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Episode 5 - April 11th - $STRD With Vishal Talasani (Co-Founder of Stride)

TLDR In this episode of BidCast, host Jason speaks with Vishal, co-founder of Stride, about the evolution of their liquid staking protocol within the Cosmos ecosystem. They discuss Stride's business model, revenue generation, and the current state of liquid staking in Cosmos. Vishal shares insights on building a decentralized exchange on the Cosmos Hub, the importance of partnerships with Eureka chains, and the strategies for onboarding new customers. The conversation also touches on the alignment with the Cosmos Hub, future goals for Stride, and the execution risks involved in their ambitious plans. CHAPTERS / TIMELINE 00:48 Introduction to BidCast and Stride 01:47 Vishal's Relationship with Magnus and Interchain Labs 04:07 Stride's Business Model and Revenue Generation 05:36 Liquid Staking in Cosmos vs. Other Ecosystems 11:19 Future of Stride and Capital Needs 14:13 Building a DEX on Cosmos Hub 19:01 Partnerships and Order Flow in DeFi 25:12 Building on Cosmos Hub: Opportunities and Challenges 26:44 Fee Structures and Revenue Models 28:10 Aligning Stride with Cosmos: Revenue and Tokenomics 29:09 Defining Success: Milestones for Stride 31:27 Business Development: Strategies for Growth 33:21 Onboarding and Customer Engagement 34:03 Liquidity and Market Dynamics 37:23 Competition and Collaboration in the Cosmos Ecosystem 40:02 Investment and Alignment with ICF 42:12 Improving Token Liquidity and Accessibility 45:40 Future Products and Execution Risks TRANSCRIPT << Jason Kam (00:48) >> ⁓ All right, we are ⁓ live. ⁓ Welcome to another episode of BidCast. I'm your host, Jason Kam, aka at Maple Leaf Cap. Today is April 11th, 2025, noon Hong Kong time. BidCast is being livestreamed to BidClub members. Questions are from the members and my own. We plan to only cover liquid tokens and Web3 related equities in this podcast, where participants may own the instruments discussed. All opinions are our own and Bid Club is not being compensated for the content produced. Nothing we discuss is investment advice, nor do we believe there's any material non-public information in the episode. Today I'm speaking with Vishal, the co-founder of Stride. Vishal, welcome.   << Vishal (Stride) (01:30) >> Hey Jason, thanks so much for having me on. Super excited to be here.   << Jason Kam (01:33) >> Yeah, man. Why don't you tell us about like a, the a relationship with Magnus and Interchain Labs, who seems to be running Cosmos Hubs these days. How do you get to know him and like, what's your working relationship like?   << Vishal (Stride) (01:47) >> Absolutely. Maybe to start, run, or I was one of the co-founders of Stride, a liquid state protocol in Cosmos. We launched like three years ago. We actually were founded, I think within a month or two of when Skip was first founded, or at least publicly announced. Skip was Mag and Barry's company that got acquired by the ICF. So this was in like March of 2022, maybe. And then September of 2022, and then we first met them at Cosmiverse. So was right when Stride launched.   << Jason Kam (01:53) >> Hmm.   Hmm.   << Vishal (Stride) (02:14) >> Skip was just getting off the ground. They had like a med client that was getting like pre rapid adoption Started talking then but we didn't have a professional relationship at the time that just I know we're around the same age Just started companies in Cosmos. We were super excited the space and kind of a lot of them shared goals outside Then maybe like six or twelve months later skip started expanding far beyond them and doing a bunch of like IBC stuff I'm gonna start doing stuff for relayers or just generally consulting with teams for how they can improve the UX across chains   << Jason Kam (02:37) >> Hmm.   << Vishal (Stride) (02:42) >> We started working with them then on some Stride, like tokenomic stuff. So we're thinking about ways we can use the revenue ⁓ and in particular, could we like swap the revenue for Stride. At the time it was just kind of hard doing Cosmos because all the DEXs are on different chains. So we started working with them there on that. Then over the years we worked with them quite a bit on IBC stuff. They've done quite a lot of upstreaming to the IBC repo and ⁓ 70 % IBC traffic is run by Skipco today. And Stride is one of the largest IBC consuming chains.   << Jason Kam (03:07) >> Hmm.   << Vishal (Stride) (03:11) >> So we have lot of work on kind of the IBC layer and then SkipGo also. We've done quite a lot. We integrated to the Stride website, giving feedback on it. It's their primary front-end widget and we've worked with them to integrate all of Stride's features through that. So it's been kind of a long journey. would say the first year was maybe more social and we worked together over the last few years. But over last six months, we've been working together super closely, probably talking every day or two about Stride's new endeavor with the Cosmos Hub and kind of what their dreams are for Atom and how   << Jason Kam (03:29) >> Yeah.   Yeah, I mean, we just spoke with them. And they basically asked 90 % of the workforce took IBC in-house and then basically chopped all of the external vendor relationship. And do you feel like they are sort of labor constrained at the moment? They have to outsource a lot of work to folks like you and co-building things together? What's the working relationship like now that he's sort at the helm of ICL driving value to Atom   << Vishal (Stride) (04:07) >> Yeah, yeah, absolutely. think they are, they're nothing constrained, although I don't know if it's labor constraints, they actually, I think, inherited quite a large number of people at the ICF and ICL and with the ABC teams, the Cosmos teams, et cetera. My sense is they're really trying to focus in on a few core goals, like when they kind of were, took over the ICF leadership, they have a, they have like kind of an uphill battle, know, Atom had been, they had been struggling for a while, there was like a, not a clear product direction.   There's a lot of a discontent outside the ecosystem. I think they are, truthfully, they've been quite effective. I think they're trying to do a very targeted plan on like three big things or two or three big things they want to ship, focus entirely on that. And I think they actually have more like shrug the organization to focus just on those goals. And I think as a result, they're trying to delegate like other sub tasks to other teams. like, for example, like in our case, they know they want a lot of swap flying right through the hub, but they don't think they have the ability to like take that on when they're also kind of   << Jason Kam (04:40) >> Hmm.   << Vishal (Stride) (05:06) >> evangelizing the ecosystem. And so that's what we're on the left.   << Jason Kam (05:09) >> We'll talk about that in just a second. And on the Stride's core business today, if I'm not mistaken, you are deleting restaking protocol on Cosmos today with about 40 million of TVL. Yeah, go ahead. Liquid staking, sorry. 40 million of TVL, just about.   << Vishal (Stride) (05:11) >> Yeah, bye bye.   Yeah, one small thing, liquid staking, not resaking. Yeah.   << Jason Kam (05:36) >> Yeah. Walk me through how does that ⁓ 40 million TVL sort of translate into fees to the protocol.   << Vishal (Stride) (05:45) >> Yeah, yeah, we have a very simple business model. Basically, you can think of it as the same as LIDO. Every six hours or so, the protocol accumulates staking rewards from all the tokens that are staked. 90 % of those get sent to get reinvested and get auto-compounded back to the LSD holders. 10 % gets taken as a fee to Stride. The vast majority of that revenue gets used to buy and burn Stride. About 15 % gets used as payments for security for the blockchain.   << Jason Kam (05:58) >> Hmm.   Yeah, so the math is ⁓ 40 million TVL. It's mostly $Atom at the moment.   << Vishal (Stride) (06:16) >> Yeah, the are largest token, but we have 15 different LCs, but like $Atom, $Tia, $Osmo, $DYDX, that's the majority.   << Jason Kam (06:23) >> OK.   And the blended yield is like 10 to 15%, just about. OK. So 40 million times 10 to 15 % yield times 10 % tick rate ⁓ times 80 % sort of fee capture to stride treasury itself is about ⁓ half a million of run rate revenue. Is that right?   << Vishal (Stride) (06:27) >> Exactly. Yeah.   Yeah, right around there. think it might be around 450 like fairly than 7 day average if I remember correctly. But it fluctuates a little bit. Some of the yield is real yield from protocols like DYDX or osmosis for example. But I think it should be right around 450 to 475 right   << Jason Kam (06:56) >> Mmm.   Got it. And I guess that's revenue going directly to ⁓ token holders through DirectBot.   << Vishal (Stride) (07:07) >> Exactly. Yeah, yeah, it's flyback and birds.   << Jason Kam (07:10) >> Okay, so how do you fund yourself then?   << Vishal (Stride) (07:12) >> Yeah, we have been pretty fortunate. We had a super round like three, ⁓ almost three years ago and then we've done one initial round of financing off of that and then the ICL is giving us some financing right now. So, entirely funded through token sales.   << Jason Kam (07:19) >> Hmm.   ⁓ sorry. ⁓ From previous rounds and then plus ICL's grants. So you kind of don't have to sell tokens in the open market to sort of pay for it.   << Vishal (Stride) (07:38) >> Exactly, I just want clarification that ICF not ICL misspoke. ⁓ Yeah.   << Jason Kam (07:42) >> ICF, okay, yes, very important. Magnus was   ⁓ very keen on telling me that it's different entities and sort of independent decisions. Okay, that makes sense. And do you give away any incentives at the moment of stride to the stakers?   << Vishal (Stride) (07:49) >> Yeah, yeah.   Yeah, it's a great question. So, stake is going to a little bit. It's never been very inflationary, so it's around, I think, 2 % stake and yield with like around 2 % inflationary as well.   << Jason Kam (08:08) >> So it's not that much. So people are really getting what they get from the base layer. OK, that makes sense. I I guess one question that people are always wondering is, mean, Ethereum, I forgot what the number is. It's like a 30%, 40%, 50%. A very high percentage are not only staked, but they are done through things like LIDO, whereby for every other ecosystem, including Solana, I mean, like,   supposed to talk to Sanctum, but everybody else is like extremely low liquid staking. Why do you think that is and do you think there's ever chance of getting it up?   << Vishal (Stride) (08:44) >> Yeah, no, it's a very good question. And I think we've seen almost the first counter example recently because of the parachain. And I think it's actually somewhat consistent. With Ethereum, I think there was a lot of historical reasons for Lido. So when Lido came out and launched $StETH it was basically very difficult to actually save $ETH at the time. For a retail user, was basically inaccessible. Even for most institutions, it's from a security perspective, infrastructure required, 32 $ETH minimum.   << Jason Kam (08:50) >> Hmm.   << Vishal (Stride) (09:11) >> The fact that staking and the kind of versus associated were a little bit like, I would say complicated or opaque to a lot of like fund managers. A lot of people like, you know, use Lido then. And then now that there's so much adoption and so institutional, ETH has by far the most vibrant DeFi ecosystem. That has kind of led to a huge adoption of ETH and it's kind of used kind of throughout DeFi. For other ecosystems, staking is much simpler. Mostly because they've developed it or iterated on it.   << Jason Kam (09:21) >> I see.   Mmm.   << Vishal (Stride) (09:39) >> And so you really don't have to use LSTs unless you want to participate in DeFi. And right now, think most chains, like the vast majority of tokens are not in DeFi. They're kind of held on CEX's or held in regular wallets. So we see typically, I think, like 5 % liquid staking rate for most ecosystems. The one exception I would say, though, is Bera chain. I think for two reasons. One, it is quite hard to stake your Bera And as a result, doing it through liquid staking brighter is much easier.   their whole ecosystem is entirely geared around DeFi. So even the tokens held by ⁓ like investors or insiders are often deployed in DeFi. And I think we've seen huge,   << Jason Kam (10:20) >> So do you expect that for cosmos like I think it's like 2 % liquid staking do you expect a number to go up meaningfully in the future? Is it pretty difficult?   << Vishal (Stride) (10:28) >> Yeah, I think it can go up to like maybe five to 10 % if DeFi goes up. Cosmos has a very immature DeFi market relative to other ecosystems. And think we're getting into parity, I they'll get that number up. To get really high numbers though, like we see on Ethereum or elsewhere, I think we'll have to see some real innovation on the LST layer or some big increase in trust. And those are two things that won't go back right now.   << Jason Kam (10:48) >> Yeah.   And   people are staking themselves on Atom is pretty easy. Just go to the hub and go cap. You probably have to see some Ponzi Pool 1 and Pool two games being played with the sort of liquid stake.   << Vishal (Stride) (10:56) >> Exactly. Yeah.   Yeah, or   if it's something like you can use the  tokens in DeFi product early maybe to earn fees or something, then there's an additional reason to stake. But in general, think for most dollar scenes, they're very restrictive to just DeFi.   << Jason Kam (11:11) >> Hmm.   Do you foresee yourself ever needing capital by selling ⁓ tokens in the market or raising? I think you raised $12.2 million over time through three rounds of fundraising plus the grant from ICF. ⁓ You're self-sufficient, I'm guessing for a while with the burn today.   << Vishal (Stride) (11:33) >> Yeah, exactly. think our hope is to never have to sell stride tokens in market. We've never done it. as a company, none of the founders have ever done so either. I think it's something that has a kind of big implications. You should be really confident when you want to do it. I don't know if the protocol is at that level of maturity yet. I'm pretty lucky, I think, to be able to take lots of funding from investors who have long locks and are willing to support us.   And the hope is that the protocol becomes much more revenue generating and we can use that revenue to fund operational expenses. We're a pretty lean team, this should be feasible. We were actually cash flow positive a little bit earlier this year, but then token prices have gone down quite a bit and yield's about a little bit as well. But even when we cash flow positive, then the revenue went to the labs or financial entities. But in the future, revenue's higher and we've got certain tented path to sustainability.   << Jason Kam (12:28) >> Sorry,   and 80 % goes to burn, but 20 % goes to team. at one point, cut.   << Vishal (Stride) (12:34) >> No, this is actually 20 % goes to Atom basically for providing security. Yeah, so none of it goes to the team.   << Jason Kam (12:39) >> Hmm.   I see. So how do you break even?   << Vishal (Stride) (12:45) >> Yeah, maybe a misnomer. I spent like the total revenue of the protocol was ⁓ higher than total expenses, ⁓ like development costs, but we didn't actually like carry it through.   << Jason Kam (12:53) >> Ah, OK.   OK, but you're still expensing salary. But I guess that's OK, because you still have a huge war chest plus the grants. OK, and in the next two or three years, you'll be OK, even if you step up the number of staffs.   << Vishal (Stride) (13:04) >> Exactly, yeah.   Yeah, think next year's we should be okay. And then the hope is that ⁓ with this new partnership, we can start generating some more revenue and then we can also use that to extend our own.   << Jason Kam (13:19) >> Yeah,   yeah, yeah. That would get to the really exciting part because half a million, I mean, the step up from 2 to 5 to 10 % of liquid staking percentage is, we will see. I don't know if Atom's going to pump so that like the 40 million turning into half a million of revenue. I don't know if that's going to like materially change in the future. But I think what's the most exciting, and correct me if I'm wrong, is that ⁓ because of the management change that happened with Magnus at Atom,   And because they need a lot of things being built in the Atoms Cosmos Hub, namely the DEX, the Liqudity Staking, the Lending, whole DeFi ecosystem. ⁓ Tell me more about your relationship with them and whether they're enshrining or levying some real growth effort that Stride is actively working on that may not be known by the market.   << Vishal (Stride) (14:12) >> Yeah, absolutely. So it's just got announced very recently. We've been working with them super closely to build a DEX and kind of a whole DeFi suite on the Cosmos hub. Maybe a little bit on the goal there and how much of it is like in try and make, how close are you working with them. The goal from them, I think they've announced Eureka last week. That's been like a big product release. Like the hope is there's a lot of liquidity on Ethereum, Solana, a bunch of other chains.   they can bridge over to these new Cosmos chains like Babylon. It seems like a very compelling product offering. have like 10 or so customers already, all of which are very large chains, bunch more on pipeline. But to enable that, I think they need a high quality DEX on the Cosmos hub in order to be able to actually bridge volumes over, be able to swap from token A to token B, and also to help to strap up the DeFi ecosystem on the hub they're trying to help build. we've been about this vision for quite a while and we're pretty excited about it.   << Jason Kam (14:49) >> Hmm.   << Vishal (Stride) (15:08) >> they wanted us to kind of build the stacks on the Cosmos Hub with the goal of serving these Eureka Chains. So that's kind of like what the original intent was. And then maybe a secondary goal is also to help kind of bootstrap the C5 ecosystem on the Cosmos Hub. In terms of kind of how the relationship actually goes, we work with them pretty closely. This is predominantly in like a goal setting, I would say, or kind of aligning on what's important to focus on. We talk with them quite a bit about what their vision is for Atom, who they see as the users in the first 90 days, first...   six months, one year, how can we help unlock those users? How can we help optimize the product for those people? We do that pretty close to them as well as kind of get technical help. We've had a number of years experience with Cosmos SDK, IBC, et cetera, to help out if they're blocked on something there. And in return, we get to be super close to kind of what they're thinking, what they're deploying, get really close to who the users are and who we're trying to build for.   And in that sense, we are very closely kind of working with them, know the roadmap, kind of help guide that roadmap. But it's not enshrined meant that ⁓ no one else is allowed to build a dex. Like anyone can come build in the Cosmos Hub. I don't think they're opposed to supporting other dexes either. I think that partnership with us is they really have ⁓ an acute need for a very high quality dex, and that's like, you know, immediately actually, to help serve these users. And we want to help do that. But it's not that... ⁓   << Jason Kam (16:10) >> Hmm.   ⁓   Hmm.   Hmm.   << Vishal (Stride) (16:35) >> No other DEX's can exist on the Cosmos hub.   << Jason Kam (16:37) >> Very clear. then this will be like a Uniswap v2, v3, v4 type of equivalent.   << Vishal (Stride) (16:43) >> Yeah, we're hoping to do right now is for community  and then we're doing a bunch of kind of extensions on that to add a lot of kind of constant features.   << Jason Kam (16:52) >> And the difference between that and osmosis is what ?   << Vishal (Stride) (16:55) >> Yeah, great question. They're quite different. So Osmosis is kind of a L1. It's built in the Cosmos SDK. And almost all the swapping logic happens on natural protocol layer. So you've got natural code that binds the blockchain together. As a result, they do a lot of custom stuff. So their chain can do all sorts of custom types of training strategies or CL deployments, wherever it is.   << Jason Kam (17:08) >> Hmm.   << Vishal (Stride) (17:21) >> But on the flip side, you can actually like plug into lots of other applications. So in particular, Eureka, because it all goes through Cosmos Hub, that flow can't go to Osmosis and that can kind of only be internalized by the Cosmos Hub ⁓ and like other DeFi apps in the Cosmos Hub. It's much easier to make like a call to smart contract lives on your chain, as opposed to having to do some bridge to another chain, get funds back, whatever it is.   << Jason Kam (17:42) >> And   when they turn it on, mean, Magnus is pretty shy about this, but Rabi, Phantom, MetaMask directly to you, Kepler still cost me my set. that the way to think about this?   << Vishal (Stride) (17:56) >> Um, so there weren't, I'm sorry, I think I quite follow.   << Jason Kam (17:58) >> Like basically, ⁓ can I use Rabi and MetaMask with your DEX?   << Vishal (Stride) (18:03) >> Oh yeah, oh yeah,   yeah, so sorry. Yeah, I believe so. I think that's the exact timeline on this is a little unclear and they're kind of working through it. But the hope is that this should be, the customers are using all sorts of wallets. The hope is that they're bridging people from Phantom, MetaMask, over to all sorts of really niche wallets. And the hope is that we can be supported by this goal of native integration. So your assets in the Cosmos Hub, yeah.   << Jason Kam (18:07) >> Hmm.   Hmm.   << Vishal (Stride) (18:32) >> Yeah, yeah, so yeah, it's a great question. So two fronts. So one, we're working with them on kind of using their treasury to help like bootstrap DeFi. They're still kind of trying to work through, I'd say with the legal team on what exactly they're able to do there. But we're I think tightly aligned on the goal of that they have a quite a large war chest and they really want DeFi to happen very soon. Working that pretty closely on like how they can kind of help make that happen.   And then the second thing is on that's all order flow. So I there's two ways order flow we're helping to get from our that we are getting from them. So the first is ⁓ order flow from Eureka chains. So people are swapping, you know, from Eureka, we'll be in the Dex and the Cosmos hub. That's going to be the centerpiece for all these transactions. We can process all that swapping. And the second is they run Cosmos Go, which is the largest IBC aggregator ⁓ or Cosmos aggregator. It serves a whole bunch of chains. If you guys haven't checked it out, definitely go check it out. ⁓ IBC off on.   << Jason Kam (19:01) >> Hmm.   ⁓   << Vishal (Stride) (19:31) >> Yeah, it's great. You can swap from any chain to any other chain. But we're doing a preferred partnership with them there. first, any swaps that go through there, if we have competitive execution price, because the UXs are being better for users, a lot of those swaps will go through us. They do around 70 % IBC volume today.   << Jason Kam (19:50) >> that's interesting. That's the skip go. That's basically, that's what it is.   << Vishal (Stride) (19:56) >> Yeah, it's skip go. I would say it's like the canonical front end for skip go, although people can also plug into skip go through an API. Yeah.   << Jason Kam (20:00) >> interesting. so   walk me through. ⁓ So what your DEX is live and running, let's say they see that it was like 50 million TVL, just for example. And ⁓ let's say for whatever reason, I want to swap from Solana, like Sol, and directly to ⁓ USDC on Osmosis, for example. And I'm hooked up with Eureka. In my mind, the flow goes like through Eureka.   The Solana gets bridged onto Atom Cosmos Hub, aggregated through, swapped through DEX of the Cosmos Hub's choice, and then through IBC bridged to Osmosis as USDC. Is that a right way to think about this?   << Vishal (Stride) (20:48) >> Exactly. the one caveat is that's like the intended path and that's the path that will have the best UX for users, like fastest thing, least number of transactions. But if the execution price is bad in that route, like let's say like you're trying to go from shiba inu coin over and it's like, actually, we don't have good liquidity on that. Then I think I'll fall back to whatever like the best taxes that gives you that price. But there's some trade off there on UX and price.   << Jason Kam (21:01) >> Mmm.   I see. So if Osmosis, for whatever reason, basically forks Eureka with their own treasury, and they can also Hulk it up with Solana, then basically the Eureka bridge would not sort of... It might prioritize Atom, but it doesn't have to. It could just like hop. then in that case, your DEX on Cosmos Hub would not get the volume.   << Vishal (Stride) (21:36) >> Yeah, it's a great point. if there's like someone that wants to spin up like other liquidity for these types of things, and then we don't do a good job of targeting well, we don't want users to go through our DEX like if they're getting a much worse price, you know, it's worse for them, they're not going to like the product, not going use it. But this exact case, think is not really possible to happen. And the reason is, Eureka is like a combined product offering with ⁓ the ICF and Atom. And so it's the bridge over to Ethereum or Solana, etc.   << Jason Kam (21:48) >> Hmm. Hmm.   Yeah.   << Vishal (Stride) (22:04) >> But it's also a bridge to your chain that you agree will kind of be canonical. So let's say like, Babylon signs up for this, they kind of agree that this bridge over to Adidas is canonical and they'll use the skip go routes and, or think Cosmos go rebranded routes and market makers, et cetera, to help you onboarding flow. If Osmosis did like another IBC connection, I think this aggregator would just ignore it because it treats only this route as canonical. ⁓ Does that make sense?   << Jason Kam (22:19) >> Mmm.   Hmm.   ⁓ And let's say there   are a lot of DEX that's being sprouted up. I doubt they're going to get the same level of TVL as you do. But let's say they get some TVL. And then through Cosmos Go, some volume gets routed over. And let's say it is a transactional volume. ⁓ That's when you get paid. OK. And what does a preferred partner mean in that case? Because it would seem like they would just split the order flow based on the fill.   << Vishal (Stride) (22:48) >> Exactly, yeah.   Yes, so I think they ⁓ will split the order flow based on the fill if the fill is sufficiently bad. But preferred partner I think is, ⁓ there's like a, the optimization for a aggregator I think isn't always just like cheapest or best execution price. They do like some mixed weighting of like speed, UX, ⁓ maybe like number of transactions to user. They don't have to like some aggregators that they do obviously just do best price like Jupiter.   << Jason Kam (23:13) >> Hmm.   << Vishal (Stride) (23:23) >> doesn't make sense to consider this like all the swaps are atomic, you know, just give you the best price for them. have like some ⁓ goal there. And so for us, because we're kind of heavily optimizing around the UX here, ⁓ we're hoping to build around the Eureka chains. And then the preferred partnership is if our best price is within a tight band of the next best option. let's say there's ⁓ making up a number here, but 10 basis points or 20 basis points of the next best option. But because the UX is better with the preferred partner, we'll still get that flow.   << Jason Kam (23:42) >> Hmm.   Hmm.   ⁓ OK. So it is quite nice. And is it on paper anywhere, or is it just like we like each other? That's why we're offering to you?   << Vishal (Stride) (23:55) >> Yeah.   Yeah, so we've kind of put together docs and sent this through. Some of this I think is everything's written down. I say we're very in tight sync around what we're trying to do here. And not all of it, I think can be like.   << Jason Kam (24:13) >> Hmm. Hmm.   Disclosed Interesting. ⁓ And how soon do you think this will be live? The product that you're building, like the first, like when is the first dollar of swap? Because IBC, your hair's already live, right? So like when is it going to flow through your product?   << Vishal (Stride) (24:20) >> Yeah, exactly.   Yeah, so we're pretty much just sprinting right now to get this out. This is our top goal. Our hope right now, we're targeting two months to get everything done. It's gonna be like, there's these number of contract changes on the backend and then fully above out front to make sure everything works for Eureka. There's some uncertainty in there though, mainly because there's kind of a number of moving parts here around like IBC, mean Eureka's SR milestones and ASPSTAR and software upgrades in the hub. So everyone's targeting two months, but.   << Jason Kam (24:39) >> Yeah.   Hmm.   << Vishal (Stride) (25:02) >> I think two to three might be like a safer time.   << Jason Kam (25:05) >> And are you aware of any other Dexs that are doing similar things on the Cosmos hub?   << Vishal (Stride) (25:11) >> ⁓   Yeah, I'm not aware of others on Cosmos Hub. There is an early great team called Ellis that is working super close to the Cosmos Hub. They have like a whole DeFi suite, so they like, they also do Spot, but they're also their own chain, just kind of send around Atom. ⁓ So far we haven't heard anyone else kind of building, specifically on the Cosmos Hub . Although I think given the Eureka just launched and there's kind of all this excitement, it's inevitable.   << Jason Kam (25:26) >> Yeah.   Yeah. And then the fee structure. And to be very clear, ⁓ there are three types of flows that could happen. The first type of flow is ⁓ the transfer. So like USDC on Solana to Atom, you will not get that. It's just done. The second type is sold to USDC, go on your hub, your chosen body, Cosmos Go aggregator, and you get the fee. The third type is for some reason people want to ape some coins.   And because you are the largest DEX, they ape on you, and you also get the fee. On the latter two cases, what kind of fee structure should we be thinking about here?   << Vishal (Stride) (26:14) >> Yeah, I think we're,   we haven't finalized anything, but we're thinking right now it's kind of mirroring osmosis. That's what lot of osmosis users are familiar with. It seems pretty healthy and sustainable. they have good market share and also pretty healthy revenues. That's something like 10 basis points for most swaps, but with certain pools having fee discounts, depending on how strategically important they are, or if there's like promotional period or something. The one additional thing I would add is on top of these two, the three users outline, I there's also two other kinds of users that I'm imagining.   One is just the aggregator users. So people who are just like generally using aggregators to move around ecosystems, a lot of that I think we'll also capture. And then last is, I think we're hoping to be the most like Atom aligned DEX. So anyone who's, you know, been in Cosmos for a long time or is like a real Cosmos OG, we're hoping to make kind of a really great product for them and will be the place that they, and a big part of that is that we're really trying to make Atom and Stride very value aligned. And so a good portion of Stripe revenue will be used to buy and burn Atom using the DEX will help.   << Jason Kam (26:47) >> Hmm.   Hmm.   Yeah.   << Vishal (Stride) (27:12) >> know, use Atom as transaction fees. So trying to get that in line as well.   << Jason Kam (27:16) >> Mm, OK. And those are really good points. I want to get to them one by one. So if it's like a 1 % pool, you will charge 10 vips on top of it, effectively, kind of. OK, OK. And then of the fee that you accrue in those volume, how should I think about the split of that to your team, the stride, and Atom?   << Vishal (Stride) (27:27) >> Yeah, yeah, exactly.   Yeah, so right now I would say the majority of it will go to Stride token, most likely Buy Back and Burn, although possibly Buy Back and LP, we're kind of actively evaluating the two and listening to people's feedback. And then the other minority of it, but still a healthy chunk, will go to Buy and Burn Atom, or Buy and LP, I think they kind of defer to Mag and Darian, what they think is best. Right now none of it will go to the team. I think the hope is that we'll get   << Jason Kam (27:52) >> Yep. Yep.   Hmm.   << Vishal (Stride) (28:10) >> the DEX to large-mess profitability, like even Osmosis has, I think, around $10 or $12 million a year in revenue. It fluctuates quite a bit, but ballpark there. We're hoping that it kind of takes a small chunk of this out to cover kind of operational expenses, but nothing's proposed yet, and I think we're hoping to only do it if and when the DEX is successful.   << Jason Kam (28:22) >> Hmm. Yeah.   That makes sense. What's it going to be called? You don't have to tell me if it's still in the works.   << Vishal (Stride) (28:35) >> ⁓ yeah, yeah.   It still doesn't work. I'd say we're like 98 % there, but like not everyone's fully happy with it. So it might change. ⁓ but we'll see.   << Jason Kam (28:41) >> Yeah, yeah.   Yeah, fair enough. think   coming up with a name is always the hardest. Funny enough. ⁓   << Vishal (Stride) (28:49) >> hard yeah we also have a lot of   stakeholders right so it's like a lot of people in the stride team you have a lot of people who and everyone feels strongly about names a lot of people on stride side but then also people from the cosmos community or the ICF a lot of people have lots of thoughts and so there's a lot of good ideas but it's hard to pick one   << Jason Kam (29:02) >> Hmm.   What would success look like to you if this product works? What would make you happy? Any milestones that you're thinking about that? Yeah.   << Vishal (Stride) (29:17) >> Yeah, yeah, absolutely. I'd say, like, probably like, there's some tiers, like some stages. Early on, we'd be very happy if we sort of like the majority of Cosmos users. And that's like our first goal. So I users who have wallets and Cosmos chains, where are they swapping spot? If we're the place the majority of them go, that's a huge first win. And they can get there early on like that, which we'll do shortly after launch. That's kind of our goal. Pretty soon after that, think our hope is to just process a ton of volume.   I think by end of this year we're hoping to do something similar to what most of us do today. I something like generating something like 10 and 12 million a year in revenue. The volume would depend a little bit on the fees, but they do something like 30, 50 million a day, something like 2 billion a month. I think we're hoping to get something like that pretty, hopefully not by the end of the year, but this year. And then after that, think a lot of our growth from that point, I would say that's kind of us.   << Jason Kam (30:08) >> Hmm.   << Vishal (Stride) (30:14) >> growing into and winning the market that we're in. And I think from that point, a lot of the kind of milestones that make us happy is growing one, the DeFi ecosystem on the hub, but I think more importantly, the Eureka ecosystem. And the second one is probably going to be a big part of our focus. So how can we get like more and more big customers to join Eureka? How to make the value prop bigger? Ultimately, every customer is like just more volume and more users for us. So I want to start dominating that. I think that the next goal there is really like   get the Eureka, like, IBC ecosystem to be the largest bridge in crypto. Like Max said, do 20 billion a month and a bridge volume from that. And then our fees can be, I then the Cosmos Hub would really be like a router for all of crypto and there's tons of value being created and lots of fees to generate there.   << Jason Kam (30:57) >> Hmm.   Yeah, you touched on a couple of things. One of them is ⁓ serving as BD function for Cosmos Hub slash Eureka. And the second part is potentially more DeFi products beyond just a Uni v3 fork that you did. Can you expand more on that? How is your BD approach going to be different than Maghnus's? And then when you talk about, it's probably like at least you're down a road when you build products, but what would those products look like if you were to build?   << Vishal (Stride) (31:26) >> Yeah, totally. I think at least early on, very much focused on the DEX, but trying to help like whatever needs these teams might have. So part of the BD function I think is also just like, you want more salespeople to kind of like hype up the value that you're making them bring. So Mag and Alexi do a great job on that, kind of follow on  that. But then, specifically on the DEX side, I think a lot of chains have a lot of like onboarding, huge pain point. Like there's basically been like only a handful of times in crypto, they can onboard onto an app and it's been like   reasonably easy. I think it's always a big drop off point for chains. We're hoping to kind of help make that good for those people, or those chains. So think about what are the tokens people are going onboard on? What's your launch date? How much volume should we expect? And then we have liquidity we want to deploy, and we want to use that specifically to help that onboarding for those chains. So that's a pain point we want to solve right at chain launch. Establish a partnership early, help as an ongoing basis. Here's what onboarding and offboarding flows you're seeing.   << Jason Kam (32:21) >> Mmm.   << Vishal (Stride) (32:26) >> or is it make that even easier for users? That's one thing. And the second is trying to find like other things we can do that will make the DEX like win for the other chain as well. This is little bit harder to do, I think, but we have a few ideas. So one thing is I think for all the Eureka chains, we haven't fully finalized this, I think something like this we will do. ⁓ Using something like half the protocol fees on those pools. So let's say Babylon, like the baby pool, use half those fees to buy an LP, the baby token.   drives alignment with that chain, like half the fees there going directly to help improve  for them. And also helps the stride DEX, like now we have protocol and liquidity on the chain, helps make us a bigger trading money for those teams. Yeah, and then we're hoping other stuff as well, like incentive matching. So like if other teams are willing to do incentives, we'll match them either with stride token or maybe like redirecting some protocol revenue, ⁓ might do like custom features for these teams. Mainly, we're thinking is there's so much leverage on the first 20 Eureka customers.   << Jason Kam (33:03) >> Interesting. ⁓   Hmm.   << Vishal (Stride) (33:21) >> We want   << Jason Kam (33:22) >> Hmm.   << Vishal (Stride) (33:22) >> to do everything we can to land those. Once you build those network effects early on, you get a ton of value from them during a lot of usage. And then every subsequent sale is much easier.   << Jason Kam (33:31) >> Do you have enough bodies? Do you do it in separation of the effort that Maghnus is doing? Or are you doing it together? Or are you all in the same group? How does that look like in reality?   << Vishal (Stride) (33:40) >> Yeah,   probably combination. My guess is they probably have tons of meetings without us, you know, like, and then when they want to talk about things like liquidity or how onboarding flows will go, we're much more involved there. And then we'll have separate conversations to take that further.   << Jason Kam (33:50) >> Let's wink it.   Got it. And so the next 12 months, the focus would be this bridge and just onboarding customers plus DEX, effectively.   << Vishal (Stride) (34:02) >> Exactly. Yeah. And on my mind, they're very similar. We're really focusing on the onboarding part of the funnel that's around the DEX and particularly like how can the DEX really like enable these flows? Maybe to give you like one example of kind of what we're thinking. We've been doing a lot of digging into like the aggregator volume in Cosmos and what retail users do. So looking at like a breakdown of different types of trades, like what tokens do users trading into and out of what, what sizes.   << Jason Kam (34:09) >> Hmm.   << Vishal (Stride) (34:28) >> And our hope is that we're striking a bunch of like deals for liquidity with the different entities and then we're hoping to deploy those specifically for These kinds of trades so hoping to do like the same thing here for the re-recover volume So you think of like what types of bridging block are we getting? Okay, it's usually under $5,000. Let's make sure we always have $5,000 at the best data-price and can deploy a bit more smartly there and it might be like it might not be like   << Jason Kam (34:42) >> Hmm.   Hmm.   << Vishal (Stride) (34:56) >> very value generating as an LP, like might be like pretty even. But think of it as the loss later to make the DEX more profitable or attract more usage.   << Jason Kam (35:04) >> And are you going to give stride incentives? OK, yeah.   << Vishal (Stride) (35:10) >> Yeah, we will, not not not not not terribly many. In the past, I think we've been more liberal than incentives and they work sometimes than other times. think our takeaways like, yeah, our takeaways. I think there's times we have like a flywheel that seems like it is working. And then the incentives really help you to help choose that. But oftentimes, you might have something that is really not like a very effective product and the incentives are not helpful there. And then we're hoping to first like   We ⁓ are pretty lucky, I say, because we have some low-hanging fruit for flow or volume that we can get from all the wraps on Cosmic Sub or Eureka. ⁓ From that, think, hoping to get some sense of what features are impactful or driving more volume that would make sense to internalize.   << Jason Kam (35:56) >> So you don't plan to use stride as the LP pair or something, right? But there might be atom incentives.   << Vishal (Stride) (36:01) >> No, no, no.   ⁓ It might be stride incentives too, but think they won't be like a huge amount of incentives.   << Jason Kam (36:09) >> Because it seems like it's an interesting place to ⁓ use, know, like, staked atom that is stride as the base pair. That kind of force, I don't know if, is that part of the plan?   << Vishal (Stride) (36:23) >> Yeah, no, it's a question. we just thought of this quite a lot. The one challenging thing is a lot of users want Atom at the end. Like they don't actually want Staked Atom. Like if they're going to go on bunch of CEX or do something else, they often just want to use the ATOM token. And so it's hard to have like a lot of liquidity or solely be St. Atom when users want Atom. I think what we do obviously run LST business and it's been part of stride.   << Jason Kam (36:32) >> Well, yeah.   Hmm.   << Vishal (Stride) (36:50) >> I think we're looking into right now is are there like idle pools of capital on the ducks that can be staked? So for example, like LP that is out of range sufficiently. And maybe when you LP that you opt into like, hey, I want to earn an additional yield. I'll take on this additional risk. Maybe we can have a lot of the assets in the ducks kind of staked and earning yield, but I don't think it be all of them.   << Jason Kam (37:11) >> That makes sense. ⁓ Do you feel like osmosis would be competition in any sort when you're going through this effort? Are they going to do the same thing? Yeah.   << Vishal (Stride) (37:22) >> Yeah,   no, it's great question. Our hope is that I think to not be competitive with Osmosis. And in some sense, I think we're definitely going to be somewhat competitive. Like they're a Jackson Cosmos or a Jackson Cosmos. But for the first year, for example, I think we have very specific, like two very specific customers, neither of whom are Osmosis customers. Like it's the Eureka chains and then it's the Cosmos have DeFi apps. Those are like inaccessible to Osmosis.   << Jason Kam (37:44) >> Yeah. Yeah.   Hmm...   << Vishal (Stride) (37:51) >> And   << Jason Kam (37:51) >> Hmm...   << Vishal (Stride) (37:52) >> then on top of that, think we're focusing on like token liquidity for like these new Eureka type chains like like Ondo or Babylon or a lot of these customers that barely Magmar talked about. But I was most of that, I think they're trying to focus on Bitcoin or building Polaris. They have like a very compelling and good vision, but I think it's just a different customer base. They're focusing like on unifying much different ecosystems. So definitely a little bit competitive, but I think   << Jason Kam (38:04) >> Hmm.   Hmm.   << Vishal (Stride) (38:19) >> We're very focused on just a very specific customer group early on.   << Jason Kam (38:23) >> It seems like Maghnus had conversation with you both. And Osmo was like, that's really cool, but we got a bunch of stuff going on. And for you, it's like, this is really great. You're 100 % of our focus. And that's ultimately the swing factor that made them decide to work closely. Is that the right way to think about this? Because why do I ask this, Vishal, is because I'm thinking about alignment. And I don't know.   imagine he probably needs somebody that really spends 100 % of their time on Atom. And I don't know also if they plan to own a lot of the Stride tokens to further align the incentive when the conversation happens.   << Vishal (Stride) (39:06) >> Yeah.   Yeah, yeah. No, I think this is totally right. So for us, I was most obviously, I think it was a natural candidate to also be the kind of DEX that really helps unlock Eureka, like the IBC and Eureka DEX. But I think for them, have a lot of like really, one, like good business lines going on. I think also just in terms of things they're trying to build out, like they've been working on Polaris for a long time. They're working on Bitcoinmosis or...   << Jason Kam (39:18) >> Mm.   Hmm.   << Vishal (Stride) (39:33) >> I should have pronounced this on Twitter, know, BGCmosis. BGCmosis, You know, they sound like these efforts are going well. I think they are excited about them. They've been in Cosmos for a long time. But I don't think they want to focus all their efforts on them or kind of be fully part of just of them and, you know, be on the Cosmos Hub or whatever else might entail. For us, was something we thought about for a long time. Like, truthfully, I think we've been a little bit like, just...   << Jason Kam (39:35) >> Yeah   Hmm.   << Vishal (Stride) (40:01) >> worried about the Cosmos hub over the last two years. There's been some big initiatives with them that were canned out, or it's been kind of a big leakage of users, been a ton of product direction. And so we weren't really sure how it was gonna be after  Mag took over. But it's honestly, we've had, been pretty inspired by them and been pretty impressed with what they've accomplished. And we've had a soft spot for Cosmos for a long time. When we first built in Cosmos, we'd been users for about a year. Before that, we'd...   << Jason Kam (40:15) >> Hmm.   Hmm.   << Vishal (Stride) (40:31) >> We're incredibly excited then, it's still about Hub Chains and I've really wanted to grow and be part of that. ⁓ And I think now we're excited that there's a clear path to getting there. The work that hasn't been for a while. And I think we're fully committed and we're happy to be fully committed to the Cosmos Hub and help build out that vision. And for Osmosis, I think they have their own visions. It's not any less good, but just different.   << Jason Kam (40:53) >> Would the ICF or ICL purchase a big slug of Stride through TCN Open or OpenMarket to further align the incentive? Or do you think that's not what they're going to do?   << Vishal (Stride) (41:04) >> It's possible, I think that they might be open to it. They haven't committed to anything like that yet, but they are making investment in Stride. I think it's something they're open to, but think legally they haven't done open market purchase or anything ever in the past since Operation. I'm not sure how else it would be. ⁓ But hopefully they keep getting Stride and they'll continue to be aligned with the protocol.   << Jason Kam (41:13) >> Okay. Okay. Okay.   Hmm.   And this tax effort is self-funded. How much grants are they paying you per month to facilitate this?   << Vishal (Stride) (41:34) >> Yeah, I don't know if they're disclosing the amount, but it... Yeah, yeah.   << Jason Kam (41:36) >> Okay, you don't have to tell me. It's my job to ask. You don't   have to tell me. Yeah. Yeah.   << Vishal (Stride) (41:42) >> Absolutely. It's a great question. But it's   a reasonable amount. I think this is a very big effort for us. We're all in on this. This is 100 % our focus. It's a big bet. We're very confident in it. But we're betting everything on this being a huge, Eureka really growing and seeing what we can do to help that. But at the same time, I they're also making a very big bet on us. The DEX is a big part of this reconition. They're next right after the hub. The hub DeFi ecosystem revolves around the DEX.   << Jason Kam (41:53) >> Hmm.   down.   you   << Vishal (Stride) (42:11) >> As a result, making a pretty reasonably sized investment to stride. But I think it's very like we, there's a lot for both of us to do to help the other person.   << Jason Kam (42:21) >> ⁓ That's very helpful. ⁓ How would you, I mean, it's so to buy if you're retail, like you can, but are you, plan to do anything to improve the liquidity of this coin at all? Yeah.   << Vishal (Stride) (42:35) >> Yeah,   yeah, absolutely. This has been a big pain point and the token is very hard to buy right now. It's something we've working on. It's been a little challenging in Cosmos, like the overall volumes and users have gone down. So the natural volumes got down. It's a little hard to of resuscitate that cycle. We've been trying to strike some deals more recently and should go live soon to help increase liquidity with a few market makers as well as   << Jason Kam (43:02) >> Hmm.   << Vishal (Stride) (43:04) >> think as when Dex actually comes out, you have a lot more control over, you can pair things with the token or you can direct incentives or make the pool fee free or whatever else it is to help make the token more liquid. I think one stride actually is a Dex, token location should be increased a ton. But it's also right now, I'd say a big thing that we're thinking about, part of this building out the stacks, think, and building out...   << Jason Kam (43:16) >> Hmm.   << Vishal (Stride) (43:30) >> is we want to make the token more accessible, because it's also part of the product. Or at least it helps enable, like it's standardized with the DEX itself, and so we to make that a big push.   << Jason Kam (43:34) >> Mm.   Yeah, I think it plays well with the DEX that you're building, and in particular with Eureka too. ⁓ Would you consider wrapping your token and then bridging it over to, let's say, Ethereum and then creating an LP pair there so that people can also buy more easily?   << Vishal (Stride) (43:54) >> Yeah, think we're not opposed to this. ⁓ So in full transparency, we actually don't do any of things on chains, as someone else does, but I think we'd be open to someone doing that. The only thing is, in the past, people have done this, ⁓ and we haven't seen very great liquidity for these tokens on other chains. So even like Atom, we bridged over to, Atom's drivers will do this, we bridged over to Arbitrum, and didn't see very much adoption or trading of a token there. In general, we don't see that much of this across any ecosystem.   << Jason Kam (44:06) >> Hmm.   Hmm.   Hmm.   << Vishal (Stride) (44:23) >> There are some memes that are exceptions, but general it's true. I think there's a loyal user base of people who trade a token, and they tend to live on one exchange or one website or one venue. And when you bridge somewhere else, users aren't too much of seller, they're unlikely to buy it. ⁓ But we are looking at ways to make the token more liquid than Cosmos.   << Jason Kam (44:36) >> Hmm.   ⁓ Do you feel like with this dex and the atom relationship, is there anything else we haven't covered yet?   << Vishal (Stride) (44:53) >> That's a question.   << Jason Kam (44:54) >> Yeah,   I think we covered quite a bit. ⁓ I think the only thing left would be if there are any other products, like lending. But I don't know. You've got a full plate. So you kind of want to crush the DEX first before thinking about anything else. So I don't know.   << Vishal (Stride) (45:11) >> Yeah, yeah, absolutely. Yeah, I mean, I think ⁓ in most ecosystems, Dex's are just so like, having a good Dex is so good, having bad Dex is so bad, but good Dex's can really capture so much value. it's much more, like, Perps is a little bit more, think, and maybe named point launchpad with pump fun. But in general, it's like one of the highest ⁓ value capture protocols in any ecosystem. And think it's where we want to make most, almost all our focus. And then I think if and when that's successful.   << Jason Kam (45:22) >> Hmm.   Hmm.   << Vishal (Stride) (45:39) >> we can start expanding more products, we'd sort of create a little bit more. But definitely maybe focus on the DEX. ⁓   << Jason Kam (45:45) >> Is there anything else that you has execution risk or keeps you up at night and is like, this might not work that we haven't discussed yet? It seems pretty clean. I thought this is exciting because your market cap is under 30 million FDV. If you hit anywhere close to the revenue target, you get comp to DEX right away. And because it's so thin, I don't know how much float is out there. You probably own a bunch yourself. This should really just work.   << Vishal (Stride) (46:14) >> Yeah, we're hoping so. think, yeah, I mean, we've thought about this for quite a while and I think we have a good structure here. Like it really does seem like lot of ingredients. I think that the key things for us is we have a guaranteed customer base with your customers and they have a burning need. And as long as we can do a good job addressing that need, we know where to get that volume. And we're fully kind of dedicated to addressing that need. Then there's like Hub DeFi ecosystem. Like they also need a dex. I think we'll be like kind of the de facto location for that.   And then these Cosmos retail, I mean, our volume, again, if we do a good job there, we can get a lot of that flow. There is some execution risk here. Like we have to make sure we do a good job. that means we to make sure we get liquidity commitments, make sure we can get like a, a good job managing on liquidity when we deploy it, make sure we actually understand what users want, like to make sure like, know, user A is going from, or like where users are reaching from or reaching to, like to understand deeply. So we have to do a good job of this, but I think if we do, we have a really good setup here.   << Jason Kam (47:06) >> Yep.   Who's your auditor, by the way?   << Vishal (Stride) (47:14) >> We use informal systems right now, so we've done like 12 audits with them. They are by far the best in Cosmos, think. We have lot of great auditors in Cosmos, but Informal develops the core Cosmos SDK. They're like the ones making everything. Great auditors. But we might look into other auditors for EVM. Informal is also good at that, but we're just not familiar with EVM, and so it's possible there's other good auditors we should look into.   << Jason Kam (47:25) >> Hmm.   Yeah,   it's Alec Halbourne. Happy to do intro. We can do it. We can do it offline. That's all I have. Let's see if the group has any questions. Give it three seconds.   Okay, that's it from me. Vishal thank you so much for your time. This is very helpful.   << Vishal (Stride) (47:58) >> Thanks so much, I really appreciate it, and thanks for having me on. Yeah, it was a pleasure.

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Episode 4 - April 23rd - $KAITO With Yu Hu (CEO of Kaito)

TLDR In this episode of BidCast, Jason interviews Yu Hu, the founder of Kaito, discussing the company's impressive growth to a $33 million annual run rate. They delve into Kaito's business model, which includes information as a service and innovative marketing strategies like the Yapper leaderboard. The conversation also explores future revenue streams, the role of AI in capital formation, and the importance  of community engagement. Yu shares insights on tokenomics, NFTs, and Kaito's vision about InfoFi and how they plan to expand beyond the crypto space, setting ambitious revenue targets for the future. CHAPTERS / TIMELINE 01:00 Introduction to Kaido's Growth Journey 03:47 Revenue Breakdown: Information as a Service vs. Platform 06:56 Market Dynamics: Business vs. Investment Firms 10:07 Innovative Marketing Strategies in Crypto 12:58 The Future of Community Funding and Capital Formation 15:52 AI-Driven Solutions for Token Distribution 18:59 Kaito's New Product Launches and Market Positioning 22:03 Flexibility in Investment Structures and User Targeting 25:05 The Role of Stakeholders in Project Success 27:46 Speculation and Market Dynamics in Token Economics 35:55 Solving Distribution Challenges in Crypto 40:00 Innovative Referral and Incentive Models 43:19 Personalized User Experiences and Data Feeds 44:04 Information as an Asset: Trading Narratives 51:12 The Vision for a Unified Social Media Index 55:36 Revenue Models and Token Dynamics TRANSCRIPT <Jason Kam (01:01)>: All right, we are live. Welcome to another episode of BidCast. I'm your host, Jason Kam, aka Maple Leaf Cap. Today is April 23rd, 2025, 5 p.m. Hong Kong time. BidCast is being livestreamed to BitClub members. Questions are from my own and the members. Today I'm speaking with Yu Hu, the founder of Kaito. Yu Hu, welcome. <Yu Hu (01:24)>: Good to be here. <Jason Kam (01:25)>: Yeah. You publicly disclosed that you're now run rating at 33 million AR annualized. Can you just break that down for us, like where it's coming from? Because that was like a massive increase versus when I talked to you last year. <Yu Hu (01:41)>: Yeah, so obviously like the whole Kaito journey has been a bit of a massive growth, right? So at the very beginning of 2024, which is just over roughly five quarters ago, so 15 months ago, we were generating roughly 100K of revenue. And since then, there's been significant adoption on various different parts of the businesses. And so the number that we gave specifically was annualizing the Q1 revenue and the two kind of main components to it. One is <Yu Hu (02:16)>: what we call information as a service, which is the traditional business that we've been running over the past basically, started monetizing in early part of 2024. That's our API business and our subscription business. And then that's making a roughly, I'll say, somewhere between 30 to 50 % of the revenue that we disclosed. And then the other business is basically the new business that we launched in December and that's kind of the Yapper leaderboard slash what we called information as a platform business. Obviously Yapper leaderboard will be in the first product out there in the market but subsequently we're going to be launching a lot of the newer products and that's the other the basically the remaining part and yeah so that's that's kind of the whole makeup of the 33. <Jason Kam (03:11)>: Sorry, and the traditional Info as a Service business, what's the breakdown of API versus subscription? <Yu Hu (03:17)>: Yeah, so I mean, we're not breaking that down, it's both are basically, you know, both are growing still and both are very, resilient and, you know, cutting through actually. I think one of the underappreciated aspects of that business is it brings us all the... <Yu Hu (03:45)>: business relationships that we currently have. One of the things that people were kind of surprised about when we first launched the Yaps campaign is people were instantly thinking that this is another social fire farm, it doesn't have any fundamental, but actually all the stuff that led to the Yapper Leaderboard was because of the business relationship that we had over the years and clients are basically asking us to have new ways beyond just like doing analytics. <Yu Hu (04:15)>: asking us for new ways to actually... crystallized growth and all that kind of stuff. So the kind of the pro side and the API side both are still growing very fast and on the API side we're powering a lot of the, historically a lot of the kind of AI agents, applications, but nowadays we're doing a ton of large scale enterprise integrations in terms of, for example, we, I think maybe Maybe like a month ago, Falcon X announced that their new flagship product is integrating with all the kinds of data. So in terms of all the search capabilities, mind share, sentiment, a lot of the social graph stuff. And increasingly we're doing a lot more of these large scale enterprise integrations using all the data that we have. <Jason Kam (04:51)>: Yep. <Jason Kam (05:12)>: And the breakdown there, how much is investment funds using you versus businesses, generally? <Yu Hu (05:21)>: Yeah, at this point is more businesses than investment firms. think at the end of the day, that's the state of the market right now. you know, it's just a bigger portion of the crypto market is always going to be project teams. And project teams have... <Jason Kam (05:25)>: Yeah. <Yu Hu (05:45)>: uh... you know more dollars to spend uh... it's been frustrating <Jason Kam (05:48)>: Yeah, that's for sure. Or fucking poor. <Yu Hu (05:52)>: A lot of the funds actually, it's very interesting dynamics in a way that even some of the whales are able to deploy more money and dollar than a lot of the liquid funds in the space. This is a very different market structure and dynamics there. obviously at the same time, the benefit of working with all the projects is the business is very, very resilient. As long as the project's operating, as long as people are on the team, then basically people need the tools to be doing their jobs. And market going up or going down doesn't really have an impact. The same goes to API business as well. Once people are integrating with that, it's very, resilient. But also at the same time, a lot of the Yapper leaderboard clients that we have essentially materialized because they've been kind of using the information service platform that we built. <Jason Kam (06:56)>: I guess the churn there is low, but it kind of is cyclical only in a way that the market gives the funds and the companies more or less money. <Yu Hu (07:04)>: Yeah, and to be honest, like, for... So just in terms of the churn part, the high churn part is always the individual traders market. And I think it will be the same for a lot of the sort of a subscription based services in the space. The individual traders are very volatile, but it's making up a very little proportion of our revenue, even just on the pro side. And in the 33 million number, because annualized run rate number so it already factored in all the market downturn in March already. <Jason Kam (07:44)>: Yeah, and off the other part, which is the info as a platform, how do you make your, I'm guessing like 20 million dollars plus annualized there? <Yu Hu (07:53)>: Yeah, it's so we obviously have different ways of making money there and we are also in the process of expanding new revenue streams but currently we launch Yapper leaderboards with various different projects and as part of the service, we essentially run all the data indexing, analytics, and core marketing with every single project. And then we charge a fee for that, for the service. So one of the very big focuses for us in Q2 is basically having two new revenue streams, actually three more revenue streams coming out of the information, actually two new revenue streams coming out of the information as a service. <Jason Kam (08:22)>: Hmm. <Yu Hu (08:41)>: sorry, information as a platform business and then one more revenue stream coming out of the what we call the third leg which is information as an asset. So maybe I'll just cover the kind of the two additional revenue streams. So one is going to be Kaito . <Jason Kam (08:57)>: Yeah. Sorry, before I go there, I'll dive deeply into them just in just a bit. So like Bera pre-TGE, they come to you, like, I want to pay my KOLs and have them show me. And please help me devise a campaign and pick out the best KOLs who can show me. And I'll pay you a million dollars for you to devise a campaign. Is that roughly the right way to think about it? <Yu Hu (09:04)>: yeah. <Yu Hu (09:18)>: Yep. <Yu Hu (09:26)>: No, so it doesn't currently work that way. So the way that we basically charge is we charge a flat fee for data indexing, analytics, and all that kind of stuff. And each of the project would essentially set aside their own reward pool. We don't take any dollar from the reward pool. And every single dollar of the reward pool basically goes straight to the users. <Yu Hu (09:49)>: But as a service provider, we essentially run the data indexing algorithm and obviously the distribution of all the rewards. And then we charge kind of a six figure for that kind of a data indexing for one year of service. And then... <Jason Kam (10:07)>: Hmm. <Yu Hu (10:08)>: And then so upon renewal, people can essentially decide whether they want to renew the service or not. basically two big camps of projects that are considered in this one is post TGE. If you are a very mature kind of a protocol, then you can, you know, projects such as Polkadot, you know, back in the day, spend huge amount of dollar in terms of incentivizing KOLs and now using, you know, Yapper leaderboards <Yu Hu (10:38)>: essentially organically incentivized content creators and influence in the space the ultimate proposition that is in the past because crypto doesn't there's no digital ads in the space because you can't run any ads on Twitter then every single campaign and the main distribution dollar basically goes a handful of KOLs in the space which is very ineffective <Yu Hu (11:08)>: And and the majority of the times you basically Set aside a huge, you know either carry around or reward for a very handful of people And hoping and also at the same time you pay people upfront hoping that they deliver It is actually one of the most primitive and non-transparent opaque distribution methods in the world. So the kind of alternative solution that we came up with was that we essentially incentivize people to set up a public bounty so that it becomes freely accessible for everyone to essentially participate which generally generally speaking generate much better excitement across crypto <Yu Hu (11:58)>: but at the same time you only reward people based on their actual performance. So people need to put up the work and actually generate kind of a high value, high impact outcome to be able to qualify for being paid. And so essentially everything is essentially being rewarded after the impact is done. So that's kind of a kind alternative structure. And if think about <Jason Kam (12:03)>: Yeah, that's cool. <Yu Hu (12:28)>: I'll confer pre-TGE and post-TGE. Post-TG, you essentially always have some sort of marketing dollar that you need to spend for every single healthy company in the space and outside of the space as well. And people, for example, the Jupiter will be running their own content creator campaign, stuff like this. Every single community, every single big product will essentially run something similar. Historically, it's all manual. You basically go through thousands of different tweets. Some of the products use <Jason Kam (12:36)>: Mm-hmm. Mm-hmm. Yeah. <Jason Kam (12:51)>: Yeah. <Yu Hu (12:58)>: Twitter API which is costing them close to a million dollar a year in terms of just the data indexing and then you basically manually go through all of this and then you know pay your community member with you know <Yu Hu (13:14)>: with some sort of activities. Yeah, it's very manual, but at same time, it's all alternatives, for example, be like Polkadot back in the day, you pay actually 37 million that was disclosed in six months working with influencers and KOLs without very explicit metrics to essentially evaluate performance and effectiveness. So we're kind of changing this structure. <Jason Kam (13:15)>: extremely manual. <Yu Hu (13:44)>: a fraction of the money, you can now basically have alternative way of incentivizing the entire community and crypto Twitter to be, you know, talk about something that's either educational or insightful or talk about stuff that's relevant and very important for your narrative and some of the specific campaigns that you're doing and you can always measure kind of... combine this together with whatever campaigns that you're doing. For example, the way the Manta is doing this is Manta are launching a ton of new products. And every single product that essentially incentivize people to be educating the whole market about this new product. Either they're kind of the new index fund, the banking side of things, and stuff like that. And it's using a fraction of the money to essentially mobilize the entire. <Jason Kam (14:18)>: Yep. <Jason Kam (14:22)>: that's cool <Jason Kam (14:36)>: And the flexibility there is they can pay through tokens as well as US dollars. That's cool. how many logos are there with this $20 million kind of run rate? I'm guessing it's actually growing because it doesn't just go away after TGE. They might want to pay you less after TGE, but it's a SaaS annualized service. <Yu Hu (14:43)>: Yeah, and then go ahead. Yeah, sorry. <Yu Hu (15:00)>: Yeah, it's an analytics service and the so the way I think about it is two kinds of different markets. One is the pre-TGE market and the other one is the post-TGE market. The post-TGE market is effectively you're working with more mature protocols that have sustained for years of development, right? So they're not gonna, you know, go away. <Yu Hu (15:26)>: And then they have also substantial treasury, think about sustainable development, all that kind of stuff. And then they are most likely to be renewal, long-term sustainable, multi-year kind of contract that we think about. And then the pre-TGE market is a bit of both. So you have a lot of the... The primary focus for most of the pre-TGE market and the nature of the market is people would essentially spend significant marketing dollar going through the pre-TGE process because that's when you build up awareness and build up the brand throughout the process. And post-TGE, some of the projects will be able to continue to thrive, but some of the projects will not be able to make it over the long term. <Yu Hu (16:22)>: But essentially that part of the market, we convert some of the projects to be long-term customers. And some of the other projects will eventually maybe discontinue. But as long as the asset issuance side will always continue, then we'll always have a stream of more projects essentially launching through the mechanism as well. <Jason Kam (16:43)>: And how many logos do you have that contribute to that 20 million annualists? <Yu Hu (16:46)>: I think it's roughly somewhere between 40 to 50. <Jason Kam (16:51)>: 40 to 50. wow. OK, so they pay you a lot of money. OK, got it. Makes a lot of sense. So that's 20 million annualized, just about. Tell us about the two new products that excites you, and what kind of revenue do you think they'll help you drive? Maybe those two questions. Go ahead. <Yu Hu (17:10)>: Yep. So the way I think about the stuff that we're disrupting is if you think about the the Yapper leaderboard market that's kind of a democratized way to essentially launch attention. The two other ways and the two other things that we are very excited about one is a democratized the way to essentially form democratized the way to essentially help with capital formation and that's effectively a capital launchpad and I also think that that's probably where the industry is going because I think that a few major trends are happening right now is I think VC fund is going down <Jason Kam (18:00)>: Yeah, we're fucked. <Yu Hu (18:00)>: versus the last  I think liquidity is more fragmented in the market right now. I think over time probably the airdrop dollar is going to go down because there's just not enough liquidity that essentially sustains the frequent asset issuers. Especially for the airdrop dollar per project. <Jason Kam (18:18)>: Yep, agreed. <Yu Hu (18:30)>: But, and in some way, I also think that the airdrop market is... Some were indirectly funded by VCs because a lot of the protocols not necessarily have PMF at launch. So it is all based on the belief that in the future, because they have money at hand in the future, they can build a viable business. So that's the value that people subscribe. The market subscribe to each of the protocol at launch, which essentially supported the price at launch, which essentially benefits a lot of <Jason Kam (18:42)>: That's true. <Yu Hu (19:08)>: the airdrop recipients. I think that over time probably that airdrop market is going to go down. At the same time, I think one market is going to go up is with the absence of or with the decline of the VC funding market that the community funding market is going to go up. Because a lot of the projects will be thinking that with the same kind of a circulation that I have in mind, If I can't do a lot of the airdrops, maybe I just do more community rounds. So essentially to decentralize my holding. So I think that's a big market that we kind of want to tap into. And the specific angle that we have is, think up until this point, there's no mechanism that really very heavily leverages AI technology to really help with that distribution. One of the things that we did on Yapper Leaderboard is everything is basically algo-driven. So in the past, it's all manual, and people always wanted to kind of reward very loyal community members, right? But in the past, they couldn't do it because how would you even go about indexing all this data and then identifying the relevant people to incentivize a reward? The same thing actually goes to kind of the capillology part as well. If you think about community around, right now, there's just not enough data that's been properly indexed, provided by the people who are able to do this, to essentially map how all the people who are relevant. Imagine that you building a cross-chain protocol, then... <Jason Kam (20:51)>: Yep. <Yu Hu (21:00)>: A lot of the time, it's not really just about the dollar that you raise. It's actually about who you bring into the capital ⁓ you know cap  table and then be with you for the long period of time. And pre-TGE, post-TGE continue to be supporting you, creating mindshare, generating content for you, using your product, stuff like that. And what we are specifically trying to provide is with all the data that we have, if we are able to come up with a way to essentially use AI to identify all the most relevant people and also use algorithms to optimize the round, then it will be huge value add. And in terms of just optimizing the round, right? So you're thinking about a lot of different aspects to it. How do you even, like, historically people are all doing this on a manual basis. I think about how you see your structure in the round is all, I know these people, they're gonna be helpful. you should get them into the  Round. Stuff like that. In the future, it can all be run by an algorithm because with algorithm, can identify, you can index the most comprehensive data, you can identify the most relevant people who are deeply aligned and deeply passionate about the stuff that you're doing, that the most relevant, and there's no bias in terms of who you know, stuff like that. And you can be well-balanced in terms of geographical coverage, can be well balanced in terms of skill set, coverage, all that kind of stuff. So that's really the stuff that we're trying to do. That's pretty big. And I have so many follow up questions, but this is for both pre TGE private investments, as well as post TGE OTC rounds, or even just placements. Initially, what would you go to market with? <Yu Hu (22:55)>: I it can apply to both. TBD, how we gonna be doing this? We have a few projects in the pipeline in terms of the pre-TGE and I also think that post-TGE could be a very big market as well, depending on how people are going about that. <Jason Kam (23:19)>: And then the vesting and the custody is enforced by you or do you work with any partners? <Yu Hu (23:24)>: So we'll be working with other partners. <Jason Kam (23:27)>: OK, OK, cool. And then in terms of the flexibility, the flexibility of this product comes on a couple of sides. Immediately off of my mind is when you speak about relevancy. It's relevancy both to the core product that they're building as well as the relevancy as defined by the founder. I might want to open up around to people who invest in my competitors because I want to have them talk about me. How flexible would that be? And then secondly, if it's privates, how flexible would it be to tie the vesting or any type of terms, allocation size, to the actual sort of yaps or contribution that they have? <Yu Hu (24:06)>: Yep. <Yu Hu (24:10)>: very very flexible you can basically structure however you want