The Rise of Equity Perps | Livestream

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Nothing said on Zerox Research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and any views expressed by anyone on the show are solely our opinions, not financial advice. Pokio Ryan and our guests may hold positions in the company's funds or projects discussed. >> Hey, welcome back to another live stream research. Myself joined by Picacio. The music's still going. We love the feeding the duck song, man. It's just so catchy. Uh joined by Vakio today, as well as our very own Shondaanda Devens from the Blockers Research team. How we doing today gentlemen?

>> Very good. Thank you for having me on, Danny. >> Yeah, thanks for having me on as well, man. >> Always glad to have you on, Bach. Same with Shondaanda. Uh I guess big big topic we want to talk about today. obvious from the title. Bach, I'll maybe let you lead it in, but uh >> yeah, maybe >> all over the timeline, all over the everyone's covering it, everyone's fighting over it. Uh take it away. And why do we why do we have Shondaanda on? >> Um I guess like before we get into equity perks, I kind of want to discuss something else also related to Hyperlid.

I think if I tried to discuss anything but hyperl with Shondaanda, he would start freaking out. Um they just announced um crossportfolio margin. Did you see Shondaanda if you >> Yeah, I just saw the update. >> Yeah. What do you think about that? This is like >> something Ryan has been really really geeking out over. He's been saying it's like >> because you can do this essentially on every other venue, right? Every track venue, but it's not something that is done very efficiently within crypto. Um, and like on the Solana side, we saw Project Zero, which Danny, I don't I can't remember if you were on that episode or it might have just been me

and Ryan. >> I think I was not on that one. >> Yeah. And it was like that was their main value proposal is allowing cross collateral. Um, I'm just um this is what the BLP I guess was being built out for. Um it's quite exciting to see that it's like happening on Hyperlid as well because I mean we obviously saw Solana have a relatively large big um equity announcement at Breakpoint with Ellipsus um announcing that they're going to be building out a purpose. I don't know if it's under Phoenix or not, but um pretty exciting stuff. They haven't had success with Perpetuals over on Solana. It's just the reality of the situation. um despite the

fact that perpetuals generate a lot of money um and Solana is not built specifically for it but is one of the few chains that is fast enough that it can support perpetual. So it's going to be interesting to see. It's exciting to see project zero plus I assume they'll work together with Phoenix quite um closely. Um although they do have different prop AMM team themes so it might be because one is temporal and humidified the other one is sulfi. Um it'll be interesting to see but yeah Jakob unless you have any big takes on that we can go directly into equity burps where I start grilling you question by question or Danny unless you have something.

>> Yeah I guess I'll add something real quick. I think uh the interesting piece there is that we haven't seen per take off on Salana for a long time, but I was just chatting with our very own Carlos on the research team on Lightseed the other day about propm could be that solution for them. Um it's kind of been a a solution to do a lot more volume, provide a lot more liquidity to markets on soul onchain trading. So I think I mean that's basically what we're seeing here from Sulfi or Sulfi team or Ellipsus Labs now doing Phoenix uh decks rather than just a like a club deck. Um that seems like it really is maybe the answer of the solution to um kind of

scaling that that business on Salana. So I think it's exciting. I mean, I think this is this is probably like a real test here to see if uh now those markets can take off uh much more successfully than they have in the past. >> Yeah. Yeah. Any hot takes? >> Sean messed up already. It's like the first uh name call was a fail. Uh no, I mean it's exciting, but I think it's expected, right? It's inevitable. I think um I' I've just seen it so I haven't really had time to look into it, but I think like the carry trade is one thing that's super interesting to me, right? Like you can uh like have a delta neutral position with your spot balances

going short uh stuff like that. Being able to earn yield on your collateral, but um yeah, probably more excited about the equities to be honest. >> Okay, then let's talk about equities. I have three questions for you to start us off. Number one, where do you see the potential apart from hyperlquid um for equity purpose to be successful like which platform or protocol and why compared to the others? Um and then the second one is I want to dive into how the oracles work. I expect that you don't have the perfect knowledge for this because you're not an Oracle provider and I also don't have it. So we'll give a cursory level glance at it because from what I understand that is

the main difference between these specifically between Felix and trade XY Z right that's the main >> yeah like for the for the HIP31s it's basically only the oracles that's going to be different and and the code asset right USDH and USDC um I guess there's going to be a third question as well right >> I'll ask it later start off >> okay no I mean like maybe it would be better like I I can definitely answer that maybe like give a bit of a pitch first like why these equity perks are so interesting to me especially when you think about the dominant instrument of like options which is being used in stratfi um I think it's good like first to kind of contextualize these two like instruments right and their architecture so what a option does it allows you if you buy a call it allows you to

basically buy that asset at a future date at the strike price that you lock in right so if you're bullish on Bitcoin as trading at like 100k you could buy uh a call option to buy Bitcoin at 100K in like six months from now, right? So then even if Bitcoin is trading at a million dollars, you can buy it for 100K, sell it for a million and you lock in like 900k profit. And because of this leverage that these like options enable, it's been kind of the dominant tool that both institutions and retail use to trade over on Trifi for equities, indexes, anything like that. But they're actually like pretty sophisticated and complex products, right? Because if you think about how an option works, the

payoff, it's not just the price that determines the value of option. It also is like the time to expire. If you think about if I want to get a option for Bitcoin in one day versus a bitcoin in one year, the one in a year is going to be worth much more, right? Because I have that like optionality over a period of time. And the price that I pay is also dependent on the implied volatility, right? So, if I wanted to buy option for something that doesn't move at all, like maybe USD, it's not going to cost me much versus like Barra or like XPL, they probably wouldn't even sell me that, right? Um, so yeah, the kind of core concept is that these tools are being used to trade the underlying price, but they come with a lot of like different things that actually influence

