Why This Is The Biggest Opportunity In Stablecoins Yet

Transcript

We've had about 30 billion dollars flow through USDE on mint and redemptions and never lost a single basis point of someone else's money, which for me is kind of the proudest achievement of everything in the last little 3 years. >> Just like the streets man had, I'm going to keep this quick. Over 70% of our viewers are not subscribers. Yes, [music] you. Every week we interview some of the best entrepreneurs and investors in the financial industry. The easiest way to support our channel is to hit the like and smash the subscribe [music] button. Now, sit back, relax, and enjoy today's show. >> All right, Guy. Welcome to the show, man. Good to have you. >> I know you're a busy man. >> Um good to have you, man. Congrats on the launch of Athena Pay. Uh big launch.

And I mean, what a what a We're in an institutional era of the market, clearly. I think you guys have been strongly positioned for this. Obviously, you guys came out with that unlock news, which I think the market responded well to. I think also, you know, setting a standard perhaps for some other teams. Want to just get those overhangs done and just get to the point we're building a real business here. Here's what we got. Talk us through just kind of where we are at on the state of Athena. Just kind of catch us up. >> Last year was definitely the most challenging year I think I've had in my like career and also just like Athena's existence in the last three, I think um post 10/10, I think we're just caught offside with like multiple almost like a

comical series of just like bad market events that could have specifically happened to us. So, uh 10/10 obviously a huge impact to us with kind of derivative open interest just collapsing even worse than it was in 2022. Uh then we had the Arbutus Calpurnius straight afterwards where USDE was like the largest collateral asset on Arbutus and then we used laser for our cross-chain infrastructure. And so, it just felt like every 3 months we were just kind of having these uh you know, uh four sigma events basically happen to us every 3 months. Uh but yeah, I think uh repositioned I think both the core product on USDE to just be a bit more resilient and have a stronger foundation through the cycle. So, I think it's no kind of secret that it's a pretty reflexive product through the cycle in sense that when times are good, it's

like an amazing product that's paying 10% yield and like, you know, goes to 15 billion in 18 months. But then when the market unwinds, you just have a much more difficult sort of uh time sort of adjusting to that period. So, USD is a core product. I think it's just become a lot more resilient through time as we've expanded to do not only basis, but actually institutional lending, RWA's, and then obviously T-bills that sit within that. And then I think the big growth factor that's sort of opening up on that side is uh the growth that we've seen of purpose-fication of everything like perhaps an RWA is not going to stop. I think outside of the exchanges who are facilitating the trading of the of the uh RWA perhaps, I think it's probably the second biggest beneficiary of that trend just because you're essentially expanding the time of

what could go into USD from two and a half trillion dollars of crypto to 150 trillion dollars of other assets. And we're seeing, you know, RWA perhaps have gone from like zero to 15 bill in OI paying 15 to 18% this year uh over the last 9 months. And we had an announcement out I think a couple of weeks ago that we're starting at the perhaps next week basically in the back end of USD. So, I'm just I'm very excited about that just because you know, in simple terms, we got to 15 bill just doing this on crypto. I really just think that like RWA perhaps are going to be multiple of the size that we saw with crypto in general. And so, the time for what we're doing is just going to be multiple of that 15 bill going forward.

Uh so, yeah, that's on the Athena USD side. And then uh we also have a white label stablecoin uh business where anyone can sort of like launch on top of our product. So, you have Jupiter, Magorite, Three, a couple of others that are coming out soon on that side. I think it's actually the largest in the market right now in terms of AUM for white label. And then Athena Pay, which we obviously, you know, announced a couple of weeks ago where I think the broad thesis for us here is just uh I think we've done a decent job of kind of integrating in the correct like distribution platforms to grow USD through Robinhoods, Coinbases, etc., etc. But like, in an end state, I don't want to just don't want to just be the back end for other people's kind of front ends. And I think owning the

customer relationship and driving the destiny of your own distribution is an important thing for you to try and do. And for us, like, the form factor of a mobile near bank is really the ultimate way for you to try and do that when you're in the business of like money, which is what we are. And for us, like, we really think that there is an edge here, which is you own the structural vertical integration of dollar issuance and yield generation with the near bank at the same time. So, to me, it's pretty crazy that a lot of these near banks right now have basically built their products on someone else's stable coin, which is great for Circle and Tether, but if you look at the revenue of a new bank or Revolut, 40% of the revenues are just interest generation on balances that are sitting there. And so, if you control

the dollar with the highest yield in the whole market, which is kind of the bread and butter of what Athena's done since day one, we think you have a structural advantage versus everyone else in the market to acquire customers and keep them and sort of build that through time. So, extremely early days for us on Athena Pay, but for me, I haven't felt this excited about a market opportunity since USD, and I think actually the potential for this product is potentially even bigger than USD was when we first came out, if you do it correctly. Yeah. >> And I feel like the right term to explain what you guys have done in the last 6 to 8 months is is well, grit, one, but like really it's this resiliency. It's this okay, multiple collateral backing for USDE, resiliency as a team, as a founder, as as well.

