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That's my quant: Indexing the DeFi stablecoin-networks w/ $OPEN
Recorded: Sept. 18, 2025 Duration: 1:24:09Space Recording
Short Summary
The Open Stablecoin Index has launched, showcasing a decentralized token portfolio that tracks leading stablecoin networks. The index outperformed ETH, highlighting significant growth potential and the emerging trend of decentralized stablecoins as protocols increasingly launch their own tokens.
Full Transcription
Thank you. Thank you. ... Hello, hello.
Hey, hey.
I can hear you loud and clear.
Perfect.
Awesome.
Yeah, we'll probably get started and call it five or six minutes.
Let everyone arrive and test our microphones.
Sounds good.
Let me also quickly retweet. um . Thank you. Laugen Kijo. Good morning, everybody.
We're a little bit early, so we're just going to test the mics and all that good stuff here
for a few minutes, and we'll probably start maybe three or four minutes after the hour.
Sounds perfect. Thank you. Good morning, everybody.
Just getting situated.
We'll get started in a few minutes.
I'm actually trying to figure out how to play music in the meantime.
Working on my DJ career.
I think we can get Joe to sing for us.
Is he famous?
I don't think you could afford my rights.
He's about to be famous it will cost you
i do actually dj but i don't know how to plug my turntables into Twitter. Yeah, it's not super flexible.
There is a music button here on my UI, but I think it only plays before people join.
I don't think it's playing in between awkward silences as it promises.
Oh, well. playing in between awkward silences as it promises.
Oh, well.
Cool. Like in the lineup here, I invited Leviathan News
as a co-host.
We've got OpenStablePointIndex as a co-host.
We'll get started here in a couple minutes, guys and gals.
That sounds perfect. Thank you. ... ... ...
... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
... ... ...
... ...
... you know it had robin williams in it i'm ashamed to say i've seen all the clips i've never seen
the actual full movie that's a great movie he starts it out with good morning vietnam
good morning open open stable coin index community um yeah here we are september 18th 10 a.m on the west coast i guess it's 1 p.m in new york and
probably 5 p.m i'm guessing in london so hope this is working for everybody um let's get started
uh kicking us off uh so today's show is uh first of all if y you all aren't familiar with and you're just now joining, we have something really interesting out in the wild.
It's called the Open Stablecoin Index.
It's a decentralized token portfolio on the reserve protocol.
It's built on Ethereum.
It tracks leading stablecoin networks, advancing transparency, composability, and user-led governance.
You can check out the methodology in the basket
at OpenStableCoinIndex.com. And today's show is, we're calling it That's My Quant,
indexing the DeFi Stablecoin Network Frontier. We have three incredibly exciting people speaking
today on the panel. Of course, anyone's welcome to join and raise your hand and join in at the Q&A later.
But let me just introduce
our three main people,
our main players.
We've got first up is Nick.
He's the founder at 5.112M.
I hope I'm pronouncing that right, Nick.
Yep.
Cool. Good, good.
It's a Swiss research firm since 2017.
They specialize in DeFi economics, simulations, and token designs.
They've built models, dashboards, and advised VCs and protocols on some of the industry's
most recognized projects.
Welcome, Nick.
Then we've got Joe from Pangaea.
He heads up DeFi at Pangaea.
Their network pulls together node operators for RPC,
indexing, and AI inference. He spent years in DeFi and now focused on weaving protocol integrations,
research, and product design. Welcome, Joe. And lastly, last but not least, we've got CurveCat,
also known as Garrett. He drives developer relations at Curve Finance, the decentralized
exchange powering DeFi's deepest stablecoin and crypto markets. Curve delivers high yield
on-chain savings, secure borrowing, and low slippage swaps. He also builds for Leviathan News,
decentralized media powered by the Squid token. So make sure to give all of these guys a follow.
They're mentioned in the tweet. And yeah, let's get picked off here. I think we can go ahead and
just start jumping right into the questions. 5.112M put together a really interesting report about a week ago on OpenStable.
It's capturing the stablecoin economy.
It's linked in the tweet.
Maybe, Nick, you can kick us off with a high-level overview on the report, its methodology, and the purpose.
Go ahead, Nick.
Thank you very much.
Yeah, so for those who are unaware,
OpenStable Index has pretty standard rules
when it comes to actually building and rebalancing the index.
And when I kind of saw it as someone who,
I think I got my real DGN started in DeFi
with the DeFi Pulse Index.
And I was like, well, you know, with this stuff,
because the rules are so simple,
what would have happened if OpenSablecoin Index
didn't launch, I think April this year,
but launching like 2021 instead.
So for those who don't know, way that OpenSableCoin index works is every 90 days,
they rebalance the portfolio or like the index to equal weights,
which means that if there's 10 tokens in the index every single token should be at 10%
they don't do usually like a lot of indexes don't do this every day just
because it costs too much or you also want to let your gainers win and so on
so forth they also do have another one where if one asset becomes too big or
too small of a portion of the index
just because the price rose or fell too much,
then it also triggers a rebalancing.
So that's basically what we did.
We made a thread and also a lot more of an in-depth deconstruction on our blog post.
But basically, we said, okay, with those rules,
because they were so clearly made,
what would have happened if OpenSablecoin Index launched
on January 1st, 2021?
And then with those rules, we were just like, okay,
so every 90 days, it rebalances to the target weights
or when a new token launches,
because some of the tokens in
the current index were not live when we started things like i think liquidity inverse finance
will launch a few months after x went live so that's basically more or less what we did
and then we kind of did some of the return metrics.
Thank you for that quick intro, Nick.
Joe, you've had a chance to digest the report.
I'd love to hear kind of what were your initial thoughts reading it and if there were any surprises.
Yeah, I think the main thing that surprised me is the performance, right?
The headline figure is pretty encouraging and like tells a very interesting story about
the benefit of holding an index like the open stable point index as opposed to just holding
spot E. I guess the other thing I was looking into is the actual methodology, right,
of how do we do these index fact tests?
How do we interpret the results?
And what that might mean more generally for building performant DTF reserves,
how we tweak the parameters, like around the rebalancing, building performant DTF reserves,
how we tweak the parameters like around rebalancing,
how we select what gets included in the index,
what gets booted from the index.
Yeah, those are the main things that I
found interesting in the report.
Yeah, thank you for sharing that, Joe.
