Compiled edited by TechFlow
Guests: Guy Young, Founder of Ethena; Arthur Hayes, CIO of Maelstorm; Omer Goldberg, Founder of Chaos Labs
Host: Robbie; Andy
Podcast source: The Rollup
Original title: How To Position For The Institutional Crypto Frenzy with Arthur Hayes, Guy Young, and Omer Goldberg
Air Date: April 4, 2025
Summary of key points
In today’s show, we invited Guy Young, founder of Ethena, Arthur Hayes, Chief Investment Officer (CIO) of Maelstorm, and Omer Goldberg, founder of Chaos Labs, to discuss the current competitive landscape of the crypto industry. We focused on the macroeconomic environment affected by tariffs and explored how Ethena’s Converge announcement puts it at the intersection of decentralized finance (DeFi) and institutional finance.
Guy shared Ethena’s journey from USD+ stablecoin to building a dedicated blockchain. He pointed out: “If your product doesn’t consider how to leverage institutional capital flows, it will be difficult to gain a foothold in the market.” He also revealed that they plan to inject $500 million in seed funding for the upcoming iUSDE product.
Arthur Hayes bluntly commented on the competitive situation between Circle and Tether. He believes that Circle has limited distribution capabilities, mainly relying on Coinbase, and lacks competitiveness in net interest yield, while Tether has a clear advantage. He also shared the differences in trading methods between the East and the West, and how these differences affect the development of institutional finance.
In addition, we discussed changes in the macroeconomic environment, including Trumps tariff policy and the Federal Reserves monetary policy. Arthur explained why he reallocated his assets to Bitcoin and believed that market liquidity was gradually recovering.
Summary of highlights
Expectations of loosening of global monetary policy make me more optimistic about the market outlook.
Stablecoins are not for Americans, they are for people who want a dollar bank account but can’t get one.
One of the biggest opportunities in the current cycle is how to bring institutional money onto the chain.
The advantage of cryptocurrencies and Bitcoin is that their price movements can be explained by a very simple logic - we only need to pay attention to whether the supply of fiat currencies around the world is increasing, such as the US dollar, euro and pound.
There will be more fiscal and monetary stimulus measures from countries around the world to counter the tariffs imposed by Trump on different countries.
If market conditions require it, the Fed will not hesitate to step in and adjust policy. If a similar crisis occurs in the future, such as tariff issues causing market volatility, certain stocks plummeting 40%, or certain large traders on the verge of bankruptcy, the Fed may take immediate action without waiting for a formal meeting.
The central bank of every country will print money because they feel the need to offset the negative impact of these tariffs, whether its because of inflation or some companies in the United States are not doing well or companies in Europe cant sell as many goods, these are just excuses for central banks and finance ministries to print money.
The main use cases in the crypto space can now be summarized into two: one is speculation, such as the trading of Meme coins; the other is US dollar settlement and asset tokenization.
We need to find a balance between openness and pragmatism, allowing the system to maintain a certain degree of transparency and flexibility while providing necessary protection measures in extreme situations.
Some recent signals from the Fed suggest that they may start easing monetary policy later this year, especially in the Treasury market. Meanwhile, Europe may support military spending by printing euros, China is waiting for the US to act, and may then adopt more massive monetary easing, and the Bank of Japan has been in trouble, and I expect them to re-enter the Japanese government bond market if there is a crisis.
Guy and Omers personal background
Andy:
Hello everyone and welcome back to Rollup. Its Liberation Day in America and Im not sure your portfolios are feeling liberated, at the end of the day, we have a very volatile president.
Before we get started, could you please briefly introduce yourself? Lets start with Guy and talk about the recent progress of Ethena and Converge.
Guy Young:
Before joining Ethena, my career background was mainly in traditional finance. I worked at a hedge fund, focusing on analyzing financial companies, including banks, payment service companies, and lenders. In 2020, I started to get involved in cryptocurrencies, initially just speculating in the market as an ordinary investor. But soon, I decided to devote myself to this industry and started building my own project. The idea was inspired by an article published by Arthur in early 2023, titled Dustin Crust. In the article, he mentioned that there are huge opportunities in this field and elaborated in detail why the market needs such an asset. That article inspired me deeply, as if I had found my mission. So I quit my original job, built a team, and launched our first product about 13 months ago. In the past year, our asset size has grown from zero to more than $6 billion, becoming the fastest growing dollar asset in the cryptocurrency field. This is the story of Ethena.
Andy:
Omer, could you briefly introduce Chaos Labs’ core business?
Omer Goldberg:
I founded Chaos Labs about four years ago. We are a platform focused on decentralized risk management. Our core technology is an engine that combines AI and simulation capabilities, and currently supports multiple well-known applications, including Aave, GMX, Jupiter, Ether, Pyth, Renzo, etc. We provide real-time data services such as funding rates, interest rates, liquidation thresholds, and liquidation balances. If you have used these applications, you may have indirectly come into contact with our products. In addition, I am also honored to work with Ethena to develop some new products, such as the Reserve Proof Oracle, a new tool for verifying asset reserves.
The impact of tariffs on the cryptocurrency market
Robbie:
Arthur, maybe you could give us some background from a macroeconomic perspective. Youve mentioned a lot in your recent articles about the Fed, the White House, and managements views on Powell and the Feds fiscal dominance. You also mentioned that the impact of tariffs on the cryptocurrency market is not significant compared to the stock market. So, combined with todays market dynamics, has your view changed? Or, how do you view the current macroeconomic background?
