SpaceX IPO Mania and Ethena’s Strategic Pivot

Transcript

There's been a lot of speculation too about what an IPO of this size is going to mean for other risk or speculative assets um like uh Bitcoin and cry- crypto in particular and there's some narrative that you know will suck the air out of the room even further and attract a lot of retail and speculative capital and there is some data to suggest that like the retail allocation to the IPO is is a lot higher than um historical ical precedent on IPOs. 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. >> All right. Hey ladies and gentlemen, welcome back to the Xerx Research podcast. Uh we've got somewhat fresh faces, I guess I would say, to this. Uh joined today, uh myself, of course, uh frequent face on the show, but joined today by Luke Leisure, uh head of Blockworks or head of research at Blockworks. Um as well as Carlos and Kunol, who you may be familiar with. Um, glad to bring on Luke and hopefully ease him into uh taking over uh hosting this

show now that we no longer have our Salv Bacio here um on ZeroX. Uh guys, how you doing? And Luke, uh pleasure to have you on and have you take the mantle here. >> Doing well, thanks Danny. Yeah, Bach Boach will be missed and big shoes to fill, but great team to run it with. So looking forward to more in the future. >> Awesome. Before we um we got a lot to talk about today, I know um Luke is is foaming at the mouth to talk about another big Elon uh business IPO. Uh before we get there, we do have to do and I wanted to do a quick shout out for uh we got a couple DAS's coming up later this year. Um D Asia, first time ever for us at Blockworks. Um Kunal, I think you should be excited for this one. D

Asia one-day event in Singapore. Um I I think the date is October 7th if I'm not mistaken. It's the same time, same week as token, token 2049. So, kind of like a little double whammy. If you're going for token, you can stop for the one day DS in Singapore. Um, that should be really cool. I'm sure Kunal will be there. Um, you guys can meet him face to face in his uh his hometown. Um, I don't know if they'll send many of us else out to Singapore. That's a bit of bit of travel, but uh maybe Luke and some of the other big wigs will get to make it out. And then we've also got D London um the next month in November. I think it's November 10th and 11th in London. So, um kind of like like DAS NYC, premier institutional conference, but UK EU base

um rather than, you know, NYC and and US-based. Um trying to hit all sides of the world um with the DASes now. So, uh D Asia, D London, you can get tickets now. Um we'd love to see you guys there. I think DSes have really become like the core and premier Block Works events. Um, and we're proud to keep kicking these off. And I would hope and I think um, a good chunk of us may be at D London as well. Um, probably not the whole crew like we had with NYC, but we should be should have a a fair number of familiar faces at Des London. I hope that I get to make it out there. I'd love to. I've never been to London. So, uh, excited for those. And, uh, I'm assuming and hopefully you guys are excited as well.

Kunal, I got to imagine, uh, having Das come to Singapore must be pretty nice. You don't have to make the, uh, 20our flight. you get to everyone gets to come to you. >> Yeah, finally. I can't wait for that. And yeah, for those who haven't visited Singapore, I think it's a good chance to come by and you have a good excuse with token, right? And you could always use that chance to explore a bit of Asia as well. >> Sweet. Well, I'll leave it there. You can uh you can get tickets now. I'm sure we'll have some kind of link in the description or somewhere in the show notes or you can find the uh the Dash Block Works account on on X on Twitter um and find details there. Um but yeah, get your tickets and we'll catch you out there later this year. Um, for today

though, uh, I know Luke, you had some data. I think the big news, and maybe we should talk about it first, is I don't think the market is live, so to speak, quite yet, um, for SpaceX, but we've got, now that Hyperlid has been doing these preipo markets. Um, we've been able to kind of just keep track of what the market sort of generally thinks about pricing of the asset. Um, and right now, um, as I'm staring at it on my other screen, uh, it's being priced at around 177 a share where the IPO price came in at 135. Um, so the as it seems that generally speaking, folks are optimistic relative to the kind of the the IPO price. Um, curious to see what

happens when um, that actual kind of like opening trade um, sort of hits the floor. Um because I think what we've seen before with CBRS um and maybe you have more color here Luke on some of the numbers and metrics to look at with these hype markets but I know when when Cerebrris IPOed there was kind of um you know a roughly established price there the market was expecting a premium to the IPO price and then it actually popped even more once the actual kind of like starting opening price hit hit the tapes. Um I don't know maybe you can add more color here. I've just kind of been observing.

