The Wolf Of All Streets - The Truth Behind 27% On Ethena, The Hottest Project In Crypto | Guy Young, Founder & CEO

Starting point is 00:00:00 I like how you said that this is a synthetic dollar and not a stable coin. It is quite hard, I think, to control, like, beyond basically putting all the information in front of people to say, please read them and get into this. Yeah, people don't read. The open interest basically moved between 1.3 to 1.5x, and then BTC doubled that, so pulled it like 6-ish on top of that. Ty, maybe we've taken for granted that people here know what the hell we're talking about at all. The launch of a new protocol called Athena lit the cryptoverse on fire this week, offering over 27% potential annual yields.

Starting point is 00:00:35 It immediately triggered a bunch of unfair comparisons with other platforms that exploded in previous cycles and that we all have PTSD from in the past. I spoke today with Guy Young, the CEO of Ethina, and we talked about exactly what the risks are, how transparent they're being about those risks, how you can earn this yield, how the product works, and what's going on with DeFi, whether it's ready for the spotlight in this cycle. Incredible conversation you don't want to miss. So Athena has taken the crypto world by absolute storm this week. I know that you guys have been talking about it for quite a while.

Starting point is 00:01:26 It wasn't brand new, but it seems to have really caught the attention of the community. Can you just give me the very brief, quick and dirty recap of exactly what it is? Then we can dig more into the details and why it's needed. Yeah, sure. So I think the background and the inspiration behind the idea actually came from an article that Arthur Hayes put out in March of last year. So he described his vision for synthetic dollar, where you're essentially long Bitcoin on one side and then short the PEP on the other. And those two things coming together essentially net each other off and create a synthetic dollar position. I read

Starting point is 00:02:00 his piece and sort of resigned from my job quite inspired by his idea and decided to start building athena um but we had sort of two key changes behind um arthur's core um vision so the first was actually just thinking about what is the collateralizer that you want to use uh within that uh cash and carry so um we thought it was more interesting to start with state teeth because you obviously have a positive carry now to being long staked ETH, which you don't have with Bitcoin, which I think not only makes the product sort of easier to sort of scale in the beginning because you have a yield, which is obviously something that people sort of seek within crypto. But then secondly, it also adds just a margin of safety to sort of cover for the downside, which I'm more than happy to sort of jump into around potential negative funding scenarios um the second change that we've made

Starting point is 00:02:49 to house this idea was he was quite explicit around you you need them to leverage a centralized liquidity in order to actually scale this into the billions and um i think after ftx i was personally just not happy uh taking users assets and basically putting them on a centralized exchange and having it within a black box. We saw some interesting developments in market structure where you now have custodians which allow you to hold the assets outside of exchanges and still use those assets to margin the hedge on the other side. So we thought that was pretty interesting middle ground, basically, between the trade-off that you're making between decentralization

Starting point is 00:03:29 and then accessing centralized liquidity, where you can still try and reduce the counterparty exposure to some of these exchanges. So that's a very basic idea. You've got a crypto asset on one side, you're hedging out the exposure on the other, and that's sort of typically paying you two forms of yield. You've got the staked ETH return on one side,

Starting point is 00:03:46 and then usually through the cycle, you're getting paid to take the other side of the short. It's not always the case. It can change through time. It's definitely volatile in terms of funding rates. They're always updating every eight hours. But that's sort of the basic product construct. Crypto investors in the United States face some major challenges.

Starting point is 00:04:03 One of them is that there's almost no way to get exposure to the asset class inside of your traditional investment vehicles. The other thing is the taxes. They are absolutely atrocious. What if I told you there was a way to solve both of these problems? Well, there is, and it's with a self-directed IRA from I Trust Capital. Guys, not only can you open a new self-directed IRA and fund it with the limits each year,

Starting point is 00:04:27 but you can actually convert over from your 401k, your Roth IRA, any other IRA that you already have, and you can do that tax-free, just transferring over the balance, and then you can go to cash, buy as much Bitcoin as you want, and not pay taxes when you sell it. You absolutely have to try this

