Unchained - Ethena’s USDe Grew to $2 Billion in 7 Weeks. Is It Safe? - Ep. 629

Starting point is 00:00:00 It really is like a very weak surface level argument to like compare what Athena is doing to Luna. Like really the core difference here, you've just got to think about what is actually backing the stable assets. Really what I point to here as the core difference between a lunar and in Athena is that the backing is like real collateral that's sitting behind the stable rather than like our own government's token. Hence up, everyone.

Starting point is 00:00:23 In the next few weeks, we're launching a new show on the Unchained Channel called Bits and Bips, exploring how crypto and macro collide, one basis point at a time. As you can guess, it's a show all about crypto and macro topics and where they intersect. We've started with some trial runs, and they've been going so well, we decided to tease a few moments in this podcast. The speakers you'll hear throughout this episode include Ari Paul of Block Tower Capital, James Seaford of Bloomberg Intelligence, and Rom Alawalia of Lumida Wealth. We'll play the first clip from Bits and Bips featuring Ari Now, and then it'll be on to the main show. I've always been skeptical of Dow's in the short term because it's an immense

Starting point is 00:01:02 undertaking. There's a lot of complexity there. People don't fully appreciate. But I'm very bullish on the long term conceptually and disruptive. I think they're going to be as disruptive as the birth of the corporation was in enabling higher. Literally that scale. And it comes down, it's like when you enable a 100x speed increase, you get more than incremental improvements. You enable entire new forms of commerce and coordination and economic activity. So right now, we're in a world where if you and I, Rom, wanted to spin up a company, we're looking at least two weeks, Delaware filing, $5,000 in legal fees, a bunch of, you know, filings, an employment contract. If you and I could create that company in 10 minutes on a dashboard, right? Maybe there's

Starting point is 00:01:45 a lot of stuff we do together that we wouldn't even think about doing today. Absolutely. And then when you have AI, that does, it's not, you know, then you have companies being created and dissolved within seconds. Hi, everyone. Welcome to Unchained, your no-hyp resource for all things, crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto eight years ago, and as the senior editor of Forbes, was the first mainstream media reporter to cover cryptocurrency falltime. This is the April 5th, 2024 episode of Unchained. Pocod is the original and leading Layer Zero blockchain with over 2,000-plus developers.

Starting point is 00:02:21 And the Pocodot 2.0 upgrade will be a mass. for the ecosystem. Join the community at PogoDot.network slash ecosystem slash community. With I trust capital, you can buy and sell crypto in a tax advantage retirement account. Enjoy significant tax advantages,

Starting point is 00:02:38 24-7 access, and the industry's lowest fees. Local news is in decline across Canada, and this is bad news for all of us. With less local news, noise, rumors, and misinformation fill the void. And it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada,

Starting point is 00:03:00 reporting on the ground from where you live, telling the stories that matter to all of us, because local news is big news. Choose news, not noise. CBC News. When McDonald's partnered with Frank's Redhot, they said they could put that shit on everything. So that's exactly what McDonald's did. They put it on your McChrispy. They put it in your hot honey McNuggets dip. They even put it in the creamy garlic sauce on your McMuffin. The McDonald's Frank's Red Hot menu. They put that shit on everything. Breakfast available until 11 a.m. At participating Canadian restaurants for a limited time, Franks Red Hot is a registered trademark of the French's food company LLC. Today's guest is Guy Young, founder of Athena Labs. Welcome, Guy.

Starting point is 00:03:46 Hey, thanks for having you, Mom. Athena had a big week launching its governance token with a massive Vairdrop and starting your next points program. Plus, there were some big announcements involving Athena and MakerDAO. But first, before we dive into all these recent events, let's just start by having you explain what Athena is and how it works. Yeah, sure thing. So the basic product idea here is we're trying to create a synthetic dollar that's disconnected from the existing financial rails. So the idea here is that you're using crypto collateral and derivatives within crypto to offset one another and so those two things come together creating the synthetic dollar it was originally an idea that Arthur Hayes proposed in his blog dustum crust and myself and the team basically took that

Starting point is 00:04:35 that idea in the blog post and tried to bring it to life with Athena so yeah the basic and core product here is a synthetic dollar that's backed by eth and bitcoin and then corresponding short positions against that, which you can then tokenize an issue a stable asset. And you keep using the term synthetic dollar, which I believe is like there's a choice behind that instead of the word stablecoin. So can you talk a little bit about why it is that you prefer that term? Yeah, sure. I guess there's been other projects that have actually tried to sum their thing to Athena in the past. They did it all on chain and they used the word stable coin to actually market their product back then. I think since that point,

