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No Bribe, No CEX w/ Term
Recorded: April 3, 2025 Duration: 0:59:07Space Recording
Short Summary
Term Finance has launched its token, achieving significant growth with nearly $300 million in fixed-rate loans cleared. The introduction of innovative yield products and strategic partnerships aims to enhance user engagement and liquidity in the DeFi space.
Full Transcription
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reach out and to learn more about Leviathan news and squid. All right, let's get onto all right welcome everybody uh today we have on uh term finance coming back for their second time
i believe we guys had you on last year,
the beginning of last year. So it's nice to have you guys back to talk more about Term.
You guys just launched your token just in the past couple of days. And you guys have really bucked the trend on that. And we're going to talk about that. And then we're also going to
talk about some of the new vaults and other products that have been built at
term over the past month so billy dion welcome guys thanks sam thanks for having us yeah uh
so what's been going on i mean like last time we spoke i believe you guys had uh just launched um
you know it was really in the infancy and and now you guys have had like almost a year
You know, it was really in the infancy.
And now you guys have had like almost a year to run business development and marketing and grow TVL.
So like, where are you guys now?
Yeah, so when we last caught up, you know, we were just in the throes of building out term and the term auctions.
And term auctions have been reasonably successful in attracting large and whale users to come onto the platform to borrow stables and eat against various forms of collateral
like LSTs, LRTs, and all flavors of Bitcoin, even Pendle PT tokens, particularly in this
mini bear market, have been super popular to post as collateral and borrow fixed rates against it.
In the throws, we've cleared nearly $300 million of fixed rate loans through the auction mechanism
and have continuously added new users and new flavors,
and have even expanded into new chains like Avalanche
and hoping to expand into other new chains in the coming weeks.
But a major thing that we focused on since launching is
the protocol itself has catered really well to professional traders,
particularly hedge funds and other large yield farmers that are
looking to get the benefits of locking in fixed rates for the strategies that they're offering.
But it's really not catered extraordinarily well to a more passive user. So a lot of the focus in
the past few months has really opened up the benefits of the fixed rate ecosystem that TURN
provides to non-professionals and more
passive users. And so there's two products that we've introduced in basically in November and
January. So yeah, maybe I'll kick it over to you to kind of jump in on those products and how they
fit in with the TURM ecosystem. Yeah. So the auctions have been great in terms of capital
efficiency and scalability for the power users but you know listening to the community a lot
of complaints are just you know auctions are too hard for your average person.
You got a day job you don't have time to monitor this auction, auctions are time
specific so if you miss the deadline then you have to wait another week so you
know how can you kind of help solve that problem the first product we launched was the blue sheets earn product so here are people who did
participate in the auction and turn around and list their loans for sale in the blue sheets
and it's listed at a fixed rate there's no changing prices what you see is exactly what you get and
this allows users just to just come at their convenience
on the weekends, at night, whenever it's convenient for them
to make a loan at a fixed rate.
And then that's got pretty popular.
I think we've done over, you know,
close to like 10, 15 million in volume
through these Blue Sheets products.
The other product is the vaults. You know, even with the Blue Sheets products. The other product is the vaults.
You know, even with the Blue Sheets,
you still have to redeem your loans, reinvest your loans.
There's still a little bit of management involved.
So the latest product is a vault product.
And we built this on Yearn V3.
The Yearn team's been around since DeFi 1.0, super trusted.
So we decided to build on top of their core vault
infrastructure to create curated vaults
where the same kind of curators you see on other ecosystems
like MBB Capital, RD7,
can come and do all of the fixed rate portfolio management
for you.
All you need to do is deposit your funds.
Any idle capital sits in Aave, super safe.
And then as it gets deployed into fixed rate loans,
and that's all taken care of by the curator
and the vault automates the rest of the operations.
That's also gotten pretty good traction there.
Over 10 million in deposits currently in the
meta vaults and we're rolling out eath vaults soon so now besides just usdc users can earn
yield on eath as well uh can we talk about the fixed rate loans because i think that you guys
are one of the few on-chain offerings um these types of fixed rates.
So how's the demand been for that being in this special category,
which I don't think it's that special.
If you're doing off-chain traditional actual loans,
then normally they have fixed rates and fixed terms.
So how has that growth been on the institutional side?
You said your power users love it.
Yeah, I mean, it definitely, it's also market dependent, right?
So in bear markets like this, rates on NAVY are pretty steady.
They just kind of sit there, they don't move.
So there's not much differentiation between fixed rates and variable rates.
But, you know, in bull markets, like we had a few months ago, you know, Q4 of last year,
interest rates on Aave are all over the place.
It's chaos, right?
When utilization is high, you see rates spike above 60%, most of the times a day and that could go
on for months at a time so when that happens you know it's a very easy value prop for the bar so
you have no idea what you're paying rates are all over the place come to term lock in your rate
and have certainty as to what you're earning and similarly on on the lending side, rates were really high just three, four months ago,
and then they plummeted.
But if you locked in your fixed rates,
as a lender, you have a lot more certainty
in terms of what kind of yield you're gonna be earning.
So I think that's the best part about a tournament,
just you know exactly what you're gonna get.
