Author: Hive Mind

Collation & Compilation: Plain Language Blockchain

Broadcast Date: 2025.07.26

[Host]

Jose Madu, host of the Hive Mind podcast, is active in the fields of cryptocurrency and fintech, and is good at digging out industry insights.

[Permanent Guest]

Clefus Paribus, Chief Analyst of the Institutional Research Department, focuses on macro analysis and data-driven insights in the cryptocurrency market.

Jan Lieberman, Managing Partner of Delphi Ventures, a veteran in the venture capital field, focuses on blockchain and decentralized finance (DeFi) projects.

Duncan Zhang, Flood Capital Venture Researcher, invests in early crypto projects and is good at evaluating technology and market potential.

【Special Guest】

Guy Young, Founder and CEO of Ethena

The founder and CEO of Ethena was a guest on the Hive Mind podcast to discuss the dynamics of the crypto market, focusing on Ethena's USD assets (US$360 million, 72% in cash) to solve the problem of capital flow. The annualized yield of USD stablecoin is 18%, leading Circle through basis trading. The Genius Act helps Ethena comply with regulations, and Tether may launch a US version of USDT. Market momentum is driven by treasury strategies, Layer 1 valuations are too high, and MEW's market value fell to 2.8 billion after raising 1.8 billion, and socialized speculative innovation is needed to revive.

1. Ethena's stablecoin innovation and market insights

Jose Madu: You made a major announcement about USD assets this week, officially entering the treasury-related business. Can you provide us with some background and why this move is so significant?

Guy Young: Of course, Jose. Ethena started planning this business at the beginning of this year, around December or January. At that time, the market was far less enthusiastic about this type of asset than it is now, and similar projects emerged almost every day. We observed Circle's strong performance in the public market and realized that the traditional financial market's thirst for such assets far exceeded the supply. Traditional investors, especially institutions that manage large amounts of funds, are eager to find investment themes that can combine crypto features with stable returns, which provides us with an excellent opportunity. From a more macro perspective, I have been deeply concerned about the flow of funds in altcoins in the cryptocurrency market over the past 18 months. The peaks of the total market value of altcoins in 2021 and 2024 are almost flat, hovering around $1.2 trillion. This is a strong signal to me that the scale of funds willing to invest in high-risk, speculative tokens is limited. The crypto industry needs to mature and present assets to investors in traditional equity markets in a more standardized and transparent form. Even providing token exposure at 1x net asset value (NAV) is more attractive than not being able to enter these markets at all. The USD asset we created not only caters to the high demand of the traditional market, but also effectively alleviates the long-standing bottleneck of capital flow in the crypto market. It is a win-win strategic match.

Jose Madu: That makes a lot of sense. Sorry, I forgot to ask you to introduce yourself. Can you briefly introduce yourself and Ethena first? We may cut this section to the beginning later.

Guy Young: No problem. I am Guy Young, and I founded Ethena two years ago. Ethena focuses on issuing two types of products: synthetic US dollars USD and ordinary stablecoins USDTB. USD is our core product launched 15 months ago. It has grown rapidly. In less than 12 months, the supply has surged from zero to US$6 billion, and is currently close to US$7 billion. The supply of USDTB has reached US$1.5 billion, a record high. Our goal is to provide efficient and stable value storage and transaction media for crypto and traditional markets through innovative financial engineering.

Jose Madu: Haha, sorry that the host is a bit messy. I just came back from a music festival and my mind is not fully online. This section may be cut back or kept, depending on my mood. Back to USD assets, this project is exciting. When did it start trading? How much money was raised? Ethena Labs' tweet mentioned that this is the project with the highest cash-to-asset market value ratio. Can you elaborate on it?