Arthur Hayes:
My view has not changed much. Looking at the market data now, the price of Bitcoin is at $89,000, and it has now fallen to around $82,000, which is obviously a direct reaction of the market to the tariff policy. I have communicated with some friends who are trading. There is no clear number for people to expect these tariffs, but the measures introduced by the Trump administration seem to be worse than the worst case scenario people imagined. This has been reflected in the market price.
However, I think the advantage of cryptocurrencies and Bitcoin is that their price action can be explained by a very simple logic - we only need to look at whether the supply of fiat currencies is increasing globally, such as the US dollar, euro and pound. If this is the case, then the price will rise, so I think it is only short-term pain at the moment. We may retest the $76,500 level of Bitcoin and see what happens at that level. Even if the price breaks down, I will still continue to buy. Therefore, I think now is a good buying opportunity.
The central bank of each country is printing money because they think they need to offset the negative impact of these tariffs, whether its because of inflation or some companies in the United States are not doing well or companies in Europe cant sell as much goods, these are just excuses for central banks and treasuries to print money. They are already telling us in not so explicit ways, Bloomberg and other related publications are also saying that these tariffs are very negative. Therefore, we need to provide some form of stimulus to the economy. So I expect that there will be more fiscal and monetary stimulus from countries around the world to counter the tariffs that Trump has imposed on different countries.
Andy:
I personally feel that the US has largely grudgingly accepted tariffs over the past few decades as a form of soft power and an extension of the dollar’s status as a global reserve currency.
Guy, from a stablecoin perspective, especially in a low interest rate environment, how do you see the market in the next six to nine months? Goldman Sachs predicts that there may be three interest rate cuts in the future. What impact do you think this will have on the stablecoin market, Ethenas business model, and the entire crypto market?
Guy Young:
I think this has an interesting two-way impact. Generally speaking, when interest rates go down, speculation in the crypto market increases and the demand for crypto bubbles increases. In the last cycle, when interest rates went to zero, we added about $100 billion in stablecoin supply. In fact, there is a countervailing factor here, and both sides have an impact. The difference between Ethena and Circle is that the interest rates of Ethena products are generally negatively correlated with the actual interest rates in the real world, which is probably the most powerful feature of Ethena. Because when interest rates go down, people will speculate more in cryptocurrencies and seek more leverage in the crypto market.
Ethena did face some challenges by entering the market at a time when interest rates were the highest. But when interest rates fell in the fourth quarter of last year, we found that market funding rates rose by an average of about 14%. This is when Ethenas products became competitive. In contrast, Circles revenue will be greatly reduced with each drop in interest rates. For example, for every 100 basis points (or 1%) drop in interest rates, Circles revenue may decrease by about $400 million. Ethenas interest rate will rise as demand for stablecoins increases, while benefiting from the overall decline in interest rates. Therefore, if there are really three interest rate cuts in the future, I would be very optimistic about it.
Circle’s Distribution Dilemma
Arthur Hayes:
You wouldnt consider investing in Circles IPO, would you?
Andy:
Ive been thinking about this question as well. Faced with these seemingly contradictory data, should we be optimistic or cautious?
Guy Young:
Im honestly really shocked by these numbers. Theres a great chart that puts Tether and Circles supply and profitability side by side. Tethers profit this year is about $14 billion, and Circles profit is just over a million. So even though their supply is about the same, the profitability is an order of magnitude different.
Arthur Hayes:
Indeed. I think Circle is facing a serious distribution dilemma. Circles products are very Americanized, and American users dont really need a dollar stablecoin because they already have payment tools like Venmo and Cash App, and the dollar is readily available to them. In contrast, it is users in other parts of the world, such as China and emerging Asian markets, who really need a dollar bank account. These are Tethers strong areas, while Tethers performance in the United States is relatively weak. Circle, as an American company, works with Coinbase to distribute its products. In order to attract users, Coinbase has to offer returns to compete with Tether, while Tether itself relies on a stronger distribution network and does not need to attract users through returns.
Therefore, Circles strategy is to distribute a portion of its earnings to Coinbase, which in turn passes those earnings on to users who hold Circles stablecoins. This model results in Circles strong dependence on the distribution network. I think it is very likely that Coinbase will acquire Circle in the future, but only when Circles valuation is low enough. Therefore, I think there are big problems with Circles IPO. The lack of independent distribution capabilities has left Circle dependent on Coinbase, and they cannot compete with Tether in terms of net interest margins. For US users who already have US dollars, Circles stablecoin is not a particularly attractive option. Therefore, if we are talking about stablecoins backed by US dollars, Tether is clearly a superior product and will continue to be ahead of Circle in the future.
Andy:
Omer, do you have anything to add?
Omer Goldberg:
Overall, I think the stablecoin market is changing not just in terms of supply, but also in their actual use and the various applications we work with. The market landscape is evolving rapidly. One thing that surprises me is that Ethena and Guys projects are only 13 months old, but they already feel like they have been around for a long time. We can see that many stablecoins that were once considered holy grails are changing their market share in terms of distribution, liquidity, and actual use much faster than expected.
Therefore, continuous innovation is particularly important. Companies need to constantly look for new application scenarios and explore how to deliver these use cases to users more efficiently. As for Circles S 1 filing (listing application filing), I think it also shows their intention to try to promote innovation. Although there are many challenges, this is also an opportunity for them to explore new directions.