There's no guesswork involved, and it's stable.
So yeah, I think it is more difficult than DeFi with fixed rates. You can't have these
standing liquidity pools on demand. So that's why we created these vaults and blue sheets to
kind of smooth out that process. What's the typical rate spread
between fixed and floating that you've seen?
Typically, our loans on term are relatively short, four-week loans.
So the rates are kind of similar.
But I think the key value add here is that on term, we don't sit on idle liquidity.
So on Aave, for example for example right now 50% of the
supply is unutilized in USDC that's diluting your you know right now bars
are paying five percent on Aave lenders only earn two and a half this other half
of that supply is not doing anything so it's very easy for term to come in and
clear an auction somewhere between two and a half and five so that borrowers are saving money and lenders are still earning more.
And so with these short day loans that have been very popular and it's a very clear value, everybody does better.
Do you think there's a demand for longer term, like quarterly or half year long loans?
Or is that just too far out because of the rate volatility?
No, there's definitely demand for that.
As you get longer term, it's more and more institutional.
And the kind of minimum sizes that I'm looking to borrow are also much larger.
So it's just a process of over time bootstrapping up to that market.
Yeah. So it's just a process of over time bootstrapping up to that market.
Yeah.
Because I know that for some stablecoin farmers that are using like ETH and BTC as collateral, that's a really powerful product to use to lock in your rates, right?
product to use to lock in your rates, right? Because I've seen that the variability
of stablecoin borrowing and ETH borrowing can really be detrimental to your actual farming
if the rates jump up, right? You may go from a positive yield position to to negative overnight just depending
on market movements uh and so i do think that like this is something that uh probably a lot more
people should be using it's just that they they need the education about it to to learn about
like why they would want to take a fixed rate loan uh versus a free and a free uh floating loan
versus a free floating loan.
Yeah, and our users have been the best kind of advertisements
because they're going to their friends in the biz
and extolling the benefits of their ability
to lock in the rates on term.
And that's been a huge driver of new users
entering the ecosystem.
So that's always the best is when others are telling you about the product versus like us marching and beating the ecosystem. So that's always the best is when, you know, others are telling you
about the product versus like us marching and beating the drum. And it's always the most
successful in converting people. And as we're, you know, still around, still, you know, coming in,
being consistent and offering this product set, it's just been a wonderful driver of building
new adoption and building more nodes within the network
yeah and so let's talk about this wall right so like for me who just maybe has some usdc or eth or something like do i just come deposit in it and then it gets applied to whatever strategy is being
run yeah exactly you know just come deposit into it we have various carriers you can look at you
know what collateral they lend against in general or we have a carriers you can look at you know what collateral they
lend against in general or we have a meta vault which simplifies the whole process
uh the protocol itself allocates across all of the various carriers um so you don't have to
worry about picking and choosing and it just helps to diversify the portfolio and um yeah the way we
think about it is look worst case you're going to get the
avi rate because that's where idle liquidity sits but you know most of the time you're going to do
better than avi because rates on term are typically higher than what you get supplying on avi so you
get the benefit of you get the best of both um that's pretty cool and how's the uptake been on that
it's been solid yeah it's been solid so we've seen you know deposits flow in uh we launched
the product in january and have eclipsed you know 10 million we reached up to 15 million um
you know as of as of recently right now they said about, you know, 11, 12 million in TVL within
the vaults. And I think the other thing that the vaults unlock is better and more integration
opportunities with other protocols. So, you know, we've seen the initial set of risk curators to be,
you know, some of the people that you'd see on Morpho, you know, Dion mentioned like Re7,
for example, but it also enables us to facilitate more integrations and partnerships with other protocols.
So I'm not going to kind of get ahead of myself and get in trouble for naming any names,
but I think it's going to be pretty exciting the types of integrations that we're planning on announcing in the next several weeks
that will massively increase the supply available on term.
available on term. Just to kind of loop back, historically on term, borrow demand has significantly
outstripped the supply available. Again, the value prop of being able to lock in those fixed borrows
is huge. And the major constraint for the protocol has been to be able to onboard sufficient supply
to unlock some of these major borrowers whose
minimum tickets are 10, 20, even as high as 50 million. And so some of these relationships that
are some of these curators and integrations that we're working towards will help solve and
alleviate some of those supply issues that have kind of limited the growth of the ecosystem and the protocol to date.
Yeah, it's interesting that you talked about the rates earlier. Did you say there was somewhere between like two and a half to four or five? It always varies against the collateral that
borrowers are posting. So like BTC related loans right now, we're clearing, you know, borrowers
are willing to pay a slight premium because they're locking in the fixed rates. So we cleared a few million yesterday against CBVTC and borrowing USDC at about
6%. Against some of the PT tokens, like the Athena pendles that mature in May, we're seeing interest
in lending somewhere in the 4.5%, 5.5 half percent range. But still that's a decent yield pickup
from what you're getting on a protocol like Aave
at the two and a half percent supply rates right now.
And that's for USDC, right?
It's for like stables, right?
Yeah.
And then on ETH,
it's also ranges against the collateral type.
Last week we cleared a few hundred or nearly a thousand ETH
at about 3% against wrap-staked ETH.
