From Tokens to Equities: Crypto’s New Capital Markets | Noah & Felipe

Transcript

The other thing that I'd add though is that there's an interesting market dynamic where I would say tokens right now are are lagging the the equities that are launching which uh I think further drives this dynamic to play out in that liquid investors in in crypto um should be open to investing in in crypto equities in the same way they should be interested in investing in tokens in theory. And so these are close to direct substitutes for one another. And so for every high-quality company that launches a public equity, some percentage of capital that would otherwise potentially buy tokens is now questioning whether this is a better opportunity than tokens. And so I think it increases the bar for the the token market as well and that now there are these liquid uh

substitutes that retail investors have the ability to get exposure to. What's up guys? Just wanted to give a quick shout out to today's sponsor AppAss. We'll hear more about how Bitcoin, DeFi, and Apptos is heating up later today, but for now, let's get into the episode. 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. Pokio, Ryan, and our guests may hold positions in the company's, funds, or projects discussed. All right, everyone. Welcome back to another episode of ZeroX Research. We are doing it live from Permissionless. Joined today by Felipe and Noah of Thea. And it's a pleasure to have you guys on. Uh

how how we doing today, fellas? Good. Thank you for having us on. Yeah, likewise. Yeah. Awesome. How how are the vibes of the conference? Feeling good. This was uh day three, so we've got two days under the belt. Yeah, it's great. I can't complain. I'm a New York native and I'm a big fan of Industry City, so it was great to see that it's out here. It's been great. I mean, the whole year has been conferences in New York. We we uh our travel budget decreased by 90% this year, so we we're pretty happy about that. Yeah, there we go. Wow. Just just the Uber over. Yeah, you're you're not the first person to say this as well. It's um New York is back. New York is uh back in a big way. So, how are we feeling about markets? Um I know you guys are a crypto fund, but uh obviously

macro plays a massive impact here. Would love to get your takes on the uh the broader macro environment and uh where you're kind of thinking about where we're at. Yeah. So I guess I I'll start with like general macro which I have less of an inclination about and then can get into crypto macro which I think I have more informed perspective on. Um but I think like general macro um crypto right now is heavily correlated to uh what I would call like retail equity markets. So the ARC indices um would be the the best example. There's about like an 80% correlation co coefficient. And so right now those equities are doing quite well. They're outperforming the market. And so I think the same is directly true for some of the the crypto equities and I'd imagine that makes its

way into the crypto markets as well. Um so that's that's one piece. The the second piece is that right now you have like M2 money supply which is another like big correlation um for for Bitcoin at new all-time highs and continuing to go up. Um, and so as long as you don't have anything break from increasing money supply, that being either interest rates or currency weakness like the dollar, I think that's probably the continued trend that we're going to see is more fiscal stimulus from various world governments which probably continues to support Bitcoin on a relative basis. So that's some of a foray into macro. And then on crypto macro, I think you have stable coins at all-time highs, onchain, borrow at

all-time highs. Um, volumes aren't quite at the all-time highs just because Q4 of last year was quite an exciting period for memecoins, but certainly what I would call like higher quality uh longer term uh KPIs are moving in the right directions. Um, the only thing I'll add on top of that is that while you have stable coins at all-time highs and you have borrow at all-time highs, the actual onchain interest rates are in a very different environment from Q4 where in Q4 you had interest rates going up to 15% in some cases. Like the basis was a very large trade. Um, today onchain rates for like blue chip USDC money markets are closer to 4%. Um and so that

provides like a different uh revenue opportunity for onchain lending. It also has a number of uh follow on effects as far as like how traders are interacting markets. Why are rates different today? Um I don't want to index to previous cycles because it's a low sample size, but it isn't too dissimilar from uh 2022 where people were less focused on reaching for upside. So you didn't see like leverage buyers willing to take 10 to 15% interest. Um but people are interested in collecting yield and so demand to lend has increased very materially. Demand to borrow has from from higher interest rate activities has

come down. Um but there is a lot of activity on like looping um from yield sensitive funds and so they're much more yield sensitive and so naturally rates just don't elevate as much as they used to or at least today that's the case. Yeah, they used to go crazy. Yeah, they used to go nuts. I mean, they might again. It's just there's a lot of there's a lot of stable coins on chain and although there's a lot of borrowed demand, there still is a lot of stable coins that have to find a place to find yield, right? And so that they should push I mean like if you see a flood of stable coins coming in before the demand, you could actually see that yield profile get worse, right? Yes.

Which is what we're seeing right now, I think, where like yields continue to compress because there's continuous demand for stable coin yield. Yep. Yeah. Exactly. And the big um the big bull case for I think a lot of the stable coin activity is that like oh stables will come because the rates are higher on chain but like you're actually not seeing that. It's an interesting little wrinkle. Well yeah it's like what are we going to get? We get high yield environments where you can park uh park cash and get a good return or you going to get a low borrow like you can kind of pitch it either way which is interesting. Yeah, I think we need to whenever the the onchain interest rates go below uh US treasury rates, I think the question just becomes why aren't people willing to borrow to to arbitrage

the rates? And I think that's naturally a function of what existing onchain borrow line protocols allow you to do. But if you have opportunities that yield higher rates and can allow for arbitrage, then I would imagine onchain rates shouldn't be able to go materially below US treasuries. So I think like as the the bar opportunities expand, as these protocols onboard more collateral options, we'll see less of uh yield falling below risk-f free rates. Um but at least today it's a it's a bit of a interesting dynamic. Yeah. And on the dampened volatility side, we're also seeing like a a tech improvement if you will, right? So SparkCC uh for example is uh they manage a lot of the USDC in uh in their ecosystem through Maker Dow or now Sky, right? and you're seeing

