Unchained - The Chopping Block: Starknet's Airdrop, Founder Challenges, and Ethena's Mainnet - Ep. 611

Episode Date: February 22, 2024

Welcome to The Chopping Block, where crypto experts Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner bring you inside perspectives on critical topics in the crypto world. This week the boys dive deep into Starknet's airdrop controversies, the psychological toll of internet backlash on founders, and the groundbreaking Ethena project inspired by Arthur Hayes. This episode questions the effectiveness of airdrop strategies in user engagement, the resilience founders must muster against online criticism, and Ethena's potential to revolutionize crypto finance with its tokenized cash and carry trade. We also tackle the security threats on platforms like GitHub, the balance between egalitarian distribution versus market dynamics, and the transparency required in token economics. What legal challenges arise from token vesting schedules, and how does Ethena innovate in crypto finance inspired by traditional models? Join us for an insightful exploration of these critical topics, aiming to enrich our understanding of cryptocurrency airdrops, founder resilience, and Ethena's ambitious financial mechanisms within the evolving cryptocurrency ecosystem. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Pandora, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show Highlights 🔹 Starknet Airdrop Controversy: Exploring the backlash and debates over its distribution mechanics. 🔹 The Psychology of Founders Facing Internet Critique: Discussing the impact of public scrutiny on creators. 🔹 Innovation in Airdrop Strategies: Highlighting the need for creativity to engage and retain users. 🔹 GitHub and Security Risks: Addressing the increase in phishing attacks and noise on developer platforms. 🔹 Efficacy of Airdrops in User Engagement: Evaluating how airdrops influence community involvement and loyalty. 🔹 Egalitarianism vs. Market Dynamics: Debating the balance between fair distribution and economic incentives. 🔹 The Complexities of Vesting Periods: Unpacking the discussions around token unlock schedules. 🔹 Legal Nuances of Crypto Vesting: Exploring the regulatory implications and challenges. 🔹 Transparency in Token Economics: The importance of clear policies for investor confidence. 🔹 The Inspiration Behind Ethena: Tracing the origins and motivations for its creation. 🔹 Cash and Carry Trade Basics: Simplifying the concept and its significance in crypto finance. 🔹 Analyzing Ethena’s Yield Mechanisms: Delving into the strategies and risks of yield generation. 🔹 Risk Mitigation in Ethena’s Protocol: Investigating novel approaches to safeguarding assets. 🔹 The Potential Ripple Effects of Ethena: Speculating on the impact of layered financial products. Hosts ⭐️Haseeb Qureshi, Managing Partner at Dragonfly  ⭐️Tom Schmidt, General Partner at Dragonfly  ⭐️Tarun Chitra, Managing Partner at Robot Ventures ⭐️Robert Leshner, Founder of Compound Disclosures Links “Is the Short Team Lockup for STRK ‘Misaligned’? No, Says Starkware CEO - Ep. 609”: https://youtu.be/0D0Qyw9TeoY  The Uniswap Airdrop - Lessons for the Industry by jhackworth: https://dune.com/blog/uni-airdrop-analysis  “Dust on Crust” by Arthur Hayes: https://ehandbook.com/dust-on-crust-300d4b5cf3ec  Learn more about your ad choices. Visit megaphone.fm/adchoices

A lot of founders cannot handle psychologically getting yelled at by everybody on the internet at the same time. Like it's actually, it sounds stupid, but it's actually incredibly psychologically scary to feel like everybody is yelling at you and you've done something very wrong and you're about to get ostracized from the internet. And when you fuck up an airdrop or you don't air drop enough or you don't get everything exactly right, the internet is mad at you. Not a dividend. It's a tale of two pawn. Now your losses are on someone else's balance.

Someone else is balance. Generally speaking, air drops are kind of pointless anyways. Unnamed trading firms who are very involved. I like that ETH is the ultimate problem. DFIPITOLITES are the antidote to this problem. Hello everybody, welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day.

So quick intro, first you've got Tom, the DFI Maven, and Master of Memes. Hello. Next we've got Robert, the Cryptoconassur, and Tsar of Super State. Good morning. Then we've got Tarun, the Gigobrain. gigabrain and grand pooh-bah at Gauntlet. Aloha. And finally, I'm perceived the head hype man at Dragonfly.

So we're early-stage investors in crypto, but I want to caveat that nothing we say here is an investment advice, legal advice, or even life advice. Please see chopping block. That XYZ for more disclosures. So, boys, I think Bitcoin has found its new home at 50K. And Ethereum, just as at press time, finally hit 3,000. So it seems like the Ethereum catch-up trade is starting to happen. And a lot of it seems to be centered around a lot of excitement happening on top of

Ethereum. So there's just crazy TVL that's now flying around everywhere in crypto. So I think Eugen layer recently hit, what is it, 6 billion in TVL and EGNL? Seven. Seven billion. Okay, seven billion TVL and EGNL. I'm sure it's probably gone up just in part because of the ETSA. It's 20 billion by now. Must be, must be. I must have quadrupled while we were just while we started recording. And then we just had this massive Starkwareirdrop, which we're going to be talking about today. It's going to be one of the big subjects that everybody is discussing. And then, of course, Athena, this new stable coin, that's kind of the hottest thing that everybody loves to argue about on Twitter. We're going to be getting into Athena as well. So we've got a lot

of wood to chop today. So we're going to start with Starkware. So for those of you who listen to the earlier episode of Unchained, Laura got Ellie, the CEO of Starkware, one of the co-founders, on the show, to talk about the Starkware AirDrop. So let's take it from the beginning. it described what the hell is Starkware, what's this airdrop and why is it such a contentious airdrop to begin with? So Starkware is a layer two. They're a ZK roll-up. They're ZKs are, they use starks, which are like kind of the granddaddy of ZK primitives that is different from snarks, which is what most of the other layer twos use. I think that given that I suspect many of our listeners don't know what Stark stands for other than the English word. Maybe we should go through what the

definition is just so it makes sense. Maybe we should in like 30 seconds go through what the definition of a stark is. Okay, go for it. Stark stands for a succinct, transparent, non-interactive argument of knowledge. An argument of knowledge is a proof that you have knowledge of some fact. Like I know that the Sib's bank account has minus $500 as its balance. I heard that too. But I don't show you that balance.

I'm able to prove to you that has minus 500. The succinct means that the proof is much smaller than the statement. So it's maybe logarithmic or polylogythrogynick in the size of the statement. And the transparent means that we don't need to, Haseeb and I don't need to agree on anything, any private information beforehand to generate such an argument. So this is sort of a holy grail because the transparent part is actually very hard. A lot of cryptography that you use in blockchain actually has what's known as a trusted setup,

where there is some. information that has to be coordinated in the beginning. That's my E.l. I-5 version. Very nice. So these guys are the inventors of Starks. Literally, Ellie was one of the inventors way back in the day. And he was very integral guy in like the early days of ZK Proofs, Zcash and zero one. He's also a very famous complexity theorists and computer science. So he's not he's not like your average Joe Schmoe crypto founder who's kind of an

academic moron. Yeah, no, certainly. He's very, very impressive guy, very impressive team. And so I should, I should also caveat that we are early investors into Starknet, or Starkware from like five years ago. So Starkware, layer two, a lot of excitement around them, and they ended up doing this big airdrop to users of Starkware early on. So they just launched their token at press time. Their tokens trading around $1.92,

which would put them around $19 billion FDV, $1.4 billion market cap. But it's a very volatile token, so it's obviously not a lot of price discovery yet, because it's only people who've gotten the airdrop. Now, this airdrop ended up getting a lot of people upset on Twitter and for various reasons. So there are a few different components to their air drop. And I think this is kind of a good microcosm to talk about airdrops and farming

and airdrop mechanics and everything. Because their air drop is a little bit different than a lot of other air drops for a few reasons. So the first thing, they gave a big air drop to people who use Starknet and people who've done more than five transactions. They were active for at least three months. They've transacted at least $100.

