trade XYZ is going to win any market they list, you see less bidding activity um less bond posted which kind of impacts hype flows and and utilization as it relates to deployers. So you're kind of seeing this this issue here that you've surfaced. I'm curious what you're pointing out to be like perhaps a logical solution to this growing monopolization.

>> Yeah. So, we suggested two different things I think. Um, yeah, that that shows it very well. One is to do with the hype stake barrier which is 500k right now and that's basically there as a bond to allow permission permissionless deployment, right? Because if you don't want to have any control and if you want to allow deployers to list whatever markets they want to list without restriction, you need to have some sort of security. So that is there that in case they do anything malicious. For example, if they want to manipulate the oracles, take one side of the position and then settle it so that they're in profit. They have that hype that's there staked and then you can the validators can slash it. Um

and with that these dexes have a lot of privileges, right? they can list. They have complete control over what assets they list, how much open interest they want, what leverage they want, and even if they want to enable cross margin and back stop liquidation on their assets. So my argument would be that makes sense. We do not want to reduce the security of hype, but how about we enable tiers? So certain deployers that have much less open interest that don't need such high security, right? because their markets are lower volume and they're inherently lower risk or they're isolated to the specific market. They don't need the same amount of protection that trade XYZ that does billions of dollars of volume has. Right? So our

argument is let's allow to have different tiers in which deployers instead of just needing 500k hype can have um lower hype stake that gives them lower permission but still allows them to list markets. Right? So that's one solution. that would uh solve the barrier to the entry. And then the second problem we found is the auctions are not breaking even fast enough for deployers. And that's also a lot of a lot of that is based on the 90% reduction in fees. So our argument would be have a fee holiday for deployers that have not yet broken even on their markets. So until you've recovered the

auction costs that you paid in Hype, you get 100% of the fees. And once you've uh kind of recouped your investment, then you split it 50/50, which is the base fee that all revenue is um calculated at. >> Yeah, these seem pretty logical to me. Um it's like you can think of a a market with a billion in open interest um versus a market with 10 million in open interest. Right now deployers are kind of forced into this oneizefits-all approach. You need the the 500k bond to to enter that market. Um but perhaps like yeah t te tiering the an oi cap for

a smaller bond can really like facilitate smaller entrance entering the market particularly for for longtail listings. Um then similarly like suspend the fee split until auction costs are recouped. Um I feel like that would just make it like the profitability prospects for new entrance to post that bond um they can recoup their costs quicker than like the risk to entering the market can go down a lot.

>> Does the in terms of auction cost is staking rewards calculated in that? >> No. So for calculating the break even time on the auction cost, we've basically taken the amount of hype that it costs to list a market and taken the USD value of that and looked at the total lifetime revenue generated from that market to the deployer. Shondaanda, if if Hyperliquid does nothing and like no changes are implemented, um how catastrophic, if at all, do you do you think this is for the deployer ecosystem or perhaps like traders looking for longtail markets on Hyperlid?

>> Um, that's a good question. To be honest with you, I don't think it's it's going to be that catastrophic at all in the short term. I think it can easily be the case that Hyperlid is okay with this. I mean, it makes sense, right? You have one deployer that's doing an excellent job. They're very Hyperlid aligned. Um, you you can say unless it's broken, don't fix it, right? But I do think there is like a small risk of concentration if XYZ ever decides to like list their own token because if you think about the long-term vision of Hyperlid, it's that it's moving away from a crypto exchange to a real world asset exchange, right?

Deployers earn 50% of the fees on the markets they list. And in the future when the majority of markets on Hyperlid are real world assets, the majority of volume is going to come from these deployer built markets. And Hyperlid is essentially only going to get 50% of the cut of that revenue. Now, as long as Trade XYZ is aligned with Hyperlid and uses that revenue to buy back Hype, um, that's okay. It's basically the exact same thing as if Hyperlid were to list those markets itself. But if trade XRZ ever were to make the decision that like we want to launch our own token, we want to have a vehicle where it acrews value um then that would be pretty I would say that would be catastrophic for Hyperlid.