Can you confidently say that USDE is far more resilient today than it's ever been, and that will be the backbone for your future growth? >> Sure. I think um if you remember when we first came out, I think like the tagline was just like, this is the next Luna, they're going to blow up the whole space, etc., etc. And I don't think that's the perception right now from the outside in. I think it's been kind of like 3 years of all the disasters that we've spoken about with private hacks, 1010, Ave, etc., etc. We've had about 30 billion dollars flow through USDE on mint and redemptions and never lost a single basis point of someone else's money, which for me is kind of the proudest achievement of everything in the last sort of 3 years. And so, for us, I do think the lending of the product is

massively different to before. We can even kind of see it in the in the growth numbers relative to your cost of capital in the sense that like in 2024 when Athena first came out, when the yields dropped from like 20 to 10%. The product wasn't growing. It was kind of shrinking when it hit 10. And that that was a pretty scary moment cuz you're looking at this and you're like, "Shit, does this thing need to pay 20% infinite like forever to for this thing to have a growth?" And then now, it's like bumping up to 4.5, 4.75, and we've had almost a billion of like new inflows that came in the last sort of like 3 to 4 weeks. So, to me, that is the market telling you that like the risk of this thing is not the same as everyone thought it was like 3 years ago. And

actually paying a little bit above T-bills, you're growing like a billion of supply in the last sort of last month. And so, that's actually very important metric, which is if you really think about the business models of DeFi applications outside of trading infrastructure, you're in the business of two things, which is you're selling trust to people, and you're just in an in a game of accumulating dollars at the lowest cost of capital. So, if you think about really the only two on-chain businesses outside of trading that I think multi-cycle have actually managed to accrue significant value at scale, it's really been just Sky and Aave, where they've where they've basically generated more than 100 mil of free cash flow a year in the business of like AUM aggregation. And the business model is the same thing, which is you're going to trust me so much to

leave your dollars with me at basically SoFi, and I'm going to create a spread to those dollars that you have left with me. And so, for us, you know, it was pretty painful to go through those experiences that I described of, you know, market online. We had a huge online in terms of our TVL market and stuff. But just surviving through those events actually creates like a much more solid foundation on the other side because people go, "Well, I don't think the risk premium on this thing justifies, you know, a huge spread to SoFi. It is basically just a little bit above SoFi." Yeah. >> Um you got just a quick segment today. So, kind of as we close, we've been preaching this stablecoin thesis, uh which is that stablecoins that are backed they need reserves and the government is going to continue to spend money and

they need basically structural bid on treasuries. This is happening all across the world. It's not just in the US. We're in the middle of this global bond crisis that people are calling for. Maybe it's a little bit exaggerated, but the reality is that we're twisting the duration out of the bond curve all all over the world and we need buyers for short-term bills in order to finance government spending and in fiat depository institutions, my understanding is each dollar in fiat deposited at these institutions creates a structural bit of bills about 5 to 15 cents for every dollar. Whereas genius compatible stablecoins create 80 to 90 cents for every dollar that is deposited at the stablecoin issuing companies that

is backed by those reserves in those bills creates that much more 8 to 10 x more of a structural bid for US short duration bonds and and bonds all over the world. Is it a conspiracy to think that stablecoins are a national economic priority in the US and abroad or is that a reality? >> Uh you know, maybe just preface I'm not like a macro expert before I start to say things that are outright wrong. But yeah, I think you can even just see the way that Basant Trump himself speaks about stablecoins. It's clearly one of the most important sort of like pieces that are coming out of crypto broadly in terms of their interest and importance of just like the subcategory. The one piece I would say is like broadly I think the numbers that you're mentioning are in line, which is