them really dampen the volatility on the Morpho pool that does uh the has the Coinbase integration, right? So, directly from the app, uh Coinbase users can borrow against their Bitcoin and then Spark will basically provide the liquidity there uh on the borrow side with the USDC and really do a good job of balancing that out. So, anytime there's increased demand, they'll just deposit more and keep that flat rate. And you've seen really good uh progress towards uh dampening the volatility in that rate, which is better for the borrowers as well. Yeah. Um, so I think we're seeing again like on that that's more of like that technological improvement or efficiency improvement from the crypto side. Yeah. Or market structure improvement. Yeah. I guess the the Morpho case is interesting because that's that's like real exogenous demand that we didn't have before. People who' never borrowed on chain before using

that feature, right? Because Coinbase is is reaching them through distribution. If you get enough exogenous demand, then this could change and rates could go up, right? Right? It's just you're not like last time I saw that there was at 300 million um you know it's meaningful but it's not that large relative to the amount of capital on chain. If all of the sudden you start getting you know 30 billion exon exogenous demand then you really get an opportunity to to bring more stable coins on chain at higher yields. Do you think there's any demand for more like fixed rate lending? I know Morpho is trying this with their next iteration. I don't know if uh maybe the V2 I think they're they're referring to it as um sort of like an intense based system where hey I want to borrow this size at this rate and you can get to

match someone peerto-peer on the other side. I think there's any demand for that. I I know there's like teams like term labs that have kind of tried this or experimented with it. Uh similarly we've seen people experiment with the under under collateralized lending as well uh to varying degrees of success but I'm I'm curious you have any thoughts on the fixed rate side. Yeah and I think the demand is proven out also by by Maple, right? they are doing primarily fixed rate loans and they've been growing quite quite aggressively over the past six months in large part because people because a lot of funds need fixed rates to be able to to um execute strategies or plan strategies so I think that the reason there hasn't been fixed rate on on chain is more you know there's some demand issue right funds primarily that want this

sophisticated investors that want fixed rate but also there the mechanism hasn't really been there for it to work appropriately basically whenever Um I mean one whenever whenever yield curves are inverted because because rates are very high in the near term people want to borrow a fixed rate if they're if they're planning out a longerterm strategy right and then also um you know it it does become really difficult to to eke out these like levered 15% just on the dot strategies with a variable rate because it can you know your strategy that worked today and you underwrote took to IC might not work tomorrow and that's not really tenable for a lot of more sophisticated investors.

Are are any like is it all funds that are borrowing from Maple or are there like like a business getting a loan? Are they doing any kind of that activity? It's mostly funds. Um I would say it's a mixture of directional funds looking for leverage um yield funds just optimizing for for various costs of capital and to a lesser extent I believe that there are probably bitcoin miners or companies that have like crypto collateral that need loans um that are borrowing but probably a much smaller percent versus the the funds that are using Maple today. Yeah, still the crypto economy.

Bitcoin defi is heating up on Apertos with nearly 400 million BTC assets on chain. Apptos users can now earn yield on their Bitcoin via EcoABTC and OKXXBTC without the typical bridge risks and high fees. To explore BTC yield opportunities on APOS, follow the link in today's show notes. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. Uh there's been a lot of chatter on the crypto equity side of things. I'm curious if you guys have any views on there. Obviously, uh Robin Hood, Coinbase have been, you know, kind of the talk of the town. Circle IPO, uh broke the internet for a few days as well. That was pretty funny to see the S1 go uh get released and then everyone on crypto Twitter have nothing but negative things to say about how the business is being run and then

it goes live and Wall Street loves it and it hits like an 8x. Um it's going to be interesting to see who's next in the IPO in the IPO lane. Uh but yeah, curious if you see any major trends there maybe around the treasury companies as well. Um yeah, what are your general thoughts on crypto equities? Yeah, there's a lot happening in crypto equity. So, so one trend is that there were a lot of growth companies that raised in 2021 that haven't raised subsequent subsequent rounds and in 2023 or 2024 their secondaries were trading at sometimes 75 to to 90% discounts from those rounds.

And what we've seen from 2021 to the trough until now is that now these businesses are much closer to their high water mark and have a path to liquidity where the funds that invested four years ago might be approaching end of fund life. And so a lot of these growth companies are looking for ways to um enter the US equity market whether it's a IPO or or reverse merger. Um and so we've seen a few of those. I know that there um are more that have submitted prospectuses um and I imagine that trend continues especially given how well uh circle has traded on the back of the IPO. Um the the other thing that I'd add though is that there's an interesting

market dynamic where I would say tokens right now are are lagging the the equities that are launching which uh I think further drives this dynamic to play out and that liquid investors in in crypto um should be open to investing in in crypto equities in the same way they should be interested in investing in tokens in theory. And so these are close to direct substitutes for one another. And so for every high-quality company that launches a public equity, some percentage of capital that would otherwise potentially buy tokens is now questioning whether this is a better opportunity than tokens. And so I think it increases the bar for the the token market as well and that now there are these liquid uh substitutes that retail

investors have the ability to get exposure to. Um which is appropriate, right? because you can't have the problem we had for a while is that there was a lot of trap capital in token markets or VC markets. So the people were comparing opportunities to other opportunities in that in that space that they're investing in and not really looking at the entire the entire realm of assets and saying is this better than a PE deal? Is this better than a real estate deal? And to the extent that equity markets start to you know open up to to crypto investors crypto capital then you know equity markets already compete with themselves for capital. If you if you bridge that link with crypto funds, it raises the bar for tokens, but in a healthy way, right? It helps token