And then some of the newer farming tokens like TETH from Treehouse,
borrowers are willing to pay up to 5% to borrow against that collateral type.
So I think the collateral is a really big driver,
and the perceived nature of the collateral is a big driver on the ultimate rate
that lenders are willing to receive and ultimately what borrowers are willing to pay.
But term utilizes isolated lending pools.
So you're only exposed as a lender to a specific asset and you have the flexibility of charging
an appropriate market rate for making those loans against those collateral types.
Yeah.
And how do you see this? How How do you see ETH lending developing?
There's been all this talk about ETH is suffering.
ETH is collateral has been losing its shine, people have said,
and that we're in this process of migrating away from like ETH as a primary L1 to other L1s like Solana or, you know,
Athena's launching their own L1 here in the next year.
Like, how do you see the evolution of the ETH lending markets taking place?
I think it's still, you know, ETH is still the largest, you know, blockchain native token.
So ETH create a lot of value, a lot of wealth, and all of that, because it is native to Ethereum L1, stays or sits on ETH mainnet.
So there's always this pool of capital on ETH mainnet that can be tapped into.
The value fluctuates over time as we've
seen but you know to get that onto an l2 you still have to bridge it there's still a lot of friction
so i think the primary source you know place where all the youth bar and lending will happen
is still going to remain always on youth maya these new l1s like Solana, like Sweet, you know, they're getting
decent traction, but, you know, the market caps still aren't anywhere close to where
Ethereum is. So I think for now, it's just most of the capital still sits on Ethereum,
you know, whether you like it or not yeah yeah i think the like a big the biggest indicator for
network usage and also how much network power you have is just stable coins by market cap
it's probably the clearest example of where investor demand is because like lending markets are one of the prime drivers of stablecoin
usage. And if you just follow where the dollars go, it gives you a really clear picture. And so
ETH by far is by far and away is the largest place where people are depositing stables um and yeah um so how like what's the plan now to to scale up right um what is the
current tvl like it's like 40 or 50 million at the moment or yeah that's about right 60 yeah
depending on how you count up to like 60 some odd yeah so like how do you scale that into
Yeah. So like, how do you scale that into, you know, like nine to 10 figures?
Yeah, I think the big thing for us is to the big unlock will be onboarding more supply. So, you know,
hopefully we can come back in the not too distant future and announce some of these major ones that
we're working towards. So the borrow demand has always been there to unlock 10 figures.
The thing that we're really pushing towards is building out the distribution and to onboard
new capacity into the ecosystem. So working with various exchanges and aggregators to be able to
pump that stablecoin and other assets supply into the market to really unlock
the major borrowers that have demand for the fixed rates and are attracted by how doing it on chain
is typically cheaper than lending through CeFi counterparties. I think another unlock will be
form fitting to help meet the largest institutions that are looking for
a TRIPi-like experience.
So I think ultimately that will bring permissioned style markets where various counterparties
are whitelisted in order to transact within other whitelisted and approved counterparties
within an ecosystem.
So I think those are kind of two main
drivers to see these types of platforms kind of really take off and hit like the sizes that
traditional finance are seeing today. Yeah. Well, cool. I think the,
I think the, it's good to see the growth. I mean, it's up and to the right, right? Which is what you want to see.
It takes time to build consensus around the contracts.
They kind of have to be out there for a longer time before people tend to trust them.
And the more lending these contracts get, the more TVL they can accept in.
And it's also a function of BD and marketing as well, too.
So I hope you guys can continue and grow the $40 million into $400 or essentially $4 billion later down the road.
But I think the thing that I had the most questions about was the launch of the term token that took place a couple of weeks ago
and why you guys chose a centralized exchange in 2025 for its launch versus a versus a dex
you know we've we've heard a lot of stories recently about the exploitive practices of, say, Binance taking like 8% to 10% of a token supply
just to get it listed, or the quite distasteful contracts that you would need to sign with a
market maker for them to take your token and bring it on the exchange and the ongoing fees and the call options that they set up. And
usually it's been like negative EV to have these on-chain or sorry, centralized exchange token
launches for the past year or two, really since post FTX. So I'm just wondering, what was the
impetus to go and launch on a centralized exchange? And
I know you guys are on Kraken and MexC, which I think are great exchanges. I love Kraken.
They're one of my favorites. It's what I use. But why there?
Yeah. No, I think that's a great question and totally on the same page with you in terms of
all the criticisms. That was the driving principle behind how we approached the entire process really.
You know, on the exchange side, you know, a lot of these exchanges they ask for,
you know, token allocations, sometimes extremely large, you know, percentage points
that ultimately, you know, get dumped on the community.
That token is unlocked and either handed out as rewards,
or who knows who's getting those rewards ultimately.
Either way, it ends up finding its way
into the market in short order.
So you're renting short-term attention
with unlocked tokens that you dump in the sellout community.
So we definitely wanted to avoid that.
As you mentioned on the market making side, same thing with misaligned incentives.
You give out unlocked token loans, these call options, which ultimately either the market makers will dump after the price appreciates, thereby increasing
circulating supply, or they just dump and then try to buy back at zero. Either way,
they make money and it doesn't really matter to them how they make their money.