That being said, I don't think they're ever going to launch a token. So still something to keep in mind. >> Why? Why not? Is Isn't that Isn't that what we do in this space? Just launch tokens? >> Yeah, but the thing is they're so profitable. They have no re like my logic in terms of listing a token is majority of teams list a token so they can extract value from their project that hasn't found product market fit right I mean instead of generating a lot of revenue you just get a token and sell it on the market and that's how you monetize yourself trade XYZ does not have that problem they're like extremely extremely profitable um if anything launching a token is just going to dilute themselves I also think they have been

following following Hyperlid's philosophy and approach very clearly. Like they're very clearly inspired by that and are following in the footsteps. And I think if they were to do a airdrop, they'd probably structure it the same way as Hyperlid did and they'd have a points program. It doesn't make sense. Like I think there are a lot of people coping that trade XYZ is going to give them a retroactive airdrop on the volume they did. To me, it doesn't make any sense. Like if you're going to do a airdrop, the minimum you're going to do is have a points program so that you can actually benefit from the increased activity, right?

>> If trade XYZ starts to become a large and large and a dominant source of hyperlquid revenues in in the same spirit of what your earlier proposal was with the tiered staking and the auction relief with a with a tiered fee as in the higher the volume, the smaller the percentage got hyperlquid takes. But you you think that's a feasible approach? >> Yeah, I mean so I don't know how the smart contract works. I don't know if they could actually change the parameters. Right now the parameters that the the deployer can change their fee percent. I don't know if Hyperlood could like retroactively change that. Um I also think it kind of sets a dangerous

precedent for other teams trying to build on top of on top of Hyperlid. I think there's already been so much struggle between the projects on Hyperlid trying to benefit from the flow and trying to benefit from the inter interoperability of the blockchain and Hyperlid kind of just taking that and in-housing it. Like a lot of HyperVM projects have suffered. A lot of builder codes that were like building the mobile front end now feel like Hyperlid is just going to do it themselves and replace them. So, I think um if you want to attract more builders long term, you got to kind of respect the terms you said.

You can't like wait for someone to come in with the 50/50 fee split, let them do a really good job, and then be like, "Okay, yo guys, we're going to change this and we want like 90%." I meant for it in the opposite way be you know think to keep them aligned as if trade XRZ starts to get more you know massive revenues massive volumes and then you say okay we won't take 50 we'll take 40 you know in incentivizing them to you know not launch their own token not offshoot somewhere else yeah that kind of stuff but but your point still stands I understand where you're coming from like the immutability and the oification of a protocol especially one that's supposed to be decentralized is also an important factor for teams looking to build on it and so if they

can change it one way you know what's to stop them from changing it the other so yeah and there's already tension like you said so it makes sense >> yeah I also feel like 50% is pretty generous like if you think about it long term the deployer earns 50% of the volume kind of building on the success of Hyperlid like it's very generous to give them half >> yeah so the the big picture bare case CC growing with this increasing monopolization on HIP3 markets is like tra trade XYZ gets a bit more authority.

Um and like if if they were to launch their own token and use proceeds to buy back the trade XYZ token instead of hype then then hyperlquid's basically giving up a a pretty big line item. Um, guess on that, how you mentioned Trade XYZ is incredibly profitable. Do you know how much they've earned to date? >> I'm not sure exactly how much they've earned to date. I just checked the annualized revenue. It's like 23 million. Um, but that being said, their revenue is understated in terms of the amount of volume they do in proportional Hyperlid. They're doing almost 30% of Hyperlink's volume, but it's just that

the markets they have are in growth mode. So, they earn 90% less fees, right? So, if they were to do the same amount of volume, but with the base hyperlier, it would be like 20 230 million a year. But and just to clarify on your like previous point, the risk of KXYZ launching a token and directing revenue to their token is not something that I see playing out in the medium term or even in the short term. It's just something that we do need to keep in mind as like a possibility, right? But I think that until now everything that they've done has kind of shown that they're very aligned with Hyperlid. I think they also have like a lot of

investment into Hype as a token to the point that they probably hurt themselves more if if the value of Hype went down, right? If they did anything to kind of cause that. >> Yeah. So they they they have hype bags as well and they want to see it succeed. So they'll be managing their strategy accordingly. Um on that like hype has continued to be one of the one of the gems in crypto. Um, basically right at all-time highs while number of other assets uh perhaps the vast majority are are near their 52- week lows. Um, I've kind of been of this