Curve cap, there's this lot of arguments for going out and picking your favorite
stablecoin winners. And then there's arguments for passive indexing. I'm curious your take,
the arguments for and against indexing versus trying to pick the winners.
What's been your experience so far or observations that you can share?
your experience so far or observations that you can share? So I'd say that my observations as a
bad investor is that I never, never outperformed the market. So I've always sought for indexes,
like with my personal stock portfolio, like I don't follow the stock market close enough.
So I'm kind of, I got no choice but to buy like index funds that can do a better job of tracking it for me.
So I'm super bullish on this concept of open stable coin index.
You know, I've been doing everything I can to help out, particularly with how we can interface the open stable coin index with Curves technology.
And I think that it's really cool.
And as much as I really like this report, because I hope it opens people's eyes that this index exists.
But that being said, I do think, and we're going to probably get into it, that it probably presents a rosier view of the performance of the index than might have actually occurred.
Oh, interesting. Spicy take there. Joe and Nick, on the steel man for and against indexing, did Garrett miss anything? Is there anything you'd like to add there?
Oh, interesting.
Spicy take there.
Yeah.
Go ahead. I think is the biggest value proposition of these indexes aside from just simplifying
this for investors.
And that's something we haven't really seen yet, which is using these index funds with
the composability of DeFi and leveraging that.
So in traditional finance, people buy ETFs and they basically hold them
and they have exposure to a basket of assets. In crypto, you know, an individual investor
can go out and buy all of the constituent tokens in the Open Stablecoin Index. They
can try and match the strategy. They could do all of the same rebalancing.
But say you have $10,000 invested, well your $10,000 is now spread across 10 different tokens.
And it's not really, you're not really going to be able to borrow very much against each of those tokens individually. But if you were able to borrow against your stable coin index, like now you can borrow
against the whole 10 K, but you still have exposure across these 10 tokens.
So as these index funds begin to pick up steam and there's more liquidity for them,
that's something I'd be really interested in seeing
is more composability with other DeFi protocols.
That's super interesting, Joe.
People have already suggested, I think,
a LamaLand integration so they could borrow against their open.
I think you make a really interesting rationale there
of how much easier that would be to do with one tokenized
index instead of
10 different assets. Thank you for sharing that. Let's see, Nick, anything to add there?
I want to push back against the notions that you couldn't do that, because I remember some of my
first real DJ in place was looping DeFi Pulse Index on RVV2. So it's something we had and unfortunately lost
because I think at the end of last year,
they did sunsets that once.
For maybe some of the new ones who aren't aware,
the DeFi Pulse Index was also kind of an index,
not by Reserve, but by Index Corp,
which also tracked not just stable coin tokens but like
anything DeFi. That one was not equal weighted it was market cap weighted I believe but I also
remember that you could actually go on Aave and put it up as collateral and borrow against it
albeit with extremely conservative LTV ratios but you you could do it. And it's definitely something
I would like to see a bit more of
because as Gareth said as well,
even though we are active in the space,
I often don't have the time
to manage my portfolio very actively,
which is why I'm an avid user
of things like Morpho, Euler,
or I just farm LP pools on Pendle that I rotate every, what, like three months.
But having something, so something like an index fund of tokens
is definitely something I think from a retail point of view
for the more passive investors, that is very popular.
I also quickly wanted to go back to what Gareth said as well about the report having a little bit of a more rose-tinted view.
That is definitely true for a few reasons.
I think maybe one of the main ones which we come across constantly when we do like reports
for certain vcs is they always ask us well can you start the back test at like beginning of 2020 or
2021 and i'm like well you know you can pick probably uh any crypto coin in the top let's say
any crypto coin in the top,
let's say 200 by market cap right now.
And if you backtest the performance from beginning of 2021,
most of them should be up just because everything has been up.
Like ETH as well has performed immensely in the same thing.
immensely in the same thing.
So that is also something to consider.
So that is also something to consider.
Like the backtest that we did was more to have a look at how it performs
relative to ETH and also look at maybe some of the more financial
and intricate details about it.
But this is not something where we say, well, you know,
look at how much it went up.
It can go up some more, especially considering that I think it's still down roughly, I think, like 38% from its all-time highs from November 21.
So even though the performance has been a while, it still isn't back at all- time highs yet, according to our backtest.
Yeah, thank you for parsing that out, Nick.
And I'm really excited for us to get to that part where we talk about the performance of open versus ETH.
It's a pretty drastic comparison.
We're going to get there in a couple of minutes. Before we do, though, I want to just maybe go back and just talk about quickly if there are any highlights or lowlights of crypto indexing so far.
You mentioned DeFi Pulse.
There have been a few other index products.
Before we kind of pivot over and start talking about how Open defines a stablecoin protocol, is there anything else to say about what we know about on-chain crypto
indexes so far? Nick or Joe or Garrett? For my side, I think the only two projects I've ever,
like three, I guess, would be Reserve, Index Corp. And there was this one
NixCorp, and there was this one other project, which I think is defunct now, called IndexZoo,
which were doing something similar of just like getting a basket of tokens and representing them as like one big index.
Yeah, IndexCoop is the only other one that comes to my mind.
Yeah, IndexCoop is the only other one that comes to my mind.
I'm not really sure what happened to that project, why I didn't see more adoption.
Does anyone else know?
I can add a little.
And then I think Pat B here from Inverse Finance was on the IndexCoop team.
He might have some history.
We'll kind of get him into the conversation a little later on.
I did write a somewhat of a research, I wouldn't call it a research paper. It's not
that technical. But earlier this year, a deep dive into the history of indexing all the way back to
the 1930s and including on-chain indexing. And one of the things that kept coming up repeatedly,
on-chain indexing. And one of the things that kept coming up repeatedly, specifically for
on-chain indexes, is a lot of the people still standing active in the market in 2022 and 2023.
That was the drolls of a crypto winter, which a lot of people sort of bail out and maybe they
don't come back for a few years. But the people still standing are what I would call some of the most active users in crypto, very active DeFi participants.
And those people, they like a lot of control.
They also are very, you know, they don't want to pay fees to an index.
That was like one of the really interesting discoveries.
And it begs the question on on-chain indexes,
you know, is now the right time or is it in five years? You know, historically,
index products work really well for retail users. But as we all know, in the crypto space,
retail kind of comes in and out. It doesn't really often stick. You know, a few people stick
around. They keep building during winter.