the price. And if you look towards crypto, what we use for leverage, a perpetual future is actually just a much more clean simple delta one way to get exposure. And delta 1 basically means that derivative is going to track the price of the underlying onetoone, right? And it's like a really simple setup actually. is just you have the oracle price which is the underlying and you have the mark price which is basically this exchange futures traded product that you kind of try to anchor the mark price to the oracle and you do that with a funding rate right so when this trades above the underlying price it's expensive the longs have to pay a premium and when it's below the whoever is on the short side has to pay right

and then you kind of incentivize the market makers to come in and they can be the neutral they can go long here and short here and basically capture that spread. Um, one question, one thing I guess I want to add here is like I think this idea of options are not I think this idea of if you put perpetuals versus options in front of retail, retail is going to prefer perpetuals is something that is being said a lot, but I don't think a lot of people understand why. And like you gave some very good points is that options are very complex instruments, but they're the only available instruments within Trafi um to get that leverage um and that itch for

speculation fixed. Um I would say crypto is very much a retail dominated market. Um and given that perpetuals have found clear product market fit as opposed to option, options have been tried a lot of times crypto. It's I think it's kind of interesting because it feels like options within crypto would probably only work for institutions um and like really smart investors as opposed to retail who just prefer it's just so much easier slide it to the right 50x 80x figure it out that way as opposed to options. Please continue.

>> No, I mean you're exactly right. Like another thing about just it being a delta 1 exposure, it's so much more simple for the average retail participant, right? Like a BTC per should have the same value as one BTC as the underlying. Like if you think like even if you're retail, you want to kind of like hedge your exposure. It's much easier to just go short 20% of your BTC position to like hedge some of that risk than to like buy an option which allows you to sell, right? Like these things are just much more simple in crypto. But even on the Chadfi side, like I know you said like for institutions options do make a lot of sense and it's true like they do offer you a lot of optionality with the different things

that are being priced. But the the thing is like if you don't want that, you're still paying for it when you buy the option, right? So, if you just want price exposure, per like we'll probably get into this more, but um Tradify already has a lot of volume from retail. Like before I started researching, I would assume like the majority is just going to be institutions uh trading in big clips, but um I think it's like 61% of options volume come from retail. Wow. >> On the S&P, so they're like driving the majority of the volume. So, it is like Go ahead.

No, >> I was just going to say it's a big market. >> Yeah, it is a big I remember reading this like Barclay's thing back in 2122 and they were talking about how retail trading volume has increased so significantly that they're actually like a relevant player right now. Well, relevant is kind of a weird word there, but you get what I mean. Um, I guess let's talking about equity professionals. It's interesting to retail but it doesn't seem something. So, I think like part of the reason why people aren't particularly excited about equity perpetuals is because if you're an investor, you don't really want to hold perpetuals. They're not a great way to

invest. Like, they're a great way to speculate in the short term or in the long or in like the medium term, but they're not a great way to invest in in something. So I guess like what do you think about that? Do you think this will only be a retail thing or do like my main point here is funding rates are at least in the early days. I can't I haven't checked them out recently but like they were pretty abnormal. Is that still the case? I'm talking about hyper. >> Yeah. Yeah. No. So the thing is they are in they are pretty high like substantially high and it comes down to like why do you hold perpetual position right like I would say for the majority people that want to hold stocks tokenized stocks is probably way better

right because um if you were like hold something for a long time horizon like more than a year it makes almost zero sense to pay that funding rate um but the thing is like if you do want short-term exposure then you think like the cost of this position position is your funding rate and that does fluctuate and the reason it fluctuates is because of the structure of a per right you have the smart price and you have the oracle price and you need to incentivize market makers to like uh fill this gap and unless you give them a high enough incentive especially in like these new emerging markets that are pretty hard to um make markets for they're not going to do it but like this is something that is going to is going to decrease over time right like we're

just getting started with the equity per um funding rate is expensive, but over like a longer time horizon, you'd probably guess like what's more expensive, the funding rate to hold a per position or the premium that you pay for an option, right? Because that's the cost of an option like comparing these things. Do you think it would help or I guess what do you see as timeline here for like spot equities on hyperlquid for example to maybe maybe as like an alleviation to these markets in terms of like if you're going long or short the equity per right now you know kind of like hedging out that trade or like capturing maybe a dislocation in the price to the spot market is not it's not like directly feasible on the app today.

But we know that, you know, like you mentioned, there are some smallish kind of like spot equity token offerings now. Do you think that's something that kind of like helps compound growth in the category? >> Yeah, 100%. I mean, like one of the difficulties with making markets for equities is just like proximity to capital, right? If you're making markets for a BTC per position and you need to like adjust one leg of the trade, you can easily like bridge a spot to hyperlquid. you fill up your margin, right? And then and you adjust your position. But if your second leg is on a Trafy venue and it's Saturday or Sunday, how do you adjust the position, right?

So there is an argument to be made that maybe in the like right now we're using the Oracle price as basically the underlying stock with on the weekends we'll use internal pricing on the exchanges, right? But you can make the argument that in the future instead of referencing this Trafy um stock, you can just reference the actual tokenized spot on the on crypto, right? Like a tokenized stock and then market making becomes much easier. It's basically the same thing as you'd mark make any crypto asset right?