Starting point is 00:04:44 if you are in the United States. Use the link down below. It's bit.ly slash itrust-scott. That's bit.ly slash itrust-scott. You have to try this now. So there's a few natural questions that every person's going to ask you and already has, right? The cash and carry trade is extremely popular. It's been around for a long time. It was made, I think, very popular in the crypto space last year, right? When there was obvious, or I would say the last cycle, not last year, the last cycle when everything was in contango, you could obviously, you know, buy spot, short the futures and make that yield. But that trade went horribly wrong for a lot of people, right? A lot of that, to be fair, was happening on GBTC with the premium, which went to a discount. But what unseen risks could there be if the rates change dramatically and all of a sudden

Starting point is 00:05:38 it's not going to plan? Yeah, I just want to be clear around this point up front that there are definitely risks that exist with this product that don't exist with normal sort of fiat stablecoins. We're trying to move away from the framing of the product as a stablecoin. So we call this synthetic dollar within our documents on the application itself. When you log in and accept the terms and conditions, it makes it quite clear that the risks are very different sitting behind us. There are a bunch of different financial risks,

Starting point is 00:06:07 which I think look quite different to normal stable coins, but I think there are a few that actually look quite similar. So one is we're obviously using staked ETH as part of the backing. So it's not the full backing. You've got like normal raw ETH that's in there as well. But we have seen periods where staked ETH and ETH prices do diverge, but it's only crystallized

Starting point is 00:06:26 as an actual impairment to the position if everyone has withdrawn at the exact same time, is that you obviously have an ability now to withdraw from staked ETH to ETH, where before when you did see deep discounts within staked ETH, that was partly driven by the fact that you couldn't get your hands on the underlying ETH. And then the other one that people focus in on quite a bit are the funding rates. Negative funding rates. Yeah. So what happens if the funding rates go negative for any extended period of time? Yeah. So the first piece that you've got there as a margin of safety is the staked ETH yields, which can actually cover that. So you can sort of think about it as when the times are good and you're capturing some of that spread that I described

Starting point is 00:07:05 you're actually just adding it to the insurance fund to make the product more safe and secure where if you do get a rainy or any day that you need to sort of tap into it that is there for negative funding I think the thing that people actually miss quite a bit around the negative funding point is it really is quite actually core to the mechanism design. So if you think about it's quite a strange use of behavior. If you see the rate on the product is decreasing or going to zero or negative, in the process of doing so, you're going to redeem from Athena. And we need to lift the shorts that we have in the exchanges in order to meet that redemption. And in the process of doing so, you are essentially lifting short interest within the market and allowing funding to meet and revert then back above zero. The

Starting point is 00:07:49 funding really didn't actually stay persistently negative at all. Even with three hours blowing up, Luna blowing up, it's like a few days to a week and minus 5% funding. And so I think you can sort of get your arms around what you've seen historically, not to say that that's always going to continue into the future. Obviously, we're just presenting what did happen historically, and Athena can actually impact the future in material ways. When it does ever go to an extremely low rate, actually use a stepping out of the product, make it a self-correcting mechanism rather than one that sort of feeds on itself. Speaking more simply, so you would have to cover shorts, which means effectively putting in buy orders, which lifts the price. Exactly. Yeah. And then you reduce the pressure that's sort of sitting there

Starting point is 00:08:30 and keeping funding low, basically. So it's the reverse of what's happened in historical liquidation cascades, where it's generally a bunch of longs getting liquidated, which turn into short orders, which turn into sell orders, which push price down, and you get that kind of endless washing machine. Yeah, exactly. That's one of the things. It's usually when the market's crashing to the downside, right? It's like when there's a 50 percent crash, whatever it is, that's when things are like really dislocating, when it's like prices are perhaps first spot or whatever dislocation

Starting point is 00:09:00 is occurring. And you've got to remember that we're obviously always positioned on the short side. So whenever they're like taking a long on the other side, when things are really breaking down, you're actually always on the right side of that breakdown, if that makes sense. Yeah, it makes sense. And obviously, the other thing that's triggered people tremendously, whether fairly or unfairly, is that it's been reported that you can earn up to a 27% yield, right? 27.6% annual yield, I think is what people saw. I think in this market, when you say anything's north of 3% or 5%, people panic because of what we saw in the CeFi collapse

