Every week another yield-bearing stablecoin launches with a number on the homepage: 8%, 10%, 12%. The number gets attention. It gets a tweet, a few million in deposits, a spot on a yield aggregator. And then, for most of them, the capital quietly leaves — chasing the next number on the next homepage.

A handful of products did something different. They didn’t just attract total value locked (TVL); they kept it — through incentive wind-downs, through the October 2025 liquidation cascade, through the slow grind of a crowded market. Maple, Ethena, Centrifuge’s JAAA, Apollo’s ACRED, Ondo. If you take those survivors apart and line them up against the ones that bled out — Goldfinch, TrueFi — a precise, repeatable pattern falls out.

The pattern is the point of this piece. Yield is what gets you onto an allocator’s shortlist. It is the screen-in criterion, and a product that doesn’t clear the benchmark never gets looked at. But among the products that do clear it, what separates the survivors from the casualties has almost nothing to do with the headline rate. It has to do with distribution mechanics, infrastructure credibility, and risk structure.

This is a guide to all three — the current landscape, the launch playbook, and the specific, harder problem of bringing real private credit on-chain.

Part 1 — The landscape today

“Yield-bearing stablecoin” is a loose label covering at least three quite different machines under the hood. Knowing which one you’re building is the first decision, because the rest of the playbook changes depending on the answer.

The Treasury-backed dollar. The simplest and largest category: a token backed by short-dated US Treasuries, paying out something close to the risk-free rate. BlackRock’s BUIDL (issued via Securitize, ~$2.4B), Ondo’s USDY and OUSG, Franklin’s BENJI, Spiko, OpenEden, Superstate. These are commoditizing fast — issuance fees have collapsed toward zero (Franklin ~15bps, Ondo OUSG 0% mint and redeem) — and they compete on distribution and trust infrastructure rather than yield, because they all earn roughly the same T-bill rate.

The delta-neutral synthetic dollar. Ethena’s USDe is the defining example and one of the fastest dollar assets ever to reach $3B. It generates yield not from credit but from a basis trade — long spot, short perpetual futures, harvesting funding. It is a different risk animal entirely (it depends on funding rates staying positive), but its go-to-market is the most-studied case study in the category, and we’ll come back to it.

The private-credit-backed token. This is where the real yield — and the real difficulty — lives. Maple’s syrupUSDC (~$2.1B+), Centrifuge’s tokenized Janus Henderson AAA CLO (JAAA, ~$1.2B), Apollo’s ACRED (~8–10%), Credix’s emerging-market structured credit (12–18%, but small). Here the token is a wrapper over an actual lending book, and the yield is a genuine credit spread. This is the category with the most room to differentiate and the most ways to fail.

And then the cautionary tales, which matter as much as the winners: Goldfinch and TrueFi both reached for yield through unsecured or emerging-market exposure. Goldfinch took multiple defaults — one recent default recovered only about $4.25M of $10.2M. TrueFi went dormant after 2022. The lesson isn’t “high yield is bad.” It’s that undercollateralized + concentrated + opaque is the combination that empties out under stress.

Part 2 — Yield is the screen-in. Stickiness is the game.

Here is the thesis in one line: a strong APY gets capital in the door; distribution, infrastructure, and risk structure are what stop it from walking back out.

The evidence for this is in the retention data. The products that held their TVL through the wind-down of their own incentive programs — that grew while their points were being switched off — are the ones built on three things: capital that’s sticky by mandate rather than by bribe, integrations that create organic demand, and a risk structure that survives a drawdown. The products that evaporated were the ones whose TVL was renting the yield, not living there.

So the rest of this guide is organized around the question the survivors answered well: once your product clears the benchmark, how do you make the money stay?

Part 3 — The launch playbook

Six moves, in roughly the order the winners ran them.

1. Ship the token as a building block — get it curated, then leveraged.

The single highest-leverage move is becoming a collateral primitive in the major lending and yield venues, because that pulls in looping and structured demand on top of plain deposits. The proven sequence is: a curated Morpho vault → a Pendle listing → Aave collateral.

The thing most newcomers miss is who actually controls this. Distribution runs through a small set of professional curators (a.k.a. risk managers) — Gauntlet (~$2B, ~28% of curated TVL), Steakhouse (~$1.3B), MEV Capital, Re7, K3. A curator is the on-chain margin desk: it underwrites which tokens qualify as collateral and allocates the stablecoin liquidity behind them. Getting accepted by one plugs you into a five-layer stack — issuer → tokenization platform → lending protocol → risk manager → distribution platform — and triggers the leverage loop that funds depositor yield. That’s distribution no single issuer can build alone.

Maple’s syrupUSDC is the template: live on Morpho in March 2025 (curated by Gauntlet + MEV Capital, 91.5% LTV, explicit looping support), then Pendle, then Aave by September 2025 — over $750M in cumulative inflows. Apollo’s sACRED ran the compliant version of the same loop: mint a compliance-preserving wrapper, post it as Morpho collateral, borrow, buy more, loop, all bounded by the curator’s risk engine.

Pendle deserves its own mention. It splits a yield token into a fixed-yield leg (PT) and a leveraged-yield/points leg (YT), manufacturing three distinct demand sources from one asset. syrupUSDC’s Pendle market scaled past $100M; Ethena’s peaked above $3.4B.

The takeaway: design the token from day one to satisfy curator and Pendle listing requirements — clean accrual, an oracle-priced NAV, an isolated market. Partner with an established risk manager first for speed and their depositor base; building your own curator capability is a later move for fuller fee capture (Bitwise did exactly this on Morpho in early 2026).

2. Bootstrap with incentives — then pre-announce the taper.

Winners bootstrap with points, then deliberately wind them down once integrations create organic demand. The whole test of stickiness is whether TVL holds through that taper. Lock-up multipliers are the mechanism that converts mercenary deposits into committed capital — Maple’s “Drips” ran 1.5x for a three-month lock and 3x for six months, and syrupUSDC grew toward ~$3B while the program was being phased out. Ethena’s most instructive lever wasn’t points at all: raising the staker revenue share from 50% to 80% moved its staked share from 16% to 39% in two weeks. Reducing free float makes capital sticky.

There’s a wrinkle for any issuer that doesn’t have its own token to emit: you can still run a points-style program by sourcing the reward asset from a partner — a chain ecosystem incentive (Arbitrum’s DRIP program distributes ARB via Merkl; Avalanche’s Rush and BOOST do the same with AVAX) — and streaming it through neutral infrastructure like Merkl, which pays out whatever asset you fund the campaign with. You get the acquisition flywheel without ever minting a token.

3. Land a protocol or treasury anchor — one allocation beats months of retail.

The largest single TVL events in tokenized credit were never retail campaigns. They were anchor allocations from protocol treasuries and reserves — capital that’s sticky by mandate, not by incentive. Grove (Steakhouse-incubated, Sky-backed) launched with a $1B allocation into tokenized JAAA. Ethena adopted JAAA as USDe backing with a $200M initial issuance. Sky routed hundreds of millions into Maple after external risk reviews.

Anchor capital doesn’t chase the next campaign, and retention analyses consistently flag “user base not concentrated in yield farmers” as a top predictor of TVL survival. One or two anchor allocations are the cheapest durable TVL you’ll ever get — and a credibility signal for everyone who diligences you afterward. Prioritize them over broad retail farming.

A note on who won’t anchor: permissionless retail wrappers trade on the secondary rather than minting a KYC’d permissioned base. They’re useful for float, not for an anchor.

4. Use exchange and fintech “earn” rails as the retail funnel.

Once the token is a credible building block, consumer distribution comes from being the backend yield inside other people’s apps — not from building your own destination dApp. Maple’s integrations with Binance and OKX earn gave its tokens access to millions of individual allocators; Ethena’s USDe became Bybit collateral. Treat exchanges and fintechs as distribution partners who embed your yield, not as competitors. The addressable retail base is theirs; your token is the engine inside.

5. Design fees to motivate distributors — and accrue revenue to the protocol.

The durable model earns on the credit spread and performance at the fund level, keeps issuance fees near zero, and shares distribution economics with the curators and platforms that bring capital. Maple earns the lending spread and distributed $65M to depositors in 2025. Morpho curators can take a capped performance fee and commonly sign roughly 50/50 revenue-shares with the distributors who originate deposits — which is the lever that makes a fintech want to route flow to you. Don’t anchor revenue on a mint/burn fee; it taxes a sliver of activity and discourages exactly the secondary-market growth your strategy depends on.

6. Engineer for the stress test.

Retention through stress is the truest stickiness signal, and the post-mortems are unanimous. The survivors had isolated, modular risk; secured or senior exposure; transparent reserves; and tier-1 infrastructure. Maple ran overcollateralized, isolated pools and cured every margin call within hours through the October 2025 shock — $11.27B originated with zero liquidations. JAAA is senior, AAA-rated, anchored by mandate capital. The failures were the inverse: undercollateralized, concentrated, opaque.

Isolated markets, whole or secured exposures, published proof-of-reserve, and tier-1 oracle/custody/rating are what let you keep the TVL the first five moves attract.

Part 4 — The design decisions that actually matter

If the playbook is the what, these are the how. A handful of architecture choices recur across every product that scaled.