But sometimes some of the retail gets washed out. But who knows? Maybe this time will be different.
We have such a regulatory positive environment with the stablecoin bill passing in the United
States. Pretty soon we have another crypto bill, Clarity Act, which will open up on-chain activity to all kinds
of institutions that could not previously sort of touch directly on-chain. So my sense is,
you know, the market, it was, you know, IndexCoop was very early, but I think the idea was right.
And, you know, I'll ask Pat to come on stage. He might be able to
share a little bit more about IndexCoop in a little bit. I'm going to go ahead and jump into
a question that we've been asked a few times, which is, well, how does Open Stablecoin Index
define a stablecoin protocol? For example, Aave is on the list because they have the Go stablecoin, but their main
lending, main business is lending. And their stablecoin is relatively minor, at least currently.
So, you know, Open is exposed to a lending business mostly. On the other hand, Convex is not
currently in the index, as it doesn't have a stablecoin, but it's arguably more
exposed to the growth of stablecoins.
And it seems many different protocols will have their own stablecoins.
So how do we isolate stablecoin exposure specifically?
And I'm going to add to that question, should we be isolating stablecoin exposure specifically?
And I'll drop a little quick history reminder. For those who've
watched the evolution of Tether and the evolution of USDC, it's worth noting neither one of those
were sustainable businesses when they launched. They both essentially made another business
more successful. Tether made the Bitfinex exchange more successful. USDC made the
Coinbase and Poloniex exchanges more successful. So it actually starts to beg the question of
which part is the driver in the so-called flag wheel? Anyway, I dropped a lot there. I hope
everyone's tracking along. Why don't we kick off here with Joe on the answer of, you know, what's your take?
How open is currently defining a stable coin protocol? Is it being done correctly or
should it be changed? What are your thoughts, Joe? Yeah, if we're defining it as a protocol that has
a stable coin, then I think the universe of possible assets is going to grow very,
very quickly because it seems like we're going in a direction where most DeFi protocols are
looking at launching their own stable coin.
And from a business point of view, it makes a lot of sense. If you have user deposits starting in your protocol,
why not just have them deposit their USDC,
you give them some of your own stablecoin,
and you farm a yield on the deposits?
Makes a lot of sense.
And then also, for the distribution point of view and just
vertically integrating which is something i think curve has done very successfully with curve usd
but by having their own stable coin that unlocks all kinds of different possibilities for what can
be built on top of curve as a bit of financial infrastructure.
And there again, it's kind of interesting how, for example, if you look at Yieldbasis,
which is a new protocol from Mitch that's going to be launching very soon,
there we're talking about, you know, credit lines of stablecoin that the protocol isn't going to necessarily earn any borrowing interest on.
But it's all of the secondary activity that that drives where actually there's a lot of revenue to be made.
So there's some analogy there with what you're saying about the early days of USPT and Bitfinex being a primary beneficiary
there. So yeah, I think if you are defining stablecoin protocol as a protocol that has
a stablecoin, then that's going to become very broad and you're going to be exposed
to all kinds of different businesses. And for that reason, my direct answer to your question is, I would lean more towards
protocols that will benefit from the growth of stablecoins generally, rather than just
protocols that have a stablecoin. So I might be an advocate of something like Convex being added for that reason.
Yeah, there's an interesting parallel in traditional banking too, right?
It's for a very long time, you know, savings accounts and checking accounts were kind of the reason people used a bank.
But it were the other services, the lending services, and maybe some other types of wealth management services
where the banks would sort of really make a lot of money. So I don't know if it's right or wrong.
A lot of times I'll sort of describe the stable coin as like the glue for the business, the glue
for the flywheel, although it's really probably a better term would be lubricant.
And yeah, it's also worth maybe saying a lot of the conversation around the open stablecoin indexes,
we use this language of stablecoin networks more than, or at least I have,
I've been using stablecoin networks as opposed to stablecoin protocols.
Coincidentally, before this sort of liftoff of all these new sort of dedicated L1s and L2s that we're seeing now launch for stable coins, which are obviously networks as well.
Yeah, that's just how I've been thinking about it. CurveCap, what do you think,
you know, how, what do you think about how open is defining these stablecoin networks and should it change
how we're defining it?
Yeah, it's a very interesting question.
A lot of really good points have been brought up.
One of the things I've been thinking about as we've been talking about this is it was
a few years ago that Frax Finance, which is one of the members of the Open Stablecoin
Index basket, was advancing the stablecoin maximalism thesis, which said that
basically every crypto protocol was inevitably going to converge on having its own stablecoin.
And we've seen that a lot within DeFi. And we're also seeing it happening within traditional
finance now, where everyone and their mother is launching their own stablecoin because they
realize the benefits that having a stablecoin in-house can bring.
For traditional finance, this might be like maximizing, improving settlement times and such.
For DeFi, it might be like being able to add in like lending markets on top of things. Curve was mentioned. And since Curve launched Curve USD, even though the Curve USD market cap is kind of
a fraction of the TVL on its exchange business, it's still about
half the revenue and oftentimes more for the curve DAO. So it's been a fantastic, fantastic
revenue driver just for curve itself. As for how like Open Stablecoin Index should look at this,
it's really an interesting question. And you wrote that great article on the history
of indexes on chain. We haven't, I'm not sure, seen one that quite is organized in the same way
that OpenStablecoin is, where there is a governance token, Squill, and the Squill governors get to
decide, primarily the principal use for the Squill token is to decide what goes in that basket.
So really, this is a question for everyone on the call today, everyone who listens to this, to decide, you know, what would you like to have in the basket?
What does it make sense to, you know, put in tokens that are going to maximize like the value to stablecoin networks, even if they don't have a stablecoin themselves?
if they don't have a stablecoin themselves?
Or is it just going to be a play to try to get as many tokens in the basket
that we think will maximize the return of the index?
In which case, it's entirely possible that school governance
will go completely off the reservation and start bringing in meme coins
because they think it might do a quick 10x this quarter
with the most loose connection with
stable coins. I hope it doesn't evolve in that direction. We've seen that DAOs can be really
good when they are led and shepherd in the right direction, and we've seen that DAOs can
become very dysfunctional. And I do trust and hope that the intelligence and raw brainpower
so far exhibited in this call indicates that SWIL is going to go push the Open Stablecoin Index into a very wise direction.
Yeah, thank you for that curve cap.