>> Yeah. So, SpaceX largest IPO ever. Um, currently on Hyperlid seeing a big volume and OI ramp volumes at 373 mil over the past 24 hours and uh just short of 300 mil in open interest and that's up about 4x from this time yesterday. And once once it's uh once it's live, I would expect that to to increase further. And what we saw with um the prior preo IPO market is there's this IPO price hyperlquid market is pricing a premium to it and then once trading goes live on

the registered security, that trading price converges to the hyperlquid price. Um so I'd expect to see something similar with uh the SpaceX market. uh and they may be looking at, you know, up to three billion in 24-hour volume on this one market. And it's already, even though it's preipo, it's already one of the biggest, you know, top 10 HIP3 markets. Uh so watching it closely, um there's been a lot of speculation, too, about what an IPO of this size is going to mean for other risk or speculative assets. um like uh Bitcoin and cry crypto in particular and there's some

narrative that you know it'll suck the air out of the room even further and attract a lot of retail and speculative capital and u there is some data to suggest that like the retail allocation to the IPO is is a lot higher than um historical precedent on IPOs. Uh then there's the other argument where it's actually like a profound wealth creation event for so many invested parties that um a lot of that capital that's now liquid can get reinvested elsewhere. So uh it's kind of wait and see for me. I I'm not one to to bid the IPO on on day one or uh trade the first few weeks of price action. Um, kind of my long-term

outlook is I certainly think SpaceX might be one of the most valuable companies in the world within our lifetimes. Um, but I also wouldn't be surprised to see it 80% off its IPO price within two years or so. >> To your comment, um, I just had to look it up because I wanted to see where the numbers come in, but um, it already is one of the most valuable companies in the world um, in our lifetime in the present day right now. I think if you exclude like commodities like gold, silver, we're looking at top eight by kind of like implied IPO price. If it pops any more than that, then it could be of course higher for a short period of time depending. But, you know, IPO

post IPO charts tend to look pretty similar in a lot of ways. You know, you get on locks and so there there may be a period where it it comes down from that high. We we'll have to see what happens. like you say, um hard to take a strong stance one way or the other when you've got um a lot of interest obviously around kind of like a once in a generation IPO of a business like this. Um and then two, just the amount of people who are up massively. Um who will unlock and undoubtedly sell if they have, you know, 100x um gains or more to, you know, appease their investors, their LPs, etc., and then go seek out further opportunities to kind of continue their activities as you know venture capitalists etc. Um I'd love to

hear your takes on what you guys think in relation to what's going on with crypto, what's going on with Bitcoin. Um obviously I think there's been a couple of things going on at the same time. One, there's these big IPOs like SpaceX supposedly not going to be the only one. We've got um confidential filings from Anthropic and OpenAI supposedly already in. So TBD on whether those guys also IPO in the next few months. It could be. That's kind of how it seems to be shaping up. Um so it's one of those things where um we might be getting a lot of sort of like fresh equity liquidity onto the market all at the same time. Um Bitcoin has not been doing well relative to equity markets for the past several months now. Um, Sailor has been kind of I think we've talked about

it on some different shows over the past few weeks, but um, obviously with Stretch and some of these different shenanigans, like selling 32 BTC, but then buying some BTC um, the next week. He's just like doing some weird things, making some weird statements. Um, I know Luke, you had some some data here. And guys, I'm curious from your viewpoints as well, like what's going on with Bitcoin? Um, how do you think that's kind of impacting the broader crypto market? maybe why do we think it is or is not kind of like decoupled a little bit from what's happening with equities which have just been soaring. I mean just tying it back to the previous conversation uh on SpaceX and like generally like AI companies and

equities. I think that has been sucking the attention out of the room and investors kind of kind of have been just like beating those assets and that has not benefited Bitcoin clearly. Um if you look at BTC uh ETF um flows, you'll see that we have over I think it's five consecutive weeks at this point of consecutive uh outflows for Bitcoin. Uh it's over five billion I believe in outflows and yesterday's uh figure came out negative as well around 200 million in outflows. Uh so definitely uh if you look at the traditional uh investor

they're they're kind of selling bitcoin or reducing their exposure at this moment uh I believe last week the only b net buyer was probably sailor uh and people that are buying every deep on leverage uh but other than that you see that um generally traditional investors are reducing exposure to bitcoin in recent weeks. Yeah, you can see the ETF flows here u from far side. But um I I I think I I saw an analogy that I kind of liked which is which was kind of funny which is like the SpaceX IPO is kind of like the Trump coin launch for meme coins uh for equity markets. You know, I I think it's it's funny, but

it's also kind of true in the sense that it will probably suck out all the attention. Uh and some assets have clearly not benefited uh from from that kind of uh sucking up all the liquidity. >> Yeah, for me like the SpaceX IPO, this reminds me of like any of those lowflat high FDV launches. it setup just looks very familiar where like initially upon upon listing the the narrative itself takes it higher but like you said there's a lot of sellers waiting to sell and we just know how those charts look and I think yeah Carlos the Trump coin launch uh scenario is like a good good point to bring up I do think something similar would likely take place a lot of liquidity is going to get sucked out but

I think like even beside Bitcoin's weakness it's nice to see that some assets within the crypto space are decoupling from the price action from Bitcoin. And yeah, people who follow me know like I'm pretty bullish on cards. So just yesterday there like a couple of announcements they're launching like higher tier gotas and the market took it really well, right? So it's not just like a whole liquidity being sucked out of all tokens within crypto markets. There's still pockets of space where you know if people are truly interested in the sectors if some of the hot narratives that are running you know liquidity is still flowing there. So it it's good that we at least have that split.