Starting point is 00:05:19 in time though, the industry has sort of moved on and we've had to think a bit more deeply around how we're actually marketing products to users in terms of actually trying to distinguish between different risk profiles. So it was something that actually, like, we originally came out with the name stablecoin as those other projects sort of had done in the past. And actually got called out by Orson Campbell back in October 23, where he said that I think we should sort of reconsider how we're actually positioning this product. I came out publicly and I actually agreed with also an asset that we definitely should. And I think that actually applies to products, not only like Athena, but like more broadly.

Starting point is 00:05:57 I think part of the issue here is actually that stable points have a pretty wide design space where you have many different types of flavors and attempts to sort of produce a stable asset within crypto. So you've got the fit sort of stable points, which everyone knows, like USC and your STT, and you've got different flavors of like CDPs with Maker Dow and many others, that look like them. And then Athena, which is like more of a delta neutral design. What all I'm trying to achieve here by calling the synthetic dollar is actually just trying to distinguish between a risk profile with USDC and the STT and what we're doing because the risk's fundamentally different. That's not to say one is better or worse in any other way.

Starting point is 00:06:36 We should always like think about these things on a risk-adjusted basis. But I think all I was trying to achieve there was just distinguishing between the risk at least. And so with a Fiat stable coin, then the risk would reside in the centralized player that is custodying the assets that back that stable coin or in the case of something like Circle, you know, where they're costing those assets. So with something like Athena, how would you describe the risks for this synthetic dollar? Yeah, I think the custody risks also apply here. So you can think about Athena sort of taken. Normal Fiat's stable coin is basically T-bills or bonds sitting in a bank and you can move that into crypto collateral sitting within the

Starting point is 00:07:17 crypto ecosystem. I think within crypto you sort of have three different buckets of where are the actual assets residing. You can have them in a smart contract on chain. You can have them on a centralised exchange or in an institutional grade custodian. Where the assets actually sit within Athena are those custodians. And we thought that that was like an acceptable trade off to basically have assets which are not actually on centralised exchanges, but actually I think something that is worth

Starting point is 00:07:43 So considering here is actually the risk profile of a smart contract versus custodians, where I think we've just seen some reports that have been out in terms of like the probability of default of actually leaving your assets within smart contracts. I think we can all agree that like actually defy all of the things that are amazing about it. It is still, I think, too unsafe in terms of the number of packs that we actually see. And I think just looking at the data, we sort of took the views that actually holding assets within custodians was a pretty reasonable place to have it. that is to say there is still custodial risk here and you have like some counterparty risks

Starting point is 00:08:16 the exchanges as well. But I think with stable like assets or anything that has like a backing, it's always going to be the custodial element, which is the most important piece. All right. So, you know, as we mentioned earlier this week, Ena launched, which is your governance token. And this was after a six-week shard campaign or points campaign. And it launched to a market cap of $1.2 billion. as of the time of recording it's at about 1.6 and the fully diluted cap is about 17 billion. So how did the launch go compared to how you thought it would go? Yeah, I think we're all pretty pleased with how I went.

Starting point is 00:08:56 I think obviously the market conditions this week weren't amazing. I think generally beat us in, you saw down pretty bad this week and we've seen like a leverage wipe. But yeah, I think I was pretty proud of the team in terms of how we sort of executed things. and this is like the first time any of us have ever done this. And so you're always a bit nervous sort of going into these weeks when you haven't actually done before. But yeah, I think we're pretty pleased with that one. And when you say you haven't done this before, can you talk a little bit about your background?

Starting point is 00:09:25 Yeah, sure. I was working Tadpo before I came to crypto. Had sort of been in the space as like investing on the side since 2019, but actually hadn't, you know, built a project or founded something before. and so a lot of this stuff is like pretty new when you're coming out with a token launch and yeah obviously just nervous when there's a lot of eyes on what you don't. And so now that you have Ena, what are your plans for using it for governance? Yeah, I think there's a bunch of different areas and this is something that people have been picking up on Twitter just in terms of like how you're actually constructing the product