founders understand, you know, a lot around transparency and disclosures, which we've talked about at Nauseium in the past, but also in terms of what you need to offer investors in terms of cash back and and multiple on your money for it to be appropriate return. It's so it's it's a healthy process for for token markets. A couple other things that I'd bring up on on this topic. So on Circle, one thing that I've seen that's interesting, although I guess not surprising, is that a lot of people are focused on fundamentally justifying what's happening on on Circle Price and assuming that what's happening is somehow related to something fundamental. And I I think that on one hand there is some part of that that's true, but I would say that's not what's

actually going on. Um and that like circle was talking about raising in between call it on the low end five and on the high end eight billion. That was the general range that was being approached. Naturally they were able to raise on the high end. When they went public the equity traded a premium that and went up materially from there to the point where circle the equity traded at par with USDC outstanding. Now you can paint this case that USDC is going to grow materially. they're under monetizing partially because of potentially like negative regulation. Um, and there are a lot of different ways that they could potentially grow into this valuation.

But if I had to opine on what actually is happening, it's a similar dynamic to lowflat high FDV. Not in a nefarious way, but in that when an IPO is created, there are locked shares. And if the float is low enough and there is a high enough thematic interest circle being a stable coin pure play, there will be funds and retail investors that have capital that they're willing to deploy into it. Is not because they're building out a DCF and saying this is something that I could justify. It's either because this is an interesting theme that they want exposure to or because they think that the next x number of days price action will be positive and

therefore it's positive expected value to invest. And so I think while circle is probably going to continue to trade higher than the IPO range, fair value is almost certainly not at 60 billion. Yeah, I I my my mental model for what happened there is day one it was a combination of retail and funds funds who wanted to get exposure before the quarter was up. I know June 30th was some time away, but I think that's still on folks mind. And um but I think from that day on, from day two to now, I think it was people on Robin Hood and their Robin Hood app smashing by. I can't imagine that, you know, other than being a trader, like a fund would

underwrite Circle at that number. I agree. It's tough, right? all the all the all the regulatory news coming out of DC is is more open um more openness to new stable coin issuers and these things are going to be really really liquid between themselves like liquidity matters at 100 million you're fully liquid at at you know a billion five billion 10 billion between stable coins um so probably what's going to happen in the market we're going to see a lot more issuers over the next four years um some of them with really good distribution by themselves right uh any bank has really good distribution. Yep. Any Robin Hood, Coinbase, I mean Coinbase obviously is is allied with Circle, but

any platform like that will have good distribution. So, they won't have these massive distribution expenses you see with Circle where they're paying, you know, Coinbase a big percentage of revenue. And um just more supply will come online to compete with Circle as an equity. And I would imagine that, you know, it doesn't hold up. Yeah. like the the Circle and Coinbase were beneficiaries of the regulatory environment, right? Like people didn't want to compete with them and now it's like, yeah, go for it. And Tether. And Tether. Yeah, correct. Yeah. So interesting. We'll see what happens.

Yeah, the the Tether one's interesting. Um I was chatting with someone today. He's like, uh yeah, I was I was recently in Buenos Cyrus and everybody's still using USDT on Tron. Like that's what it is. And it's like you always get these anecdotes. But yeah, now we got Tron trying to go public as well. So getting into the more of the crypto equity side, but Noah, you mentioned the overlap between, you know, how big is the gap really between uh trading tokens and trading equities. I think we're seeing that tighten as well, right? Like Robin Hood obviously offers both to their users. Uh we're starting to see the tokenization of equities become a an increasingly uh interesting idea, right?

We've seen Superstate announce that they're trying to do this. Um there was recently something try I can't I think it was totally like a republic was trying to bring uh secondaries onto Salana recently. Uh you've seen the same kind of thing happen on L2s right there's back dirty live with tokenized coin on base. Um do you think that that's like an interesting trend or is it mostly just noise? Like I'm just curious to kind of think like what's the end result of do we need equities on chain? I guess it depends what type of equities because I'd argue that we have existing equities on chain today, but I'll I'll put that aside. Um I I think that crosslistings are interesting for um the if you believe that there are

emerging market buyers that want access to US equities that wouldn't otherwise be able to set up traditional brokerage accounts. Um as far as for funds and US investors that already have expo or the ability to get exposure, I think the interest in in tokenizing equities is more so on denovo tokenization. So taking private company that might not have a clear path to going public but deserves to have a liquid traded instrument um and want to do it at a lower cost than the requirements would be to register on the NYC. I think that has validity. Um, so I I think it just depends on what type of equity we're talking about bringing on chain. But certainly in the crosslisting side,

existing public equities, there's an emerging market angle and then in the new equity issuance side, it's uh, I think a cost savings uh, play. Is the emerging market thing exciting to you? Emerging market folks buying US equities. It to me it seems like not it's not a needle mover. It might like there might be a a winner. I think the outcome in market cap terms will be small. Um but like I don't know. Well, it depends on whether the big money has access already, right? The big money has access. I guess there's a large amount of people in emerging markets, you know, kind of five billion plus people. So, it depends on how much of that um decides to buy. But like the TAM is is big in terms of number of people. It's not going to be that exciting for volume. I

