Treasury Companies Are Causing a DeFi Boom - Arjun Bhuptani

Transcript

This is one of those again one of those situations where like the market the invisible hand of the market will slap some people. >> What is the thesis behind you think the increase in volume is because of this institutional appeal for ETH? >> How are you thinking about extending the solution to other assets? Do you think there's enough and it's really just kind of like okay as ETH grows you guys will grow in volume too. >> However, and I think that there's something really interesting here. The the kind of flip side of this gotcha is >> welcome back to the ruleup. We are your hosts. I'm Andy.

>> I'm Robbie. And this is your home to learn from the biggest guest, the brightest minds at the tip of innovation. >> Our goal is to help spread the collective knowledge of everyone in our community. >> We are breaking crypto out of its echo chamber and taking it to the real world. Arjun's in the house. It's good to have him. And um what's up, man? >> Yo, how's it going? And it's been a while. >> It has. I mean, it has been a while. >> I think prices have gone up since we've uh last spoke. >> Yeah, it's crazy. Entirely different part of the cycle. That means that I'm entirely different part of a entirely different human being.

>> It does feel that way, man. Arjun, I saw you guys flying under the radar. There was like a few weeks back a tweet that you guys had quietly crossed just about a billion dollars. Maybe it's way more at this point. Yeah. Yeah. We uh we crossed a billion dollars like a week ago and then uh and then now we're like like you know at a half a billion monthly volume. So the next billion is going to be pretty quick. >> Damn. So So yeah, you put out a tweet saying that like you think some of this is because ETH treasury company flows, institutional flows. We'll kind of get into some of the nitty-gritty of exactly where this is coming from, but I just want to get your take, man. What is your take on this on Espet, on Joe Luben

getting out there, Tom Lee getting out there with his company, being the face of of Ethereum, right? Because you're a very ethos guy, you know, like I think of you. I think of somebody who cares about the the reasons why we're here, who cares about Ethereum, about the space, and we've got these figures going on these large media outlets and creating these vehicles to accumulate ETH. And now, you know, now it's trickling all the way down. from the builder's perspective, from your perspective being an OG, what's your what what's your take on on on espad on Joe Luben and on this entire kind of ETH treasury uh company? >> Yeah. Um it's a great question. I think like obviously there's there's a lot to it, right? Um I think overall like super super happy to see this, right? There's e institutional

adoption has been a long time coming. We've been saying it literally for like 10 years or like oh the institutions are coming, the institutions coming now. Like that's actually happening. So I think everyone has has like been so far so like got you know got rugged so many times by that statement that eventually people stop believing in it and then like or at least or at least we're like no no no this this time is not not going to be the time and then this time is actually the time where it's happening which is crazy. Um and then when you're looking at at these treasuries and you're seeing like oh well the people that are participating in it are like Goldman Sachs and and like that you're like okay wow yeah actually this is this is real. Um, now of course like there's there's two sides of it, right?

Like obviously like it's good that we are finding vehicles to give exposure to these players that just didn't exist before. Um, I think the other side of it is of course like this is certainly going to bring a lot of the like crypto degeneracy has like crossed the chasm, right? And and like we we crossed the chasm in terms of like the ultimate degeneracy of meme coins with like Trump and stuff like that. Um, now we're starting to cross the chasm in terms of what is in for many many organizations that are doing this for treasuries, especially for some of the other longer tail locked up assets is like basically just M. And so you're, you know, you're you're kind of we're kind of like recreating some of the things that have already been been done in the space

before and that we we know don't work, but you know, non-crypto retail doesn't really know it doesn't work. And and I think those lessons will unfortunately at least some of them will end up needing to be relearned. Um for ETH it's obviously less bad, right? ETH is like a like a AAA blue chip asset and so you're not going to have as much of the kind of crazy with it. But um I do think that there is a you know we'll have to see what happens. like normie retail and normie institutions are going to bid the out of out of these like treasury >> things and like that is going to they're going to get wrecked like at some point and like it's not going to be because of anything else like even if we try to tell them not to do that like they're