The subsequent impact of tariff policies
Robbie:
I wanted to quickly follow up on the business model and the potential impact of tariff policy in the context of the macroeconomics. Its well known that these tariffs could lead to significant inflation. If interest rate cuts are not taken, the situation may get worse. Of course, interest rate cuts may be one way to deal with this. But there is also a view that more economic pain may be needed and long-term Treasury rates may rise. So, Arthur, from your perspective, how likely is this to happen? If it does happen, Guy, how would you deal with a significant increase in Treasury rates on Ethena?
Arthur Hayes:
Fed Chairman Paul Lori has made it clear that the Fed believes that the impact of tariffs on inflation is only temporary. Therefore, even if inflation reaches 4%, 5% or even higher, they believe that this is only a short-term phenomenon and is not enough to change their inclination towards loose monetary policy. This means that the Fed may not adjust its policy stance due to inflation caused by tariffs. However, if Treasury prices fall and yields rise, then the Fed may have to take action. For example, they may cancel the supplementary leverage ratio requirements for banks and initiate quantitative easing operations on Treasury bonds, because the US government cannot afford a 4.5% or 5% yield on 10-year Treasury bonds, especially when total debt has reached $36 trillion and continues to grow.
Guy Young:
From our perspective, even if interest rates were 75 basis points higher than they are now, our growth last year would still be very strong. So I believe that even if interest rates were to rise slightly, we could still grow, but probably at a slower pace. If interest rates were to fall, our growth potential would be even greater.
Over the past six months, we have launched a new product called USTTB, which provides us with greater flexibility. This product is actually a simple wrapper designed around Blackrocks Biddle fund. Today, Ethena is the largest Biddle holder in the crypto space, and about 70% of beta products are included in our regular stablecoins. The advantage of this product is that it provides flexibility based on changes in market cycles, allowing us to decide the proportion of these products to be filled with US dollars. In the current low interest rate environment, the cost of financing has dropped to the lowest level in the past 18 months. We can choose some stablecoins backed by Biddle, which have both normal returns and meet market demand. Therefore, as long as interest rates in the crypto market rise, the US dollar is better able to capture this growth opportunity.
Andy:
If interest rates go down, we will get more speculative opportunities. Ethena seems to have a very advantageous position in the entire stablecoin market. Is this reasonable?
Guy Young:
This project does have a certain reflective quality, as it has experienced the wild swings of the market, especially in its growth curve. If you look at the growth curve of USD, you will find that it shows an erratic trend: a rapid increase of $3 billion, then a flattening out within a few months, and then another $1 billion increase as interest rates rebound. This growth curve is not continuous and stable, but full of wild swings and relatively gentle adjustments. But I think this is almost by design, and it is one of the most reflective assets in the crypto market.
Even in the growth in Q4 last year, we didnt really have integrations in a lot of places. We only had centralized exchange listings on ByBit at the time, and weve added four centralized exchanges since then. We launched the RB product in partnership with OMA, listing USD, and there was a really interesting leveraged revolving strategy there that people were doing at scale. But unfortunately, OMA boxed us in and limited the process of keeping us safe. So I think that market could have been 3 billion to 5 billion, and we worked with OMA in a safe and responsible way to get it to 1.5 billion. But the reason I give that context is that when the market comes back now, we should have positioned ourselves well in multiple areas where I think we can grow further.
Omer Goldberg:
I think we are in a better position now. In the past, industry players like AAve still had to manually update all protocols. However, today we have introduced risk oracles that can respond to market changes in real time, with much greater frequency and efficiency than before. This allows us to seize opportunities quickly when they arise, while slowing down when needed and managing risk more safely. I think this was the main limiting factor in the last market cycle, when we had to prepare for the worst case scenario because any change to the protocol would take at least a week.
Since launching Edge in partnership with AAVE, I believe we will soon be able to implement a more flexible PT market on the core Ethena market, and similar progress will be made in the derivatives market. This will further enhance our competitiveness and market adaptability.
Strategies for dealing with market fluctuations
Robbie:
Omar, when the market fluctuates drastically, what kind of chain reaction will the risk oracle mechanism you mentioned have? You also mentioned the application of AI in it. In such a volatile situation, what is the specific response of the system?
Omer Goldberg:
This question can be analyzed from several aspects. First, I would like to describe the role of AI in risk management. When we first started our business, risk models mainly relied on quantitative signals, such as market volume, price volatility, liquidity, and depth. However, what really drives market price fluctuations is often news events. When breaking news appears, we are now able to respond faster than before.
Taking stablecoins as an example, a typical case is the USDC peg problem. We mentioned the Circle situation before, which happened during the collapse of Silicon Valley Bank (SVB). At that time, the panic in the market caused a large number of users to sell USDC and buy USDT instead. The market was full of uncertainty about the stability of the USDC peg and whether Circle would be able to compensate users. Although the probability of such black swan events (extremely rare but huge events) is low, as risk managers, we must always consider this situation because our primary responsibility is to protect the safety of users funds while ensuring the normal operation of the protocol.
Two years ago, we realized that parameter-by-parameter governance was not the way forward. That’s why we built the Edge Oracle Protocol. It really comes into its own in times like these.