>> Yes, there are. Now I don't understand this as well as you do Shondaanda so please correct me as I am wrong but if you think about it in this way a lot of pricing on exchanges still kind of relies on Binance oracles right because that is the most liquid now I don't know how at what point we can get to a point where we can use tokenized stock spot volumes on weekends I think this is the biggest issue I think everybody also thinks like this holidays and weekends are the biggest issue with tokenized stock trading specifically with perks, right? Because you have nothing to base it off of. So

the entire thing just becomes you have to widen spreads and hold less inventory and just make sure that you survive the weekend or the holidays so that you're not getting you. It's the market makers. You have to manage risk at that point. It's very difficult. So they have to make they can't make the user get as good fills as possible. One of this is Yakob shielded me this um persp. I'm using it and it's the weekend and takes a 1% fee off. I'm like what the [ __ ] is happening and on volume 1% fee but it makes sense because they can't they can't justify anything else like they have to it's either me or them and they're always going to make it me. it's

the makes the most sense for them. >> Yeah. Yeah, I'm curious. I'm curious maybe what you think and I don't know if you get into this uh in more detail later on in the report or some of your ideas but obviously like a clear angle here is that this these offerings are something of like a a regulation ARB, a regulatory ARB, at least within the US specifically like you can't have per single names or anything like that for retail or like offer that kind of like commercially. um those are typically like OTC. There's like OTC markets where you could do certain things like this, but it's not it's not a wide thing that you could offer up to a retail platform. Um I'm wondering like to what extent you think

this like continues and can compound for this category or the progress that we're seeing on the RA like you see platforms like Robin Hood and the stock exchanges start talking about we're going to eventually move to 24/7 trading of stocks. We're going to eventually start talking about weekends like you know you've got earlier morning hours you've got overnight hours on like hood trading of stocks. they have some of the same issues there, right? Spreads widen out. There's less there's less volume. There's less liquidity and so you're going to get quoted probably like a higher price or like a much larger spread to trade during those time periods. But um I I guess I'm just curious like is this something that's you know durable worth going after and like can compound despite

um you know maybe the real like squeeze is only going to come once the regulation comes into play and says like okay pers are cool and then the big players jump in. >> I'm gonna say one thing here. Um regulation over the past month if you see any headline it's mostly the SEC saying yeah we're going to bring tokenizing everything. Um, so I can't imagine that they're going to It's very difficult, right? Because a it's the current administration. You don't know what's going to happen in the next administration. Although Alana, you remember when we talked to Danny and she was very clear that it was um what was the was it the Clarity Act or was the stable coin one? One of the other or maybe both. They were both like

bipartisan supported. So it seems like in general both the Democrats and the Republicans are very happy. I don't understand enough about politics, but >> maybe I'm asking the question, maybe the better question that I want to ask is like, is this actually a solvable problem or does it even need to be or regulation will come in and then the the bigger venues that exist will say, okay, everything's tokenized 247. We didn't need to solve like how to trade these things on the weekend. Anyway, >> one last thing I will say here and then Yakob, you can take your answer. We when you say the weekend they'll just bring it in. They're bringing it in through crypto like through onchain.

It's not like it's going to happen on the Robin Hood exchange the way that they do it right now and then come into crypto. It's more like they're going to be using this is my understanding of like specifically I think Galaxy and Salana um like they had a massive thing about this this weekend and they're like we're going to issue stocks on Solana. So, I think they're more so relying on blockchains as opposed to saying we'll fix it on offchain and then onchain will adapt. It's more like we're going to use onchain to fix offchain. I don't know. This is my understanding based on every conversation that I've seen. But once again, I'm not product side at any of these venues, so I can't really speak too much on it. Shondaanda, we invited you to chat about it. No,

>> I I like hearing your view, Bob. Thanks for sharing. Um I yeah I guess I'll kind of like phrase the question is like is regulation a blocker? Is this going to make it worth solving? Right. And I think the argument can be made that regulation is actually positive for crypto for decentralized uh protocols because it kind of like blocks these incumbents Coinbase, Robin Hood from just going in and like capturing the entire market. And I kind of like bring it back to if you think about uh futures the and commodities with like BTC per that just got approved uh for US retail, right? Uh on Coinbase and the reason is

that any future with an expiry that's more than 28 days is classified as a future and it needs like a lot of protection for retail. And the way that like Trafi works with crypto, we're used to exchanges being this fully integrated stack, right? Like so Binance does everything from user acquisition to holding the collateral to listing the markets to like even performing liquidations. But in Trafi they've split this into two different levels. You have these brokers that route order flow to markets and then you have the clearing houses at the back that make sure that everything gets settled. So if you want to get a per listed on your platform that's compliant, you'll need all these three levels uh to kind of cooperate

with you. It's not a simple decision of Binance just listing their own market, right? How it is in crypto. Um, and we've seen that for commodities, this has just been kind of the green light has been given. Even then, they've had to make modifications. So, like if you look at the Coinbase Per, it has a five-year expiry, something like that. So, they've still had to modify this. And we've had this for like years, right? Uh, perpetual futures in crypto has been the dominant way of trading. And now if you if you go a step forward and say okay that's for commodities will this work for equities which are securities um the answer is even more complicated and it seems like it's going to take years for a compliant equity per to be kind of u pushed by these

platforms. So in that meantime has the opportunity to like offshore this flow. there's a lot of flow coming from Asia from Europe European retail that you can kind of like take and also you have decentralized front ends with builders so to enforce the regulation also becomes much more difficult so in that sense it's kind of a window of opportunity to to take advantage >> very good and when they catch up to this we'll figure something else out it'll be fine um Sha can you give me a gentle introduction overview to the landscape right Now it's HIPP3 obviously I think they do the major majority of volume. Um what else is there?