Token architecture: accrue, don’t rebase. A value-accruing ERC-20 — where the price rises with NAV, like a staked token — is the form the large majority of venues ingest cleanly. Rebasing balances create integration friction with money markets, Pendle, and many exchanges. A common robust variant is the two-token model: a $1 non-yield base token (maximally composable, the collateral leg) plus a yield-accruing staked wrapper — the pattern Ethena (USDe/sUSDe) and Sky (USDS/sUSDS) run at multi-billion scale.

Access: KYC at the edges, open in the middle. Gate primary issuance through a small set of whitelisted brokers who warrant the KYC/AML of their own investors — so you never have to KYC the whole market — and let the secondary trade permissionlessly so market makers and DeFi can build float. Because a yield-bearing credit token can be treated as a security in some jurisdictions, the permissionless leg should be jurisdiction-gated (e.g. non-US) with a retained blacklist function. BUIDL, Ondo, and Spiko all run versions of this two-tier split.

Yield positioning: clear the benchmark decisively, then win on structure. You have to beat the ~4% T-bill rate by a clear margin to be considered at all. But the products that keep their TVL pair an attractive premium with secured, isolated, transparent risk; the ones that reached for yield through unsecured or junior exposure lost it. The durable move is to capture your premium through whole, secured, isolated exposures, and run any ultra-high-yield credit as a distinct, capacity-bound, clearly-labeled sleeve sized to real origination — not as the core product’s headline.

Liquidity: engineer it on the token, not by churning the fund. Constantly subscribing and redeeming the underlying drags yield and forces a fully-liquid portfolio. The proven answer is layered: most trading on a market-maker-fed secondary (holders swap USDC↔token on a DEX without touching the mint), a 10–20% instant-liquidity sleeve, and the rest in self-liquidating credit with periodic primary redemption. The structural risk is that when primary redemption is gated, a thinly-traded token can drift below NAV in stress — so you need a credible authorized-participant arbitrage path (redeem at NAV) to anchor the price, and your redemption cadence has to be set honestly. BUIDL and USYC hold their peg precisely through AP-at-NAV redemption.

Market makers: contract them at launch. If liquidity lives on the secondary, market-maker agreements are a launch-day requirement, not an afterthought — holders need to move in and out without touching the mint. These arrangements carry real costs (inventory loans, token options, fee rebates) that should be budgeted up front. Notably, no incumbent has yet locked a dedicated MM to a specific tokenized private-credit token — an open competitive slot.

Chains: Ethereum first, expand by burn-and-mint. Effectively all DeFi credit TVL and market-maker depth sits on Ethereum/EVM and Solana. Start single-chain for credibility and add others via canonical burn-and-mint issuance (optionally orchestrated by a standard like Chainlink CCIP) — never a lock-and-mint third-party bridge, which is the single most-exploited primitive in crypto and a known state-actor target.

Infrastructure: tier-1 only. In a crowded market, any non-standard critical infrastructure is an automatic fail on a sophisticated investor’s diligence. Use a tier-1 oracle (Chainlink as the default for NAV / proof-of-reserve / cross-chain), an institutional custodian, and an independent credit rating. OpenEden became the first tokenized T-bill fund with both Moody’s and S&P ratings plus bank custody — and that combination is what unlocks the large tickets. The UX layer is fine to build in-house; the trust primitives are not the place to economize.

Legal wrapper: adopt the standard, then mitigate its weakness. The prevailing architecture is a foundation that owns the token-issuing entity, with the holder’s claim running against the issuer (not a direct fund-unit interest) and collateral held in a ring-fenced vehicle. Its honest weakness is that an issuer-only claim is weaker investor protection than a direct interest — and TradFi allocators will probe it. The mitigants the strongest issuers use: bankruptcy-remote ring-fencing, published proof-of-reserve, conservative over-collateralization, and clear, enforceable redemption rights. Design to a permissioned-token standard like ERC-3643 for transfer-level compliance.

Part 5 — Bringing private credit on-chain

This is the hardest and most interesting frontier, because it requires sourcing real origination — actual loans to actual borrowers — and wrapping it in something a DeFi user can hold. Two launches in 2026 bracket the strategic choice, and they’re worth studying as a matched pair because they reach the same destination by opposite routes.

Route A — the DeFi-native path

One model is a brand-new, crypto-native protocol that becomes the capital provider to traditional fintech lenders: funding off-chain origination through on-chain warehouse lines, loan participations, and forward-flow agreements, with the receivables pledged into a bankruptcy-remote SPV. A recent example funded a $10M senior warehouse facility for a US consumer-installment lender and a $50M forward-flow program for an SMB/BNPL lender, and expressed the result as a tranched yield token: a senior “credit-backed yieldcoin” around 8.5%, plus a staked junior tranche bearing first loss for up to ~15.4%.

This is the cleanest live example of the liquid-core-plus-higher-yield-sleeve structure — and it leans fully into crypto-native go-to-market: its own governance token, liquidity-mining incentives, and a token built for Pendle composability. The trade-offs are real: faster, higher-velocity distribution and maximal composability, but a dependence on an issuer token and genuine consumer/SMB/BNPL delinquency risk. That junior 15.4% is first-loss compensation, not free yield.

Route B — the TradFi-friendly path

The mirror image: an established, regulated asset manager brings an existing, multi-year fund on-chain through a regulated tokenization wrapper, and lets a DeFi liquidity protocol supply tiered liquidity and anchor capital — with no issuer token at all. A recent example took a diversified global trade-receivables fund (insured, zero leverage, ~110-day average duration, ~9–12% target) on-chain through a MiFID-II-regulated wrapper with a KYC’d mint, then partnered with a liquidity protocol that allocated $25M after a risk-council review. The liquidity protocol’s model keeps liquid deposits redeemable while locked first-loss tranches fund the longer-duration credit — the live version of the layered-liquidity design above, and an anchor-style allocation in one move.

Here the go-to-market is the manager’s brand and track record plus a regulated structure plus a liquidity partner’s capital. The trade-off: institution-grade credibility and durable, mandate-style capital, but slower, diligence-gated growth.

The synthesis

These aren’t mutually exclusive — and the strongest path for most new issuers probably blends them. Take Route B’s regulated wrapper, diversified/insured origination, and a liquidity-protocol anchor for institutional credibility and sticky base capital; layer in selective Route A moves — a curated Morpho vault, a Pendle listing, partner-sourced incentives — for DeFi-native reach. The choice is one of emphasis and sequencing, not either/or.

Part 6 — How it breaks

A short field guide to the failure modes, each paired with the design choice that prevents it:

• Credit / default risk. Sector default rates are rising, and the cautionary cases all involved unsecured exposure. Guardrail: whole secured loans, isolated markets, no junior tranches in the core product; size any high-yield sleeve to real underwritten capacity.
• Liquidity mismatch and NAV de-peg. A higher-yield credit book can’t offer daily liquidity; gated redemption plus a thin secondary can push the token below NAV in a drawdown. Guardrail: a 10–20% instant sleeve, AP-at-NAV arbitrage, and an honest redemption cadence.
• Mercenary TVL and the incentive cliff. Points-driven TVL leaves when the points end. Guardrail: lock multipliers, a pre-announced taper to partner co-incentives, and anchor capital as the base.
• Infrastructure and exploit risk. Boutique oracles and lock-and-mint bridges are the top exploit class. Guardrail: tier-1 oracle and institutional custody; burn-and-mint, never a third-party bridge.
• Investor-protection weakness. An issuer-only claim is weaker than a direct fund interest, and sophisticated LPs will scrutinize it. Guardrail: bankruptcy-remote ring-fencing, published proof-of-reserve, clear redemption rights.

The takeaway

The yield-bearing stablecoin market is past the phase where a big number on a homepage is a strategy. The benchmark rate is table stakes; everyone who matters can clear it. What’s scarce — and what actually compounds — is the boring, relationship-gated, hard-to-fake stuff: a token engineered as a composable building block, capital that’s sticky by mandate, fees that pay your distributors, infrastructure that passes diligence, and a risk structure that survives the bad week.

Yield gets you noticed. Distribution, credibility, and structure are what keep the money. Build for the second thing, and the first takes care of itself.

About the author

I run two digital-asset funds at 4RC with a portfolio spanning DeFi and stablecoin infrastructure — including EtherFi, Solv, Hyperbeat, Cap Labs, infiniFi, and Usual, among others. Before moving full-time into crypto, I spent five years at a ~$200B asset manager and have personally touched virtually every major protocol across every relevant chain. The analysis above is written from inside the machine, not from the outside looking in.

Disclosure: This piece was written with the help of AI and may contain inaccurate or misleading information. I hold investments in a number of protocols across this space, including some that operate in or adjacent to the categories discussed here. This piece is an analytical overview, not investment, legal, or tax advice, and not a solicitation of any kind. Figures are drawn from public sources (rwa.xyz, DefiLlama, protocol documentation, and reputable crypto press) and are accurate as of mid-2026; TVL, APY, and fee figures move quickly and are reported inconsistently across trackers, so treat all metrics as directional and verify before relying on them.

By: Keegan Selby, GP at 4RC

To celebrate today’s kHYPE launch, this essay will cover the rise of Hyperliquid and our investment thesis in Kinetiq, HyperEVM’s native liquid staking platform — now live.

Hyperliquid Origin Story

Hyperliquid was founded in 2023 by Jeff Yan and a Harvard classmate known pseudonymously as iliensinc. Following the collapse of FTX, they set out to create a sovereign L1 delivering CEX-grade performance with DeFi transparency.