As Arthur mentioned earlier, Trumps tariff policy announced today, lower interest rates, and increased speculative activities may trigger sharp fluctuations in small and medium-sized market capitalization tokens. Without secure real-time infrastructure support, many applications can only adopt conservative strategies or even suspend part of their operations. The Edge oracle not only provides security for platforms such as Abe, GMX, and Jupiter, but also helps them to capture market opportunities more flexibly, including traffic, transaction volume, and fee income. In the past, these opportunities were often not realized due to security issues, but now the situation is very different.
Ethena’s cooperation model with institutions
Andy:
Guy, I think this has a big impact on your risk strategy, especially in designing a product that is both resilient and sustainable. You recently announced the Converge project, which has attracted a lot of attention, especially with Trumps world free finance and the big institutions in New York and Washington.
Before we dive into Converge, can you talk about Ethena’s interactions with institutions and regulators in Washington and New York? What progress has been made so far in the collaboration between “World Free Finance”, stablecoins, oracles, and DeFi projects and these institutions and regulators?
Guy Young:
We have relatively little contact with US regulators, and we focus more on creditors and professional institutions. My view on the current macro environment is that there is almost no new capital inflow in this round of market cycle, except for a slight increase in the supply of Bitcoin ETFs and Tether. If you look at the total locked value (TVL) of DeFi, you will find that funds are just transferred from one chain to another, such as from Ethereum to Solana, and then from Solana to parachains. Overall, on-chain products have not attracted real new capital inflows.
We believe that Ethenas products are very attractive to institutions in the traditional finance (TradFi) sector. For example, if you can provide a product with minimal volatility and an annualized return of 18%, the potential demand is far more than $5 billion, but can reach hundreds of billions. I think we have seen similar products in the last round of market cycles, and although the results were not ideal, we learned a point from them: as long as the product can provide a more structural return, it can attract a wide range of investors, whether it is retail investors in Southeast Asia or Blackrock in New York.
Currently, many institutions are thinking about the next step after ETF. Many companies have formed teams of 30 to 50 people to study how to combine on-chain financial products with traditional finance. We are also working with these institutions to launch stablecoins and other on-chain solutions that meet their needs.
Guy Young:
However, I think the bigger opportunity lies in how to export unique products in the crypto space to traditional financial markets, rather than simply adopting traditional financial products. To this end, we have launched a product called IUSD. I mentioned it in the roadmap a few months ago. IUSD is actually a tokenized US dollar security that comes with basic identity verification (KYC) and permission management requirements. With this design, we transform it into a format that can be widely accepted by traditional financial institutions. In the next 10 days, we will announce the first distribution partner, who plans to invest $500 million, which is obviously a very important investment.
Guy Young:
This shows us the huge potential that this product can achieve under the right conditions. As long as the infrastructure is built properly, the scale can be further expanded. This is also our current focus. If your product does not fully consider how to benefit from the inflow of institutional capital, then you may lag behind in the market. If you only focus on reallocating existing funds within DeFi, you will miss a bigger opportunity. We believe that we are currently in a very advantageous position to provide institutions with very attractive products.
I think that gives you a sense of how big this can get under the right conditions, if you build this infrastructure in the right way. Thats the theme were focusing on. I think if youre sitting here right now and your product isnt thinking about how to benefit from the institutional capital flows that are coming into the space, I think youre probably a little behind the times. If youre just focused on re-shuffling those same funds within DeFi. We think were in a reasonable position to have a very interesting product for them.
Andy:
Arthur, are you worried that the entry of these institutions will grab your market share? As a participant who has performed well in the crypto market in the past few years, do you think the arrival of these institutions will make the market more efficient and mature, or will it increase the complexity of basic transactions and thus weaken your competitive advantage?
Arthur Hayes:
I think, at the end of the day, the first priority of any institution is to protect its own interests. For example, ByBit once had a major loss of $1.5 billion. Fortunately, the founder Ben took the loss personally. But if you are a hedge fund manager in the United States or Western Europe, you will feel very uneasy if you are exposed to the risk of an Asian exchange when doing basic trading. Because the worst case scenario is that you convince your boss to allow you to participate in crypto trading, and the exchange suddenly collapses, resulting in huge losses.
As a result, these institutions typically only choose a few trusted trading venues, such as CME or Coinbase. While this may compress basic trading opportunities on these platforms, there is still a huge arbitrage space around the world, especially between exchanges that are not strictly regulated in Western Europe and the United States. This gap provides more opportunities for ordinary investors and institutions. I think this will make crypto trading more interesting because there is more liquidity to support complex bilateral transactions.
Guy Young:
I would like to add to Arthurs point. I think different types of institutions have different risk preferences when entering the market. The gap between CME and Binance mentioned by Arthur is very typical. If you look at the gap between the base spread of CME and the base spread of Binance, it is about 700 basis points. This shows that many institutions are not willing to take credit risks. However, for some smaller hedge funds, they are more willing to take these risks in exchange for higher returns.
As for the question you raised about whether more capital will reduce market inefficiencies and lower interest rates, I think this is an inevitable process of market maturity. In the face of inefficiencies in the market, the right thing to do is not to ignore it, but to think about how to profit from it. This is exactly what Ethena is aiming for. We believe that the current leverage cost in the crypto market is too high, and the annualized rate of return on cash and arbitrage should not be as high as 18%, but should be reduced to less than 10%. In the future, a large amount of capital will flow into the market to try to solve these inefficiencies, and we hope to be the core force driving this transformation.