>> Yeah. I think for for much of the past year um like with with growing traction certain AI companies that can yeah ADX their topline in like a pretty short period of time. Like that sector certainly got the hot ball of money. Um and crypto wasn't the most exciting thing on the board anymore. Um, if you look at, you know, call it an AI or semiconductor index against Bitcoin, um, those pairs have just been up and to the right on a total rip. But eventually at some point that pair gets overbought and like the relative value trade comes back

to crypto in my opinion. Um certainly we're seeing some uh some bare market narratives um and some fear particularly around uh the m uh strategy and Michael Sailor trillemma where there's kind of three competing interests. There's the Bitcoin price, the micro strategy common price and the stretch price. And it seems like one of those instruments kind of needs to get sacrificed in favor of the other two. Um increasing it looks like strategies willing and comfortable to sacrifice strategy commons um for preferred or more senior debt holders.

Um, but at large, like Mark's done a lot of work on this, strategy at large still isn't super levered and like relative to ETF flows. Um, he's not like the the marginal flow in size compared to what's driving ETFs. So, yeah, Bitcoin's teetering at range lows right now, 63.3K. Um, I wouldn't be surprised to see us take out that low. over the next few months. Um but from there I think like the downside risk is done. Um and the risk is just back to the upside.

>> Also looking at um I know Luke you had mentioned this like in a previous meeting like some onchain indicators. Um I think the realized price is at like 53K right now. There's also this the CC score. I think those are also like important like historical precedents. No. >> Yeah, we can riff on these for a bit. So, it's a good time to pull out the high time frame onchain indicators and rainbow charts that uh we try and use for cycle highs and lows. Um so, like what is the realized price? It's basically an onchain volume weighted average price of all bitcoins in circulation.

um at the la last price they moved on chain. So what you see in a bull market is a lot of the spot price is driven by centralized exchange activity and perpetual futures um kind of paper bitcoin that uh activity is happening on those venues as opposed to actually being transacted on chain. So what ends up happening is spot price will trade at um pretty large multiples to the realized price. Um but I tend to view realized price as being like fair value.

Uh and it's a little more boring because the the kagger of that metric isn't as exciting as as spot during a bull. Um what we what we've consistently seen throughout history is during bare markets uh Bitcoin spot price will trade at a modest discount to realized price uh which yeah it's sits at around 53K. So, like if we tag that level, if we tag a discount to that level, um I think bare market low is in that's kind of where where I'd be comfortable telling my mother that it's an okay time to allocate um any any multiple or or discount to that level, I kind of view

as just market noise, but like fair value in the long run is to me it's it's the realized price. And if we look at the the next chart, MVRBZ score. So that's uh that's the market value. So uh market cap at spot price um ratio to uh the market cap at realized price and then zcore to measure the historical standard deviation of that metric. Um again what we see during bull markets is we the MV RVZ score will spike tremendously um which coincides to market tops uh

where spot price is at a huge multiple to realized price. Um, but then during bare markets that that ratio compresses to um to zero or negative and it's kind of highlighted in that little green box there, but we're pretty close to entering that zone that's marked historical lows. Um, so like big picture, there's there are some high time frame onchain indicators that historically have been pretty reliable in marking lows. um these indicators are very close to like flashing green and and flashing bullish signals. So I think by like by Q4 that that lows set and um

at this point in time it's I think it's a really good point in time to be increasingly optimistic about uh Bitcoin and the sector. >> Yeah. I mean, so by that sense, yeah, like if you use the realized price of 53K, which means there's another like 10 to 15% downside for BTC. So, you we're pretty much close to the bottom already. And the other thing always have in mind like everyone is looking at these metrics, right? It's never always perfect. Like usually if the the price target you're looking at is 53K, it's usually slightly higher than that. So like honestly if it dips below 60 like 58 57 those are already pretty decent levels to start like DCAing into BDC.