So we definitely wanted to avoid that too. We were lucky though in our journey, we came across Kraken.
Kraken didn't charge any fees.
So we didn't have to worry about that kind of predatory practice.
And on Maxi's side, they were actually one of our seed investors.
So we were able to list on them.
We give them a small 120K token allocation to create a staking pool for the community,
and they match that with USDC rewards.
So it's kind of one for one dollar for dollar matching and relatively modest in the amount.
There are some benefits to the sex listing, of course,
and the benefit of wide unit at all is that it's much more capital efficient.
You know, if we're able to, we found a market maker that is aligned, a good friend of ours,
we've known him for over a decade, started at Citibank back in the day with one of our co-founders
to help, you know, do it as kind of a friendly service.
You know, we give you much more liquidity to the community through a SACS than trying
to put it in a standard curve style DEX pool.
You know, because everybody is aware now at this point of the inefficiencies of DEX, a
lot of that capital is supporting price ranges where the token is never going to trade.
So ultimately, the same dollar for dollar, you get a lot less liquidity for the community.
That's why we decided to go with the sex at all.
And we are going to be launching, you know, the market is going to be launching a deck pool soon.
So I expect that to show up in a day or two now that the market has really stayed blessed.
Yeah, but you can use like, you don't have to use like Curve or a V2 contract.
You don't have to use like Curve or a V2 contract.
There's the Uniswap V3 contract,
which allows you to essentially mimic the order book on chain.
I think that you guys have a special case in that Mexi was an investor,
and then Kraken is a good entity in this space
and is now out to charge an arm or leg about these things.
Yeah, I mean, don't get me wrong.
We got offers that were ridiculous,
which we turned down all of them.
We saw a lot of those offers
and just straight said, no, we're not going to do that.
So yeah, we can get a reasonable listing.
It's not a bad thing.
But yeah, definitely do know kind of follow the crowd and
just accept whatever they ask for and it's true they can get better elsewhere but it's just not
a game that we want to play yeah yeah i think the the things that i see is just that when it's on
the centralized exchange you don't really know what's happening with the
tokens or like who's buying or who's selling. Especially when it comes to like, if there's
like team tokens or some sort of advisory tokens or any sort of project connected tokens that are
like moving on to the exchange, you know, it gives the ability for certain people to like sell without having a like a trail of what's happening.
If everything is on chain, then you can you can see like, oh, this this team member who is, you know, like because all the allocations should be like marked publicly about who gets what, how the tokens are distributed.
You know, if it's all in chain, then they can't hide that, right? And so I think the transparency helps in many cases to,
especially in the first couple of years,
to prevent any sort of negative externalities from happening
or conflicts of interest.
Follow the foundation treasury saves.
So for us, we have a DAO safe that holds the tokens on the half of the DAO.
We have a foundation safe that holds the foundation tokens.
And you can trace those movements.
You see movements from there going.
And also all of the insider vesting tokens
are also on chain.
So we're using Magna.
So you'll see all of the vesting tokens going to Magna and you can see all the details of
the vesting.
So yeah, in terms of how we did the rollout of, you know, allocating the tokens across
the various entities, you know, all of that is extremely easy to trace on chain.
So it's still possible.
You can see, you know, which tokens are moving on exchange and see what pot of money that's coming from.
And from that, you know, there's still a fair bit of audibility.
Yeah, audibility.
And I think the important thing for a term from the get get go when we were raising from our investors is to ensure that the team and the insiders unlock schedules are, you know, very long.
enabling the community to really form in a way that is not predatory like you tend to see with
other projects where they have very short vesting schedules for team advisors and insiders, which can
build a negative downward cycle within an ecosystem. So that was really important for us to also align
with investors that also had that vision. And so everyone is on a very long time
frame to be vested. And the most important thing is to build out the ecosystem, build value into
the ecosystem, and do that in a way that's constructive to everyone within the community.
Maybe, Dion, it's worth transitioning. To that point, we actually had to turn down investors
We actually had turned down investors who were not down with the one year clip, three
of us.
And so that term itself really self-filtered out the enterprise.
I mean, those aren't real investors.
Exactly.
They're token traders, really.
So it's good to like if you try to do that in the real world of like, hey, I've got a company and I want to put you on a three month vesting for your options or stock that you're buying.
Like you get left out of the room.
Like most of the like traditional vc funds have what like a
seven to ten year time frame for seeing any returns exactly yeah liquidity is a blessing
and a curse all at the same time you know and so trying to you know form fit the ecosystem with kind
of what makes sense or basically what a startup you know is is a preformed entity that ultimately, hopefully, builds into something that's extremely valuable,
but there has to be governance around that.
Yeah, I mean, the way that I see it is that the token just juices whatever sort of product market fit that you have.