So, okay, this is kind of standard. You use the blockchain, cool, here's some money. Then you've got people who were ETH stakers. So if you staked ETH and of course, to stake ETH, you need 32 ETH. And so you have to have quite a bit of money in order to actually be an ETH staker, a solo staker. These people also got a significant air drop,

actually more significant than people even used StarCware. And then you've got open source developers. So if you've contributed to one of the top 5,000, GitHub projects by GitHub Stars with at least three commits, you got an AirDrop. And of course, if you added anything to StarkNet as a developer, you also got an AirDrop. Okay, so that may be in principle that sounds uncontroversial.

But in reality, so one, the amounts that were given to some of these different groups was maybe a little out of wax. And people got upset that like, hey, I use Starknet. I got, you know, I don't know, $1,000, $800, something like this. But somebody who contributed to an open source, GitHub repo, over the last few years got like $5,000 and like why did they get all this money and they didn't even use StarCware Now I look I don't know how legitimate a gripe that is but whatever people are upset about that The most interesting thing and I think one of the funniest thing about this is that the fact that they gave so much of the

AirDrop to open source developers has now incentivized other open source projects to just get flooded with these farmers Okay, so now you have all these low quality people creating fake GitHub issues and just fixing random typos, trying to do the minimum possible thing. Of course, none of these people can code. They're just trying to get air drops. And so now all of these open source projects are getting flooded with bullshit comments, bullshit commits and pull requests from people who just realized that this is now the meta, because of StarCware, we should just start contributing to random open source projects.

So there was a great tweet from one guy who apparently tried to fix a typo in the start-net repo. And he got 1800 Stark airdrop to him for a proposed typo fix that wasn't even merged into the code base. So he fixed the word auxiliary, which was a typo and didn't get merged into mainnet. So this has gotten a lot of people arguing about the mechanics of air drops and also in the way in which they kind of end up causing this huge gravitational force on everything downstream in crypto. And of course, Ellie was on the show defending the mechanics of the air drop and saying, look, you know, we kind of tried. Clearly, people are upset because some people got excluded. Some people were included who maybe got too much, blah, blah, blah, whatever.

And there was an interesting comment that, I don't know if you guys listened to the show, but Laura made one interesting comment to Ellie that kind of pissed me off. But she said, you know, look, the people who are getting the solo stakers on Ethereum, right, They got a bigger airdrop than people who are using Starknet. You know, these people have a lot of money. If you're solo staking, you have at least like 100K of ether. So, you know, how can you claim the project is decentralized if these guys who have a lot of money got, you know, got a bigger air drop? Which, of course, has a certain implication about what it means to be decentralized, right?

Decentralized actually, the real word I think they should have used is egalitarian, which, of course, is not the same thing as decentralized. but I don't know. Here's what your guy's reaction is to this whole argument. Clearly it's got people up and on it's got people very upset. And also clearly, it didn't have that much of an impact on the market reception for the token. So I'm curious what you guys' reaction is to this whole.

So I have one very strong opinion on this, which is the thing about AirDrops is you kind of have to do something new once for it to kind of be, for you to kind of get away without as much complaining of this form. So in Starkware's case, whether they decided before or after Celestia to do the developer AirDrop, Celestia was arguably the first to successfully pull it off with the drop, air dropper to eat. I think, I don't even remember this. Handshake actually did this back in 2018.

Yeah, that was good. Just no one gave a shit. And so everyone, no one was farming GitHub back then. Yeah, yeah, yeah. That's true. That's true. That's fair. That's fair. I should give the problem. But in the world of industrial air drop farming,

the first to really successfully do the GitHub drop. And they didn't just do a GitHub drop in Celestius case. They also did an air drop to Ethereum researchers, people who academics, like they did a much wider ranging thing, which arguably maybe Starkware was front run because I'm sure they were trying to launch their token for longer because they've existed for longer. And I'm sure that maybe it's very likely and possible. I don't know if this is true that StarCware already had the airdrop design done before, but Celestia beat them to the punch. But by being first, you kind of get the street cred of like, wow, they found a new way to do this. And like, okay, now we have to make a game for it, right? Like, we have to figure how to game it. And I think the problem

of StarCware was a really large, really anticipated token, existed for many years, embroiled in the three arrows liquidation, right? Like, you know, I don't know if you remember. the three arrows liquidator who is a moron who must be some sort of moronic entity couldn't figure how to execute the warrant and like lost the majority of the three arrows like i think it was like 50 to 70 million dollars something of like that in star square uh so they didn't get the token so that the three arrows of state holy shit uh apparently is that they didn't they didn't end up fixing that yeah sue and kyle were screaming on twitter about this like right when the whole thing blew up Yeah, apparently they didn't pay the $250 or whatever, $500 to execute the warrant.

And so they lost out on like, I don't know how much Stark. So anyway, my point is StarCware has been, everyone's kind of anticipated the launch for a long time. Despite maybe having more of a nascent developer community than say like an arbitram or optimism by like a long shot and not much TVL, which is one of things that people are complaining about on Twitter, you know, it is a very well-known. project. And I think the problem with AirDrops is you kind of need to be the first to come up with a new mechanic. The moment you make that, then there's a string of copycats. Like, look after the Celestria launch, you saw a million of these like GitHub drop things. But none of them were sufficiently big that it was worth, you know, the spread between the GitHub drop versus the liquidity AirDrop was small. And I think basically Starkware probably should have taken that into account in the sense of like the mechanic is kind of already played out.

You're such a large launch. You have to come up with something new. You can't kind of do something that existed because it'll be farmed to death. And I think more academic teams suck this up all the time in crypto. It's like look at like all of the Aptus wee air drops. You know, there's sort of a, this is an exemplar of people who are like, maybe you're not paying attention to the DGen landscape with good reason, right? they're not supposed. That's not their team character, right?

But this is a very important lesson. I'm just like, if you're a big enough air drop, you have to have a new mechanic. You cannot copy pasta or like use something. Even if it's not copy pasta, you can't really use it again. The moment you do that, you're kind of dead. Well, scroll right after the Starkware AirDrop basically kind of alluded that if people contribute to the scroll repo, they may kind of somewhat possibly get anirdrop. And now scroll is being overrun with all these bullshit commits.

and bullshit pull requests and issues. Yeah, but I actually think this is good because this gives you a training set for how to write, to train a little like boosted tree classfire to filter out all the shit commits. Filter out bullshit comments. But you need to go manually label which ones are bullshit and which ones are not.