But if we go do get like one large wick down then I think uh and if we get like some brutal price action and alts in like let's say a week or two then those become really like interesting accumulation periods for me. And one other metric I like to watch is like BDC's one week RSI. So when that tends to dip into like a oversold level like if you just consistently look at the past that has always been like a very good like bottom signal or good time to to like start accumulating not only just alts but also Bitcoin. So those are some other factors I'm looking at and I think it's quite easy to get there right equity markets are still like pretty close to all-time highs. So you just need another like five to like I guess 10% draw down in SPY and pretty much

you're going to get at those buy zones that we previously mentioned. So I think at least for me I'm just going to be a little more patient for like the next few weeks and I think it's already decent levels to start, you know, slowly dipping your toes back in the market. What I think is maybe interesting to point out um just from a I don't know just maybe from more from a commentary standpoint is that uh I think it's very easy to look at the historical data and say this is always held true in the past. Therefore, I just buy when it's in the green zone in the future and I make money. Um, but then all of those time periods, maybe if I pull up the chart again, like all of these time periods coincide with those events where you're

the market is actively making a decision about like, okay, are are we at a point where the future of this asset or this asset class is like going to go to zero from here, you know, 2022, that's that's 3AC, that's that's FTX blowing up. That's when it it got into those zones. And so everyone, you know, you might be thinking in your head like this is the zone where you just slam in and buy, but at the same time these typically tend to coincide with those time periods where it's like something something bad is happening. There's a major shift or rotation that's happening maybe in mindset or thought about the asset class. And so I think it's never as easy as just, oh look, it's in this zone that's always been the good zone. Um because the future is always the future's always changing. So, I think

it's just something to keep in mind that it's not it's not as simple as just, you know, the lines have already been drawn. You just you just buy when it goes below the line. >> Yeah. if we get there and and we draw down an another 14% um might feel too sick to your stomach to to want to get long and uh that's kind of the that's the market sentiment at that point in time when um everyone who's going to sell has has sold and and that's what makes for a low. Yeah, I think I think that I mean these onchain indicators are are pretty useful for Bitcoin because for a traditional asset like an equity, you have to worry about you know the

fundamentals. You have to worry about like what are the forward-looking earnings or whatever. Whereas for Bitcoin it is a store of value assets. So because you just value it subjectively, I think the technicals actually matter a lot more uh because that's what people base their buys and and sells on like a lot, right? Um I also think that uh while we're talking on technicals, another onchain or well not onchain indicator but another metric that has been useful in past bursts has been the 200 week uh moving average.

uh in 2022 when when it dipped below the 20 the 200 week moving average people were calling the bottom but it traded there for like six months. So another thing to keep in mind is that it can be in buy territory and probably you'll be right but it can stay there for a long time as well. So I wouldn't expect just like a B-shape uh recovery if we get to those levels. Yeah, I think that's that's a great call out and I and I think you know some of those indicators like people use them for all all sorts of assets and I think that rings true in many cases where you might think it's a screaming buy based on based on the trend, based on the pattern, based on the technicals but um it could be things

can be a screaming buy for a long time. You could be holding a screaming buy for 20 years. Um, and maybe you're right after 20, you know, you might be holding semis from 2010 to now and it's finally paying off, but uh, you might have had to wait a long time. Um maybe one other thing I'll call out before we jump to the next thing is that um thinking ahead about what some of those like I think you could maybe look at this sailor moment and be thinking okay maybe maybe some of them the micro strategy and stretch shenanigans like maybe that's something of a catalyst for one of these these these uh low periods these bottoms to be formed if he's going to maybe be tapped out and not be a buyer for the foreseeable future. You know the market might have to digest that a little bit.

Another one I'm thinking about is just and what we've been seeing for the past maybe couple years now is um a lot of these historical Bitcoin miners transitioning over to doing AI compute sort of operations instead of mining Bitcoin. Um that could be another an additional catalyst to like form a bottom in the sense that there should be some sort of equilibrium that gets established where if enough of these these miners or historic you know people who have historically mined um kind of offramp their their u demand their hash rate um to go do AI things. Uh it it kind of changes the equation for the value to mine a bitcoin. Um, and so at some point you'd say, well, enough people have moved off. It makes sense for new players to get to get back

in or to deploy more power, more more hash rate to to mine Bitcoin because it's, you know, become become attractive again based on the amount of power and the amount of Bitcoin you expect to earn off of that. So, um, I don't know, that might be one that we're weighing if we see another big or continuation of like outflux of folks who were mining Bitcoin to doing um, deals and, you know, leasing their their operations for uh, data centers and whatnot. Um, we'll have to see how that goes. Probably Sam. We'll have to we'll have to pull in Sam for a combo about that one at some point. I think he's more tapped in to that zone a little bit. Um, jumping on to the next thing though. I think we wanted to talk um a lot about Athena today. Uh, Luke, I will maybe let you

kick this one off. Um, and yeah, I guess just take it away. I'm not as tapped into um the the specific excitement here around Athena, but run with it for me. >> Yeah, absolutely. So, basically during this bear that the basis on crypto has just collapsed and that cash and carry trade really isn't too attractive to a lot of market participants. So if we think of the Athena of old um when they first launched it was you know majority allocated to the basis and the cash and carry and the returns were were very attractive. Um but since then as as clapped they've increasingly allocated

to uh different instruments, different venues um a lot of stablecoin lending on chain. Um but few months ago they uh introduced a proposal to change the reserve composition um to institutional lending uh looking at the maple finance approach uh AAA CLO's in addition to uh running the basis on equity RWA and commodity perpetual futures. Um so Kunal just put out a heater report going in depth evaluating uh each of those those three strategies.