In less than two years, Hyperliquid has grown into a ~$50B behemoth dominating decentralized derivatives with over 85% market share, nearly $5T in annualized volume, and $700M+ annualized protocol revenue. Launched without VC funding, market maker incentives, or paid listings, Hyperliquid has grown purely through product excellence and key design differentiators (centralized validators, atomic liquidations, builder codes, etc.).

In November 2024, Hyperliquid launched its native token $HYPE and rewarded roughly 94K early users with 27.5% of the total supply, currently worth over $12B making it the largest airdrop in crypto history. With over 97% of protocol fees (~$4M per day) being funneled into the Assistance Fund for HYPE buybacks, Hyperliquid has now amassed over $1B of HYPE in its treasury, and has signaled the potential to recycle these tokens into rewards or burn them for supply deflation in the future.

Today, Hyperliquid isn’t just the world’s premier perp DEX and onchain orderbook, it’s the “Blockchain to House All Finance” custom-built with HyperBFT consensus for sub-second block times and the HyperEVM smart contract layer, supporting dapps from DeFi (DEXs, liquid staking, stablecoins, money markets, yield providers, etc.) to onchain social and gaming.

With ~$2B of TVL already allocated to DeFi apps on Hyperliquid L1, points programs kicking off for HyperEVM airdrops, and almost daily recurring ATHs — HYPE has cemented its place as the fourth major cryptoasset for discerning investors alongside BTC, ETH, and SOL. The stage is now set for Hyperliquid’s next major catalyst.

Introducing Kinetiq

Kinetiq is Hyperliquid’s first truly native LST, allowing users to stake HYPE for kHYPE, a liquid receipt token that natively earns yield (currently 2–3% APY) and is composable across DeFi apps (borrow / lend, trade, loop, LP, etc.).

Kinetiq leverages Hyperliquid’s Read precompile and CoreWriter contract for interoperability between Hyperliquid’s DEX (10%+ of Binance’s OI), staking system (42% HYPE staked worth ~$20B), governance modules on HyperCore and rapidly growing DeFi ecosystem on HyperEVM.

kHYPE use cases include:

• Secure staking with optimized risk-adjusted yield and enhanced validator transparency
• Collateralization on Hyperliquid-native money markets and trading protocols
• Liquidity provisioning via AMM and order book pairs (e.g., kHYPE/HYPE, kHYPE/USDC)
• Network participation in governance for protocol upgrades and mechanism design

Kinetiq is also launching iHYPE, a custody-compliant variant of kHYPE targeting institutional participants including funds and market makers — current strategic validator and custody partners include Pier Two (SOC2 infra) and Hyperion DeFi (NASDAQ: HYPD).

Kinetiq Protocol Overview

While the final Kinetiq product roadmap is still in flight — community members anticipate three main flagship products: StakeHub, an autonomous validator selection system, Order Flow Auctions (OFA) creating a MEV engine with a 95/5% revenue split between kHYPE stakers and the Kinetiq treasury, as well as a HIP-3 perp deployer for tokenized RWAs on Hyperliquid.

StakeHub

StakeHub monitors and scores validators to algorithmically optimize user deposits for risk-adjusted yield in real-time based on three core metrics:

• Operational Performance: block proposals per second, normalized by stake weight
• Compliance: whether the validator has been slashed, jailed, or penalized
• Staked HYPE: total stake delegated, signaling network trust

Importantly, the system enforces a decentralization floor, ensuring stake isn’t overly concentrated in select nodes. As validator behavior becomes more observable (e.g., voting patterns, MEV usage), StakeHub’s scoring model will expand to capture additional layers of accountability and resilience.

MEV & Order Flow Auctions

​​In parallel with liquid staking, Kinetiq is rumored to be building a native MEV protocol designed to route and capture order flow value at the validator level. The system is built around permissionless Order Flow Auctions (OFA), allowing searchers, protocols, and wallets to submit transaction bundles directly to Kinetiq-managed validators, with economic value allocated via open auctions.

Unlike traditional MEV capture, which often fragments across relays or favors centralized operators, Kinetiq’s design aims to integrate MEV routing directly into the validator layer. At launch, the MEV client will likely be tightly scoped to searchers operating on HyperEVM, but the roadmap could include generalized auction logic, fee abstraction for dApps, and deeper integration into StakeHub’s validator scoring. This evolution turns kHYPE into an active MEV yield layer, tied directly to execution revenue at the validator level.

HIP-3 Perp Deployer

Finally, community members are also speculating that Kinetiq will partner with a key market operator to tokenize and deploy HIP-3 markets to bring the world’s most popular offchain assets (stocks, forex, commodities, indices, etc.) to Hyperliquid. Trading fees from the Kinetiq perp deployer would likely be distributed between market operators, kHYPE stakers, and the Kinetiq treasury for buybacks.

The Hyperliquid LST Opportunity

With nearly 90% of perp DEX market share by volume as the premier onchain venue for non-toxic flow, Hyperliquid is no longer just competing with decentralized orderbooks, but is now chipping away at market share from the leading centralized incumbents, i.e., Binance, Coinbase, Robinhood, etc.

As liquid staking remains a top category for TVL capture across chains, Kinetiq is uniquely positioned to dominate the LST opportunity on Hyperliquid.

Kinetiq’s Key Differentiators:

• Purpose-built for Hyperliquid ecosystem and validator infrastructure
• Autonomous delegation via Stakehub’s validator scoring algorithm
• Revenue share via MEV client and Order Flow Auction protocol
• Revenue share via protocol-owned HIP-3 markets
• kPoints and partner incentives from integrated ecosystem protocols
• Support from qualified custodians and extensive protocol audits
• Institutional onramps via iHYPE for large funds and market makers

Industry Benchmarks

• ETH: 29% staked, ~30% of staked ETH is liquid, Lido has 25% market share, 20–30% of LST TVL is unstaked annually (Dune)
• SOL: 67% staked, ~15% of staked SOL is liquid, Jito holds ~61% of LST share, 30–50% of LST TVL is unstaked annually (Dune)

Hyperliquid LST Market

• HYPE Supply: ~1B (~42% Staked = ~420M staked HYPE)
• Estimated Liquid Staking TAM: 20% of staked HYPE = 84M staked HYPE)
• Kinetiq Market Share: 30–60% = 25M — 50M kHYPE
• TVL Range: $1B — $2B+ ($45 HYPE Price)

kHYPE Yield Profile

• Base Yield: ~2.3% (Optimized via Stakehub)
• MEV Boost (OFA): +1.0%
• Protocol-owned HIP 3 Markets: TBD
• Total APY to kHYPE Holders: ~3.3%
• Annualized Yield for kHYPE Holders: $33M — $66M+

Kinetiq Protocol Revenue

• Unstaking Fee: 10bps
• MEV Rev Share: TBD
• Protocol-Owned HIP 3 Markets: TBD

Kinetiq Token Offering

• kHYPE: HYPE LST with auto-compounding yield, protocol revenue share, and incentivized DeFi composability
• iHYPE: Institutional HYPE LST for funds, market makers, and custodians.
• KNTQ: Governance token used to vote on upgrades, manage treasury, and control MEV routing strategy

Cracked Team

Kinetiq was co-founded by Omnia and a group of OG HL community members / seasoned solidity engineers, spanning backgrounds from traditional finance, systems architecture, MEV, and deep onchain trading. Most of the team has now been acquired, totaling 12 core contributors.

Concluding Thoughts:

Hyperliquid is a once-a-cycle paradigm shift — closing the gap between centralized exchanges and decentralized protocols. With major exchange listings, growing demand from public company treasuries, front-ends like Phantom (15M+ MAUs) plugging into the orderbook via builder codes, and the Assistance Fund on pace to absorb all ready-for-sale HYPE within a few years, our conviction lies solely in one long-term direction of travel for HYPE and kHYPE: higher.

Kinetiq is the next chapter in Hyperliquid’s success story. By embedding native liquid staking (kHYPE), MEV capture (OFA), validator intelligence (StakeHub), and injecting trading fees on endogenous perp markets (HIP-3 deployer) into the fabric of the protocol, kHYPE transforms passive staking into a high-performance yield engine, built for scale and all-weather sustainability.

Today’s Kinetiq launch provides the holy trifecta of alpha: pure secure HYPE exposure, native yield from differentiated revenue streams, and the opportunity to farm one of the most anticipated HL eco airdrops in KNTQ.

TLDR: Fade HYPE at your own risk. Stake on Kinetiq.

Hyperliquid.

Disclaimer: Investor in Kinetiq and Hyperliquid. Not Financial Advice.