Starting point is 00:09:33 and obviously the Luna collapse in the past. I think it's clear it's not always a 27.6% yield, correct? I mean, that's in ideal market conditions, I would imagine. But how is it generated at that high of a level? Yeah, I mean, like 100%, that's shifting like every eight hours, it's basically moving up and down. You can sort of think about the breakdown there is you've got the staked ETH returns that call it three to 4%. And then funding has been pushing pretty aggressively positive, basically, as people I think are speculating coming into a potential

Starting point is 00:10:05 ETF this year. And so that really did push up the funding rate on the other side, which is how you get to that 27. If you're familiar with DAI and SDAI, they have SDAI, which is capturing the yield, and then DAI, which is the stable unit of account. It means that the yield is only going into SDAI, or in our case, SUSDE, but it's actually being produced on the entire portfolio. So if you only have 50% of people staking, for example, it's going to have that, make

Starting point is 00:10:31 that yield optically higher, if that makes sense. Yeah, really, you've got the two components of yields that are coming together. As you say, it's completely volatile. It changes through time. And I think the most important piece is that it's a market set interest rate. This is not someone coming in and saying this is 20% fixed. It is just the market rate. And we've got dashboards.

Starting point is 00:10:50 You can go look at all the third-party websites where it's funding right now. And you can see it's pretty hot. Right. Offering a fixed yield like the CeFi platform did is what caused them to go further down the risk curve and take these tremendous, terrible bets because they didn't want to reduce the yield that was being offered to their customers that had been promised. You're basically saying this is an open market and the yield is what the yield is based on what the market's giving, correct? Yeah, exactly right. And you can really just think about the supply

Starting point is 00:11:20 of USD. Actually, it's more like a balancing item between interest rates that are sitting on this cash and carry and interest rates in DeFi or the rest of the market. So if you can borrow dollars from DeFi at 5% and put it in here, whatever the number is 15, 20, 25, obviously it varies through time, that's going to force those two interest rates to converge, right? Because the supply of USD is going to go up, you're going to push down the cash and carry, and then the borrow rates within DeFi or other bits of of USD is going to go up, going to push down the cash and carry, and then the borrow rates within DeFi or other bits of the market are going to push up.

Starting point is 00:11:48 So you can actually conceptualize Athena as basically just a vehicle for interest rate arbitrage between CeFi, DeFi, and TradFi. And USD is just a balancing item, which makes all those things sort of converge in a single vehicle. So obviously, you anticipate that people will do exactly that. They'll go into DeFi, they'll borrow because they can get a higher yield with you.

Starting point is 00:12:12 Are there any significant counterparty risks there with the other DeFi platforms where we've obviously seen exploits or hacks or bridging issues, any of those things? Or is that effectively their problem and shouldn't translate to you? Obviously, like we saw with Curve, for example, a guy takes this massive loan, the price of Curve gets pushed down and it could have effectively crashed the entire DeFi market

Starting point is 00:12:34 because of one guy's loan across the multiple platforms. Maybe that's a bit hyperbolic, but you get the idea. Like if somebody took a massive loan somewhere in DeFi, used it to arbitrage in Athena, and something goes wrong on that other platform, is there a risk there? Yeah, I think the point you're making is, I think the basic example here is you could bring ETH

Starting point is 00:12:56 to make a DAO, for example, or Spark, and then borrow a DAO and put it into Athena. You can borrow a DAO at like 6% now, so there's like an interesting carry, and I can see people sort of doing that on-chain. The risk is obviously if you get liquidated on MakerDAO, just like anyone would doing that with some other leverage activity. So there might be an issue on that platform,

Starting point is 00:13:16 but it doesn't sort of affect the core, I guess, like protocol of Athena. I think where that could potentially happen is if you take the staked USD version that we have, and then you start to use that as collateral elsewhere. So whether it's on an Aave, you want to go loop it up, you want to use it as per collateral, whatever it is. It is interesting because obviously now having an interest rate differential between SUSD and Borrowed Cost and DeFi mean that that levered loop or using this collateral is actually quite compelling. But then you obviously start to run the risk that people lever up too much there and start to get

Starting point is 00:13:49 liquidated there, which obviously has broader issues. So I think there is a potential for that if people use SUSD more broadly within DeFi in a dangerous way. But we've sort of capped things out for the last day or so, just to have a bit of a breather because there is a lot of what we're doing, which is net new. And we just want to make sure it's done the right way. Well, you don't have the same hubris that Doquan did, right? I mean, you guys, to be fair, he went out there and anyone who questioned him, he said that you were stupid, you're an idiot, and this was perfect. And he was empowered by these great VCs who told him that his shit didn't stink. You guys are literally saying, hey, man, there's a lot of risk here and we're going to test it.