>> Yeah so it's HIPP3 which Hyperlid has kind of outsourced to uh third parties. Trade XYZ is by the same team as unit. unit is basically the tokenization layer for hyperlquid that does UBTC UT they're handling all of this and so obviously they have an advantage and I think they're dominating right now doing around like at least 95% of hyperl equity volumes then you have Felix Felix is uh Hyper EVM native ecosystem projects they've built like a ton of tooling solutions for um hyperlid they built the CDP lending platform and now they've built the equity pers and as I said before, if you think about how do these platforms differentiate, it's

there's not much differentiation, right? Um, everything's on Hyperlink's front end. Felix is differentiating because it is a a line stable coin. It's denominated with USDH, which means that it gets these fee trading discounts and rebates. And that is probably going to be more significant in the future because right now they have this growth mode, right? And the growth mode reduces fees by 90%. So these like marginal decreases from USDH to USDC doesn't matter much but uh in the future that's going to be like the core differentiator on hyperlquid I think um ventual also just listed their own kind of index product like top seven tech companies.

So that's hyperlquid there. And then you have um OUIM. OUM is doing kind of like a different model. It's not a orderbook model. It's more like a peer-to-pool platform and that comes like with its own set of trade-offs. So for OUIM, I think the main benefit is for retail traders, you're executing Yeah, thanks for pulling that up. You're executing against the oracle price when you're trading on osteium. So you're getting trifile level execution on hyperlquid. You're going to have to buy the mark which you're going to hope that a market makers like quoting you as accurately to the oracle price due to

the funding rate. Right? But here with osteium you get direct execution. The trade-offs there is the LP providers do take some directional risk. like if you look at a a chart maybe of the return of the liquidity pool it's um not up only like the HLP and then so those are like the two different models like this order book model with hyperlquid um Austrium is more like um perpool then but and then like okay to contextualize this a bit more like emerging solutions how are they going to be built it almost seems like bulk maybe you have some insights here that hyperlquid we've we kind of

know who the winners are going to be. There's not that much more room for new equity deployers to come in, right? Like with unit and trade kind of monopolizing it, but there are going to be like ways for different architecture. So best is another one we covered in the report. they have their own uh pool that's kind of trading against uh traders and they're hedging their exposure offchain, right? So these are like three different approaches. >> I Yeah, I I guess like I want to kind of add in one thing here. Um you mentioned ventuals. How does that work? That's not going to work. Private

markets. I know this we're talking equity burps here, but >> dude, I I the funny thing is I don't watch this podcast that often, but I feel like every single time I watched it, it's something to do with you hating on vengeless. >> Well, I really like Okay, first of all, I maybe said this, I have nothing against vengeables. I think it is a very cool idea that is um it's a very cool idea and it's like objectively one of the right things for crypto to head into is to make these very illquid markets liquid.

I'm just I guess I'm I don't hate on it. I'm just relatively ignorant about it. I need to understand a bit how they are able to price these things based on did you see um Canon Luke Cannon talk about it and he had a long on ventuals and he lost all his money um because the markets are so liquid and these prices move ridiculously >> skill issue. Yeah, I feel like the question here for me with with vengefuls is like I don't know if this is people are just too excited to make a per of everything because in my view like you don't really have there's not a liquid spot spot market for these things today in the first place. And the way that privates work is that they go up over

time, right? uh you know they raise at a valuation and then 3 years later they raise at a higher valuation and like nothing else nothing really happens in between that and there's not really like much public pricing or like trading happening like you know there there might be some OTC kind of sales here and there but like there's there's really not much going on that would make sense to do anything other than just like be long it does being long a per when the timeline to like the next valuation bump is like 3 years out make sense in the first place I think that's kind of the question is like does it is it even the right tool for this market?

>> Yeah, I mean with pre-markets you kind of look at the issues that tokenized equities uh perpetual equities have and they're kind of made like 10 times harder to solve, right? I mean it's the same thing. You have the problem for equities that you have one leg on Trafy, one leg on Hyperlquid, and then for pre-markets, you have the trade-off that you have one leg that's private, unlocked, you can't hedge it. Um, so the way you try to solve this is again, you have higher funding rates to try to make >> and massive spreads.

>> Yeah, you have higher funding rates to kind of incentivize someone to arbit back down. But then the question is, is it even worth to go long if you're paying like 50% a year unless you're trying to trade news or some >> which and and the interesting thing is I was like looking I think Anthropic had a recent announcement and I was looking at the chart on Venuals and I felt like it didn't actually react the way that I would would have expected to at all. And another reason is that 50% of the pricing comes actually from the internal price. Right? So it's 50% taken from estimates of the company and the other 50% is just trading on hyperlquid

itself. Okay. One last thing here is, God forgive me for saying this, but is prediction markets a better way to bet on IPO stuff because it's very clearly a yes or no thing versus like you said, you could have taken a position on anthropic on perks, but it it might not do what you expect it to do. I guess that's how it works in regular markets as well. I don't think prediction markets are a good way to bet on things. But one other thing I was reading about is that actually these private company trades are becoming a lot more like liquid compared to previously. Um so maybe like as that becomes increasingly a thing. Um maybe the purpose catch up. I not feel bad

because I can remember another time I was I spoke badly of vent. It's not that I I I mean ill on the vententral team. I think they're coming out with a very cool thing. I just I'm ignorant and I don't quite understand how it's supposed to work given how illquid these things are. I don't even know how you would do the pricing. It seems absurdly complicated to me. Um let's do um do you think Yakob the bare case for Hyperliquid is that they've outsourced uh equity per to an extent spot asset deployments to third party teams. The

correct answer here is yes but up to you what you choose. I mean the I I would say the correct answer depends on did they trust the right third party teams to do it right. I mean until now seems like unit is doing everything right. Seems like unit is using all of their revenues to buy back hype just like the assistance fund. Like logically of course you say uh Hyperlink was giving away 50% of their revenue right because that's essentially what they're doing. But if that revenue that they're giving away is being used in the exact same way that the assistance fund would use it, it's not really a problem.