Guy Young: I totally understand. The afterglow of the music festival does make people feel a little dizzy. Regarding USD assets, the total project size is about 360 million US dollars, of which 260 million is cash, and the cash ratio is as high as 72%, which is far higher than the industry average. Many similar projects are essentially just tools for exiting liquidity. Investors invest in tokens and quickly sell them on the open market. Our goal is to introduce fresh capital and solve the liquidity pain points of the crypto market. Ethena raised 8% of the project's circulating market value to purchase tokens on the open market, which is much higher than the second-ranked Hype project (less than 2%). This ratio is extremely prominent in the market and reflects our strong support for underlying assets. The strategic deployment of cash will have a significant reflection effect and enhance the overall value stability of tokens. For example, $500 million in cash has a limited impact on large-cap assets such as Ethereum, but for our target assets, it is enough to drive positive changes in market dynamics.

2. Competition in the Stablecoin Market and Ethena’s Differentiation Strategy

Jose Madu: Great. The success factors of this project are very attractive, especially the structural design, which is obviously more streamlined than many competitors. You quickly redeploy cash to spot assets, creating a flywheel effect, making the value appreciation on the equity side very attractive. In addition, the demand for stocks is amplified by increasing the number of tokens per share, just as MicroStrategy creates "yield" by increasing the number of Bitcoins held per share. In the current environment, you can also purchase assets from the foundation at a discount, which is indeed a highlight. There is strong demand for pure equity exposure in stablecoins, and the regulatory environment is becoming increasingly friendly, such as the passage of the Genius Act, and Circle's hot performance in the market. Can you talk about the challenges faced by Circle, such as the impact of falling Treasury rates on your business? When the Fed cuts interest rates, the financing rate in the crypto market tends to rise, and I think this may trigger a rotation of funds from Circle to Ethena. How do these three factors - structural optimization, regulatory tailwinds, and capital rotation - work together to shape your investment attractiveness?

Guy Young: This is a very comprehensive question that covers the core competitive landscape of the stablecoin market. The use cases of stablecoins are extremely diverse, ranging from trading collateral on centralized trading platforms to US dollar payment channels in developing countries, covering multiple scenarios such as payment, remittance, and savings. I believe that the future trend is that each issuer will delve into a market segment and pursue a 10-fold advantage over its competitors, rather than trying to become a one-size-fits-all solution. Ethena's strategy is very clear: we focus on areas where we can significantly outperform our competitors, such as savings rather than payment scenarios. As a structurally higher-return US dollar asset, USD is more attractive than non-yielding assets in savings use cases. This advantage can also be extended to other scenarios, such as being used as collateral for perpetual contracts on centralized trading platforms, or embedded in DeFi protocols to create new financial products. This is Ethena's differentiated positioning and the cornerstone of our rapid growth.

In 2024, the average annualized yield of USD will reach 18%, four times Circle's interest income. If you adjust the asset size for yield, Ethena's $7 billion supply is equivalent to $28 billion, which is comparable to Circle's size. This shows that you can compete with giants through efficient yield mechanisms without a large balance sheet. Regarding competitors, we view Tether as a strategic partner rather than a direct competitor. Many people may not know that 70% of the perpetual contract market in centralized finance (CeFi) is denominated in Tether, and Ethena's $1 collateral translates into about 70 cents of Tether supply growth. The reason Tether does not provide yield is that the market pays for it through futures and basis trading. Ethena's innovation is to productize Tether's basis capture use case and create a yield-enhanced product. The collateral we hold is mainly Tether, which not only helps Tether's growth, but also strengthens our market position.

As for the headwinds facing Circle, the decline in Treasury bond rates will indeed compress its yield space because its USDC is mainly backed by Treasury bonds. When the Fed cuts rates, funding rates in the crypto market tend to rise, which is good for Ethena's basis trading strategy and may attract more funds to shift from low-yielding USDC to USD. The improvement in the regulatory environment, especially the passage of the Genius Act, has created a clearer compliance framework for stablecoins, further enhancing our appeal. The synergy of these three factors - optimized project structure, smooth regulatory environment, and the potential for capital rotation - makes Ethena an ideal choice for traditional and crypto investors.

Jose Madu: Listeners may be interested in Ethena's revenue mechanism. Can you briefly introduce how you generate revenue?