Um so yeah I'm eager to pick his brain about it. So Kunal which one do you think we should start with? Uh perhaps institutional lending. >> Yeah we could do that. And before that just a interesting like point I got from as well. So when I actually plotted out the basis trade returns over like each bull bull bull period like the first one was when Trump got elected. So then you were getting yields around 20%. And then I forgot what the next uh bull period was but it basically each subsequent bull period like the returns on the basis rate just compressed. So it was 20 then 15 and then last one during the debt mania it was around 8 to 10%. So

what that basically means is that it's not that the trade is bad like moving forward you will get periods of like bullish sentiment where the basis trade could give you like above like average returns but it's that this trade is being increasingly commoditized more like institutions more professionals are running it. So even if you get this bullish periods the returns are just going to keep compressing which is why it's pretty smart that Ethena is like okay yeah we got to start you know tapping onto other yield sources and of course one of that is institutional lending and that strategy is actually one of the more scalable one. So if you just look at like one easy way to track it is looking at maple finance syrup USDC. So they started with I think just

a few hundred million in AUM in Jan last year and now it's uh a few billion dollars already and the yields have started to come down. So when they first launched it was around 10% plus but now it's closing in close to uh 5%. Let me get my slide in. Yeah, it's close to 5%. So definitely over time like there's a lot more like institutional lending players in the game as well. as Fal Falcon X, Coinbase asset management. Uh so as more of these pros come in then again like these yields will start to compress and people are also asking right as your DeFi lending protocols are also pretty solid. They're like okay if I could get lower yields here and

increasing amount of customization with what collateral you know I'm using what's the uh term of the borrow uh yeah what's the you know then the use case of institutional lending right so increasingly the yields between institutional lending and defa lending are starting to compress so over time you know there will be some issues there as well but as of now at least it's a a scalable way like Etheina can instantly just get into and they can structure the loans right with various durations. So the thing with Etheina is you always got to manage risk of redemptions. So the places where you deploy your capital you need to make sure that it's of variable duration such that let's say you get

another 10 event and there's a few billion dollars worth of withdrawals within like a 48 hour window. You need to have sufficient strategies that can be unwound to meet those redemptions but you also got to balance the yield side of things. So I think that's where institutional lending kind of fits both the use cases. >> Some something we've seen too is I think particularly given the recent exploits um and subsequent illiquidity on onchain money markets in those venues is like the the maple finance proposition where an institution can one collateral can be escrowed at third party custodian.

um you you eliminate a lot of that that risk you might see elsewhere with with exploits. Then secondly, fixed rate fixed term uh you eliminate a lot of the exposure to interest rate volatility and variance that we also saw with the RS exploit. So that sort of borrowing venue particularly for the institutional um participant is quite attractive um which which has allowed Maple to originate um and maintain ton of deposits and outstanding loans um despite the contraction in the overall lending space that we've seen since the

start of the year. I I know that we're like comparing here like Athena to Maple, but in my opinion like Athena is kind of converging upon what Sky has pursued for the past uh few years and it's once again like a testament of Sky always being like a few years ahead of the market in the sense that Athena based on the allocations they're doing now with the money they have uh since the basis trade has collapsed they're allocating like to money markets and like various yield strategies to generate like excess yield that can justify like you know deposits into SUSD instrument and that is exactly what Sky has been doing right like they

like the only difference in my opinion is that Athena is doing it like from a vertically integrated uh position in the sense that they're doing the whole uh capital allocation decisions whereas Sky is outsourcing those decisions to agents like um, Obex, um, Spark and Grow, right? But at the end of the day, I think they're kind of converging upon being just um, asset managers in a sense where you previously they used to be a very clear like runners of the basis trade. they're now just like managing money or or am I wrong like they're just like deciding where to allocate those

that capital but there it doesn't seem to be to be that that complex unless I'm missing something. >> No, I would agree with you here Carlos. I think and I don't know why there was so much push back originally like when Athena and this design became um kind of an accepted like this this is a good idea we should run this. Um, I think at the time, I don't know, people throw out the term of like you're just you're just operating basically non-chain hedge fund. Um, and you're wrapping that up with a stable coin like for the for the public. Um, but I think that's effectively what it is. And so naturally, like if the trade that you're taking today no longer provides value, then you're going to go take different trades. Like a hedge fund isn't just