Starting point is 00:14:30 Right. And I'm assuming you learned a lot from seeing his approach and seeing the approach of others before who didn't really question their brilliance or question the effectiveness of their platform. It seems like you guys are trying to scale into this and actually test for black swans and answer the questions of the community. Yeah, I mean, as early as today, there were obviously quite a bit of pushback on Twitter. We set up a Q&A on the Athena account, which is there. It's been recorded and everyone can go listen to it. I jumped on for an hour and 15 minutes and just spoke to people directly around their concerns and how we're sort of thinking about them. So I couldn't agree more. I think one of the biggest issues we saw last cycle was like an extreme arrogance from a lot of people to basically just engage with like basic diligence and questions. So it might seem that there was like quite a bit of pushback in terms of what we're doing.

Starting point is 00:15:17 And I think that that's actually the right thing. We should be questioning when you see stuff like what Athena's doing. It is the right response to question it. I think obviously some of that goes too far when you're just making like surface level comparisons to Luna without sort of like digging into any of the documentation or trying to understand why it is different. But yeah, I think we have no issues with people raising like valid questions. And personally, I'd much rather if someone does think something is fragile or there's an issue, I have no pride in basically adjusting or changing things now, rather than causing

Starting point is 00:15:51 an issue that's bigger further down the road. So I think that's just my personal perspective on things. Yeah, Crypto Twitter is like a free focus group, as long as you can tolerate the anger. You really are getting effectively beta testing on the idea from the community writ large, which I think is a really interesting approach. I like how you said that this is a synthetic dollar and not a stable coin. I have to assume that that implies that it won't always be exactly pegged to a dollar. I mean, it seems structurally how this is built that you're going to float around the dollar, but probably not always be exactly pegged. Yeah, if I'm being

Starting point is 00:16:23 honest, I think that's actually an impossibly high standard for anyone to hold themselves to. So USDC deep pegged to 90 cents. Tether's done that in the past. And these are like staples, which are like 10 times bigger. Orders are largely larger than we are. I think it's actually an impossible standard for anyone to say that we're always going to be pegged to a dollar because it is sort of the market that's ultimately deciding that. And it does panic at some some times the numbers i saw yesterday was doing around 60 million of volume on uniswap on like a two million dollar pool and the standard deviation around the peg was like roughly uh 20 basis points around the peg um so there's a lot of these on-chain stables which have traded down to

Starting point is 00:17:01 99 cents and have sat there for like months um you can sort of put a side by side with usd because of the way that the arbitrage mechanism works i think it does keep a slightly tighter peg but obviously no one can make any guarantees that it's always gonna uh be like that yeah did the market ever move so fast against you that you're unable to actually manage the positions that would keep everything in balance. You know, one of these massive flushes to the downside or something where you see Bitcoin, well, I guess ETH, you know, drop 10, 20% in a matter of minutes. It's happened in this market before. It's got to be then very difficult to find liquidity to cover those shorts that you're using to hedge and potentially the costs associated.

Starting point is 00:17:42 So what does that look like in the worst case scenario with one of these just massive liquidation events? Yeah, I think we're actually positioned on the right side of the market. So because we're short, when you see the massive liquidations, the perhaps tend to like trade at a discounted spot. So the last one of these that we saw,

Starting point is 00:18:00 there were a few contracts like on Darebit and Bybit that traded like four or 5% out of line with my finance spot. And so if someone actually redeems from the protocol at the very bottom, you've actually captured like more P&L than you thought you would by being delta neutral because you hedged at like 100 and made 105. And then someone said, I want my money back and you closed out at the bottom. This is like a very theoretical scenario. Like it doesn't usually happen.