Omer Goldberg:
I would like to add another perspective. As Arthur and Guy said, the autonomy and risk-taking ability of individual traders in the crypto market remains an important advantage. However, a significant change in this round of market cycle is that with the recent advances in AI technology and the introduction of new trading tools, ordinary traders can now obtain previously unavailable information in real time. Although this information symmetry does not apply to every transaction, it does exist in many cases. If you can use this information effectively, then it comes back to the question of risk management: are you willing to take action? Therefore, I believe that even as the market matures, there will still be a lot of opportunities waiting to be tapped.
Differences between Eastern and Western trading methods
Robbie:
Arthur, I heard that you were recently pardoned by Trump. However, you mentioned that you tend to adopt an Eastern Hemisphere mindset when trading the markets. What are the significant differences between Eastern and Western traders in risk management?
Arthur Hayes:
The difference between the trading methods of the East and the West is mainly reflected in the degree of institutionalization. The United States is the core region of global capital formation, and Western Europe also participates to a certain extent. If you look back at the history of modern finance, you will find that many of the most successful hedge funds were born in the United States, such as Ren Tech, Millennium and Point 72. The operating model of these funds has become an object of global imitation.
In the Western financial system, institutional investors, such as pension funds and endowment funds, usually pursue low volatility and stable returns, such as 7% to 12% per year. Hedge funds like Millennium, which manage tens of billions of funds, only need to provide stable returns to be considered successful. This investment philosophy limits the range of choices for institutions, making them more inclined to participate in markets with deep liquidity and low risk, such as the financial market in New York. In contrast, the high volatility of the cryptocurrency market has deterred many Western institutions because they cannot explain to investors why they have lost huge amounts of money in an unfamiliar market.
Guys product is designed to solve this problem. He simplifies the trading process and provides low-volatility investment options, such as an annualized return of 15%, while clarifying the risks and providing detailed risk management plans. This approach is more in line with the investment framework of traditional institutions. High-volatility transactions, such as arbitrage transactions between decentralized exchanges and centralized exchanges, may have a return rate of up to 30%, 40%, or even 50%, but the risks are also very high. This trading model is unacceptable to large institutions.
This conservative attitude of Western institutions actually brings opportunities to individual investors and small and medium-sized funds in the crypto field. Due to reputation risks, large companies cannot get involved in certain markets, while individuals and small institutions can look for high-return investment opportunities around the world, thereby creating significant alpha returns.
Andy:
By the way, have you met with Trump? What are the procedures for obtaining a pardon?
Arthur Hayes:
No, I did not meet with Trump. I cant go into detail about the process, but it was a very standard process. We submitted the application, got lucky, and were granted amnesty. I appreciate the governments support for me, my partners, and the company, but there was nothing special about it.
Andy:
We wont go into other topics. Guy, lets talk about Converge. I think this is a very interesting project, and you announced it two weeks ago. The idea you put forward in Ethena was actually promoted in the market a year ago. Many technologies do not run completely in what you call the execution environment, but have undergone various tests and practices on Ethereum.
We have a theory about specialized chains, and believe that it is critical to design the technical architecture for specific use cases. Whether it is an application chain or a single application or multi-application chain, these choices are very specific. When running on general-purpose infrastructure, there are often some problems, such as noisy neighbors, high gas fees, and poor user experience. In addition, the technology on general-purpose chains is difficult to deeply customize, and customization is an important advantage of launching your own chain.
Based on this theory, you decided to choose your own chain when building this project. The logic behind it is simple: the biggest opportunity is that institutions are entering the chain. We believe that there are two major directions in the market. One part of the current market is speculation, such as 24/7 trading, DeFi investment, Meme coins and other on-chain activities; the other part is stablecoin settlement, payment and other infrastructure construction. Your cooperation with Security Token seems to be very active in this field and has a significant impact. So, before we go into the technical details, can you share your decision-making process? Because some Ethereum supporters may question: Are they abandoning Ethereum? Is this a vampire attack? Please talk about your thinking framework in the past three to six months and why you chose this direction.
Guy Young:
Of course. From a macro perspective, the value you mentioned is exactly the starting point for us to launch this project. I agree with your point of view that the main use cases in the crypto field can be summarized into two: one is speculation, such as the trading of Meme coins; the other is US dollar settlement and asset tokenization. Ethereum has lost its advantage in the field of speculation because most speculative activities have moved to other chains, such as Solana. In the field of stablecoins, Ethereum still dominates, which is also the starting point of Ethena and the preferred platform for institutions to enter the chain.
However, I want to challenge a view: while institutions do launch many projects on Ethereum, their assets may eventually flow to other chains. For example, there was news recently that an institution moved assets to Solana. This is not actually determined by Ethereum itself, but by stablecoin issuers and tokenized asset issuers. In other words, we are choosing where these assets go.
Security Token’s role in the market is very interesting. They are clearly Blackrock’s preferred tokenization partner, with the goal of bringing not just treasuries, but all kinds of assets on the planet to the chain and building financial infrastructure around them. We see the partnership between Ethena and Security Token as a unique opportunity to bring assets from traditional finance (TradFi) to the chain while leveraging the DeFi ecosystem to create new value.
Guy Young:
What’s more interesting is that Ethena is packaging crypto-native assets into a format that is more easily accepted by traditional finance, thereby attracting capital into the crypto market. At the same time, Security Token is working to bring traditional financial assets onto the chain and explore future development possibilities. This combination creates a very broad design space, such as the dedicated exchange created by Arthur. We think it is not reasonable for ordinary users to trade single stock options on Robinhood, and these markets will eventually move to more appropriate chains.