Guy Young: The core mechanism is cash arbitrage or basis trading. We go long on spot assets on one side and short futures or perpetual contracts on the other side to capture the speculative premium in the derivatives market. The funding rate in the crypto market can be seen as the capital cost of long positions. The market is bullish in the long term, and investors are willing to pay a premium for leveraged long positions. Ethena locks in this premium through a sophisticated trading strategy. By analogy, stablecoins are essentially a form of borrowing: holding Circle's USDC is equivalent to lending money to the US government in exchange for a low-yield IOU; holding Sky's US dollar assets is borrowing with Ethereum over-collateralization in DeFi; and Ethena's USD is financing CeFi's long positions, and the yield is higher due to the risk of the borrowing object and market demand.

3. The evolution of basis trading and the influx of institutional capital

Jose Madu: Very clear explanation. Compared with 2024 and 2025, basis trading has narrowed significantly with the outbreak of Bitcoin and Ethereum ETFs. In the 2021 market cycle, the basis of mainstream currencies was as high as 50-60% for several months. Today, the participation of more liquid futures markets, professional fund managers and ETFs has greatly compressed the basis. How does Ethena deal with these changes internally? With the launch of long-tail assets such as Solana ETF, institutional funds are further entering. What do you think the future trend of basis trading will be?

Guy Young: This is a key question that reflects the accelerated integration of the crypto market with traditional finance. The capital pool for basis trading of ETFs and Chicago Mercantile Exchange (CME) is completely separated from the capital pool of the crypto market. Traditional hedge funds like Millennium cannot directly invest funds in crypto trading platforms because they need AA-rated custodians. CME has almost zero credit risk, which has attracted a lot of traditional financial capital. In 2024, CME's basis averaged 6.5%, 150 basis points higher than the Treasury yield, while Ethena's USD yield was as high as 18%, a gap of 1,000 basis points. This is because CME requires full cash collateral, while the crypto market allows portfolio margin, which is more efficient in leverage.

Ethena's strategy is to become a bridge for institutions to enter the crypto market. Many hedge funds choose to put their money into Ethena because USD is not only used for staking (sUSD), but also serves as a medium of exchange in scenarios such as automated market makers (AMMs), order books, and the pledge rate has never reached 100%. This makes Ethena's yield always higher than the return of investors capturing the basis themselves. Although the basis will be compressed as institutional capital inflows, we believe that Ethena's efficiency advantage will attract more funds. Critics point out that the decline in basis from 60% when we launched is inevitable, but it is Ethena that has driven this trend. We expand the scale while compressing the basis, which is the natural law of the financial market: discovering excess spreads (Alpha), and then tens of billions of capital are needed to suppress it to a reasonable level. Ethena's goal is to reduce the capital cost of the crypto market from 20-30% to 10-12% recognized by traditional finance, creating a more sustainable ecology for the industry.

With the launch of new products such as Solana ETF, more long-tail assets will enter the institutional field of vision, and competition in basis trading will intensify. However, due to the credit risk and custody restrictions in the crypto market, the basis difference between CME and crypto trading platforms will exist for a long time. Ethena's mission is to optimize transaction execution and maintain the yield advantage, while establishing closer cooperation with traditional financial institutions to ensure that we are in the leading position in this evolution.

Jose Madu: Ethena's lower financing rate may mask the degree of speculation in the market, especially on BTC and ETH. How do you view the broader market leverage situation?

Guy Young: You are right, the existence of Ethena does make the market hotter than before, especially BTC and ETH. A good way to observe Hyperliquid's financing rate is that the interest rate there is about 25%, which is much higher than Binance's 11%. There are two reasons: Hyperliquid's retail capital flow is more natural and institutional participation is low; secondly, it does not support portfolio margin and has low leverage efficiency. Hyperliquid is not affected by Ethena, reflecting the real retail speculative enthusiasm, and is an ideal reference for judging the market heat. Ethena indirectly stimulates leverage demand by reducing financing costs, but also makes the market more efficient. We need to monitor this dynamic closely to ensure that it does not lead to excessive speculation.