Starting point is 00:18:22 Your ability to actually close out at that dislocation. So I would just say that like we're on the right side of the breakdowns usually, and it's like more of a P&L opportunity rather than something that like threatens the solvency. I would just overlay that though with, if you do see an ADL event with exchanges, so like we think that we've got P&L from other people who are on the long side, but the entire insurance fund of the exchange cannot cover the ADL scenario on those contracts. That is a situation where there might be a bit of a shortfall. But we haven't seen any ADLs on any exchange in the last four or five years for BTC and ETH. You obviously talked about risk disclosure. So again, I think one of the biggest problems in the last market was that people for some reason thought what they were doing was risk-free,

Starting point is 00:19:11 right? And even the SEC or the most aggressive regulator, I think, would say that their job is to disclose the risks and then allow you to decide whether you want to take that risk or not. So you are saying that there's a risk associated with earning this yield, unlike platforms in the past. The question then becomes, do you think that the people who are doing this, I have to imagine that this is pretty savvy, advanced, crypto native people who even understand how to do all of this. So do you think you have a savvy, intelligent enough user, at least initially, that they're going to fully understand those risks? Or is there sort of a chance that this could have a tail down to your average retail person who just buys the token like those who bought Luna and it ends up getting massively liquidated? Well, I would say that actually the composition of people that are holding USD definitely does look different to other holders. I know know that there's like institutions who are

Starting point is 00:20:05 holding 20 30 million dollar tickets of it just by themselves as like single holders and so there's quite a large like sort of um institutional ownership of it and that's obviously just people that are a bit more sophisticated i think the context here is that they've obviously done these trades their entire life and they sort of understand the risks and then the bit that's interesting to them is that a cash and carry, anyone can do that. You can do that right now as like an individual. But what is actually interesting is your ability to tokenize that

Starting point is 00:20:32 and then compose it with the rest of DeFi and do all of those interesting things that I was describing earlier. And so I think unlocking that for some of those larger institutional players is actually something that's quite compelling to them and they really understand the product. We do hope that like the materials that we put out to educate users, that it does look different. And I hope that some of the engagement that you've seen on Twitter and stuff,

Starting point is 00:20:51 it is quite hard, I think, to control like beyond basically just putting all the information in front of people to say, please read them and get into this. If we just look at the competition at the moment, it definitely does look more overweight, sort of large holders who I think do understand the product. Yeah. People don't read. The average person is just going to say, everybody's doing it, right?

Starting point is 00:21:10 But that you can't control, obviously. Like you said, you can only put out so much information and control. You can't control what people are going to actually do with it. So, USDE, now you have this new stablecoin in the market, effectively a new synthetic dollar. Are you going to be able to do everything with it that you can do with other stable coins? Do you foresee having USTE pairs on centralized exchanges, for example? Yeah, I think one thing that looks quite unique about us is we're the first protocol that every centralized exchange in the space is invested into. So sometimes you see them investing into individual projects, but this is the first time they've come together to support one.

Starting point is 00:21:46 And as part of that, we do have like a roadmap and a vision to actually try and produce a product that's useful for them. One thing that looks actually quite unique about USD and Athena is we're the first protocol that every exchange within the space is invested into together. So you've seen them sometimes invest into individual projects, but we're the first where they've come together to support the vision of one. I think part of that and part of our own vision around how we actually distribute the product is, I don't know how many users do you think there are within DeFi, maybe like 10 to 20,000. But you look at like a Coinbase or a Binance with 100 to 200 million users, that's actually sort of the target that you need to go to to get mass distribution distribution and so we sort of look at the success that tether had in the past and really they attained what i would consider is like the holy grail which is they are actually money on these exchanges and used as money the

Starting point is 00:22:34 mode that they built there is um uh really hard to actually unseat in terms of liquidity sitting key pairs um and and just the network effect built there. I think what is interesting about USD for these exchanges is it's a lot more profitable for them to actually push USD than Tether because we bring flows into their liquid staking tokens, we create trading fees on the exchange, and then we can share some of that yield with exchanges to distribute the product as well, where Tether doesn't do that. And so it's actually a a cool piece of the way