1. Total Crypto Market Cap Reaches $10T
   Drivers: BTC dominance, stablecoin/RWA expansion, regulatory easing, no-code token launch platforms, AI agent tokens, generational/global wealth transfer from equities/bonds to crypto.
2. BTC Will Achieve 25% of Gold Market Cap Hitting $250K
   Drivers: Nation-state adoption of Bitcoin reserves, corporate balance sheet adoption of Bitcoin, spot ETF flows, 401(k) allocation, DeFi yield options, post-halving bull cycle.
3. ETH Will Triple Its ATH Reaching $12K and Enter Top 10 Assets by Market Cap
   Drivers: Spot ETF flows, staking yields, RWA adoption, scalability upgrades, supply shock due to DeFi TVL/staking/burn/ETFs, EIP-7702 enables “smart accounts,” institutional preference (BlackRock, Chase, Amazon, Microsoft).
4. Tokens With ETFs Will Not Crash >50% in Sub-12-Month Timespans
   Drivers: Options products, larger market makers, long-term hold nature of ETF/401(k) products.
5. Total Stablecoin Market Cap Will 5x to $1T
   Drivers: M2 supply increase, US stablecoin regulation passes, foreign CBDCs launch, expansion of DeFi structured products, CEXs enable borrowing.
6. Crypto M&A Will Explode With Over $10B in Total Volume
   Drivers: Web2/TradFi acquirers, Web3 consolidation, regulatory easing at FTC/SEC, prolonged bear market creating runway distressed acquisition targets.
7. Total RWA TVL Grows 10x to $100B
   Drivers: RWA use cases expand beyond dollars/T-bills to onboard real estate, private equity, and private credit; nation-states (UAE) create favorable regulatory sandboxes chasing the Cayman/Swiss model.
8. AI Agents Will Account for More Than 50% of On-Chain Activity
   Drivers: New model/developer tooling releases, agent-based trading/asset management/governance, transition to intent-driven UX in DeFi interfaces/wallets.
9. MVM Chains Flip SVM in Aggregate Market Cap
   Drivers: Led by Sui, Aptos, and Movement Labs; security exploits drive Move programming language adoption against rising costs of smart contract insurance for EVM/SVM-based protocols.
10. Web 2.5 Consumer Applications Will Gain Mainstream PMF in Prediction Markets, Social Media, and Gaming
    Drivers: Continued rise in demand for venues to speculate, AAA game releases, Web2 brand partnerships, UX parity with Web2 platforms via obfuscated wallets/bridging/transactions, proliferation of Web3 identity enabling superior ownership, incentives, and censorship resistance.

Disclaimer: As with all predictions, these are not guarantees, but represent best informed estimates. The future is complex and conditional, and whether these pan out exactly as written will depend on many complicated factors. Nothing above is investment advice.

The US Election has opened the floodgates for the digital asset class, and the market’s response has been electric. 2025 could be the year our industry declares checkmate in a decade long war for institutional adoption and reasonable regulation, embedding itself as a cornerstone of the new financial world order. Here’s a look at the latest developments and flows driving crypto’s total market capitalization to all-time highs.

1. US Regime Change

U.S. Strategic Bitcoin Reserve: Senator Cynthia Lummis has officially introduced the Bitcoin Act of 2024, aiming to create a Strategic Bitcoin Reserve for the U.S., and the bill has gained meaningful momentum after Trump’s election and Bitcoin’s subsequent price surge. The Act proposes acquiring 1 million Bitcoins (approx. 5% of the total supply) over five years, with funds offset by Federal Reserve remittances or gold sales. Analysts expect this move to catalyze global superpowers including China, Russia, and the EU to advance their own agendas amidst the digital gold rush.

Gary Gensler’s Departure from SEC: The resignation of SEC Chairman Gary Gensler is expected to usher in a friendly and collaborative regulatory environment for cryptocurrencies, leading to an influx of onshore innovation and fewer legal hurdles for US crypto companies. The shift is also expected to result in long-awaited clarity around the classification of digital assets, specifically defining securities vs commodities and their respective regulators in the SEC and CFTC.

President Trump meeting with Coinbase CEO, Brian Armstrong: Trump’s meeting arrangement with Armstrong signals further political endorsement of the digital asset class, and reports from Investors.com suggest a focus on the future regulatory landscape and Trump’s cabinet / administration selection including:

• J.D. Vance — As Vice President-elect, Vance holds approx. $500K in Bitcoin. He actively campaigned on a pro-crypto platform supporting friendly legislation in the Senate and has fought for protections against traditional banking cutoffs.
• Howard Lutnick — Expected to be nominated as Secretary of Commerce, Lutnick’s firm, Cantor Fitzgerald, manages the U.S. Treasury reserves for Tether, confirmation of his deep ties to the industry.
• Robert F. Kennedy Jr. — Although nominated for Health and Human Services, RFK Jr. has publicly expressed support for Bitcoin, describing it as a currency of freedom and a hedge against inflation.
• Scott Bessent — Trump’s leading pick for U.S. Treasury Secretary is on record as pro-crypto, particularly pro-Bitcoin.
• Teresa Goody Guillén, Daniel Gallagher, Hester Peirce, Mark Uyeda, Paul Atkins, and Chris Giancarlo — These individuals are being considered for leading roles in key financial oversight bodies like the SEC and CFTC due to their pro-crypto stances or past involvement with regulatory frameworks favorable to digital assets.
• Elon Musk & Vivek Ramaswamy— While not a cabinet pick, Musk’s influence on Trump’s administration and his public support for cryptocurrencies, especially Dogecoin as a branding inspiration for the Department of Government Efficiency, aka “DOGE”, which he’ll lead alongside Vivek Ramaswamy, are pervasive in the broader crypto conversation.

Elimination of Capital Gains on US Crypto Companies: To top it all off, whispers of a potential policy change being considered by the Trump administration to eliminate capital gains tax on crypto for U.S.-based companies could heavily incentivize domestic innovation and investment.

2. ETF Dominance

Net Flows: The Bitcoin ETF has achieved record-breaking inflows, as BlackRock’s iShares Bitcoin Trust (IBIT) recorded over $1.1B in a single day on November 7th following Trump’s election victory. Overall, BTC ETFs are on track to $30B in first year net inflows, highlighting intense investor interest exceeding most best case expectations.

BTC Options: Options started trading on Nov 19th for the iShares Bitcoin Trust (IBIT) on Nasdaq, introducing calls and puts for Bitcoin exposure. With an “unheard of $1.9B in first day volume”, investors are now able to hedge their positions and speculate on Bitcoin’s price without owning the spot cryptocurrency directly. The launch is expected to dramatically increase market liquidity, attract additional institutional investment via sophisticated trading strategies, and indicate higher highs for BTC given 82% of the volume went to calls.

ETH Staking: The reconsideration of staking in Ethereum ETFs would allow funds to lock up their ETH to earn rewards, enabling ETFs to offer yield in addition to spot exposure. While there are valid concerns around centralization, governance, and slashing risks, the industry remains optimistic that staking is on the ETF roadmap, strengthening both demand and supply sinks for ETH itself.

3. The M&A Space Race

Stripe Pays $1B for Bridge: Stripe’s acquisition of Bridge broke the M&A price tag record in the crypto industry to date, and could double Stripe’s transaction volume as it integrates blockchain-based payments across its vast network.

DJT Buying Bakkt: Donald J. Trump’s DJT has sent waves across the crypto ecosystem with its rumored acquisition of Bakkt, a regulated crypto trading and custody platform known for its institutional grade infrastructure. A recent Financial Times report suggests that this acquisition could provide direct and trusted crypto access for Trump’s large traditional base.

Robinhood Acquires BitStamp: Robinhood Markets, Inc. has agreed to acquire Bitstamp, a well-established global cryptocurrency exchange, for approximately $200 million in cash. The acquisition, set to close in the first half of 2025, aims to significantly enhance Robinhood’s international presence in the crypto market. Bitstamp’s established infrastructure, with over 50 active licenses worldwide, will bolster Robinhood’s capabilities in serving both retail and institutional clients across the EU, UK, US, and Asia.

4. Product-Market Fit

Stablecoins: Stablecoins have found their stride as a bridge between traditional finance and the volatile crypto market, evidenced by their 3,800% growth from $4 billion to over $156 billion between 2020 and 2024. Their use in facilitating fast, affordable, and borderless financial transactions has been a key driver, with over 80% of trading volume on most centralized exchanges facilitated through stablecoins. The EU’s MiCA (Markets in Crypto-Assets) will be fully implemented on December 30th 2024, further driving regulated adoption.

Real-World Assets: Tokenizing RWAs enables instant settlement, allows for fractional ownership, and permits 24/7 trading, thus making investment in traditionally illiquid assets more accessible globally. BlackRock has ventured into this space with their Ethereum-based BUIDL fund, currently holding over $500M in AUM, as well as Fidelity, through its digital assets division, and Goldman Sachs, via their tokenization platform GS DAP™.

AI Agents: As blockchains provide a digitally native and programmable payment platform for AI agents to autonomously transact services, resources, or data, free from traditional KYC reliant financial systems, it is estimated that by 2025, AI-driven trading could account for up to 40% of all crypto volume. In other words, AI agents could soon become crypto’s largest demographic.

Conclusion

2025 will not only continue crypto’s cyclical rise to prominence, but usher in a true renaissance for digital asset adoption. This new era will see our industry transcend its speculative origins to become essential infrastructure for the next global economic epoch.

Disclaimer: The information provided in this article is for informational purposes only and should not be considered financial advice. Always conduct your own research or consult a financial professional before making any investment decisions.

As we enter the final quarter of 2024, telltale signs are pointing to the return of the bull market. As macroeconomic shifts and institutional inflows converge with undeniable fundamentals in real world use cases, the stage is set for our favorite show to begin once again. In this letter, we’ll explore the key catalysts driving momentum to a tipping point for the digital asset class.

1. Global Liquidity Back On The Rise

The bottom is likely in for global liquidity as central banks worldwide pivot to easing monetary policies. The Federal Reserve, after raising interest rates from near zero in 2022 to over 5% in 2023 (the most aggressive since the 80s), signaled a regime shift in September 2024, reducing rates for the first time in more than four years with a 50 bps cut. Further cuts totaling 50–75 bps are expected by year’s end, followed by another 100–150 bps in 2025 to bring the target rate below 3% by 2026.