going to get wrecked because you the market just has to learn that lesson and I I I don't really know how how to stop that from happening right it's it's the same thing as like uh like you know all of crypto in like the early like pre2020 20 knowing that Algo stables isn't going to work and then Terra coming along and then like really showing everyone that Algo stables isn't going to work. You know, >> I still have faith in Algo Stables, but uh I don't think we're I I I'm not sure that that we've actually seen it work. So maybe I'm just on a false hope here. But one thing that I did see, Arjun, that it does not apply to ETH necessarily, but is important that you shed light on is that there are actually some of these and they're calling them DATs, digital asset treasuries or

digital asset treasury companies, DATs. There's some that are that uh there are actually some VCs which are able to actually provide locked tokens as their contribution into this company effectively then shortening whatever their vesting period would be which is typically you know multi-year to the whatever the maturity is on this on this uh kind of uh deal let's just call it there's some there's some like you know nooks and crannies into exactly how it works but effectively I saw a tweet from CMS holdings say that that I thought was really good which was that if you're the retail investor getting uh you know allocation in these and putting up capital but but VCs are just putting up lock tokens then you're you're the one

who's kind of getting the short end of the >> stick. Yeah. Exactly. >> Yeah. >> You know which is like great. It's like strategic for the VCs who want to like you know take advantage of it but like of course you know they're going to be the bad guy again. >> Um >> but I don't think ETH has that problem though. >> So >> yeah, ETH doesn't have that problem for sure. And that's that's actually the really like the the negative. So obviously there's going to be like shitty things that come out of the ETH treasury stuff. That's mostly just going to be like retail hype, right? Retail like bidding this out of out of proportion of like what the underlying nav is. But at the end of the day like you can't it's not like ETH the asset is being manipulated. It's not like ETH the

asset is anything other than this like very very awesome credibly neutral store of value and public good. Right. Um I think it's you you rightly pointed out it's really like these treasury companies or like some of these other assets where like there are locked tokens where there are actually real risks and like the sad reality is like this stuff has also been done before in Tradfi. Like Trefi has found ways to rug retail for generations and and like basically by preying on exactly this which is like retail not truly understanding like time value of money, not truly understanding like oh how how does like who is actually the bag holder in these situations like how does this thing work? Um and I think I do fear like you know a lot of a lot of basically what has happened recently

within the space of uh VCs having like lockups and like you know bidding up token valuations launching tokens at super high prices for things that don't really like that don't really end up getting traction or it's just like an unrealistic price and then getting liquidity by like selling OTC or finding ways out of those lockups. Um, and then retail getting dumped on. Like I fear I do fear that in some ways the like longer tale treasury companies are is basically an attempt now that it's stopped working on crypto retail. It's it's an attempt to now shift it over to like Tradfire retail, right? Um it's like basically who is the next buyer?

Who is going to be the next person that's like not going to know that this scheme and and going to be the buyer? That is the concern. Um I think like again I think this is one of those things where like like there's not uh unfortunately like we can we we need to try to like you know educate people and be like hey look these are the risks like this is what you need to think about these are the things you should look out for as part of investing but there will unfortunately just because there is hype the reality is there will be some people that will just not look at that and they will get wrecked and I think this is one of those again one of those situations where like the market the invisible hand of the market will slap some people and and and then then we will learn

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>> Arson, would you would you say that there's kind of like there's one treasury company style and and you know the digital asset treasuries are kind of one and the same. they all sort of operate in the same way or is there is there some of them that do things better than the others and and there's actually a right way to do this and a wrong way to do this. Too many of them are too predatory and and doing things the wrong way. Like if you were building one of these from scratch, right, and you were putting it together and trying to do it the right way. How would you build one of these digital asset treasury companies the right way? >> That's a really good question. Um I I will say in general like I think it's pretty early. I'm also fairly new to

this as is everyone. Like we're all still trying to figure this out, right? Um I think like we just don't know yet what the playbooks are and like people who are very very good financially are the ones that are kind of able to navigate this like in like just and I don't just mean that within crypto. I mean like understanding the regulations outside of this space and understanding like what kinds of of like legal structures are able to be used to actually make all of this work, right? Um I think those people have like an advantage here. I do think like if I was trying to do it from scratch from first principles, right? Like the goal here is try to find a way to give exposure to retail of like your asset and um and do this using like a public vehicle, right?