think the most exciting thing for volume we've ever seen and we'll see is memecoins because they have the highest um turnover of every of any, you know, of any um token or stock or or or asset, but it could be meaningful on TVL, right? The the the numbers that we're looking at on chain for TVL are tiny still in the single digit basis points of world of world assets. So if you get, you know, people in EM buying NASDAQ or S&P or Apple, that that that could be a big amount of TVL relative to what we have on chain now, just because we're starting such a small base, but it won't trade. And if it trades, it won't pay 1%. Yeah. I think the other thing that I'd add is that there is a composability

play to tokenized equities and that in theory um at least today if you want leverage against your equity your reliance on your broker and whatever policies they have structured and that's a walled garden um essentially your broker has custody of the underlying asset you have account with them um but naturally there are a lot of different open- source money markets on chain and so if they allow for leverage against um specific equities then there's now competitive market environments where they have to compete on the the required yields. Um, so I I think that there probably are benefits long term that come from like some of the the composability and like using these assets in DeFi rails, but it's a bit less clear to me today on how long it

will take before we get there and see mass adoption of those types of things. Yeah, the volume point is really salient to me. Um because if you look at Superstates T- Bill fund that they have right now, right? The way it works is you can whitelist a handful of uh addresses that you can transfer the the asset to. Um and a couple of those are lending markets, but there is very intentionally no exchanges on there because you can't uh they can't allow for the transfer of these assets uh due to regulation. And so that doesn't feel like it's getting unblocked anytime soon. And then to me it's like okay, Metatrend uh equities coming on chain. Uh who are the winners? It doesn't feel like the dexes are in that category.

like you might need more specialized services that service providers that come on chain and kind of facilitate the trading of this. Um, which wouldn't really be a beneficiary for any of the uh dexes that are alive today, let's say. Whereas the lending markets that exist today, it's still a little bit interesting, right? Because they can actually take these in, onboard them, they can handle the liquidation with whitelisted liquidators and things of this this nature. Um, yeah, curious if that trends like resonates with you guys. Definitely. And the dexes are also starting from a really really high point. Um, you know, I think at the peak, uh, with Trump, the tax volumes were like 20% of NASDAQ for a few days.

That's a lot, right? And again, on on on TVL, just to bring that point back, we're in singledigit basis points to the to the economic equivalent, right? Like global financial assets. So, Dexter is just starting at a very high base. Like a lot of the trading that happens worldwide does happen in onchain already because again, memecoins are so high turnover. very little of the asset ownership that happens worldwide happens onchain. And just one point um on the EM side, I think for stable coins, it will be really significant, right? And I think this this point's been made many times, but like the total amount of available holding demand for US dollars worldwide is is huge and it's a severe problem for people. So if you you know, you could see above a trillion dollars

of stable coins held by EM um on chain. If any of that really flows into assets, it's it's meaningful, right? Seems like a huge political problem, it will be for it will be for the local countries that have are used to um and you guys know how this works, right? Like if you hold pesos, like you're you're not able to hold dollars. Y you know, the one way to do that is to make it illegal. One way is to make it like a you know, five day fiveday swap window with a 15% fee. You're just not going to do it. Um, you use USDT on Tron. Yeah, that's what Argentinians are doing, right? Yeah. And as soon as you can use it to pay for your US, you know, as if you have a virtual bank account and you

can pay for your your digital goods for with US tech companies, it starts to get become really attractive, right? Yeah. And to go so there was two branches there. One was uh actually before we get there, so if the exposure thing is all you want, uh, so less on the stable coin side, right? actually need the asset to to use it for um transporting your wealth through time or actually paying for goods. But on the equity side, if the exposure is all we're trying to do, then it doesn't feel like actually, you know, wrapping these assets, bringing on them, bringing them on chain, bringing in the custom uh service providers to facilitate the trading of these things, like that's a lot that needs to go on versus like, you know, slap an Oracle on there and do it on a per stex. Um now you get your exposure. All you needed

was the Oracle integration and away you go. Uh, I'm curious if you think the actual wrapping of the asset needs to even happen if all we're trying to do is get these get people exposure. I understand the the heart of the question. Um, and and I agree that in certain circumstances, derivatives are an easier way to get exposure versus uh spot assets. And that's true for for most markets. Um, but if you're thinking about longer term positioning, like taking a 10-year view on the S&P 500, doing it via derivatives is incredibly capital inefficient. And you're taking a lot of unknown risk on, for example, what is the basis rate that you're

paying to hold this position open. Um, and then you also have custodian risk with whoever you have the the per uh open with. So I I think it just depends on the exact use case. But if you want to speculate on uh shorter term price movements, then most of the time I'd imagine that pers are more efficient for that. That makes sense. And credit risk on the pool, right? Yeah. There's no way to hold unless you wrap the asset. You're always taking credit risk on the pool at least at least in cap in capped gains. But you know at most in the pool just blowing up with nearly 400 million BTC onchain supported by a secure fast and affordable move VM environment. Apttos has become the BTC growth chain. Apttos users can now earn yield on their

Bitcoin via Eco's ABTC and OKX's XBTC without the typical bridge risks and high fees. With support from Echo, OKX, and STAX SBTC, Appdos is the place to go for best-in-class yield on Bitcoin. To explore BTC yield opportunities on AppTOS, follow the link in today's show notes. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. So, to rewind a little bit to the uh what type of equity is coming on chain, uh you mentioned how, you know, you have this company that deserves to have the liquid instrument that quite not be ready or might not be ready for an IPO in traditional capital markets.