Globally, central banks have either frontrun this shift or are following suit. The People’s Bank of China is not only slashing rates but is rumored to also be considering up to ¥10T ($1.4T) of stimulus. The European Central Bank has already cut its deposit rate to 3.5%, and despite expectations for Japan to gradually reduce its monthly bond-buying program, analysts are still forecasting an additional ¥50 trillion ($330B) of purchases in 2025. Historically, floods of global liquidity like these have found their way into risk-on assets, and crypto is no exception.

After two years of legal proceedings, FTX is set to redistribute $16 billion in liquidity to users starting in Q4 2024, rejuvenating market sentiment and asset prices. Approximately 98% of claimants have amounts under $50,000 and will receive about 118% of their USD claims based on November 2022 crypto prices.

Airdrops from major projects like Eigenlayer, ZKsync, LayerZero, and Wormhole have already injected billions of dollars into the crypto market in 2024. This trend shows little signs of slowing down, with further airdrops coming from big players among the likes of Eclipse, Monad, Scroll, and more.

2. Institutional Adoption Accelerating

Blackrock CEO, Larry Fink has been crystal clear in his view that tokenization is “the next generation of markets.” The approval of Spot Bitcoin ETFs for Blackrock, Fidelity, Grayscale, and others has already attracted over $20 billion in net inflows this year. Analysts expect these products could hold over $200 billion in assets by the end of 2025 as they gain traction among wealth managers and institutional investors.

Additionally, the SEC’s approval of Spot ETH ETFs as well as options trading on BlackRock’s Spot Bitcoin ETF is providing sophisticated investors with critical tools to diversify and hedge exposure, further increasing confidence in the asset class.

Major corporations are deepening their integration with crypto. MicroStrategy, one of the largest Bitcoin holders globally, now holds over 252,000 BTC, with an unrealized gain of $6.75 billion. Tesla, whose holdings total over 11,500 BTC, is considering resuming Bitcoin payments for vehicle purchases. JP Morgan onboarded Siemens to Onyx, their blockchain solution allowing institutional clients to program and automate treasury operations with real-time digital payments. Visa processed over $2.5 billion in crypto transactions in 2024, Mastercard’s crypto debit card program reached over 12 million users globally, and Stripe is once again powering crypto payments in 150+ countries.

3. Political Tailwinds for Regulatory Clarity

The regulatory environment is shifting rapidly, especially in the United States where the 2024 presidential election represents a major turning point for crypto. If elected, Republican candidate Donald Trump has vowed to make the US the “crypto capital of the planet,” pledging not to sell the US’ remaining reserves of 200k+ BTC (US is among the five largest BTC holders in the world thanks largely to various confiscations).

Trump recently spoke at the Bitcoin Conference, sold out an NFT collection, and launched World Liberty Financial (WLFI), a decentralized finance (DeFi) platform that focuses on stablecoins and borrowing/lending markets which recently submitted a governance proposal to integrate with DeFi heavyweight Aave.

For his VP candidate, Trump selected Ohio Senator JD Vance who served as a US Marine, studied law at Yale, and worked in venture capital under Peter Thiel. In 2022, Senator Vance disclosed owning up to $250k in BTC and is on record denouncing Gary Gensler as the “worst person” to regulate crypto at the SEC, given his regulation by enforcement approach targeting tokens with utility specifically, which Vance dismantled as the exact opposite approach of a regulator fighting for the interest of American companies and investors. The 40 year-old senator’s pro-crypto record — from voting to reverse SAB 121, which aimed to block US banks from custodying crypto, to slamming the SEC for their “unethical and unprofessional” prosecution of crypto firms — has given crypto super PACs reason to believe that a Trump/Vance administration could bring an end to the overreach of the SEC and FTC in stifling innovation and M&A.

On the other side of the aisle, Democratic party candidate and current US Vice President Kamala Harris has recently pivoted to a pro-crypto stance as well stating “We will … remain dominant in AI, quantum computing, blockchain, and other emerging technologies.” Although she has yet to publish details on how her campaign plans to support the industry specifically, her latest posturing signals that support for crypto is becoming a bipartisan issue.

In Congress, several important bills are advancing that could bring much-needed regulatory clarity to the crypto space. The Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the House in May 2024, seeks to establish clear jurisdictional boundaries between the SEC and the Commodity Futures Trading Commission (CFTC) for digital assets. Additional legislation such as the Lummis-Gillibrand Responsible Financial Innovation Act (RFIA), Digital Commodities Consumer Protection Act (DCCPA), Eliminate Barriers to Innovation Act of 2021, and Token Taxonomy Act are also being considered by Congress and if passed, would likely encourage further institutional investment and innovation.

Having long served as financial epicenters for Europe and Asia, Switzerland and Singapore and are now cementing themselves as key partners for the digital asset industry thanks to favorable regulatory/compliance frameworks and the provision of critical banking infrastructure. El Salvador, the first country to make Bitcoin legal tender, continues to expand its Bitcoin-related projects and now holds 5,750 BTC in its treasury. With zero capital gains tax and a regulatory sandbox to foster innovation, the UAE has also emerged as a global crypto hub, while India leads the world in retail and institutional crypto adoption, driven by a young, large, and increasingly tech-savvy population. Even smaller countries like Bhutan are leveraging their natural resources to mine Bitcoin, generating revenue and holding a portion of it in their national treasury.

4. Fundamental Performance & Product Market Fit

On-chain activity is currently at an all-time-high with 220 million addresses interacting with a blockchain at least once in September, up 3x YoY and tracking the pace of internet adoption in the 90s. Bitcoin transaction volume has grown to surpass that of both Visa and Mastercard, and Tether, the largest stablecoin issuer with a USDT market cap of ~$120bn, reported a record-breaking profit of $6.2bn for 2023, out-earning even Blackrock’s annual net income of $5.5bn.

When it comes to crypto companies putting up KPIs formidable to even the largest of traditional finance incumbents, Tether is not alone. There are now over 10 projects producing over $300mm in annual fees; for reference, J.P. Morgan’s trailing twelve month revenue clocks in at just over $170bn.

A major shift in the overton window for token economics is also taking place as major protocols are taking progressive steps to directly link token value accrual to protocol revenue and treasury holdings through various mechanisms including buybacks and dividends. Uniswap recently announced their Unichain, which will allow $UNI stakers to earn sequencer revenue, a step many see as the first on the path to redirecting up to 10% of the protocol’s $700bn in current annualized trading fees to the protocol treasury, and eventually $UNI stakers.

Looking more broadly at the asset space, crypto is beginning to shed its label of speculative “magic internet money” as real-world use cases gain traction:

Payments:

• Wirex and Visa are expanding their partnership to accelerate the adoption of Web3 payments. This collaboration will allow Wirex to issue crypto-enabled Visa debit and prepaid cards in over 40 countries and over 80 million Visa merchants worldwide.
• SWIFT is also set to trial live digital asset and currency transactions starting in 2025, collaborating with global banks across North America, Europe, and Asia.

Real World Assets (RWA):

• Franklin Templeton is tokenizing over $335mm in U.S. Treasuries through its On-Chain U.S. Government Money Fund, accounting for 36% of the tokenized treasuries market​.
• BlackRock is working with Securitize to explore tokenized private equity, real estate, and other alternative investments, in an attempt to bring liquidity to traditionally illiquid assets.
• Goldman Sachs is working on tokenizing bonds and financial instruments via its blockchain-based Digital Asset Platform, recently completing a $100M bond issuance on its private blockchain.

Decentralized Physical Infrastructure Networks (DePIN):

• DePIN is gaining momentum as real world use cases and consumer apps find product market fit in decentralized storage (Filecoin produced over $25mm in 2023 revenue), compute (Akash’s user fees are up 2,000% YoY as of Q3 2024), wifi (Helium has deployed over 1mm hotspots worldwide), mapping (Hivemapper has mapped about 5% of the world’s roads), and rideshare (Teleport launched pilot cities in May 2024 charging drivers only 15% vs Uber’s 44%).

Gaming

• Off the Grid, developed by Gunzilla Games, is the first blockchain-based game to launch on PlayStation 5. Built on Unreal Engine 5 and the Avalanche blockchain, this battle royale shooter integrates NFTs by allowing players to mint rare in-game items such as weapons and armor. Although the game’s native GUN token has yet to launch, the ecosystem offers a mix of Web3 features, blending pay-to-win mechanics with traditional gameplay. In its first week, Off The Grid has seen over 5mm new wallets created to trade in-game assets on its on-chain marketplace, and is currently sitting at #1 on the Epic Games Store.

The Downside

If the above catalysts were indeed as undeniable as they appear, the market would surely be pricing assets higher already, so before returning to unfettered optimism, it’s important to identify the key suspects that could derail market momentum.

Geopolitically, the temperature of hostility in the Middle East continues to rise. Iran recently launched 200 ballistic missiles at Israel, prompting allies on both sides of the conflict (namely Russia and the US) to consider escalating involvement, an event which would likely destabilize global markets. If tensions between the U.S. and China or Russia and Ukraine continue to escalate, the potential for unified broader conflict between the world’s greatest superpowers across multiple theaters becomes an obviously concerning path to World War III.

While on the economic front, a global recession remains a looming threat. If surging oil prices driven by OPEC production cuts linger and inflationary pressures in key sectors like real estate, particularly in China, remain persistent, central banks may be forced to reverse course and once again tighten purse strings worldwide.