Nick, anything to add on how Open is defining stablecoin networks or stablecoin protocols?
Sure.
I think making a distinction is becoming more relevant than ever.
And I think the current approach that Squirrel Voters have is, I think, the correct one.
I would say either you need to be...
It's not just, oh, do you have a stablecoin?
It's either you need to be the stablecoin, you know, let's say an Athena or a Maker or slash Sky makes somewhat sense just because of how massive and integrated they've become across the entire space.
It's either you need to be the stablecoin.
months to even a year won't make as much sense, mainly just because we're seeing many
institutional players come in.
We often have chats with the guys from Stably who do stablecoin as a service for traditional
institutions, and their main use case is basically just to launch a fiat-back stablecoin
with their own treasury to interact with DeFi but that's not even you know like they're not even
trying to get adoption for their own stablecoin they're just trying to interact with this new
I would say financial layer and how remain in control of their own treasury to a certain degree.
So I do think that either having stablecoins are pivotal to the DeFi ecosystem or say,
like a Curve or an Aave, which really stablecoin use cases would drop massively if it were not for those protocols.
So I think the current approach does make sense.
Yeah, and we're coming up on the Q4 rebalance for the Open Stablecoin Index.
And I'll stick that definition in the sort of request for comments.
And Garrett kind of alluded to it here. It's
really interesting. When you look back at the history of index funds and particularly things
that are done with securities and kind of the Wall Street markets, it's a very fixed definition
of what that is and how it works. And the methodology is very rigid.
But here, we have an on-chain index. There's no team, there's no CEO, there's no company. It's
just smart contracts. And it's governed by the Squill token holders. Some of those Squill token
holders could be meme coin maxis, but they might be decentralized stablecoin maxis.
We could have all kinds of variations.
So it's going to be really interesting to see how the mind share or the brain share evolves and starts to think about these.
I know there was a question early on, actually, of could tokenized circle end up in the Open Stablecoin Index?
And, you know, from a, well, actually, I was going to say from a profit motive standpoint,
maybe, but actually, I don't think so. You know, it's just my two cents. But, you know,
tokenized circle could have been interesting if it were in the index free IPO. But the reality is it is a central issuer project.
It's not necessarily, you know, sort of, you know,
certainly not as transparent, not as composable,
and definitely no user-led governance
as some of the projects in the Open Stablecoin Index.
So I'm curious to see, curious to see how our definitions change.
And that'll be up to decentralized governance.
Let me just pivot into the next question.
Can I just pick up on that point?
Go ahead, please.
Was there an intention to only have exposure to quote unquote
to quote unquote decentralized stablecoin networks?
decentralized stablecoin networks?
Yes. Was there an intention?
Yes, because, well, there's kind of three or four areas specific to that.
One is user-led governance.
So kind of no middleman stablecoins.
And I know that's kind of a very absolute binary,
no middleman, not even like a little bit of a middleman.
But most of these projects, I would say, if not all of them
are striving towards the idea of user-led governance.
They're also striving towards censorship resistance with at least maybe one exception in the index, you know, blacklisting functionality. I think Sky has that enabled on USDS and there may be more.
the most important components of the methodology. And being able to verify, you know, what's backing
a stable coin every 12 seconds on chain without waiting on someone to tell you it's okay, I think
is a pretty big differentiator. And then when it gets to composability, you know, especially when
we see, and I don't know what this future looks like, but one of the areas that I've
been thinking about for stablecoins is we're heading into this AI revolution where you'll have
machine economies interacting and creating their own stablecoins on the fly, creating their own
lending markets on the fly. And a question I've been wondering a lot about is how decentralized,
permissionless stablecoin networks might behave differently in that environment versus something
like Tether or Circle. I don't know the answer to it. It's just something I've been thinking about.
But yes, to answer your question, these are 10 DeFi stablecoin networks that are currently in the index.
Did I answer it sufficiently, Nick?
I think that is something that I might be woefully optimistic,
but something that we've talked about also quite at length with the people here is when you mentioned the whole rise of AI,
specifically like agentic artificial intelligence,
which might be, you know, going on,
on using some of these stable coins.
I do think it is a much more prevalent or like it's,
it's a much decent stable coins have a much bigger use case,
because I still think that some of the biggest limiting factors would be for centralized issuers is a whole KYC aspect,
especially when it comes to minting and redeeming any stablecoins.
minting and redeeming any stable coins.
And if I am, let's say, a hedge fund that uses 15,000 different AI agents
to trade a multitude of different strategies,
and I keep spitting up new ones and shutting them down,
it will be also a massive friction point
if I have to somehow KYC every single one of them with, say, a circle
or a tether when it comes to maybe some of the deeper functionalities.
Whereas, I don't know, let's say with DAI and Maker,
I'm just like, well, I have this. Or with Liquity, I'm like,
I can buy some bold and I can just redeem it.
I don't have to think about, is this allowed?
How do I actually make sure that my new AI agent
that I spun up 30 minutes ago can actually start trading?
So I do think that, at least on that side,
it's definitely a huge tailwind for decentralized stablecoins.
Yeah. Garrett, anything to add before we
move on to next topic? No, no. I think it's, you know, one of the, about a month ago, I was giving
a talk on the subject of why centralized stablecoins rely on decentralized stablecoins.
And it's kind of a funny thesis to advance because if you
actually look at the market cap, the market cap of centralized stablecoins, that is those with
the blacklist function that are generally holding dollars in banks and have, you know, they have an
inordinately huge market cap relative to decentralized stablecoins, which are,
generally speaking, like, you know, $100 million is a good market cap for
decentralized stablecoin, whereas often the centralized stablecoins, because they have
such access to the financial system, are able to get to billions. In Tether's case, $150 billion
of dollars, just dwarfing the market. But one of the interesting things about these centralized
stablecoins that got very successful is that most of them that
became very successful did so because they had massive inroads within decentralized finance.
Tether, for example, by being around for so long, has really been grandfathered in
to many different chains, not just Ethereum, but Tron and many other chains. And we're basically able to kind of get grandfathered in
because so many decentralized or centralized projects out there
that were launching wanted liquidity with Tether.
And as a result, like Tether kind of got a free ride
to be in a trading pair with everything.
But yeah, this Tether wouldn't have been successful
if it hadn't had sort of like massive amounts of inroads throughout this kind of decentralized crypto infrastructure.