Um and uh and of course like uh getting people to buy into a public vehicle and then go using those funds to buy spot or buy like tokens of an asset makes a lot of sense um as a as a way to do that. Uh and it's basically just like an SPV, right? Um uh the ways to do it correctly are to have one like very very strong reporting and clear understanding around like what are the assets underneath. Those assets do need to be liquid. Like they shouldn't be you shouldn't be like buying lockups. I don't think that makes a lot of sense. Um you shouldn't be engaging in like transactions directly with insiders ideally like it's you should be buying like market makers or spot um uh and like buying over a longer period. Um uh and then I think like yeah

I think it's basically about like finding the right ways to have like responsibility to shareholders right like um technically if you're a public company you have a fiduciary application to your shareholders um unfortunately a lot of tech public companies also similar to crypto companies don't really seem to care about that but like that is technically true right and so I think you have to sort of maintain that fiduciary obl obligation by like making it very clear to them like hey like this is not a risk-free vehicle right if you are if you're investing in this thing and it's trading at a premium, maybe there's it's worthwhile to have that premium, but if it's beyond a certain point, like there that doesn't necessarily make sense. You have to sort of like ideally like release information about like what the financials of this thing look like and what price actually

makes sense. >> Yeah, man. I mean that is like so I I don't know if there's any like right way to necessarily do this um from the lens of actually trying to you know you know I think it's just an it's just an education thing. I I you know I think I think you're right. Um so with that being said I'd like to shift over to Everclear and to some of the work that you guys have been doing. Um, so we got a little confetti for you today and a little money rain going on because you guys have crossed a billion.

Congratulations pushing on two. We're going to do some some money rain and some confetti. How does this tie in? So what where does the where does the ETH institutional appeal tie into Everclear's uh clearing product for crosschain transactions? How have you seen flows kind of come or like you know you wrote that tweet today like like what is the thesis behind you think the increase in volume is because of this institutional appeal for ETH? >> Yeah. Um yeah so just taking a step back right so and Andy you and I have talked about this I mean since since like the Everclear launch right back in in last year in like in Singapore um at token um the the kind of Everclear thesis is at

the end of the day there is fragmentation is going to exist right like we have it's interop is just too complex of a problem because there's just too many moving pieces there's so many different kinds of chains um with different kind of security properties you can't create one single unifying system that will work everywhere it will always have trade-offs. Um, this exists in Tradfi as well, right? Tradfi is made up of a bunch of different systems, a bunch of different kinds of banks, a bunch of different protocols. Um, and the way that this is solved in Tradfi is clearance, which means that you have some entity in between that is responsible for like basically processing all of the transactions going in different directions, batching them, and netting them down. So, you're only settling the final delta between chains or between banks or whatever, right? So,

uh, example, a good example here is like Visa. when you when you go and you pay with a credit card with Visa, a payment is not immediately completed at at the point like when you go and buy a buy a coffee, right? Visa makes a promise to the merchant to whoever you're buying coffee from that like this payment will be completed. And what they do is they take all of the payments that are happening around the world in during a day or half day or whatever period. Um, and they like net them off against one another, which means if there's like a million dollars going from Bank of America to Chase and then 500K going from Chase to Bank of America, they just turn that into 500K going from Bank of America to Chase, right? The same kind of thing exists in crypto across chains.

Like when you look at all the flows that are going between chains, there's a lot of things that are just canceling each other out all the time. And like this is especially true in this world that we live in today with intense and and intense obviously being now like the dominant basically the only form of bridging that exists, right? Like even Stargate is is launching an intent protocol. Like every single major bridge is now an intent protocol which is crazy. Hyperintification has happened. And um and for all of these intent bridges, you have solvers, these back-end liquidity providers that are like the the institutions right there that they are the the businesses that are going and giving you money that are making the transaction happen immediately and then they are taking on the overhead of dealing with crosschain.