this to be and you can also tap into both the social side as well as the on-chain side as well so one of the benefits of Kaito being a platform that has both a substantial amount of social information and the on-chain wallet connections and linking is we're able to have much more holistic user profile data. If you want to be targeting traders in Korea that have used a certain DEX protocol or that kind of stuff, we can essentially target those people instantly. so the amount of... obviously in a bit we can talk about kind of the own product, but this is kind of the ultimate premise in terms of how... <Yu Hu (25:04)>: basically the algorithm driven user targeting can be so precise that with the distribution that we have, can basically structure this in a most optimized way. So in a nutshell, it can be very, flexible. And at the same time, it can even introduce, because we have the analytic side of things, it can even introduce very, very interesting dynamics where you can have differentiation and different <Yu Hu (25:34)>: terms for different people based on proof of work post round. So you can even structure something like everyone will be getting at certain valuation. But if you are willing to put up the put in the work after the round, then you essentially over time will essentially get more favorable terms, either additional bonus or a status investing or that kind of stuff. So a simple example could be if you come and raise a yap <Jason Kam (25:50)>: Yes. <Yu Hu (26:04)>: round and every single Yapper can essentially come in at X dollar of value. Let's say for example 300 value, 300 FDV, 300 million FDV. But over time if you are willing to put in the work and continue to be generating mind share, Yapper about us, et cetera, and then based on your performance over a long period of time then if you are basically ranked top 50 over a one year period, then basically your effective valuation can come down to 100 million. So then it solves a big issue in terms of people... Basically, in the same round, people are paying the same price, but after the round, not necessarily everyone is contributing the same value to the deal. So you can essentially have a whole new different mechanism with the analytics that we have. <Jason Kam (26:48)>: Yeah. <Jason Kam (27:00)>: That's very cool. what's your tick rate and how's traction with this so far when you talk to projects? <Yu Hu (27:10)>: So can't disclose that, but what I can say is I think will be a very big flagship product for us heading into basically Q2 and Q3. <Jason Kam (27:14)>: Neither? Okay, okay, okay fine. <Jason Kam (27:31)>: And what's pushback from teams that you talk to that it seems very enticing? And if they are hesitant, are they like, this is so new, we want to see somebody else do it first? What's the hesitation, if any? <Yu Hu (27:46)>: Yeah, so interestingly, it's the other dynamics. It's the opposite of that. Basically, people are really keen to be number one launching with Kaito. Because I think our brand positioning is Kaito is always doing something new in this space. And people want to be associated, want to be the first one doing with Kaito. It's the same as how we are doing the Kaito own stuff. It's the same as when we kind of launched the Apple leaderboard, the first few projects are always getting outsized sort of attention and being kind of considered as the innovator in the space. So the same dynamics actually applies here. So we actually haven't been very vocal and public about this new product, but... <Jason Kam (28:36)>: Hmm. <Yu Hu (28:37)>: Basically, we are in this market, essentially, have a very, very deep relationship with pretty much every single pre-TGE company that's launching in the space. it's very much a lot of our clients are like, yes, we want to do this. <Jason Kam (28:55)>: Interesting. So this is like a different echo, but it's like interesting. And the public market OTC would happen much later, it seems like. <Yu Hu (29:00)>: Yeah, it's different. <Yu Hu (29:04)>: Yeah, so I mean, I do think there's different kind of differentiation and different dynamics, all that kind of stuff. And I think it's very much kind of just an extension of what we are already doing and essentially offering a service to the project as an alternative in terms of how they can be thinking about, you know, various different ways. And eventually, I think this is going to be very synergistic and complementary because at the end of the day, know, when people are very very close to TGE, then why are we, why are people kind of raised in a pre-TGE realm? There are only any two purposes. One is, one is basically decentralizing ownership. <Jason Kam (29:55)>: Mm-hmm. <Yu Hu (29:56)>: and getting the high quality people to be in the capital cap table and be for the long run. And the other one is also just raising awareness, sort of using that as a marketing event as well, Which is very adjacent to what we're doing in terms of the Yapper leaderboards and stuff. <Jason Kam (30:18)>: Hmm. That's fun. I wish you all success. This seems like it's a big product. I mean, I'm assuming it will be a tick rate based model for your revenue, like $10 million size round, tick rate, revenue. Is that? <Yu Hu (30:33)>: Yeah, so. The way that we think about the fee model here is, let's say for example, if you want to raise 10 million, and then we want to have a new different fee model and a different mechanism for this to be interesting. So the way we think about this is, for example, X percent of, let's say overall we take, the network would essentially take either, let's say, as an example, we take 5 percent, and then maybe part of that is stable and part of that is in token. But instead of Kaito taking a token, we redistribute all the tokens to all our stakers. So the specific dynamics there is we can have like 10 different LaunchPad, you know, protocols that launch through us and then they all have future tokens that they're going to distribute to the network. but we don't take the tokens, we don't think about divesting the tokens, all that kind of stuff. We essentially reserve the tokens for all the sKAITO token holders, and then they need to signal alignment with the project that they like. And then to be able to, in the future, get the tokens. So that becomes a dividend model, effectively, but... <Jason Kam (31:53)>: And well, it's not dividend because they have to do something to get it. <Yu Hu (31:58)>: They just stake <Jason Kam (32:00)>: but they have to signal alignment. They have to say something. <Yu Hu (32:02)>: But they have to do it. They don't have to do the work. Basically they just park their sKAITO to the specific project so it's Yeah, but but but that way the the reason why we want to do it that way is because We don't necessarily want to do the kind of the BNB model where? You know every single kind of a BNB holder is <Jason Kam (32:12)>: Interesting, okay. <Jason Kam (32:24)>: Hmm. <Yu Hu (32:29)>: is undifferentiated and you basically get tokens for every single project that's being launched. But actually we want to force all token holders to signal alignment to any specific project and then they become aligned with any specific project. And there's also kind of a very interesting market efficiency angle there, which is also kind of how we think about the whole InfoFi narrative. <Jason Kam (32:54)>: Yeah. Yeah. <Yu Hu (32:55)>: We believe that token holders are to be efficient in allocating their capital. So as they basically allocate, they're also constantly thinking about the future value of the tokens, et cetera, all that kind of stuff. There's a dynamic balance there. <Jason Kam (33:00)>: Yeah. <Jason Kam (33:07)>: Mm-hmm. Yes, obviously that portion would be as the additional interest and sKAITO is tradable, I'm guessing. <Yu Hu (33:22)>: Well, sKAITO is basically just a derivative of $KAITO <Jason Kam (33:25)>: Yeah, so then it like it opens up yield up. It's interesting. OK, I could see that. That's cool. <Yu Hu (33:29)>: And then there's going to be even more interesting dynamics there because we now have a Pendle pool. So for every S-client order, there's PT and YT. So. <Jason Kam (33:39)>: Yes, exactly. and you just go into pre-market, would the trading be done at your platform or is it somewhere else? <Yu Hu (33:47)>: No, no, no, this is not pre-market. But essentially, if you have the YT token, then YT can essentially stake with all of these different Launchpad products, which entitles you to get the future tokens. <Jason Kam (34:04)>: Yes. <Yu Hu (34:04)>: And all of a sudden it becomes the same playbook that, you know, backing, you know, for example, Q1 2024, and people are speculating in the future price of the token, and then by the way, it's essentially, you know, to get exposure to the token. <Jason Kam (34:14)>: I get that. get that exactly. I mean, you stake, you stake $KAITO that's your PT. And then you get a YT when you stick with a project. Let's say you get sKAITO YT mega ETH, but that's tradable and you know exactly how much you're getting kind of. And would that trading be done on your platform or is it be done on Pendle or something? Cause you. Okay. Okay. Yeah. Yeah. Interesting. Cause  that backward implies. <Yu Hu (34:23)>: Yes. <Yu Hu (34:37)>: we can essentially make a market for it as well. <Jason Kam (34:46)>: I mean, it's really illiquid, but it implies what valuation people think mega ETH will trade-up. Interesting. It seems like you should make a lot of money out of this and kind ponzies up the sKAITO thing. I think people who owns the sKAITO could be really happy. Tell me more. <Yu Hu (35:01)>: There's going to be lot of speculation and basically should be people thinking about different valuation for different tokens, how you structure YT, PT, all this. It's going to be very, very interesting. <Jason Kam (35:09)>: That's cool. Yeah. Yeah. Yeah. And obviously, the sKAITO holders who are whales already would be pushing the projects that they invest in to do around on you because they're cool. <Yu Hu (35:22)>: Yes. And that becomes a kind of a flywheel as well because essentially by decentralizing the benefits and the fees, we create more stakeholders for each of the Launchpad projects. Then, you know, that becomes a very, interesting dynamic. <Jason Kam (35:46)>: Yes, investing there will be on the same level as the folks who invest based under Yapper point. Okay. Okay. Tell me more about their own product. <Yu Hu (35:55)>: Yeah, I mean, so ultimately the own product is trying to solve the kind of the distribution problem that people are having. the way I think about the own product is, Yapper leaderboard is basically Yapp to Own. But in crypto, there's so much more than just Yapp to Own. There are... For example, trading, there's for example referral, there's for example incentivize the usage. The basic kind of different categories of incentive or campaigns. So essentially you're to be tapping into those. And by leveraging the distribution channel that we already have in two parts, one is we have. For example, 200,000 monthly active Yappers at the same time, a million registered users on the platform. So we can directly reach out to every single user that's pretty much active in crypto today. But at the same time, we can also distribute through the Yappers to essentially go to not just crypto Twitter, but all the other social media platform as well. So for example, if you want to target the Korean market, and not every single Korean is going to be looking at Twitter all day, but actually by targeting all the Korean Yappers who all have some sort of Twitter presses, they can then redistribute through their Telegram channels to essentially reach out to those users. The underlying premise of the Kaito own product is to solve the distribution problem because people can't use very specific digital ads or any sort of targeting. And that's where every single product is struggling with. They don't know how to effectively spend their incentive dollar. They don't have a very... Yeah, go ahead. <Jason Kam (37:49)>: Maybe to make it clear, because I'm a little confused. If I'm a Yapper today, I show on Twitter, and I use TikTok, I use Telegram, I use all these social products. And then I want to get paid through MegaETH, through Yapper. Walk me through flow of how I get paid. Let's say TG or TikTok or something. <Yu Hu (38:12)>: Yeah, so for example, we can, through the platform, we can distribute a referral code. and you basically get the referral code that's personalized to you and then you can redistribute this referral code to all the other people that sign up through you. So we can track specifically all these people are kind of onboarding through you specifically. And as platform, we can basically design different campaigns and that's kind of a referral to earn, right? So for example, for trade to earn, it can be very simple. We can be working with whatever wallet providers, whatever exchanges, whatever upcoming <Jason Kam (38:31)>: Hmm. <Yu Hu (38:51)>: you know, DEX competitors, you know, competitors and stuff, we can be either the first degree distributor in terms of directly distributing to the users or we can be the second degree distributor in terms of we distribute to the KOLs or the Yappers and then KOLs will then distribute to all the other people. And then the platform can take basically a success fee or referral fee or whatever. <Jason Kam (38:57)>: Yep. <Jason Kam (39:10)>: I see. I see. <Yu Hu (39:21)>: And then again, we can have the same interesting dynamics where whatever the fees that the platform is making can essentially redistribute to the stakers who are believing or have vested interest in a particular campaign. <Jason Kam (39:36)>: I see. So for example, if you work with Binance, mean, Binance gives you a huge ref like, mean, everybody can refer already. And then, and then that basically goes to all the Yappers. They all of a sudden have a quest, like a ref link of their own. It's like sign up to Binance and trade. And then Binance see a revenue go up. They basically pay you the fees and then you pay the fees to the Yappers that distributed based on their ref code. And you take a small slice in between, I'm guessing. <Yu Hu (39:42)>: Yup. Yup. <Yu Hu (40:00)>: Yeah. Yeah. And typically, always kind of the upper coming competitors that's trying to grab market share. they're basically a ton of a... I think the specific edges that we have is one is on distribution. We're one of the very few platforms that have the highest quality of users. Think about every single, it's not just kind of a KOLs and not just kind of a users. We have all the builders, we have the core of the CT and the entire, basically the highest quality of people in crypto are basically registered users. So the average dollar value of a <Jason Kam (40:28)>: Hmm. <Yu Hu (40:54)>: so that you can reach out so it is very, high here. <Jason Kam (40:56)>: Hmm. And the earn feature basically is tied to the SaaS service you already sell to these businesses. They already have a budget with you and you're like, hey, you want to try this earn product. that how you sell? Hmm. Got it. Hmm. <Yu Hu (41:05)>: Yes, and also the YAP leaderboard clients. and they can combine the two things together as well. So for example, if you are already setting aside, let's say 50 basis point of the token for Yapper campaign, you can essentially pair that up with a referral campaign. Right? So all of a sudden it's not just. <Jason Kam (41:25)>: That's very cool. <Yu Hu (41:29)>: You're not just incentivizing people to be yapping about you, but actually with a very, very clear call to action, which is yap about me, but also send this referral, get as many people on board as possible. And that becomes a much more holistic campaign that we can do. <Jason Kam (41:36)>: Yeah, sign up through. <Jason Kam (41:42)>: Hmm. Would the, with the users, cause it seems like you are not only profiling projects, but you're kind of also profiling users. Like as a, a Yapper on your platform starts contributing, naturally they'll have more affiliation with some projects over the other. Would there be at some point that the Yappers will have individual project based sort of, I wouldn't call it ranks, but just like affiliation or loyalty points, kind of something like that associated with single projects. <Yu Hu (42:15)>: I mean, they already have in a way that because we have like all these Yapper leaderboards and they would appear on certain Yapper leaderboards, but not on others. So there's exactly a ton of information that we have in terms of what are some of the typical projects that they will be interested in, typical narrative that they will be interested in. So, and we also have that people's own chain behaviors and stuff like that. So it's really kind of a holistic <Jason Kam (42:19)>: Yep. <Yu Hu (42:44)>: user profile, the yapp profiling that we have. <Jason Kam (42:45)>: That's cool. <Yu Hu (42:49)>: And I think by the time that this gets published, we already would have launched our feeds feature on the platform as well. Cause at the end of the day, know, Kaito is, you know, information product as well. So we want people to be going through the feeds on Kaito across like different social media or that kind of stuff, everything related to crypto. <Jason Kam (43:00)>: Welcome. <Yu Hu (43:19)>: Thanks! And we will essentially have personalized fees for everyone, stuff like that. And in the future, we're also going to be having a mobile version. So iOS, for example, which we already have on the institutional side, on the pro side. So we're going to be on the retail side. So in the future, everyone's going to get personalized notification in terms of, hey, what are some of the deals that's going to be interesting to you? This kind of product can be a very good opportunity because you are <Jason Kam (43:34)>: Yep. Yep. <Yu Hu (43:50)>: high back in a day and this thing is very much up and coming you know versus that <Jason Kam (43:57)>: Hmm, makes sense. That's cool. So we talked about two things. There's a third thing, like info as an asset. Can talk about that? <Yu Hu (44:04)>: Yeah, so information as an asset is basically the underlying premise of InfoFi is that information can be priced and traded as well. So we had a first partnership with Noise. So they are building on MegaEth. And that essentially allowed people to be trading narrative, trading pre-TGE mindshare, all that kind of stuff. So historically, in terms of a pre-TGE mindshare, the rational is simple. So currently, if you want a long MegaEth, there's no way that you can do it. <Jason Kam (44:32)>: Hmm. <Yu Hu (44:43)>: If you want to have a view on, you know, certain stuff, there's no way you can do it until the point that they basically get listed on some sort of pre-market, which is just a few days before the trading. but that becomes a vehicle where people can essentially express certain views. The same thing actually goes to kind of a narrative, with even, in my view, with even stronger proposition there. So like back in the day, everyone wanted to learn AI narrative. For example, I think about Q4 last year. But majority of the people got burned very badly because you basically should pick the wrong asset. Yeah. <Jason Kam (45:13)>: Hmm. <Jason Kam (45:22)>: Yeah, the coins are shit too. But anyways. <Yu Hu (45:25)>: And but but imagine that you can actually long different narratives, which is the easiest thing for people to understand. Like if I just want a long stable coin mind share stuff like that, I can basically just trade that, which is a mega trend that's also being manifested in traditional finance as well. For example, Fidelity will be coming up with a basket of tokens, not tokens, but obviously equities because people realize <Jason Kam (45:30)>: Yep. <Yu Hu (45:55)>: that nobody wants to due diligence on the video. People just want to trade what they understand. They want to trade trends or this kind of stuff. so we're going to start with all of these, but then in the future, a lot of the stuff can be tradable and you can be expressing your view on the popularity of a singer. There could be, you know, different trends they can be trading and all that kind of stuff. <Jason Kam (46:05)>: Hmm. <Yu Hu (46:25)>: all of a sudden it creates a whole new market that allows people to express their views. <Jason Kam (46:32)>: Interesting. I'm guessing that product would be using your Mindshare index as the underlying. And that oracle basically tell us the PNL of this PERP platform, whereby there will be an LP pool that takes the counteracting side of whatever longs and shorts of the PERP position people take. And then the deviation of the PERP price will be the funding they pay. Is that roughly the right way to think about it? <Yu Hu (46:59)>: Yeah, that's roughly it. There are obviously different ways. And if you think about the Polymarket model, they allow people to bet on stuff that will eventually have a definitive outcome. Right, either it be elections, sports events, all that kind of stuff. <Jason Kam (47:01)>: Okay. mean, it's yeah. <Yu Hu (47:25)>: But a lot of the stuff doesn't really have a definitive outcome. For example, if you're betting on whether certain singer is going to be very popular in the future, how do you even go about quantifying that? Right. But. <Jason Kam (47:39)>: Yeah. <Yu Hu (47:41)>: leveraging the information markets, can actually basically index all the social media content, then that becomes the source of truth in terms of whether that, the manager becomes a source of truth in terms of the popularity of that particular singer. And also at the same time, the interesting factor there is when people are trading Memecoin, people are really just trading narrative and the popularity of certain topics. But <Jason Kam (47:58)>: Yeah. <Yu Hu (48:09)>: The issue with lot of the Memecoin was there is just so many idiosyncratic token distribution and some of the other stuff that's in that. There's a lot of insider allocations and stuff that's just non-transparent. But... If you think about from an information market perspective, because everyone is effectively an insider, that makes nobody an insider. Because people collectively form the market. <Jason Kam (48:45)>: Yeah. I mean, this is an interesting effort. I, I'll be really curious to how it's because I, right off the bat, I can think of three questions, three problems. The mind share are, mean reverting because anything that's hyped got died down over time. The Yappers themselves can manifest the reality by just like tweeting. So they can kind of almost manipulate the market. And then the ultimate LP pool will run into this like insider, like toxic flow situation where. <Yu Hu (48:46)>: and happy. <Jason Kam (49:13)>: I'm going to bet size, of course, because I'm the project founder that's going to cost this wave of mind share. Would you rank this as the most excited effort that you have out of the three, or is this like a we're experimenting kind of thing? <Yu Hu (49:30)>: I think it will be a... So maybe let me answer the questions first and I'll talk about my view. So first things first is depend like the manipulation, the degree to which that certain things can be manipulated really depends on the market itself. if theoretically, if we're indexing every single social media in terms of the popularity of a singer, then... <Jason Kam (49:34)>: Yeah, yeah, yeah, yeah, Yeah. <Yu Hu (49:59)>: Effectively because the market is so big None of the guys will have our size impact in terms of determining that unless you basically bribe the entire market then obviously everything eventually is subject to manipulation, but if if the cost of manipulation is too high then basically wouldn't it wouldn't be viable and so that will be kind of you know, the ways to go about, but obviously like different markets will have different dynamics there. What's the other one? What's the other one that you mentioned? <Jason Kam (50:39)>: Yeah, I thought that you would get toxic flows. if, if, uh, if I'm long AI and I'm, yeah. Yeah. <Yu Hu (50:43)>: because of mean reversion? I mean, in a way that people can argue memecoins have mean reversion as well because everything's gonna go to zero eventually. Yeah, so I mean, I don't think there's any difference. <Jason Kam (50:51)>: That's right. Yeah, I could see that. I could see that. <Jason Kam (50:59)>: Yeah. If you were to rank the three efforts, before I go there, is there anything else that we haven't talked about that outside of the three that like, man, this is going to really jumpstart revenue for us off this current level? <Yu Hu (51:12)>: It's the possibility of going much beyond crypto. Because, I don't know, we probably talked about this last year. One of the grand visions of what Kaito really tries to build is something that indexes every single social media in the world. <Jason Kam (51:25)>: Hmm. <Yu Hu (51:37)>: The specific problem that I see in this space or in today's world is a traditional search engine is becoming less and less impactful because Google now does, for example, you will be saying that you use a Grok, for example, a lot, right? Because a lot of the useful information is on social media. It's very different from even just five years ago. But at the same time, every single social media is an isolated platform. Twitter doesn't want other people to be indexed in it. The data, Instagram doesn't want that, all that kind of stuff. The specific problem they're trying to solve and the grand vision or the kind of the long term vision that we have for the whole InfoFi economy is we believe that the only way to break that barrier to essentially index the whole... people call it the world garden for the whole internet is incentivizing users directly. People getting paid so that they will share their data with you. And then you don't do that by just indexing their data and then just give them money. <Jason Kam (52:41)>: Yep. <Yu Hu (52:51)>: To be able to have a sustainable business model, all of the stuff that you take from them needs to be generating revenue and generating sustainable business model as well, which is effectively what we have experimented in crypto Twitter. So incentivizing everyone to be sharing their data with us, but we create a whole new economy to have all the Yappers to be constantly being paid. <Jason Kam (53:19)>: Yep. <Yu Hu (53:20)>: It creates this whole new economy that's much more efficient than some of the old alternatives that existed in the market. And imagine that we bring this beyond... Twitter and then you know this because we use the kind of the probe before you know that we already index a ton of other social media platforms and all that kind of stuff from a technology perspective We can do it that if we were able to do this first within crypto across TikTok so many projects want to be incentivizing yappers on TikTok to the  branch out we can do this on Instagram it's going to be relevant for a lot of the specific brands within crypto as well <Jason Kam (53:39)>: Yeah. Yeah. Hmm. <Jason Kam (53:52)>: Mm-hmm. <Yu Hu (54:01)>: YouTube, all this kind of stuff. Telegram, Line, there's different kind of social media, stuff like that. And then ultimately bring this beyond crypto as well. Because if it works in a specific vertical, it should also work in other verticals. And imagine, imagine ultimately if we have... <Jason Kam (54:04)>: Yeah. <Jason Kam (54:12)>: Hmm. <Jason Kam (54:20)>: obviously. <Yu Hu (54:26)>: Basically, know information and data from every single social media platform where essentially we can also incentivize people to be linking their identities and all these kind of stuff because Today none of the type of forms can be talking to each other. I take those never going to be talking to Twitter They're never going to be sharing their any of the data together But if we as a third party platform can actually incentivize all the users to be linking their identities together Then we can be the best platform for any brands and marketing activities <Yu Hu (54:56)>: to be basically routing through us. And then we can control where it is kind of the most optimized distribution for all these economic activities to be happening. <Jason Kam (55:09)>: Yeah. I guess the question, there are two steps to it. One is sort of real world businesses through you, like paying influencers, showing them. And then the step before that is crypto entities paying through you to any user on any platform paying them. How soon would, you know, Bera be able to like, you know, pay TikTok influencers and Instagram? And then secondly is, I'm guessing you already solved the sort of, you can already know what kind of video they post because the relevancy of that content is obviously relevant to kind of what they want. Yeah. <Yu Hu (55:47)>: Yep. Yeah. So, I mean, in terms of the crypto adoption in various different social media, that will be pretty soon. Because I can tell you it will be in Q3. Sorry, in Q2. So it will be this quarter. Yeah. <Jason Kam (55:56)>: How soon? <Jason Kam (56:01)>: OK. like imminent. Great. OK. <Yu Hu (56:05)>: Yeah, very, very imminent. Because at the end of the day, we already index majority of the platforms. Like, we already index YouTube, already index Telegram, index Discord, all this kind of stuff. But the next one we're going to be launching is going to be TikTok. So we're going to have like TikTok leaderboard, stuff like that. And then, if, even if today, for example, if I asked you, <Yu Hu (56:31)>: who's the biggest TikTok crypto influencer? Nobody can give any, nobody has any idea even. Nobody doesn't even, nobody knows where to even start. Which was the case. before we launched all these  leaderboard, community leaderboard, all that kind of stuff. Because people have a rough idea in terms of the very top of the market, but then the long tail, people just have complete no idea. And that is where indexing the AI comes in. We can essentially create public leaderboard, evaluate people's influence, effectiveness, all that kind of stuff. <Jason Kam (57:00)>: Hmm. <Jason Kam (57:13)>: and obviously the sort of video and analysis that you will do through the AI would be able to, okay, that's cool. honestly, dude, like I think that's that along, if I'm not mistaken, just to summarize the capital launch pad and this effort that goes beyond just Twitter, earn, earn seems to be a really good feature at to the existing list of products. And then the mind share trading we'll see if it works. seems like it's early, but, those two that I mentioned seems to be the biggest revenue driver for you. in like the next six months. Okay. <Yu Hu (57:44)>: I think the information as an asset, which is the market stuff, is going be a wildcat. If it works, then it's going to be very big because trading is going to be obviously a huge revenue dollar. But TBD, if that works. But effectively, even if you look at fantasy top, right? <Yu Hu (58:08)>: that's effectively trading influence. And there are people who are basically betting big on certain stuff. <Yu Hu (58:16)>: So, and I think that, know, memecoin trading is effectively kind of a, there's different kind of a mechanism that we can tap into it as well. Like even just for example, having a, I don't know whether we're going to do it, but like if we have like a different way of doing the initial distribution for the memecoin launch, stuff like that, there are lot of the potential possibilities there as well. Yeah. <Jason Kam (58:37)>: Can you go a few minutes over because there are some really important, OK, great. Of all of these efforts, including the sort of 10 million from Research AR and API plus 20 million from the existing sort of the platform, of all of these new efforts also as they funnel through revenue, which part of it goes to the token and which part of it goes to the equity? <Yu Hu (59:01)>: Yeah, so the way that we think about everything now is all holistic. So basically, to think about the whole revenue stuff that we're generating and then routing everything through token buyback. <Jason Kam (59:15)>: OK, and that's discretionary. You have done 14 million annualized so far. <Yu Hu (59:20)>: 14 million annualized so far and recently we are salaried. <Jason Kam (59:24)>: Okay, any and it's purely discretionary, I'm guessing. <Yu Hu (59:29)>: Purely discretionary, but at the same time there is basically an ongoing commitment in terms of, we'll basically be doing this on a daily basis. <Jason Kam (59:41)>: OK, OK, good to know. And then what other token syncs are there aside from I can stake my Kaito? <Yu Hu (59:50)>: So the way we think about alignment and the network value distribution is in two forms. One is token buyback, which is effectively redistributing value to everyone who's holding Kaito token. The other part is through sort of drops. So the stuff that we talked about in terms of Kaito earn, in terms of Kaito Launchpad, all that kind of stuff is effectively creating additional values to the token holders, which no one is talking about today because obviously, having been launched, we haven't talked much about that. But effectively, <Jason Kam (60:16)>: Yep. <Yu Hu (60:36)>: you know, that's also going to come as well. So if I think about the return of holding Kaito token today, obviously one thing, there is a staking yield, which is roughly 16 % today. And the biggest difference of, I'll say this staking yield versus all the other, the majority of the other kind of staking programs in the market right now is a none of the team and investor tokens are able to participate, which is you know, none of the basically unvested tokens are able to, you know, basically put in there. And B is the entirety of the staking rewards are basically funded through the buyback program. So in a way that this is not inflationary, this is just disproportionately rewarding the stakers. Jason Kam (01:00:28.443) benefiting stakers Yu Hu (01:00:31.486) And so that's clearly sustainable. And if you look at the entire issuance of the token, the whole network is also in a net sink stage because... Jason Kam (01:00:31.685) I get that. Yu Hu (01:00:44.238) you know, currently we're obviously using a ton of revenue to be acquiring, you know, Kaito tokens in the open market. So people don't run into the issue of if I stay here, I get constantly diluted because the network is issuing 10 % inflation on an annual basis at the same time as all the other stuff going on. So it's actually additive in terms of the return. So you'd be thinking about if you're a state court, you'd be thinking about 16 % in terms of Yu Hu (01:01:15.051) in terms of the staking reward. Plus, at this rate, we're talking about 3 to 4 % of the entire, for example, token supply sink. And this is not just calculating the circulating. This is kind of the entire token supply in terms of the annual sink. But obviously, in terms of circulating, it will be a much bigger number. Yu Hu (01:01:42.54) And then that kind of should be added towards the return that people should be thinking about by holding Kaito, by staking Kaito. And then that comes to added benefit of any whatever drops and dividends that people were doing for the network. Jason Kam (01:01:49.329) Yeah, that's cool. Jason Kam (01:01:59.567) Yeah. And the relationship, I'm guessing, YAPS turns into tokens in the future. What about the NFT holders? Yeah. Yu Hu (01:02:07.534) Yaps has already turned into tokens, basically. Yaps effectively tokenize influence. Jason Kam (01:02:11.695) OK, so the yaps are just mindshare effectively. Yu Hu (01:02:19.778) in the network, you are able to directly monetize by signaling influence, like getting deals and having some sort of mechanism that we haven't announced in terms of getting direct benefits in the ecosystem. So it's almost like if you are a big influencer on Yu Hu (01:02:42.414) Facebook or TikTok or Instagram. This is just a better signal in terms of your follower and kind of influence. That won't be tradable because it shouldn't be. And it's just like Facebook did an airdrop to all the content creators in the early days. Jason Kam (01:02:48.583) I see. Jason Kam (01:02:52.099) I see that that will that won't be tradable that won't be tradable. Makes sense. Okay. Jason Kam (01:03:05.807) Makes sense. And then the NFTs, how does that tie to all the value creation? Yu Hu (01:03:11.052) So the way we think about the two assets, token is going to represent the ownership of the network. so over time, it will be decentralized. And then the NFT is basically a representation of the community. So we want more people to be holding the NFT, which is the reason why... we introduce a new mechanism where the NFT becomes a multiplier for whatever the benefits that you can get. So the ideal state is sKaito token holders, or Kaito token holders essentially want at least one Genesis NFT, and all the Yappers will also want at least one Genesis NFT, so that everyone essentially gets a multiplier in whatever the stuff that they do in the whole InfoFi network that we're building. Jason Kam (01:04:08.669) Got it. And then the marginal benefits of stacking decreases as the more end to you. Last question I have, I've taken plenty of your time. I guess we talked about all these growth efforts, right? Some of them are more exciting than the others. I wouldn't ask you for your guidance, of the 33 million annualized today, looking into year end 2025, is there a level of annualized revenue or annualized burn or whatever KPI you track would make you happy? Yu Hu (01:04:37.772) Yeah. I mean, so one thing that I've said publicly or I've done publicly is I basically acquired a million KAITO tokens in the open market and then put them on the self-imposed lock. And then within that lock, I put two milestones publicly. One is a 50 million target and the other one is a 100 million target. And I put those targets, annualized revenues target, yeah. Jason Kam (01:05:03.279) an annualized revenue target. Yu Hu (01:05:07.246) And so clearly we're thinking it is possible and it's achievable for the network to essentially get to 100 million. Otherwise I'm just burning my tokens effectively. that's kind of a, yeah. that's, you know, that's basically, I wouldn't put a kind of a time lock on that, but essentially that's what we're working towards. And I think that if we're successful on... Jason Kam (01:05:19.995) Yeah, it's benefit to all of us. Yu Hu (01:05:35.246) basically everything that we set out to do, it should be much bigger than a hundred million. Jason Kam (01:05:41.749) Very cool. Members, do you have any questions? Let's give you three seconds. Really appreciate your time, man. We haven't done it in English in the past, but this is fun. Thank you. OK. I'm sure everybody would appreciate it.