Starting point is 00:09:58 or actually just thinking about the risk profile going forward. So there's like you can run a theater in like an extremely aggressive way or in a slightly more conservative way and I think that a lot of people have different opinions as to where you should sort of sit on that spectrum. So just as an example here, even just like how much state ETH is sitting on the Athena backing, like is 100% the right number or is it actually zero? What is the composition between ETH and BTC? Should you think about different assets like Seoul? We have like an insurance fund that sits behind USDE as well. What is the size of that? How should we allocate cash flows for that? I think there is actually quite a bit of decentralized like decision making

Starting point is 00:10:36 that should be going into this to actually define what is the risk profile in like general direction of the product. And so for now that that's sort of like the key problem that matters back within the system. And so now Athena's launched phase two of its incentives program, which you've dubbed the SATS program. And you just alluded to this, you'll be bringing on Bitcoin as collateral. Why did you decide that that was your next step? Yeah, I think for us it's really about scalability. Scale has always been like, there's obviously just tradeoffs in every decision that you're making and like scalability has always been like at the forefront of my mind in particular. And I, we're not sort of fully exhausted in terms of the market opportunity on ETH right now. So at the moment, Athena's

Starting point is 00:11:17 short interest within the market is roughly around 20% of like the entire ETH, a global open interest. I think that that number can sort of push a bit above study, but that's like a natural constraint that you sort of start coming to. And so it's just a natural sort of path that we've taken where you want to start diversifying into different assets with huge derivative market sitting behind them. So for us, obviously, Bitcoin is a natural next step. Just for reference, the size of the Bitcoin market is enormous. It's like Norset $35 billion of open interest. And so that just gives us a huge amount of one way to action move into and sort of scale the product from where it is now and like $2 billion to something that's closer to 10.

Starting point is 00:11:56 And are there additional benefits that you see from adding Bitcoin? you know, obviously in DFI, things tend to sort of stay in the Ethereum universe or at least similar chains to that. So this is a little bit different. I don't know if you, you know, view it as having additional benefits. Yeah, well, I think one benefit is obviously just the liquidity around Bitcoin itself. So one risk of Athena is actually just how liquid is the collateral that's sitting behind the backing so that when people actually want to redeem, you can give them back their assets at like a reasonable spread. And so using like highly illiquid assets sitting behind anything that people can redeem is

Starting point is 00:12:34 obviously just a risk that you'd be running on the liquidity side. So moving into Bitcoin actually makes like the redemption process around Athena actually cheaper just because of like the depths around the BTC markets themselves. And then to your question around how we're sort of thinking about BTC being involved with a project that's like fundamentally built on Ethereum, the one thing that looks a bit different here is obviously because Athena is touching a lot of off-chain centralized infrastructure. that obviously has an ability to be able to deal with all BTC. You're not touching like Ratt Bitcoin on Ethereum. You can basically just think about the Athena front end

Starting point is 00:13:09 and sort of the infrastructure that sits on chain. It's essentially just a front end that's accepting assets and issuing USD in return. And then those assets are sent through to the custodians on the other side. And once they're with custodians, you're just holding like native BTC basically in the background. So it's not actually that like on Ethereum. You'd be holding that in a custodian who's sitting

Starting point is 00:13:26 and basically connected to a centralized exchange in the back end. with Bitcoin. So that's sort of how we're holding for some of the complications around dealing with assets, which are like non-ELC20. Yeah, it's something that I find interesting about Athena is this mix between, like, decentralized and centralized. So in a moment, we're going to talk about some of the other partnerships that Athena's making, but first, a quick word from the sponsors who make this show possible. Pocodot is the original and largest layer zero blockchain with over 2000-plus developers. The anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Upgrading the infrastructure with 8 times higher transaction throughput and twice as fast

Starting point is 00:14:07 block times, tailored court time for the needs of every protocol, trustless bridges to multiple chains, and revise tokenomics with a token burn to reduce inflation. Perfect for GameFi and Defi to build, grow, and scale. Get your Web3 ideas to market fast. Think big, build bigger, with Pocodot. Join the community at Pocodot.network slash ecosystem slash community. Here's another clip from Bits and Bips featuring James Seafurt and Ram Al-Awalea. A couple months ago, round hill launch YBTC, which is a covered call Bitcoin futures ETF. The thing is yielding 40%. It's done pretty well, but it's vastly underpouring spot, as you would expect in a covered

Starting point is 00:14:46 call product, but you're getting yield to 40%. That's the EPA product equivalent for Bitcoin. Yes, exactly. This is a little, this is like, this is, this is, This is the JEPI, but on like crack. Do you want to explain what JEPI is for the audience? Yeah. So JEPI basic. So there's JEPI and JEPQ.