>> How does that scale? I guess would be my question. Is you let someone else go and do it and they say, "Okay, and we'll take some of the revenue, but then they use all the revenue to then buy the asset." Like, how how do they continue to operate or are they just doing this out of their own goodwill and they own a lot of the asset and that's enough for them? I imagine they'll at some point start taking a cut out of it. It's the same as like what you expect Hyperlquid to do eventually, right? Like I imagine eventually they're going to be making I don't know what they make right. Let's say 2 mil a day buybacks right now.

Let's say is there a funny comment? >> Yeah. >> Don't don't read that. >> Sorry, don't read that. I reacted too strongly. Um, like Hyperlid right now buys back 98%. Eventually, if it 99% eventually if it's making like 5 mil a day, then they can probably start taking like 200k 300k a day off instead to be used as like building up a treasury and stuff like the assistance fund right now is hype.

The main point here is like I imagine unit or like trade XY Z will also eventually start doing this, right? They're right now buying back hype with all of the revenue. Maybe in the future they only buy it back with 90% and then when I imagine they're VC backed or Shoku's extremely rich and he's just funding the whole thing by himself. So they'll figure something out. I It's not I would say it's more scalable than a single team doing it. It's just kind of worrying if the team wasn't good. I agree with Shondaanda and this is kind of my way of like because I know I knew what his answer was going to be. So I'm trying to play devil's advocate while

still making Hyperlid look good. Um I >> What about the other question? Like are are the buybacks up to today a mistake? Like should they already be making the transition then to using some >> unit >> unit or hype to then fund additional operations or >> buybacks are good because it's the only way to express currently it's the only way to express that the token acrru the value from the protocol. The only other way is to do very complex legal stuff um or give out dividends which is not possible. So, for that it's good. Um, should they maybe be doing 95% buybacks

instead of 99%. Yeah, I imagine they've they thought about that and I imagine they are thinking about it for the future if that makes sense. >> I'd love both of your takes on this because my thought is I think the buyback could be any number. It could be 50% even as long as the rest of those revenues. There were clear communications of, hey, we're going to spend 10 million a year to make this product and make this product better. You know what I mean? it. I think to your point up to this point there's been no clear separation of

these things of like okay the labs team just makes all the money and like maybe they build out the better product or maybe they don't and they just get big fat salaries. But um I guess I'm wondering could you just have some more clear communications of you know a case of like a unit of this is this is what we're building out. We're we're going to spend 5 mil to build this but 75% of the revenues will still just go straight back into the token. Do we have to move in that direction or can we buy back in all the money forever? >> This thing is a this is my personal opinion. I think the entire like 100% buyback thing is objectively not the most e efficient way thing you can do with your revenues with the fees that

you generate as a protocol. But within crypto, we move so drastically between these like wavelengths of you have nothing, you have everything. Like imagine a year ago, we had this revival of what people like to refer to as a revenue meta. And then everyone was like, "Oh, unless like something has revenue, I can't buy it." And like we move very we overcorrect a lot. Um, so I think this is probably an overcorrection. Um, because historically none of the protocols made any money and the protocols that made money just kept it in the lab labs team um or just took it as salaries. Um,

it's an overcorrection. I think going into the future teams will be more transparent and start spending 70% on buybacks or dividends or whatever week comes up in the future. um and 30% maybe on mergers or acquisitions or new product lines etc. We'll get increasingly sophisticated with I think how we how we do um protocol balance sheets and etc. I just I yeah I think that's the future is like right now we have an overcorrection and then it'll correct back into like a midlink thing. It is a bit much to buy back 99% of the token. Like they couldn't say 3 4% build up an insurance fund. I don't know. Buy out what? Why

are you doing that face? It's my podcast, buddy. You can't do that face on my podcast. >> Shonda, what do you think? You have a strong opinion here. >> Um, well, I think the buybacks are symbolic, right? Like >> I think that was also why there's such a debate about when there was like the proposal to take a portion of it and redistribute it to high prevm projects. It's like this large buyback amount symbolizes that exactly that it symbolizes that the token is the priority of the protocol like there's no equity there's nothing else all the value is going to flow back and I think more than that it kind of highlights the model of how hyperlid operates and I'm not going to say that this is the

perfect model but the way they like coordinate with basically their token and their incentives it means that they don't have to pay people to do stuff, right? Like all their listings, they didn't pay for, all the integrations, they didn't pay for. They want to alliance stable coin, they made a proposal, people were willing to like give them millions of dollars, right? Just to have like the USDH sticker. So, I think um it's just a new way of of doing things where you don't need to take revenue, you don't need to pay people. And um >> completely agree the builder codes and HIP free work perfectly for it for like I think it's much more scalable than

what other teams might want to do um because you essentially give people the ability to make money using your tech um and make lots of money using your tech. Like some of these builder codes have made millions and of dollars a month just off of like a simple integration. Um simple um one thing on this buyback buybacks thing is if Hyperliquid comes out next month and says look we want to expand the amount of um FX we're offering we don't want to outsource it. We want to do it internally. Therefore we're going to cut down the buybacks from 99% to 96% over the next three months. We expect that this will generate around $80 million and we want to spend this on like over the next year