Zoom Out

Long before the inception of our asset class, markets have endured pandemics, recessions, and wars, chugging along an eerily consistent cycle.

While few periods in history have enjoyed risk-free investment conditions, the fact remains that in the long run, technology and innovation prevail to the upside of money in the market.

As the digital asset revolution rages on, I find it comforting to reduce it to this: in the age of the internet, what battles have already been won and who will win next? Encyclopedia vs Wikipedia, Mail vs Email, Blockbuster vs Netflix, Taxi vs Uber, Bookstore vs Amazon, Fiat vs Crypto, TradFi vs DeFi, Web2 vs Web3, Last-Gen vs Next-Gen.

On long time horizons, trends become clear, and mid-curve mental gymnastics are the enemy of returns.

Alas, I leave you with this my friends. Zoom out, see the cycle, and position yourself accordingly.

Long Term Yield Hacking

The main idea here is to develop a thesis, build a portfolio of symbiotic investments around the use case, and compound your positions with passive income strategies like staking and liquidity provision.

Let’s consider the $600T derivatives market which represents a killer app for decentralized exchanges and oracles. As Chainlink and Synthetix feature tokenomic models that effectively capture value from this use case and reward it back to network participants to drive token demand/appreciation— they are ideal investment candidates for our derivatives thesis.

Additionally, we can speculate that synergies between their use cases would produce a high degree of correlation in their token values. For example, as Chainlink oracles enable a wider variety of Synths, trading volume should increase on Synthetix Exchange, increasing rewards available to SNX holders as well as demand for the SNX token required to claim them. Vice versa, increased trading on Synthetix requires increased usage of Chainlink oracles, increasing demand for the LINK token used to compensate node providers.

To compound these investments, users can stake SNX (currently ~ 53% interest p.a.) and use LinkPool to provide collateral for nodes and earn a share of their rewards.

Additionally, user can trade their sUSD minted from staking SNX into a variety of Synths to increase exposure (sETH) or hedge (iETH).

While sound tokenomics and synergies support long term investment theses, DeFi’s rapidly evolving marketplace is also ripe with lucrative short term opportunities, namely arbitrage.

Short Term Yield Hacking

By combining DeFi primitives like CDPs (Collateralized Debt Positions), Interest Bearing Liquidity Pools, and Derivatives, traders can lever up positions to make sizable gains on a variety of low-margin plays. With risk mitigated by low-cost capital and pseudo-anonymity, good and bad actors alike flock to DeFi’s Wild West for a piece of the pie.

“Yield Hacking” strategies (like those proposed below) can produce attractive risk-adjusted returns when timed and executed properly.

Flash loans, introduced by the lending and borrowing protocol Aave, take leverage one step further, enabling borrowers to take out completely uncollateralized loans as long as they repay within the same Ethereum transaction.

Since the ethereum network uses atomic settlement, smart contracts must be executed in their entirety, meaning if the trade does not result in enough profit to repay the flash loan, the entire transaction fails and the trade never takes place. It wasn’t long before yield hackers realized that with a little clever scripting, smart contracts can be designed to leverage flash loans for risk-free arbitrage (i.e., borrow funds, buy low on one exchange, sell high on another, pay back the loan, and extract the profits — all in a single transaction).

Now armed with nearly zero-cost capital, yield hackers and their armies of bots scoured the ecosystem for opportunities to manipulate markets, arbitrage inefficiencies, and exploit poor system design. Within a week of the trading protocol bZx enabling flash loans, attackers exploited oracle vulnerabilities to capture nearly $1M worth of Ethereum without putting up a penny.

The post-mortem revealed that the culprits likely targeted bZx as it relied on single exchange based price feeds, which they manipulated through pump and dump schemes to increase the spread and profitability of arbitrage. According to Chainlink CEO, Sergey Nazarov, using a single third-party exchange for your price feed is an easy way to paint a target on your back for attackers — bZx has since implemented Chainlink’s decentralized price feeds to neutralize this vulnerability.

Due to the trustless and pseudo-anonymous nature of DeFi, these “attackers” remain unidentified and unpenalized for their exploits.

Conclusion

Like the old Wild West, the new DeFi landscape is rich in both opportunity and risk. As open protocols proliferate new products, thesis-driven investors will refine valuation methods and earn passive income while yield hackers leverage low-cost capital to hunt and amplify opportunities for profit.

Only time will tell how the future of global finance unfolds, however, if there’s anything you can predict with utmost certainty, it’s going to be one hell of a ride.

Hope you enjoyed and thanks for reading!

Disclaimer: All of the information (above and linked) is for entertainment purposes only and is not to be taken as investment or financial advice. I hold long positions in the projects mentioned and abide by a no trade policy 3 days before and after publishing of this article.

Yield Hacking in DeFi was originally published in The DeFi Opportunity on Medium, where people are continuing the conversation by highlighting and responding to this story.

Lending

The process of locking up funds on P2P and pooled lending platforms for a period of time to earn interest.

• Difficulty: Low — Once you’ve acquired cryptocurrency holdings, you can passively lend and rely on smart contracts liquidation thresholds to preserve your initial loan amount and earn interest
• Profitability: Average (< 10% p.a.) — Interest rates can be fixed or variable based on current market rate and users can shop for the highest interest rates between platforms on Loanlist
• Risk: Average— While most lending products are currently over-collateralized and feature automated liquidations to protect lenders, the possibility of smart contract bugs and price volatility/opportunity cost while assets are locked (illiquid) should be considered carefully
• How to Get Started: Aave

Liquidity Provision

DEXs offer the opportunity for Liquidity Providers to deposit ETH and ERC20 tokens into a liquidity pool in exchange for a proportional amount of its trading fees.

• Difficulty: Low — Simply deposit an equivalent amount of ETH and an ERC20 token into the pool
• Profitability: Variable — Trading fee based rewards vary with exchange volume and total liquidity
• Risk: Average — Similar to lending, the primary risk in liquidity provision is price volatility. Proper hedging strategy can help offset volatility risk at the expense of profitability
• How to Get Started: Uniswap

Staking

The process of storing tokens in a specific wallet and performing various network functions to receive a reward. Staking is an alternative consensus mechanism to mining.

• Difficulty: Average — The degree of active involvement required to earn staking rewards varies by token, but can include functions like weekly minting/burning to maintain a specified collateralization ratio
• Profitability: High (5–60% p.a.) — Staking rewards are attractive but come with their fair share of risk. Current rewards can be sorted and analyzed on StakingRewards.com
• Risk: High— Due to the risk of slashing and the network activity required to remain eligible for staking rewards
• How to Get Started: Synthetix

Zero-Loss Lottery Pools

These pools are essentially savings accounts with weekly interest pooled and awarded to one lucky winner via lottery system.

• Difficulty: Low — Simply purchase digital lottery tickets via platform interfaces to enter for a chance to win
• Profitability: Variable — As with most lottery systems, profitability per ticket adjusted for the probability of actually winning is low
• Risk: Low — Given that the smart contract is bug-free, your capital will be returned in full at the end of the lottery period
• How to Get Started: PoolTogether

Options Trading

Options contracts offer the buyer the opportunity to buy or sell an underlying asset at a later date. In a sideways market, options can be used as an income strategy by selling covered calls.

• Difficulty: High — Due to the precise timing and execution required to trade options at a profit
• Profitability: Variable — Profitability of selling covered calls is dependent on the interest premium and price movement
• Risk: High — Due to the high degree of volatility in crypto markets, even skilled traders often fail to accurately predict price movement. Additionally, as Options aren’t widely available yet, there is platform and liquidity risk to consider when trading
• How to Get Started: Opyn

Node Operation

Running nodes is a technical process similar to running a server requiring the performance of several functions to maintain network uptime and capacity.

• Difficulty: High — Due to its highly technical nature, networks often only designate specific users with a proven track record and sufficient capital for node operation
• Profitability: Variable — Due to the significant upfront investment to become eligible for node operation coupled with network adoption risk, profitability may vary
• Risk: Variable — Risk is based on the competence of the node operator to avoid slashing and incentive structure of the network. Third party node infrastructure providers are also becoming available to mitigate risk and reduce operating overhead/expense
• How to Get Started: Edgeware

Mining

The process of using specialized computing hardware to solve complex cryptographic math problems to secure a blockchain network for a reward.

• Difficulty: High — The mining industry is dominated by corporations with significant resources to research and develop the required hardware
• Profitability: Low — Due to fully-scaled competitors and high-cost overhead
• Risk: High — While lower hash rate Proof of Work (POW) coins can still be profitable to mine for individuals, they are often subject to high price volatility and low liquidity
• How to Get Started: Ethereum (moving to Proof of Stake soon)

As with any investment strategy, it’s imperative to thoroughly understand the associated risks and implement best practices for downside protection. The information above is intended as a high-level overview and starting point to understanding the current risk/reward profiles of each passive income opportunity — as always, be sure to DYOR.

In my next post, I’ll describe how crypto traders are using DeFi primitives like leverage and flash loans to convert low margin arbitrage opportunities into highly profitable low risk trades.

Hope you enjoyed and thanks for reading!

Disclaimer: All of the information (above and linked) is for entertainment purposes only and is not to be taken as investment or financial advice.

Passive Income Strategies in DeFi was originally published in The DeFi Opportunity on Medium, where people are continuing the conversation by highlighting and responding to this story.