Starting point is 00:15:04 So the way JEPI and Jep Q work is they own the underlying stocks, a select set of underlying stocks. And they actually go for Lovall. So it's more capital preservation with a little bit of income on top of it. And what they do is they write calls on top of it. They use derivatives on the top and they sell those calls and they earn income. The downside is. So the upside is if the market's trending sideways or going down, you're getting income from those

Starting point is 00:15:27 calls that you sold. But if the market starts ripping, you're going to underperform. That said, a lot of people that are buying these things. Theoretically, should be buying them in your retirement or a collision of retirement. That would be the reason you would do it because you need income. They're going to underperform over the long term on a total return basis, right? So GEPB does it with the S&P 500 product index. GFQ does it with the Q's.

Starting point is 00:15:48 So that's the new big hot one. People love that thing. For some reason, it really hit its stride on Wall Street Pets on Redd it. And a lot of people are like great during the bear market. It really hits. And then 23. Oh, yeah.

Starting point is 00:15:58 I don't think that's good products right now, though. I get rid of them. They're still pulling in money. They're still doing well. And they're not seeing much in out with those. But YBT is the same thing. You're selling calls above the current price of Bitcoin and you're getting income and or I think it's actually at the current price.

Starting point is 00:16:14 And but so you're going to vastly underperform. So since that launch, Bitcoin's up 53%. And YBTC is up 20%. So you're, you're underperforming by 30%. 3%. Back to my conversation with Guy. So last week, MakerDAO allocated about $100 million worth of dye into USDA and SUSDE, which is staked USDA, through the defy lending protocol morpho. And then this week it also announced that it would allocate an additional $600 million. And we saw a bit of controversy after that. You know, after these moves, Mark Zeller of the Avey Chan

Starting point is 00:16:48 initiative proposed that Ave revoke Dye's collateral status on IBE, and Nostra Finance on Starknet also decided to disable it. So what do you say about USDE being the spark for these controversies? Yeah, I think from our perspective, we're obviously, we're not here to sort of pick sides or be involved in sort of like an argument between two other like enormous debug protocols that obviously we have like an enormous amount of respect for and like lift up to. as like teams that have been here for years producing what I think are like super useful products. I do think there's probably been a bit of an exaggeration sort of like blowing up in the last few weeks which I think has sort of gone a bit beyond and actually is probably tied to more like relationship

Starting point is 00:17:35 issues that sort of go back a bit beyond like Athena actually being around. What I would say is that like on our side and from what I've seen from the maker team, a lot of the criticism has been around, I think, the speed and size was which they're sort of really into this. I can just sort of say on my side, having sat on the other side of like their risk and diligence team sort of going through this in the last few weeks, it's probably been the most thorough diligence at least out of like any art that we've interacted with so far. And I think from the senior team in particular, we and I put out a thread on this on Twitter last week, we are absolutely not here to try and encourage like excessive risk being built up within

Starting point is 00:18:12 the system. I think this is obviously a new asset that exists within defy and we need to actually just allow it to exist at a certain size before growing up too big. I think the last thing that any of us want to do is start adding like excessive leverage in particular into the system. And so I put out some thoughts on this on Twitter last week and I think we have just basically acknowledged that we need to make sure that our incentives that we're allocating to this

Starting point is 00:18:35 is not sort of like blowing up huge amounts of leverage into the system. I don't think it's an issue at all right now. like Athena is like less than 2% of like devoid TVL at the moment and like less than 5% of global sex open interest. So we're not really at a size where it's like systemic in any way. But what we have committed is that some of the incentives that will sit around, the stuff that that Maker is planning to do, we're going to be doing in a very slow and controlled way, was like caps and Stevens as we do roll out.

Starting point is 00:19:05 The Maker controversy actually stems from earlier criticisms of Athena about the yields being, quite high. And I guess your dashboard is, it's blocking like certain locations. So I couldn't actually see this, but I've seen commentary saying things like that the interest has ranged from 20% to 120%. You can correct me if I'm wrong, since I couldn't access the dashboard. But, you know, some of these critics are saying that Athena is essentially a Tara Luna in the making. So what is your response to them? Yeah, I think we can't control like the funding rates. They are like both and it's like really cool to the product which is that's all we're tokenizing. It's that funding rate and sort of delivering it in the token. And so it varies. And we actually think it's more

Starting point is 00:19:51 healthy for the market to have an exogenous interest rate, which is like set by the market and not controlled internally. That's actually a much more healthy dynamic than what you saw with TerraLuna where it was basically fixing something at 20% and then, you know, plow on like VC money into that to try and sustain something that was clearly unsustainable. So our approach to this is like the market is going to be setting the interest rate around funding, and all Athena is doing is providing infrastructure to allow USDE to respond to that funding rate. I think more broadly, it really is like a very weak surface level argument to like compare what Athena is doing to Luna, like really the core difference here.