mindset that like we have we have a ceiling on the industry and its various investment opportunities like until and unless we get clarity, pun intended, through the Clarity Act, which um increasingly looks kind of in flux like if we check the polyarket odds for whether or not clarity gets signed into law Um this has ranged between yeah like call it 40 and 75 um since the start of the year and really not getting signal in any direction. Um I'm kind of the mindset that yeah this we we need to get

this over the finish line to um see blue blue sky and green shoots in the industry. And until unless that happens like we're kind of capped. um at least for a lot of the different opportunities within crypto. So I'm curious, Mark, you've been deep on the Clarity Act. What's the um what's the sitrepper status like? Are these odds fairly priced at at Coin toss 5050 or are you seeing motion there to to take the other side?

I I I do think the odds are fairly priced because, you know, you would talk to some some people, they put the odds a little bit higher, 65, and others would say it's lower. And I think it's it's it's largely one, it's a timing issue. So, first there's the Senate Banking Committee's markup version which came out last month and that needs to be merged with the previous version that the House signed on and then you know it right now it's sitting on the Senate for a calendar date but there's no floor date yet given to it and that's because this merge needs to happen first. So, first we need the merge. Then we need to get a scheduled floor date. And then the Senate needs to vote on it. And it needs 60 votes in the Senate in order to

prevent a filibuster. And then on top of that, because it was a merged document, the House needs to vote in it again. And then it goes to the president's desk, right? And all of this needs to happen in an increasingly shorter time window because there's a small break in July, but um you know Congress really goes into recess in August, early August. So we have about six to eight weeks to get this done. And now it's now it doesn't seem like it's a a matter of if we should if this bill should pass. It's just like how the bill should pass, what's in it. And what's in it is about I would you know like 90% done. The

stable coin yield um debate is long gone. The banks have looked at it approved even though there are some prominent um CEOs still calling calling Brian Armstrong names. But I think it's more you know there's the ethics provision I think is going to be the real hold up. Um, you know, the Democrats want to ban the president from profiting and his family from profiting off of off of crypto. And it and it's very hard to oppose that. I think the way forward is the Republicans if they were to do a blanket ban. It's not about who's in office. It's just every office holder, Congress and everybody. I think that's easier. And and now and and this

is just we're not even talking about crypto anymore right now. We're talking politics. So it's it's moved from it's moved from more of a crypto debate to more of what's happening in Washington right now because after recess there's I think the reason why there's you know very little chance for it to pass this year if it doesn't happen before is because after after the August recess every single person is focused on midterms and those agendas are going to take priority above everything else. So then it becomes effectively dead in the water. So I I would say 5050 is is a fair fair market assumption.

>> Yeah, that that's what makes a market. So there there's still a bunch of work that needs to be done in an increasingly short window to get it done. Um, I I'm curious like are we kind of coping or hoping like within crypto that the bill is actually bullish or like what's your read on the implications of what it unlocks? Um, like what do you see as particularly bullish in it?

>> I I mean it's it's definitely bullish. It's it gives regulatory clarity to to a lot of the markets. I mean, it's going to be more bullish for some tokens than versus others, obviously. So, I mean, for example, it's going to put a clear delineation of what the SEC is going to regulate versus the CFTC. Um, and the SEC is going to basically uh, you know, everything I say, let's just put an asterisk because there's a lot of exemptions. The the bill is over 300 pages long, so there's a lot of exemptions, a lot of lot of things. But generally speaking, it's the SEC is going to be the regulator early in the lifehood of of the asset. And then after it becomes decentralized, then the CFTC

will become the new regulator and with you know less requirements necessary under the SEC these protocols are going to have to produce disclosures on a semiannual basis. So twice a year um and you know I think that's fine. At Block Works, we're working on the token transparency framework. So, we are we are we are already aligned with that kind of thinking. And then it just gives it gives a clear out, you know, these assets aren't securities. They're either network token or an ancillary asset. Ancillary asset is the non-deentralized version. Network token is the decentralized version. Staking is now a security. liquid staking, um, self-custodial staking. Even if you use a third party to stake who doesn't