What is the relationship there? Like if you can IPO, especially following the circle IPO, it feels like okay, then that's the direction I want to be going as a crypto company. Um, but what's the pitch for launching on chain? Like why would I go that route instead of trying to go to the traditional capital markets? Well, it I would agree that if it's a choice like I can register my company via the NYC, the choice to go on chain today is harder to make. Um, if there is no choice, I have no ability to register, then it's more more so a function of do I want liquidity or do I not want liquidity. Um, but I would just say like right now it's hard uh or we're kind of in like the the cold start problem where like the market structure that needs to be built out for onchain

equities to work is like right now there are a few hundred liquid funds. So certainly they they could be the net buyers of of these equities. Um but we need exchanges that can support equity whereas onchain decks today uh putting aside whatever regulation changes um generally aren't made to to support securities. Um and then you probably need some type of KYC around this and you probably also need um like market makers. So I think as the the infrastructure on chain builds itself up, it's less of um a lift to argue like why launch onchain versus why launch uh on public equities, but that's not the case today. So, so putting that aside, um the argument that I would give for if you have access to the NYC, why you

would launch on a different venue is probably going to come down to cost. And I I think that's probably the only reason. And that um registering and meeting disclosure frameworks that the NYC has. Um it's what I would consider to be one of the most stringent exchanges. And so the cost to uh complying is in the tens of millions per year. Um, and so that works if you're a billion plus dollar company and you value liquidity of being on the NYC. If you want uh you don't need that same liquidity or smaller company and don't want to have like the the cost associated with $10 million a year, then you'd consider going either to OTC markets today or perhaps onchain. And I think on chain right now, I'd imagine the costs are closer to a million dollars annually um give or take. But

I'd have heard a superstate on that specifically. But it's all I mean now we're getting to the realm of more speculative because this is not happening today really in a big in big way. Um but like our mental model for all this is just underserved markets versus overs served markets. So like who is well served by the current um you know public public market infrastructure big US companies there's fewer than 10,000 of them right like that that can that can actually IPO and be on on what you consider a legitimate uh market right like not OTC markets that's a very small percentage of the world's companies right and so who's underserved by that system definitely em companies if they can prove that they have you

know if they can get over all the the legal issues, you know, that they can access more deeper capital markets and then potentially US mid-market companies or small cap companies that cannot afford to go on chain is an underserved market. Like whether or not they will decide to do it, we'll see. But they're underserved by the current system. So that's where my mind goes in terms of answering your question like who who wants this. That's a good point about the EM side of things. And I think the forcing function is probably liquidity. Like right now the private markets very broadly speaking in developed markets are a bit unhealthy and that the badass spread of a lot of private companies is very wide and the time for companies to exit after being invested in by venture

investors and private equity investors continues to expand and simultaneously a much larger percent of equity markets have moved to the private markets over the past 20 years. And so right now I think it's hard to make an argument about why the market structure may shift because right now there isn't an illquidity discount which historically there is and that like if you have a company that trades privately it's going to trade a slight discount if it were to trade publicly. But if that illquidity discount comes back then I think the justification for going public is very clear. And then you get into the question of what is the composition of these private companies today? what percentage of them are too small to consider going public on the NYC? And I think that's actually probably a pretty

large pool of companies. Feels like there's an opportunity here, right? Like, you know, think about like everybody used to register businesses with in in Delaware and they had all the infrastructure you needed to your point about kind of cutting costs and getting all that infrastructure in place. If you were in EM economy and you kind of saw the the trend shifting here, it'd be pretty interesting to try to position yourself of like, hey, if you do want to take this uh shorter, quicker path to to market, uh come launch here. We'll take care of all the in infrastructure before you for you. You know, we've already built out a lot of this. We've got the market maker relationships. Uh we've got the ATS built on chain that's got the liquidity figured out. Um and kind of be that hot spot for how you get these

businesses on chain. Yeah, it's a big opportunity. Um, we'll see. Hopefully the US does it right because then you have a lot of a lot of the world's companies and then you just you just consume more and more of the global financial system. Feels like they'd they have all the reason in the world not to be a first mover there. Like there the you know there is the uh if you're in the existing traditional financial system, you're going to fight tooth and nail to like not have that happen because you collect that $10 billion a year. Yeah. Yeah. The companies the companies will. I guess the the thing is you you do always need so I agree on the opportunity. You do always need the local country to agree to this. It's not like stable coins. Stable coins is kind of no agreement needed from the local

company country because you just hold your stable coin and that's it. If um you know an Argentinian company is going onchain, you need the repo layer, right? The repossession layer to agree to that. Otherwise, they can just rug the token and then you know if you if you have a if you have a local business, local hotel like and the and the country doesn't want to enforce the token rights, it's just the easiest rug in the world, right? Because it's not a digital business. It's not an onchain business. It's it's purely physical. So, I I agree there's an opportunity, but you'll never be able to do it without the the consent of each each country one by one, which is why I like the US because it's the biggest market, right? Kind of the leader people follow.

could maybe one day enforce rights for others. But, you know, that's a really interesting angle. Um, yeah, and on the on the kind of disclosure and transparency front, I don't want to talk too much about this, but uh, Felipe, I know we spent a lot of time, all all four of us, honestly, uh, thinking about how do we bring a little bit of this into crypto? You have to thread this strange needle of like, okay, you have like, you know, full gap accounting. You've got the the full disclosure regime enforced by the SEC. Like, it's a law. You have to do this. it's not an option. Um, how can we bring some layer of that into crypto to to shed a new light uh into the off-chain pieces of of these of these protocols, right?

