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The Great Convergence: Bridging TradFi and DeFiAdded:
Heat.
[music] Heat. Heat. [music] >> [music] [music] [music] >> Welcome all to the node. your place for news, uh, interviews, and education. I am Mike aka Veteran Crypto. And I'm sure with me as always will be David [laughter] as soon as he, uh, is fashionably late. But, um, let's go ahead and jump into the socials real quick. And I thought I had already shared it. All right.
So, if you want to join the conversation with uh Scotty D and Freak Atomic, uh you can uh find us on YouTube at the Node Network, all one word. And there you can find all of our shows. So, we are truly are a network. Um we we were calling ourselves the node channel, and then quickly realized that uh that was incorrect. So, the uh we have our main show, The Node, Monday through Friday, 9:00 a.m. to 11:00 a.m. Crypto and Chill, Tuesday and Friday. So, tonight at 5:00 p.m. where me and Jeff talk about uh just kind of what's gone on in crypto over the weekend, uh you know, since our Friday show and just kind of relax and shoot the [ __ ] You know, I like hanging out with Jeff. um the blockchain report, his legacy show is uh on Monday, Wednesday and Thursday at 11:00 a.m. and that's these are all Pacific time and uh he does deep dives so early projects that uh most of them haven't even had a token generation event so they haven't launched a token yet. So often there is airdrop opportunities so if you're into airdrops and that sort of thing then definitely take a look at that. um Sovereign Soil, that is uh my solo show, but uh Drew has joined me on that before uh from over at Blockchain Basement. He's a homesteader.
Um I've been a homesteader for over a decade now since I retired from the military. And um also I've been an emergency prep for about 20 years. So a lot of experience. Um, and then Jay, a member of our community, uh, that is coming up here, uh, here in about a week to, uh, visit with, uh, Jeff and David.
We're going to be doing some firearms training and, you know, some drinking and we'll do a couple live shows while everybody's up here. So, going to be a good time. So, uh, you know, definitely join us um, for what would it be? It'd be like the weekend of the 15th, I think it is. So, like, uh, not this weekend, but the weekend after. Um, we're gonna be doing some live shows and, uh, Jay, uh, David, myself, and Jeff, and possibly Ellie, uh, will be there. So, we're going to be, uh, you know, definitely want to get some live shows under our belt. And then David's even talking about hanging out up here, um, you know, after and and possibly Jay, but, um, I Jeff unfortunately has to get back to work.
So, we'll definitely be doing some live shows from up here. uh you we'll set we'll set up the living room here so that we can all just kind of lounge on the couch and and uh do the shows. But um yeah, so Jay's been uh joining me on Sovereign Soil, you know, while we talk about uh emergency prep and different scenarios, you know, ways to build out your bug in or bug out uh you know, plan. uh you'll basically pick it you'll pick apart each other's preps um to make sure that we're thinking of everything from every angle because you don't want to get caught with your pants down lit literally or figuratively when it comes to uh you know you know being in an emergency. Um, so the market wrap, David does a Monday through Friday, uh, I need to put that on here. Monday through Friday at 1:00 p.m. Pacific, 400 p.m.
Eastern, uh, about 15 to 20 minutes of technical analysis where he goes through and just, you know, shows, you know, kind of the more popular uh, projects, what the charts are looking like, you know, what he thinks that, you know, they're going to be doing here in the next little bit. And then on Tuesdays and Thursdays, he's been uh coaching Ellie, a member of our community um about um you know uh his coaching, his one-on-one coaching program um and just kind of pulling back the curtain on that and showing what all that entails, which you know takes somebody from pretty much wherever they're at. I mean, they can be a total beginner. Um, and he gets them up to speed in in a matter of a couple of weeks to where they at least understand the markets and they can invest knowledgeably and and not just be throwing dart, you know, darts at a dart board. Uh, Saturday Night Fever at 6 PM um is Jeff's, you know, kind of his little fun show that he does. Uh, he is a DJ, has been for a while in the uh San Francisco Bay area and knows a bunch of He has quite the lineup. He's already done a bunch of interviews with different DJs and uh he is um has a bunch lined up, but he does interviews, they'll do tutorials if any of you out there are interested in learning that skill set, you know, or uh sometimes they just spin music. So, you know, if you're into that kind of music, that's definitely a good thing to watch on a Saturday night. uh the red pill on Thursday nights uh you know usually it's like four to six people a panel um we usually just you know drink people that smoke it if they got it and uh we just talk about controversial topics uh you know the recent uh reclassification of marijuana um legalization of some psychedelics for therapeutic reasons uh we've talked about relationships we've talked about religion politics philosophy you know what it means to be a man and a father and you know and a and a husband, you know, those sorts of things. Um, you know, uh, the effect of social media, you know, on relationships and, you know, society in general, just anything and everything. And then gaming and chill. Uh, so, you know, again, Jay and Ellie, members of our community, uh, have their own show on the network where they, uh, game. You know, sometimes I jump in and join them. Um, you know, or, you know, uh, other members of the community have in the past as well. So, a lot of fun, a little something for everybody, you know, little shikurie board of uh viewing pleasure. So, next out the gate, if you want to join our X is at the node network. So, that's the only difference is the underscore.