Now, these solvers, the interesting thing about them is they don't care as much about time. As a user, when you're bridging or you're doing something across chains, you want that to happen immediately, right? In seconds, ideally less. Um, but a solver, like they're a business. They're making this, they're facilitating this for you, but behind the scenes, like they're okay if it takes like 15 minutes or 30 minutes, whatever, for like for for them to get their money back and for them to figure things out. Um, and what we found is like similar again to like Tradfy, right? These institutional players, they have larger amounts of capital. They have larger flows. They want to send these flows across chains. What they care about is doing that in the most efficient way possible. This is especially true for ETH because when you talk about stables and things like that,

you to an extent, right, CCTP you can mint and burn the asset across chains. Um other stables you can mint and burn to an extent, right? Um it's not it doesn't work everywhere, but it does improve things. But ETH doesn't have that. If you want to get ETH from one chain to another, you have to go through like seven days of exit window pain. There is no other option, right? You have to go through Ethereum. That is insane. Like that's a that is just like a non-starter for everyone. So ETH today for Everclear is like by far our largest source of volume. And it it just has been because like there's literally no other option on the table, right? There is no other way to make this stuff work.

And so instead of users sending ETH between chains through canonical bridges, they just put it into Everclear. Um all of these solvers put put their flows into Everclear. And these flows go in different directions, they cancel each other out, right? Um as ETH institutional volume has taken off. That has led to just this cascading effect, right? As institutional volume takes off, prices go up. Um more people start arbiting between chains, institutional players start moving larger amounts of capital between chains, market makers start rebalancing more between chains. that trickles to the intent solvers who start rebalancing more between chains. What we have seen is in the last like let's say 10 days or so since this has taken off. There's a pretty clear chart like you can go to like everclar like explorer.clair.org for right now. You can go to our

analytics page and you could just look at the daily volume chart and you'll see this like stepwise growth as soon as ETH like that correlates exactly with ETH taking off, right? Um and that is and it's entirely ETH volume and it's coming from the fact that >> there is just no other way to do this like we explicitly built Everclear as a solution to the exact problem that exists today which is awesome. >> Yeah. No, I mean I was just, you know, further confirming that the that the kind of the shift that you guys made was this very specific problem solving like kind of shift that took took you know it took guts to basically be able to to do that but it kind of I mean is there anybody else in the market who's doing

rebalancing? Um, so basically most other rebalancing there is no there is no DeFi protocol. There's no decentralized approach to rebalance. That's what I thought. It's just centralized exchanges. >> Yeah. >> And and that's that's it's that's the thing is like there are other people that have kind of thought about it or slightly worked on it. Nobody has been able to get the traction because it's such a network effectsoriented thing. And now we have gotten the flywheel going. People are starting to realize like yeah there's actually something here you know which is which is awesome. This market has kind of like grown underneath us which is something that we really predicted. Um, and the sexes as well are starting to run into the same issues where it's like sexes are are not like they're not, you know, magical.

Like they also need to rebalance capital. It's just that they right now they just eat all of those costs internally, but they pay those costs internally. And like they pay those costs in terms of keeping large amounts of deposits on every chain that they just don't do anything with, right? They're just sitting there. And they they do this in order to have available liquidity. But like that is all lost opportunity, lost capital, right? like there's there's just there's just it's just sitting there. Um and so like yeah, even for these sexes like we're kind of starting to see like talking to a bunch of sexes and we're starting to see them being like, "Yeah, you know what? Like it would be so much easier. We'd be able to get so many more chains. We'd be able to have such better pricing. We'd be able to have like we'd be able to make

so much more money if if we just like actively managed our capital through Everclear and effectively shared it with other exchanges. And you know, it's we're playing the same playbook that we've played with the solvers and and bridges, which is like you start with kind of like the smaller ones that are like, well, yeah, like I don't have enough liquidity to really like be definitively be like, you know what, I've already solved this problem. I'm going to work with other people on it. And then as it gets larger and the snowball kind of starts turning, like you eventually you eventually get to the bigger players who are like, yeah, I I just have to join the system. Like there's no other option. This just makes so much sense. Now, >> what do you think you you you get to by like end of the year in terms of like