And if people like the product and they're using it, token is like your
marketing expense pretty much to bring in more capital. If you don't have product market fit,
people will just take your token and dump it because they don't assume that you're going to
grow in any meaningful way. And that it's just, here's some free money that I can take and we can
send this token to zero while uh you know
the team doesn't really know what they're doing but uh the best ones really like find product
market fit and the token is really secondary to everything that the product is like we don't
talk about like the we rarely talk about like um the curve token other than in the in the case of
like michael's loans that he had right nobody's going
out there and saying like oh it's you know they don't talk about the the curve token first they
talk about the product like swaps and the lending and stuff uh same goes for most of the other uh
like incumbent uh d5 protocols out there it's always product focused and the token is second i think that as my good
friend dimitri okay back the bunny says you like you build for weight and uh the market's a it's
a voting machine in the short term and it's a weighing machine in the long term so uh you have
to build for weight yeah that's exactly right i mean there's no there's no shortcut there's the
only secret is you got to build a product that has real product market fit.
And that's actually one thing that I also noticed. A lot of crypto now has flipped it on its head.
People are coming for the token. And then once the token is gone, they don't care about the product.
So there's a lot of fake metrics, a lot of window dressing there.
So there's a lot of fake metrics, a lot of window dressing there.
And that's not something that we want to do.
You don't see us going out there with major token points campaigns like we have a points campaign.
We want it to be a reward for real users, but we don't want it to be the primary reason that you come to turn.
Yeah.
You see that more and more.
see that more yeah so what i hear from you guys is that uh there's a lot of special circumstances
Yeah.
that allowed you to get a nice deal uh with both the exchanges and the market maker that you're
using uh which a lot of teams might not have and so i think that you said dion that you had some
other offers come in but they're really laughable so ifable. So if you are planning a token launch out there,
be wary because it's sharks
and they're just coming to max extract from you.
Yeah, I think we're fortunate
because a lot of us on the team
have trading backgrounds and tradfire.
So when we talk to these market makers,
we know what kind of games are playing.
We know the value of these loan call options
that's actually being given out.
A lot of founders, you know, they're just builders.
They don't have any financial background.
And I think they can take advantage of, honestly, just from lack of knowledge.
So, yeah, I think we are kind of in a special situation to really be able to evaluate and
push back and ultimately just find a friendly because you can
never trust what they're doing once they have the tokens you have no idea what they're doing
and the only way is find somebody that you really trust um just to like wrap up on a on a different
topic um circle announced that it's going to ipo this. Have you looked into it? Did you read the S1 at all?
I have not looked into it.
I know they were trying to IPO way back.
There was SPAC or something.
That's correct, yeah.
So two years ago, they had tried to SPAC,
originally at about $5 billion.
And then towards the top of the market,
I believe they raised it up to $9 or $10 billion.
The SEC sat on their hands and failed to approve the SPAC during the window that they had.
And so the deal fell apart.
And now they're coming back with another IPO where they're valuing themselves at about $5 billion.
where they're valuing themselves at about $5 billion.
And they should be going,
I think the IBO should be in the next month or two or three.
It's going to happen this year though.
Yeah, I think the main thing that I saw is,
I haven't read the full S1,
but the main thing I saw is just the power of distribution
in the relationship
and in the privilege position that coinbase has and the amount of you know revenues and fees that
they're able to generate from the relationship is pretty staggering um you know circle and also
you know just shows the power of tether and their business model and and how they've been able you
know through the relationships
with Asian centralized exchanges, to build a pretty significant moat and to be able to capture
a lot of the value, I think is also just maybe even an advertisement for the business that
Tether has built. But overall, I actually bought some of the SPAC because I was excited by
Circle and their overall business prospects. and their and their overall business prospects and i think their overall business prospects are still super super strong did you
get your money back i did 10. you know i think i invested it like 10 and a quarter and got back 10.
so i lost a little bit of money but you know what are you doing i think the one thing that i think
that is a good point though like what are you buying because if half the revenue is going to coinbase i just buy coinbase instead or am i buying half of the business so i think i would want to like
dig into that a little bit more because you know that's a pretty big chunk of the business not
the revenue is not being owned right yeah from what i, the majority of the expenses are being paid to Coinbase
because Coinbase has their like earn program where you can take USDC and earn it.
They call it a reward, not a yield or interest or whatever they're calling it.
Coinbase uses it for marketing expenses for USDC on their platform.
And I think this persists, right? the money, they have their distribution partners who they'll have to pay out either expenses for us, D.C. on their platform.
And I think this, I think this persists, right? Where if I
think us D.C.'s primary function that they're going to be is
that they want to be like this, like neutral stable coin layer
where, you know, they have, what is it? BlackRock on the back end, who's managing all the money. They have their distribution partners who
they'll have to pay out either expenses for the yield that they earn. And so I think their margins
stay pretty low in the long term, just when it comes to the interest income. And based on the S1,
it looks like they're trying to build themselves out as more of a technology and
services company. So they can, you know, build APIs or like other systems that allow for,
you know, like institutional usage of USDC, and they would make fees through that. And,
you know, I think that right now, that's's about like 99 of their income comes from interest
income and one percent comes from services and i think they'd like to at least get that like equal
down the road that would be a success for them but i mean i think this part is so juicy like
i tell her that's like i think the revenue is like rival or the profits rival jp morgan's just
sitting on t-bills doing nothing yeah uh i don't know i mean like my
my belief is that all these stable coins they get commoditized um heavily like there's it's
going to be a race to the bottom in terms of like fees and how much they pay back in expenses like
i know that the agora which is a stable coincoin launched by Drake from Frax, they give something like 80 to 90%
of their interest income back to the institutional partners that
they have. And their belief is that look, we think this is a
commodity, we think that this is a race to the bottom. And so
we're going to focus on again like technology services
so that we can make fees there rather than trying to make money on the the asset itself
yeah that's right and probably ends up getting shared over time to grow market share
but i would push up a little bit do you think that usdc and tethered are in a place where it's going to be really hard to knock them off.