This is a good undergrad data science project, actually. Or it's the opposite. I would give this to the homework assignment. It trains people to train LLMs to make 50,000 GitHub PR. That's the scary thing, right? Is that like what, because it's a generative adversarial network. So you, you, once the junior data scientist shows up and starts cutting these, someone's going to be like, oh, shit, I should just use GPT4,

GPD4, I just feed it or Gemini 1.5 with the new giant context window. I just shove the entire code base in and it writes some plausible commit, you know, like something that kind of looks like maybe it's a feature, but it doesn't quite work and it breaks things. And that's what this is now incentivizing. It's starting arms race. The point is that like the maintainers of the the repos still maintain the quality.

It's not like the PRs are getting accepted. So all you're doing is all you're doing is basically a noise attack. I have to have an LLM itself to read the commit to be like, is this a real commit or not? Right. Like again, we're getting back to the like, how do I make a classifier of like the real versus LLM? Speaking of noise attack and GitHub, actually,

this is also one of the new interesting fishing vectors that I've seen where people will, because generally speaking, your GitHub, you know, notifications for new issues or tags are like open by default, right? Because if there's a issue that you're on or you've mentioned, like you want a notification about it. And so people will make new issues or new PRs. And the issue or the PR will be a fake Celestia AirDrop or, oh, you got a job offer from

GitHub and click this link to go apply. And so now I didn't have my things turn off initially. And now I just turned them off. But I was getting emails with like a, you know, it looks like a GitHub issue email. And it's like, you know, claim your Celestia AirDrop here because they tag you on GitHub and therefore you, it sort of circumvents the normal spam filters because it looks like it's coming from GitHub or it is coming from GitHub. And so, you know, I think it really is just like this cat and mouse game. I mean, if GitHub becomes the next battleground in like spam and scams, it's going to be really disappointing.

This is right. I mean, I don't know. I find it very stupid. You could argue that GitHub caused it by making copilot because that's what really got the LLM market turning. I don't think I would blame this on lazy airdrops. I think this is like so obviously foreseeable. And I saw a couple of tweets from people saying like, no, no, no, this is actually good because now crypto is going to make people learn how to code. And I'm like, that is not what's going to happen. What they're going to learn how to do is how to game the system with as low effort

as possible. Tom, you've historically been the most kind of anti-airdrop or like the air drop minimalist. What's your take on the Starkware AirDrop? I feel like I just kept getting proven correct where, you know, everybody gets mad. This doesn't really accomplish the goal of whatever it is that they're trying to accomplish. And it just creates like a lot of, you know, negative press in the interim. I think even successful air drops don't really accomplish the goal of what they're trying to accomplish. Like if you look at the, you know, data analysis of different air drops that have happened, you know, throughout the past few years, the vast majority of people sell.

They never participate in governance. never stake, the people who buy the airdrops do actually end up participating in governance and holding more than the people who are selling it. And so sure, maybe people get excited, you know, sort of like G-Doh and maybe it creates like a little bit of a wealth effect, but it is very expensive ultimately for, I think, the goal that people are trying to accomplish. And so, you know, I think maybe the answer is you'd be really surgical. And I mean, for Starkware in particular, like, people who learn Cairo and build on Starkware

are like very dedicated and very committed. Great. Give them some sort of fat grant. But I don't really think giving how much of Stark to GitHub, one of the top people who could give to the top 5,000 GitHub repose is really doing anything. Those people are not actually going to participate in the Starkware ecosystem just because they got some Stark. I mean, it's the same way that the UNISOP AirDrop, right, arguably rewarded a lot of the earliest developers who built anything that touched UNISOP, right? Because it was like, but the problem is once you do it once, again, like it becomes a feature in a model to predict the next thing.

Right. Like, I remember like, even for all these point systems, people are just constantly training these like simple classifiers to be like, oh, am I like, based on the points I'm getting, like, which features are the ones that are most correlated and like, let me change my uses to math. It is, it is a trading strategy fundamentally, right? And I think the problem is the teams are maybe a little like naive in thinking that's not, which is fine, right? They might not be used to thinking that way. Fundamentally, doing the AirDrop is is a form of a trading strategy. And you have to think about it like a trading strategy. And a strategy that is public and can be copied is very hard to execute properly twice. And I think that somehow is like lost on the teams that do those. I think the other thing is that it's, and this may be even going a level simpler, it's very hard to get yelled at on the internet. And I mean that very seriously. Like, it's very psychologically difficult to get yelled at on the internet.

I've been yelled at on the internet many times. And I've built up a very thick skin over the years of being yelled out the internet but I think a lot of crypto founder a lot of founders cannot handle psychologically getting yelled at by everybody on the internet at the same time like it's actually it's actually it sounds stupid but it's actually incredibly psychologically scary to feel like everybody is yelling at you and you've done something very wrong and you're about to get ostracized from the internet and when you fuck up an air drop or you don't air drop enough or you don't you don't get everything exactly right the internet is mad at you and when the internet

is mad at you and everything that you have built is on the internet, it almost looks like, you know, the vandals have broken into your house and they're threatening to, like, destroy your fucking livelihood. So I think a lot of these founders, they just, they might know intellectually that, yes, airdrop farmers are not my real users. These people are kind of, you know, they're cavalier. They're, you know, once upon a time, I think, like in the Uniswap era, there was a more genuine connection between AirDrops and users. And the people who use Uniswap up early, of course they had no idea that there was ever going to be an airdrop. There was no ulterior motive.

It was just people who, yeah, there were early defy users. You know, like that was a real thing back in 2020. In 2024, that's not what's happening, right? There, of course, are real users of Starkware and there are real chiro developers, and there are, there is a real community there. But air dropping to the set of people who have more than five transactions and they have more than $100 and da-da-da-da-da. Like, that is, you know, probably less than 20% of those people are actual organic users

of these blockchains because of just the degree of industrial airdrop farming. And so I think they know that, right? They know that, but they can't, yeah, they do know that. But the reality is that it's just, it's just hard to be like, yeah, fuck y'all. Like, fuck all of you guys, like use our product. Here's a blockchain we built. What else you want from us? It's hard to do that.

It's just hard. Yeah, I mean, there's two points here. One is that I think the teams conducting the air drops know, everyone knows that it leads to a huge amount of everyone trying to game the airdrops and driving up bullshit metrics, vanity metrics very clearly, right? Like, you know, whether it's darkware or any L2 or any platform, you know, people brag about on Twitter, I made like 70,000 different wallets, you know, and I bought it. Like, you know, but to the project, it's like, ooh, 70,000 addresses.

Like, that's like a positive vanity metric. Like, we like that guy because he made 70,000 wallets, right? And the root of the AirDrop Industrial Farming problem is this question of egalitarianism, which you alluded to earlier that Laura brought up, which is, should AirDrops be based on some Boolean, did you use the thing or not, regardless of size, regardless of value? And if the answer is yes, then it inevitably leads to people trying to Sybil attack this stuff with 70,000 accounts. if it's completely non-egalitarian at all and it's strictly a linear function of wealth slash value, it's almost impossible to civil attack it.