like a deposit at a bank, right? Isn't just 100% treasuries. It's like the amalgamation of all the different things that a bank does within its balance sheet with like corporate lending, MBS, ABS, etc. etc. Which doesn't just flow through to a bit on short-term treasuries. Maybe the one caveat I would just mention to what you've said is that it feels like the piece that's most out of control right now is really the long end of the curve rather than the short end where the long end can kind of untether itself from short-term interest rates when inflation expectations are way out of order etc. etc. And that's what the Fed is trying to bring under control right now with the buying that it's doing on the long end. And stablecoin issuers are not buyers of the long end. It's only short-dated stuff. The long end basically has duration which you can't

take like the mark-to-market risk on. So, I think that there is like yes, it's an important piece, but I think this very specific issue that we're seeing people overreact to in the last kind of couple of weeks is like a long end issue which stablecoins I think don't really touch or involved with. Yeah. >> Yeah, as we know it's a bit of a short segment. We have a couple more minutes. As we kind of think about where the Athena ENA the asset goes, I coined this term kind of ironically about 18 months ago the revenue meta and it's really comical and I got thrown in the doghouse for it really hard. But here we are and our current barbell is on-chain businesses that generate cash flow and do buybacks and have a really good token economic model and then store

value assets. We'll kind of put that to the side and think about this part. The Athena token is I believe there was a proposal for buybacks that is either in proposal still or it just went through. And so, how do you think about, you know, Athena in 2024 versus Athena in 2026 with regards to the asset? What is different about the assets? Put your investor hat on here. Look at the landscape of crypto assets. Why is Athena different now? Why is it more appealing to institutional investors? Not financial advice and take this wherever you want.

>> Yeah, for sure. I think um the best place to start is probably just that announcement that we came out with that you referenced cuz I think it sort of encapsulates all of the different thoughts that we had around this. So, I think in many senses like Athena was the poster child of kind of uh dirty VC coin that no one wanted to touch and was like, you know, low float high FDV. Like we saw those comments and I think a lot of them were reasonable. Um I'll be the first to put up my hand that I made like a lot of mistakes when it came to like fundraising, who we had on our cap table, all those different pieces, and I think the one good thing about the market sort of getting to the place that it did, even though it was extremely painful for everyone involved,

was that it uh just gave us a moment to basically just reset everything and kind of try clean up some of the mistakes that we'd made in the past or that I had made personally. So, what we did was um A recognize that uh this all sort of like uh labs equity [music] foundation token sort of confusion piece is really just like an unnecessary cloud that sort of hangs over you that you should just like clarify, and there really is no reason to leave any doubts around this like at all going forward, unless you're trying to be dishonest about things, I think. Uh for us it was basically just crystallizing in a public document, which I'm not sure many people have done outside of Morpho, to say even even goes far as saying all the IP that was produced within labs now and on a

continuous basis going forward is transferred over to the foundation, and also crystallizing that if the business is ever sold to anyone, if you have an acquirer come in, it's actually shared pro rata between all token holders on the other side. We've seen a few of those acquisitions where like token business gets bought, token is just a zero, and then like the team kind of walks off with uh 20 mil. So, like all of that is crystallized now in a public document where there is no conflict, and the equity has no claim on any cash flow whatsoever going forward. Uh the other piece is just around the unlocks, which is we bought out every single investor who sold the token in the last uh 10 months since 10 10. So, this is for them prices well, five times higher than what they are now. If you sold a single

Athena token and you own more than 20 basis points of supply, we bought out everyone and the vest that they had, which I think to us was basically just saying we're going to double down on ourselves now. We think it's the bottom of the bear market, and there's no better time to like take you out, and we're just going to continue building. We as the team stayed locked, obviously, and we just unlocked all investors and just said if you want to get bought out, we'll just buy you out like straight up right now. And it was just pretty hilarious timing cuz it was basically like literally a week before the market ripped like 100% which uh sorry to >> [laughter] >> And then and then yeah, I think the final piece was just about crystallizing basically the schedule of buybacks relative to where we are in our

growth cycle. I think this is one piece where I slightly disagree with the market in the whole buyback matter I think in general which is uh I think Paul was on your show the other day talking about why he's not doing buybacks. And I think he actually has a very good point by the way which is kind of like if you genuinely believe the market opportunity for you to grow your product is 10 to 100 X what it is now, which is my view. I think if stablecoins go to 3 trillion, these sort of like reward bearing savings products like Aave, there's a very real possibility one of these is sitting at $100 million or the size of Tether in the next like 5 years. If you believe that to be true, you should just be spending every single dollar that you have making sure that

you create that outcome for yourself instead of like, you know, buying back what is a slightly uninteresting amount right now I'd say. Having said that, I've I've come to realize that my view on that is not like it's not reasonable to push that view on everyone and you can clearly tell that people want to see some connection and value capture to the token now even if that is your ambition to go forward. And so the balance that we try to strike was basically just saying the amount that we're buying back right now is much much smaller versus where we think it could be in an end state in terms of a take rate. And as we start to get bigger and fill out that market opportunity that we're describing, the percentage that we're buying back of the token uh scales basically with our size.