going to like let itself get blown out and lose money. Um, they're going to move the money around um so they keep they can keep generating returns. Um, and I think that's what we've seen. And I guess I'd be curious on your guys takes here. So, like I think it's interesting here the shift from these basis trades to now some institutional lending, some some other basis trades, you know, getting into gold, some of these other assets that have started to come on chain now. Those are those are like new venues to do basis trades. Um, and other trades that we might expect to see, you know, if equities and some of these other instruments that historically have not been on chain come on chain, then that opens up the opportunity for other trades. I mean, you might get a an even more traditional like long short hedge fund style venture

opportunity where someone basically does Athena or maybe even Athena does it where they're basically operating long short on equities that are on chain um wrapping it up with some kind of asset and then and then, you know, paying back the the returns to you via, you know, the the yield on the asset or from staking it or how whatever would be the most compliant. I'm not I'm not going to say what they would do or wouldn't do. Probably dependent on the most compliant option there, but um I don't know. Do you guys see this continuing to shift in a particular direction? Um cuz it to me it seems like the the big takeaway is that some of these historical crypto assets are becoming generally less compelling and things that are basically like accepted in Tradfi as as like relatively maybe good practices are just kind of

becoming the norm for um some of these some of these businesses on chain. >> Yeah, I I think you're right there. So the shift is going to be towards like non-crypto native yield sources. So I guess I mean institutional lending is still kind of tapping on demand for crypto assets but the other one is uh centrifuges JA right so uh JACLO so that is like a huge thread market in itself like every day I think there's like around a trillion dollars worth of like these assets out there and basically yeah redemptions are very efficient it's a huge market so this it's scalable and the yields are also around 5 to 6% range but outside of that so one of the findings I I got from my report is

honestly Etheina has only like three options to deploy capital into one is institutional lending the other one is AAAL's and the last one is their current existing defy lending strategies where they're bas that they're allocating stables to to markets that have incentives right so things like on Mega E or uh plasma where incentives can boost your short-term yields so those kind of help prop up the yield to above like 4.5 to like like fiveish%. So that's the only scalable thing. Like if you look at uh the gold basis trade or even equity basis trades, it's really not scalable. Like gold has even lesser open interest than Solana. And like soul historically has taken no more than.5%

of ETN's basis trade. So you need to wait for these to really scale a lot more before you can even start considering like okay yeah maybe now we can do these sort of trades. Yeah. At at this point in time, both gold and equity trades are just out of the question. Like even if they do it, it's going to be like a very like insignificant percentage. So the tree that people should really focus on is just institutional lending, CLOS's and DeFi lending. And my perspective on why they introduce these diversifications where basically after the whole uh kelp incident, they're like okay yeah we need to reduce our concentration on defy lending. It's less about increasing yields, but okay, it's just from a risk

point of view, we need other strategies that can give us like a similar yield range and help us reduce our reliance on on DeFi lending because if I'm not wrong, around half the stables are actually in D5 lending and uh a significant portion of the remaining stables are in T bills. So that reliance is a big issue and also a lot of the yields for D5 lending are propped up by these incentives, right? So of course over time they're going to fade. you may not have similar opportunities. So the angle there was less about increasing yield but more from the risk perspective. How could we reduce it for the protocol? So like big picture, Kunal with with these new reserve strategies like we might might be able to expect like a modest uptick um in the yield for

SUSD, but at the same time with these different reserve strategies like the the volatility of that yield is likely going to collapse significantly from um the huge range we saw historically where I fond memories of the opportunities to clip 20 to 30% fixed on an SUSD principal token. Like are those are those days gone for good? Um and do you think like Athena's SUSD can can still be as attractive as it once was if it's uh if there's significantly less volatility in the products yield stream?

>> Yeah, that's interesting. I I do think you probably won't get those crazy days against where you get like 20 plus yield. Like the good advantage here is again when there's periods of like bullish sentiment then Athena has the optionality to switch into the basis trade strategy where someone like spark doesn't right that's not the trade that they do. So at least in those periods you have maybe it won't be as high as 20% as it was last time but even if you can get 7 8% for those like 3 months period if I'm optimistic that's still decent enough and I think a good tie in there would be to look at the recent Coinbase announcement that you know that potentially they're going to partner with with Athena and like the way I see it there is it's a similar angle right

like so Coinbase partnered with Moro before and it basically lets users on Coinbase lend out the stable coins and even lend out the Bitcoin and earn some amount of yield from it. So I see this as like a similar play now that Etheina is kind of like a a yield optimizer. So, Coinbase is going to use this to like offer to their clients like, "Hey, uh you could also kind of deposit this in this onchain hedge fund that we have that will help you get uh rates get yields above T bills." And yeah, for the maybe for the crypto users, this may not be attractive, but there I'm sure there's a lot of like there's a huge deposit base on Coinbase who would love to earn like a 1 2% spread above the T bill rate. So I think with this shift in business model of Athena, it came in in

a good time with the partnership at Coinbase where this Coinbase could serve as a pretty effective distribution channel to kind of increase Athena's TVL because I think in the past when they when basis trade wasn't doing well, you saw like a huge TVL outflow and even if the let's say the yields stick to like 4.5 or 5% range, obviously that's not like crazy attractive enough to get a lot of capital in. So this Coinbase partnership announcement could be the one that kind of changes the game a little and kind of changes the the deposit base of Athena. So I think that's a good catalyst for Athena to look forward to.