There's no point to doing that. And so, you know, my long-term prediction is that, you know, projects move away from this concept of like, oh, you know, some level of egalitarianism, like, you know, one wallet equals one token type mechanic, noting that it's just so, so easily game, then it's gained by the people you want to least, right? You have the least connection to your project and the least like interest in participating in a positive way. It's almost theft in the open for them.

And so, you know, I think over time, projects will move away from an egalitarian structure to one based purely back on value again, where it's, you know, linear. Oh, you use this with a million dollars for seven months, you know, that's seven million tokens. Oh, you use this with $100 for a month. That's a hundred tokens. And I think that will fix a lot of the problems. And it's harder to say because honestly, there's tens of thousands of airdrop farmers, if not hundreds of thousands of air drop farmers. No, it'll be more.

Yeah, it's going to be. At this point, people in poor countries. Yeah, people in poor countries. This is like the most valuable source of income they have. Honestly, it's like more lucrative than being a doctor in a lot of places is to be an Ardrop farmer. And so at a certain point, you just have to like, you know, design cognizant of the fact that like there's a lot of people all over the world whose profession at this point

is AirDrop farming. The weird thing is that I think since the Uniswap AirDrop, there's been this kind of weird connection in people's heads that I think is, it's not quite fully articulated, that there's a connection somehow between launching a crypto project. and doing some kind of social redistribution or some kind of social welfare that essentially like, look, we're creating all this wealth, we're creating these new platforms.

And at the same time, we sort of owe it to the world, to crypto, to something to spread the wealth. In reality, of course, we know that the people who end up getting a Starkware AirDrop or getting a GTO AirDrop or whatever, overwhelmingly the first set of user sell. The people who receive the AirDrop overwhelmingly sell. We've done enough data science on this.

We've seen it so many times. saw with the Uniswap Airdrop. At this point, we know all the metrics. Even the founders know the metrics, that the people who actually receive the air drop are not sticky. The people who sell the airdrop overwhelmingly sell, or they never claim.

And there's very few people who receive theirdrop and hold the tokens. So to the extent that you're thinking, ah, I'm going to allow people to experience the growth of my network. They don't. They don't experience the growth. So I disagree with you in one aspect of this,

which is when it is a new metric, when it's a new measure of distribution, not like, you know, in the way that you, that Celestia kind of like... That no one can predict. That no one can predict. Plus game.

A lot of those people are very loyal to your network. I mean, look at Celestia. Like, they actually, their retention on AirDrop users is much higher than all the copycats. In fact, the correct way of measure. I don't know the numbers for Celestia, but look at Uniswap. Uniswap was the original. It was the OG, right? Uniswap is the proof that, of course, nobody could have gained the Uniswap.

I don't even knew that an AirDrop was coming. And still, there, what was it something like 15%, 10% of users who claims they're dropping and Zell? 90 plus percent still don't have it. I think was Jack Hasworth. The variant data scientists did a really good blog post on this. The reason I'm making this point is I think for layer ones and yield-bearing networks, whether the yield is via subsidy or whether the yield is via fees, that's a thing that people

love to fight about, but yield-bearing networks tend to have just like significantly higher retention, and Unisop was just not a yield-bearing thing, right? Like, there was no real accrual story to it. Okay. You're saying if Uniswap had staking, then they would have had higher air drop retention. I'm just saying it would have a higher retention. I'm not saying it would be like, you know, 10x higher. But my point is, I think there is this thing when you're the first, and if you have a compelling enough story, you do have higher retention rates relative to. to these copycat nonsense. To be clear, I think that's a bad explanation for Celestia.

I think the reason why Celestia has high retention is because of the amount of other air drops happening. Yeah, exactly. That's the reason why, not because of the mechanics of the airdrop. That is the, that is calculated in your expectation of future yield. That was not there for uni. People weren't like, oh, like, yes, we expect to get airdrop to you need holders, right? Like that was not in the meta of the-

Right, right, right. But that was it, that's an emergent property. Right? That's not a, well, we plan the airdrop in such a way that a bunch of other people are going to air drop. Well, I think in the case of something like Celestia or something like eigenlayer, where people who are building on top of you launch a token inevitably, there's this nice feedback loop of like every app air drops to the host. Right. Right. Right. Which is a good argument for building a successful protocol. That's the key thing that causes theseirdrops to show. In those cases, ecosystem growth is quite, is more sustainable than.

But as an entrepreneur, you can't plan for that, right? You can't be like, well, obviously, I mean, maybe Starkware thinks this. Maybe Star Wars like, well, now that I have my AirDrop recipients, all the Starkware users are going to get tons of more airdrops and therefore my Stark AirDrop is going to be super sticky. That's not a plan. Maybe that's nice.

They'll be nice if that were true. But I don't know what you can do ex ante to make that happen. Well, I think you have to come up with a new, a completely new type of thing that is much harder to predict, right? Like, you have to give credit to the teams that figured out to do that versus the ones that like didn't react to the market changing. And that's what I'm saying. An airdrop is effectively a one-time trading strategy, right, done by the team. And if the team doesn't adjust their trading strategy to the market conditions, i.e. other airdrops changing the circumstances, then obviously they're going to get blown away in this kind of scenario.

It's just like, I think the problem is just that teams don't think of it as a trading strategy. And that's because they're thinking of it in this social welfare sense. But it really is fundamentally a trading strategy, right? Yeah. Yeah. I mean, I think the, you do raise a good point that, you know, if you do manage to create a new identity set that is clean in a way that almost every derivative air drop is not going to be clean, right?

But if you're sort of the first to be like, hey, here's a new clean set of identities of people who are real crypto users or as close as you can't, the cleanest possible version of such a dataset, people want to air drop to that data set, right? That's why, like, Farkaster, for example, the Farkaster users are getting so many air drops is that it's a clean data set. And so in a way, it kind of behooves you

to come up with some mechanic that can kind of clean out the air drop farmers or is sort of looks unincentivized or looks like it's, okay, this is probably not going to be getting any air drops and then you actually end up air dropping to those people. I think that's getting harder and hard. And so I think the ability to bootstrap like a sort of new civil-resistant set of people that can be future airdrop recipients, it gets harder and harder with every subsequent air drop. I mean, now GitHub is now GitHub is contaminated thanks to Starkware and scroll.

And so, you know, you're going to have to go farther afield in order to find, you know, where can we actually find a clean set of users. Maybe before too long, it's going to be, you know, people with their eyeball scanned in WorldCoin. It might be the last bastion. Well, World coins price suggests that. Exactly. That's what it is basically just AirDrop Registry. So the other story around Starkware is the Unlocks.

This has also been another kind of drama on Twitter. So StarCware, so let me just take a step back for those who are not familiar. So generally speaking, when the team and the investors invest into a project early, Generally speaking, they don't get liquidity at the moment of a token floating and or an air drop getting distributed. Usually, the standard is that they will end up waiting about a year after the token starts floating before they face a cliff, which is the initial unlock. Usually they unlock some portion or they start unlocking.