And even the newer centralized stablecoins that are launching and getting success, they're doing it because they're finding innovative ways to like bootstrap liquidity on new chains that are just really interesting or find new ways to get inroads into this decentralized infrastructure that's being
built including pairing with decentralized stable coins no that's a that's a great uh summary curve
cap it's um you know i often think about uh you know what scoopy um did two things with with
alchemix one is uh you know i've always thought self-repaying loans was such a novel idea.
Really excited for their upcoming V3 launch.
And, you know, an idea like that can propel a stablecoin, as it already has for Alchemix.
And, you know, they're getting ready for kind of the next wave.
But also something that Scoopy had mentioned, I think, the last time we did a space is we really are at this sort of infancy growth stage where a rising tide is going to lift most boats if they have a relatively good protocol.
You know, people are going to want stablecoin exposure.
Now, it doesn't mean you're going to win.
You know, I think, you know, I frequently am looking at the numbers of adoption and crypto and stable coins and the numbers today are, you know, somewhere around a couple of hundred million monthly active users.
before the dot-com bubble burst. And many folks were sort of, you know, sort of acknowledging,
you know, the internet was a fad. It's going away. We'll never use again. It took another five years
for Web2 to arrive on the scene. You know, Netflix streaming and Facebook and LinkedIn and social
networks really kind of brought that in vogue. And then by the late 2000s, you know, the internet was clearly here
to stay, but it didn't always look that way back then. So it seems like, you know, there are lots
of novel applications to still create. You know, I was looking at yield basis just a few days ago,
thinking about, wow, this would be a really cool use. And it's something I would for sure use.
And that strikes me as a mechanism to really, you know,
kind of drive the flywheel for Curve USD.
So, you know, compliments to that team for thinking outside of the box
on something entirely novel that TradFi is just not going to get to,
is not going to be first on.
Okay, Joe, go ahead.
Let's see if I've got you as a speaker here.
There we go.
Joe's connecting.
I think he's on stage now.
Conversation comparing decentralized centralised stablecoins and that's what I see as being
a big catalyst for the growth of truly decentralized stablecoins like backed by on-chain native
collateral and that is a lowering rates regime from the Federal Reserve.
So last night, Federal Reserve cut 25 basis points.
It's expected that they might cut another 125 over the next year.
And all of the centralized stablecoin issuers, their current business model is we take your deposits,
we give you this token, we pay you no yield, and we earn a yield on those deposits through
cash equivalents like short-dated treasury bills.
And over the past couple of years, the yield on those treasury bills have been very high which is why the companies
like Heather making insane amounts of profit but as rates lower the revenues that those issuers
are able to earn on deposits is going to decrease meanwhile more liquidity is going to flow into rich assets as the risk-free rate lowers.
And typically what we see when that happens is prices of equities and in particular prices of
crypto start going crazy. And that's often when people start piling in with the leverage in crypto
and many decentralized stable coins are collateralized that position back so people are
providing let's say eth or wrapped bitcoin as collateral and maybe they're minting curve usd
as collateral and maybe they're minting curfew at the end.
So I think that the lowering rates regime is going to increase demand for leverage,
thereby increasing revenue for decentralized stablecoin issuers.
And in turn, if they can pay that out in a yield bearing stablecoin,
that's going to increase demand for those stablecoins.
So I think it's really interesting that it's not only the centralized versus
decentralized, it's not only looking at this like ideologically or in terms of,
you know, risk of blacklisting and this kind of stuff, but there's also an
important financial component to it where I see decentralized stablecoins
having a bigger advantage in a lower rate environment.
Yeah, thank you for that, Joe. I'm going to go to you next, Nick, but I think it's like
when you think about right now, my understanding is the banks are pushing back on the genius
stablecoin bill because they're concerned about yield-bearing stablecoins.
They're concerned about Coinbase, you know, allowing you to deposit some USDC and earn some yield on that.
Meanwhile, DeFi stablecoins or flat coins are yield-bearing.
There's a bunch of them already out there that are yield-bearing by nature.
They're not part of the Genius Stablecoin Act.
And so it really is an advantage for DeFi to really explore that and gain
traction while, you know,
the rest of the market is sort of reconciling its kind of initial bets.
Let's see. I think Nick,
you had something else you wanted to add before we jump onto the next piece.
Sure. Just very briefly, I wanted to mention one thing that I keep seeing over and over,
especially on our side, is people asking for a decentralized non-US dollar-pegged stablecoin.
Mainly, Euro has seen some traction, but from our side, we're seeing massive demands as well for the Swiss franc-backed stablecoin.
And in a centralized way, we actually had a look at it because we had someone who was looking at the feasibility of it.
And we were just like, yeah, not possible because over here, our rates are zero, even negative.
our rates are zero, even negative.
So you basically, if you're a centralized stablecoin issuer
and buying short-dated treasury bills,
you're actively losing money,
which makes any kind of centralized issuer extremely unviable,
which is also why I think this is something we'll start to see
more of also for US dollar
denominated stablecoins. I think that's also an in for the decentralized providers though, because
as we see with something like CurveUSD, they are effectively able to create stable tokens
that are pegged to the value of some fiat currency,
but with a purely decentralized collateral.
I actually think there's no reason why that couldn't be done for other fiat currencies, even in lower rate environments.
No, no, I meant for centralized ones.
For decentralized ones, there is actually one smaller project called frankencoin which is a bit
a mix between i would say it's more uh akin to like the old school maker dao and die model
so decentralized even in a very low interest rate environment can definitely work
low interest rate environment can definitely work.
Good stuff. Well, let's get to the punchline of the report from 5.112M, which was one of the
takeaways was that the Open Stablecoin Index outperforms ETH in a four-year backtest. I think it was about 744% gain for open versus ETH's 487%.
What does this reveal about the power of indexing?
And is there anything else you'd like to sort of say about that, Nick?
Sure.
I would say here, take these results with a little bit of a grain of salt.
I think a lot of people were looking at the performance at the end of the backtest period,
whereas some people forget to look at the drawdown curve because we are still not at all-time highs,
all-time highs even though ETH is basically at all-time highs let's say and the one thing I
even though ETH is basically at all-time highs, let's say.
also wanted to mention which is one of the most powerful things when it comes to indexing coming
from the traditional finance world is the reason why people do it come very often and say well
you know if you pick one token that goes to zero or like one company goes to zero, you don't lose everything.