Starting point is 00:23:05 that we see the distribution roadmap working for us, which is instead of trying to find 100 million users yourself, actually just produce a product that the exchanges are incentivized to actually push for you to all of their users on the other side. How big could this become? And is there a size at which it becomes a systemic risk? It's a very difficult question to answer on the size

Starting point is 00:23:24 just because the derivative market obviously moves in terms of like open interest relative to market caps, all those different things. I think one just observation from last cycle was that for a $1 change in market cap for BTC and ETH, the open interest basically moved between 1.3 to 1.5x. The derivative market grows quicker than the market cap itself.

Starting point is 00:23:44 So it really is a question of like, where do you see ETH and BTC in a year or two from now? Is it like 5k ETH, 10k ETH, whatever it is? I think if we're looking at the market as it exists right now, with ETH alone, like roughly two to three billion dollars, I think you'd start to hit like real capacity constraints. BTC like double that, so call it like six, six-ish on top of that. So I think if the market didn't go like a ton from where it is right now, if you spread this product across both ETH and BTC, like 10-ish would be, it'd start to reach constraints. But who knows if BTC is at 100K and ETH is at 10K. Those numbers obviously change

Starting point is 00:24:23 pretty dramatically. So maybe we've taken for granted that people here know what the hell we're talking about at all. Can you just describe the cash and carry trade? We didn't do it, but there's going to be

Starting point is 00:24:33 a lot of listeners who probably don't even understand what that means. And since that's sort of at the core of what you're building, I think it's really important. Yeah.

Starting point is 00:24:41 So the cash and carry at a very basic level is you're taking a spot of one asset. This could be in crypto or in normal markets, whether it's commodities or fixed income, whatever it is. You're taking the spot asset and then using that to hedge the future. Here, a simple example would be you put down $100 of Bitcoin, you short the inverse Bitcoin

Starting point is 00:25:02 perpetual, and you do it at the same notional size so that a change in the price of Bitcoin has those two positions netting each other off, essentially. When there's a difference in the price of the future and the underlying spot, that basis can basically be expressed as an interest rate on the cash and carry. So you effectively earn free yield by having both positions? Yeah. I wouldn't say free, but like... You earn a yield. Free was the wrong word for that. You're absolutely paying for that yield.

Starting point is 00:25:33 And I hinted at it before, but can you sort of explain where that became problematic in the last market for people who are kind of doing it wrong or who are trying to chase yield, I think, would be the fair way to say, because if they needed a certain amount of yield and that didn't get there, they took on greater risk, I think, to service that. Yeah. I mean, the famous one is obviously the GBTC saga that you saw. I think a basic misunderstanding there is that that is not an arbitrage. The people that were doing that were actually expressing a very explicit directional view on GBTC as like an asset, which is this is trading at a premium and it is going to continue trading at a premium

Starting point is 00:26:13 until I get out, which is not an arbitrage by like any definition. And they had a six month lockup, I believe, right? So you're taking the time-based risk as well because you can't actually control that position until you're unlocked. Yeah, correct. As a construct, it's a similar idea where you're providing capital to GBTC and trying to hedge BTC futures

Starting point is 00:26:36 or perhaps whatever on the other side. But there was a very core assumption there that the premium would continue to persist. That obviously didn't happen. Yeah, I mean, we saw GBTC go as low as a 50% discount for those who weren't following along. So that's what arguably contributed to destroying Three Arrows and destroying BlockFi and destroying a number of these platforms, right? Sometimes, yeah.

Starting point is 00:27:00 Yeah. Well, hopefully that won't happen again. So why do you see a need for this in the market? Or is it more not a need, but there's a place for it, there's a use for it, and so it should exist? A lot of people obviously push back on the idea of synthetic dollars or why do it, right? I mean, you can do a lot of things with stable coins. I understand that question, by the way. I'm just giving you the opportunity to tell people because a lot of people will still be confused and say, I'm just going to use Tether.