You know, as being first movers, they got all this infinite liquidity on Dex's, right?
If you're in the tri-pool, you're set, right?
Tri-pool was from like two, three years ago.
There were only two stable coins.
It was Tether.
It was USBC.
Yeah.
Yeah.
You have to try and pull and there's so much liquidity there that's dead.
We had the tri-pool, and there's so much liquidity there that's dead.
People just forgot about that money.
People just forgot about that.
Whereas like a new project, they have to pay so much incentives to get a little bit of
liquidity.
And as soon as you turn off the incentives, liquidity disappears.
Yeah.
Yeah.
I think we've kind of seen that with PayPal's dollar.
It's been launched now for a year and I know that they have not been integrated to the same extent
that usdc does it's really just like a time and marketing issue right but when i think about it
i'm not i'm not thinking about like on chain d5 stuff for the next couple of years with this new
stablecoin bill that's going to be passed. We're going to have big players come
in JP Morgan, Walmart, Facebook, any sort of like private company or bank is going to have really
high incentives to come in and like launch their own stable coin because of how the model works,
right? Either they use the USDC model where they have their own, like if it's a
bank, it's JP Morgan, right? They're really incentivized because they can have their collateral
that backs up the stable coin go into their money market funds. And then they could issue this
stable coin for people to use within their banking system or to use for interbank swaps.
And I think that the end goal for all this stablecoin discussion is really supplanting
the Eurodollar, which is 100 times bigger than what DeFi is at the moment, or 1,000
times bigger even.
There are a few different use cases, though, right?
So your dollar is like bank deposits, that's institutional
flows kind of aggregating all the retail stuff in each country.
And then there's like the retail flows, which is more like a PayPal, Venmo kind of use case.
I feel like the euro dollar market, that's going to be, I think JP Morgan already has
like a tokenized like deposit that they trade only amongst like the large institutions.
But that, they will never allow that to go into the hands of retail because now you have
of that stuff.
Right, right.
So it might just bifurcate, you have like two different versions.
But you know, if Libra had come to market, right, do you think that it'd be the same
size as USDC right now?
It's still kind of late, right?
Like, Curve was already established, Dye was established, like even Dye.
Dye is still around even after they rebranded.
Right.
It's just so much.
But Facebook has 2 billion users or whatever.
Yeah, that's what I think would be interesting
and building in payments within the platform
and making that as frictionless as possible,
particularly for like ex-US sort of users
to be able to purchase through the platform.
So you get a real like flow within an ecosystem.
Yeah, and having that distribution is super powerful.
So it could have been extraordinarily
successful i still i still think it could be we're probably going to see like facebook launch
something as soon as the the stablecoin bill gets passed um like why wouldn't they it just makes
sense like they have two billion users that they can activate uh and it's an easy addition to their marketplaces.
Elon Musk can do it.
I think that he's probably working on it at the moment. Because he wants X to be this
all-in-one payment platform.
Super app, yeah.
Yeah.
I mean, if you just replicate what the Asian markets have,
it seems like social is a really
good way to facilitate
economic flow.
Yeah, I don't know the Asian markets
well enough.
You could do a million things on WeChat.
People may have WeChat.
They just need to pay each other.
With Tether?
No, they have their own kind of, it's centralized.
They have their own centralized payment system like Venmo.
But you could do like decentralized version.
Right, yeah.
I mean, it's like you can use WeChat just to like,
it links up to your bank account and you can just.
Yeah, people don't even use cash anymore in China.
Like you bring cash, nobody will accept it.
Just like, where's, I got paid using WeChat.
Yeah. Yeah. I mean, I'm excited. Like I look at the traditional securities world. And for
me, there's only like three investable assets at the moment, which is Bitcoin, the ETF, Bitcoin ETF, ETF, and Coinbase.
I've looked at some of the other stocks. None of the Bitcoin miners really makes sense to me.
They're so capital intensive and hungry. We had like crypto banks for a while, but they all got
shut down. I think I'm really salty about Silvergate
because I invested in Silvergate at IPO when they launched
and I was really excited about that.
It did like a 10 or 20 X or something.
And then the SEC and FDIC
and all the three letter agencies just sent it to zero.
Yeah, that was a big shakeup for everybody.
Yeah, so there really hasn't been
any uh and maybe maybe i'm wrong about this and one of our listeners or you guys can correct me
on this there really hasn't been a great uh uh like stock to invest into like crypto stock and
i'm sure this is partially because of gary Gensler's SEC uh and just wanting them to
keep people from from holding it but um you know just you if you can buy BTC there's no real reason
to buy like like MicroStrategy or or any of these other like Bitcoin holding companies
we've had some pretty we've had some pretty um big sales recently of like stablecoin infrastructure
uh Nate is it Bridge or what?