But there is also a little bit more behind that, mainly that if you have an index of a bunch of equities, let's say stocks, you want them to be not correlated with one another because that
actually maximizes your risk to return ratio way more than as like individual stocks so it's not
just like we we have a background from traditional finance so we don't only look at pure performance but also on like a risk adjusted basis and unfortunately
in crypto a lot of these tokens are still very highly correlated like if we take out like the
initial pump after TGE and look only like for the past year, most of the tokens actually have a correlation factor
over 65 to 70% with ETH.
So a lot of the benefits, I would say,
coming from indexing or like diversification
is not as strong as what we see
in the traditional finance world.
Perfcap, anything to add?
Your take on sort of seeing that headline and, you know, anything you want to push back on?
Well, my first thought on reading the headline was to hear that something overperforms ETH
is not a surprise because as an ETH bank holder, it seems like everything overperforms ETH.
it seems like everything overperforms ETH.
But that being said,
I think it's not really a surprise
in that if you kind of look at it,
ETH is the number two cryptocurrency by market cap
where it's been for a long time.
And most of the stablecoins in the basket,
sorry, stablecoin governance tokens in the basket
are generally lower and thus they have a lot of room to run.
But that being said, I think that there is a survivorship bias problem,
which is going to make it really impossible to come up with a really good gauge of how things actually performed.
And by that, I mean, what you'd have to really do to do an honest
backtest is you'd have to, like, try and simulate what would a group of squill governors have voted
on to go into a basket of, let's say, five to ten stablecoin governance tokens back in 2020.
And you'd probably have things in there like, gosh, I don't know, like Compound.
You might have almost certainly Luna would have ended up in there just given the very low market cap for.
It's not a huge lift to buy a little Squill because Squill is comically cheap.
So it'd be like really easy to get some Squill influence governance and get a token in there.
So you would imagine like a Terra finding its way into it would have just massively tanked things, maybe to the point where
it would never have outperformed ETH. So there's, you know, like, I'm bullish on open, and I think
that people should go out and buy a bunch of open and look at it every day and be really happy they
own it. But I don't say that for financial advice reasons. I say that just because I think it's a useful way to get exposure to this basket. And because when you own
a basket of something, you probably are going to research more into it. If you're thinking that
this report means that it's going to outperform ETH, it's very, very tough for anyone to predict
that. And don't like, don't necessarily
look at this as like a sound financial choice. Yeah, definitely not financial advice. The past
will not predict the future. But it is worth acknowledging kind of something Nick mentioned
there, you know, if you did have Luna in the open stable coin index, you would have, you know,
depending on the timeframe, it's, it's kind of comes back to complement the methodology.
An equal weighted index, you know, only 10% of the basket and rebalancing every quarter.
So that rebalancing every quarter means you get to lock in maybe some gains.
You might be locking in some losses, but you are kind of capping the downside.
It really does start to
sing the power of an index. Pretty fascinating. Joe, anything to add before we sort of move on here?
Yeah, well, I wanted to throw one interesting thought in there, which is we have these large drawdowns because everything is correlated in crypto.
And we might expect that if lots of open holders are flipping bearish,
that they might choose to actually exit the fund and that the total size of the fund would drop.
And one thing I have been thinking about is whether Squill governors might end up
taking a more active management approach
when they feel like the overall market is sounding bearish
and maybe switching some of the protocol tokens
to like a basket of yield bearing stablecoins, for example,
in a kind of bear mode to survive that until the market feels like it's going to get bullish
again and want some risk exposure.
I think that's a fascinating idea.
It's also crossed my mind wondering if, you know, the squill governors towards the top of the market
look at the basket and think, should 30% or 50% of the basket be yield bearing stable coins?
How do we make it through the next crypto winter? Not sure how that's going to play out. But go
ahead, Nick, it looks like you have your hand up. Thank you. I think in a portfolio view, it definitely makes a lot of sense to take some gains. I think all of us have the meme of saying, well, now the market is up, I'll take some gains this market, but we'll all see each other in, depending on the markets, either six months or three years at the bottom again
wishing we did it but i think for something like open in my mind it would make actually less sense
because it's more i think on the investor like if i if i have something like open uh i would say okay i am bullish on stable coins and i'm bullish on the market
continuing to go up because if it wasn't that i would uh just basically put all my money into
and just yield farm it so i think um it also is something maybe that should be left over to individual users. It would definitely, what Joe said about people,
very likely to wanting to redeem and exit the fund.
But at the same time, the one thing that, for example,
you could see in the back desk as well is if we technically started it in,
I think the bottom was roughly June 22.
If I'm a user, I'm like, I actually think this is the bottom was like roughly like June 22, you know, if I'm a user, I'm like, okay, I actually think this is the bottom.
I would want to buy something
that is like extremely volatile
because I'm like, okay, this is the bottom.
It's going to go up.
I sell my stable coins or like my cash to buy open
with the explicit intent of it going up very quickly because the one thing that
we should also realize is if we make this more of an all-weather fund or index where we also have
yield-bearing stable coins coming in and out depending on market conditions we also lose
performance on the way up right we limit downside losses but we also lose performance on the way up. We limit downside losses, but we also lose money
if the markets continue being bullish for the next year, let's say.
Yeah, it suddenly switches from a very passive index
to some version of maybe a smart beta index.
I mean, hopefully it's smart.
It could miss the timing on the market. So it is a
really interesting way to think about it. And I would also say, admittedly, similar to CurveCap,
I am a terrible trader. All of my prosperity has been thankfully from just hodling a few things.
has been thankfully from just hodling a few things.
But yeah, trading is definitely not my competency.
And I guess we'll see which squill governors
have an appetite for trading versus pure passive holding
and believing in the index over the long term.
So, okay, well, we're gonna be doing some questions. We're going to go an extra 15
minutes after the hour. We're going to have some time for some questions. But I think what would
be really good to talk about now is the open stablecoin index methodology. What should change?
Should it change from its quarterly rebalance with a 1% lower bound and a 40% upper bound on any constituent?
Should it change to something else?
Should it stay the same?
Why don't we, right before we lose CurveCap here, let's start off with CurveCap, get his ideas, and then we'll go to Joe and then Nick.
And then we'll get in some questions.
Yeah, I don't have any good ideas, unfortunately.
So I think you came to the wrong person.
I think that I'm interested to see what the governors think and how we get a few.
We've had one rebalance so far.