control your keys or who doesn't control your keys, that's also not considered a security. Um, I was looking in the act and they they said nothing about using Ave to loop to increase your staking reward. So, that that is still a gray area. That still might be a security. But, I mean, I I you know, I'm listing these things, stable coins. I'm listening. There's a a whole slew of categories that just says, "Okay, they're no longer securities under this crypto regulation exemption and the industry can move forward like you know, we've been talking about institutions coming for a long time and this kind of this kind of blocker reminds me of when I was in buy back in 2017 when marijuana stocks were now hitting the market but

no large institution would touch touch them because they had no federal regulation. they weren't allowed to have a bank account. Um, and during operation choke point 1.0 in 2022 when a bunch of these banks shut down, it seemed like the same thing. It seemed like even crypto institutions couldn't have a bank account and they were telling auditors not to not to audit, not to give a professional opinion on on these assets. And so you know obviously we've moved out of that stage but the but still that kind of clarity is needed for these institutions to pour money scale time resources people into this and yeah it it it's it's it's definitely necessary.

I mean think about it from an investor point of view. You're looking at this asset class even from an entrepreneur point of view. You're looking at this asset class and in order for this asset class to really progress there's a 50/50 chance. Like why would you even be paying attention to it right now? like you you're going to put a discount not on just on asset prices but on any operational activity you're going to do. So it's a tough position to be in and I to answer your question I think it's hope. We're not yet in cope yet. I still think it's hope and and I'm I'm hopeful. I'm not optimistic but I'm hopeful.

>> Yeah, that that's a great read. It's it's almost like it it doesn't matter how hardline the legislators are in in terms of like the regulation they draw. does just we we go from an environment of very high uncertainty related to like the regulatory classification standards for the sector to like with clarity going into law like very very high certainty and and low uncertainty and like wi with any liquid market you go from high to low uncertainty like that that's going to be bullish and that's my read on on this bill as well. So fingers crossed we see uh acceleration and

motion on the bill in this window that we have here and and hopefully it gets over the line and and we can see those green shoots on the board um and just the implications of the bill for the industry. I know we all would love to see much more disclosure and transparency across the board. Um, with that guys, I think uh think we can close it out here. Any any final remarks for our viewers or things you're looking at over the coming weeks?

I something that's been on my mind now is you know I've been getting asked this question a lot about is BTC has BTC bottomed and I've I've I've attempted to answer that question myself but um Bitwise CEO Hunter he Hunter Hosley he put out a statement um asking if BTC bottomed might not be the right question you should be asking has it topped and I thought okay that's a a really good reframe of it like and nobody's going to say yes BTC has topped like 126 was the top. You know, the price points that we call out 250, 500, a million like the the thesis for the long-term value of Bitcoin is still intact. In fact, it's

stronger than it's ever been. And so, if you still believe that thesis and you have a long-term time horizon, then these are these prices start to look attractive. I'm I'm sure Sha will say the same something similar about hype as well. Yeah, I was wondering whether to give market insights on hype as well, but I feel like I've summed it up already, which is probably from a price to earning or multiples ratio, it's starting to look a little bit stretched, but as long as the flows continue, I mean, you have an asset where $100 million is being bought every single week, it's going to keep going up. and I would only change my view or start being worried if the premium um compresses or they start running out of um dry powder.

But until now, I'm comfy in spot. >> Yeah, I share a lot of that the sentiment here. And this is a chart Mark put this in the newsletter earlier this week. Um multiffactor model built by Big Brain on Blockworks Research, Daniel Shapiro. And yeah, this indicator on the bottom half, I I think it's pretty clear as to what sort of regime we're in right now and what that has led to historically. And like a lot of the stuff we're seeing like this indicator in addition to number of others that we we talked about realized price last week. um the these are characteristic of bare market lows and um and bottoms

being in sight. So, well, we have we'll need to see more uh a few more reps with this new Fed chairman uh hopefully get motion on Clarity Act and hopefully that the credit spreads on Stretch start to close a little bit and we see some relief there. Um, but big picture on a high high time frame u multimonth outlook um I think I think think by year end like we're in a pretty compelling and attractive zone here >> 100%.

>> All right, that's all we got for this week. Uh thanks to our listeners for tuning in and thanks to Mark and Shondaanda for uh sharing their thoughts this week. >> Thanks for having me. Pleasure to be here. >> Thanks. Yeah, always a good time.