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Episode 3 - April 21st - $ENA With Guy Young (Founder of Ethena Labs)

TLDR In this episode of BidCast, Jason speaks with Guy, founder of Ethena, discussing the company's business model, growth strategies, and future initiatives. They explore Ethena's revenue generation, treasury management, and the importance of institutional partnerships. The conversation also delves into regulatory challenges, the launch of iUSDe and Converge, and the company's approach to retail distribution and market dynamics. Guy emphasizes the potential for significant growth as the market conditions improve, highlighting the strategic vision for Ethena's future. CHAPTERS 00:43 Introduction to Ethena and Market Overview 03:43 Business Growth vs. Token Holder Returns 06:50 Revenue Streams and Treasury Management 09:52 Institutional Adoption and Market Dynamics 12:33 Converge and Institutional Integration 15:49 Securitize Partnership and Future Prospects 18:46 Challenges and Regulatory Considerations 21:49 Future Growth and Market Positioning 30:33 Exploring Growth Efforts at Athena 32:04 Progress on iUSDe and It’s Market Potential 35:39 Innovations in Fund Structures and Tokenization 38:13 Institutional and Retail Distribution Strategies 40:57 Navigating Regulatory Landscapes and Market Conditions 45:30 Competitive Landscape and Market Confidence 49:28 Roadmap for Future Growth and Market Positioning TRANSCRIPT <Jason Kam (00:43)>: All right, we are live. Welcome to another episode of BidCast. I'm your host, Jason Kam, aka Maple Leaf Cap. Today is April 17th, 2025, 5 PM Hong Kong time. BidCast is being livestreamed to BidClub members. Questions are from the members and my own. Today I'm speaking with Guy Young, the founder of Ethena. What's up, man? <Guy (01:09)>: Thank you very much, thanks. <Jason Kam (01:12)>: I guarantee you the members are here that you just don't see them. Maybe you guys should say hi in the message. I want to start with the Ethena's numbers. I I have some high level numbers here. 5 billion of USD outstanding, 40 % state, of which 600 millions is on exchange, 4.6 % APY last time I checked, generating about 240-ish dollars of annual interest income, if I'm not mistaken. How should I, are those numbers right? And then secondly, how does that translate to the revenue that the Ethena treasury or even the token holders are occurring? <Guy (01:50)>: Yeah, I've got a pretty long answer to this. So apologies for the length, but I have a slightly divergent view on this whole sort of question versus the rest of the market at the moment. So I think taking a big step back, I think before we start thinking about value capture back to the token, we need to recognize a few different things. One is like the life cycle or stage of a business just in terms of how long it's existed and where it is relative to where it wants to grow to. And then also the type of business is quite important here and whether it's a <Jason Kam (01:54)>: No. <Guy (02:20)>: Balance sheet driven business like Ethena or like a swap based business like a pump or a hyper liquid, I think they actually look very different. the reason for that is that the network effects and mode that you build from building a business like Ethena to something that's 10, 20, 30 billion dollars in size is very different to something like pump, which doesn't actually get more useful as a product, the larger that it gets. I think you can actually just look at like Tether versus Binance as a very clear reference point here, which is when these type of products become dominant, they are so much more dominant than their peers even in the trading space. so Binance market share, anywhere between 40 to 45 % and sort of shrinking actually through time. Tether market share, 70 to 75. And the reason for that is when these products become dominant, their network effects compound on each other, which is I want to use Tether because it is the most liquid and you continue using it and it continues growing and becoming more dominant as a result of that. The reason I'm giving this context is that... The Ethena story in terms of where it can go and my vision for where I want to take this is just so much larger than where we're sitting today. And I think that trying to clip too much fees back to token holders now of like a few hundred K or a million a week is just insignificant versus where I think the outcome of where we can take this is going forward and actually putting all of that cash into reinvesting into growth, which is basically just going to be the yield on sUSDe I think is a much better trade off at this stage of the cycle for Ethena's growth. Basic examples here was like, would the people who are listening to this call think that it's a better long-term outcome for Ethena to take $10 million and give it to a Robinhood or a PayPal or a Binance or a BlackRock or whatever it is to help distribute our product or spread that $10 million over a few weeks of fees that sort of come back to the token? My view is that the former has a much larger impact in terms of where we're going than a little bit of buybacks right now. But yeah, I think that that's my super high level view, which is there is just so much for us to go and do in terms of like integration and still growing this product, you know, quite literally five to 10x where we are right now over the next few years. And I think that trying to focus too much on capturing a little bit of value now might actually, you know. hinder your ability to actually go and to capture that. And I also think you want to get to a size where people just stop trying to copy Ethena and you just give up at some point and you just say, it's the biggest, it's integrated everywhere. And me as a startup coming to actually compete with that, I'm not even going to bother going forward. So that's kind of my view on things. I know that people in the market have this obsession with capital being returned to token holders and that kind of stuff right now. I think the one piece that I would sort of just stand back and say is that, <Jason Kam (04:40)>: Hmm. <Guy (04:53)>: Clearly this thing can produce a lot of cash in the right environment. This isn't sort of like a hand wavy. This is an L1 where if you 100,000 acts the activity that's sitting here at like a fraction of the cent, it might produce this much like 10 years in the future. I think it's quite clear that there is like a functional business model here that produces a lot of cash in the right environment. I just think, you know, like most businesses in the real world, Some people need to focus more on growth in the beginning rather than capital distribution. And I think if you go into any normal business and say you want capital returned within a year and a half of being live, it sounds like a ridiculous statement to make. So yeah, I think that's my view. <Jason Kam (05:30)>: Yeah. No, it's a good rant as a former investor in stocks. That's a right rant that I should be giving. And just to dive into that just a little bit, we should not be reading too much into the fee switch, because it seems like you're just not going to buy back, regardless of what the fee switch says. <Guy (05:48)>: Well, no, think there's sort of three phases to this, right? There's one which is you make clear to the market that there is no equity code that is rugging token holders for the fees. And we've made that like abundantly clear now, like the equity is taking zero cash from this at all. And I think if a token is not doing that at a minimum, it's completely uninvestable. So that has been crystallized that there is no sort of side door that's going to an equity company on the side. So that's like stage one. And that's what we sort of come to the beginning. The second one, I think, is showing that you can monetize. So it might not be <Jason Kam (06:01)>: Hmm. Hmm. <Guy (06:18)>: that you're taking 30 % of the gross interest income, maybe take five in the beginning and just show the market you can monetize this in some way, but it's not sort of the full extent of where you think that you can actually capture value. this product going forward. We've obviously done that through the lifetime of Ethena, so there's $60 million that's sitting in that reserve fund. That's like through cash that we've obviously captured through time with, know, percentage of the yield ranging anywhere from like 10 to 50 % plus depending on where the conditions are. So I think the fee switch that's coming in I think is more of a demonstrate and I'm obviously going to like vocalize this in the governance forum when... when we sort of tick off the pieces that are on there, but it's more just demonstrating to the market, we can skim a bit of fees off of this thing and demonstrating that you can monetize this, but we think the take rate here is gonna be X percent where in the future, once you're at 20 bill plus, interest rates are at 2 % in the real world, we think that that number can be much higher basically. So that's sort of the sequencing that I think about in the three different phases. And I think right now, Ethena's sort of between one and two, yeah. <Jason Kam (07:16)>: Yeah. then obviously, you do have the $60 million in the treasury. Of that $200 to $250 million of interest incomes that flows through, you talked about like $10 million to Robinhood, for example. What is now in your mind the annualized fees that come into the Ethena treasury that you can work with aside from the $60 million that you have today? <Guy (07:38)>: Yeah, I think like a take rate somewhere between 10 to 20 % on that is something that we've been able to capture while still growing. think that this is obviously, it's a very difficult conversation to have, right? Where the interest rate is fluctuating from like 30 % in December to four to 5 % right now. And so if we're having this conversation back then, the number was like in a run rate basis of 1.2. <Jason Kam (07:47)>: Okay. 500 or something. <Guy (08:02)>: It was 1.2 bill actually in December. That was like a great number. So I think <Jason Kam (08:04)>: Okay. Yeah. <Guy (08:06)>: that's a little bit of the difficulty here, which is like, yeah, we can be sitting here and talking about the numbers at 250, but like, you know how this market can change in terms of A, the supply growth and then also B, gross interest income. And so I think there is a ton of volatility even just like on the top line of Ethena. And I think that's just pretty obvious from like the product design. But yeah, think the rough numbers that you quoted at a point in time is sort of reflective of. <Jason Kam (08:31)>: Yeah. <Guy (08:32)>: We're starting now. <Jason Kam (08:34)>: And then the cash, the burn rate today, are you tapping from that treasury or is this separate in the equity box? <Guy (08:40)>: Yeah, no, think it's just with raise funds that we've had through the Actico and then through the foundation before we don't have any need to A, either sell tokens from the foundation again or B, raise any more capital to sort of pay for the operating costs. like Ethena's pretty lean. It's 25 people right now. where a lot of those heads have actually been hired for growth initiatives on both like the new chain supporting like the ethereal exchange and then some of the institutional stuff that we're trying to come out with now. So it's actually a pretty lean business in terms of like running operational costs that we don't really need to capture that much. <Jason Kam (09:13)>: Okay, so next couple of years, you don't see any need for tapping to the treasury. Okay. Okay. And your North Star currently is still the amount of USDe outstanding. Like that's the number you're trying to get up. <Guy (09:26)>: Yeah, I think that's correct. Obviously, I think this is a journey that everyone has to go through, which is you can issue the product in the beginning, but then you can be actually quite powerful as a forcing function to create new growth with some of these new initiatives that we're doing, whether it's a chain or other apps that are building around it. And so I think we've done that initial growth with existing apps that exist on chain right now. And I think the next push is putting in resources where... there are new things that are being built with USDe. I think in the same way that, you know, Luna actually, despite the ways that they didn't do a lot, right? I think they did one thing, which is pretty good, which is like say, we've got this core product, but we actually want to support these different teams in terms of building on that core product and allowing that innovation to sort of like be built on their dollar product. And so I think that that's kind of like the next phase that we're going through, which is pushing this ecosystem and Converge is one piece of that. Yeah. <Jason Kam (10:18)>: You can hear me right, Guy, when I'm speaking? OK, cool. And then I guess, how? And are you taking any fees on the BlackRock 144 billion? <Guy (10:23)>: Yeah. Yeah, so we take roughly 10 % of the gross interest income on that. I'd say our thinking around this product is less of something that... <Jason Kam (10:39)>: Okay. <Guy (10:45)>: You know, we're betting a huge amount on the success of the business or like revenue that we'll generate coming through this. You can sort of think about it as just a very complimentary product to USDe for both go to market, but then also the way that we manage like the backing for USDe. The secret source that people still I don't think have recognized, which is going to be coming live pretty soon with this is that actually USDtb is a very interesting way for us to tap into another source of yield, which is the over-collateralized lending market within DeFi. So you can sort of think about what Sky and MakerDAO access right now. We're about to have, this is on the Aave public forums, but about to have USDtb allowed as like a borrowable asset within Aave. Why that's interesting is that actually we can double dip as Ethena, which is we're holding USDtb and capturing the full TVL yield in the back of USD for the liquid cash portion. <Jason Kam (11:36)>: funny <Guy (11:37)>: And then you can also lend it into Aave and then collect the lending yield on top. it's actually kind of like, it's almost like MakerDAO SuperChargers, if that makes sense, where you can capture like both the lending spread with the DeFi plus the T-bill yield on top. And so that just allows us to actually, A, diversify a bit of the sources of like income that are coming through, but then B, actually supply dollars into markets where people are levering up as USD as well, like slightly below market interest rates. So yeah, that's one piece which I think... <Jason Kam (11:48)>: Hmm. Hmm. <Guy (12:05)>: will help to sort of smooth, yeah, yeah, smooth the, yeah. <Jason Kam (12:06)>: Let's go. I think last time we spoke, and I think a lot of us are pretty excited about this, which is the Central exchange adoption. mean, after Bybit, we're hoping for a couple more. And then you see Binance out there doing its own like USD1. I guess, is that still like a big effort for you to get on board with Central exchanges? How is traction there? And do you think that's a growth venue going forward? <Guy (12:33)>: Yeah, 100%. I think, well, the USD1 is very much a different product. It's obviously just like T-Bill backed with the World Liberty guys. don't know to what extent they're going to be pushing that very hard, but I sort of see it like another FDUSD on the exchange. I think the one reasonable piece is that BFUSD I think, has been not great in terms of like an outcome for them. I think it was sitting at 600 mil. They've done a, I think the management of like the, you know, return on the product.  and pick up has not been, I wouldn't call it a success relative to the size of Binance in general. Without naming names with exactly who's coming online, we did have a pretty unfortunate piece with this barfing stuff, which I'm happy to address publicly here, which is the German regulators having an issue with the micro application that we put through on USD and that actually paused two exchange listings that we had coming out. Obviously, I'm not going to mention by name who they are, but we...  to go with that and basically put a pause into that until we could sort of clear that. So yeah, part of the issue here is we're trying to get that piece cleared, which has been a big blocker for a lot of stuff that we wanted to do basically in the last month, which has been extremely frustrating on my side. And this includes our USD as well. So we've been just trying to work through that on our side. And once that clears, a lot of the stuff can sort of bring back to market. <Jason Kam (13:52)>: Do you have a sense of timeline on when the regulator will hold up when clear? <Guy (13:58)>: We're really hoping it's within the next 10 to 14 days. So we put out a tweet this week on basically agreeing with the German regulators to close down the minting entity that we had over there. And they just want to have a two week period where anyone who sort of held the USD within Germany has like a ability to come and redeem with us. So yeah, I'm basing what I can see right now. I'm hoping it has like full closure within 10 to 14 days. <Jason Kam (14:21)>: And that's the only holdup with this access. They basically tell you that once it's clear, we're ready to go. Is that the right way to think about it? OK. OK. Yes. There are a bunch of growth initiatives I want to go into. We can take Converge first, because that's the one that is the most recent. I guess the easiest way for me to ask this question is, how does it really work with once it's live? I guess, when is it live? And then like, How does it work with a fund like us or any Wall Street institution? What is the flow of dollar and what do people use it for? Why don't we start there? <Guy (14:57)>: Yeah, sure. Maybe I can just give you like a super high level what we think the opportunity is here, why we've been doing this. then, yeah, hopefully that sort of gives a bit of clarity from the top. So I think the frustration that we had on our side in the last couple of years is just actually looking at the inflows that we've had into the market and saying like really outside of BTC ETFs and a bit of stable coin supply growth, there's actually been no real inflows into the market at all. And you can actually just look at DeFi TVL versus where it was in 2021. And it's actually, you know, many, many, like 40 % below basically the peaks that it was sitting at during that time period. And to me, that was actually a very strong indication that we haven't actually built or delivered any products to what I think is the most important thematic thing that's going on within crypto now, which is the institutions are actually here and they're wanting to deploy their products and capital into our system. And really like BTC and stable coins have been the only thing that have actually been beneficiaries of that. So think given that we basically just have the view that if you're not actually thinking about how you're catering your products towards these pools of capital, you're actually just going to be left for dead if you're still continuing to just do the sort of DeFi games within our own ecosystem. Because right now all we've seen is really just like chips being reshuffled between different apps and different chains with no real inflows. If we also just take like another perspective on this, I kind of have a view that there's only two actual use cases for blockchains right now. There's speculation and think, know, meme coins and Solana and then derivatives on hyperliquid are kind of the two obvious use cases that are being dominated outside of Ethereum. And then the second one is settlement for stable coins and tokenized assets. And that second use case, if you actually believe the crypto thesis going forward and, you know, all financial assets start to move on chain and we start to build infrastructure around that, you should think that that second bucket is much bigger as an option. than the first one, which is just facilitating trading shitcoins, right? And we think that that second bucket, like Ethena plus Securitize is uniquely positioned to actually go and capture because you really have like two businesses that are coming from either ends of the spectrum where Ethena is taking... <Jason Kam (16:49)>: Hmm. <Guy (17:02)>: crypto native assets, i.e. USDe and then our institutional i.e. USDe product and saying, how can we put this in a format with different applications or just by itself to export out of crypto into TradFi? And that obviously brings new inflows into crypto. And then Securitize comes from the opposite end of the spectrum, which is saying we've got TradFi assets and they're going to do a lot more than just Treasuries. You know, their ambitions are to do everything like equities, private credit, Treasuries was sort of just the first step. How can we bring those assets on chain and then plug them into the financial infrastructure that like Ethena brings with its ecosystem? And so think that coverage over there is actually really interesting because you're coming from two ends of the spectrum of like DeFi plus TradFi coexisting within the same place. And so yeah, this is really the place where when we have this iUSDe product and you have the different RWAs that... securitizer bring on chain, we're actually just trying to build purpose-built applications and infrastructure for these people to use our products and actually bring in flows on chain. From like a user experience perspective, it actually looks almost identical to what any user would be experiencing right now. The only difference is that on some of the applications, there's going to be like an institutional button to turn like on and off. So like one example here can be a Pendle, right? So when you have iUSDe and you're trying to sell this to TradFi you know, it was 18 % analyzed roughly in 2024, but it's obviously an extremely variable rate. Your ability to go to TradFi and say would you like 10 or 12 percent fixed on the same asset is obviously extremely compelling to like a huge amount of capital that sits within TradFi, but they cannot interact with like a Pendle pool when you know a North Korean could be buying the YT on the other side. so the sort of like permissioning and compliance actually sits at the application level where we're saying everywhere that we found product market fit building financial infrastructure around USDe, if we put a very thin layer of basically KYC and permissioning at the app level you actually put that in a format where drag file can underwrite that. On the other side. So whether it's levering up like iUSDe on like Aave's new Horizon markets, whether it's putting it into Pendle producing like fixed rate returns out of that, all of these different areas that we found product market fit, all we're doing is saying like these applications can exist as like purely permission as DeFi or slightly adjusted for TradFi to be able to interact with them. that's like one piece that. And then at the chain level, I think there was a bit of a misunderstanding from the market when we came out and that was my fault in terms of how we communicated that. It's not like a permissioned private blockchain, <Jason Kam (19:07)>: Hmm. <Guy (19:18)>: which is kind of like the first read that a lot of people had. The only overlay that we have in this whole piece is that there's gonna be a staking component for NL, which is actually there for institutional users. You can sort of think about it as like a second failsafe behind the centralized sequencer that sits on like an L2. And so if you have some sort of hack or issue where whatever, BlackRock's lost hundreds of millions of dollars on this chain, the real risk is actually... people moving the USDe or bidl from that chain into another one where they can then sell it into ETH or some other asset and then sort of like escape with it. And really like the perimeter of where these things are unsafe is actually at the bridge layer basically, where if you're taking like USDe and bridging at three layer zero and it comes onto ETH L1 and is then able to be sold for anything, then you actually lose money. And so all this is sitting here is doing and doing is providing basically a way for these institutions to stay in there and actually be part of like the DVN that sits within like a <Jason Kam (19:57)>: Yep. <Guy (20:13)>: zero bridging network and so they have an ability to say actually if these are stolen funds that are trying to come out we're blocking that transaction and it's actually stuck within this environment until we sort it out and so it's actually like you can think about you know base running a single sequencer that is much more permission than anything that we're describing to do here because if Coinbase decides that that transaction is not going through it's not going through we're basically running this as something which just has a second layer of a safety net or guard rail, it's around getting assets off the train basically, if something catastrophic has happened. <Jason Kam (20:45)>: I guess then two questions is, what's the uptake so far from the institutions? Kind of who are they, if can disclose? And then secondly, I still have a bit of trouble imagining Bridgewater just 1 PM coming in here and just clicking buttons, aping somehow coins that are in fire blocks into, let's say, Pendle. Like for somebody like Bridgewater and Blackrock and like Viking and some other actual funds with real custodians that need to like ape into this stuff, how would they go about doing this on your chain? <Guy (21:16)>: Yeah, I think it's obviously going to be slower process than like... launching a new chain without a token and then doing a points farming campaign and then seeing the numbers go up. This is obviously something that's going to take a lot more time to actually do properly. This is something that I spoke about in the tweet when we released it. But you know, the things that are hard to do are usually the things that are worthwhile doing because no one else is bothering to try and get it done. So I completely agree with you. It's not going to be easy to get them comfortable, get them on chain and doing things. But it's also because the upside for doing it is so large that you should be taking that bet and putting in the work to make it happen. As it relates to your question around the uptake, We're obviously coming out with iUSDe stuff, which again has been paused because of this bathroom piece. But we have basically a half a billion dollar commitment from one entity that sits within Trad-Fi to come and like see this initial product. And that's just that they're comfortable to actually take it and use it on chain or on centralized exchanges as well. And so to me, it was a pretty strong indication that like a dollar with a structurally high yield, the demand for that isn't $5 billion. It's like north of 100. And we're delivering a format now. where we bought a single entity providing nearly half a billion dollars into that. And so I don't think it's actually gonna be like a demand side problem for like iUSDe the asset. The second, the piece that's gonna be a bit harder to draw out is saying like, do you wanna go and use this in interesting ways within like the infrastructure we put around things? And I think that, you know, that is gonna be something that takes longer to do and it's gonna be hard. <Jason Kam (22:24)>: Hmm. Hmm. So it seems like your combo would be more to like, you know, like us trust and SSNC and those vendors. And basically ultimately getting the funds that are onboarded to them to like somehow buy, you know, your products on, your chain. that would take. Yeah. <Guy (22:56)>: What? I mean, there are conduits that you can go through to sort of act as middlemen between like big pools of capital and coming on-chain to do these things, right? So like, you know, even just naming one fund, like Brevin Howard obviously has like access to a $50 billion LP base and they have like a division of their arm, which can actually use it. They're doing things properly on-chain. And so you don't actually need like every single entity on that to say like, I'm actually physically there doing these things is actually, you just need a few connection points to the right pools of capital where someone can be executing this on-chain. You know, some of them might <Jason Kam (23:03)>: Yes. Yes. Hmm... Uh-huh. <Guy (23:27)>: even face into whatever galaxy that's sitting there and saying, we can actually do these on-chain functions for you and manage that for you on-chain. There's another project, don't know if you've come across, Upshift, again, their whole product offering and saying, we'll collect these pools of institutional capital and then do all of the hard work that sits for you on-chain. So think the key is just getting the product that they actually want to use on-chain, which we believe a dollar with a structurally higher yield is one of those big products that actually makes sense. And then putting a... <Jason Kam (23:35)>: Hmm. <Guy (23:56)>: thin wrapper of compliance around it which actually allows them to tick the box to say that we're comfortable with that and then I think the operational piece of actually getting the money in and out and sort of doing things someone can always act as like a middleman to get that done and I think it's just sort of connecting those two pieces. <Jason Kam (24:10)>: Hmm. terms of, because eventually, if it works, the uptake here from outside capital should be meaningfully more than, let's say, $5 billion if you really nailed this. In terms of getting it to a certain level of heft, like couple billion dollars, are we talking weeks? Are we talking months? Are we talking quarters, in your mind? <Guy (24:31)>: Yeah, it depends how you define it, because securitizers have a very big chunk here and very small changes can materially move that number. So one example here is that we hold nearly one and a half billion dollars a biddle. if we flip a switch that moves from Ethereum to Converge and that's like the money that's sitting on there. And so there's quite a few of these pieces where if we're just making business level decisions to say, we're holding these assets here instead of there, and this applies to Securitize as well, their number can be much bigger, much quicker. So I think like, know, multi-billions in like a few months from launch, I think is reasonable, but a lot of these things are gonna be like business level decisions of entities that we're working with just actually shifting their assets in terms of whether holding them over there. So yeah, I think that that's fair and I think that I use it. <Jason Kam (25:17)>: And it seems like that effort is bigger than, let's say, bringing in stocks and RWA onto your chain. It seems like that's much smaller versus bringing capital in buying crypto products. For now. <Guy (25:28)>: The stocks will definitely come and I think there's a very interesting overlap with the Ethereal exchange that's launching on there where, yeah, they're not just wanting to do crypto perhaps. Like I think actually, and I've spoken about this on podcast last week, think that if I create a perhaps product around the equities, like a $10 billion. idea in isolation, if you can do that properly. And so I think there's interesting overlap between all of these other assets that Securitize can bring on-chain in spot format and then thinking about how you add these crypto primitives or derivatives and that kind of stuff around it. So yeah, it's definitely on the list of things I want to do. <Jason Kam (25:45)>: Yeah. Yeah. Yeah. Yeah, and I guess aside from the accrual to USDe itself, because it will drive USD TVL, when it comes to actual ENA contribution, there are, in my mind, three pieces, which is one, the Eth ENA being bought for staking. The second piece is the, I think you're going to use USD for grass fee. Does that just get expensed? And then thirdly, are you going to give out any token incentives on this chain to like facilitate action? I guess those three things. <Guy (26:30)>: There might be a little bit, but it's not going to be like an excessive farming campaign. think a lot of this has to be just driven by, Is that real demand from drive for all these products sitting on chain? And we have to rely on the fact that these products themselves stand on their two feet. So there isn't a plan to do some huge farming campaign for it. I would say, yeah. <Jason Kam (26:53)>: get a purchase for staking. <Guy (26:55)>: Yeah, there's API staking and then also we're releasing the tech documents that come out today, but there is going to be a sequence of this running on the train and the fees there obviously come back to Ethena as well. And obviously when you're including in exchange that's sitting on the train, there's a pretty decent amount of activity that could actually originate from that type of activity as well. yeah, there is also fees directly from the sequencer itself, which would all be due