And then they unlock over some period of time, usually four years, three to four years is the standard for most projects. So basically the people who initially get theirdrop or who farm the token, mine, the token, stake the token, their tokens are circulating for. quite a while before the team or the investors start entering into the market. So be fairly similar to what you'd expect from most companies, securities, things like that. Now, there is actually a rule under the SEC, Rule 144A, which generally requires a restricted security, which is something that you're buying from the acquirer that has to be, there are a bunch

of different rules, but more or less the standard is that it has to be, it can't be traded for at least a year. Now, technically, or I'm not. I don't know. None of this has been tested in court with securities, sorry, with the tokens because whatever, you know, it's tokens. There's no case law. But my understanding, and I'm not a lawyer, so take all this a grain of salt, but my understanding is that generally the thought is that the timer, the one-year timer for this Rule 144A exemption to trading these restricted securities, starts either at token generation, which is often called TGE. That's when you deploy the contract

that has the ERC20 token balances, or it starts when the token starts trading. And nowadays, there tends to be a lag between the two. People actually deploy the contract first and then later the token starts trading, but the contract is initially deployed without any tradable, like the contract is locked, essentially. It can't be traded. Okay. So Starkware, you know, obviously they sold to U.S. investors.

You know, we're one of those U.S. investors. And, well, we're not literally in the U.S. but whatever. You know, for all intents and purposes, we're SEC regulated. So that timer started for Starkware when they launched the, you know, we're not going to token contracts, which was about 10 months before the token started floating. So about 10 months before today. That means that everybody who was an investor or a teammate who was put on that one-year timer, that one-year timer started when the token was deployed, not when the token started

trading. Token started trading basically yesterday. So that timer expires in two months. And so many people are very upset that Starkware tokens from the investors and from the team start their vesting two months after. the token started floating and people are very upset about this. Curious to get your guys' response, there's been a lot of back and forth about it. I think this is pretty non-standard.

I haven't seen a lot of other tokens do this. To be fair, the market knew this happened because of Sue and Kyle, because their exercise time was at the generation event, which was in 2022. So like, I don't fucking know all you people who are complaining, maybe you should have fucking listened to what they said. They told you their liquidator didn't exercise the warrant. What the fuck does that mean? Oh, well, actually the event had to happen.

I think that's the part that I find hilarious. And it more has to do with the fact that people on Twitter just love thinking their experts about things, but then are willing to forget the facts of like they didn't actually read into someone actually telling them the answer earlier. And they pretend didn't happen. Yeah, I'll preface by saying I'm not a lawyer nor a securities lawyer, et cetera, et cetera, et cetera. But Rule 144 is one of many different rules that, in a sense, to my knowledge, establishes a type of safe harbor so that transactions can occur. It's not the only one. But the intent behind it and what it basically says is that if you wait a year from when you acquired a restricted security that was purchased from a private company and it wasn't meant to be sold to the public and you wait a year, then you're not an underwriter.

And you as the buyer who then is going to be selling it, you're not tripped up into like broker-dealer requirements and like these complex mechanisms. And it's like if you wait a year, you're safe. Now, you know, there's other ways to potentially not be an underwriter or not like trip up those rules. And obviously the specifics of Starkware, I'm sure they have teams of lawyers, you know, walking them through all this stuff. But, you know, it's possible that we're like from the outside just over.

oversimplifying it. And the way they're doing this, you know, it's not an issue at all. Fine. You know, everyone waits two months and then it's good. Or it's possible they could have not even waited those two months if they had other ways to demonstrate that they didn't buy it with an eye towards underwriting the offering and then reselling it or all these things. So I don't think this is, you know, too high importance to focus on. It does seem like an oversight though, right? And I've seen often it's specified more network launch versus TGE and then you sort of get around this issue where okay in reality TG being token generation event. Correct. People assume that your investing would start at the

time the network launches and so in reality they'd have to unlock a year from now. And so it feels like maybe there's just some oversight there or like again maybe this was the language was set a while ago you know when these warrants were done and then okay now there's TG and so you sort of get the two conflated. Yeah, TGE generally refers to when the contract is deployed, not when the token actually starts trading, which is this weird kind of in no man's land. Again, we don't really have good industry norms around this yet. I suspect that the backlash against this, and to be clear, I more or less endorse the idea that investors should just kind of do the standard thing, which is wait a year after the token starts trading before they start unlocking. I think that gives people roughly the same

expectation. You just mostly want to stand in line with the market and not surprise anyone. That said, Starkware was pretty transparent, right? This has always been there. If you see the whatever token vesting chart thing that everybody always shows, it showed it, right? There's no surprises, there's no secrets. This has been very straightforward from day one. I think people just learned this once they got the token and they're bullish on theirdrop or whatever, and they were upset about it post facto. But kind of like we were talking about with Jupiter, you know, my view on these things is that, look, as long as you're transparent, it's fine, and they are transparent. But I do think all things equal, obviously a lot of people aren't paying attention.

A lot of people don't, you know, not everybody knows where to go to even find this information. And most people are just lazy. And that's kind of the bottom line answer. Like, I think it's in principle fine if they unlock immediately or if they unlock in three months, they unlock in 12 months. All those are fine. It's just that the standard is 12 months. And that standard, I think, gives people a market expectation that's probably best to just

stay in line of it. So, but, you know, we're relatively small and very early. investors. So we were most certainly not consulted in any way on any of this. So if we had been, I think I would have told them that probably it makes sense. And I think it's also possible. We've seen it a few times that projects will go and relock investors in response to what's going on in the market. So we've actually had a number of our deals that we're going to become fully liquid. And they asked investors like, hey, it's probably best actually if we all kind of agree both team and investors lock up for longer, basically to give the market the right expectation.

and usually investors, if they're high-intagrary investors, usually go agree and say, yeah, you know, it's probably the best interesting project. I do think an interesting thing about the relocking, which definitely has increased in velocity, it seems like, or the last maybe one, in the bear market, it increased a lot, right? Because a lot of people didn't want to do events then. And basically, I'm kind of curious if we're going to ever get to some legal standoff where, like, some investor is, like, absolutely not. and like sues and like that's going to be a great corporate.

Oh, dude, I have a portfolio company that's dealing exactly this. So there's some very shady, I'll say so there's some like tier two exchanges that have venture arms that are very litigious. And they're, I mean, I generally speaking like these kind of bottom of the barrel exchanges, I would recommend that most founders should not work with them. They tend to be very extractive. And I've had, especially over the bear market, I've heard some horror stories of like, every other investor agrees to a relock except for this one like shitty exchange and they and they just like start sending lawyer notices and Paul Singer of token generation events you know the

minority hold out yeah the activist coming from the exchange the exchange venture activist exactly now that is funny I mean that's how these these these these are like two or two or two or three exchanges like especially a lot of the Asian ones like they're they're so I mean it's just really shady and um well I think a lot of Probably their reason for even investing is so that they have an idea of when they can list and figure out their feet, right? Like they're probably investing not even because they care about the project. No, there's also shady stuff that happens.