Starting point is 00:20:29 You've just got to think about what is actually backing the stable asset. So UST was literally backed by the Luna token, which was like a 300-bolt asset that moved up 100% and then dumped 50% in a week and had that sort of mechanic where it could test spiral. Here, like Athena's USDA is fully backed, fully collateralized. That was not fully collateralized in any way by ETH, BTC, and corresponding hedges that set behind it, in addition to an insurance fund. So really what I point to here as the core difference between Aluna and in Athena is that the backing is like real collateral that's sitting behind the stable rather than like our own government's token.

Starting point is 00:21:06 And there are also critics who claim that this will only work in a bull market. What's your response to them? Yeah, I think it's definitely a valid concern around this, which is like the yields are aiming to the success of in the bull market because when you ask like, where is the yield actually coming from? It's leveraged traders who are taking the other side to get long and pay for funding rates. What we did see there is that like even in 2022, when you add like the stake teeth together with the basis, you can still sustain rates that are above US treasuries.

Starting point is 00:21:36 But I do imagine that in the bear market, you do see a reasonable unwind of like USDE's supply as it sort of like finds a new equilibrium at a lower supply when the market doesn't have as much like long interest. But this is something that we're also okay with. Like I said, this is just something that is responding to market dynamics. And if there is less leverage demand to be long and the interest rate is lower, we're going to adjust to a smaller size until until that does make sense. I would also just point out that the current design is obviously purely based on this sort of tokenized cash and carry. But there's no reason that further down the line you could ever explore taking a route like some of these other stable like assets and deciding to reallocate to something which makes a bit more sense in the bear market, whether that's an RDA or something else. So that flexibility obviously sits here and it's much easier to go from Athena to RWA rather than RWA to build Athena. I would sort of view what we've done as like the moat and like the key piece of infrastructure,

Starting point is 00:22:35 which is hard to replicate. And if there's a decision to go and do something else, it required during the bear market, that decision is much easier for us to take rather than something to sort of moving into what we're doing. And so you've kind of referenced a few of these things. And I recognize like some of this may depend on governance. But, you know, you have certain kind of safeguards that you put in place, such as the Athena Insurance Fund. Can you talk a little bit more about how you expect those will work?

Starting point is 00:23:02 Yeah, at a very basic level, it's exactly to the point that you're actually getting to there, which is what we've observed historically is that funding rates exhibit like a very positive skew. So when times are like good, it's excessively good. So you get funding rates of like 60, 70 percent. And when they're bad, it's like it might dip to minus 5 percent for a couple of days and then it goes back above zero. And so given that, it makes sense that during extremely excessive conditions, like we've seen in the last few months, all you're doing is capturing someone that yield and putting it in a rainy day fund for when things are not as good, you're sort of just smoothing

Starting point is 00:23:35 that out through time. So really, it's just there for when the rates do start to turn. And if you ever do see negative funding, you just have a possible capital there, which can sort of provide a bit of buffer through those times. So really, that's all it's trying to do is if you can think of the funding rates and stuff that goes to really high extremes during the bull, and then sort of dips like shallow below zero in the bat during times. All you're trying to do is just clip a little bit off during the bull market to sort of get you through that period. Well, so at this point, you know, as we've discussed, it looks like Athena has been very busy when it comes to various business development initiatives. So after Bitcoin, which other tokens

Starting point is 00:24:16 are next? And then what other developments do you see on your roadmap? Yeah, I think one interesting development in the last year has actually just been the rise of salana and like the growth in both salana and the asset and then the derivative market that sits around it so it's definitely at the size now where it sort of makes sense for what we're doing and it's obviously an ecosystem that's seen like a lot of attention on chain in defi so that's definitely something that's on our radar that we're thinking about i think it's more of what you sort of see with defy integrations which we've got quite a few new interesting ones that are going to be coming out that sort of look very similar to to maker um and you can sort of think about it as you know a dollar or