to build out XY Z. That is completely rational because they're also saying what they want to do. But this isn't how it works in crypto. Like to Shondaanda's point, if you don't acrew all value to the token, people assume that you're doing the wrong thing. Taking luxurious vacations, buying property in Sardinia, etc., etc. So, you have to do the buybacks. And I think if any team was to say, "We're not going to be doing full buybacks. we're going to cut down a bit specifically for growth through XY Z. It would be hyperlquid. I'm just not sure if they need to do it. I'm not sure how they're going to do it, but it seems like their focus is allowing other

people to make money through them and build out interesting new verticals, which has worked for them so far. Um, I don't know if you can say that about any other team that can plug into this like liquidity thing and make everything work. It's very difficult building out order books. Like past few days have been Tarun and um Dan going against each other, Dan Robinson. I don't know why I called him Dan. Like he's we went to the high school together. Um Dan Robinson. Um arguing with the founder of Paradex. I can't remember his name. Fitty Fitty BPS. Um and like Jeff donking on everybody. Um it's very difficult to

build order books. So, like if there's one that works and it's popular and people pay money to use it, then that's the best way to like onboard new products onto your platform. Agree or disagree? Agree? All right, last few questions before we get to our last few questions. Bacio, I want to do a quick shout out to our sponsor for today's stream, Uniswap Labs. Thank you to UniS swap for sponsoring me face stream. The unis swap trading API solves the problem of adding crypto to your products without the hassle of needing deep crypto expertise, ongoing maintenance or liquidity aggregation. The trading API provides access to the unis swap protocol which has processed 3.3 trillion in all-time

volume handled over 465 million swaps from more than 25 million addresses all with zero security breaches. Developed by Uniswap Labs, the US-based team behind one of the most used DeFi apps, access some of the deepest liquidity in crypto, combining both onchain and off-chain sources for optimal pricing. The same liquidity that powers billions in swaps, now available via a singular API. Thank you so much, Uniswap. >> Get right back to it. That's weird. There we go. >> This is my next question. >> There's one more, but I'm waiting for it to show up. The comments show up a bit late. Um, Dan, do you have any other questions? I feel like I've been dominating, so I'm

gonna lean on you before I ask my next one. Um, you got me out of you caught me there in a uh I guess I was going to I was going to maybe ask on that to that last point around I mean you said and you guys kind of agreed that you think that that that strategy is correct in terms of just starting to let other people build on top becoming like this platform. Um I'm I'm curious like to what extent there is maybe a middle or like some line to draw in the middle of that in terms of in some cases maybe building your own products like maybe that's putting native you know borrow end onto Hyper

Core and then in some other respects it's like okay go ahead build your you know build your own frontends and and integrate with Hyperlid and we got the builder codes and that's cool. like how do you balance those? How do you weigh those in your mind? Uh do you think there's a point at which it's like okay all product development now happens through other people building out stuff on Hyper EVM or like okay no we're actually going to put you know we're going to build our own borrow land we're going to build our own additional leverage capabilities we'll build other products on top of the actual base hyper core product stack because there's some inherent

competition there Sean, you can take it. >> Thanks. Um, yeah, I mean I I think where you draw the line of what does Hyperlid do and what they outsource. I think they're pretty focused on just building out the core infrastructure. So, the order books, the matching engine, anything that is like to do with infrastructure like the borrow lend unified margin. um cross collateral they're going to handle that and then in terms of distributing this infrastructure I think they're basically outsourcing that completely right um the builders are doing the consumer layer

they're focused on like this user acquisition bringing new retail flow and then you have the deployers that are spending their time thinking how do we best allocate these markets be it equities be it uh pre-markets be it like uh Pokemon cards. >> I think you have to outsource because it's the most efficient way to scale. I don't think you can >> I like lighter is doing a fantastic job right now of launching products fully inhouse. They are doing a great job.

It's a good platform. I viewed later, but because they are presumably working on building out an equity pers platform, they're building out a spot platform and they're offering regular pers and they're offering FX. This made lighter offer equity pers, but it's only tradable 9 to5, which isn't like a very like it's a it's still great, but it's not a very useful thing. Like if you you want to speculate 24/7 ideally and if you offboard that risk management like the main thing with per equity in general is the risk management aspect. It's not actually

deploying it. It's like the pricing the oracle and the making of the markets. So you can't do this all inhouse. So it makes sense to make others build it out. Now the the good thing with Hyperlquid is that I don't know if other teams would be able to onboard enough interesting smart people to build this out for them. Um but they have that advantage compared to others. I I'm sure lighter would have been able to. Um but like like DYDX wouldn't have been able to in its heyday. I don't think so. But it's the truth. I I have nothing against dydx. loved it back in the day, but I don't think they would

have been able to do it in their versus now because they can monetize it very efficiently with the 50%. It is also kind of saying how heavy everybody involved within the hyperlquid ecosystems like hype bags must be that these guys are choosing instead of making millions of dollars, they're like, "Yeah, we're just going to ship it into hype." I I I I can't think of one other ecosystem where it's like the you're being onboarded for liquidity like no you're being you you're building out a distribution channel on top of this product making massive amounts of revenue off it and you're like yeah I'm just going to ship it back into the product. I don't know. It's quite like it's a very interesting case. It hasn't

done very well over the past month which is something I'm going to talk to Jim and Douggee from Figment about. they um they hate Hyperlquid, so I want to see their opinions on it, but it's gonna be cool. I jumped off like three things over there, but I think my general point still stands. >> Um yeah, maybe going back to the kind of the the front end or like the interface piece of it. Like I guess Shonda, you're pretty convinced of this like export the distribution piece to other players. Does that mean there's there's a point here where they, you know, Hyperlid kind of team stops sort of caring about their own front-end offering or does that is it