It was very instructive. You know, we saw a really strong basket of participants
basically like lobbying and giving their case
for why they should be included in the index.
I hope that we can see a few more to see how it plays out.
And like you said, it'd be really nice to see it like move towards like a
see what the community can do in terms of like more active rebalancing,
more active like trading strategies, hypothetically.
I could actually see like many different types of open baskets get created,
as well as like open get included as we've talked, you know,
some about like could open be included in Llamaland or other lending markets.
So you could actually like start to build some financial primitives based on stable coin networks, as well as maybe even like some, you alluded this earlier, but
like, I think it'd be interesting to see like baskets of actual stable coins or yield bearing
stable coins. So I think that there's a lot that can be done. And I'm interested to see where
things go. Like, you know, why shouldn't Open Stablecoin Index launch its own Open Stablecoin?
And then Squill might become one of the tokens in the basket.
So I think I'm just mostly interested to see how this project evolves as people and, you know, really big brains start to contribute and use this as a framework to build things.
Super fascinating, the idea of the Open Stablecoin Index launching its own stablecoin.
I'm going to do a quick plug, and then we're going to go to Nick and Joe. For those that don't know,
we have the Secret Admirers Telegram group for the Open Stablecoin Index. It's linked at the
bottom of OpenStablecoinIndex.com. I just dropped in there the 2021 deck for Circle. They were looking to go public back in the day. This was
before really all the excitement of yield that's made Tether and Circle subsequently so profitable.
So it's really a nice little pine machine to go back and look at what flywheels they were building
back then. It was only four years ago, but it was really before this peak cycle of making so much
money off of interest rates. So I encourage everyone to check that out on the Secret
Admirers Telegram group. Let's go to Joe and then Nick on this most recent question of how should
the open methodology change from its current quarterly rebalance with 1% and 40% bands?
Well, one of the interesting things in the methodology I wanted to pick up on,
not necessarily the rebalance cycle, but was actually on one of the lacuna on the
modeling, which is that it doesn't model the execution friction. So gas cost and also price
impact. And I think this is something that's going to be really important to consider as the
TVL of Open grows. I think right now TVL, the market cap of open is just under a million dollars.
But for example, there was a proposal to the ETH Foundation to, you know, buy into open, like dump, yeah, thousands of ETH into open, which would be nice, right?
of the index, some of the coins have a relatively low market cap, looking at, for example, FXN,
and also relatively low liquidity. So the current configuration of the fund may not be able to
actually handle that large an influx of capital when it comes to rebalancing,
the rebalance costs could be quite significant if there's a high exposure to lower liquidity, smaller market cap coins.
And so one of the things I would consider to make it more sustainable
as PBL grows is to maybe move from equal weighting to market cap weighting, or if you wanted
to keep the equal weighting, to have stricter inclusion criteria on minimum liquidity to
reduce those rebalance costs.
And I think that is going to go hand in hand with the question of how often
do you rebalance? Because the more frequently that you rebalance, the more frequently you're
going to incur those costs. So that's just one thing I would really think about is how does
open scale? How does that impact the rebalances? And what kind of modeling can we do to better inform those decisions?
That's really well said, Joe. Thank you for that. Nick?
I think what Joe said is definitely correct.
Our practice was very simplified.
I think we did mention we assume uh assume perfect liquidity no fees no nothing
and definitely in certain especially i think in like in certain markets uh environments
this definitely plays a huge factor um especially if uh open stablecoin index becomes quite large i
think even if it eclipses 10 million,
it would actually start having an effect on certain of these tokens,
especially if all of the liquidity
goes through decentralized exchanges.
So it's not only about the rebalancing window,
but also maybe how you do the rebalancing.
Like, do you do only a single order through you know cow swap like we do or is it maybe better to just do like a t-wap
order something like that we did actually also model like different um rebalancing frequencies
and upper and lower bands uh just to see what yielded the best returns.
I think what we saw actually was that semi-annual rebalancing yielded better returns than Quotami.
However, the volatility also increased quite a bit. So again, what do you actually prefer in terms of,
what do you actually prefer in terms of,
like, do you prefer going,
taking the extra volatility and drawdown risk for more gains,
or is it better to have something
that's maybe a little bit more stable?
Incredible. Thank you for sharing that.
It's just reminding me, you know, we've, by the way,
for the folks who don't know,
all the swell that's been distributed in the community has been done so me, you know, we're just barely touching
on some of these issues that really lend themselves to a deeper analysis. So, you know,
for the folks that are curious about those airdrops, you can search the Open Stablecoin
Index feed on Twitter, Twitter X, whatever you want to call it, and drop into the secret admirers
community. We've previously airdropped Squill tokens on people that are holding open, people
that have already vote locked their Squill, and certainly for folks that are making big
contributions like the folks here on this call. You know,
some of that will be forthcoming. So I want to encourage everyone to do that.
If you have questions, we're going to wrap up here in about 10 minutes, five minutes.
If you have questions, go ahead and just raise your hand so I can bring you on stage.
Let's see. I want to just see if this is going to be a fun question. Methodology, we've been talking a lot about the methodology, but let's kind of talk about everything except the methodology.
You know, what other changes would you like to see in the open stablecoin index, whether it's the index itself or the community?
You know, are there some glaring omissions in the basket?
And keep in mind, this is going to be a
basket of 10 assets. So if someone new comes into the basket, that means someone else is leaving the
basket. So maybe we'll talk about glaring omissions in the basket, functionality changes for the index
or governance improvements. Why don't we go to you first, Joe, and get your thoughts on this.
I have some spicing things on the governance.
One would be, do we think that we might see bribes
for VLsquill holders in the sense that if the TVL
of the fund grew to be very significant,
then some protocols might see a good upside in buying the votes of the governors
to vote for that protocol to be included,
because a lot of buying power will come behind that.
So, yeah, deals will bribes when is one point and that actually led me to another thought
which is about the security of the governance which is um is there a potential risk-free raid
on the open stable coin index and how do we avoid that by properly pricing Squill
and making sure that there's correct checks on governance.
What I mean by that,
if no one's familiar with this concept is currently,
I mean, the market cap of Squill is about 450K
and the TVL of Open is 930k.
And I don't think all of the squill is locked.