Starting point is 00:27:24 Or, rightether or not understand why this. Yeah. So I think there's actually two pieces here. You've got the synthetic dollar, which we think it is actually just fundamentally important to create money within crypto, which is not tethered to the existing banking system, I think. We've got

Starting point is 00:27:40 so used to basically USDC and USDT plugged into every single DeFi application used throughout the system. I think what we're doing in DeFi is completely pointless if the most important instrument is completely centralized in all these applications. And I think we sort of lost sight of that vision a little bit, which is it could be one of the most important things, basically producing a self-sufficient form of money in the form of a dollar. And I think that this is the way that you can do

Starting point is 00:28:05 it at size and scale um and that was the original vision of arthur which is this synthetic dollar idea it has nothing to do with the yield or anything like that it was this is the most important thing for us to solve as a space which is can we create um our own form of a dollar within crypto uh that can scale um i think the second piece is around when you do put that together and you have the byproduct of the two forms of yield that I described, we're coining it as the internet bond, which is basically taking only two forms

Starting point is 00:28:33 of scalable crypto native yield into a single instrument. And I think that there is a need because the whole of DeFi is basically running on RWA yields of like 5%. And again, what are we doing here in DeFi when like... If you just get that in a T-bill, right.

Starting point is 00:28:50 Yeah, if you can get it in a T-bill, then why does DeFi exist, right? Yeah, and it's like, this is like uniquely leveraging like the tools and sort of systems that we have within crypto to produce something that we think is like more interesting and has, you know, based on like the last couple of years of data a higher return than using t-bills but we think that this is like a more interesting crypto asset to build upon within d5 i think we've seen it quite clearly actually that there's a lot of capital that's actually like quite starved for yield on chain where the only option is like steve at three and a half not that that interesting. And then RWA is at five.

Starting point is 00:29:26 And I think it's part of why, I mean, we're four days into the launch at $400 million. I think that there is product market fit for producing like an above market return. I don't want to go back to like the Lunar and Anka like example too much because I obviously do think what we're doing is completely

Starting point is 00:29:41 and fundamentally different. But I think one observation I did have around Anka was that no matter how much risk was sitting within anchor and the lunar system because they could beat like dollar returns in the rest of the market by like 500 basis points the demand for that wasn't like a billion dollars it was 20 billion dollars regardless of all the risk and so we obviously think what we're doing is like orders of magnitude different in terms of the risk and it's producing a sizable pickup at the moment. And obviously, this can change to stuff that you're seeing in the market. And actually, so I really believe that like the constraint here

Starting point is 00:30:13 is not on the demand side. I think that there is multi billions of demand for an above market return on dollars. I think it's more of a supply side, which is, is the crypto derivative market able to sort of absorb those flows without being distorted too much? I often ask people more generally, you know, how many people do you think is using this? When do we get to mainstream adoption? All these sort of general vanilla questions. I love that you said, how many people do we have in DeFi? Maybe 10,000, 20,000?

Starting point is 00:30:40 Because if you ask a lot of people, they'll be like, there's 5 million people using this. And I laugh, right? This is still an exceptionally small market. Do you think that this is the cycle where DeFi actually starts to gain traffic and we start to see meaningful adoption, millions of people actually using this? We're talking about all this yield and the things we can do with it, but it was originally promised as just a parallel financial system for people who wanted to opt out or were unbanked, et cetera. Right? Where are those people? Yeah, no, I definitely don't think this is the cycle.

Starting point is 00:31:13 I think I've been personally quite underwhelmed with the innovation that we've seen within DeFi for the last two or three years. I think the last time I was really excited by what I saw going on was DeFi Summer in 2020. And since then, it's been small on on the same sort of primitive I think like fundamentally it's still too unsafe it's too unclear in terms of like kyc aml how that's all treated um I think that there's just too many completely unsolved uh problems with DeFi at the moment and like speaking honestly just not producing fundamentally like useful products right we um

Starting point is 00:31:50 we've created like an amazing casino uh that everyone can come um and gamble but like beyond that i do think that that's sort of like really the use case for um on-chain finance at the moment um except for like a very small subset of things like i think stable coins are basically one thing that are basically like a non-speculative fundamentally useful use case that we found but otherwise like all of the finance within d5 is just speculation or providing financial infrastructure for people who own hundreds of thousands of millions of dollars of crypto like yes you can go get a loan but most people don't uh have enough eth now where that's like a fundamentally useful thing for them to do in their life. So I don't think it happens this cycle, but I do sort of have a bit of a question