back to Ethena. So there's no new token that's coming out of that. <Jason Kam (27:22)>: Got it. So the Minimus ENA being kind of emitted for ENA stakers that are validators. And they will be earning fees from the USD. That is the transaction fee on this chain. And I guess you don't really expect that ENA being purchased for validators to be a material driver. You don't expect a lot of things to be brought and staked at the moment. OK. <Guy (27:43)>: I think that there'll be a reasonable amount, but I don't think it's going to be like at the size that you see on like L1s at the moment. But I think, yeah, basically amount of fees that are coming from the chain. But then also like the business model can be quite different, right? Because a lot of the chains right now basically rely on like flow and volume based transactions. <Jason Kam (27:49)>: Hmm. <Guy (28:02)>: to capture fees back themselves, but actually it looks quite different when you have USDe as a gas token because it becomes like almost like a balance sheet driven chain, if that makes sense, which is like the more apps that are using USDe and the more that it exists on the chain, we're just making it continuous, and extremes just from the gas token being USDe and obviously the backing that sits behind it. So I think that is one thing that looks slightly different here, which is it's all of the stuff that's sitting on this chain outside of the exchange are much more like NIM type businesses rather than like. transaction fee, MEV type stuff that you see normally. <Jason Kam (28:34)>: And since you have the hope that it's going to be a multi-billion dollar TVL on this chain soon, this is in addition to the current TVL of USD. And are there any, I guess, what's the best way to ask this? What kind of effort or which party is the most instrumental, you think, to this growth of this TVL? <Guy (28:43)>: Correct. Yeah, I think the first person that we're going to come out with around iUSDe with that number that I mentioned is going to be pretty big. That will obviously be the vast majority in beginning. I think the piece that we... <Jason Kam (29:11)>: Okay. <Guy (29:12)>: The piece, the reason that we've done this with Securitize and I'm not sure the market is of like fully appreciated now is that like they are obviously the tokenization partner for BlackRock and like everything that BlackRock decided to do on chain goes through Securitize. And so having them is like the deep, this is like the default issuance layer for everything that them Apollo and their are doing to come through here as the first step is a very meaningful thing I think because like if we think about what is the narrative for ETH right now it's like okay well we lost speculation to Solana we lost speculation to other places but you know institutions are building on our train we're actually challenging that in a massive way to say you don't decide that it's actually us as the asset issuers and stable point issuers, securitization, partners are actually deciding where these assets go and what's actually built on top of them like afterwards. That's like one of the big pieces for us, which is this huge optionality here for what else is there that BlackRock and everyone else that securitizes working with, what else are they wanting to do here and how can we sort of support that going forward? And being the default place that securitizes coming to do that business, we think is actually a very meaningful piece in terms of like, yeah. <Jason Kam (30:18)>: They are pulling, they are as a part of BlackRock pulling clients into you of kind of doing the marketing is this one. <Guy (30:25)>: Yeah, and also like whatever they come out with next, right? They've only done a treasury product coming out of BlackRock. There is a lot more that is coming. That is going to be A, through securitizing, and B, on converges, like the default issuance layer to do that. so that's kind of, yeah. <Jason Kam (30:32)>: Hmm. Interesting. The funny deal I saw recently is that they acquired a fun admin that a lot of funds use in this space. I wonder if that fun admin service could just directly plug into your chain. then secondly, they could sell to traditional funds as well. But that's interesting. That's cool. Would you say Converge is the biggest growth effort under Ethena at the moment? Or is there anything else that is big that you think we're that ranks in higher priority here. <Guy (31:09)>: I think iUSDe is going to be bigger just as a product because not all of it's going to be used on the chain. And I think just holding plain vanilla, iUSDe to or people actually just as collateral within prime brokers in the real world, putting it down to get leverage on investment banks, all those different pieces. I think that actually iUSDe to as a product can be bigger than Converge's chain. <Jason Kam (31:29)>: Yeah. <Guy (31:31)>: a higher level of confidence that there's extreme product market fit for that as a product versus us taking a pretty big swing at something that is speaking openly pretty unproven at the moment, which is how much more do these institutions want to do? So I definitely can't admit that the probability of that working the way that we've described it is definitely lower than us pushing our existing product into TradFi But like I said, think the upside for doing this is so high. <Jason Kam (31:41)>: Yeah. Yep. <Guy (31:57)>: still like a bet that's worth taking on our side. So yeah I think that's probably a bigger piece. <Jason Kam (32:04)>: So, tell us more about the progress at iUSDe. Like, how's it going? <Guy (32:08)>: I mean, it's all ready. It's literally ready to go. And this barfing piece again has slowed us out from coming out with it properly and the pressing and all that stuff that sits around it. So at a very basic level, all that's happening is we're putting a permissioning layer around USDe, the asset. So it basically has the same token format and standard that you see with BIDL where you need to be KYC to hold it and like sitting on a ledger and you can't permissionlessly send it through, you know. any DeFi app and that kind of stuff. The interesting thing about it is that once you put it in this format, you can actually then take it as like collateral to do a bunch of things, you know, even outside of crypto, which is like, whatever hedge fund is sort of taking this and has a relationship with an investment bank in terms of just getting leverage or like a prime broker, this asset then you can actually take out of crypto and say like, who else can like interact with this and where can we use this? And so yeah, for us, it's like, I think just speaking to people, the size of tickets and the cost of capital for people who sit within TradFi is that much lower. So like even 8-ish percent is pretty interesting to a lot of people in crypto when the duration is also so short. You can get your money back in seven days. So yeah, I think it's really just waiting for market conditions to be a little bit better where funding rates aren't literally below T-bills like they're sitting right now. And us to sort of clear some of the stuff around Buffin. Yeah, I am very confident in terms of like the size of demand that sits out there for a product like this with this kind of guy. <Jason Kam (33:40)>: Yeah, ownership of this will also be through, you know, like a Galaxy or a BlackRock. Like it's going to be wrapped before it's offered to like real financial actors that don't necessarily have to infer. <Guy (33:51)>: Yeah, this is actually a very cool piece and I should mention it, like you said, it's been set up in a very flexible, like fun structure where actually any hedge fund in the world. can come in and work with the tokenization partner that we're working with and actually just put their own fund structure on top of it. So the initial person we're coming to market with is just a very large hedge fund who's basically opening up a platform to all of their LPs and just saying, you can co-invest into this vehicle with us whenever you want. it's sort of like an investment manager that sits on top of the asset. And all you need to do is send them fiat. And what they're doing under the hood is saying, we're turning fiat into USDC, minting USD and holding like an investment vehicle that actually sits on top of it. And so all of their clients actually did not need to fucking touch <Jason Kam (34:04)>: Hmm. <Guy (34:29)>: any USDC managed wallet, anything, all they're doing is sending, fiat into a fund and buying like essentially shares of a fund that replicate the underlying. And so it's set up in a maximally flexible way where you can take the basic legal structure and fund structure that we put in place and actually just like throw in your own like new name that sits on top of it. So it's actually a couple of, yeah. <Jason Kam (34:48)>: Hmm. And this box, do you operate or securitize operates? <Guy (34:54)>: Securitize does basically like the fund admin, the tokenization piece of it, all of like lower level stuff that a lot of people don't want to touch. And then you could even be a crypto native fund and actually just say what... said like with our existing LP base this is sitting here and if you want to put money into this you know and that's sitting on top of it. <Jason Kam (35:14)>: That's That's cool. And I guess this is where we talked about before, which is at the minimum, short-term US treasury rates at the best is kind of the crazy yield that crypto offers through fund future basis, effectively. Cool. Well, probably hear about it more in hopefully two weeks. Fascinating. OK, so we talked about iUSDe. We talked about Converge. <Guy (35:26)>: Correct. <Jason Kam (35:39)>: There are other things we discussed historically. There's the apps for distribution. There's the potentially setting up an ETF and then just apes USDe, and then redeploying for buyback. There's like, I don't know, is there anything else on your list that you thought you're really excited about aside from the couple of things we talked about? <Guy (36:00)>: Yeah, I think the other cool thing with iUSDe that comes out of it is you can put it in a format that can actually sit within the ETPs and ETFs. So I think an ETF is much less likely now in the US, but we're making good progress on something in Europe around an ETP. so again, just getting into like an exchange traded format that you can actually just put into different distribution channels there, I think is interesting to us. The other one is... Yeah, I think just more apps that we've seen coming to market. we like the ethereal pieces opened up its test net now and there's been like market makers in a few like early tests that are getting involved there. And I think the initial feedback has been pretty positive. Obviously when these things are successful, they can be pretty large in terms of the demand sink for dollars that go into them. And I think the value proposition there is actually uniquely interesting to me, which is kind of you've got two of the killer products of crypto coming together in the same place, which is kind of dollar with a yield and then <Jason Kam (36:38)>: Hmm. <Guy (36:54)>: speculating on  and having those things like by default integrated with like Ethena providing liquidity I think is actually an extremely interesting and compelling idea even though the  space is obviously extremely saturated at the moment. And then I don't know if you've seen like a few of these things that came out this week. I just found this intellectually pretty interesting was this insurance, re-insurance businesses that are actually like underwriting re-insurance in the real world and <Jason Kam (37:07)>: Mm. <Guy (37:19)>: collateralizing it with USD on top. So you're almost stacking two forms of uncorrelated yield into a single product. And then they're actually tokenizing that product so you can then take it onto like a more. Anyway, I thought that was pretty interesting because like obviously the capacity to earn 10 % like uncorrelated real yields in addition to like what you're using on the sUSDe collateral. Pretty interesting product. And to me is just the thing that I find most interesting right now, which is kind of like. real assets or businesses coming in, putting a crypto primitive on top and trying to make it better in some sort of way. And I think that that's a pretty cool use case that's coming out of that. And then, yeah, as we spoke about publicly in the roadmap piece, we also have the telegram launch, which for anyone who's gonna be there in Dubai, we're gonna have some piece that we're taking out a token just around the department. So yeah, I think all the stuff that we've been speaking about here was really on the... Institutional side of the distribution like barbell and then the retail side. I'm pretty excited about I really think the two avenues there are kind of centralized exchanges plus Telegram I think the two most interesting retail distribution <Jason Kam (38:27)>: And this is issuance <Guy (38:30)>: It's more interesting than that. It's basically like, so right now you only have USDT within like the centralized app and the TON spaces, so not actually sitting on the TON chain itself. Think TON, I'm obviously excited about what they're doing, but I think we can openly admit that the DeFi ecosystem there is underdeveloped or immature versus the rest of the chains, and that's not a criticism. I think it's just a statement of where it's at. I think that that is less interesting to us than the centralized distribution of just sitting within the wallets as a savings technology that sits alongside Tether. So it's a pretty cool way you'll actually have within your main app that actually has the real users sitting within the wallet rather than like the DeFi ecosystem itself. You'll basically just have an option to toggle between USDT for payments, sending to your friend, all that kind of stuff. And then savings, which is sitting with Ethena, is like the only option there within the main app itself. The cool thing about that in my perspective is that, what is the one financial product on earth that like everyone wants out of finance? It's basically just holding a dollar in your bank account, getting a yield and then spending with it. And you're actually able to do that through a single token sitting within your... <Jason Kam (39:24)>: Hmm. <Guy (39:38)>: Telegram app itself. So holding USD, making saving saving like generating a yield on it and then integrating card payments as well directly within the app where you can actually just double click on your Apple pay and then just spend your USD that's in your wallet directly on your on your phone payment. So to me that's like very cool, very real use case that can actually touch the hands of like many. <Jason Kam (40:01)>: Hmm. <Guy (40:01)>: here is that we're also getting to work a bit closer with the Tether team because, yeah, think the Tether obviously was like the only asset that was sitting in there and they were quite defensive, I think, in terms of who else was coming in there to operate alongside them. I think the piece that people don't realize about Ethena and Tether is that 70 % of the perpetual market is actually denominated in USDT. And so what that means is that <Jason Kam (40:16)>: Yes. <Guy (40:29)>: when Ethena is backed one to one with pervs, a dollar increase in USDe supply necessarily creates 70 cents increase in USDT supply because as we're adding a short to the market, you always need a long to match that short. And so that actually creates like 70 cents of tether demand on the other side. So you can actually think about like, as Ethena is growing, 70 % of that growth is actually feeding through into tether on the other side, which is something that even Paolo didn't realize until like a couple of months ago. <Jason Kam (40:43)>: interesting. Hmm. <Guy (40:57)>: And so that's one piece where we're again, you know, I think they're like a bit more open now to us basically working on Telegram and TON now sitting there because they sort of understand that even if assets are flowing into Ethena, it sort of feeds through into them as well. And so, yeah, that's just. <Jason Kam (40:57)>: Hmm. And are the Germans holding it up still? Or is this separate as well? OK, this is completely separate. <Guy (41:17)>: No, no, this is more of like a technical implementation thing. We had to rewrite all the contracts specifically tailored for Telegram, and that's just taken a while to get audited. There's obviously many pieces of the business that's within Telegram across different teams and that kind of stuff. And I think we'd always guided towards Q2 for getting that product out. yeah, this has just been something that's been an attack in engineering rollout rather than anything else blocking it. <Jason Kam (41:43)>: Does having Ethereal prevent you from going on like hyperliquid, for example? <Guy (41:50)>: So we bought the ticket for Hyperliquid, which you might have seen. And so yeah, we've got the USD ticker there. We're just waiting for connectivity between Hypercore and the EVM, which allows the arbitrage to actually close before we actually start to put any real assets on that. The issue though is that Hyperliquid is not designed in a flexible enough way where you can actually just take that as collateral to trade on portfolio margin. <Jason Kam (42:04)>: Yeah. Yeah. Hmm. <Guy (42:20)>: going to have unless they rip up the entire order books being denominated in USDC. So the use case there is kind of like if you want to close your positions on perps and then swap into USDe as like a savings asset in the spot side of the book. So we almost said there's like an HLP equivalent if that makes sense within the spot side of the exchange. There's like a savings tool which is like one click away. Obviously USDe within the EVM can be useful in the same way that it has in other ecosystems. But I think <Jason Kam (42:38)>: Yeah. <Guy (42:48)>: Yeah, it doesn't sound like there's a big urgency or desire from the Hyperliquid team to either push portfolio margin on the exchange itself or allow for different assets as collateral on that. And so you're never going to be able to have this of like yield bearing use case on there until they've sort of like redesigned the way that they've done the exchange there. <Jason Kam (43:00)>: Hmm. I guess unless until like Ethereal makes significant headway in volume and traffic and TVL, they will start sort of maybe consider it. <Guy (43:18)>: Yeah, it's an interesting question there because like I think a lot of people have speculated around a hyper liquid stable coin coming as well. And I'm not saying this because we're building one and I'm trying to put down the idea but like finance can only grow FDUSD to like very low single digit billions. There's a very good reason for that and it's like when you shop your own stable coin into your own exchange, it's very limiting unless you can be using it across every single exchange. And the very interesting piece about this is that it's a huge <Jason Kam (43:31)>: Yeah. Huh. <Guy (43:48)>: It's a huge risk to your own core business, which is printing millions of dollars now to actually rip up the liquidity around one pair and say, okay, come do it on a new pair instead of the USDC one, because you actually just run the risk that people don't ever come back and make that pair of liquid again. And that's actually the moat that Tether has with Binance, which is no one wants to take the risk of ripping up the BTC USDT pair because it prints Binance $10 billion a year. And so, you know. <Jason Kam (43:57)>: Yeah. Uh-huh. <Guy (44:16)>: can make 4 % on that because no one ever wants to run the risk of killing the cost of the exchange business. And that's the same that I think hyperliquid is in now, which is it doesn't make logical sense to sort of risk the core trading business in my view to try and shoehorn your own asset in on the other side. <Jason Kam (44:21)>: Hmm. I guess since Trump became president, it's been about, I guess, a couple of months, has the US regulation gone more friendly to you? And importantly, the Stable and Genius Act that we hear, like, the way that regulatory sort of regime is going, do you feel like it helps you, the USDe? Does it feel like it hurts you? Is it important that you're regulated as like a payment stable coin in that regime? <Guy (45:02)>: No, not from my perspective. yeah, I'm very happy, I think, with where it's like landing at the moment, which it looks like there'll be a carve out for everything that isn't like pure payment stable coins right now. And they'll come to address it within two years. And I think, you know, in the conversations that we've been pulled into, there's like specific mention of Ethena and Sky being in this bucket of like other that they'll come to in like two years. So I think that that's as much as we could have asked for there. We don't have retail presence now in the US, which we are. <Jason Kam (45:22)>: Good? Uh-huh. <Guy (45:30)>: Exploring and we think that like our USD is actually the better sequencing of events here Which is like face off to US institutional users with your product first to sort of slowly get your way into the into the country in a in more conservative way and then the The plan that we have is to actually before actually opening up retail access Without sort of checking with anyone. We want to go into the SEC for a no action letter from them, which is basically just going in to say, this is our product, this is what we do, this is why we think it's beneficial to consumers, and can you give us the okay before we do it, before we come in. So I think that that's our approach, we just don't want to take any unnecessary risk now, which is sort of like presuming that people are fine with everything and risking something. So that's kind of our approach here, which is phase it in with our USD and the institutional product, and then get explicit confirmation from people there that they're fine with what we're doing before. fully open up the retail presence in the. <Jason Kam (46:26)>: and what's the timeline there? <Guy (46:29)>: I really can't give one so we've been in conversations with them but I think I don't want to overcommit on that side because obviously that's pretty much entirely outside of our control. <Jason Kam (46:37)>: Got it. has any of the, I wouldn't want to call it competition, but there are a bunch of folks that recognize the spaces trade, Falcon X, Sten X, CredX, I don't know how to phrase this question, but has any of them sort of pulled volume from you or do you view as any of them as like potentially threatening to your business? <Guy (47:03)>: I think the honest answer is no. Like a few of them have got to like low nine figure size. And I think I actually see the growth of one of them. like one was called Resolv and I sort of came out and I was complimentary to them saying like they approached the design, interestingly, and then they TVL out like four X in two months after I sort of gave the public. We had our own LPs actually leaving Ethena and they're like, you think it's safe? Okay. And then they went in there. <Jason Kam (47:11)>: Huh. Nice. Very helpful. <Guy (47:31)>: No, I think the issue is that everyone is kind of like already so many steps behind in terms of like integrations getting to the right places and that kind of stuff. I think maybe I'm being too dismissive here, but I think once you've got Binance Collateral, people will basically just stop doing that. And it just becomes an extremely high hurdle for people to come in and convince like these big platforms that have done the work on Ethena and got comfortable with what we do. I think the big piece here and I think it worked in our favor was actually going through the Bybit incident and some of the liquidation stuff that we have this year and having like literally zero issues out of what people perceive to be you know one of the worst right-tail events that could have happened sorry left-tail events that could have happened to Ethena without like any issues it actually built a lot of confidence in the market to say like <Jason Kam (48:16)>: Hmm. <Guy (48:20)>: it's actually pretty lindy now and there's a pretty high hurdle for what I need to see from someone else to not just use Ethena and be comfortable with what they're doing, if that makes sense. So I think if you're to come in and compete now, you have to so explicitly beat Ethena in terms of returns, whether that trade off makes sense, i.e. taking the risk on a new team who hasn't proven themselves at huge scale for what has been like, you know, over a year now. And I think that's just a pretty high hurdle for people to come in and do. So yeah, there are like, you know, there's been... I'd say five to 10 that have like emerged in the last year, they all get to like low nine figures with, know, side TVL deals and that kind of stuff and then sort of die off after. So, yeah. <Jason Kam (49:01)>: Understood. Got it. So if I were to summarize, it seems like the plan here is a piece, well, I wouldn't say a piece, but answer all the questions regulators may have. Figure out a way to get into the US, but in the meantime, solve the hurdles you have with traditional institutions that can onboard you through iUSDe. Clear the hurdles with more exchange adoption. Clear the hurdles for reaching retail at the moment mostly through Telegram. And hopefully you could get the 5 billion TVL to add another zero to the end of it, maybe in one quarter, two quarter. And then in the meantime, maybe increase the war chest from 60 million to, I don't know, call it 100 million if the yield and the 8 TVL increases. So you can start cutting $5 to $10 million deals with more strategic partnerships that widen the TVL. Is that the right way to think about your roadmap? Did I miss anything? <Guy (49:52)>: Yeah, think on the the just the cash piece of the end we don't like we can still capture that Those millions of dollars to like the Treasury or whatever and you know We can still fund those other things that I've described there very easily like we have more than enough money to go do those deals. I'm more an example of like growth versus like capturing value type thing, which I was just trying to give us like an example. So yeah, all those like pieces that we can go out and do aren't conditional on us generating more like cash income going forward. We can afford to do those things right now. I think the other piece I just wanted to get across was that this period reminds me very much of I think when we maybe did the first one of these around like six months ago, which is kind of just before we off in Q4 where, you know, <Jason Kam (50:08)>: Hmm. <Guy (50:38)>: TVL had stalled, rates were low, everyone's like, this thing's never growing again, it's like dead in the water. And then the thing about Ethena is that like, the growth is very violent and like... non-linear where you go through these periods of like lulls and you can see it on the chart and then it just adds like four billion in like a month when like rates come back. I think the piece that I just want to get across is that like even in Q4 of last year we really didn't have much of the infrastructure set up to even capture like a big amount of the opportunity. Like we had one centralized exchange. Aave wasn't even listed. Like if you remember we had to cap out the growth of Aave. It was like capped at like a hundred mil a week and then the opportunity sort of disappeared when I got to a building. <Jason Kam (50:56)>: Hmm. Hmm. <Guy (51:15)>: hadn't opened up for a billion of allocation directly from there. And you didn't have any of these institutional pathways, new pieces around Telegram and that kind of stuff. So the point I just want to get across is that when the market comes back, and that doesn't mean that yields are like 20, it means like 12 to 15, this is going to grow twice as fast as what you saw in Q4 because the tentacles of Ethena are just sitting in so many different places now where... the access point to just get in and for this thing to grow is that much quicker. so even as like a stepping stone bridge type thing, like Aave has basically completely de-levered its USD holding. So that's gone from like one and a half bill back down to zero. Like when rates are attractive to do that, like that's like one and a half to two bill, like just out the bat sitting on Aave. You've got a bill from Sky, which when it sort of clears that cost of capital that comes in like very easily from their treasury holdings. The telegram thing, like what we've been discussing with the foundation there in terms of like <Jason Kam (51:52)>: Huh. <Guy (52:08)>: targets, how we're both putting incentives and the incentives that are coming from the Telegram Foundation. That's like targeting one to one and a half billion as I could roll out that we're doing. And then there's this like iUSDe piece, which I mentioned, we're sort of expecting 500 to start, like, who knows how that big that is when it's like 15, 20 in size. So like, that's just like literally four different things that I've described there. And I think that's like three to five billion just straight out the gates without any normal sort of like return coming in the market. So yeah, I think that's one piece I wanted to get back was that actually the growth that you saw on Q4 was us actually with very, pretty limited distribution. I think that's where we are right now. <Jason Kam (52:23)>: Who knows? <Guy (52:46)>: trust from people like pre-buy bid. And so think when this does come back, if yields are anywhere even like close to 15 to 20, it's like north of $10 billion like very, very quickly. Like literally within that is my view. <Jason Kam (52:57)>: Yeah, that's very helpful. And then that's a good segue, which is kind my final question. And then maybe the members will have some more. It would seem like a lot of the groundwork and infrastructure work you have done set yourself up for step functions of USD TVL over time. And this is contrasting with a token dynamic where the best thing are happening now. And you have a cap table previously that probably need DPI and need returns. basically gunning the business for growth at the moment, which is redeployment of treasury dollars into growth efforts. I guess the high level question is, how do you think about maybe in the short term, the 3 to 12 month horizon, the potential decoupling of your token price versus the fundamentals in the TVL that you're building? <Guy (53:47)>: Yeah, I think it can happen and, you know, the token itself is always going to be quite reflexive to the cycle, I think, because like when there's an all the run rate, a billion of revenue in December doubled in a month, it looked like, you could argue even like cheap relative to the growth back then. So yeah, it's obviously extremely sick. I think the, we did obviously see like a lot of turnover in the cap table during this unlock, I think. And you can see all the stuff on chain. And I think we shared a note with some of, people on this call when it happened, there was quite a bit of selling that actually came through from some of the earliest investors who were up like 160, 200X basically around the unlock. I think that there's a big bifurcation within the cap table of the largest holders, including myself, plus just the largest VCs who actually have not sold a single token. And I think that actually comes out for a much larger outcome. then sort of smaller trading entities, trading firms and that kind of stuff, who basically sold everything that they did. And so there's like this very weird distribution of like, Some people have sold 100 % and then the others, all the most are basically holding out for much higher. I think, and obviously you need to do your own work on this. I'm talking about Invert, but like my perception is that the heaviest amounts of that has basically been washed through right now in terms of like that initial unlock that came through. And, Yeah, I think the piece to get across, and you can see this on-chain, that I myself haven't touched a single token. The majority of our team really haven't done much at all. And yeah, the largest holders themselves have chosen to hold high rather than take the liquidity that was there. <Jason Kam (55:26)>: Helpful, thank you. Any questions from the members and guys or anything else we haven't covered that you want to talk about? <Guy (55:34)>: No, I think that's it. think, yeah, difficult to come on here. think we're, I don't know, market is exceptionally weak, rates are down really low. We've had like many months of stalling growth, but I think, you know, we've been through this period before a couple of times last year. And I think the piece I wanted to get across was just, you know, we're still here trying to take big swings and big ideas to move this forward. And I think like before people will be surprised when the market does come back. <Jason Kam (55:37)>: Yeah, extensive. <Guy (56:03)>: how aggressively this could swing back to the upside. <Jason Kam (56:07)>: Cool. Guy, thank you so much for your time. Appreciate it.