Starting point is 00:24:52 like crypto-native money is like the killer app of crypto and it sort of is the lifeblood of all of these applications where whether you're a money market or like a petrol's platform, all of it sort of requires dollars to actually sort of function. And so we sort of view ourselves as just like a piece of infrastructure that can fit into all of the different applications. I think actually most interesting me, it's thinking about how this can actually come into CFI because one thing that I think people don't appreciate is actually like the actual size of the market for just using USDT on perpetual, perpetuals on sexes. So if you're going to be margining a perp, there's $20 billion of USDT that's just sitting

Starting point is 00:25:30 there and earning no interest for like the traders who are like long year prep. One really interesting concept here is that you've got USTE, which has got like the embedded yield, and you can actually use that to then trade on the other side and sort of get paid on your collateral. And so for some of like the more like more capital focused like firms who are really like focusing on efficiency. That's like a really big deal for them to sort of capture that yield while they trade. So we sort of see ourselves plugging into Defi and then like the next step is really trying to embed ourselves in a more serious way within CFI. Okay. And would that happen

Starting point is 00:26:03 just through like business partnerships directly? Yeah. And I think one thing that looks so unique about Thena is I think we're the first project where you've got like the five largest exchanges as as investors. And I think part of that was us trying to get them aligned so that we can try. and actually integrate with that distribution going forward. So, yeah, that was sort of like cool to the idea of that. All right. Well, this has been a super interesting discussion. Congratulations on all the recent developments.

Starting point is 00:26:31 And we look forward to seeing what happens with Athena. Thanks so much. Appreciate that. Don't forget. Next up is the weekly news recap today presented by UnChang contributor, Megan Christensen. Stick around for this week in crypto after this short break. Here's the final clip from Bits and Bips, in which James Seaford asks Ari Paul to explain perpetual futures.

Starting point is 00:26:52 Though this is a slightly longer clip, I think this description will be incredibly useful even to longtime crypto people who aren't big traders. Ari, explain what perpetual funding rates are. Yeah, so perpetual futures were, I don't remember when they were first invented. They came from traditional finance, but they weren't widely used. Arthur Hayes popularized them. They basically, like some small exchange used them at some point 30 years ago,

Starting point is 00:27:15 Arthur Hayes found that model that was basically dead. So I give him some credit for the creativity to like revive this old dead model that no one cared about. And he applied it in Bitmax to crypto, first with Bitcoin, then Ethereum. I think they may be added Solana. And the idea is it's a future that doesn't have an expiration. Well, how does that work? So it's a future that has, I want to mess up articulating this. It's not that complicated, but let me make sure I get it right. So with any derivative, you need something that ties it to the underlying price, right? So if we have an ETN and it doesn't settle for 30 years, we know that can diverge pretty dramatically. So how do you keep a perpetual future, like what anchors it?

Starting point is 00:27:55 Well, the idea is that the difference in price between the perpetual future and the underlying will, you'll have some algorithm, some, not AI, just some formula to create a funding rate that one side has to pay. So if the perpetual future is trading over Bitcoin, then, anyone who's long it is going to owe a payment to anyone who short it every eight hours. And a lot of crypto exchanges use eight hours as the time frame, just arbitrarily. And so that produces this natural tether. So it can deviate arbitrarily far, but you get into 1,000 percent funding rates. It's not going to stay there very long, right? People go broke very quickly.

Starting point is 00:28:31 And so there is this very strong rubber band that forces it to converge to... Every eight hours, essentially, right, is what you're saying? Every eight hours, I believe the formula is applied, right? So every eight hours, a snapshot is taken. What's the difference in price? Let's apply this formula, the longs, pay the shorts, or vice versa, depending on who's kind of creating the things out of whack. So with this said, so what that literally means is Bitcoin, you, you have the option, at least for individual days, we're it averaged 100%. But that means is I as an investor could have earned 100% annualized rate for that one or two days for shorting Bitcoin. So I could have posted

Starting point is 00:29:05 Bitcoin as collateral, shorted, had no economic exposure, collected 100% annualized for that one or two days. And OTCDs were at around 30% for that kind of two-week window. And that was for collateralized loans. So basically, the cost of capital in crypto, the risk-free rate was arguably something like 25%. You could borrow or lend that. Did you know you can buy and sell crypto with tax benefits in an individual retirement account? I trust capital makes this possible. But what does this mean?