Starting point is 00:32:29 of like, do we deserve this next cycle type thing in terms of really have we sort of developed new and interesting use cases for people to come and sort of like increase adoption at size. And I'm slightly less sure on that piece than I am around like the spot employers. I love that you're building something in DeFi but have such a realistic view because that shares my exact cynicism and skepticism when people ask me the same question. I mean, I was listening to myself give the same answer, which is amazing. The bullish side of that, if you're a glass half full, obviously,

Starting point is 00:32:59 is that we're still really early. And I think all of this will develop. I have to ask you, you kind of mentioned it with KYC AML. Are you fearful at all of regulatory pushback against this? Obviously, we've had this massive spotlight on the industry and the people who are regulating and legislating don't understand the differences, right? You can explain this to them until you're blue in the face, but they're just going to see yield Ponzi something right that's what they're that's what you're going to hear from the elizabeth bornes and gary genslers of the world so i'm assuming you're going to block people in certain

Starting point is 00:33:31 jurisdictions because you have to but is there any regulatory fear um yeah i wouldn't say fair i'd just say um we've taken like all the steps that we've been advised that we should so as you said um users from the us and a bunch of different jurisdictions can't access the app. But we've actually taken a bit of a further step on that where the stable asset and then the yield component have been clearly delineated. So you need to go and stake to actually collect that yield that I was describing. We have a lot more control around that stake and contract where if we're told and we're running sort of TRM checks on the actual stake and contract itself, we have uh people who shouldn't be coming in there from a restricted jurisdiction store with suspicious funds like we have an ability to basically freeze

Starting point is 00:34:13 it within the staking contract and so we retain sort of that option there as a team to try and be responsive if there is sort of a change um in sort of posture towards what we are doing um i would say it looks fundamentally different because the collateral that's sitting behind this is obviously StateD. And in most places that hasn't been classified as a security and all those different things. But yeah, I think our position is we're doing everything in a very open and transparent way.

Starting point is 00:34:40 If someone has a difference in opinion in the way that we approach that, we set things up to be maximally flexible to be able to actually just respond to the way that people suggest that we do do it. So yeah, I think that's our approach. That makes sense. I mean, if somebody wanted to use this right now, you said you guys just launched a few days ago, you got a couple of minutes left. Can you walk someone through the steps of going to actually check this out and test it themselves? Yeah, I think there's a few like ref codes uh flying around twitter if you've just gone to www.athena.fi you'll arrive at like a landing page and you can put in the ref code to get through to the app um and then it's really like the app has been simplified to such an extent

Starting point is 00:35:19 that all you're doing is swapping usdt usdc other sta into USDE. And all our front end is basically doing is sending it to like Uniswap or Curvepool. And then you can take that asset and go and stake it or provide liquidity elsewhere. And basically all of the complication there has been abstracted into the background where the arbitrage mechanism and everything is basically being conducted with market makers against our contract where they're bringing in different state these products and stuff like that and it's essentially the only thing that retail users are interacting with on the front end like primarily is is just swapping into like a carpool or a uniswap pool for the assets perfect where can people follow you uh after this conversation and keep up with what you guys are doing since we're still here in the early days um my twitter is extremely difficult to spell out so it's left their category but maybe we can just

Starting point is 00:36:10 drop it in in the show notes we'll drop it in the description yep awesome um and then athena is at athena underscore labs and uh yeah love to love to have you on if you're interested in the product and i'll just reinforce again it looks very different from uh normal stable product. The risks are very different. And we do actually really ask that you sort of spend time like an adult to actually review that before you come and use the product. Asking people in crypto to behave like adults when making financial decisions is a huge ask, but I'm going to hope that they do it in this case, Ben. Thank you so much for your time. I look forward to catching up and following up down the road. I hope that this is tremendously successful. It is, man. Appreciate it.

Starting point is 00:36:49 Thanks, buddy.

The Wolf Of All Streets - The Truth Behind 27% On Ethena, The Hottest Project In Crypto | Guy Young, Founder & CEO

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.