always like a both streets kind of angle like you offer some meaningfully competitive front end of your own on top of your tech stack as well as you know you're kind of exporting it to others. I feel like this is what you see with I don't know a lot of a lot of teams take this route like Khi is an example where they kind of exported some of their stuff to Robin Hood um for more growth and distribution but of course they have their own app. >> Um yeah I I think I have pretty strong views here. So firstly maintaining the front end is essential for hyperlquid because that's where you can monetize the users most effectively and that's where you can retain them right so this idea of being kind of the

infrastructure layer for all markets worked really well with their builder codes because for the first time frontends could easily monetize per flow through their platform right you think about Axium you think about Phantom you think about Rabby like all these wallets that integrate them already monetized user spot volume right through aggregators. Now hyperlquid enabled them for the first time to offer per as well as a product without having to build the infrastructure which would be extremely complex. it would take them time to get liquidity right and because they provided the solution you s you saw a lot of adoption from these uh front ends right and I think now the statistic is that 50% of users trading on hyperlquid

come from these front ends um and so far because hyperlquid is the only one with builder codes it's worked really well for them but if we are to look at what these frontends actually are they just aggregate various sources to get the best quote for their users, right? Like you think about Rabbi, you think about Phantom. Um a user that swaps through Phantom, Phantom is going to aggregate the best spot route through different dexes through Radium, through Orca and get them the best quote. Um and there's a question is can that happen to Hyperlid? Can it be that this thing which gave them exclusive flow from retail actually becomes commoditized where they just need to compete with other per like who can offer the best

code? And when you have that, you have all your pricing powers kind of stripped away from you, right? You don't own the end user. The end user is interacting with you from an interface of their choosing like Phantom. Now, if Phantom decides to route through the best exchange and Lighter, for example, offers lower fees, you you lose all your flow just like that, right? So, that's kind of the risk going forward. Will there be much more competition and will these builder codes turn more into aggregation which we saw on Salana ended up that the dexes which were kind of the back end had much lower valuations and revenues than the frontends. Like I think um I wrote about this in the report but these front-end terminals

that route through Dexes make three times the revenue than the dexes themselves. Um and I've seen a few Dexes now offer builder codes. Um and that's one of the concerns going forward that this just becomes commoditized and that hyperlquid loses pricing power. So for that reason they need to um think about how they're going to handle this and also like maintaining their front end is a priority and I think they realize this as well and they realize that they can't be sending a lot of people to like different HIP free frontends. So they decided on I think it was a last minute decision although I don't know but they decided on hosting everything in the single front end right like it's all

under the hyperlquid front end. >> Yeah. Yeah. >> And they'll do like strict one of the big worries here is like with HIPP specifically uh liquidity fragmentation. Um like you can long Tesla USDC or you can long Tesla USD. Now technically you should long USDH probably because the fees are lower but like the different providers have different risk metrics different oracles I guess different leverage as well. I think I think Felix only offers 3x and trade XYZ offers 10x. Um so it's there's some differentiation but it is at the end of the day leading to some liquidity fragmentation and I'm not sure

if that's like going to be a cause for concern at the front end level. um another they've priced HIPP3 I think good enough such that not everybody can get involved and launch random per exits with random quote assets. Um so hopefully that keeps the bar high but go ahead. >> Yeah I I was wondering about when you talk about the pricing what are your views on HIPP3 I mean now they've reduced 90%. But without that fee reduction, because you're paying hyperlquid fees and hip 3 fees, you're paying like double. So like nine basis points on volume, which I feel like um

is pretty high because then if you if you think about flows coming from a builder, you take the builder code Yeah. plus ship three plus, >> you're paying free extra fees, right? In that case, >> yeah. >> Um I don't have very strong views on this. Um, I do think the equity pers are probably not at the most efficient state right now purely because on top of like if you're longing first of all you should not be doing this but if you're using phantom on mobile longing equity per previously to the 90% you were paying 3x fees and also you were paying horrible funding. Um, so it's not at their best

state and I think it's like a three to six month development period and I think that's why they implemented growth mode. I also wouldn't be surprised if Hyperliquid eventually reduced fees to an extent um or maybe like took half fees on um the the the like argument that a lot of people make is if lighter is coming in with 0% fees um how's Hyperlink are going to compete? I don't think they have to go to 0% fees because then there's a different trade-off to be made there. Um, but I think eventually they might have to come up with some form of a solution. Like it's it's not sustainable the free XVS. Um, maybe you never long equity burps using builder codes and maybe that's the way

that you do it. Or maybe you have to ask HIP free implementers to cut down fees themselves so that you can take the full fee. Or if it's unit, you can cut down your fees to 0%. And you like trade XYZ does the full fees and since trade XYZ just ends up buying back hype anyway, it's virtually the same thing except you're not double charging on fees. There's a bunch of things they can do that. I don't know what they will do, but the 90% growth mode makes sense for the time being. I'm wondering if it'll be a permanent thing, >> dude. I mean, uh, if you I think this is also going to be funny. If you check out my model that I made, maybe Dan, you can pull it up on like projecting hyperlquid revenues from equities. I've also just

said um like the base case is probably that they cut fees in half. I think nine bases too much. Danny, are you pulling it up? >> Yeah, I'm looking for it. >> It's very difficult for Danny sometimes because he's not part of Blockworks Research anymore, so we cut off his subscription. >> Well, Shauna did a very nice thing by writing a 10,000word report, but that also means it's very long. Very long. >> Wait, it's a tweet. I I'll send it to you. Oh, >> okay. Okay, if it's a tweet doesn't then uh shoot that over. The one thing I would say um here's what I would say is and you know you know who actually likes