4. Genius Act and New Regulatory Opportunities for Stablecoins

Jose Madu: This week, the crypto community ushered in a milestone event - the passage of the Genius Act, which is the first federal law specifically for stablecoins. You announced a partnership with Anchorage, which seems to be the first stablecoin project to comply with the Act. Can you talk more about the Genius Act, the details of the partnership, and what it means to Ethena?

Guy Young: The Genius Act provides a clear regulatory framework for the stablecoin industry, marking a key step in the United States' acceptance of crypto assets. Our cooperation involves the transfer of USDTB's issuance from an offshore British Virgin Islands (BVI) entity to direct issuance by Anchorage. Anchorage is the only crypto asset custodian in the United States with a federal banking license, and their "Genius as a Service" product provides compliance solutions for issuers. Ethena adopts a dual-track strategy: USDTB is issued through Anchorage, complies with the Genius Act, and can be used in US payment scenarios; USD continues to serve the offshore DeFi market and is not subject to US regulation.

This strategy reflects our insight into the global market. The US market has huge potential, but fierce competition. Traditional digital payment tools such as Venmo and PayPal have been deeply rooted in the hearts of the people, and money market funds are also competing with stablecoins for profit space. In contrast, the use cases of stablecoins in the offshore market are more extensive, especially in developing countries, where US dollar stablecoins are the first choice for payment, remittance and value storage. Tether's success proves the feasibility of the offshore strategy. They never directly serve the US market, but have become the world's largest stablecoin. We are excited about entering the US market, but offshore DeFi remains our core growth engine. The cooperation with Anchorage gives us an advantage in compliance and market expansion, laying a solid foundation for the long-term development of Ethena.

Jose Madu: Will Tether enter the US market because of the Genius Act? They have made it clear in the past that they will not.

Guy Young: I recently saw reports that Tether may issue a version of USDT that complies with US regulations. Although it has not been officially confirmed, this is consistent with our dual-track strategy: launching compliant products to serve the United States while retaining the advantages of core products in the global market. Tether's cautious attitude stems from the uncertainty of US regulation, and the passage of the Genius Act may cause them to reassess this position.

Jose Madu: Will the new token lead to liquidity split? Will the US and international markets be completely divided?

Guy Young: Differentiation is inevitable. US users should not trade on offshore platforms and may use local tokens on compliant trading platforms such as BN US. Similar situations have already occurred in the European Union, where Binance launched a "futures credit" mechanism to automatically convert user funds into compliant assets. Although the operation is slightly complicated, this is a regulatory-driven trend, and the global market will form a dual structure of the United States and non-US.

Jose Madu: The stablecoin market is in full swing, and both large companies and start-ups have their own strategies. What sectors do you think are overvalued or undervalued?

Guy Young: I am skeptical about the prospects of new issuers challenging giants like Tether and Circle. The stablecoin market is highly commoditized and requires three conditions: USD denominated, ultra-high liquidity, and sustainable returns. It will be difficult for new issuers to reach Tether's $100 billion daily trading volume on the first day, and stablecoins backed by Treasury bonds face a race to the bottom in terms of profit margins. Circle has exacerbated this trend by sharing revenue with Coinbase. Tether has built a moat due to early market gaps, and its business model cannot be replicated. The strategy of new issuers claiming to share 90% of the revenue is unsustainable and requires a scale of $100 billion to become an attractive investment target. In contrast, infrastructure projects such as Tron have performed well, with daily trading volumes of millions of dollars and a solid model. New projects such as Plasma are trying to get a piece of the pie, but it is very challenging to shake Tron's position. The undervalued area may be compliance solutions, and institutions like Anchorage will play a key role in the regulatory wave.

Jose Madu: The Genius Act may allow banks to issue stablecoins with the Federal Reserve's $3.3 trillion to $3.5 trillion in reserves to enhance liquidity. What do you think?