weekly volume? >> Yeah, that's a good question. Um, >> what's like your goal? >> So, right now we're growing. We have since January averaged about 50% growth every month. Um, so we're basically doubling in size every two months. Um, which is >> You get the money emoji. You get the money falling down on your face. >> Yeah. So in January we did four months of four four million in volume. Obviously it was we were just getting started and there's a such a huge chicken and egg problem around this right like just like creating a system with network effects getting the flywheel going is just so much pain. It was like maximum pain for several months but this month is we're we're certainly going to clear half half a million or half a billion sorry. Um, I think we're

actually intentionally trying to avoid things like growing in too fast because we're like, "Okay, look, like, you know, I you guys have all seen like the there's so many stories out there of protocols that just like overnight just explode." And >> while that's awesome, I think like they're also not very longived, right? You have you do have to like sort of make sure that it's sustainable and stuff like so. Right now, what we're trying to do is make sure like, hey, we just keep keep driving costs down, keep driving costs down. Like our cost basis has basically continuously been dropping, right? Um and uh and so we're we we want to try to keep up that trajectory like 50% uh 50% a month. And so that means in a couple of months we want to try to get to a billion. Um end of the year hopefully it's like a like

two to four billion monthly. So maybe a billion a week, you know. >> Introducing asset runes, the future of decentralized finance. Stable coins natively on Bitcoin. Hedge against volatility. Diversify your portfolio. All directly from your Bitcoin wallet, secured by ZK technology. This is asset runes available now exclusively on Starknet. >> And Arjun, you mentioned how important ETH is as an asset because there's a lot of flow uh for this asset in particular.

And and there was someone else, I think it was Rashene from Twine, who mentioned this is basically all just asset issuers and bridges. And that that really seems like it is what's going on here because ETH as an asset is happening, but it doesn't really have a robust bridge ecosystem. There's obviously a lot of bridges, but none of them are really netting >> or or an issuer. Exactly. Whereas you mentioned CCTP and Circle, they're able to kind of net flows of USDC with, you know, one another that are that are trading it. How are you thinking about extending, you know, given this kind of kind of projection of of volume? How are you thinking about extending the solution to other assets? Do you think there's enough? And it's really just kind of like, okay, as ETH grows, you

guys will grow in volume, too, or are you thinking about other assets and how you're going to facilitate and support asset issuers with, you know, a bridge ecosystem as they get to be more used, widely used as payments. >> Yeah. Um, yeah, this is a really, really important question, right? Because this is this is basically like the gotcha that we always get from a lot of people. were like, "Oh, well, like, you know, they're like, oh, well, for any asset that is issued, like uh you know, we could just work with the asset issuer directly and they could just do it custodially." And and that's true. They they can. And that that kind of like not everybody wants to have a custodial asset, but like most of the non-custodial assets are like governance tokens, right? What are the assets that have velocity? It's basically ETH,

>> to a lesser extent, Bitcoin, and then like stables. And with the stables, all of them are like are like just custodial. So like no one cares about them being more custodial. Um however, and I think that there's something really interesting here. The the kind of flip side of this gotcha is um there are a ton of stables and they effectively >> like they effectively play the same function in the market, right? They're not like as a user, you know, as as a stable issuer like yeah, there's a difference between pay USD and and USDC and USDT and you know USD whatever, right? But as a user, you don't care.