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Starting point is 00:30:39 Welcome to this week's Crypto Roundup. In today's recap, we're covering Wormhole's massive $2.4 billion air drop. The Ethereum community's debate over a proposed change to its monetary policy. Finance's defense of its detained compliance chief in Nigeria. Briple's plans to unveil a U.S. D. Pagg's Sablecoin. A technical glitch freezing $24 million in Seoul on Lido's Saking protocol. Venture capital firms signaling a bull market with new crypto funds. tokens all-time high mid-governance vote controversy, the DOJ's wallet transaction to Coinbase Prime, record revenues for Bitcoin miners before the upcoming halving event, and the FTX estate's repayment plan set for the end of 2024. Thanks for tuning in to the weekly news recap,

Starting point is 00:31:29 written by Juan Aronovich and edited by Jacob Oliver. I'm Megan Christensen. Let's dive right in. On Wednesday, Wormhole completed its much-anticipated air drop, distributing 1.1-1-1-1-1-1. billion W tokens to early adopters of the cross-chain protocol. Following the air drop, the token began trading at around 160. However, the price experienced a swift decline during price discovery before settling at around 140. With the tokens rebound, wormhole's market cap grew to approximately 2.4 billion. The wormhole rewarded users from several blockchains, including all major EVM-based change, such as sui, osmosis, injective, and even the defunct terra, the W-tokens. The W-tokensateer, the W-tokensate was only claimable on the Solana blockchain, which suffered some congestion issues as users reported

Starting point is 00:32:15 failed transactions. The Ethereum community was at a crossroads this week with a proposal to adjust its token issuance model sparking widespread debate. As staking on Ethereum grows, researchers Ansgar Dietrichs and Casper Schwartz Schilling suggest revising the monetary policy to mitigate potential negative impacts, like inflation for non-stakers and increased centralization. Their proposal aims to balance the staking ratio, but it has met with resistance from some parts of the Ethereum community. Critics argue that altering Ethereum's foundational economics could compromise its integrity and deter institutional investors. With the staking rate rising, 31 million eth are currently staked. Concerns about Ethereum's future and its currency's role are intensifying.

Starting point is 00:33:02 The proposal supporters believe it's a necessary step to ensure Ethereum's longevity, while the tractors see it as a threat to the network's principles and market stability. On Wednesday, Binance issued a public statement defending Tegro and Gambarian, its head of financial crime compliance, who is currently detained in Nigeria on suspicion of committing several financial crimes in connection with the exchange. Finance emphasized that Cambrarian lacks decision-making authority within the company and should not be held accountable for company decisions. Nigerian authorities arrested Gambarian and Nadim Andrawala, Binance's regional manager for Africa, in February, subsequently accusing both executives and finance of tax evasion, money laundering, and operating without a license.

Starting point is 00:33:52 They were set to be arraigned in the country's federal high court on April 4th, but that has been postponed until April 19th. Gambarian and Andrawala have both sued the Nigerian government for human rights violations. Cambarian remains in custody. However, Andrawala managed to escape detainment and leave the country in March. His whereabouts are unknown. On April 4th, Ripple announced its intent to release a U.S. dollar-Peg stablecoin, aimed at serving enterprise clients and payment companies. This new stablecoin, expected to launch later this year, will be supported by U.S. deposits, short-term U.S. treasuries, and similar assets, with regular audits by an independent accounting firm. Whirple president, Monica Long, emphasized the stablecoin's potential to facilitate institutional and decentralized finance applications across the XRP ledger and

Starting point is 00:34:45 Ethereum ecosystems. An operational hiccup in Lido's smart contracts on the Solana blockchain has locked in approximately 24 million of Seoul, preventing users from withdrawing their stake tokens. The issue, detailed by Pavel Pavlov, a product manager at P2P, the entity managing Lido and Solana stems from a flawed smart contract function that complicates the withdrawal process. Pavlov highlighted the problem in a Lido Discord channel post on March 30th stating, quote, The current implementation uses the split function in the withdrawal process of the smart contract, which is quite significant in terms of complexity and time to amend, end quote.

Starting point is 00:35:26 He further mentioned that the technical team is planning to coordinate with Lido Dow to discuss potential issues and timelines for resolving the issue. This setback follows Lido's decision to discontinue its protocol on the Solana blockchain in October, after a vote by the community. Although users were given a deadline of February 4, 2024 to unstake their assets, the recent discovery has made the process exceedingly difficult, especially for those unfamiliar with the protocol's command line interface. A post by Jay, a member of the liquid staking protocol, Sankton, conveyed the frustration of users dealing with the CLI's complexities and reported malfunctions. Jay also pointed out that while Sanctum offers an alternative on staking service with minimal loss, this option has not been adequately communicated to Lido's users.