Everything onchain, we actually do a pretty good job as an industry. Uh, has MSARI was very early to these quarterly reports of getting teams to just communicate outwards. Uh, you know, there's a lot of great data providers doing work to pull that financial data off chain from the chain and communicate it outwards. Uh, but the problem is there's a huge opportunity for crime on everything that happens offchain. Uh so your your entity structure um how the foundation's set up, who owns and controls the tokens and how if those are actually those wallets are actually disclosed to the public. A million different areas. But one of the goals that we wanted was like, okay, this is only useful uh if funds and retail can use this in their due diligence process, right? If it's not, then we've kind of like missed on the framework. We're not

asking the right criteria. I'm curious, you know, we're it's only been a week and we only have five projects live, but uh from your perspective as a fund, like have you guys been able to think about this in a new light as you're doing due diligence on projects? Um and like do you think it we've kind of achieved that goal of making something useful for somebody like you? For us, it's been pretty useful already. So, we um we actually sold two positions based on the framework. Um wow. You know, I think we we sent it around to all our companies. They were for the most part eager and enthusiastic to fill it all out. We do a lot of diligence to begin with. Like it's a very important part of our process. Obviously, you know how much we think about token holder rights. Um and

even then the framework was comprehensive enough where we saw two companies be a bit squeamish about filling everything out that you know you that kind of that kind of signals blood in the water. You start to pull on that thread and then you find out that maybe something's happening that's that's okay for other people but not okay for us. And then I think you know for us disrespecting the token holder relationship is the is the is a red line. So we just kind of immediately sold. And I think I think other people would do the same thing. You it's one thing for people to tell you on a diligence call you know that XYZ is true. It's another thing for them to put it out into the world publicly in front of everybody. And as funds see the

disparity. they see like, hey, you filled this out, but it doesn't it doesn't say, you know, line 15 doesn't say what you told me. I think funds will start to punish punish tokens that are behaving even a little bit um nefariously or or maybe, you know, behaving in the in the old way, you know, let's say let's let's put it that way. Yeah. And I think that's like what a lot of uh we've kind of we've seen in the industry is the lack of disclosure itself is not inherently a bad thing, but it creates a the ability for bad actors to profit off of ambiguity, right? The ability to profit off of not ever being asked the question. Yeah. Um and I think that's kind of uh how we can bring in that first wave of just getting off zero or lying on calls, right?

Because people don't How often is that where you someone you know someone will tell you one thing and then you you know check the chain or you know do some reference checks and find otherwise. It happens too much. Like I don't know I don't want to give percentage. It happens too much. I think part of it is you know the last regulatory regime was so counterproductive because by classifying the whole industry as you know as as kind of infested with fraud and full of bad actors and you know what all the things that that that Gary used to say. Um it it really let those people shine, right? Because there was no, you know, you're prosecuting Coinbase and and Uniswap, you know, good actors, uh or at least the best actors in the industry. And everybody else kind of gets a green

light to do whatever they want. Right. Right. Because it doesn't matter how you act. It's just by nature of being in the industry that you'll be in trouble. Uh and you'll be in the same troubles as everybody else. And what you really need is some way to differentiate, right, or dissect who's acting well, who's not acting well. And that's what we're doing. You know, that's what we're seeing now. I think the token transparency framework will go a long way in doing that. But um that's a roundabout. I we people are more comfortable lying than I would have expected coming from Tradfi. Interesting. And have you seen a shift in quality over the years of uh you know, you'd want to see the industry's matured a lot obviously over the last couple years, even what feels like the last six months. Um, do you think that

that will kind of trend away as more serious people come into the space to build more serious products and you see less of the like science project turned billion-dollar market cap token? I think it's been h I think with the industry's been maturing a lot a lot. I uh I was surprised by where we were when I started. Like I thought it was better and it was way worse than I thought. But but I'm definitely not disappointed by the slope of of maturity, right? Like I mean you've you've you guys have been instrumental in this like even revenue used to be a controversial idea.

Couldn't get it. What? Couldn't get it. So that's like it. And why would you want it? That's like a zero out of 10, right? Yeah. But then people love selling $1 for 50ents. Yeah. So that's that's out like people now I think for the most part understand revenue and cash flow. Uh transparency and governance I think are on on the way getting better. A lot of the teams that are left are good, right? Like a lot of people who were true scammers uh or or mercenaries and not that focused on the industry were the people who are low lower quality. Y so to the extent that it's been a tough you know four years, they've been leaving for easier easier get-richqu uh you know pastures and that's good. So the people who are

left are really good. Um, so I'm pretty and then now, you know, now the industry is being given a little bit of a cloak of of um accessibility by by the government, which is really important. The one thing legitimizes it. Yeah. The one thing I'd like to see is um I'd like to see AI founder same profile versus cryptofounder on Hinge or dating app and see like percentage hits over time because I think that actually drives the number. That's the real market signal right here. I mean I think it drives the number of entrepreneurs right like you guys all experienced it like going to a wedding or something. What do you do work in crypto? Oh financial media company every time. Oh nice. Yeah I

would go I would just dead eyee crypto and like uh better man than me. That's been changing over time, right? Like you know when it's been getting better since since you know since stable coins and genius hacked and all that and I think that will drive the number of entrepreneurs coming in and a way that matters. All right, we need a line plot of your interactions every time you say that. Yeah, exactly. Eye contact eye contact seconds after Exactly. Sorry, I need to uh go grab a drink. I'll be right back. No, that's good to hear. I mean, yeah, so on the on the transparency side of things, we we have huge demand that came in. So, we only launched a week ago. Uh there's already more than 50 projects that are waiting in the wings. So, we're trying to move through this. We're going