>> Talk to me about um the Athena token canol because I think this is maybe um I don't know if this is a hot take. I I wouldn't think that it is, but I think generally speaking, um the trade with with regards to Athena, like Luke mentioned, has been really to play the yield around USUSD. Um potentially locking in some of those high fixed rates, you know, on Pendle or other markets when the opportunity has presented itself or to just earn the yield from the strategy. Um it's felt like the token, the ENA token itself has been kind of like a hey, what are we doing here? um all the money is in kind of the strategy and and uh SUSD. So what like let's say they improve kind of the financials a little bit by modifying the

the strategy and the diversification of their their yield sources, their income sources. Um what's the downstream impact to the token? Is it meaningful or is it is it not? >> Yes. So that's actually I would say it's a pretty hot take. Like even when I was writing this report, I was discussing with Anastasia and we both I wouldn't say disagreed but we had different takes on how value should flow to the ENA token and whether the fee switch should kind of be turned on and whether the parameters should be changed and I was of the opinion that with Etheina now changing its business model from like a basis rate wrapper to like a yield curator, you should have different requirements, right? Like if you look at the way Spark operates which is the closest model like Spark already takes

like a cut of the the the interest that it generates. So if a protocol like Spark can do it without and it's uh AUM actually increased last year by I think 20 30%. So it's not that the decreased yield caused speed like caused the whole thing to be an an attractive. It still did pretty decently well. And I think you need to change the requirements for Ethere. One of the requirements was they need like a 6 to 7% spread over SUSDs which is at 3%. Like come on. I mean that's no longer reasonable in like today's scenario, right? So you probably have to if you want to put something you could put maybe a 1 to 2% spread above the T bill rate for example. And even for the the the 6 billion like uh aum

it's it doesn't have to be so so stringent like if I did some analysis ran some numbers honestly anything above the 3.5 to 4 billion mark is sufficient enough for you to start taking a cut on yield and and then I I modeled it in right let's say Etheina takes like 4% of of the name and at different TVL scenarios what could the buybacks then look like and it kind of ranges between the 3 to 7% range if you took if you look like at at a 0.40% lean which is what there is on a at the moment. So that kind of ranges between 3 to 7% and I mean on one hand obviously it's significant because this is annually and like over time this compounds but the

other hand till 2028 I think around 1.8% of the silk supply gets unlocked each month. So this buy will be nothing close to the amount of unlocks right. So I people are of the opinion that hey if it's not going to be significant to begin with why even turn on the fee switch right shouldn't that yield instead be allocated to depositors you should max the yield max the amount of supply that we get into the protocol but at the same time like I I took the other side of things I think it's gone on pretty long enough and you need to start at least giving signs to the market that hey okay you know a token we we haven't forgotten about the token right it's not just some fancy thing out there that is

just doing its own thing. We're actually kind of tying it with the protocol. And even if the buybacks aren't significant, in my viewpoint, having just telling signaling to the market that there's some sort of association is is good enough, right? I I I think yeah, that that's what should be the process moving forward. Yeah, I'm curious to hear like do you guys think they should turn on the fee switch or just focus on maximizing yields? >> Yeah, I I'll jump in here and I'd love I'd love your guys takes. I think um I agree with a lot of what you just said, Kunol. I think you have to avoid a pump fund outcome here where you don't communicate anything. You they've shown some alignment to the token, but I think have had very poor comms in regards to

the token otherwise outside of just having this like revenue share from the onchain revenues. But um yeah, I I think this is going to this is going to punish protocols and their respective tokens um more and more going into the future, especially as we tokenize more things and put them on chain. It's like there's you're starting to compete with actual businesses and tokenize equities at this point. And um I don't know if you can't be aligned with the asset, you know, in effect if you can't treat your your token like equity. Um and you know, maybe there's some legal mumbo jumbo there. You got to figure out and how to say the right words and whatnot. But um really aligning around it, driving value to it. Um giving confidence to the market that the token is not just a sell for insiders and then all the the value

acrru somewhere else. Um that's really important to overcome. And I think if they can't do that, then it's going to be really it's going to reflect very poorly on the asset. >> Like I was gonna say, I think last year uh to address some of the unlock issues like they used the stable coin X uh that code which instead of buying on the open market or I think it did buy buy from the open market but it also bought or gave back liquidity for a lot of uh private investors in the ENA token. Uh I think that was one of like the goals of the stable coin X uh you know that go around that time but obviously uh it

didn't work out that well um over the next few months. Um I I do think that at some point ENA has to be a value token, right? Like if it if it if it just keeps going down and if they kept keep making like strides forward in like TVL and revenue and stuff like at some point you got to discount the unlocks and just admit that it's trading at an attractive price. However, I don't think it has reached that level yet. >> Yeah, if I could just quickly jump in.