to say this is Ryan Connor but um I agree with him on on this one to a large extent is that um you users are not like perfectly price sensitive. Um and we've had this conversation many times over. We talked about uh trading terminals and and frontends um like over in the memecoin space for a long time about like these guys are just all going to compete each other to zero fees and like >> that's not what's happened. Now of course the the rates have come down. Uh let me pull this up for you while we talk about this. Uh the rates have come down on those products and they've become like more competitive. But, uh, I I think there's kind of like an endstater argument that likes to come

that creep its way into these discussions every single time. And it's like, okay, is everyone just going to have to lower all their fees to zero and then nobody makes money and then it's like pointless. Why are we discussing it? It's like, no, that's not how things work in practice. Uh, not every marginal user immediately switches to the newest product that has a lower fee. It just doesn't work like that. There's brand loyalty. There's security. You feel safe with the product. You just like the product. You just like the brand. you like the team, you're already locked into the ecosystem, a lot of various factors. So, um, but take it away, Shondaanda, this analysis, I'm I'm curious. You said you kind of project them having to lower their fees anyway, which probably makes sense there.

There's probably still some kind of gradual decline. >> One funny thing I will say here is Shondaanda posted it this at like 400 a.m. Eastern time and then was like, "Hey, why am I not getting any likes?" and then you have to delete it and repost it. Please continue on that. >> Yeah. Um, no, I mean I I think this is just a pretty good overview because firstly, yeah, it shows um that I guess I do expect prices need to come down for it to remain competitive. But I think like just to tie everything together about equities, why this is so exciting is just the highlight really the scale of how big this market is. And even if you capture just a small fraction of it,

how profitable can be, right? I mean, the problem with dexes, with centralized exchanges, if you're only trading crypto, the majority of your volume comes from BTC and ETH. I think it's around 80%. It's hard to grow beyond that. Like, yes, there are new tokens. Yes, there's demand for those tokens, but it's not material compared to um these like liquid blue chip assets that people are trading. And if you compare the market size of crypto which I think um traded around 1.6 6 trillion in November. equities traded um around I'm reading here um 86 right so it's a huge market um and I think even if you can just capture less than a percent like uh

half a percent at even half the fees that hyperlid has at four business points um I think if you go to the next slide you see hyperlid will like 3x its revenues Wow, this is great. But I also just realized that we can't be doing pods with tweets of models on the screen because it's impossible for me to read. I can't imagine being a listener like what the [ __ ] are these guys talking about?

>> There you go. Annualize revenue projections. So annualize is two bill off of equity per. >> Yeah, if they capture half a percent of um November's notional volume at four basis points, it's two billion analyzed. >> That's pretty good. That's pretty good. I I expect that I'm a bit worried that competitors will ship faster in terms of equity per because of like just velocity, but I think we'll see. I I expect Hyperlquid to perform well with equity pers becoming more and more popular. I expect that we were a bit late to equity per tokenized stocks over maybe this will be

a good way to wrap this up. I expect that we were late private credit was very popular and then debt instruments became more popular tokenized. I expect that the next thing makes sense that it's tokenized equity and per equity purpose. Um I don't know if we're there yet for private equity, but private equity doesn't sound right. Um preIPO is what Ryan Connor likes it when we use. I expect we're a bit early, but it'll come. um the entire financial world will be tokenized and I expect that at least in the near future a decent chunk of it will flow through Hyperlid. Um any disagreements here? Danny holds no

hype so he might be disagreeing. >> Yeah, maybe what I'll say is a relatively neutral party here. Uh I still think the story for Hyperl's very promising. the like we've discussed you can see the competition growing because I think basically everyone recognizes the large revenue opportunity here in the space and so what I would say is like I think lighter has a pretty compelling offering today and like their their strategy their growth strategy and like the way that they've been kind of shipping and and offering new features

has been pretty promising as well as I think they're like their their chosen model of taking a bit of like a a Robin Hood style approach to you know don't don't charge retail fees on their trades and you know work out something kind of behind the scenes with with market makers or charge more for you know enhanced latency access to the to the exchange think something of that nature right um isn't >> we lost them he was saying something really good as well the hyperl liquid. >> Okay, Shondaanda, it's just me and you in the last moments. Is there anything else you want to tell the listeners as we end this beautiful podcast episode?

>> Um, yeah. I mean, I don't want to self shill or anything, but I've tried to cover the Equity Pers landscape report that I've done as best I could. >> Huh. >> Go. Yeah. Guys, make sure to follow Shondaanda on Twitter. His is Shondaanda Devans. Um, >> yeah. and and specifically uh check out the article that I wrote right this thread goes over everything the market opportunity the current players and um basically the architectural designs as well.

>> Yeah. >> And the full report is on block works research. >> Woo. Okay. Well Jakob Sha this was a pleasure. As our last question, I want to ask you, why did you as a six foot five boy pick the name Shondaanda Deans as your username? >> Um, >> they silenced me. They tried to silence me. >> There there was a time before when I was a more of a skitso mil >> Discord guy.

>> Never thought of being doxed and I guess I just stuck with the name. Good. Okay. Um, fantastic. Okay, Danny, we already covered the final words, but I think we're good. Um, to our listeners, thank you again for listening to us. Yep. I know that we're getting close to the holiday season, so we're getting less and less views. It's very important that that doesn't happen. So, even if you're with family, make sure that they all put it on their phone and listen. You can turn the volume down fully, but it helps pay for Danny's dogs. He's gonna get six more >> volume at 1%. Open up 39 tabs on every device you own in your whole >> figure out.

>> Get those Let's get those view numbers up. >> Peace. >> Thanks for Thanks for having me, guys.