A common complexity when dealing with emerging technologies is the ability to accurately forecast the future value of a project that may have utility and growing adoption but lacks the standard metrics used for asset, earnings, and market-based valuation. Regardless of a token’s stats on CoinMarketCap, prudent investors should perform the following due-diligence before buying.

Fundamental Analysis

A quantitative and qualitative evaluation of an asset’s intrinsic value.

Key Fundamentals:

• Whitepaper: Use Case for Decentralization, Tokenomic Model, Governance Structure
• Market Share: Total Addressable Market (TAM), Market Cap, Liquidity, Active Users, Transaction Volume, Fees or Revenue Generated
• Team: Founders, Leadership, Developers, Engineers, Investors, Advisors, Business Development, Marketing, Partnerships, Community Engagement

Evaluation Example: Chainlink

• Description: Chainlink is a decentralized oracle network connecting smart contracts to the off-chain data feeds, APIs, and payment systems required for real world application.
• Total Addressable Market: Let’s consider the international payment network SWIFT, which has been in discovery to integrate Chainlink in its financial messaging system for bond payments since 2017, as a proxy for one of its addressable markets. In Feb 2020, SWIFT recorded an average of 36.7M FIN messages per day — assuming just 10% of this message volume is related to Chainlink’s initial scope of bond payments, the SWIFT partnership alone would represent over 3M transactions per day. In comparison, the entire Ethereum network averaged roughly 750K transactions per day over the last year with an average market cap of $20B (about 20x the current market cap of Chainlink). Note: Chainlink’s TAM extends far beyond bond payments (see Partnerships below). LINK Marines (Chainlink community members) anticipate that Chainlink will become the TCP/IP of blockchain.
• Use Case for Decentralization: Smart contracts are only as reliable as the data they use to trigger execution — if a smart contract uses a centralized oracle for its data feed, then there is a single point of failure for malicious actors to attack. For example, if a $1M superbowl bet is placed using a smart contract with a centralized data oracle, the bettor only has to successfully manipulate the game score reported by one source in their favor to trigger the automatic transfer of funds to their account (regardless of the real world outcome of the game). Chainlink mitigates this risk by using a decentralized oracle network to provide accurate inputs and outputs for enterprise-grade smart contracts.
• Tokenomic Model: Chainlink’s native token (LINK) is used to compensate the data providers and payment networks servicing the network. LINK is awarded to nodes with accurate responses and taken away from those with inaccurate/incomplete data. This system establishes a reputation score for oracles and allows high value smart contracts to require larger amounts of LINK as collateral from node operators to better ensure data accuracy. This makes LINK an asset with scarcity, utility and passive income opportunities whose value is directly related to usage of the network.
• Team: Sergey Nazarov (CEO) and Steve Ellis (COO) are tenured leaders with significant expertise in their roles, respect from the community, and years of experience in smart contracts. They have secured first mover advantage in the decentralized oracle network as well as critical acquisitions such as Town Crier and smartcontract.com. The Engineering and Operations team has a proven track record in software and blockchain tech with support from the industry’s leading technical advisors in Ari Juels (co-director of IC3), Evan Cheng (co-creator of LLVM for Apple, Google, Intel, etc.), Hudson Jameson (Community Manager at the Ethereum Foundation), and Andrew Miller (leading researcher and advisor at Zcash and Tezos). Non-technical advisors include Tom Grosner (Founder of DocuSign), Jake Brukhman (CTO at Triton Research), and Brian Lio (CEO of Smith & Crown). Business Development efforts led by Dan Kochis have debatably secured more significant partnerships than any project in the space, with Marketing/Community Management achieving similar success among token investors. The Chainlink community (aka LINK Marines) is widely recognized as one of the most loyal and engaged constituencies in crypto.
• Partnerships: Chainlink continues to announce partnerships with some of the biggest names in Crypto, Legal, Insurance, Internet, Software, Retail, and other industries, including: Google Cloud, Oracle, Open Law, Credits, Binance, ZeppelinOS, Dapps Inc., Matic Network, Web3 Foundation (Polkadot), Synthetix, and dozens more.
• Price Prediction: Based on Chainlink’s TAM, Tokenomic Model, Network Activity (in terms of both users and transactions), Team, and Promising Partnerships, I’m targeting a base case token price of $15 and best case of $30 by 2022.

While Fundamental Analysis is critical for any investment, particularly cryptoassets, let’s take a more quantitative look at projects with the cash flow and competition required to tailor existing methods like Price to Earnings (P/E) and Discounted Cash Flow (DCF) for token valuation.

Revenue produced by DeFi networks is typically driven by usage based fees rewarded directly to liquidity providers or used to burn the native token (reducing total supply). In order to apply these traditional frameworks to crypto, I’ll be using data aggregated by Token Terminal to drive model assumptions.

Price to Earnings Ratio (P/E)

• Formula: In Crypto, P/E = Liquid Market Cap / Annualized Revenue
• Description: P/E ratio is a simple and widely used investment heuristic to quickly compare the relative value of an asset to its competitors or its own historical performance. While lower P/E ratios are generally preferred by investors as they represent a lower share price per dollar of earnings — higher P/E ratios may indicate that traders anticipate future growth. Willy Woo and Chris Burniske introduced the first crypto adaptation of this ratio, NVT (Network Value to Transaction Volume), in 2017. NVT uses Transaction Volume as a proxy for Earnings for cryptocurrencies like Bitcoin whose primary function is payments and store of value. Since fee structures can vary between DeFi projects, we’ll use Fee Revenue as our denominator (NVF) to yield a ratio that can be compared from project to project without adjusting for different fee structures.
• Use Cases: Exchanges, Prediction Markets, and other cash-flowing networks
• Best Practices: When using Relative Ratios like NVT or NVF to compare investment options, it’s best practice to calculate medians for each category as a baseline for what numerical ranges could indicate under or over-valuation. Extremely high ratios like those of Tezos and Cosmos above can indicate overvaluation as they highlight a competitive discrepancy between the network’s current value and the propensity of its tokenomic model to generate fees, relative to similar protocols.
• Challenges: Network effects from the limited availability of fiat onramps can impact investment allocation (i.e., the Coinbase Effect), giving first movers (like 0x) the advantage.

Valuation Example: Synthetix

• Platform Overview: Synthetix is a decentralized exchange for trading synthetic assets (Synths) whose prices track the direct and inverse (long and short) movement of fiat, crypto, and commodities, with equities, indices, and other derivatives on the road map. Synths are collateralized by the network’s native token SNX which derives its value from Synth trading fees. SNX holders are incentivized to stake their tokens as they are paid a pro-rata portion of the fees generated on Synthetix.Exchange.
• Growth Potential: Synthetix’ 2020 Road Map features the addition of Leverage and Synths for equities (TESLA), Indicies (S&P 500), and Derivatives (Binary Options, Futures). Given that the total addressable market (TAM) for derivative trading is estimated at $600T annually, Synthetix is poised to capture share in the largest market on earth as the only DEX with infinite liquidity and zero slippage.
• Price Prediction: The following forecast estimates a price of $6.44 (just over 9x the current price of $0.70) in 2022 under these assumptions:
• Synthetix reaches a daily exchange volume of $10M (BitMEX is currently over $1B)
• Traders price SNX at a NVF Ratio of 158 (MakerDAO is currently valued at 214 and 0x is over 15,000 — neither of which directly offer leveraged derivatives)

Discounted Cash Flow Analysis (DCF)

• Formula: DCF = CF1/(1+r)1 + CF2/(1+r)2 + CFn/(1+r)n. Where, CF = the cash flow for the given year, CF1 is for year one, CF2 is for year two, CFn is for additional years, and r = the discount rate.
• Description: DCF is an absolute valuation method that discounts future cash flows to estimate present value. Unlike the relative P/E ratio, DCF does not require comparison to industry peers — it is simply compared to the current value of the asset. If the present value of future cash flows is higher than the asset’s current value, the investment is estimated to result in a positive return.

Valuation and Price Prediction: Synthetix

• Assuming high growth in the next five years as Synthetix eats into the gigantic Derivatives market and a discount rate of 25% to account for the higher risk premium of decentralized trading platforms, the Present Value of Cash Flows is roughly $1B compared to the current network value of $138M. Dividing the Projected Network Value by the Total Token Supply yields a Token Price of $4.42 (roughly 6x the price at time of writing).

Token Velocity (Monetary Equation of Exchange)

• Formula: M = PQ/V. Where M = Currency Value (Market Cap), V = Currency Velocity, P = Token Price, Q = Token Quantity (Total Supply)
• Description: The Monetary Equation of Exchange (MV=PQ) has been used to model future token valuations since the early days of Bitcoin. I recommend Chris Burniske’s commonly cited article Cryptoasset Valuations which includes a free downloadable model.
• Use Cases: To use the Quantity Theory of Money for token valuation, we need to calculate the Market Cap in each future year, divide by the expected outstanding float, and then discount to the target year. Generally speaking, the equation implies that tokens with lower velocities (meaning those that are held in the same wallet for longer periods of time) will accrue higher prices due to appreciation of value (M), all else equal.