Overall, we believe that one of the biggest opportunities in the current cycle is how to bring institutional money on-chain. We are uniquely positioned in the stablecoin and tokenized asset space. If you agree with the long-term goals of crypto, you will believe that the proportion of speculation should gradually decrease, and stablecoins and tokenized assets will become the core of the future. Although the main use of the market is still speculation, we believe that as the market matures, these emerging assets will occupy a larger market share, and we are at the key position of this transformation.
Potential development direction of institutional chain
Andy:
Arthur, do you think there will be chains designed specifically for institutions in the future? Will this become the key entry point for institutions to enter the chain?
Arthur Hayes:
I hope so. If so, my holdings will also benefit from it. But frankly, we cannot accurately predict which option institutions will ultimately choose. I think it is unrealistic to try to predict this. However, what is certain is that asset managers like Larry Fink want to optimize their products through tokenization, but they are not satisfied with the current distribution and trading methods. They prefer to control the entire trading process and return the profits earned by the exchange to their own platform, such as Blackrock, or even bypass the exchange completely.
If the vision of Guy and others is realized, traditional financial exchanges may gradually become obsolete and all transactions will be moved to the chain. After all, in the Internet age, everyone can connect to the global network through a computer, so why rely on traditional paper document processes? The infrastructure we are building aims to achieve decentralized transactions on a global scale.
For asset managers like Blackrock, while they currently rely on the traditional financial framework, they also want to reduce intermediary costs, especially those institutions that act as gatekeepers for transactions. They can build their own decentralized exchanges and have full control over the entire process from product design to trade execution. I believe this is exactly the direction that large asset managers like Blackrock are pursuing. Hopefully, we can invest in the technology that drives this transformation and participate in building blockchain protocols that support decentralization.
Guy Young:
I would add that we sometimes overestimate the clarity of decision-making in these institutions. In reality, they are just focused on selling products. For example, when Blackrock launched a Treasury product, they asked, Who wants this? If someone wants to buy it on Solana, they will provide it; if they need to issue it on Avalanche, they will also do it. For them, these are just sales channels.
It is important to note that these products are completely centralized in nature. If there is a problem on one chain, they can easily move to other chains and reissue. Therefore, decentralization is not their main concern. However, they will be more cautious if it involves their own funds and balance sheets. They need to ensure that there are mechanisms to deal with potential risks, such as rolling back transactions or complying with regulatory requirements. This is very different from the products they sell.
At present, the activities of institutions on the chain are mainly to promote new products, rather than directly invest in assets on the chain. For example, Ethena decided to store the $1.5 billion of assets we manage on its own chain. This is entirely based on our consideration of asset security and efficiency. The opinions of the outside world will not affect our decision.
Omer Goldberg:
I think there is another important trend. Innovation in the fintech space has been relatively limited over the past decade because it relies on inefficient legacy infrastructure. Many startups have focused more on the user interface than the underlying technology.
But over the past three years, the infrastructure for stablecoins has made significant progress. Now, even in the United States, users can easily connect stablecoins to bank accounts and transfer them freely between different chains. This opens the door to many new consumer applications, such as smarter savings accounts and other features, which were difficult to achieve three years ago. Converge is a good example, but in fact these features can be implemented on any chain, which brings great flexibility to the market.
Therefore, we now have enough tools and conditions to develop products that truly attract ordinary users, not just loyal users of the crypto community. These users may not care about the concept of decentralization, but they need a better product experience, and we are at the best time to meet this demand.
Robbie:
The market seems to agree with this direction. Today, it was reported that DTCC (Depository Trust Clearing Corporation) announced the launch of a new application chain, which aims to improve the liquidity and transaction speed of collateral, while promoting the integration of traditional assets and digital assets. DTCC processes up to $3 trillion in transactions each year, and they are now exploring similar directions. What do you think about this? If this trend continues, will you face more competition? After all, the size of this market is measured in trillions of dollars.
Guy Young:
The direction you mentioned is correct, but the actual implementation may be different. I think the optimal technical architecture is not yet fully formed, but it will probably be a permissioned blockchain that allows anyone to enter and interact. Fundamentally, it cannot be completely closed, otherwise our efforts here will lose their meaning. However, if you look at a chain like Base, it is actually a highly permissioned blockchain because if Bases sequencer decides not to process certain transactions, then these transactions cannot go through. This is a situation where it is controlled by a single entity.
One scenario I envision is if you have an environment similar to Base, but the verification process is done by 10 to 20 parties. These parties may be the worlds largest asset management companies or centralized exchanges, or other key stakeholders. This way, if a hack like the $1.5 billion hack happens and this time its Blackrocks funds that are affected, you can roll back the transaction through the sequencer and avoid major losses.
Of course, this mechanism may cause some controversy, especially those who adhere to the principle of decentralization may not accept it. However, the reality is that many current on-chain systems already have similar centralized control mechanisms. I think we need to find a balance between openness and pragmatism, so that the system can maintain a certain degree of transparency and flexibility while providing necessary protection measures in extreme cases. This design can not only attract more institutional participation, but also bring more stability and security to the entire ecosystem.