Sorry, Luke. Like, I think that's a good point that you raised and uh that's why I think like the Coinbase announcement also could create an interesting angle here. It kind of reminds me of Moro that's doing extremely well with zero value acrruel to the token. And I think the market is kind of giving it a premium. Like if you look at Moro's multiples, like even if you assume like a a take of whatever and you compare it to other lending protocols out there, it's a huge premium, right? And obviously the market is pricing in like the distribution with Coinbase, the close ties with Coinbase and giving them that similar premium. So if Etheina could kind of have similar strong relationships with Coinbase and show that you know it has strong like you

know it's getting a good amount of uh EVL like one other interesting stat like out of Morphos I think uh 63% of the stable coin deposits actually come from Coinbase users. So that's a huge distribution advantage that Moro had that now Athena is going to enjoy as well. And I think once the market sees that there's a chance that they could be given that same premium that Moro enjoyed. So that's one bull case that could potentially happen. But in the long run eventually they need to address that hey there is a huge disjoint between the token and the protocol and at some point the market's going to penalize them. It's just whether how it like you know the time horizon for the trade. Yeah, big big picture. I'm in complete agreement that like the the

market and the context has changed so dramatically for the KPIs and metrics that need to be hit to turn on the fee switch that it's probably a good point in time to re-evaluate those and like toggle those metrics lower to be more reasonable. Then if you lower the hurdle rate to turn on the fee switch, um the probability you hit that hurdle is or it surpass the hurdle increases. Investors need to discount it less. I think forward guidance on that can just go a long way. Um but as we like talked about on the morpho example is like growth mode and no fee capture can actually be

a really really good strategy to get market share. And I'm not opposed to Athena. um running that for themselves as well. I think like in the near term they should probably uh show execution on this reserve strategy shift um show improvement to the SUSD APY and then perhaps recommunicate what those metrics need to be um to turn on the fee switch. >> Yeah, I'm I'm in align with there with you Luke. I think um many people get stuck in a particular world or viewpoint and they think, "Oh, the the PE is infinity. They don't make any money yet.

They don't have any earnings yet." Um that's that's how growth stage companies work. Um you know, you you attempt to achieve some growth rate and then you start turning on the revenue buckets when you've kind of maybe locked in um some subset of your market um and you feel like you can't really be disintermediated anymore or something along those lines. I think Morpho's done pretty well on on is doing pretty well on that front. Obviously, the Coinbase partnership like you guys mentioned. The other aspect of it is they've they've done um I think a pretty good job of signaling to the market that that their token like is effectively the business and trying to align like the foundation and the token under one structure. I think um we need to see probably more teams and more protocols do some they don't have to do that exact structure

that specific makeup but do something along those lines to convince the market that like if you buy the asset and they get acquired or something else happens or they do another round like then the token should be marked up appropriately and not just sold off because oh it didn't actually have any rights over anything that was happening. Um and I think that's that's largely the biggest concern for most protocols today that that do not have some kind of structure like that. um as we've seen with with countless acquisitions and other deals over the past one two years now that have just been zeros for token holders. So cool. I think uh we can we can leave it there. Jents. Great chat. Kunal.

Appreciate the the deep dive and the insights. Um and for folks out there listening, go check out his uh full report and article um on Athena and all the scenarios that he went through here. Um bunch of great stuff in there, some great charts, great data, and of course great analysis by our lovely Kunol from the research team. Uh to the rest of you guys, Luke, Carlos, thanks for joining. And uh hopefully hopefully next time we'll get Luke nice and buttered up and he'll he'll take over and run the show uh for me instead and I just get to comment. But um one step at a time. We'll get him we'll get him into that position.

>> You're going on vacation soon. So >> that's true. You're going to have to be ready next week because I'll I'll be out. >> Let's run it. >> All right. It'll be it'll be the perfect uh prep one for for Luke next week and then I'll be back the week after and we can do We gota We got to find our pairing like like myself and Bkacha. be Luke and myself now instead. Um, we're going to have to find that rhythm, but I think we will and I think it'll be great. So, thanks to all Zerx listeners out there. If you're not already in the Zerx Research Telegram, make sure to join it. Find the link in the description, from the Twitter, from the episode, etc. We'll see you in there.

Lots of great discussion in there. Feel free to ask questions, reach out. All the analysts are in there and they'll be on the show every week. So, um, pleasure, guys, and we'll catch you next time. Peace. Thanks, guys.