Valuation and Price Prediction: Ethereum

• Context: As tokens like Ethereum transition to Proof of Stake (POS), users will be incentivized to hold Ether to earn staking rewards — driving some traders to cite the Token Velocity thesis for higher price predictions (assuming staking reduces velocity). However, as quantifying Ethereum’s TAM is largely guesswork given the broad scope of layers and dApps that could use the Triple-Point Asset, some analysts limit the scope to programmable money while others envision Ethereum addressing a broader market of web-based applications from ecommerce to content-streaming. Since ETH is used as collateral for so much of the DeFi ecosystem (1.5 ETH required for every DAI minted) — one could argue that the ETH market cap will always have to be some multiple higher than the combined market cap of all DeFi tokens using ETH collateral. Since a growing amount of ETH will become illiquid to support overcollateralization and staking, its velocity should theoretically fall despite rising demand. Combine this with the introduction of burning as a mechanism to reduce ETH inflation (perhaps even resulting in a negative issuance rate, i.e. deflation) and you have a very bullish case for ether using the Monetary Equation of Exchange.
• Valuation and Price Prediction Example: The model built by a reddit user below applies an adoption curve to a $366B primary market (annual revenue of the top 10 internet companies at the time) and uses a velocity of 1.6 for Ether (based off Vitalik Buterin’s approach to measuring velocity, i.e. the number of times that an average coin changes hands every day). The model produces a sensitivity analysis estimating at 5% adoption of the primary TAM by 2030 (risky enough to justify a 26% discount rate for present value calculations), the token price of Ethereum would be $1,827 (roughly 10X its current price).

Shortcomings of Traditional Methods for Cryptoasset Valuation:

• Novel token economic models present additional variables and complexity that don’t easily translate into existing valuation methods
• Tokenomic models often change rendering previous valuation models obsolete (e.g., Eth 1.0 used Proof of Work while Eth 2.0 will use Proof of Stake)
• As an emerging technology with unproven adoption and scalability, defining the TAM for cryptoassets is largely guesswork
• Limited and inconsistent data history on asset performance and correlations makes it difficult to determine industry averages
• Crypto is still an immature and irrational market — often driven more by hype or FUD, than quantitative value indicators

Conclusion

While accurately forecasting token prices has always been a long-shot given the modeling risks noted above — the experiment itself leads to a better understanding of the interrelated drivers behind token value. Producing a decent sensitivity analysis will shed light on the range of assumptions (market size, fees generated, etc.) necessary to achieve various price ranges. For these reasons, I prefer price predictions based on educated quantitative assumptions to the bulk of those issued by twitter traders simply putting their fingers to the wind and proclaiming “LINK will be worth $50 one day!”

As the ethos of DeFi turns traditional finance on its head returning system design and control to its constituents, our approaches to forecast the value captured through various tokenomic designs must be reevaluated as well. While teams like The Block and Token Terminal make strides in aggregating, analyzing and exposing actionable on-chain data — analysts continue trying to crack the code of token valuation. Whoever succeeds in this effort will not only prosper financially but will likely have their names immortalized in the economic textbooks of the future. As Chris Burniske once said back in 2017, “People win Nobel Prizes for that kind of thing.”

In my next post, I’ll discuss how to earn passive income from token investments using strategies like lending, staking, and options trading.

Hope you enjoyed and thanks for reading!

Disclaimer: All of the information (above and linked) is for entertainment purposes only and is not to be taken as investment or financial advice. I hold long positions in the projects mentioned and abide by a no trade policy 3 days before and after publishing of this article.

Token Valuation Methods was originally published in The DeFi Opportunity on Medium, where people are continuing the conversation by highlighting and responding to this story.

Decentralized Finance is an ecosystem built on these money legos beckoning millions of developers to share infrastructure for security, build bridges for interoperability, and add pieces for new functionality.

As the number of pieces in the lego bin grows, the number of possible combinations (decentralized financial products) multiplies exponentially.

Before we dive into the universe of DeFi possibilities, let’s take a look at the core pieces that comprise the ecosystem.

Asset Management: Crypto wallets used to store/transfer funds and access decentralized applications (dApps)

Decentralized Exchanges: DEXs aggregate liquidity pools to enable P2P trading of cryptocurrencies and derivatives without centralized intermediaries

Derivatives: Protocols that issue leverage and derivative products for a variety of underlying assets (forex, crypto, equities, commodities, indices, etc.)

Lending / Borrowing: Platforms that enable anyone with an Ethereum address to lend and borrow P2P

Marketplaces: P2P marketplaces for digital assets such as ERC721 collectibles

Stablecoins: Cryptocurrencies designed to minimize volatility by pegging price to external assets such as USD or gold

Insurance Platforms: Protocols designed to hedge risk of smart contract code and price volatility

Prediction Markets: Platforms for forecasting and betting on the outcomes of future events

KYC & Identity: Blockchain solutions for managing identity data and exchange

Infrastructure: Crypto primitives and blockchain building blocks for Web3 developers

Now that we’re acquainted with the pieces, let’s combine them to walk through a decentralized adaptation of one of the world’s most common financial services: lending and borrowing.

Lending and Borrowing in DeFi using Aave

The Aave protocol combines multiple DeFi money legos like user wallets, ERC20 tokens, and custom smart contracts to provide a market for lenders and borrowers to transact trustlessly.

Similar to other lending protocols like Compound, Aave users can simply connect their Ethereum wallet and click on Deposit or Borrow to view a list of supported assets and current interest rates. In the spirit of DeFi, Aave added a few new legos to provide additional features and products for users and developers alike — notably uncollateralized aka “flash loans” and rate switching.

Aave allows users to access virtually free capital by enabling smart contracts to borrow assets, execute trades, and repay loans within the same Ethereum transaction. This single feature opens the flood gates for a variety of new and extremely lucrative trading strategies that are now made profitable through low cost capital.

I cover these strategies as well as a few notoriously profitable trades in my post, Yield Hacking in Defi.

Hope you enjoyed and thanks for reading!

The DeFi Ecosystem was originally published in The DeFi Opportunity on Medium, where people are continuing the conversation by highlighting and responding to this story.

Series Roadmap:

• The DeFi Narrative: Critical advantages over traditional finance
• The DeFi Ecosystem: Money legos and decentralized financial products
• Token Valuation Methods: Investment heuristics and price predictions
• Passive Income Strategies: Risk/reward profiles for lending, staking, etc.
• Yield Hacking: Trading strategies to maximize risk-adjusted return

What is DeFi?

DeFi, also called Open Finance, is a blockchain-based financial system built on trustless protocols (open-source code), rather than centralized institutions like governments and banks. The first goal of this financial revolution is to offer the same products that power today’s modern economies (currencies, payments, lending/borrowing, investing/trading, derivatives, insurance, governance, etc.) without rent-seeking intermediaries.

Critical Advantages over Traditional Finance:

• Enables global access to financial services for anyone with an internet connection
• Reduces costs for users by eliminating profit-seeking financial institutions
• Provides passive income for depositors by sharing loan interest pro rata
• Streamlines transactions with smart contracts to prevent arbitration
• Catalyzes innovation with open source code to decentralize development
• Empowers users to participate in the governance of their monetary policy

To emphasize the movement’s magnitude, I’ll contrast these value propositions with the centralized systems that dominate today’s financial landscape.

Let’s start by reviewing the centralized control of our money supply. As the COVID-19 pandemic sweeps the globe leaving human and economic wreckage in its trail, central banks attempt to mitigate the damage with new monetary policy. At the helm of the US’ money supply, the Federal Reserve has deployed measures including near-zero interest rates, direct lending, and infinite quantitative easing, i.e., unlimited treasury debt and mortgage backed securities purchasing. Combined, these measures have doused the US economy with $4T in cash created out of thin air.

To put this in perspective, the American, Chinese, and European Central Banks have each printed crypto’s entire market cap in single days. While President of Mineapolis’ Federal Reserve Bank, Neel Kashkari claims that the Fed has an “infinite amount of cash” — the US has already doubled its M2 money supply since 2008.

From the $700B bailout of the US financial institutions responsible for the 2008 Financial Crisis to the infamous Equifax hack of credit card and social security numbers affecting nearly half of all Americans — the track record of large centralized institutions safeguarding our wealth and data is far from spotless. While financial crises in the US result in Americans losing jobs, savings, and homes, the scale of disaster is far worse in developing nations.

Take Venezuela, where failed monetary policy compounded by corruption and falling oil prices has resulted in an economic and humanitarian crisis. As hyperinflation reaches 10,000,000% per IMF data, products that once cost $10 could now cost $1M. Monthly salaries for the ~50% of Venezuelans still employed often cannot afford them a gallon of milk. Today, more than 3 million people have fled the country and ten million more remain stranded in poverty.

While recessions are recognized as a recurring phase of the natural economic cycle, giving unelected bankers carte blanche over our monetary policy is no longer necessary. One of the most powerful advantages of DeFi is the ability for anyone in the world with access to the internet to audit and participate in the governance of their money.

DeFi users can transfer their wealth into store of value assets like Bitcoin with hard-coded finite supply, or other cryptocurrencies with inflationary, deflationary, or dynamic monetary policies voted on by their holders. P2P lending protocols enable depositors, rather than banks, to earn the interest paid by borrowers. Through the use of modular open source code (money legos), developers can share building blocks to create new financial products altogether, bypassing the steep regulatory and competitive barriers erected by incumbent institutions.

As ~1.7 billion people worldwide still lack access to a bank account, DeFi has the potential to provide a wider variety of financial services to a greater audience of global participants. For the first time in history, the only requirement to gain access is an internet connection.

In my next post, I explore the key products and players of the DeFi ecosystem.

Hope you and enjoyed and thanks for reading!

The DeFi Narrative was originally published in The DeFi Opportunity on Medium, where people are continuing the conversation by highlighting and responding to this story.