I mean, I've heard some really crazy stories of fake supply getting minted on some of these exchanges that wasn't even there and stuff like this. So it's all really bad. It's all really bad. I've heard some really fucked up stories. So all this is to say, I mean, part of the reason why they end up taking money from these tier two tier three exchanges is that they offered higher prices than the VCs. And they were very easy to go along with.

And that's one of the reasons why we generally tell entrepreneurs, like usually your highest bid is very low quality capital. And that's what you see in a bare market is like that the delta between low quality and high quality capital ends up coming out when your project is in jeopardy. And one of the investors like, look, I just want to dump. I just want to get out. I don't care about your project. I don't care about being a long-term holder.

So that's one of the reasons why. VCs, you know, the delta between VCs is valuable to pay attention to. In a bull market, usually your highest bid is going to be low quality capital. In a bare market is where you end up paying for it, you know. So you're advising all the founders out there to take lower valuation. That's right. That's right. Listen up, boys. Take the lowest valuation you can, yes. Cool. Speaking of, no, not true, but speaking of

VC stuff, we should talk about Athena. So Athena has also been getting a lot of hype, a lot of controversy. So I should mention Athena, we led the C round of Athena. We're large investors in it. I don't think robot has any stake in Athena. This is the highest disclosure projects. Or Hatsim ever. I know.

It's a very, very, a lot. Yeah. Usually when we disclose stuff, you guys are also invested. So that's, this is kind of the exception that we're invested in you guys are not. But, you know, so Athena. People were commenting about that on Twitter, actually. Yeah, they said robot investment in everything. The fact that they did not invest in Athena means the mechanism must be broken.

Clearly the mechanism is broken. There was some funny tweets, I got to say. Okay. So let's describe it very briefly and do it an explainer because we got a lot of requests to just explain what the fuck is Athena, how does it even work and why is it not a Ponzi? Or is it a Ponzi? And I guess we'll get the robot ventures debunking of the mechanics. of this thing, but let me very briefly explain it. So this thing was seated by us and Arthur

Hayes. It originally, the genesis of this was a blog post that Arthur Hayes wrote called, what was it, like some crusty? It's crust on dust. I don't remember. Crust on dust. So in it, he described a new mechanic for a stable coin that is essentially a tokenized cash and carry trade. And I'm going to leave it to Tom to try to explain a little more detail what that even means. A lot of people who aren't traders don't even know what any of those George means, so we'll try to explain a little bit of detail. But basically right now it has about 300 million plus in TVL. And the yield, so it's a stable coin.

If you hold the stable coin, you can get a yield of 27%, okay, 27% net yield. That is crazy high. That is higher than what anchor was offering. And so a lot of people have looked at this and said, wow, this is the new Terra. This is the new anchor. This is obviously going to blow up. This is obviously unsustainable. And something funny must be going on here and this must be extremely dangerous.

And so they've been arguing back and forth about is this thing totally broken and are we going to get the next big blow up in Defi because of Athena. Okay. So let's explain what Athena is and where is that yield coming from. Tom, you know the team very well. You were the one who kind of led the seed in the project. Explain to us, what is Athena and how is this not going to blow up?

How is it not a giant scam? Great questions. It is funny. I think I looking through the comments on crypto Twitter from the past two days, I realize maybe I'm kind of old because it's, The cash and carry trade is like one of the oldest trades in crypto, even before, you know, stable coins were super liquid and super available. People would offer sort of dollar-denaminated accounts on exchanges using this exact same

kind of trade. But now obviously, you know, you have stable coins, so maybe not as well-known. Concept at his core is you're holding some sort of asset spot, so Bitcoin or ETH, and then you're shorting perpetual futures on an exchange to the same amount of that same asset. So I would have one eath on the exchange. I would be short one eth per futures. And so it would be delta neutral effectively. But interestingly in crypto...

What is that you're delta neutral? Basically, my position is not moving in dollar terms when the market moves. And so when in crypto, perpetual futures, again, maybe as a as an explainer for people, you can think of them as basically continuously rolling futures. So every, let's say eight hours, which is kind of the standard, standard, the exchange will look at the difference between the index price and where the market that is currently traded. That rate, if it's above the index price, that difference effectively gets paid to people who

are short. If it's below, it gets paid to people who are long. And historically, in crypto, people are extremely bullish. People are willing to pay money and pay interest rates to pay interest to get long on an asset. And so historically, this averages around about 10%. API gets paid to people who short by people who are long on these PERP futures products. So rolling back a little bit, you're holding ETH spot, you're shorting your futures, and you're getting paid, this short position is getting paid by people who are long,

ETH futures on the exchange, and so you sort of collect this, you know, interest rate effectively from other people who are also on the PURPS exchange. The reason why Athena is interesting. So again, not a new idea. It's been around in crypto for a while. Athena is interesting in two different regards. One, the concern with this always historically has been what happens when funding rate goes negative, right?

What happens when, hey, actually, shorts are paying longs. Now you have this short position that is sort of gradually bleeding out because it's no longer going to be worth one-eath because you're paying it straight to longs. What happens then? And then, hey, you know, people have talked. try to do this in the past in Defy of, hey, let's use decentralized perks in order to have this sort of, you know, tokenized, you know, cash and carry. By the way, I should be also very clear. The team does not call it a stable coin. It's not a Staplecoin. It is a synthetic dollar or crypto bond. They did, they did, though. Let's not forget that they did.

No, it's not the website. It's on the press announcement. Not now, not now, but earlier there was there was actually mentioned. I think that was the thing to me that I always found very weird. Maybe like a year ago. I don't think the team positions it though. They're very upfront about the... I think we should be clear about that. That was part of the marketing, when they're fundraising, right?

I don't think it was. I think that was... When they were fund-raising, when they were fun. Yeah, maybe in the very, very beginning, but before they launched to anybody... Before they launched publicly, yeah, before they launched publicly. I think a lot of that was kind of narrowing down the language that make sure that they represent the right thing to people because calling it a stable coin does have a certain implication about degree of stability of the asset.

Like, I don't think it's likely that this a cash and carry, tokenized cash and carry trade, is going to be as stable as a USC. Yes. And we've also seen the problems with USDC. Point being, two things I think are different this time. One, with the rise of liquid-staking tokens, you have this nice kind of continuous background yield

that can basically act as a buffer in the event that, you know, yield goes or funding rates go negative for an extent period of time. So if you're earning, you know, four percent on your stake teeth, that can offset, you know, a period of funding of time when funding goes down to, you know, four, 10 percent, whatever it actually is. So you have a nice buffer there that you previously didn't have. If you had, you know, just this Bitcoin, for example, cash and carry position, when funding goes negative, you know, you are actually bleeding out because there's nothing to sort of offset it. The other interesting part that was mentioning earlier on the decentralized purposes, Athena is, you know,

basically tapping into a network of these MPC custodians that are separate from the exchanges, so you don't have this sort of F-TX type of risk because you have these separate third parties that are actually holding these positions, in order to tap into centralized exchange open interest, which right now I think is about $8 billion, just in ETH.