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Episode 2 - April 18th - $EUL With Michael Bentley (Founder of Euler Labs)

TLDR In this episode, Jason speaks with Michael, founder of Euler Protocol, about how Euler bounced back from a major hack to reach $1B in TVL. Michael explains how their modular lending architecture, curator-led markets, and capital efficiency attract both major assets and long-tail markets. They discuss Euler’s liquidation system that minimizes penalties, their rehypothecation model, and how vaults boost yields for both lenders and borrowers. Euler is now expanding cross-chain and preparing to launch two new products: EulerSwap, a novel DEX that turns lending accounts into just-in-time liquidity providers; and Euler Earn, an aggregator vault system similar to Metamorpho but with broader access. While revenue is not the top priority, the team expects both products to significantly boost usage, lending demand, and consequently its TVL and take-rate, potentially ultimately driving Euler token buybacks and sustainable protocol growth. CHAPTERS 00:30 Introduction to Euler Protocol and Its Journey 03:22 Technology and Liquidity: Key Drivers of Growth 06:28 Capital Efficiency and Liquidation Mechanisms 09:31 Market Flexibility and Customization for Curators 12:15 Future Growth Strategies and Cross-Chain Expansion 15:37 Incentives and Revenue Generation in Euler 18:28 Funding and Financial Sustainability of Euler 33:36 Funding Operations and Token Management 38:36 Introducing Euler Swap: A New DEX 53:44 Euler Earn: Asset Management Innovations TRANSCRIPT <Jason Kam (00:00)>: I don't expect this to be ridiculous. Probably got a couple of people on, GM, we're live. Today is April 15th, 5 PM Hong Kong time. BidCast is being live streamed to BidClub members. Questions are from members and my own. Welcome to our episode of BidCast. Today we're speaking with Michael, the founder of Euler Protocol. Michael, welcome. <Michael (00:08)>: GM. <Michael (00:30)>: Thank you very much for having me on. Yeah, it's great to be here. <Jason Kam (00:33)>: Yeah, yeah. I mean, after all the crap that was thrown at you, mean, you guys are up to a billion dollar TVL now. Why don't you tell us about things like, how did you come from a debt from, you know, you know, hacked and then now to a billion, what drove that growth? Tell us more about that. <Michael (00:41)>: Yeah. <Michael (00:52)>: I mean, yeah, it's been incredible. I'm just absolutely delighted that we've been able to pull it back like this. We had high expectations, but maybe not this high, this quick. I think there's been a lot of different factors. Firstly, we'll get into probably at some point what we've built. I think it's fundamentally extremely good technology that's superior to competing technology in a variety of ways. <Michael (01:21)>: Technology alone isn't, isn't good enough. Sometimes you can build a 10 or 20 % better product. And if you don't have everything else in place, then that's not enough to, to overcome competition. I think like particularly liquidity is king in this, in these markets for a lot of different protocols. And so even if you've got 20 % better product, if somebody else has got the liquidity and you don't, then they can't use your 20 % better product. Right. So overcoming that challenge has been tough. Think Euler's model naturally lends itself to. to kind of growing liquidity because it uses this curator model, which is similar to some of the competition, Where rather than just build, have the Euler-Dao or Euler-Dao associates build a lending protocol, we have different risk curators that come in and build their own products in their own image. And they bring with them their own networks and their own contacts and their own reasons for growing these markets, many of which we're totally unaware of, right? So like some people ask me. <Michael (02:18)>: Why is it going so well on the X, Y, Z network? Or why is this market so big? And sometimes we just have no idea. I mean, the Resolve market, for instance, was one big driver in the early days. It's sort of slowed a little bit recently, but still doing quite well on Euler. But that was one, one market that went extremely well. It was curated by a team called Apostro. They knew the, they knew the resolve team. They knew. The fundamentals of that project seem very strong. Honestly, they knew a lot more about it than we did and that market really, really grew quite quickly on Euler. So that's just one example, one really nice example of something that took off and that's not because of us in a way. You know, we built the technology and facilitated it but we didn't directly have a massive hand in it. would say it's all down to Resolve themselves and Apostro for knowing that team and bringing it on board. <Jason Kam (03:10)>: And you would say that most of the TVL just happens organically, like you didn't do BD or anything. <Michael (03:15)>: Well, I mean, we have, yeah, we have one BD person at Euler who works extremely hard, who knows everybody, you know, he goes around and talks. So I wouldn't say we don't, it's not like we don't do BD, but yeah, a lot of projects, I'm sure everybody knows that a lot of projects start by going out. They have, maybe don't even have a live token yet and they'll secure, you know, some kind of headline figure TVL, which then comes in through some kind of private, private deal. And Euler hasn't had the liberty of doing that, right? Because we had a liquid slash liquid. token after after everything that happened and you know I think at the time we relaunched the fully diluted valuation of that was just was pretty much on the floor so it's not like we had the option to go out and offer somebody you know silly money to go out and bring TVL so in the end yeah we did some another driver was we decided to say well there are people who still believe in Euler there's a lot of uncertainty around the project can we pull it back so we decided to do a locked Euler reward campaign and that has been a big driver. So that uses public incentives where we essentially sort of wrap the Euler token up into a linearly vesting wrapper and then we distribute that. So I think that's been an important driver, especially to help new markets where there's a bit of a chicken and egg problem emerge and grow spontaneously. If you look at the dollar value of the public incentives we've done, it's still less than three million since launch year. <Jason Kam (04:39)>: It's not that much. It's not that much. And so most of the teams that onboarded you through the curation model, they basically thought, we need to create the market here. And this is just about the only solution in WIFI 2 that allows us to build or do what we want to do. And that's why we're building. Is that roughly the right line of idea? <Michael (05:02)>: I think so, yeah. I mean, you can't just add any old asset to something like an RV and establish lending and market, right? It's tricky, but a lot of new assets out there do need utility in lending facilities. So the other option is to kind of go with an isolated model that has been tried many times. It's partially the way that things work on things like Morpho, but it's often inefficient. And on Euler, the... protocol itself is just way more flexible than any of the protocols out there. So you can build more efficient capital markets on Euler than you can elsewhere. And so oftentimes that's one of the main reasons why people come to Euler is that there's just things they can do on Euler that they can't do elsewhere. And that's, yeah, so a lot of these new assets, been a massive proliferation, now, stable coins recently and things like that, that are seeking credit markets. <Michael (05:58)>: to help themselves grow and so they come to Euler to build. Yeah. At least as far as I understood it, the mechanism of V2 and your coding and design mainly benefited your collateral and lending in two ways. One of which is that your liquidation mechanism is a bit more advanced, which allows you to push the collateral requirement to be lower than your competition. And the other one is that Because of this hybrid model that you offered, the folks that deposit the assets are able to accrue slightly higher yield versus an isolated model, for example. Is there any way you can quantify for us? Well, first of all, am I missing anything aside from those two things? And then secondly, can you quantify for us what that really means for, let's say, a $100 deposit into your platform? How would it translate to like, some more additional yield or additional benefits to the depositor or borrower. <Michael (07:05)>: Yeah, sure. I did say they probably are the two key sort of capital efficiency drivers. And one of the things, you know, just to say upfront, what that means is when you're more capital efficient you don't have to spend and heavily bootstrap like others have done. Yes, but others have had to spend tens of millions of dollars in incentives to grow these markets. But if you have natural drivers of efficiency, then you can grow faster organically. So let's say the liquidation model first. I mean, <Michael (07:34)>: borrowers on lending protocols sometimes get liquidated. And on other markets, they typically pay essentially a penalty on their collateral when they get liquidated. That penalty essentially provides the incentive for the liquidator to provide the liquidation service to perform the liquidation. If you have a very big penalty, then there's a very big incentive. If you have a small penalty, then there's a smaller incentive. the penalty is always a percentage of the collateral. And so actually that doesn't really make sense, right? If I'm liquidating a hundred million dollar position, then a 5 % penalty could be absolutely enormous, both for the liquidated party, but also for the person, the incentive is just massive. $5 million for liquidating this position. It's just way more than any bot runner needs. These are all just bots willing these liquidations, right? So why do we need a 5 million penalty? It's insane. But 5 % on a hundred dollar position, you know, we're now talking $5. Is that even enough to pay the gas cost of liquidation? Possibly not, right? So the point is that the percentage penalty, the percentage penalties don't really make sense. What there is is like a fixed cost of liquidation. And then after that, there should be a kind of auction that runs to determine how much incentive you need to liquidate somebody. And that's essentially what Euler does. has this Dutch auction that's based on something called the health score of a borrower. And what it means is that large borrowers get liquidated at very low percentages. percentage penalties. I posted about this on Twitter recently, know, some of the, I think, off the top of my head, I think the penalties way less than half a percent if you've got, you know, if you're borrowing tens of thousands of dollars, which is at least an order of magnitude better than if you get liquidated on something like Morpho or AAVE In some cases, we were two orders of magnitude lower on the penalties charged, you know, if you're borrowing millions of dollars, then You definitely want to get liquidated. you are going to get liquidated, you'd much better off getting liquidated on Euler than on other platforms. So yeah, so just better for borrowers, I would say in that regard. But it also means things are better for lenders as well, by the way. You people often miss this. If you're taking someone's collateral and handing it, taking it out of the system to the, you know, to the MEV bots that run these liquidations, that means they're less collateralized than they were before, which means you push the system closer towards <Michael (09:57)>: insolvency than it previously was, right? So it's not just better for borrowers, good efficient liquidations are better for everybody in the system. And Euler has, in my opinion, the best in the business. I've posted about this many times. <Jason Kam (10:07)>:  Yeah. And since that is the case, are you able to push the leverage that a borrower can undertake so they have higher efficiency? <Michael (10:16)>: I think so. I mean we often get asked about this. Most of Euler's markets are relatively conservative on LTVs. I would say, and I'll explain why that is in a second as well when come to the next point you raise. I think if you were to run isolated markets like they have on more flow flowed, you could really push those LTVs much, much higher. But we tend not to have too many isolated markets on Euler even though it's possible to create them. Euler is very flexible in that regard. You can replicate more for all fluid type markets on Euler very easily, but most most curators tend not to build those markets. And the reason reason for that actually leads into the next point, which is what, why, why are things more efficient in terms of the, the class usage on Euler? It's because on Euler, you can essentially our primitive unit is a single vault and a single vault can be either used for lending and borrowing, or it can be used for as collateral or both. And so when you use it as both and you have effectively rehypothecation on the markets, that means you're earning interest whilst you're using something as collateral at the same time. That's exactly how things work on Aave. So you deposit ETH in Aave to borrow USDC, possibly to go long ETH. God forbid anyone does that anymore. You will often earn interest on the ETH you've deposited from somebody else who's actually borrowing that ETH, possibly to go long on. liquid staking token yield or whatever else, right? So that makes the cost of borrowing lower. So you going long ETH on something like Aave, then it does on something like Morpho. If you were to go long ETH versus USDC on Morpho, your ETH would be just locked in earning no yield. It would essentially be what's called escrowed and held in a vault, not earning anything. But on Euler and on Aave, the collateral often earns users extra yield. And so that, that extra yield makes the whole system more efficient. means that there's, you know, you don't have to, grow it, to grow a market like an ETH long position. You don't have to, you don't have to subsidize it as heavily with rewards. You know, I was looking recently and they just aren't, there's nobody going long ETH on, on more for on mainnet for example. I think there are markets on base like that, but there just isn't on, on mainnet. And I think it's cause it would be very expensive to bootstrap a market like that perhaps or. <Michael (12:45)>: Yeah, it's just a very different value proposition than it is on Aave or on many of the markets on Euler. So rehypothecation obviously comes with additional risk as well. I should emphasize that. It's not a free lunch by any stretch, but in many cases, a lot of markets, it does make sense to have a degree of rehypothecation and many curators want that. And then those markets tend to grow faster and liquidity tends to be stickier in those markets because the capital is just used more efficiently. <Jason Kam (13:15)>: And the yield generated on a collateral is certainly higher than a Morpho, but is most of the time not higher than that of Aave, assuming a similar level of utilization for borrowing. <Michael (13:29)>: on Euler, it tends to be a little higher than AAVE at the moment. I think AAVE I mean, it depends on the market conditions. would say. Frankly, AAVE is, is kind of underutilized at the moment. You know, there's the, the market's gone more risk off. You've seen the interest interest rates on AAVE have dropped below, you know, on, on, on dollars, they've dropped below, even the T bill yield, which is kind of insane that you, you earn less on AAVE than on, on T bills. So it depends heavily, but there's no reason why they should be any less. <Jason Kam (13:32)>: Mm-. Mm-. <Jason Kam (13:44)>: I see. <Michael (13:59)>: the yield should be any less on Euler markets than it should on AAVE. It really depends how the vault curators configured their markets. Some opt for more conservative parameters, some opt for more risk-on parameters, and which give higher yields. as always, there's no risk without reward, and it's up to the vault curators and the people who use those markets to determine, know, it's up to the market essentially to determine what people want. It's not a constraint of the technology in Euler like it... <Jason Kam (14:13)>: I see. <Michael (14:28)>: perhaps is on other products. It's a constraint imposed by the risk curator and then by the market itself on what it wants. <Jason Kam (14:38)>: . So for anybody who is like borrowing, instance, they are, it would seem like their collateral would earn well, they earn a higher yield and collateral at the moment thanks to high realization because AAVE given a sheer size is potentially reutilized. And then their liquidation, they will feel a little safer in cases of like extreme market conditions. And that plus the flexibility that it's offered to curators is what you would say. basically helps you get from standing start to a billion today. <Michael (15:12)>: I think so. mean, and that and the ability to heavily customize the markets, you can just build things on order that can't be built elsewhere because of the underlying flexibility of the technology. we built in this, you know, we say it's sort of the modular lending protocol, because what we did was we abstracted all the core properties of lending markets into discrete modules, which then the curators themselves can compose and build back together markets in their image. If you look at Aave, it's very opinionated. a very opinionated product, but on the more complex, more capital efficient side of things. If you look at Morpho, it's kind of on the other extreme. It's very opinionated, but it's on the simplicity side of things. Well, Euler isn't neither, right? It allows you to build either simple markets or more complex ones. And there are just all sorts of more advanced features that you can add. are advanced access controls for risk-curators to play with if they want more security or risk management control. <Michael (16:08)>: There are, you know, hooks for complaints and, and like, you know, trade, changing the way that markets work. One of the big markets on Euler was built by the Usual team. And it was the, it was, Euler was the only place in town that they could build this usual stability loan that they've got, right. They couldn't build it anywhere else. And so they built it on Euler using some of the more advanced, you know, features that the Euler vault kit provides them, that they can't get on, on another, on other, <Michael (16:38)>: Yeah, protocols <Jason Kam (16:39)>: Yeah. There's about 30 billion of TVL on Aave and then maybe five billion on Morpho. You're at a billion and the compound for Robert is pretty checked out building super state. like there's maybe like 40 billion up for grabs. How do you get from one billion to five billion? Like what are you building and what are you working on to get you there? <Michael (17:04)>: I so there's a few things coming down the line. mean, firstly, I think it's important to go to where users are and there are different types of users across DeFi, different networks. Euler's been moving cross chain quite rapidly to different networks and meeting users where they are. yeah, that helps for multiple reasons, not just because there's TVL on those networks, but it means that a user that possibly uses one or two of those networks gets more familiar with Euler across. across that. So you might, you might pick up a user that really enjoys using Euler on base for instance, and that's also a user of mainnet. And so they now, they might not have found your mainnet. They might have been an Aave user on mainnet, but they find you on base and now decide to, you know, so you pick up loyal customers and sticky TVL that way, I think. So it's important to go, go across network and yeah, we're launching on BNB today in fact, but we've had several other big chain launches over the past few months. <Jason Kam (17:58)>: Nice. <Michael (18:03)>: So that's one part of things. I think consistent growth and just lendy is really important. There's nothing better than just proving over time that things are secure. I mean, obviously all is like perhaps the most audited protocol in DeFi or close, it's right up there at least. But yeah, nothing beats lendy being live. I think AAVE proves that right. <Michael (18:33)>: AAVE V3 has been around for a long time. It's had its own issues in the past, but it's now been robust for quite a long time, I would say. And so people trust it for that reason. Just being, being secure and safe for a long period of time is really important. You see, you know, you mentioned Compound, they've been, they've kind of been checked out. think there's some, some efforts to recover their growth from the DAO from within the DAO, think, but as a <Michael (19:00)>: They've probably been lacking leadership for some time, but their TVL is quite high because ultimately it's an old protocol at this point and it has that lendy and has that trust, I think. And then the other thing I would say is, you know, it's no secret that Euler has been building a dex for some time. And so we're excited to launch that in the near future. That's actually going into audit at the moment. yeah, it's already had several really good audits come back and... <Jason Kam (19:09)>: . <Jason Kam (19:22)>: Okay. <Michael (19:27)>: Yeah, we'll hopefully have an announcement out about that in the very near future. But I think that's important because the way that the debt works will naturally drive more volume through the Euler lending market. It's not some separate product. You people ask why have we built this thing? It's not disconnected from Euler at all. It's in fact heavily dependent on it and a core part of the main Euler lending protocol. And that will increase capital efficiency even further. <Jason Kam (20:00)>: We'll be sure to talk about it. But it seems like it's more so about going on different chains at the moment and letting the long tail enablement do its own work. But you're not actively introducing incentives or, is that fair to say? <Michael (20:19)>: It's not that we don't have incentives. I mean we definitely do every new  chain deployment. We typically do a hundred thousand dollars of Euler incentives in this, this reward or token as a minimum and see, then, and then I think the incentives tend to be quite dynamic. So we see, you know, what works, what doesn't, what assets come on board. Sometimes there's incentive matching. depends on, what kind of proposals come through the DAO <Michael (20:46)>: So they definitely are part of it. It's not like we don't have incentives. Yeah, a lot of people come to Euler for those. Yeah, I think new networks are quite an important part of it. I mean there isn't that... I'm not a person that thinks that Euler should be on 100 networks or anything daft. I think there are probably going to be a handful that succeed over the... <Michael (21:11)>: over the next few years, I think we will, we've had this big proliferation and now we will probably consolidate on networks that can specialize and offer users something, a unique experience. So it's hard to predict ahead of time, which those networks will be in my opinion, you know, there are lots of great builders out there and it won't necessarily be the best builders that end up winning of course. So it's really hard to say, but I think, yeah, it's important that Euler's on those early. think if you, <Michael (21:40)>: If you try to grow somewhere a bit later, it's often much harder than it is if you're kind of a first mover on those networks. So yeah, that's definitely a key part of things. <Jason Kam (21:45)>: down. <Jason Kam (21:48)>: So being all chains, like BSC and BASE, and then there are more L2s launching, would you be compatible with the faster ones, like MONAD and MegaETH and those higher throughput ones, eventually? <Michael (22:05)>: Yeah, absolutely. Yeah. I mean, I expect things, the defocus systems there will be, will be a little different, I suspect, because of the things you can do once you have that, once the latencies, you know, change by orders of magnitude, that kind of changes the way that things like MEV work and so on. So I think there will be, there will be differences, but it shouldn't, shouldn't affect the value proposition of overclassed, Icelandic and boring, in my opinion. I think it's more, more likely to impact Dex's. Yeah. <Jason Kam (22:07)>: Okay. <Jason Kam (22:18)>: Mmm. <Jason Kam (22:30)>: Yeah. And just to understand, yeah, we're going to talk about the majors for a second, because I'll be pretty curious on how you incentivize the TVL there to grow. But it would seem like you really narrow it into a niche, which is none of the new launches of new tokens would get on Aave, because it's a common pool. if those collateral rug, everybody kind of there gets hurt. So it's a very rigorous process. But at the same time, doesn't seem like Morpho is flexible enough. It doesn't offer you a lean collateral And it doesn't sort of, it's this almost curated process. even opening a pool there takes a bit of effort. And the tech there may not support this kind of flexibility. So you're kind of the only game in town when a new protocol, this kind of long tail needs to offer bar lending markets. And is that the right way? And that's why you're gaining this share so rapidly. Is that the right way to think about it? Because you sort of hit on a market. Yeah, yeah. I wonder where else they could go. <Michael (23:27)>: Yeah, think that's partly true. mean, some of the Euler is biggest markets are in majors though. It's not like it's just a sea of sort long tail projects. I would say there's actually more long tail markets on Morpho perhaps than there is on Euler. So Euler has... <Michael (23:52)>: It has a kind of, you know, often when people curate the market, they recreate something that's a bit like an Aave and inevitably that tends to consist of major type assets. So yeah, we have two DAO control markets that are governed by Gautner and Objective, two risk curators on Euler and they're governed by the DAO much like, you know, Aave has its model with Chaos and Llama Risk and others. <Michael (24:22)>: And yeah, they're very much consistent majors of premium tier blue chip assets, I would say. yeah, it's not just long tail. would say there's probably less long tail, really long tail than there is on Morpho where they have these ungoverned. Ultimately, most curators on Euler tend to retain governance control. On Morpho, there's obviously the lower level markets, the Morpho blue markets are. <Michael (24:50)>: of all ungoverned, they're sort of permissionless. And that brings with it its own unique risks and reputational risks. When people build and curate markets in order, they have the option to deploy those ungoverned, isolated pairs, but most of them prefer to, it seems to us, prefer to create their own governed markets where they have greater control, access controls, and an ability to, for instance, pause a market or take action in the event that the... <Michael (25:19)>: know, interest rate model needs changing or the economic environment shifts and so on. And so when you govern markets, you tend to, I think they tend to, those curators tend to take on board more reputational challenges, right? And so they don't necessarily want to go out and just deploy markets for absolutely anything. And so the really long tail stuff, I think is still, not really on order, I would say. <Jason Kam (25:33)>: Yeah. <Jason Kam (25:44)>: . Do you have any plans to incentivize the quality on majors, like BTC and all the other major coins, or is that not a priority? <Michael (25:55)>: We have done that. mean, on Euler Prime, which is the kind of DAO government market I mentioned, there's incentives on liquidity there on things like on some of the major Bitcoin mappers, CbBTC, we've done CbETH, USDC, Tether incentives and so on. So some of the majors have definitely been incentivized on that kind of Euler Prime based market and on other networks as well. <Jason Kam (26:10)>: . <Michael (26:24)>: You know, we've got a big market on base, for example. Yeah, the thing I would say is that incentives, you know, if you're a shiny new project and you've got some low float high FDV coin to distribute, you can kind of incentivize USDC markets. You can maybe grow 100 million USDC market just by distributing tokens. Euler hasn't had that. if it can't like, there's only so much you can incentivize a hundred million dollar USDC market or 200 million dollar market, right? You, you if you want to boost the APY by five, five percent, let's say, and you want to get a $200 million market, you're looking at $10 million in incentives alone. Well, that's three times the total amount of incentives, more than three times the total amount of incentives we've done in, you know, however long, seven, seven months now, whatever it's been. <Michael (27:22)>: across every single network, across every single market, right? So it just wouldn't be sustainable for Euler to grow massive markets using incentives alone. It's just not feasible. But what we do do is find that they're successful using incentives in the first few months of a new market. When a market is born, people need a reason to deposit. If there's no depositors, there's no... <Michael (27:51)>: people can't borrow and so on. you can, you can actually, I think incentivize deposits of USDC up to maybe a five or 10 million or maybe even 20 million sort of size, just using incentives alone. And then that gives the opportunity to kind of see like seeds, the market gives the opportunity to grow organically from there. If it can't find a reason to grow organically from that 10, $20 million starting point by itself, then is it really worth bootstrapping and paying for anyway? I would say probably not. <Michael (28:21)>: There might be some cases where it needs to get bigger before it's more useful, but yeah, that's generally the philosophy, I think, for us and our strategy for growing things with incentives. <Jason Kam (28:30)>: So that's not the major plan at the moment. Okay. just off the math, usually it's a spread model that you clip a fee and the sort of bar and lending that occurs, especially on the borrowing and there's a tick rate. On a billion TVL, is it roughly $3,000 to $4,000 a day and roughly like a million dollars a year of revenue to the protocol? Is that roughly right? <Michael (28:33)>: We couldn't even do it if we wanted to. Yeah, so no. I mean, yeah. <Michael (28:58)>: Um, I think, , I think it's a little higher. Um, it depends on the, it depends on the fees. So yeah, the, the, way that the fees are set on order is, , it's essentially the, the, curator chooses the fee. Whatever fee they choose, they, , the protocol gets half. So they set a 10 % fee, 5 % of that will go to their, you know, half of it will go to the curator half that will come back to the protocol. Um, <Michael (29:26)>: Some curators set higher fees on some of the markets, so that I've seen fees as high as 15 or 20 % on some markets. So obviously all we get 10 % there and it depends what the interest rates are. So some of the interest rates are way higher than a 5%, right? When Ethena was yielding crazy amounts, it was much, higher. So yeah, I think what we've seen is it's probably closer to two and a half million. <Jason Kam (29:36)>: huh. <Jason Kam (29:45)>: Yeah. <Michael (29:55)>: revenue across the billion TVL annualized yeah and then the thing to say as well is that on the Euler-Derivative markets which are some of the biggest markets on Euler there's obviously no there's no there's no curator to pay there however much like Morpho which is obviously has a fee switch turned off at the moment they would take 10 % on all their markets if they turn their fee switch on <Michael (30:22)>: Our strategy essentially was to turn the fee switch on for anything that's long tail, just by default. So the fees were already being charged today and the revenue's coming in. So Euler's already generating more revenue than Morpho today. You know, it's probably on track to generate several million dollars, I think, over the course of a year already, but it's switched off for the majors. And that's because just like Morpho, we're trying to grow and it makes sense to subsidize the growth. You know, you could either do that with token incentives, which we've discussed a very... <Michael (30:52)>: hard for a little bit, but rather than do it with incentives, then you just say, well, we'll take no fee on USDC or Tether or WETH or like, know, Wrapped Bitcoin, or cbBTC. So some of the majors just are just completely switched off to kind of incentivize growth. <Jason Kam (31:01)>: Yeah. <Jason Kam (31:07)>: And that fee is auctioned, and you can bid on those fees based on with Euler. that's how if, and that sort of Euler that gets bid sort of get burned, I'm guessing. That's how you sort of execute it. Okay. Makes sense. <Michael (31:20)>: Yeah, so the, yeah, they exactly. So fees, no matter what, what currency they would get bought in on a kind of auctioned off using this module called fee flow. And the way you buy the way you bid on the fees is through, through Euler tokens. if someone, someone auctions, let's say if there's a $5,000 auction, then typically around $5,000 of Euler token will be sent in to bid and purchase that. It's obviously there's a little spread there because people want to profit. So. <Michael (31:47)>: Yeah, it's a heavily bought option at this point, I would say, though, and we tend to see it's quite efficient. So, yeah. <Jason Kam (31:52)>: . And how is the team funded at the moment? Like you raised dollars historically, I'm guessing that's still a run rate that you're burning through and you can sell tokens to fund your operation. <Michael (32:03)>: Yeah, it's we have we have I think we're a runway if we take takes it if there's zero revenue, zero sales or anything. Obviously none of that would be true. I think is currently takes us to at least the end of December next year, 2026. I suspect that might be a little might be pushing into 2027. And yeah, most of the most of the funding we <Jason Kam (32:21)>: Mm. Yeah. <Jason Kam (32:29)>: huh. <Michael (32:32)>: We've raised three rounds of funding, right? Historically, our last funding round was back in 2022. That was led by Horn Ventures. Before that, we had a Series A with Paradigm in 2021. And before that, a Seed round with Lemnis Gap. Yeah. <Jason Kam (32:35)>: Uh-huh. <Jason Kam (32:50)>: Yep. But sorry, just so I'm aware, all the fees being generated by Euler and protocol gets auctioned and then directly goes to burn. So allegedly, the equity box should have no revenue going into it. . <Michael (33:06)>: I see, yeah, I mean, some of the fees don't go into auction. For instance, the ones on the usual stability loan don't go into auction, so they could be used to fund protocol operations. it's governed and it depends on the individual market. But yeah, most of them currently are, the ones that are being generated currently are being used to buy back the token. So in principle, if that were the case forever, you know, in every market, then indeed you would have a model where... you bought back the token and then you would effectively sell the tokens in order to fund operations. That's how the DAO would have to operate. So I don't think there's a free lunch there. You either have to, you either take the fees and use those directly to fund operations or you take the fees and then sell tokens to fund operations. think it's, yeah. <Jason Kam (33:54)>: Yeah, and roughly off that two to three, how much is directed towards buyback versus going to the equity? <Michael (34:01)>: Currently, when you say equity, mean... <Jason Kam (34:04)>: I mean going directly towards paying the team and salaries and whatnot. <Michael (34:07)>: Hey, and the team. Well, at the moment, think, yeah, I think essentially all of it would have to, you know, if we, we assume that it was all just coming, there was no buyback, right? It would, yeah, I think our, burn rate means that we would, yeah, we wouldn't be profitable at the moment at the current, current situation. I think we had a A DAO proposal recently, there was requesting somewhere between five and seven million for another year of operations. So that's how much we cost. That's inclusive of absolutely everything. it's all, it's the cost of Gauntlet and Objective, all the audits, all the legal, like it's absolutely everything associated with the project. It's probably a <Jason Kam (34:51)>: So there's a treasury got it. there's a treasury basically and then the two to three million dollar goes in but you're requesting five to seven million a year that is going out. So how much go so how much goes towards to burn? <Michael (35:00)>: Exactly. Well, right now the tokens go when they're in the fee flow auction that's happening right now, I think that basically the tokens aren't being burned. They're just deposited back in the treasury. So the DAO can choose what it wants to do with those tokens. They could be burned. If the DAO votes for it, I mean, we could just switch that on and just burn whatever's been accumulated today if it wanted. Alternatively, there's some... <Michael (35:32)>: alternative views on this, right? mean, one view is that you would just burn it. Another view is that you can kind of buy back and redistribute. One thing I would say is that when rewards are distributed on Euler through this reward Euler contract, anybody that breaks vesting, they can break vesting at any point and they can claim what's due to them through vesting at that point. But any remainder, the term that it's a six month term basically and any remainder that's not claimed is then burnt. So there is some token being burnt at the moment through early claimants essentially. I'm not sure. think, yeah, last I checked is about $150,000 have already been burned through just early claimants essentially just unlocking. But that's the only real burn that's happening today unless the DAO votes to burn some of the buybacks that are being brought back in. <Jason Kam (36:25)>: Right. And just to be very clear, when you say there's $2 $3 million of revenue from the fees being generated based on the tick rate of the curators, not all of that is burned. In fact, goes into a treasury which you have claims to. And you do propose DAO proposals so that those fees actually go to you to company the equity. <Michael (36:46)>: Yeah, to well, not just to us, but to all service