I can't remember the name of the entity
that was scooped up by...
Stripe?
Yeah.
Yeah, exactly.
You know, so it's also just like how the,
how stock markets have kind of formed,
like IPOs are, you know,
people are raising capital on a continuous basis
through other means versus going public.
And so acquisitions are probably more
realistic exits for most of the businesses. So it's actually nice to see like Circle and that,
you know, here Kraken is working towards IPO, IPO. And so it's good to see more businesses.
I think there's also been the advent of, you know, I think Bitwise created a product with
any company that has, you know, at least a thousand Bitcoin or it's a
hundred or a thousand Bitcoin on the balance sheet. They've created indices to basically allow people
to gain exposure to those companies. Those are cool products and kind of crypto adjacent. So
there's like some pharma companies, obviously MicroStrategy and others and Tesla that have
Bitcoin on the balance sheet. So you're able to kind of get dual exposure to kind of non-crypto non-core crypto businesses that have crypto
related exposure um so i think you'll see a lot more of that um too because the the ipo market
seems to be pretty pretty dead yeah i mean it comes in fits and ways, right?
Maybe we'll see a change this year,
but hopefully the new SEC regime essentially allows for people to come in and do more IPOs, but we'll see.
Well, cool.
Thanks for going off on this tangent with me
to talk about Circle.
They are one of your biggest lending assets,
so I think it does affect you guys how they
perform over the next couple of years yeah in term and they they invested in our seed round so they
also are you know somewhat tied to our success too in a very modest way compared to their overall
balance sheet but no we're big fans of the USDC product and stable coins in general I think the
stable coin meta like you mentioned is just getting. It'll be interesting to see how it evolves. It looks like we're going
back to like an 1800s monetary system where every financial institution has their own stablecoin
and their own currency. So obviously, I think that'll benefit the folks like Curve and it'll
be interesting to see how lending protocols are able to kind of aggregate liquidity across you know similar assets uh that exist within the stablecoin ecosystem so something i'm
particularly focused on yeah i think it's a good thing my my whole complaint against the banking
system is just that the the banks the g sibs like jpm orPM or JP Morgan and whatever, shouldn't be both the issuers of
money and then also the primarily responsible for the creation of credit as well too.
You know, we have this really weird system where the American housing market essentially backs up the US dollar. And I don't think it's healthy
for the long term. And moving towards this narrow bank system, it might tighten credit,
but I think it's good. There's nothing wrong with higher interest rates. It should bring down asset prices, home prices, and allow for young people to invest in those things.
When you start to get to these low interest rate environments, it really distorts things and
creates- That's what you would think, but this is random off tangent, but looking at houses recently,
the suburbs, nobody wants to sell at a loss. So even though rates have doubled,
suburbs, nobody wants to sell at a loss. So even though rates have doubled, they're like, nope,
I want to mark up my home. So it's almost like you just got to pay the same dollar price,
double mortgage, and nobody wants to mark it down. So we'll see.
Yeah. But that's what, when I talk about the US housing market, I don't know what happened in other ones, but almost everybody
refied or bought houses when rates were at 3%, 4%. And so now when they're like six or
seven, they're stuck because they can't sell. If they're going to sell, they're going to
get a worse house with-
Double the mortgage, yeah.
Yeah, with double the mortgage, right uh and they don't want to accept a
markdown on their homes like that's why i was saying that that period of low interest rates
just really distorted everything about the market and i think it's all like post 2000 it's just it's
just hangovers from post 2008 where uh you know there's just so much government intervention into
the uh into the banking system uh you know they should have let the banks go under,
they should have let the bad debt get washed out. It would have been way worse in the short term,
but over the long term, we wouldn't have these terrible long-term knock-on effects that we're
seeing that happen in the credit markets and just everything else.
So it's one of the big drawbacks of like mortgage
versus the housing market is mortgages are relatively liquid and you know homogenous in
terms of how they're priced but then houses are super illiquid and the the rate of flows within
those markets are significantly mismatched so you know i'm worried personally about like the
florida housing market and how that kind of impacts the rest of the U.S.
because it seems to always be the biggest, you know, the canary in the coal mine.
Yeah.
Yeah. And now, like trying to buy a house and get insurance coverage in Florida is totally fucked because of, you know, all the natural catastrophes that they've had,
which, you know, I would think will ultimately in the cost of
mortgages going up will ultimately impact the cost of housing in that market, which is kind of been
crazy. So, you know, I saw some like, terror porn, like, I don't know what you call it, but like some,
you know, terror porn on, you know, when I was doom scrolling last night before bed about,
you know, the housing market in Florida. And I'm like, and i'm like oh are we is this going to be the thing that just like un un pulls the thread and and causes the next
calamity here in the us the the good or the bad thing about that is those sort of things
take time because housing is so illiquid yeah and you know florida's going to be underwater anyways
i have a house in florida so I'm not worried about it.
Mortgages or, you know, for serious.
But yeah, that's a different story for a different day.
30-year fixed rate loans on ETH and BTC at term finance coming soon.