I think Bitcoin's even larger, like $11 billion. And so historically, these things have always tapped out because there simply isn't enough open interest on decentralized perks to allow these things to grow. Now we've sort of seen how big and how popular purpose on centralized exchanges, the protocol can basically tap into these huge centralized exchange markets and in theory grow into them as the protocol grows. So a few different things I think are really interesting. What about what Athena is doing? And I think the big point here

is it's a novel product. People have tried to do things like this in the past. They've always been handstrung by a couple of these different issues. Athena, I think, is a very interesting new approach and they have all the exchanges on board to sort of allow this network to form and allow them to tap into this really huge market. So what are the biggest risks then to Athena? In your mind. The big risk that people always talk about is, again, this funding rate issue, right?

Which is what happens when funding rates go negative? The answer is there's a couple different lines of defense. One is this insurance fund. So hey, if you look historically, you know, I think only 15 days or something when we had funding rates go negative, and even that are for very brief periods of time. And so historically, you always have a time?

I think this is the past three, four years of data. They published, or maybe it's 15%. Anyway, they published a bunch of historical data sort of describing what happens with funding rates over the past few years. And so when we're talking about funding rates going negative, this is not, oh, all of a sudden in this position is underwater, the Stapultecoin is under collateralized, it's, hey, you know, you're basically paying interest or stable coin holders are basically slowly bleeding out or slowly paying interest versus, hey, all of a sudden,

this collateral is worthless and there's nothing. I think it kind of similar to when Maker has a bad liquidation, as we've seen in the past, OK, well, we can retop up this collateral, but it's not as if, hey, this thing is suddenly, you know, Busto, for example. The other thing I think that that's, I think, so the way Athena addresses this is you have this insurance fund, you have this additional safety field, and then at some point

in the future, I think they will look into ways to basically have a sort of protocol level backstop and I want to get too far into the details. In addition to, again, building up this buffer from the yield that is accruing only to people who really stake SUSDE, not all the yield is going to be passed down directly to stable coin holders. So the 27% that you see on their website or on Twitter, that is a representation of current market events in the same way, hey, during crazy market spikes, you can also earn, you know, 12, 15% on your USDC on, you know, compound or Ave, it's not promising you 20% the same way Anchor did.

It's, hey, this is the current market rate. It's not guaranteed that we're going to be paying you 27% in perpetuity. And in fact, I suspect it probably will go down over time as the market sort of matures and as this thing grows. So, so, you make money in the good times, you spend it down in the bad times. And the expectation is that crypto markets historically have been capital constrained. As USD or what is, what the fuck is it? USDE is basically like,

providing capital to markets to allow them to gamble on the price of ether, essentially. And people historically want to go long. So if you are giving them the ability to go long, they will generally pay you for that. And when they're not paying you for that, you will be paying a little bit of interest. And that interest, you draw down what you've made in the good times. And that's more or less the idea. Well, the biggest risk I see, and I don't mean this sound too negative, is that it's essentially a tokenized head fund. where the hedge fund is managing a somewhat complex trading strategy across many different exchange venues.

And the best case scenario, best case scenario is that you get the funding rate implied by the futures and perps on a variety of different crypto exchanges, which you could do on your own. The worst case scenario is that the hedge fund doesn't perform in line with the impact. applied funding rate on all of these different crypto exchanges for any number of reasons why it could go wrong. And, you know, I think that's the fundamental risk. Like, I, you know, I'm excited to see it play out. You know, I'm always a little bit skeptical of these things.

But, you know, this is, you know, a very non-autonomous system at the end of the- Yeah. Yeah. I mean, this is the V1. It's a cap launch. I think they've been pretty upfront about the risks. I think there are plans obviously. That I disagree with.

That I disagree. I think, I mean. I think the main, my main criticism actually is the insurance mechanism. So the fact that the state USDA takes no risk. So the state USDA, which is basically part of their design, always gets positive yield and the negative yield goes only to the insurance fund. and the fact that 99% of their docs talk about how the insurance fund has like, there's no impact cost to it. Where in the sense that like, if this thing grew sufficiently large,

the ability for the insurance fund to actually, like the insurance fund having to take the losses would be taking them at the worst time. All the analysis assumes kind of this like linear growth of funding rate, no kind of worst case volatility assumption. And that's how they get the kind of small insurance funds. that they claim. That is a very misleading thing. We've actually, in fact, seen that blow up with UXD and Lema multiple times. And I think, obviously they had Dex liquidity, so it was much harder. But I think like there's a bit too much of a rosy, to Leshner's point, there's a bit too

much of like rosiness in these, some of the assumptions that are made. Now, I also think that as long as people are okay, realizing they're holding this vault strategy, which is trying to stay around some target range, that's great. But if people start believing in the same way that they believed in anchor, that it is a stable coin and that they have a way of, you know, it's like free stable coin like yield. And they start making the size of this thing very large relative to the rest of the market. That is exactly when all the operational shit blows up. And like there's a lot of like rosy colored rainbows in their docs about this. And I would say that that's, to me, that's the most misleading part about this. On the other hand,

It's an idea that has been tried and failed because on chain it's too hard to do. So I actually think that minus the regulatory risk, right? Like any, I could totally see government intervening and shutting it down, right? Like they told the custodians plus the exchanges shut down these accounts. The whole game is up. But ignoring that risk, I actually think it's a, that part is a novel, kind of interesting idea. But I do think there's a bit of sugar coding here. And that's fine, whatever.

The market is dumb right now. It's going to be D-Gen. It's going to be like Terra. And I don't think the blow-up will be if, when it kind of, if there is an unwind, will be as bad because it is generally much more collateralized. But I do think there is quite a bit of like a little bit too much, you know, like you read the Arthur Hay's stuff. It's like, clearly the guy didn't even, you know, I love Arthur.

Yeah. But like, I feel like he. Just to be clear. It is fully collateralized. There's nothing in the sense that. this future position. Do you have an insurance fund for a fully collateralized thing at all times? No, that's not true. That's the point. The point is there

can be this time when you don't you're not, right? Yeah, if funding costs are hypothetically in a bare market or whatever, you know, negative 50% for like a couple days, right? It rips through an insurance fund really, really, really fast, right?

So I think Troom might also be slightly salty because they hired Chaos Labs instead of Gauntlet to do their analysis on what the insurance fund might be required to supporting million dollars. Yeah, yeah, yeah, but that analysis literally looks like a fucking undergrad. Like, I will describe this analysis to you as the following. Okay.

Every year, you go to, you know, you look at undergrad, say, like, ML classes. And there'll be like five papers that are like, hey, look, I can beat the S&P 500 with this simple model that I trained with no impact costs, no transaction fees, no kind of like worst case assumption. And the entire thing is literally written like this fucking rosy undergrad data science project. I would be embarrassed if I ever wrote something like that for the record. I'm sure they're probably a little scared shit list based on the reaction on Twitter. Because honestly, that is like kind of an embarrassing research to have written.

This rosy colored assumption. And just like everyone is complaining on Twitter, like, for instance, what Kobe wrote, what other people are written, And the impact cost is the problem, right? Like when you are large enough and you change the market, the thing doesn't behave in the same way. And that part is the part that is misrepresented completely. So, like, yes, you can say, okay, fine. Like maybe it's a personal animus, but like it's like the fucking most basic part of this analysis that's wrong. And it's like.