Andy:
I think the beauty of building a blockchain is that even if you have developed a very successful application, you can still explore more around the infrastructure in the future, which provides you with a wide range of options. I think that choosing to leave L1 (first layer network) and launch your own chain is partly to better adapt to your specific use cases. At the same time, there are other completely decentralized and censorship-resistant blockchain environments on the market, such as Bitcoin is a good example, right? But your goal is not to build another L1 like Bitcoin or Ethereum, but to create a chain for specific ideas and technical needs. Therefore, I think you want to find a balance between permissioned and unpermissioned, and design corresponding risk management and rollback mechanisms according to different situations.
Guy Young:
I totally agree with you. Another question worth thinking about is whether we need to keep obsessed with decentralization? If we look closely at the activities on the chain, most of them are actually centralized stablecoin transactions and meme coin speculation. These scenarios do not require national-level decentralization, right? I think that for these use cases, a server with 10 validator nodes is completely sufficient.
In fact, the markets pursuit of decentralization may be a bit excessive. If we look at the current well-performing projects, such as Hyperliquid, its user experience and functionality are closer to centralized exchanges; another example is Ethena last week, which has close cooperation with centralized exchanges and custodians; and Pump Fun, which is also a centralized exchange with on-chain settlement. These examples show that the market is willing to compromise on the degree of decentralization for a better product experience. Therefore, we should focus on building better products from the beginning, rather than being too obsessed with certain concepts.
Robbie:
If you adopt an architecture with 10 validator nodes, it is actually more decentralized than many popular L2 (second layer networks) currently.
Overall market trend analysis
Andy:
I want to take a break from the topic of Converge and return to the current state of the broader stablecoin, cryptocurrency, and speculative markets. Arthur, I was on a podcast with Akshatt in Hong Kong two months ago. He mentioned that you were preparing for a Trump sell-off, and it turned out to be true. You also seemed to be gradually reducing your positions to prepare for this.
In one of your recent articles, you mentioned that you have begun to reallocate funds to the crypto space. What does this mean for the market? And how will the overall market trend develop in the future? Is it the participation of institutions that has rekindled your interest, or is it the changes in the macro economy that triggered your decision? Where do you think the market will go next?
Arthur Hayes:
As I mentioned before, the key is liquidity. I was skeptical about future liquidity policy, especially in the period between Trumps election and his inauguration.
The market generally believes that the Fed will not continue to print money, but I think the opposite is true. Some recent signals from the Fed indicate that they may start to ease monetary policy later this year, especially in the Treasury market. At the same time, Europe may support military spending by printing euros; China is waiting for the US to act, and may then adopt larger monetary easing; and the Bank of Japan is already in trouble, and I expect them to re-intervene in the event of a crisis in the Japanese government bond market. Therefore, this expectation of loosening global monetary policy makes me more optimistic about the market outlook. The current market is also gradually increasing its allocation to crypto assets.
We are currently focusing on investing in Bitcoin. I believe that Bitcoins market dominance is gradually increasing, and investors in the altcoin market are not ready to re-enter the market for the time being. I expect that when the price of Bitcoin breaks through $110,000, market sentiment will improve significantly, more investors will start to pay attention to other currencies, and we will participate at that time.
My optimism stems primarily from Bitcoin’s positive response to expected changes in fiat currency creation, a trend I believe will continue between now and the end of the year.
Robbie:
You mentioned that quantitative easing is an important factor. Fed Chairman Powell also hinted at this at the recent meeting. We may have to wait for another month to a month and a half before the next Fed meeting. He may announce a rate cut or he may not. You also mentioned the adjustment of the strategic leverage ratio. Can he take action between meetings or must he wait until the formal meeting to make a decision?
Arthur Hayes:
The Fed chairman can take emergency actions outside of meetings. For example, last year, they held an emergency meeting on a Sunday evening and announced a regular bank funding program and said they would print $4 trillion.
Therefore, the Fed will not hesitate to step in and adjust policy if market conditions require it. If a similar crisis occurs in the future, such as tariffs causing market volatility, certain stocks plummeting 40%, or certain large traders on the verge of bankruptcy, the Fed may take immediate action without waiting for a formal meeting. Therefore, I do not think it is necessary to rely too much on the meeting schedule. However, at the next meeting in May, I expect them to further clarify how to reduce quantitative tightening, including the treatment of mortgage-backed securities and Treasury maturities, and the potential impact of tariffs on inflation. If these tariffs are not withdrawn, the Fed may make corresponding policy adjustments.
Feasibility study of institutional issuance of stablecoins
Robbie:
I have a macro question I want to discuss, which is mainly around the impact of liquidity injections. Usually we ask, has this injection promoted liquidity, or has it reduced the overall liquidity of the system? In addition to the impact of tariffs, Doge, and Elon, there is also an unanswered question: the $10 trillion in Treasury bonds that are planned to be issued at the end of the Biden administration will need to be refinanced. So when we refinance this $9 to $10 trillion of debt, will this have a positive or negative impact on overall liquidity?
Arthur Hayes:
Strictly speaking, this is neither positive nor negative, but a neutral impact. The government has to do this, after all, the New York government will not default on its obligations. The key is at what interest rate they will refinance. If the interest rate is too high, they may need the support of the Federal Reserve or the banking system to push down the interest rate by buying more Treasury bonds to avoid higher financing costs. Currently, the average interest rate on US Treasury bonds is about 3.3%, and the ten-year Treasury bond rate is about 4.1% to 4.2%. If the entire debt is refinanced at the current interest rate today, interest expenses will increase significantly, which is very unfavorable to the fiscal deficit. Economic plans like Trumps also indicate that the government needs to take certain measures, such as letting foreign investors buy more Treasury bonds, or letting the Federal Reserve print money, or letting the banking system intervene. These are all possible solutions, but the key is how to get investors willing to buy these Treasury bonds at negative real interest rates.