It's, you know, it's a liquid high quality asset. It's volatile, but at least like the volatility
is more liquid than your house. Yeah. And it's less volatile, but is it, you know, no one's
giving you a price minute to minute day to day. So, you know, volatility is, is, can be your
friend and hopefully, hopefully also on the risk management side. You're getting a price
and there's deep liquidity within that market. So I do see people gravitating towards these
highly volatile liquid assets like Bitcoin over time as reals, even as stores of value in traditional
sense of having your house being relatively stable over time, but being something that's
having like a you know like your house being relatively stable over time but you know being
something that's um anti-fragile i don't i think it's more than that i just think it's because
it's programmable and because it's so liquid uh there's no other asset where you can get access
to capital as quickly as with eth and btc um or other assets on chain. Like this is the thing that always amazes me. Like if you have
stocks or if you have a house and you want to take a loan against it, it's really like pulling teeth
because you want to take a HELOC. There's just like piles of paperwork that you have to fill
out. You have to get an assessment. If you want to take a loan against your stocks,
If you want to take a loan against your stocks, they may only let you take 20% of 20% LTV.
And it's just, it's not great.
Crypto is really the only place where you have these just insanely liquid borrowing markets
that have access to secured borrowing at any time.
Right?
I wouldn't even call it borrowing.
It's more like you're selling a-
It's like borrowing, yeah.
Because there's a penalty if you end up being liquidated.
So it's-
I think it is put options.
It's because it's-
Because of the penalty, right?
Because we could recharge an extra penalty for defaulting yeah it's it's more about
like i think it is like a put option right you're selling a put option against your collateral and
and the fee that you pay uh if if it gets assigned or liquidated right it's it's just being assigned
like your your put option yeah it's similar's similar. It is similar, yeah.
Yeah.
Because like a loan has like commitments
and a loan is very different than what we give on
through like term or any other sort of like crypto
lending service.
Like what you guys are offering
and what most other crypto loan or like Aave
or whatever like lending facilities are offering is essentially like,
okay, you can essentially free up some collateral
or free up some credit against your position,
but somebody else can like call that
in case it goes below a certain strike price.
I don't know.
It just makes more sense to me to think
about it as an option rather than uh it is yeah no it is very much so and I think having the penalty
is a key part of that because if you do you just take it as a free option okay it goes down I sell
no loss to me I got my money um and people become less vigilant about keeping it in good health.
But yeah, otherwise it is exactly that.
It's basically just a free put option that the lender has extended to you.
Yeah, I mean, even the way that DeFi runs liquidation is, I would say,
more robust than what the traditional financial system does with margin calls.
Because like, you know, the value of your collateral dips below a certain level,
you know, you're being liquidated to help maintain lender health and maintain health within the
ecosystem. Within the Tradify space, you know, you've seen, you know, plenty of instances where
those margin calls and the trust me bro that happens between that window of getting called
on margin have caused financial institutions to collapse. I mean, I think that's what basically
led to Credit Suisse getting sold to UBS was that particular downfall. Yeah. All right. Well,
I'm sure we could go a lot longer, but... Yeah, I think there's one little thread I wanted to pull before we jumped off.
So I think a major thing, especially with tokens, is tying the success of the protocol with the token and linking those.
So, I don't know if you want to quickly jump into some of the thoughts we have and the fears we're pursuing there.
Yeah, your last little tip and make it quick.
Staking is coming live soon.
The model is borrowed from the uni staker contract.
The idea there is very simple.
You know, stake your token.
You're required to delegate your vote.
As part of that staking process, you can delegate to yourself if you want to.
And in the long run, you'll earn a fixed share of protocol fees for participating
in governance um you know still early stage right now so it can't be like burning all of our runway
on protocol fee share but the idea is once you hit a certain milestone we'll be able to turn that on
so yeah that's something we'll look forward to yeah i i think the majority of token projects probably turn on fee share too early.
You need to hit escape velocity.
Like how many growth companies do you see paying a dividend?
Paying dividends, yeah, exactly.
It doesn't exist.
And I think this is something that we'd like fail to capture in crypto is that,
or maybe this is just like a distrust of teams like spending money
and that investors would like to have it back. And that, you know, like you wouldn't go into a
tech company that's providing lending services and say like, okay, it's been a year now.
Like, look at your $50 million of loan book that you have, like,
let's start paying out a dividend now, right? You would wait until there's like 100 million or
500 million or a billion or 5 billion, right? Before those sorts of things. Like once you've
kind of like hit that mature state and you're no longer focused on growth, because I'm sure all the
fees that you guys collect could go back into like growing the pot even more and bringing even
building out more infrastructure exactly right
but it is critical you do need to i think it is critical to tie those things together for the long
term yeah um well cool guys i appreciate you guys coming on uh everybody can go and check out
term.finance unless you're american like me um but very interesting fixed rate solutions uh
i think it's definitely needed more because if you're doing some like yield farming or other types of uh like
uh mainly the yield farming right like you really want to lock in those rates and especially having
it on a four-month rolling basis is pretty cool so uh go check out term finance and uh
dion and billy thanks for being here today and uh we'll talk to you guys again soon
take care take care bye