Starting point is 00:36:14 Crypto venture capital firms are making bold moves to raise substantial funds, signaling expectations for a prolonged bull market. Paradigm, a leading venture capital firm is seeking to raise between $750 and $8.50 million for a new fund, according to Bloomberg. This effort, aiming for the industry's largest raise post-cribara, Winter, underscores the rejuvenated interests in cryptocurrency investments. Similarly, Galaxy Digital has plans to launch a $100 million venture fund targeting early-stage crypto companies. This marks a strategic shift for Galaxy, which previously invested its own

Starting point is 00:36:50 capital, and is now expanding to include external investors. The fund, named Galaxy Ventures Fund 1 LP, aims to invest in over 30 startups over three years, focusing on financial applications, software infrastructure, and crypto protocols. These initiatives arrive amid a burgeoning crypto market, further evidenced by a 52.5% month-over-month surge in VC funding for crypto projects in March. Jupiter's governance token, Jup, achieved a new all-time high on Sunday, reaching $1.92 in the midst of a governance vote to allocate 4.5 million jupe tokens to its core working group. The decision has sparked mixed reactions within the community, with 75% voting in favor despite some expressing strong disapproval on forums and social media. The allocated funds aim to support Jupiter's core working group's efforts to advance the decentralized finance within the Solana ecosystem.

Starting point is 00:37:48 The decision has led to concerns about the size of the allocation and its impact on the project's future, with critics arguing the allocation is excessive without clear performance indicators or accountability, suggesting it could risk the project. project success. A crypto wallet belonging to the U.S. DOJ that holds approximately $2 billion in Bitcoin seized from Silk Road executed a transaction to Coinbase Prime on April 2nd. The wallet transferred 0.001 BTC, signaling that it might have been a test transaction. Soon after, an additional 1,999.999 BTC, valued at 131.27 million, was moved to Coinbase Prime's hot wallet. The sequence of transactions, initially for a small amount and then significantly larger, suggests that the DOJ may be testing the waters before potentially liquidating or moving large sums of Bitcoin tied to the now-defunct dark web marketplace Silk Road.

Starting point is 00:38:46 Bitcoin mining operations hit a new revenue peak, garnering $2 billion in March, setting a record just weeks before the anticipated halving event that is expected to slash their earnings. This significant milestone surpasses the previous high of $1.74 billion in May 2021. The substantial revenue includes $85.81 million from transaction fees and $1.93 billion from block rewards. Foundry USA led the charge, mining 3,300 blocks or 29.4% of the total, followed by Ampool and other notable mining pools. The upcoming halving will reduce the reward from 6.25 Bitcoin, to 3.125 Bitcoin per block, potentially having miners' profits unless Bitcoin's value increases markedly. This adjustment occurs in a backdrop where spot Bitcoin ETFs have dramatically increased

Starting point is 00:39:39 demand, purchasing 66,0008 Bitcoin in March, far outpacing the 25,513 Bitcoin mine. The shift in supply and demand dynamics hints at a possibly different outcome post-having than in previous cycles. The FTX bankruptcy estate has outlined plans to initiate repayments to creditors by late 2024, following an agreement between the Chapter 11 bankruptcy court in Delaware and the official liquidation proceedings in the Bahamas. This decision comes after acknowledging the complex situation due to FTX's accounting issues, with efforts to ensure no creditor receives less than they are due. Both legal entities have expressed a, quote, shared goal to distribute initial funds to verified creditors by year-end.

Starting point is 00:40:25 Creditors have been invited to submit their claims through FTX's portal, initially set for closure on May 15th, though recent updates suggest an extension to June 2024. This process marks a significant step towards resolving the financial chaos surrounding FTCX, providing a path for reimbursing those affected by its downfall. If you enjoy this recap, go to unchainedcrypto.substack.com. That is unchainedcrypto.com. Sign up for a free newsletter so that you can stay up to date with the latest in crypto. Unchained is produced by Laura Shin, with help from Nelson Wang, Met Pilcherid,

Starting point is 00:41:01 Juan Aronovich, Megan Gabbas, Shashank, and Margaret Korea. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily five days a week with host Noel Atchison. Follow the CoinDesk Podcast Network for some of the best shows in crypto.

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