it's just dollars. And the interesting thing, the really interesting thing is that technically speaking, when you have a whole ecosystem of stables um and you want to enable very very seamless interactions between an entire ecosystem of stables that are being used for payments and investments, things like that. Effectively, you can model that as a single state stable that is governed by a consortium, right? uh it's a it's a single stable governed by a consortium of completely extremely competitive actors. So effectively it is a decentralized stable in the sense that like um you know min modulus and like capital controls and things like that from a like from functionally from a like how do you do

bridging for this broader ecosystem perspective it does kind of look the same. The answer for us uh to your to your question is one we already support a bunch of stables and like we do have a decent amount of volume through them. Um and that especially happens in places where like things like CCTP are not supported, right? But two, we think the real value for stables is in cross asset settlement, cross stable settlement because no one gives a about getting PayUSD versus USDC, right? No user cares about that. No merchant cares about that. um what they do care about is making sure that they actually get paid and they don't have to go and convert themselves because that is the worst experience. And so we think intent solvers are going to become stable variant agnostic because who gives a >> Um but if the intent solvers become

stable variant agnostic they need a way to rebalance across assets on the back end and there is no way to do that. No except for us basically like this is another instance where this is also just clearance. I'm I'm sure you saw a a similar situation when it came to, okay, we have wrapped ETH on this chain, wrapped ETH on that chain, we have wrap staked ETH over here. And it was almost this Cambrian explosion of just different variants of the same asset, which is effectively what's going on here. We have dollars. All stable coins are effectively different variants of those dollars. We're going to get a bigger Cambrian explosion of several more types of stable coins. Genius Act passed last week. We're gonna get so many more

stable coins. Every bank is gonna have one. >> And so is there are there lessons that that we can learn from the wrapped ETH on, you know, 50 different types of bridged wrapped ETH on different chains? Is there any lessons that we can learn from that era and apply those to clearing different stable coins? >> Yeah. So, first off, I think the many different flavors of wrap. So first off like the many different flavors of wrapped eth on each chain thing like still exists. It is still a problem. In fact we are talking to uh players right now to pilot this like cross asset settlement thing specifically around wrapped ETH because we see the value for it. We already have a ton of ETH

liquidity. It's very easy for us to support it and like it's basically just like a small config change for us. But we can all all of a sudden support this like incredible use case, right? We're already talking to a bunch of players about exactly this because it's it's just there. Um uh I would say like this is this is just a problem, right? There there are going to be many flavors of each asset. I think like you know in the same way that in the past like when when DeFi first started like back in 2017 2018 when we were first talking about this right most people's mental model was like there's going to be basically one DEX protocol and there's going to be basically one lending protocol in the same way that there's like there's one you know TCP IP and there's one HTTP and

like the protocol is going to be so open and incredibly neutral that it's like why not just use it right obviously that hasn't happened um and we eventually learned to like not only accept but come to love the fact that there are there's just this like plurality of protocols and chains and heterogeneity and that gives this space quite a bit of antifragility if you know albeit makes it extremely chaotic. Um I think the same thing is going to happen with assets. Um and in fact I I kind of welcome that like for a long time I was like no there there should really just be like one standard for things and now I'm like you know what this space is so competitive there's not going to be one standard for things.

There's not going to be one way to do things. This is a huge market. It's the entire world we're talking about. And a world where anyone can actually issue their own asset is actually kind of better because it it the the fragmentation to an extent provides antifragility, right? Like you don't have one asset collapsing doesn't just take out the entire economy like in 2008. You have this plurality where there's just a bunch of different people with deposits everywhere. Now, of course, there is still the underlying kind of root of trust which is the US government. we that's why E, you know, in the long term. But, um, I I do think that there's there's something to be said about like embrace the fact that there's going to be many stable coins and lean into the fact that things like Everclear and eventually other clearing

protocols, right? I I don't know if you guys have seen, but there are there are other people that have launched protocols for clearance. They're targeting slightly different markets, but um it is starting to happen. And this is this is just like Tradfi players that are coming in being like, "Yeah, we should build a clearing house on a blockchain." Um, I think those people will lean into the same thing. >> Interesting. Well, Arjun, man, it it's been a pleasure to catch up. Thank you for joining us. Last minute uh notice here. And uh again, congrats on the um on on the grow. We're going to send you off with some confetti here for your uh your one billion, two billion soon.

Hopefully 10 billion at at the end of the year if you guys allow yourselves to grow that faster. That's how we do it. Andy, >> we can't fail too fast. >> We You can't. You seriously can't. >> All right. Thank you, man. See you soon. >> See you.