to launch another cohort next week. Uh and that's kind of to your point about the good people are are the ones that are still around. It does feel pretty true. Um because yeah, like I said, the demand was way higher than I would have expected, right? Jason kind of put out a joke tweet the week before we launched and was like, you know, we're launching something next week. Half the industry is going to love us, half the industry is going to hate us. Uh, I thought maybe the 50/50 was a little bit uh facitious, but I I thought more people would be upset. Like I don't know. One, you launch a new thing, people just love to complain. Uh, but two, you're still like I don't know, like the I think the mantra sunlight's the best disinfectant is is really true, but that there's a

little bit of pain, right? You get burned a little bit. Um, and I think honestly people were the the overwhelming support that we got, I think, was a really good testament to how big of a problem this was. And the solution is pretty obvious to be fair. it's like, hey, we just need to ask people to answer the questions. Um, but then building it building out the team, getting everything running is is is more of the operational side of the problem. But yeah, we're super excited. I think things are definitely trending in the right direction. Well, the 100 companies that did not apply don't know they're going to get sold, but they'll figure it out soon enough. Well, I I hope more people think like you as well, right? Like there it should be a little bit of And you talked about the the lemon

market talk obviously uh with your it's now live uh from research day. Uh check it out on YouTube. 100% recommend, but um you know, you talked a lot about the ability to produce the the credible signal. Uh and hopefully this does service that in early early innings, but it does feel like it's actually achieving that. But yeah, I really do hope it it gets uh positioned like that by the market. I think so too. I think maybe one one plug on the market maturity is what is still a big issue is the HR bottleneck. Like there are not enough good people in the industry. Not I don't mean good ethically, I mean good like in terms of competence. You know the I like the people who are in the industry. I think a lot of them are good but we just need more founders, more

investors, more people pursuing yield strategies. Like it is really hard to find and you you all know this you guys are recruiting right constantly. It's hard to find quality people. I think you know the my mental model for when to join an industry is kind of opportunity over competition. Like how much opportunity is there left versus how competitive is it? That's kind of why I left my bio job. There was not that much opportunity left. it was good enough but there's a lot of competition you know thousand you know top business school grads a year competing in that market it is the opposite here there's a lot of opportunity there are maybe a few hundred aggressive uh really competent people so if you're not in the industry you're

probably not watching this but if you are you should come in yeah no I totally agree that was kind of my uh thought process on why I was excited about jumping into the industry as well uh and got it through a Twitter DM So you never know. This isn't It's a weird industry and we love it. It's a good famous story. Yeah. Yeah. Yeah. UDM Yano. Yeah. Yeah. Algoit 3.0 includes all the tools and open source resources you need to unleash the power and performance of the Algrand blockchain. Access a resilient network with instant finality, consistently high throughput and low fees, and layer 1 features like atomic swaps and native assets. No smart contracts required. Whether you're building D5 protocols, enterprise solutions, or nextG dabs, Algo Kit has all the tools you'll need to build faster, safer, and smarter. Start

building with Algo Kit today by following the link in today's show notes. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. All right, one more one more interesting trend here. So, passionate listeners are probably tired of me talking about this, but I've been thinking about how centralized exchanges came on chain over the years, right? So you had Binance who was first 2019 launch an L1. Uh Coinbase comes second around 2022. A little bit more lightweight. You launched the L2. Uh a little bit less infrastructure though. Coinbase uh engineering team probably disagrees with me. Amount the amount of work they put in is very impressive and they've really been accelerating the performance of the OP stack. Um but then you see more recently by announcement of going very lightweight. Forget the chain. We're just going to launch a set

of smart contracts on Salana and our core mission is to you know facilitate the um the trading of assets and this will help us achieve that. Uh and so you kind of seen almost the reverse trend than what I would intuitively expect, right? You start off super lightweight and over time as you scale you try to own more of the stack. Uh but we saw the exact opposite happen. I think a lot of that has to do with rewind to 2019 and if you really wanted to put an exchange on chain Ethereum was the only option and like the performance was never going to work. uh so you didn't really have an option. So I think that has a lot to do with this uh versus now you know Salana is performing very well and so by bit was probably like hey like why bother go

do all the infrastructure necessary like let's just throw some contracts on chain um I've been trying to think about okay so that's the trend we saw with the centralized exchanges but what about like the the banks of the world the asset managers like what is their approach going to be um and we've seen like a very mixed bag to be honest right uh JP Morgan has Kexus but it's more of like this private infrastructure focused chain that they use just to facilitate some uh like repo activity that you know kind of just makes their life easier on the back end. Uh now they've announced the stablecoin like asset that they're going to launch on base. So doing a little bit of both there. Um and I think the argument for why you'd probably want some of these larger banks could be uh like launch your own chain and actually

own the full stack is because they do have the distribution engine. They've got the the web two facing um uh platform where all the users already are, right? So they can just kind of plug the chain in. Boom. There you go. you don't even need to bootstrap an ecosystem, which as we know can take north of two years. Um, but I'm curious how you think about like what's what's that landscape going to look like, right? I think everyone's kind of anticipating the Robin Hood announcement at ETC, which will be next week. Um, you know, what are they going to do? I think a lot of people think chain. I don't really know if they're going to go more of this by bit very lightweight route. Um yeah, just curious to get your general thoughts on how people are going to come on chain and is it like is it

going to be with your own chain sort of this like you know many chain thesis or is it like look we got like activity is going to coales around a handful of chains like let's just plug in there. It's an indirect answer, but I think that the Northstar is pragmatism relative to how our industry has kind of been a bit more idealistic in that um like if you have distribution, Robin Hood for example, it would make sense to create a walled garden in order to like monetize as best as you can. Um if you don't have distribution, um then there's a bigger question. Um, but like the the thing that I'd emphasize today is that like there's a lot of path dependency in that like onchain today, if we're talking about purely like DeFi users, I think that there's probably about 20,000 daily

active users, it might be 50,000, but it's not 100,000 with reasonable confidence. Um, and so for for a bank that's worth tens of billions of dollars, the opportunity of capturing those users isn't as clear as continuing to monetize their existing user base. And so I'd imagine that a lot of the interactions banks and other regulated financial institutions have on chain is going to be those that somehow benefit the user experience. And then I'll caveat it by saying that I do think that there is some like value of announcements or being attached to like the crypto and stable coin narrative.