Guy Young: I don't know much about the specific terms, but your ideas are very inspiring. Bank deposits are the core of credit creation. If they are all converted to stablecoins, the economic credit system may collapse unless there is a new mechanism to balance it. The dual attributes of stablecoins - they can be kept in banks and circulated as currency - will greatly enhance liquidity. The United States uses stablecoins to finance short-term Treasury bonds and ease fiscal pressure, but regions such as the European Union are worried that funds will flow out of banks and impact the monetary system. When the scale of stablecoins reaches a certain level, the national level may remain vigilant about this trend and even take restrictive measures.

5. The momentum of the crypto market and the valuation controversy of Layer 1

Jose Madu: If the $3.5 trillion reserves are converted into stablecoins, some of them may flow into Bitcoin, and the market will be extremely bullish. Recently, the ETH/BTC ratio broke through 0.03, and Solana's performance was mixed. Where are we in the market cycle? Jan, you go first.

Jan Lieberman: Market momentum is very strong, driven largely by Treasury strategies. These strategies attract a lot of money, forming a sedimentary capital pool that is difficult to withdraw easily. The popularity of brokerage accounts also makes it easier for traditional investors to participate in the crypto market. The Genius Act may release $3.3 trillion in bank deposits, and Bessant predicts that future stablecoin demand can reach $3.7 trillion, which is a long-term positive for the crypto market. But short-term fluctuations are more driven by market sentiment and capital flows. I personally think that it is not wise to chase Treasury instruments at a high premium, but the narratives of big Vs such as Tom Lee have driven market enthusiasm, and the trend may continue for some time.

Guy Young: I am bearish on ETH and other Layer 1 (L1) in the long term, and I think they are the most overvalued assets in financial history. In the short term, the narrative of ETH has shifted from competing with Solana for user activity to competing with BTC for traditional financial funds. As long as the relevant instruments are trading at 2.5 to 4 times net asset value, the market will not fall easily. But if the multiple slides from 1.5 to 1, it may indicate the end of the cycle. The slowdown of new instruments or the inability of existing instruments to raise funds at a high premium will trigger a market adjustment. At present, a clear group of buyers supports the market momentum. Michael Saylor just announced that the issuance size will be increased from US$500 million to US$2 billion, and the market enthusiasm remains high. National-level buyers have not yet appeared publicly, but they may be secretly laying out, and once they are fully invested, they may trigger a new round of gains.

Jan Lieberman: If L1 is overvalued, will the altcoin market collapse?

Guy Young: Most altcoins do rely on the performance of L1, but Hyperliquid is an exception. It drives growth through cash flow, gets rid of the pricing dependence on ETH or Solana, and looks like an equity-like asset. Altcoins need to be liberated from the Beta role of L1 and develop independent business models. In the future, five to ten projects with real revenue, users and products will enter the equity market, priced at standards such as 10 times the price-to-earnings ratio, and decoupled from L1 valuations. This is a painful transition, BTC's dominance may climb to 90%, and other L1 valuations should fall to one-tenth of the current value. The success of Hyperliquid, Coinbase and Robinhood shows that equity-like projects will stand out in the next cycle.

Setters: I partially agree, but I also have different opinions. If Sui performs poorly in this cycle, will the overvaluation argument of L1 still hold? ETH and Solana have rebounded from their lows at the end of 2022, but other L1s generally continue to fall. In the last cycle, there were four or five L1s with a market value of over 100 billion, and only ETH and Solana remain in this cycle. The market seems to be tilting towards the application layer, and the buying enthusiasm for infrastructure projects has subsided. I think BTC and application dominance will increase, and L1 premiums will decline, but the value may not be transferred to applications, and may just flow out of the market.

Guy Young: I believe there will be a value transfer. The scale gap between L1 and applications is huge. Even if 1% of the funds flow from L1 to applications, it is enough to drive significant growth in the latter. The market needs more self-sufficient projects like Hyperliquid to get rid of the dependence on L1 valuation.

Jose Madu: Ethena's USDE scale is $6.8 billion. How much scale can the perpetual contract futures market support?