providers, right? Yeah. But yeah, yeah. So right now, yeah. So clearly right now we're not the project isn't profitable yet. It's not too far away, but like, if you just look at the amount out versus the amount in, there's probably still a two to three million dollar gap there that needs filling. So Euler is still needs to grow. And once it grows a bit more or it cuts costs a little, let's say, then it would become profitable. <Michael (37:16)>: Maybe it would become profitable if it either doubled TVL let's say, or was to half its costs. <Jason Kam (37:23)>: Yep. And it's fair to assume that after you have sort of started breaking even, then the additional fees that come to the Treasury will be sort of aggressively burned. Or that will be approval. OK. <Michael (37:37)>: I think so. mean, yeah, it's up to the DAO really. mean, like there's, there's, differences of opinions on these things. One way is to burn. So you just give, that's one way to give value back to token holders is to just pure, to do pure burns. I mean, a lot of the best companies in the world that don't, don't give value to shareholders that way. Right. If like Amazon had just been burning, buying back and burning Amazon stock years ago, that probably wouldn't be Amazon today. Right. So they've, they've, buy back and grow. So. <Michael (38:06)>: There are opportunities to do that, I would say, with protocols. So you can, you don't always have to burn, but certainly that will be on the table and up to the DAO. <Jason Kam (38:12)>: Yeah. Tell me more about Euler Swap and Euler Earn, the timeline of those things, like what they can do to the protocol in terms of revenue and the product itself. <Michael (38:24)>: Yeah, so EulerSwap is a DEX that's built on top of Euler. It's been coming for some time. We've been building it for many years, in fact. But yeah, it's heavily dependent on the base Euler lending protocol working well, first and foremost. And I'd say I don't want to give too much away on this call, but. <Jason Kam (38:47)>: <Michael (38:49)>: What it does is it allows people to turn their accounts on Euler. So somebody with an ordinary lending and borrowing account allows them to turn those individual accounts into essentially a discrete AMM. And the AMM itself then allows swapping to take place against the account. And uniquely, this provides a way for people to provide just-in-time liquidity for swaps. And we think... The mechanism here essentially allows somebody with, let's say, a professional market maker with, let's say, one million dollars margin collateral in Euler could facilitate the same depth of liquidity that you would get on, let's say, a 40 to 50 million dollar curve pool or Uniswap pool. So you see remarkable increases in capital efficiency. The other big gain I would say is that the way the swap accounts work <Michael (39:48)>: they take advantage of the cross-collateralization of Euler markets, you know, on more for things for only pairs, fluid that, you know, deal with pairs. On Aave and Euler, we have cross-collateralized markets. That means that a USDC pool on Euler that's cross-collateralized, that we have one in a market called Euler Yield, where it's essentially USDC that's cross-collateralized against 10 plus other stablecoin type assets. <Michael (40:15)>: Essentially people will be able to build AMMs that function a little bit like say a curve 10 pool or something, you know, if people are familiar with a curve three pool where they connect like USDC, USDT and die, imagine that but for, but for curve yeah, 10 pools or whatever, all built on top of the Euler and yield market. So yeah, it's a, there's, there's no decks out there that's quite like it today. It's extremely novel. I'd say the closest thing is probably Fluid <Jason Kam (40:22)>: Yeah. <Michael (40:44)>: people be familiar with the success they've had. On Fluid, they came up with this concept where people's collateral and debt could be used to swap liquidity. So for instance, you had USDT debt and I had USDT and wanted USDC, I would send the USDT to you, repay your debt, and then I would borrow on your behalf some USDC and send that back to myself. <Michael (41:11)>: And that's how liquidity inside lending markets can operate as just-in-time liquidity for swappers, essentially. yeah, Euler uses relies on a similar principle there, but it operates in quite a different way, I'd say, overall to Fluid. <Jason Kam (41:30)>: I suppose if it operates in similar ways and because of the TVL there can start generating swap fees effectively. Do you expect most of the volume to come through aggregators or would you sort of push a lot of effort to the front end and the marketing group? <Michael (41:48)>: 100 % through aggregators, I think. I mean, we will probably ship a front end for this, I think they were very, yeah, it's very hard to compete by providing a bespoke, unique front end experience. A lot of the volumes on swaps generally goes through aggregators these days. So we've been working really closely with a lot of the major solvers and a lot of the big aggregators out there. We've also been working with another large <Michael (42:17)>: well-known DEX and collaborating with them on something. yeah, our go-to-market here is dependent on people not even knowing that they're effectively not even knowing that they're routing trades through what we're calling Euler swaps. It will mostly be aggregator flows. And one thing it does is it not only generates fees for the swappers but. <Michael (42:42)>: It also increases the borrowing demand on markets. so in some ways drives up the capital efficiency of the underlying lending markets because the borrowed demand will be higher, meaning obviously higher yields for lenders. Yeah. <Jason Kam (42:46)>: Yep. Interesting. <Jason Kam (42:59)>: Heuristically, on the same bill in TVL, let's assume there's no additional TVL that came through this. Obviously, there's dependency on how active people are swapping for you. Heuristically, how should we think about this effort bringing to the impacting of revenue? I mean, it should be higher, but is there a scale that would make you satisfied? <Michael (43:23)>: Honestly, no, think I don't know how much other teams think about this, but what we think of as the primary objective is growth and flows. I, yeah, I'm sort of anti-fee. think Euler's barely, you know, nowhere close to being even a year old now. And I think my, my emphasis would be on growth and flows and user activity. the main metrics we care about, I would say is. <Jason Kam (43:37)>: Mm-. <Jason Kam (43:42)>: interesting. <Michael (43:51)>: Are, do we have users that really like, do we have loyal users? Do we have sticky liquidity? Do the vault curators come and make things that are meaningful or are they just creating markets that are kind of transient? They exist for people to leap for little bit and then disappear. Like we don't want any of that. want the, the, the KPIs here are real users. Once you, once you capture flows and real users, then you can think about like revenues later. So it's not the main. <Jason Kam (43:56)>: . <Michael (44:18)>: I wouldn't say it's the main objective for us is to focus on revenues, but naturally I would expect there will be an increase in revenues if it's successful. It's very new, so we don't know, but hopefully it's successful and that will naturally lead to growth and revenue growth. <Jason Kam (44:25)>: Got it so so Yeah <Jason Kam (44:34)>: So I guess, as opposed to the 0.1%, 50 bits, 1%, 3 % fee of Uniswap, one, it seems like you will not have additional fee on the swaps. You will not charge 0.35%. And secondly, is it fair to say that the fees that you charge, as if Uniswap would charge one, it will be significantly lower in day one? <Michael (45:01)>: I would, mean, ultimately it will be up to the LPs themselves, you know, the people running these swap accounts, what kind of fees they're setting. There won't be any protocol fee on by default, you know, similar to Uniswap. So it'll be up to them and that they will have to find a balance and figure out what works. It's a little bit unknown, frankly, how, what swap fee they should set on this because they haven't, as an LP here, on the one hand you have, we have much... <Jason Kam (45:09)>: Mmm... Mmm... I see, that's cool. <Michael (45:29)>: lower capital requirements for LPing and other other DEXs. know, Euler Swap will be instantly liquid on day one, as long as we have a handful of people running swap accounts. It's not like we need to do massive liquidity mining campaigns or anything, or like private deals to bring in huge amounts of LP capital like you'd see on other DEXs. Because there's already TVL in Euler that can be can be used, right? There's liquidity there that can be can be utilized. <Jason Kam (45:43)>:  that's cool. Because they're just TVLs already. <Michael (45:58)>: And, but yeah, then it's up to people to kind of balance the costs of running these accounts and they're not cost free to run. There's all sorts of things like permanent loss and like borrowing costs and things that they have to factor in additional risk perhaps on the new protocol and so on. So we'll see what they create. I think that EulerDAO should maybe run itself some swap accounts, perhaps even at a loss as a kind of loss leader. <Jason Kam (46:12)>: Mmm. Interesting. <Michael (46:26)>: to stimulate growth. But yeah, that's on my view. <Jason Kam (46:29)>: But I guess, yeah, sorry to cut you off. Basically, on the fees that they set, you would not be taking a part of it. Like, it will be a zero-tick rate business. And for a while, I guess how it benefits you would just be more TVL, potentially, if people like this, or increased solidization, driving more tick rate through the back end. <Michael (46:50)>: Yeah, exactly. Exactly. I mean, there will be a fee, will be a fee switch and there'll be more about that. I think when, when some of the collaborations we've got become apparent, like more to say about that. but, but yeah, the fee switch, I would say the, the, the initial driver's say, you know, if you imagine, you said, you just never, you said there's no fee on this thing, no fee whatsoever. Then effectively all the money would go to the LPs, right. <Jason Kam (47:01)>: Gotcha. <Michael (47:18)>: then the LPs will be the ones in competition. So how would they better compete? They'd probably try to lower their fees. And as they lower their fees, that drives more swap volume through them, which then brings more volumes and flow through the lending protocol, which should bring on board more TVL, which in principle then should mean that the benefits of swapping through Euler are even higher because there's deeper liquidity, which then should mean more swap volume. so there's a potential here for quite a strong positive feedback leap, I would say, given the capital efficiency. <Michael (47:47)>: gain, potential gains of capital efficiency. But it's all of them needs to be seen. <Jason Kam (47:50)>: And Yeah, and what's the timing on this? <Michael (47:57)>: well, it's, it's, it's, it's going into audit. yeah. as we speak, it's already had a couple of audits. It's been, yeah, a couple of changes we've had to, make not because of audits, just because, yeah, I've go to market plans. which yeah, again, will be become more obvious as we, as we launch, but I, I'm, we're not talking sort of months and months. think we're, yeah, maybe weeks or months or maybe another month or so. <Jason Kam (48:11)>: . <Jason Kam (48:15)>: Got it. <Jason Kam (48:27)>: I think that's as much as I can get from you on this call. And I guess this will be a pretty market maker heavy effort. Any LPs would have to deal with both the IP as well as any swap that occurs. They're effectively being forced to borrow or lend, if I'm not mistaken. So it seems like a complex formula if you're managing a lot of positions. <Michael (48:29)>: Yep. <Jason Kam (48:53)>: I guess, is that right? market makers mostly dealing with this? And secondly, I guess the BDF for there is you and your team actively talking to the winter means of the world. Is that fair to say? OK. OK. <Michael (49:04)>: Yeah, I think that's fair to say. When does this go live? Like it's live now, isn't it? But yeah, there's, I don't know, there's some things that... Okay. <Jason Kam (49:10)>: Well, it's only live to members. And I guess you can pick an embargo time. <Michael (49:16)>: I went and pick an embargo time, maybe give it a couple of days.  I think we're going to a couple of, yeah, 17th. I think we'll, we'll have a, yeah, an announcement there to make about some of the market, a market maker that you might have mentioned. Um, yeah. So yeah, we'll be, , well, we will, yeah, I mean, as you said, it's, it's not for, this is not a retail LP product. wouldn't say this is not for, for people to come in a couple days. <Jason Kam (49:23)>: Okay, we could do that. We could do that. okay. Interesting. <Michael (49:46)>: not understand what they're doing. It's definitely a sophisticated, sophisticated tool and people need, will need to understand the risks and fortunately they have, they have the ability to adjust the fees, right? To, to, to hopefully factor in these costs. And so there will probably be some experimentation as they work out how much does it cost me on aggregate across all the different costs I might face to run these things. And I want to position my fee accordingly. And hopefully that fee is still leaves. <Michael (50:12)>: a lot on the table and then that makes it competitive in the market. If ultimately the costs weren't too high, then it will have failed as a product, I suppose. But we're hopeful that won't be the case. Yeah. Do you have a, I mean, this is the cooler part of the thesis. How would you define success by your end if this worked? You know, like, I guess, is there a benchmark in your mind that you want this protocol to get to? Like, boy, if the swap had worked and then the flywheel really started spinning, like going from 1 billion to X would make me happy. <Michael (50:51)>: I think, yeah, think if the, just purely on the swap, I think it's about market share. So I'd like to see it doing similar, having a similar impact to Fluid on the market share of Dex's. I mean, yeah, hats off to that team because they've done exceptionally well and managed to take market share in a very, very difficult market to take market share from people. It's been, yeah. <Jason Kam (51:17)>: Yeah. And what would that mean for the TVL if you get there? Sorry to cut you off. <Michael (51:23)>: Yeah, I mean, in purely TVL terms, maybe double doubling or tripling the, the, markets on which these accounts run. So that wouldn't be, that wouldn't be total TVL I would guess I'd like, yeah, it could, it's very, very hard to, hard for us to say. So we're not trying to set, you know, we're not trying to set the expectations too high on our side. And so we see it's just such a novel, like experiment, I suppose, but <Michael (51:52)>: My guess is it could really have quite a big impact if you turn a single USDC pool into now the main go-to place where people are swapping and lending and borrowing. It could be significant, but it could, yeah, it's unpredictable. It's hard for us to do tests on this thing. So we've had a few people trying to. <Jason Kam (52:04)>: Swap is huge. Yeah. <Michael (52:20)>: run small tests in production, until you go live and really see how well it's, how well it's, it picks up volume, I would say, yeah, the, it's a little more gas expensive than other exchanges. And how, how, how important is that these days? I mean, it used to be the be all and end all when we first started building a DEX we're like, how do we get swaps down below a hundred K gas? Because yeah, that it's the main, the main competitive edge you would have. <Michael (52:47)>: These days, I don't know if that's necessarily true, especially as we move more liquidity to L2s. It's less important there. Even on main net, gas costs have come down dramatically and that gas costs just a fixed absolute cost on every swap, right? So if that's smaller, then the capital efficiency and the fee start to weigh more heavily on the swap volume you get. <Jason Kam (53:11)>: Are you going to Solana anytime soon? Sticking with you, yeah, OK. So we talked about the swap. Is there anything else that really excites you on the horizon in the next three or six months? <Michael (53:14)>: enough.Yeah. <Michael (53:28)>: So we've got Euler-Earn coming, which works a little bit similar to the way that, well, it's essentially like Euler's version of metamorpho. I think these kind of models are quite important actually for the way things work. for comparison, on morpho you have individual markets or individual pairs essentially. then, you might, means you might have, I think as they do like 50 or 60 plus different USDC. markets where you can borrow USDC. Now, obviously alone, that's very capital efficient, but the key insight, I guess, with Morpho is that you could have an aggregator that sits above that and rather than people depositing liquidity into individually each of the 60 markets, they have somebody like a Gortner or a Stakehouse or whoever that essentially manages this asset map. aggregator asset management vault at the top and retail LPs into the asset management vault. And then the asset manager allocates capital to these lower level markets. And that helps reduce the capital inefficiency of pairs. So it's quite important. I think it also helps the velocity of capital and finding a place where it's needed in a <Michael (54:52)>: time efficient manner. If you just run the pairs, then technically the free market, if some new market comes up where there's clearly demand to borrow USDC, technically the market should find that. But I think historically we saw that didn't happen. There was a protocol years ago called CASHI that was almost identical to Morpho Blue in many ways. It had reactive interest rates and it was permissional pairs, immutable permissionless pairs, very, very similar at its core. <Jason Kam (55:13)>: Ugh. <Michael (55:21)>: it didn't do very well and that's because there was no capital allocation layer, there was no asset management layer above on which, you know, where capital could find new opportunities more efficiently. I think that's why those types of vaults work well. Euler currently doesn't have those because it's still, we've had a lot of the innovation on more of that base layer, whereas, you know, we've said instead of pairs, we have more capital efficient sort of clusters of markets. <Michael (55:51)>: But still there are, you know, there are still obvious opportunities for growth there. So Euler & Earn is an asset management layer that can sits on top of all the different lower level markets on Euler. And it works quite similarly to Metamorpho. One of the main innovations though is that we've decided to make it more of a free market model on, you know, Metamorpho is a little bit protectionist, if you would. It sort of only allows you to deploy into Morpho Vault. <Jason Kam (56:03)>: Yeah. <Michael (56:21)>: and so, the Euler earned product will allow you to allocate to Euler or God forbid Morpho or Maker or, know, or whoever really. And, yeah, exactly. Yeah. So we, we, might end up helping some, you know, caps to go to other, other competitors, but at the same time, it's more useful product and it should be strictly better because in the worst case scenario, you could just have all the set, you know, <Jason Kam (56:30)>: It's cool. No curse. You just get more users on your platform. That's cool. <Michael (56:48)>: It could exactly match like the asset management, like going into the Morpho Vaults. But if there is, does happen to be a better opportunity today on, on Euler or Maker, then you could also allocate to that. So yeah. <Jason Kam (56:55)>: Yeah, that's cool. <Jason Kam (57:01)>:  I might have some interest for you because I think a lot of these, there are these credit card companies or crypto native debit cards that are popping up and they're occurring TVL. Those TVL are spendable. They just spend with card and they almost invariably deposit those TVL into say Morpho to like earn yield. Yours seems like a better way to deploy USDC and USDT in that regards. Just like we'll touch base on the offline. <Michael (57:27)>: Yeah, hopefully. Yeah, sounds great. <Jason Kam (57:31)>: Any questions from the group? Give it three seconds. I don't think so. Michael, thank you so much for your time. This is really helpful. <Michael (57:44)>: Yeah, thank you very much. Yeah, it's been great to chat. Happy to answer any more questions offline. People feel free to reach out, get in touch with me if they have any. Great, thanks. <Jason Kam (57:53)>: Perfect. Thanks guys.

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Episode 1 - April 10th - $ATOM With Maghnus Mareneck (Co-CEO of Interchain Labs)

TLDR In this episode, Maghnus talked about  the major restructuring of the Interchain Foundation and its shift from a $40M+ burn to a lean $10M operation. The team now focuses entirely on boosting $ATOM’s value through real utility and strategic product development. They dive into Eureka, a new IBC design that helps connect Cosmos Hub to any chain at 100x cheaper and 60x faster than existing solutions – with the hopes to accrue >200 mm USD of value to $ATOM itself per annum. More topics discussed include Cosmos Hub’s transformation into a multi-chain marketplace, the upcoming launch of a permissionless VM, and how new chains are being encouraged to buy and burn ATOM as part of alignment.  The episode also touches on RWA chains, the acquisition of EVM OS, IBC’s dominance, and how Cosmos aims to become the go-to stack for serious world-building L1s. Chapters / Timeline 00:00 Introduction to BidCast and Interchain Labs 01:04 The Relationship Between Interchain Foundation and Interchain Labs 03:13 Corporate Restructuring and Leadership Changes 06:04 Transition of ICF Team and Budget Cuts 07:43 ICL's Purpose and Financial Sustainability 09:53 Revenue Generation and Atom Token Strategy 13:00 Interoperability Protocol: IBC and Its Impact 17:49 Eureka: Bridging Cosmos and Ethereum 20:48 Future Integrations and Market Strategy 25:13 Revenue Projections and Atom Deflation Strategy 32:51 Eureka's Financial Impact on Adam 34:41 Transforming the Cosmos Hub into a Marketplace 36:50 Competitive Advantages of Eureka 37:59 Projected Cross-Chain Volume and Revenue 43:06 Aligning New Chains with Atom 46:43 Acquisition of EVM OS and Future Plans 55:26 RWA Chains and Institutional Trust 59:58 Enhancing Atom's Liquidity Transcript <Jason Kam (00:21)>: OK, welcome to an episode of BidCast. I'm your host, Jason Kam, aka Mapleleafcap. Today is April 10th, 9 AM Hong Kong time. BidCast is being livestreamed to BidClub members. Questions are from the members and my own. We plan to only cover liquid tokens and web 3 related equities in this podcast, where participants may own the instruments discussed, all opinions on our own, and BidCast is not being compensated for the content produced. Nothing we discuss here is investment advice, nor do we believe there's any material non-public information in the episode. Today I'm speaking with Maghnus, the co-CEO of Interchain Labs. Maghnus, welcome. <Mag (01:02)>: Nice to be here. <Jason Kam (01:03)>: Yeah. Why don't you tell us a bit more about the relationship between the Interchain Foundation and Interchain Labs? I think there's a bit of a corporate restructuring that happened historically. <Mag (01:15)>: Yeah, happy to it. So the ICF or Interchain Labs was the original for all intents and purposes Cosmos Foundation. Though it was funded with a portion of the ICO proceeds of Atom back in 2017. That was diversified into Bitcoin, ETH, also still a lot of Atom. That grew substantially. And the ICF was essentially tasked with being a funding entity for open source development of the Cosmos stack and actually originally it was designed to do the same for Polkadot and that's actually in its charter is to support Cosmos and Polkadot. Obviously Polkadot developed its own foundations. Yeah, and so we haven't performed anything like that. But basically going back six months ago, or I guess nine months ago at this point, <Jason Kam (01:57)>: Yeah. Yeah, fuck that. Yep. <Mag (02:13)>: The ICF basically interrupted our series B. We were close to sort of closing a very large series B from investors to basically start our own ecosystem because we as SKIP, that was SKIP, yeah. And we were gonna start a new Cosmos ecosystem sort of in the dial that we thought was exciting because we were still excited about the idea of. <Jason Kam (02:29)>: That was SKIP. <Mag (02:42)>: Internet of blockchains, interconnected L1s, but we had no faith in the Cosmos leadership at the time that they would be able to grow the ecosystem themselves. at the time we just threw up our hands. We said, we'll raise that up, one bill evaluation or something like that to basically launch our own. During that process, the ICF came to us and basically said, how about you don't do that and you do that here for Cosmos. drove a pretty hard bargain at the time. We sort of demanded a couple major changes. One of which is that Ethan Buckman, who is the co-founder of Cosmos, stepped down and sort of pass off the reins to new leadership. And the other was that we would have substantial basically like ability to independently execute on how we wanted to grow Cosmos in the way that we wanted to. And yeah, so the legal structure is basically that the ICL or Interchain Labs, which is what Skip turned into, is the labs entity that is fully funded and owned by the ICF. <Jason Kam (03:59)>: And they acquired it throughout, like, with all cash from the treasury? Or they sort of paid you with Atom also, where you're locked up over time? <Mag (04:07)>: It was an all cash acquisition. <Jason Kam (04:09)>: wow, nice. And you guys just took the cash, or do you kind of yourself go out there and bought a bunch of Cosmos? ATOM, yourself. Hard to say. Got it. Got it. And I guess the ICF, your independent entity stat, god. Yikes. <Mag (04:16)>: I personally went out and purchased a lot of that. Yeah, we all did. And by the way, sorry, I purchased it way higher than $4.50 Yeah. At the time when the acquisition happened, ATOM was like $10 or $11. <Jason Kam (04:35)>: Got it. Well, bullish. It has to go back there before you can dump your bags. I guess, so acquired for full cash, it's a fully owned subsidiary. And then what happens to the ICF afterwards? Because you guys were shipping and maybe developing code for Cosmos Hub. But what happened to the people that were at ICF before? They were like, it’s a pretty substantial burn, if I’m not mistaken, before this. <Mag (04:40)>: Yeah, so to answer that question fully requires a little bit of explanation about how the ICF was working. So the ICF roughly had a team of 20-ish folks at the time. It had also council members, so it has council of three members. And for the folks from the ICF, basically the option was to either join the ICL if they passed their interview process, or the ICF let them go, essentially, for the vast majority of people. And so the actual headcount of the ICF reduced some 90 % during that process. very few folks made it into the ICL. Some notable call-outs here, though, that the IBC team, which was inside the ICF, which was excellent and mostly joined, or for a large part joined the ICF, they’re the same folks that are shipping IBC or Eureka, which I’m sure we’re going to chat about today. <Jason Kam (06:00)>: Yeah. Yeah. <Mag (06:02)>: And then our CMO, Nico, came from the ICF. He’s excellent. And some other marketing folks. the vast majority did not transition. Yeah, I was going to say one other thing, which is the actual internal team of the ICF represented a very small percentage of their spend. The vast majority of their spend was to external development teams. And so that included things like informal. It was building Comet. <Jason Kam (06:13)>: Yeah, then, yeah, go ahead. <Mag (06:31)>: binary builders who was building Cosmos SDK, not strange love who’s building IBC. They were spending upwards of $35 million a year on all of those teams. And we basically after we came in, what we did was we brought all of that development in-house and had it be run by the SKIP engineers. And so at a high level, the ICF has gone from spending over $40 million a year to spending just a little over 10. So our goal is to cut the, to basically cut the, the budget by, you know, 70 % or more. <Jason Kam (07:05)>: And then ICF now is basically a box of treasury that has today a treasury value of about $250 million, something like that. OK. <Mag (07:13)>: Yeah, higher Bitcoin was high. It’s heavily indexed on Bitcoin and ETH and today it’s roughly about $250 billion. That’s right. <Jason Kam (07:21)>: got it and then the burn of 10 million comes from that as well. <Mag (07:25)>: Yes. Yeah. <Jason Kam (07:26)>: OK. And then SKIP. sorry. ICL is its own entity now. Harbors all of the top engineers that you brought on from there. And ICL currently today, what’s the financials there? <Mag (07:41)>: So the ICL’s purpose is not to generate revenue. That was never the ICF’s purpose. The purpose of the ICL is to essentially build products that further the ICF’s mission of building open and permissionless blockchains and building internet blockchains, which is Cosmos. And then also to ensure and help with the financial sustainability of the ICF. If the ICF survives, the ICL will always survive. <Mag (08:10)>: because it’s fully funded by the ICF. <Jason Kam (08:10)>: I see. I see. So that’s what a 10 million burn goes to. It’s like it expenses 10 million. It goes into ICL basically. <Mag (08:19)>: That’s correct. Exactly. Yeah. We have a budget. Yeah. <Jason Kam (08:20)>: Got it. And I guess in the future, with all the efforts that you’re building, like Eureka, we’re talking in a second, like the Cosmos SDK, EVMOs, all of those things you monetize, if there’s any revenue generated at all, maybe before we go to those efforts initially, those revenue that’s being generated, how does that flow to eventually ATOM? it? go through ICL first, it go through ICF, does it go through a treasury, how would that flow look like? <Mag (08:54)>: Yeah, at SKIP we had significant ARR because we would charge for the various services that we offer around SKIP go and around any of these services and around the Oracle that we thought that was used by Celestia and in D Y D X and many others. I think that know the revenue fluctuated between 2 to 8 million ARR or sorry like 5 to 5 to 8 million ARR. <Mag (09:22)>: at sort of the end. And we have basically made a lot of choices to not pursue revenue generating products, because at end of the day, that amount of revenue is immaterial relative to changes in basically the price of the underlying assets inside the ICF treasury. And there’s only one asset in that treasury that we have the ability to basically build out and provide more utility for, which is atoms. And so the overwhelming strategy for the ICL is to one, accumulate more atom for the ICF or to encourage things that do that. And two, to accrue value to the atom token and to basically create increased amounts of utility and tie the atom token to the growth of the Cosmos ecosystem, which itself is extremely successful. Cosmos is a top three ecosystem by Basically every metric, TVL, it’s a top two by total number. If you added the market caps together and the different chains inside of it, it’s up there in terms of number of developers. It’s a very well-trusted stack. And so in many ways, you’d expect any kind of growth like that to be associated with an extremely powerful top five token. Atom is not that. And so a large part of yet, right? And a large part of what we’re doing is the very basic work of tying ATOM to the success of the wider ecosystem. <Jason Kam (10:54)>: And so just to summarize, there are a couple of pieces there. So previously, SKIP itself was $8 to $10 million. You’re intentionally reducing it and directing all the effort of revenue generation to ATOM value accrual. That was, in my opinion, huge change because the running joke was you use the Cosmos tech, you never fucking buy ATOM because ATOM will never accrue any value. It would seem like now with the management change, is Really pivoted 180 like the singular focus now is to build good tech, also like accure value if I’m not mistaken. <Mag (11:29)>: Yeah, I mean, this was the crux of what we convinced the ICF of was that their time is limited, that they were spending way too much and that Cosmos would not just the ICF would not survive without a strong central token, but that the Cosmos would not survive without a strong central token. At the end of the day, every ecosystem has a strong central token that has a story that is symbiotic with the growth of the ecosystem. And there’s a very <Mag (11:59)>: defined reason for that, right? As the token goes up, basically attracts more developers to the chain or to the ecosystem. Those developers building more things makes the token go up if there’s some kind of value pool mechanism. And that cycle can loop on itself extremely quickly. And part of why you can see things like the meteoric rise of Solana in 2024. We were missing the links on both sides, meaning <Jason Kam (12:22)>: Yep. <Mag (12:28)>: When ATOM went up, it did not attract people to build more app chains or building Cosmos. People built those regardless without any thought of ATOM. In fact, probably ATOM was impediment in many ways to that happening. And then the other side is also not true, which is as chains were building that it would drive some value to ATOM. So what we committed to doing in the first 90 days in office, so to speak, or after the acquisition, now that we’re at the ICL, <Jason Kam (12:41)>: That’s right. <Mag (12:58)>: is to build a extremely well adopted, highly differentiated, and highly utilized and demanded product that did tie the link directly. So that the growth of that product was linked to the wider ecosystem and also had a valuable mechanism to add. And that’s why we built IBC or Eureka. <Jason Kam (13:19)>: Yeah, and tell us more about IBC, Eureka <Mag (13:23)>: Yeah. So for folks who don’t know, IBC is the interoperability protocol of Cosmos. It was created a while ago. It is, I think, widely regarded as one of the most groundbreaking innovations in crypto. It’s done more volume than any other bridge ever. And it has never been hacked. And it regularly does now like two to three billion dollars a volume a month. And it basically is, it’s not really a bridge. It’s basically a way of connecting two blockchains that both have light client security and fast finality, which basically means that the validators of one set can quickly attest to the fact that the validators of the other chain have done something. For example, lock a token so that you can mint it like a normal bridge would. It also can do message passing and all this really good stuff. It could never scale to a Ethereum was the problem. and it can never scale beyond Cosmos. And the reason for that is because chains were too slow, right? Ethereum was too slow. And then also to have the light client security model, which I believe is behind the fact that it’s just like such a bulletproof bridging protocol. It’s never been hacked and so much money has gone through it and powered all of Terras, for example, bridging. To have that, you would have to basically spend an inordinate amount of gas to basically prove the Protobuf encoded as signatures from the light client on the Cosmos side. And so we all thought that was impossible, right? Wherever IBC was in Cosmos, it dominated, you know, even for, <Jason Kam (15:03)>: Yep. And sorry, and just for the audience, like $2 to $3 billion, where does that mostly go to? Is Atom from Atom Hub to Osmosis? What is it exactly? <Mag (15:14)>: Yeah, a lot of it is Atom. Atom is still probably the most liquid, or it is the most liquid token in the ecosystem. A lot of it is USDC transfer. For example, there’s a lot of USDC that goes to and from DYDX which is the Cosmos chain. There’s a lot of USDC that goes into Noble and then into the SEI ecosystem. And yeah, and there’s many other things too. <Jason Kam (15:29)>: And I guess, does anybody charge anything for it, or is it just free? <Mag (15:49)>: Yeah, be charged. So I think like, or our partners do it and we do alongside them. So the primary way that, and part of the reason we got acquired is that the primary way that people interact with IBC is over a product that we built called SkipGo. Yeah, which is basically a, know, bridges don’t run themselves, right? And neither does IBC. <Jason Kam (15:51)>: Okay. I see, okay, makes sense. <Mag (16:19)>: correctly run IBC with high reliability, you need relayers, you need really good routing products. And we basically built a product that provided an easy to use API for developers to basically call IBC and perform cross-chain actions that I truly believe was 10x better than the existing experience and quickly sort of dominated the market to the point that we now process over like between 50 to 80 % of all the IBC volume in Cosmos. <Jason Kam (16:33)>: Got it. that’s where the $5 to $8 million comes from. So you’re charging like 25 to 50 bips, almost like that, maybe a little higher. <Mag (16:56)>: We don’t charge on the transfers. We charge on the swaps. So what I mean by that is the way that a lot of people use SKIP go, and you can try it now if you want to. It’s domain is ibc.fun. We have a front end. They oftentimes want to end on a different token than they started with. So for example, they may want to start with Osmosis on the Cosmos up, and they want to end with Ethereum on ETH. They don’t want to think about having to bridge and then swap. We do all of that in one transaction. And so when we find the best liquidity for them across all the different routes, and then we take a fee on that if our affiliate takes a fee. <Jason Kam (17:28)>: okay. OK, sorry to cut you off. so that was the history that you couldn’t bridge to Solana Ethereum. And what now? <Mag (17:47)>: Now we can. So basically, ZK technology got good enough and we had, Eureka was basically the result of banging our heads against the wall for two and a half years to build basically a truly incredible, in my opinion, light client security model that works with Ethereum and works with Solana and works with any EVM. And that is unbelievably affordable. So just for reference, right? And we have the transactions. posted to prove this and tomorrow when it goes live, you’ll be