And so I'd imagine that a lot of financial institutions will do something onchain as like a a starting point, but I don't think it's going to be a commercial opportunity. I think it's more so going to be like a a pilot program or proof of concept that may or may not find substantial direction. Announcement FI. Yeah. Um it's my favorite. We have like we have like a minute. So um do we want to talk more about announcement thigh or No, no. Uh whatever you guys want. I wanted to hear no talk about the treasury strategies. Yeah, let's hear it. What are what are your thoughts on quick hot takes on on treasures on treasury strategies?

Yeah, I think like from the the perspective of the people that are engaging in them, it makes total sense. Uh like the companies that are engaging in a lot of it's companies that otherwise are in financial trouble. So like small cap public companies, call it 20 million mark caps with NYC listings um that probably are losing a lot of money. Um so if this is a way for them to raise money, it it solves a goal that they probably have. On the other side, um the funds that are contributing to these deals, a lot of the like structure is downside, I get my Bitcoin, Ether, whatever it is back, uh maybe give or take like 5% and upside this asset trades at a material premium to NAV that I can eventually exit. Um and so that

that's also an interesting like riskreward structure. Uh but I I think what's missed is where the the reward comes from in that the like the game that's being played whether it's understood by the people that are playing it or not is that when a raise is announced the equity of the raise uh or the equity associated with the raise goes up materially call it 100 plus% in an upside case. Some of them just haven't performed well after that announcement. And now you have a material premium to NAV. And now you have potentially a bunch of unsophisticated retail investors that trade equities that see that there is this uh asset attached to crypto and

just think I'm going to buy. And so the return on the downside whenever the investors unlock and the price kind of compresses back towards NAV, whatever the like premium is to NAV is probably a function of the percent of capital from unsophisticated retail investors that's depositing at a material premium to NAV. And so I think one it's not a sustainable trend um because it relies on like essentially taking money from retail. The second thing is that a lot of people hopped onto this trend um because they saw success or initial success of a few of these uh treasury deals putting aside Micro Strategy. Um, and

the confusion that I have is that none of these deals have proven to actually be successful from a distribution perspective and that a lot of deals, although they trade at material premiums to NAV, the shares that people bought in the raise aren't unlocked. And we've now had a few examples where the the first of these like companies have had their unlocks and lo and behold they trade right back down to NAV and people move on to the next one. And so I actually don't think that these strategies work at scale. And I'd imagine that the amount of capital that's already been deposited has gotten past the point that these strategies can scale. It's just a question of how long until all of them unlock and you see the investors try to

exit and then we kind of play the game of picking them up at a discount to to nav I guess. How many more months do we have? Um so a lot of pipes are structured as six month locks. Um convertibles there's a lot more variance but I would ballpark six months is kind of how long it takes from if they started in April. I'd imagine Q4 a lot of them are going to be in tough position if they weren't already in a tough position because they had unlocks before then. How has Sailor done such a good job of avoiding this problem? He seems to have mastered the financial engineering playbook too. I think he was first. Um and that makes a very material difference. Uh I think he also had a

real business. Not to argue over like business quality, but it the business justified a high enough market cap where he could raise serious capital behind it and kind of bootstrap this treasury. Um so it's I think part of it path dependence hard to say why it happened, but if I had to point to it's probably large existing company trade on the NYC first to do it. All right, last question on this then we can wrap it up. But we've saw it go pretty right tail pretty quick. Like even like Bit Tensor got one of these things. Uh, are we going are we going to we see more of this? Like where's the fartcoin version of this? I think so. But then we get into a question of investor protections because I think like this goes on until people get burnt in some form or another or the

trade dies. And so I think right now like what I'd imagine will eventually happen is that you have tokens that have poor liquidity or have lockups associated with them whereas like the equities that trade on NYC are very liquid. And so investors can uh deposit tokens that are perhaps illquid or locked and now get a liquid instrument to to exit with. And so that's like a appealing structure for those investors. And so I'd imagine like some of those vehicles will come to market. But I I think that like the Bitcoin, Ethereum, Salana, there have been enough of those that all have their kind of marquee uh treasury strategy on the NYC where you can't come to market

with that and expect it to be able to raise well. Um so I think you have to start going into like the tail opportunities. I think the interesting thing about Noah's view is not we all know they're not going to work long term, right? kind of baked into the premise, but people might not make so much actual money on them either. You know, it's a little bit like the infracoins where we all knew it was a game and it was kind of a way to for funds to make money, but they didn't end up making much, you know, DPI on them because by the time that they had to they were able to sell, the game was up and I think that might happen, you know, in this with this uh sort of like a self-healing problem then. Yeah, it might just be money in money out. We'll

see. Well, awesome guys. This has been a fantastic conversation. Where can the people find more about you guys? Twitter. Uh, so I'm Theo Research. I'm Trader Noah. There we go. We'll put that links to that in the show notes. But this is a pleasure. Appreciate you guys. Thanks for having us on. Thanks for having us on. Always a pleasure. [Music]