Guy Young: The current open interest (OI) is about $110 billion to $120 billion, with a yield of 15-20%. The annual cash flow of about $10 billion in the crypto market mainly comes from Binance, Tether and basis trading. Ethena only accounts for 6-7% of the market. If we can optimize to 20-25% share, the scale can reach $20 billion to $30 billion. When the financing rate was as high as 30% in December last year, I predicted that if it was connected to traditional financial institutions, Ethena could reduce the interest rate to 10-15% and achieve a scale of 30 billion. We are building these channels to ensure that we can capture high leverage demand. But the risk is that the revenue of applications such as Hyperliquid and Ethena depends on the high transaction volume of L1. If the valuation of L1 collapses, these protocols may be affected. However, the MEme coin platform makes profits through the issuance of new coins and is not affected by the fluctuation of L1 valuation in the short term.

6. MEW's financing controversy and the future of the MeMe coin market

Jose Madu: Guy, in addition to Ethena and Hyperliquid, which projects have performed well in the market segments?

Guy Young: Sky and MakerDAO's resilience and innovation in the DeFi field are admirable. Maple Syrup and Oiler rebounded from near-zero TVL, demonstrating the team's execution. Fluid has reversed from the bottom by innovating the currency market with stablecoin circulation embedded in DEX. These projects have become role models for the industry to learn from by persistence and breakthroughs.

Jose Madu: MEW's market value fell to 2.8 billion, and the ICO sold out in just 15 seconds, which is shocking. What is its current status?

Setters: MEW had impressive revenue in Q4 2024 and Q1 2025, earning $700 million in half a year, and still had $630 million in cash on its balance sheet. The original plan was to raise $200 million and $800 million in public offerings, but it was later adjusted to raise $700 million and $600 million in public offerings, with a total financing of $1.8 billion, and the public offering was sold out in 12 minutes. However, the token fell after listing, Bonk grabbed market share by wooing issuers, the MEW team kept a low profile, and the recent interview with ThreadKeys lacked a clear vision, triggering a sell-off. The fully unlocked token supply is transparent, but the on-chain sell-off exacerbated market panic. MEW holds $2 billion in cash, the K-Scan acquisition was accused of being overvalued, and the Axiom acquisition rumors sparked controversy due to excessive costs. The current market value of 2.8 billion provides a valuation buffer, and the decline is due to narrative and confidence issues, not fundamentals. MEW still has the opportunity to revive the market through strategic capital deployment.

Jose Madu: Is the decline a result of selling at a high price or other factors? Can enthusiasm be rekindled?

Setters: The selling is due to the opportunity cost of the rise of assets such as Solana, and Bonk's marketing offensive has seized the narrative. The MeMe coin market is highly liquid, and capital is profit-seeking. MEW's 2 billion in cash and industry experience are advantages. The MeMe coin field is not the focus of the market recently, but through incentive mechanisms and project catalysis, MEW can regain its share. The key lies in a clear vision for the use of capital, not a cautious official response.

Guy Young: I hold MEW coins and have a good personal relationship with the founder. MEW's circulation is completely transparent. Unlike artificially controlled projects, price fluctuations are the result of real market supply and demand. The market is cruel and the moat is fragile, but the MEW team has the ability to turn the situation around. They are not only driven by money, but also want to prove themselves. $2 billion can be used to build a social speculation platform, similar to the viral spread of TikTok. MEW has the most valuable retail user base in the crypto market, and guiding them from MeMe coin transactions to high-profit products such as perpetual contracts is a natural expansion direction. This requires the team to break through the existing skill boundaries, but the potential is huge.

Jose Madu: The incentive mechanism of equity and tokens worries me. What is the motivation of the founders?

Guy Young: This is a reasonable concern, but the founders of MEW are financially free, and their driving force lies in industry influence and innovative achievements. If $2 billion is used for social financial products or cross-field expansion, it may reshape the landscape of the MeMe coin market.

Jose Madu: Thank you Guy for your wonderful sharing! Thank you for listening, see you in two weeks!

All: Goodbye!