So like the risk-free raid scenario would be where someone realizes
that they can buy up a lot of squill,
lock it, and force a vote through
to like divert all the treasury funds
into some meme coin that they just launched,
you know, and then like pull the rug on it and make out the treasury funds into some meme coin that they just launched, you know,
and then, and then like pull the rug on it and make out with the funds.
I don't want to give anyone ideas, but it really is something that an index fund like this with a decentralized governance needs to think about how you combat, as well as
just the bribes and whether that corrupts governance.
That's a fascinating scenario.
I think I have a response to it, but I don't want to eat up airtime here.
I hope actually we can maybe explore that in some community bounties to do some analysis
But yeah, super fascinating.
Sure, Joe.
How about you, Nick?
Anything to add on what other changes you'd like to see to the Open Stablecoin Index?
I think, yeah, bribing mechanisms is definitely something I would like to see maybe explored or looked at.
two ways about it because on one side is my chat by purist brain of being like no you know let's
go with with wisdom of the markets we're just going to pick the best ones that everybody thinks
of and that's you know the actual index and then my uh convex curve poison brain which chases the
bribes everywhere they go is like well you know if i'm getting paid
to include this one i'm not gonna say no if the price is right um maybe also another one uh that
uh would also be considered is knowing or like i would like see, I know it's very early days, but one thing that's for,
I would say, more mature protocols when it comes to things like governance and inclusion is also
seeing a bit, I know it's not easy to do, but a better or more structured approach when it comes
to discussing or reviewing certain things. Especially when I look, for
example, at the latest yield-based proposal to pre-mins, I think it was 60 million CRV USD.
That's, I think, one of the better examples of seeing a DAO in action, where people really
start to discuss and push back and not just be like,
oh, well, it's the latest project launched by Curve.
So of course, I'm going to vote yes.
So seeing also something a bit more of a structured fight when it comes to governance of inclusion
of certain protocols would also be something I'd like to see because I think when it comes to indexing
or the whole point of using indexes
is that you don't think that,
or people acknowledge that they're not smarter
than the collective of the markets,
but that only works if the markets are actually
talking to one another, disagreeing,
and only in that way does it really work because if everyone else you know is bright or is i don't know i say
curve fans or sky fans and we're like let's drop the equal weighting let's push sky to be 40 percent
of the entire index just so we can pump our bags, then everything breaks from a point of
view of the benefits of an index, right? I think you make a really good point. It's something we've
talked about a little bit that, you know, how can we make the methodology for open be, I'm going to
use this word, but I don't mean what this word meant to other projects, but sort of algorithmic,
more programmatic. We want to be sure that the index is not sort of attuned to opinion,
but to a more rigid criteria than it currently has. What everyone sees out there now is kind
of the version one methodology for the open stablecoin index.
But, you know, for example, liquidity of assets.
You know, if you were to go look on CoinGecko for some of the assets, you would see liquidity that's below or market cap that's below the requirements in the methodology. Now, a challenge with that is, is if you actually dig into what the true market cap is
of some of the assets, what their actual supply
and how it's being accounted for,
they're not all being accounted in the same methodology.
If you were to go look at FXN versus CRV.
And so there's some sort of behind the scenes getting the math correct
so that we're actually working with an equal playing field on evaluating these assets. Some
of that kind of still needs to be built. The market is fairly immature still. So it's just
really interesting. I'm hoping that we, you know, as a community will get together and really strengthen the methodology.
I don't think it's, you know, it's not in its final form by any means. There's a lot of work to do on it.
And so I'm super grateful for the work that, you know, 512M has been doing in the community.
You know, Joe and Pangaea has been doing in the community. CurveCap as well.
know, Joe and Pangea has been doing in the community, CurveCap as well, you know, a lot
of contributors that are helping to bring this together. It's very exciting to see. Okay, I see
we have a couple of hands raised, at least one. If anyone would like to get on stage, ask the
question, raise your hand. Let's go to Nick at 512M, and then I think we'll kind of start to
wrap up right after that. Oh, I'm sorry. I then I think we'll kind of start to wrap up right after that.
Oh, I'm sorry. I think I saw my hand raised from before.
So no questions on my side, actually, at the moment.
Okay, no question. Well, let's see. Any last words from you, Joe, before we sort of wind down here?
from you, Joe, before we sort of wind down here?
Yeah, just in answer to the last point there,
I think the real answer is to properly
create the right incentives for VL Squill.
As with the other like decentralized protocols,
you mentioned Curve and the fact that there was good
back and forth governance debate
over the outcome of the yield basis proposal.
It all comes down to incentives, you know,
and ultimately we want these things to be run sort of not by people's charity,
but by people's incentives, right?
And setting up the right incentive structures.
So if we think about, do we want to introduce a bribe system, will that
undermine the actual performance of the index? I would have some faith in the voters that
ultimately they're going to earn fees from a larger TDL in the, and that's going to come from a better performance.
And so, okay, maybe they might accept the bribe here and there, but also they're not
going to do something that's going to undermine the source of revenue to Squill.
So I think that's the key in all of these things is setting up the right structures
and the right incentives and letting the chaos of the market play within that space you've created.
Thank you for that, Joe.
I agree with you, and much work remains to be done.
So we'll close up here.
For those that are interested, if you want to get involved
and help shape Open's basket or risk or growth, join the
Telegram group linked at the bottom of OpenStableCoinIndex.com.
It's called the Open Secret Admirers.
As I mentioned, there's already been some Squill governance token airdrops.
Season three is coming.
We're definitely interested in dropping to people who want to govern,
who want to contribute and build this.
You know, we're roughly at a million dollar TVL today.
The market is obviously much bigger.
I think I just saw this week there's a TradFi stablecoin ETF coming.
I don't think it will be, you know, certainly they'll probably have some impressive distribution,
but they might not have the kinds of assets that we have in the Open Stablecoin Index.
So it could be really a fun thing to contribute to and be a part of the community.
Make sure if you're here, follow Nick at 5112M and Joe at Pangaea.
They're all tagged in the tweet of the spaces.
And be sure to follow CurveCap and Leviathan News.
And I want to thank everybody for coming today. We're going to do another spaces next week,
actually, about the same time slot next week. We're going to tackle a different topic,
which is do decentralized stablecoins strengthen Ethereum, you know, in a way that's different
than maybe the central issuer stablecoins. So stay tuned for that topic.
And thank you, everybody.
Have a great day.
Bye-bye.
Thank you, everyone.
Thanks, Paul.
Goodbye. Thank you.