Yeah. I mean, I hear you that, hey, you know, if Athenae does get to, you know, a bill and starts to meaningfully warp the future's market, then yeah, there will be some concerns around, how is execution going to affect the quality of the staple coin? It's also why the team is trying to grow responsibly. It's a capital launch. Tell me why workplace analysis doesn't assume that. Or assume there's impact.

It's literally written like a dumb undergrad paper. That's like I beat S&P 500 all the time. Well, the risk isn't even going to come from them and the underlying strategy in my mind. It's going to come from the system built on top of it, where there's going to be some products built on top of USTE. Lever, levered. That's not.

It levers it up and that's going to, yeah, it's going to attract like $300 million. And a 3% move in USDA, which is like very easy to have happen, is going to lead to a 60% move in this thing built on top. And it's going to cause who knows what impacts. But it's not going to come from this product necessarily. It's going to come when this gets integrated into other systems. When it becomes like, you know, a market in. you know, morpho or something, like it's going to have some unknown impact somewhere else.

And like, people have to realize that like there will be days where the funding rate is negative. And at scale, this might move the market into a negative funding situation. The other thing I'll say is, yeah. The other thing I'll say is that like, you know, they have some ability to mitigate that by being essentially an actively managed head fund underneath the hood, so to speak. Because if you look at it, like, on the CME, there's almost no funding curve at all. It's like almost like a completely flat funding rate for ether futures. Whereas on some of the exchanges they've picked, which are like as offshore as it gets, the curves are really steep.

But like the total mass market funding size is not that big. Yeah, I mean, if you look at your traditional securities, right, like, you know, generally the funding curve, you know, approximates what you would pay for the risk rate, right? Because it competes with margin, which is also true. I think I hear all of that. I think, again, the team is also looking at tranching ways. I mean, you sort of mentioned, hey, should SUSD holders, you know, not take first loss?

You can make the same argument around SDI holders. And in fact, you know, you could draw a sort of a similar analogy to MKR as a governance whole token and, you know, whatever potential token might come through through Athena in the future. And so there are- Wonders have much more predictable rates, right? They have lower rate volatility.

So the way to think about Esti in that scenario is very different than this. In this kind of like worst case. To be clear, the yields are not paid out instantaneously. They're not paid out necessarily all directly too. You have you, if you're marking your portfolio, right, which you have to do as a hedge fund for this, would be marking it and looking at like your overall portfolio volatility. And the volatility for SDI is going to be lower because of its composition. So there's a lot of nuance to this, which I think is like why I don't buy the rosy-colored

marketing also. Like the marketing. I don't actually don't think Esti collateral is more stable because you're taking pure ETH market risk versus something that is Delta neutral. I'm taking some funding risk. Like in a worst case scenario,

if I'm 50% you are... The rate curves in Maker is very different, right? Like there's all the duration risk differences between the two of those, especially because funding's paid out periodically. Yes. I already agree with that. I think the point being, hey, we're not talking a scenario

where the value of the collateral drops, you know, 30% in a day as it is with, you know, long-tail tokens or even a lot of, you know, major lending protocols have had issues with these. We're talking about a scenario where, you know, suddenly, you know, funding starts to drop and you're paying, you know, a few bits per day, which can be, again, mitigated with a sufficient treasury. And again, it's not as if this is something where, hey, we let this thing grow, you know, in infinite size and totally warp the market until it crashes. is it's more about, hey, how does this thing grow

in a way that's also sustainable and scalable? Yeah, look, I will say, I haven't read the chaos labs paper inside. I can't weigh in one way another of whether they had a rosy-colored glasses. I'm sure they do because it's a startup and they started with nothing. And so, yes, like any financial product you're building. That thing is a little embarrassing. I mean, I feel like it's just blew up. Oh, yeah, look, fair enough, fair enough.

Yes, I get the idea. I think I will say, I think the team, I'm not as close to them as Thomas, but the team has been pretty active on Twitter, just basically responding to everybody. And I think they've also been pretty transparent. They're like, yeah, look, there's custodian risk, there's counterparty risk, centralization risk.

Like, we want to kind of get it to a version of this system that is more automated and more predictable. But right now, look, we have V1, we're guarded launch, like, you know, all this stuff like, you know, LST, DPEG, all these things, they are risks. Like, this is a system that's composed of many underlying systems that couldn't exist four years ago, but it can exist today.

But the way that I think about it, and this is also the way that I encourage everybody at Dragonfly to think about it, is that I don't think it's useful to talk about it as a stable coin as opposed to think about it as a financial product. Like it is a tokenized cash and carry trade with everything that a tokenized cash and carry trade would entail. And if you don't understand what that is,

you should not buy this product. You should not invest in Athena because that's what it is. If you don't know what that is, you should go read up what that is and understand what it is. before you consider investing. They have points. What's that?

There's a lot of shit that has points. There's a lot of shit that has points. All that stuff also has idiosyncratic risks. If you don't understand those idiosyncratic risk, you should not buy it. If you understand what it is, and that's the thing too is that a lot of what we're talking about, I mean, we're assuming people even know

what a cash and carry trade is. I think a lot of people, even after listening this episode, don't understand what a cash and carry trade is. And that's okay. You know, crypto, it's very clear. This thing is not going to replace USDC or tether. Like it obviously can't grow to a scale and it has much more volatility.

than what you think of as a normal stable coin, which is why everybody who's invested has encouraged the team, don't call this a stable coin because people are going to misunderstand what it is and what the risks are. I think it's best understood as a tokenized financial product that is delta neutral. And that is desirable if that's what you're looking for. And obviously a lot of people do because a lot of people do the cash-and-carry trade in crypto.

And I think making that cash-and-carry trade tokenized, composable, easy to use is cool, comes with risks. every financial product comes with risks and, you know, finance is going to do what finance is going to do. We'll just probably compose those risks and create weird Frankenstein monsters out of them. But, you know, welcome to crypto. I mean, if we were concerned that people were not going to do that, we probably should never invented staking in the first place.

So that's my two cents. I mean, you know, Vitalik did invent staking, I would say. So you did technically. I mean, not us, obviously, but crypto. No, no, no, wait, wait. What was that coin before that had? The first proof of stake coin was much earlier. Oh, pure coin?

Pure coin. I think it was pure coin. Yeah, yeah, yeah. Granted their model doesn't look like the car. Slashing. You meant to slashing. Right. Staking in the modern sense, I think, is staking with value at risk was invented by Vitalik.

So anyway. All right, well, I'm sure we're going to get a lot of people yelling at us, but we were getting a lot of people asking for our take on Athena and given how close you out of the project. That said, obviously nothing here is investment advice. If you are considering holding Athena, don't do it. It's a very scary project. And, you know, caveat m tour. If you're a big boy and you understand the risks, then you should do your own research and, you know,

don't take anything you read at too much face value without investigating it yourself. So if there's any lesson in crypto, that should be it. Anyway, all right, that's a wrap. I'm sure we'll have people yelling at us next week about this. So we'll come back and address all the critical. this isn't that. Thanks, everybody.

Until then, until next time. Yeah. Everybody.