able to try this yourself. The best bridge right now to go between Cosmos and Ethereum costs about $30 to $60 per transfer, usually $50 to $60, $30 only on very good days. Eureka costs about $0.45. It’s what, 60 times improvement or more in terms of the costs. And the speed because of the fast transfer network that we built on top of it is less than 15 seconds versus 15 minutes. So it literally makes it as cheap as an Ethereum transaction to go to bridge between Cosmos and Ethereum. And we’re gonna extend that to anywhere. And so, yeah, when we sort of came on board and we started working on this, it made a lot of sense to build it because one, It’s an incredible UX that we think we’ll get and we’ll get, you know, watch the news tomorrow, an incredible adoption. Two, it is something that fits with our product suite that we already had since we already did have the front end distribution and the rails to use IBC. It fit perfectly into that product. And then three, it was a perfect opportunity to leverage the Cosmos Hub and Atom as a participant. in the pipeline for all those transactions in a way that actually made the product better. So most of the time when chains look for use cases, they insert themselves in something that could have been a centralized process easily. That’s not the case for Eureka. The reason for that is because Cosmos Hub is able to accumulate all of the requested proofs because it’s a CK bridge. That’s how it’s so cheap. And then lower the cost by an additional 40%. <Mag (20:14)>: on top of the reduced cost, as well as providing sort of a common denominator inflow and outflow into the Cosmos ecosystem so you don’t end up with like 50 versions of ETH. So it captures atom fees per transaction and does so in a way that actually saves money for the user. <Jason Kam (20:36)>: Only when there’s a swap or when there’s actually just a bridge. OK. And this is only to Ethereum now. What about the L2s and Solana and all the other chains? <Mag (20:47)>: Yeah, we’re adding those relatively soon. Ethereum was the primary target because our initial launch customers needed Ethereum mainnet since it’s still where the most TVL is and a lot of that’s getting moved through Eureka. And eventually, think our next step is going to be to add Solana and the major Ethereum L2s like base. <Jason Kam (20:49)>: Okay. OK, so for example, when I bridge from base to Ethereum, there is an official bridge. Or when I bridge from base to Solana, usually it’s like layer zero wormhole. There are services that do that. I usually look them up. And sometimes you would use things like Bungie. You use things like if the front end is linked up with Lifi, you use that. Sometimes you get charger fees. Sometimes you don’t. I guess once you hook once you hook Eureka up with, let’s say, base or Solana, let’s say in a couple of months from now, you can do that. Should I think of it such that maybe there are bridge aggregators that would also have Eureka as an option when they execute the bridge and they will automatically route the orders to you? Is that the right way to think about it? <Mag (22:00)>: Yeah, so the bold case for Eureka’s adoption in non-Cosmos use cases entirely, so for example, Solana to base or base to Arbitrum or whatever, is that as time goes on, more people are going to use bridge aggregators instead of bridges directly. And people are going to use solver networks instead of bridges at all, because it’s so much faster, like a cross, for example. <Jason Kam (22:12)>: Arbitrum, yeah. Yep. Yep. <Mag (22:30)>: That’s the bull case. If you believe that people are going to be stuck on the layers or front end, then it’s bearish for Eureka. The reason why that’s the bull case is because Eureka is just astoundingly cheaper than those other options by a factor that’s going to take years for other folks to catch up with. because of that, when folks do something like a solver-made transfer, the solvers don’t care what they’re using underneath. They just want the cheapest settlement. <Jason Kam (22:36)>: Yeah, I don’t. Yep. <Mag (23:00)>: because their margin is between the margin that they charge the user and ultimately what they need to pay to settle. And so they will choose the cheapest option. It doesn’t matter how fast it is because they were the fast transfer. And the same thing for the bridge aggregators. So I personally see the world going in that direction. And so it’s definitely our intention to hook it up into as many bridging aggregators and solver networks as possible. <Jason Kam (23:00)>: That’s right. And this has started or would they only have a conversation with you once you have enabled most of the L2s? <Mag (23:34)>: We haven’t started it yet. I mean, we’re just launching the first integration now. And most folks that are going to be using Eureka in the beginning are going to be over our front end, which does more traffic than a lot of those folks anyway. <Jason Kam (23:49)>: How do you mean? It’s the SKIP front end, I’m guessing. OK, understood. Got it. Got it. OK. <Mag (23:53)>: Yeah, yeah, the SKIP front end and the SKIP API. So for example, we’re partnering with a decent number of five to seven issuers of Bitcoin. They’re integrating the SKIP API directly into their frontend. <Jason Kam (24:07)>: Yep. I mean, would seem like you’re sort of capturing the initial group that is within COSMOS, right? Like, people want to play and participate in the wealth effect that is within your COSMOS ecosystem, this seems to be the... You just reduce the cost for them to do so very, very quickly. But before you turn on all the L2s and Solana and the rest of the world, it is still a very siloed sort of business development effort. It would seem like the value accrual to ATOM will only have a step function up after you have done all the integration and have this Eureka hooked everywhere. And then slowly or rapidly have the solvers sort of directly route the orders through you. Because at that point, the fee accrual was just that function up, unless there is significant ATOM development. if I’m thinking by the right way. <Mag (25:12)>: I think we should revisit this question around this same time tomorrow. And I think that you will have a different perspective. <Jason Kam (25:21)>: And just to say, OK. How soon do you think, like there’s Ethereum, there’s internal. How soon do you think the Solanas at the base, like the most sort of chains would be integrated with you in the future? <Mag (25:36)>: Well, I can only speak to Ethereum for now. Basically, hooking something up does not mean you’re going to get any volume over it. Creating a new connection between two chains doesn’t drive anything in and of itself. It is, you have the basically committed massive amount of day one and month one liquidity? that needs that bridge and is exclusively using that bridge to do something that they have to do. They have to transfer a huge amount of volume over it. That is how you get volume on a bridge. And that is how you get the added value cruel in this case. And so we would never, and we haven’t before, shipped a product that we didn’t believe had, or we didn’t know would have a massive demand very quickly. <Jason Kam (26:09)>: Yeah. <Mag (26:33)>: with pre-built use cases for assets on both sides. <Jason Kam (26:38)>: understood. Can you share a bit more about what those might look like? Is it like new product launches like Babylon farming and people dumped a bunch of Bitcoin to there? Is that is that something along the lines of what you’re thinking about? <Mag (26:56)>: So generally, one thing I can speak to in general, can’t talk about specific things here. You’re going find out literally in less than 12 hours. <Jason Kam (27:07)>: Okay, okay fine. <Mag (27:11)>: So one thing that we’ve seen is a very common trend is that chains are launching their tokens in places that are not their chain. This is quite common. Or they are doing some kind of large distribution event to a place where it is not their chain. So for example, a million, which is a blind privacy based on one that is built on Cosmos. <Mag (27:36)>: is launching their token as deep liquidity for their token on Ethereum. Because at end of the day, Ethereum liquidity trumps all the L2s, even combined. And we’ve seen things like this quite common. And so the need for a very fast, very easy bridge between Ethereum and between Cosmos chains happened to be way more apparent than we ever thought it would be by this point, but it seems to be a big trend among a lot of the newer chains that are very exciting that are launching basically around this time. Allora, Nelion, Ondo, another great example there, which announced their Cosmos chain. Celestia, obviously Babylon. Yeah. <Jason Kam (28:16)>: I see. So the asset creation happens on both chains. But I guess since it’s both on Cosmos EVM standards, like the bridge from the ETH-based wraps asset to the Cosmos chain that they launched would be native and seamless. OK. Interesting. <Mag (28:42)>: Yeah, exactly. The desire for native interoperability between the two places in a way that feels extremely cheap and does not introduce any kind of noticeable like UX hurdle is very high right now. <Jason Kam (28:58)>: And how much revenue would that mean for, let’s say this launch goes as planned and you maintain that $2 billion $3 billion per week or is it per month? Per month. you step forward and maybe increase that. What would that mean for ATOM? <Mag (29:18)>: So it’s hard to know exactly what it would mean. But what it does mean in terms of what we plan to do and what will be implemented is that the fees generated by Eureka as a product will go towards deflating Atom. So essentially towards burning the token supply in large quantities. And like the first real deflationary <Jason Kam (29:24)>: Yep. <Mag (29:48)>: pressure on the token itself. The problem though is that most of our fees will probably be generated in non-ATOM assets. And so what we are evaluating doing now and what our preferred option is now is taking the many millions of dollars in those fees and just swapping that into ATOM and then burning it automatically. <Jason Kam (30:11)>: Yeah, and for the heuristics, let’s say I bridge $100 of Nillion from Ethereum to their mainnet on Cosmos. How should I think about the size of that fee if they sort of go through Eureka? <Mag (30:28)>: So if it’s just a transfer, the fee will be very low. The fees that you would be charged right now on day zero would be the gas fees on the Cosmos hub for that transaction scaled by a little bit, which is why it’s so competitive, right? The thing that is possible is that we charge a volume-based fee, meaning it’s something that it’s proportional to the size of the swap in the future. <Jason Kam (30:40)>: Yep. <Mag (30:57)>: This would make sense for lot of reasons and, you know, it’s something that we can do. But it is not something that we are going to do on day zero, mostly because we haven’t figured out what we want those to be and we just want to see the adoption flow. But that is absolutely something that we could add. <Jason Kam (31:17)>: Sorry, and this is from Nillion to USDC on Cosmos. That you would charge your phone. <Mag (31:21)>: okay. Well, yeah, and then it’s a different story. In that case, we would charge a fee. And no matter what decks that goes through, right, it doesn’t matter if it goes through Osmosis or the Hub decks that will be launched in the future. Although it most likely will go through the Hub decks because it’s built around Eureka assets. And then there would be a fee to the decks. The decks itself will actually take a large portion of their fees and use it to buy and burn Atom . <Jason Kam (31:31)>: Okay. <Mag (31:50)>: And then on top of that, there’s this, there is a Eureka fee, which is a percentage of the total amount swapped like any DEX is, which would also go towards added value equals. <Jason Kam (32:00)>: Got it. Got it. So then the fees to Eureka would be twofold. Well, if it’s a small amount, one off, it’s tiny, inconsequential. But if you do sizeable volume, amount to be determined, you have a volume-based addition. And then if there’s a swap at all in your enshrined hub decks, you also take a part of it from the hub decks. Is that right, we think about this? <Mag (32:21)>: Yeah, so to give you a statistic, 90 % of the IBC transactions are sub $200. So it’s a quantity game. It’s not a size game unless you’re swapping in size, in which case it is. <Jason Kam (32:38)>: Yeah. And we’ve skipped today, there is also significant volume that is not swapped, but it is kind of just transferred over. Is that correct? <Mag (32:47)>: That’s correct, yes. And we do charge fees on that by essentially upcharging on the gas, which we need to do, especially for Ethereum to Cosmos because gas prices are very variable. <Jason Kam (32:49)>: Got it. And then because of the $2 to $3 billion of transactional volume that is on per month basis, 50 to 80 % of it is SKIP, and it is making like $5 to $8 million, is it roughly the right heuristic that we should think about what Eureka could bring to ATOM? <Mag (33:17)>: So first of all, the five to eight million was done. That was a while ago. Skip has grown significantly since then, though we don’t charge fees like we used to right now on the front end itself. the second thing is the amount of money that the SkipGo and Eureka product generates on <Jason Kam (33:18)>: Okay. <Mag (33:45)>: cosmos to Ethereum transactions is like a massive multiple on the amount that is generated for cosmos to cosmos chains, which essentially have zero gas, these simple signs. It’s sort of why the Bay sequencer makes so much money. And so we are anticipating it being significantly larger. I wanted to essentially invest time and focus into a product that I thought that <Jason Kam (33:56)>: I see. <Mag (34:12)>: very realistically could eclipse the entire inflation of ATOM over time, like within a two year timeframe. And that’s something that like I personally think is like very doable if we scale this correctly. <Jason Kam (34:17)>: Yeah. Yeah. Yeah, and just for the audience, inflation is 10 % per annum. Staking yield of 15%, so about $200 million per annum. Is that right? <Mag (34:33)>: Yeah, that’s that’s probably correct. <Jason Kam (34:35)>: and just from Eureka alone. Nothing else. <Mag (34:39)>: Eureka and the products that are building around it, right? Because Eureka is not the end at all. It’s actually the very beginning. And the real story, right, and what we’re actually trying to build towards is turning the hub, the Cosmos hub, into a place that is a two-sided marketplace between app chains that we service in Cosmos and elsewhere and applications that are built on the hub for multi-chain distribution. The hub sits at the center. And Eureka is a programmable way for any future applications built on the Cosmos Hub directly to basically access natively any state and distribute fully and cheap basically for free to every other ecosystem over Eureka and call those natively from their smart contracts. So for example, you can have a, like we’re actually designing and building right now, not ourselves with a really good team, folks from MakerDAO. <Mag (35:37)>: Basically a next generation lending protocol that can get like 20 % higher LTVs on the amount that you collateralize with because it can access the native liquidity on any ecosystem to do liquidations, right? Not just local liquidity. Like these things like we’ve talked about these things, but like they’re literally now possible with Eureka because it’s that good. It’s that fast. It’s that cheap and you can program it in. <Jason Kam (35:51)>: Interesting. <Mag (36:07)>: And so that’s really the focus. It’s like Eureka is like the distribution rails and a lot of the flow and a lot of the value capture is going to be built around the products that are going to basically sit in the middle of all this flow going through the hub from Ethereum to Solana to base to, you know, Cosmos and basically create these like incredible high distribution applications to leverage that. <Jason Kam (36:21)>: And anybody else can, can anybody else fork the code and do exactly the same thing? Or they can’t because your validators are of ATOM is being compensated by ATOM inflation and no one will be able to pay them enough to execute this kind of service. <Mag (36:48)>: Yeah, I guess like anyone could fork layer zero, right? I think the tricky thing about bridges for competition and the reason why they’re so sticky is that when a bridge issues an asset, it’s the bridges asset, right? It is non-fungible with versions from other assets. And so there is a massive liquidity advantage that entrenched bridges have over new bridges. <Jason Kam (36:51)>: Fair enough. <Mag (37:17)>: And to basically unentrench competitors, you have to be 10x better. Eureka is, in terms of dollars, 100x better, like literally, in terms of pure gas costs. And so we believe they will switch. But as we do that, there will be a significant amount of liquidity built up in Eureka, bridged assets, that other folks would have to replicate with their own capital to unentrench. <Jason Kam (37:23)>: Yeah, fair enough. for you to achieve actually $200 million of atom bought and burned, how much cross-chain volume do you have to achieve to get that number? <Mag (37:58)>: I did all the calculations for a different liquid fund that I think I was probably listening on right now. But I don’t know if Cody’s OK. yeah, I mean, do you want me to pull up the numbers or? <Jason Kam (38:05)>: Possibly. Very likely. <Mag (38:24)>: yeah. Well, I was actually just going to try to find it. And then let me see if I can find it. If it takes too long, I’ll just give you my best guess or my best. Yeah, so <Jason Kam (38:39)>: Yeah. <Mag (38:45)>: 20 to 30 billion dollars of volume per year. So actually current levels. If basically all of the current levels of IBC volume went through the hub without any expansion, we believe that <Jason Kam (38:59)>: You’ll be charged. You’ve charged a 1 % if that’s the case. That’s a lot. <Mag (39:06)>: So first of all, that’s not actually extremely high for cross-chain swaps. And the amount on the actual transfers is significantly lower. And that also doesn’t take into account any of the fact that probably the majority of that volume is going to go through multiple hub applications, which will themselves add additional fees on top of that that will accrue to add them. <Jason Kam (39:31)>: I mean, I see your point. At the same time, there’s absolutely no way me as a fund would transfer anything at 1%. <Mag (39:41)>: You wouldn’t be charged 1%. Would you swap for 1 %? If you ever use Uniswap, you probably have. <Jason Kam (39:49)>: I think the most we would pay in fees is 15 bips to 50 bips, unless it’s a meme coin. And even then we haggle. I think it’s just untenable to be paying 1 % for transactions. I think that’s right. I think that’s right. I suppose to use case there, they will be happy to pay 1%. A, they don’t know about it. <Mag (40:01)>: That’s fair, but also you’re not the audience we’re going for. I’m talking about volume that is not yours, that already exists, that is from retail. <Jason Kam (40:17)>: Or two, they just have to get it bridged over there. Or three, because something is pumping, they got to get the money on. Then this is fast. <Mag (40:26)>: I don’t think it’s that. I actually think they’ll pay 1 % because it’s 10x cheaper than any other option to do the same flow. That is literally what I’m saying. If you wanted to swap Ethereum into Atom today, you’re going to be paying a minimum 10x more on any other solution with the best liquidity, the best anything, if you want to do it on chain. What I’m saying is it is going to be significantly cheaper than every option out there. <Jason Kam (40:41)>: For sure. <Mag (40:55)>: it already will be on day zero, which is why people I think will want to pay that because it will be the cheapest option by a massive margin. <Jason Kam (41:04)>: I think this becomes very interesting if the bridge from Solana to BSC becomes incredibly cheap. I doubt you can charge 1 % for it. I think the most likely case is what people would do is they swap into a native asset, USDC or something, that has almost no bridging fees. then they do the bridge. That’s important. <Mag (41:19)>: Yeah, but, you’re thinking of us like a bridge, right? You’re, you’re thinking we’re a bridge. We’re not a bridge. We’re not, we’re, we’re not like use IBC fund right now. Right. We’re not bridging. We’re swapping, right? It’s, it’s a token a to token B on a different destination. People pay for a swap and a cross chain, multiple cross chain route, because you have to pay for the relays. The bridges today costs, you know, 20 X more than Eureka will cost. <Jason Kam (41:31)>: I see. Yep. Yep. <Mag (41:49)>: And then you have to pay the DEX costs on top of that in some place. And that is what people pay for. People don’t think, I’m paying 1 % to bridge funds from a place to place. Of course they don’t do that. And they won’t on Eureka either. <Jason Kam (41:49)>: That’s very important distinction. Then I think the heuristic would become the swap plus bridge volume across different chains. And that’s a little harder number to go to, but your market share there is quite small today, if I run the math that way. It could seem like it would ramp meaningfully. That’s very interesting. That’s very helpful. I guess, so that’s one line of, yeah. <Mag (42:31)>: Wait, hold on, hold on, hold hold on, hold on. We have multiple billions of dollars of Swap volume, go over, SKIP, go, in the depths of the bear of Cosmos. We are going to be expanding this all to other ecosystems in a way that is going to be massively more cheap and deeply integrating it with live five, with front ends. I don’t think there’s any reason to believe that this would not be like a serious competitor on the market. <Mag (43:04)>: in a way that accrues value to ATOM at the same time. I don’t really see an argument that you can make it. At the same time, we have $250 million of liquidity that we are going to be using to seed the liquidity for these assets ourselves. No funds are necessary. 0 % interest on that liquidity. It’s ours, right? There is a very strong possibility, in my opinion, which is why we built it, that this could be a significant source of swap. flow throughout the Ethereum ecosystem and between different ecosystems. <Jason Kam (43:40)>: Very helpful. Aside from the 200 million that could come from this, is there any other source of atom veil accrual that you can think of that could be really meaningful? <Mag (43:52)>: Yeah, so Eureka was an asset that was a product that was designed to align what we viewed as the largest chains in Cosmos, the Ondo’s, Mantra’s top 25 token projects. For chains that are not that large, that don’t have, for example, all their own distribution, and oftentimes who left other ecosystems like like Ondo, for example, like leaving the Ethereum ecosystem. For other folks, we actually have a much more direct revenue capture story. So for a large number of new chains, a large number of the smaller chains, the desire to be close to ATOM right now at this point in time and Cosmos is so great that most of them are basically doing something where they are committing, and we’re encouraging them to do this, committing 15 to 20%. of all of their protocol revenue and using that to structurally purchase Atom off the open market and to basically store that inside their protocol. So for example, Ellis Sentinel Protocol is going to be a couple more announced side protocols discuss this. Folks are basically encoding Atom alignment themselves and it’s actually a very good deal because in turn what they get is basically <Mag (45:19)>: One, they get our support and they get sort of the alignment and the closeness with the ATOM community, which is still the last, it’s one of the greatest retail communities. It was built in 2017. It’s held by every single liquid fund or in some kind of like vintage thing that they have, that goes way back into the early days of crypto. Some of my family offices, it’s something that has a huge community and getting access to that community, which is now sort of waking up for the first time in a long time. <Jason Kam (45:33)>: Yeah. <Mag (45:48)>: is really exciting to them. And then also, we’ve been supporting them with liquidity and things like that for protocols that are deeply atom-aligned in that way. this is sort of a, I was going to say, this is a little bit of a holdover until basically we have a permissionless VM on the Cosmos Hub, which is coming very soon. It’s sort of the focus of this next quarter. <Jason Kam (45:50)>: it. it’s it yeah go ahead sorry. Yeah. <Mag (46:16)>: And then we can actually build truly very understandably atom-aligned products that are built on the Cosmos Hubs VM that have all the traditional ways of aligning value between an L1 and smart contracts like priority fees, gas fees, all those things. <Jason Kam (46:34)>: Tell us more about that because that seems quite exciting. You acquired EVM OS, is that right? <Mag (46:41)>: Yes, so yeah, basically at most, know, rest in peace, what was not super successful. And the one thing that they did build up that I give them huge props for is they built this incredible code base for basically launching a equivalent EVM on top of the Cosmos SDK. And we purchased that from them as they were closing down. And so what we did was we, was, Business source license before it was licensed by the ripple to build their Cosmos chain, which is their official side chain. At build violet pierces and they licensed a bunch of other folks and we basically cancel those licenses made it fully open source and now we maintain it as a core part of the stack. People asked why I think for two reasons. The first one is because everyone wanted EVM and at the of the day, no one really wanted to cause him awesome and. We just didn’t see the reason why we would fight that fight and give the people sort of what they wanted. And the second thing is we want to have more options for what we choose as the VM for the Cosmos Hub. <Jason Kam (47:57)>: Got it. And just so I understand, on the two things you mentioned, one is effectively the ecosystem projects that are building a chain using Cosmos SDK would voluntarily purchase Atom in the open market in hopes for your community going to them, and two, having your, I’m guessing, technical support and your liquidity, your war chest going into their ecosystem. Is that a handshake agreement, or do you have something that’s written down that they have to purchase that amount? And do they use that atom to do anything? <Mag (48:33)>: It’s not a legal agreement. is usually people come to us and say, hey, for example, like Shade Protocol, which is the largest DEX on Secret Network and basically built out their whole DeFi. I think they use their entire or basically their entire revenue to just purchase Atom on the open market. We never even talked about this. Now they have, I think it’s like 1 % of the entire atom supply on their protocol. That’s how effective that was as a marketing strategy and as a strategy to attract more liquidity and to also get our attention. And we’re now big supporters of them, obviously, they’re going to have a big story to play over the next 90 days. So usually it’s actually organic in this situation. <Jason Kam (49:21)>: I see. Got it. it’s in there. Go ahead, sorry. <Mag (49:31)>: I was going say quickly, I think in some cases people come to us and say, hey, we want to align with you. We want to align with the hub. We don’t know how. Should we do PSS, ICS? we launch on the hub VM in the future? What is the way? And usually in those situations is where we say, hey, why don’t you just start accumulating ATOM ? And because that’s ultimately the best marketing to the community. we view that as very aligned with what we’re trying to do. <Mag (50:01)>: which is basically create value capture stories for ATOM throughout the ecosystem. And they sort of do those organically. <Jason Kam (50:05)>: Got it. I guess in their mind, because you’re working on it, it’s likely there’s no downside to the Atom coin versus all the other coins they could be holding, or they could just hold USDC. And the benefit, it could go up in value, and they get your help. So I could see that being a good business decision. <Mag (50:27)>: Yeah. <Jason Kam (50:29)>: Would you have a chance to monetize the EVM OS or Cosmos SDK at all? I’m guessing it’s just offer free and you know it helps the ecosystem, but nobody pays you for those two products. <Mag (50:42)>: We could, but we generally have a policy that we build open source software. So I think actually this is a very short-sighted thing that I’ve seen other ecosystems do. So Avalanche, after they renamed the subnets to L1s, they have their hyper SDK. That is not open source. And we get so many customers from that. uh, you know, for folks who are like, we were looking around, you have the only, the of the best only open source stack. And we’re able to, to, to leverage that relationship for basically some kind of financial outcome for the ecosystem. Uh, versus like, just like having people say, I was stopping at the door and saying, I’m not signing a legal contract with you or I have to build on your ecosystem. And I have to give you some kind of value for all not because I don’t want to, and I don’t want to get value cruel, but because we’re in crypto and. Why the hell am I talking to a lawyer right now versus a developer? And so we get a lot of flow from all these folks who try to monetize their stacks. So don’t tell anyone that, because we enjoy it. It’s the same thing with the OP stack. <Jason Kam (51:45)>: And in the end, if a programmer does use the Cosmos SDK, in the world of Eureka, basically it’s hooked up immediately once they use the stack. They don’t have to do anything additional. Is that the right way to think about this? OK. So they immediately get a bridge. Well, not a bridge, sorry, like an atomic swap on a very basic level, because it’s <Mag (52:15)>: Yeah, that is the right way to think about it. <Jason Kam (52:24)>: natively enabled. And because they use it to get, they not only get the free will from you, they’ll get the liquidity from you. And they’ll make their business development hopefully a little easier. Because right now, if other chains that don’t use Cosmos SDK, it would seem like they will have to work at the circle relationship, USDT relationship, bridging relationship, and everything. And if they work with you, then it’s immediately enabled. Is that right? OK. <Mag (52:52)>: Yeah, so Eureka gives them superpowers because it gives them access to all of these assets in every ecosystem, basically for free in terms of like, they don’t pay anything, it’s their users, right? And it’s still cheaper than any other alternative. And it comes with our market makers, it comes with SkipGo and SkipGo Fast and the full front-end integration. So they just don’t even have to think about Interop and all that it takes from them. <Jason Kam (53:05)>: Yeah. <Mag (53:20)>: is a single normal IBC connection to the Cosmos Hub, over which flow all the Eureka assets in and out. And so it’s a very easy pitch, is the reality. And over time, we can add more things to that IBC connection. That is the conduit through which we can add or provide access to things like Oracle feeds, or access to things like cross-chain user flows, where people on the Hub can initiate things on their <Mag (53:49)>: on a foreign chain over IBC without even leaving the hub, or where we can have cross-chain session keys, where you can stay logged in between any different chain and your session can pass around. There’s many exciting things that we plan to do with that connection. <Jason Kam (54:06)>: How do normies use the cosmos enabled chains? do they hop onto... I don’t think they can do it through phantom. Maybe they can’t. I think that might have been one of the barriers for all my friends to use. <Mag (54:21)>: Yeah, definitely. So historically, it’s been Cosmos specific wallets, the largest of which is Kepler, which you might have heard of. There’s some smaller ones, Leap, et cetera. One of the goals that we had, and this ties a little bit into the EVM OS conversation, is to have native MetaMask support for all Cosmos chains, for not just the EVM transactions, but also the Cosmos transactions. This is something that is <Jason Kam (54:31)>: Yeah. <Mag (54:51)>: is going very well and we likely will be able to. <Jason Kam (54:53)>: How soon? Yeah. <Mag (54:56)>: very soon. <Jason Kam (54:57)>: Can’t tell us. OK, great. Very important. That’s very helpful. And then I guess one other question I have, and I think the audience might have some as well, like why do the RWA chains love you so much? Because I look at all of those, like, ondo, and why do you have such success with working with them? I would imagine Avalanche and all these other guys want to get them. <Mag (55:24)>: Yeah, they’re fun deals to win. I think with RWA specifically, there’s a couple of factors. The first is mantra. Mantra is probably one of the greatest token successes that some folks have heard of, some folks haven’t heard of over the past year. It rocketed from I think a $5 million market cap to what is now an $8 billion market cap in the course of a year and a half. They were an Ethereum project where they had a token that was worth $5 million market cap migrated to a Cosmos all one and now we’re an $8 billion project. And I think a lot of people see that they’re like, my God, right? Like what happened? a lot of actually, this is a really good bull case for app chains. I truly believe that part of the reason for or a big part of the reason for mantra success was becoming a sovereign L1. for two reasons. The first one is when you’re an L1 and it’s only possible on an L1, you can build your own validator set that essentially secures the chain. And what we’ve seen is that the RWA chains use that validator set to basically encode partners that they trust and that want to have some participation in the chain directly as validators. So for example, Ondo plans on making all of its asset issuers, validators on its L1. That’s something that’s uniquely possible on Cosmos. And that basically means when you’re evaluating as an institution, okay, well, should I issue a billion dollars of my asset as tokenized version on this chain? all the validators are one me, Wisdom Tree, Goldman, JP Morgan, Citibank, just folks that I recognize and I trust, not whatever like pump. to something and like all these random suspicious validators that ultimately are securing the Ethereum network and securing, you know, the different mining pools securing Bitcoin. And that’s only really possible on Cosmos where you can customize your validator set to an institutional use case to build institutional trust. That I think is the first reason. And that’s something that I’ve seen used to great effect. It’s also something, by the way, that Hedera does to great effect as well. <Mag (57:51)>: I think the second reason is there are some really interesting things that you can do with L1s when it comes to encoding off-chain data in a very verifiable and censorship resistant way that you can’t really do with L2s. So for example, there’s a concept called load extensions where basically validators normally vote on blocks, right? Once they achieved a two thirds consensus on a block, they basically progressed to the next one and they finalized the last one. In Cosmos, you have this very unique ability where you can actually encode additional metadata on top of the block data, which you can vote on. So what that means is a bunch of trusted validators can all go query the price of an asset and then all come to consensus, not just on the block, but also the price of that asset. <Jason Kam (58:26)>: Yep. <Mag (58:49)>: and then encode it as on-chain state. And because of fast finality, you can do it really quickly. And the really cool thing about that is that you vote on that and it has the same security as the block security itself, because it’s no different from the block data. And so it’s backed by two thirds of the consensus of the state weight of the entire chain. And so you have this amazing security property for basically encoding new on-chain data. And this is something that they were talking about a lot at the Ondo Summit. <Jason Kam (58:49)>: Yeah, that’s <Mag (59:18)>: about what they were excited to do with it. <Jason Kam (59:21)>: I guess for pretty serious financial applications, there’s a flag bearer effect, and there’s that. That could be really helpful for somebody’s films. <Mag (59:28)>: Yeah, I always say like Cosmos does really well with the, like what we call it the world builders. So these are the projects that, you know, they’re done with a theory of alignment. They’re done with being a smart contract. They developed huge PMF and massive distribution and they’re ready to become their own thing, right? Ready to become their own L1. And at end of the day, there’s only one L1 stack out there in crypto that is trusted and that’s Cosmos. <Mag (59:56)>: What we’ve seen is everything else ends as an L1 because that’s the biggest thing that you can be. you know, as long as Bitcoin and Ethereum are the top number two things and CoinGecko and they’re both L1s, people are going to want to try to be one. And Cosmos is the place that catches that. <Jason Kam (1:00:12)>: Very helpful. Last question I have is, it’s still not very easy to buy Atom. We had a TWAP through Falcon X and whatnot. Any thoughts on maybe allowing for wrapped Atom on Ethereum or Solana and all the other assets that would boost liquidity and add your LP and what not? OK, we caught you at the right time. Any other questions for? yeah. OK. OK. It would seem like all of the Cosmos ecosystem tokens to Eureka could also have wrapped assets in places where economic activities is aggressive, like in particular. And I’m guessing you’re. <Mag (1:00:36)>: Yeah, mean, Eureka is this is is exactly why you would have Eureka, right? I mean, Eureka allows for us to bridge assets basically for free over into Ethereum. second. There’ll be a lot of ATOM coming into Ethereum. <Jason Kam (1:01:01)>: Very cool. Very helpful. Members, any questions? Give it like three seconds. <Mag (1:01:11)>: I forgot we’re not alone. <Jason Kam (1:01:13)>: Yeah, no. Maghnus, really appreciate your time. Thank you for jumping on. This is really helpful. <Mag (1:01:20)>: Yeah, appreciate it. Thank you. <Jason Kam (1:01:22)>: Cool, thank you.

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