And so you're basically just trying to say we hear you out, we hear what you want as a market, but please give us more time to actually go and capture the opportunity that we see ahead of us, but we're still going to try find a middle ground with you to say there will be some buybacks, but the prize that we're running after is so much bigger than a bit of buybacks now at the size that we're sitting at. So. >> And uh and forgive me for not reading the proposal. I don't think I've looked at a governance forum in a couple years. Uh is what it is. It do the buybacks scale in a linear fashion such that as the price increases they the buybacks actually come down.

>> Relative to price to like relative to size of USD basically. So it's saying like at 7.5 bill of USD supply, only 5% of the gross yield will go back to buybacks. When it's at 20 bill, it's at 20% basically. So you're basically saying your take rate on the product is increasing as the size of the product increases. But I think the point that you're raising is another good one, which is people love this idea of programmatic buybacks or like indiscriminate, don't care what the price is, we're just going to shove into the market every day at the same rate, which is not anyone in TradFi would tell you that that's not a great allocation of capital to say like there is no price at which this isn't uh expensive, right? And so I think eventually the market will mature and say, you know, if we're at some

trailing PE multiple, we're going to be doing more or less of these things. But right now I think people just want to see as a first, you know, instance, are you doing it or not and giving us that insurance. And I do think honestly a lot of this stuff is driven basically by like the broken trust that token projects have created with everyone else in the market in the last 5 years. And I think the good thing about the market, and you know, we've obviously responded to it as well, is that the market has just said, "We no longer want any games or any doubt around equity versus token structures. It's either you do what we want to see or you have zero bid on your token and it's going to zero basically on the other side." And I think that's actually a pretty helpful thing, by the way, for

>> I'm glad that you also recognize this early. Lucky timing, but it's better to be lucky than good, right? I mean, that's the reality. Obviously, I'm sure you you were calculated in that. And just final point is that you you've almost got separate things happening with your business and you're starting to see this across the board. You've got your core business scaling your stablecoin to a hundred billion dollars of total outstanding supply. And then you've got almost It's a discretionary hedge fund on your token, right? And you've set up like a model that you're going to follow, but other teams may have a more discretionary outlook where they're trying to slam it at the lows and then, you know, take the take the

foot off the gas as the bull market goes on. Just try to kind of manage the expectations of the market, almost manage almost be a market maker for their own asset. And so you've almost got this like bifurcated business structure forming. Just closing thoughts there, closing thoughts on Athena. >> Yeah, well, I think in an end state, right now the buyback schedule we put forward is just programmatic to say it's going to be this fixed percentage relative to USD size, not trying to price it relative to like the price of the token essentially. But I would say that I agree with you directionally that is a better allocation of capital to be doing that. The problem is that like I think equity investors understand that a lot better, which is like uh they reward you for being a smart allocator of capital where a Google and

Apple will sit on the cash, wait until the dip, and then buy a ton. And the equity investors aren't going like, "Oh my god, you didn't buy back every month consistently." We trust you to be making the right calls at the right time. But in crypto, I think it's a sort of seen by uh some people are sort of saying, "Well, if you're not willing to buy the token now at this price, why should I?" And like, "Should I sell it actually on the other side?" So I think there's just like a market structure maturity kind of question type thing, but uh I think we'll get there. >> I think we're I think we're early in the sophistication of this token economic conversation, but we're more or less directionally going in the right way, which I think is actually makes our job a lot easier. Like we've

been uh strongly positioned in a handful of assets. It's like the last 6 months, there's only been a handful that are like, "If you believe this, then there's only it's it's actually been kind of easy." Right? But it'll change and it'll mature and things will develop. So guys, thanks for your time. Amazing comeback, if you will. Um I was probably once more on the negative side, so if you ever heard that from us, apologies, but firmly Athena bulls. Love what you You are doing. Love your energy, man. And thanks for coming out. >> Awesome. Nice to see you guys. Go on. Thanks man.