Robbie:
The current situation of liquidity injection is that funds are usually generated from the top of the system and then flow downstream layer by layer, such as redistribution through loans. Stablecoins are currently at the bottom of this structure, and even if institutions like Blackrock issue stablecoins, they are still at a lower level. So is it possible to see stablecoins gradually rise in this layer, such as some large institutions issuing stablecoins on the chain?
Arthur Hayes:
It would be like a bank issuing its own dollar stablecoin on the blockchain.
Robbie:
Yes, is it possible for some organization or state government, such as Wyoming, to issue its own stablecoin? Is such a stablecoin realistic, whether it is state or nationally backed or sponsored by the Federal Reserve?
Guy Young:
I think its possible, Im just pessimistic about whether these traditional financial institutions can gain market share in crypto. I think PayPal is a good example of how you can think of PayPals existing product as basically a private blockchain where theyre just moving PYUSD around in their own accounting system.
Although they have done well, their scale is still far less than one percent of Tether. This shows that it is very difficult to enter the crypto ecosystem and gain market share, and market structure is a key issue. For example, USDT (Tether) has become the main unit of account for centralized exchanges, and almost all trading pairs are associated with USDT. No one will turn to other stablecoins to get a 4% treasury bond yield, because market participants value transaction efficiency and liquidity more. Either you have to provide higher liquidity than Tether or pay a higher yield, otherwise it is almost impossible to compete. This is also Ethenas strategy: we will not try to compete directly with Tether on liquidity or yield, but look for opportunities in other areas of innovation.
I think if you’re funding or launching a new stablecoin issuance and that stablecoin is just backed by treasuries, I think it’s just a waste of time, energy, and money.
Omer Goldberg:
Despite this, I think many institutions will still try this approach. For example, today I heard the CEO of Bank of America say that they will issue stablecoins if the law allows. From my discussions with large financial institutions, almost everyone is thinking about this issue. For them, this is indeed a cheaper and more efficient solution. Especially in the United States, more and more users are starting to use payment tools like Venmo, which has impacted traditional banking.
Omer Goldberg:
So I think they will try, but as Guy said, whether they succeed is another question. However, this attempt does have the potential to be a holy grail and if successful, it will have a huge market impact.
Arthur Hayes:
I think this situation mainly happens in the United States. For American users, stablecoins can indeed provide a cheaper and more convenient way to transfer dollars. But this is not Tethers core business. Tethers main markets are in places like Shanghai, Hong Kong, and Buenos Aires, and JPMorgan Chase and American banks have almost no access to these markets. Therefore, stablecoins are indeed beneficial for American users, but their impact on the global cryptocurrency market is limited.
Robbie:
Unless these stablecoins can break out of closed systems, their impact on overall liquidity will not be positive.
Arthur Hayes:
Thats right. Unless stablecoin issuance involves lending and credit extension, their impact is limited. If it just provides a new payment tool, such as an alternative to Venmo, it will not have any substantial impact on the overall market.
Robbie:
Will the SLR (Strategic Leverage Ratio) exemption have an impact on the fractional reserve mechanism of stablecoins?
Arthur Hayes:
The SLR exemption mainly allows banks to buy government bonds without additional capital investment, which has no direct relationship with stablecoins. Banks can use the SLR exemption to buy government bonds and create credit, thereby improving profitability. If rising interest rates cause bond prices to fall, they can classify these bonds as held to maturity assets and ignore the losses. This is a common way of operating.
Guy Young:
Last week I saw a research report discussing what would happen if a large amount of bank deposits in the United States flowed to stablecoins. This is actually a very dangerous situation because the entire fractional reserve system relies on deposits from commercial banks. If deposits shift to a one-to-one support model such as stablecoins, the banks lending ability will be severely affected and the entire credit system may collapse.
Arthur Hayes:
This is why the Fed is against this. If stablecoins become a banking model that does not lend money, but simply accepts deposits and pays interest, this is fatal to the fractional reserve banking system.
Andy:
Yes, this is also an important part of the Stability Act, which I think will be advanced this month or at the end of May. Although this may be positive for the stablecoin market, the impact on USDC may be greater, while Tether seems less affected.
Arthur Hayes:
It doesnt matter. This is a US thing, stablecoins are not for Americans, stablecoins are for people who want a dollar bank account but cant get one. The US thing is dollar bank accounts. Stablecoin applications just make it cheaper to transfer money, maybe you pay a few dollars less in transfer fees every month. Thats great for the voting bloc, but I think for crypto traders, whether its the genius bill and some other bills, I havent read any of them, it doesnt matter, benefits or no benefits, who cares? Its just a tool to make it cheaper for Americans to transfer dollars within their system, it wont affect you.
Robbie:
The barbell effect mentioned by Andy is speculation on one side and payment on the other. Can stablecoins be used as a tool to extend credit and further leverage the entire system?
Arthur Hayes:
The question is who bears the risk. The advantage of fractional reserve banks is that when they have problems, the state will bail them out. But private stablecoin issuers have no such guarantee. If they go bankrupt, no one will bail them out. In this case, stablecoins cannot extend credit like traditional banks.