And then last and definitely not least is the node of the node. So, this is where everything that we offer comes together. So, if you're looking for, you know, no cost education and emphasis on no cost. There's no gimmicks, no hitches, just sign up and start learning. And it takes you from not knowing anything about fiat, the, you know, traditional finance, the banking system, you know, all the way up to, you know, advanced DeFi strategies. We don't charge for it. We genuinely just want to educate people here. If you want to accelerate your learning, if you want to take your learning to the next step, if you want to, you know, possibly meet a mentor, you know, that's already achieved the level of success that you're looking to achieve. Yes, we do have paid services. Um, you know, communities, uh, in, you know, DeFi University, you know, uh, group calls, you know, with David, you know, throughout the week and the the rest of of his community. There's a lot of different things here, but we always ensure that the entry level stuff is no cost. So, um, you can find our programming if you're interested in, you know, what our schedule is. So, this shows all of our shows that I showed you on the YouTube channel, plus David's live calls, and we're going to be expanding this into uh YouTube and Discord. So, uh, you know, again, those live calls with David are a paid service. It's $99 a month. Um, ve definitely worth it, though. Um, if if you're you've reached a level to where you are actually investing and you want to be successful, you need to align yourself with people that have achieved the success that you're seeking. You need a mentor. You need somebody that's that's going to help you navigate and help you avoid costly mistakes. So $99 a month is nothing compared to the, you know, thousands or tens of thousands I've seen, you know, many other people charging for, you know, for that that type of service. And then of course um let's see, we got our courses. This is what what I told you about is you can come here on courses, click beginner, intermediate or advanced and it will take you exactly in the course you know material uh you know where we suggest that you start. Um let's see and then community this is where you can join DeFi University or if you want to uh join our nocost discord. So we are going to have you know some paid services in there but overall our discord is no cost and will remain no cost. We want everyone to have the opportunity to be a part of a community where they can ask questions and learn.
Again the paid services are the next level. You know if you want to take it to the next level totally up to you coaching. So this is what uh he's doing with on Tuesdays and Thursdays with Ellie. And he's if you want to uh you know have a no cost initial consultation with David, you can just uh put your email in here and book your discovery call. He is happy to jump on with you.
he can go over where where you are currently with your skill set um with, you know, with your portfolio, what you're currently invested in or thinking of investing in, and basically just assess where you're at. At times, we might say you're, you know, you're not ready for this service yet. I would, you know, suggest you go go through our nocost education and then come back and let's reassess here, you know, in a couple of weeks once you're done with that course material and then we can assess, you know, you know, where where you're at and if if this is a good logical, you know, step for you.
And then finally, uh, our newsletter.
So, $20 a month, 66 cents a day.
>> The thing actually works too, Mike.
>> Oh, it does.
>> Yeah, it does. So, um on this free one, uh there's only a a couple of options, but on the paid one, you can select what whatever asset you want, uh crypto, stocks, and commodities. You can, as long as you know the ticker, you can add it and it will generate your uh you know, your your custom newsletter for you. So, I put my email in here. This is, you know, the the uh let's go ahead and take that one off because let's let's do hype today.
So, you can see it generates.
It's going to 38 different sources.
And you come down here and you can see that, you know, it's going to give you kind of the o, you know, kind of a an overlook when it comes to, you know, where Bitcoin's at, ETF inflows or outflows, uh, ETH inflows and outflows, and where the fear and greed index is.
You come down here and you get the snapshot. You get, you know, what the current prices are for the assets that you choose. You get ranges. So, you know, the support and resistance. So this is if you're, you know, wanting to trade, if you're wanting to enter liquidity pools, these are the ranges that you're looking for.
And then onchain, this is the onchain data speaks for itself. The flows, so this is going to, you know, give you, you know, where the liquidity is flowing.
Oh, excuse me. The catalyst, just, you know, more good information. The big story. So this is just, you know, what's going on, what what's what's happening.
you know, Bitcoin decouples from tech as Wall Street ETF momentum uh offsets dollar strength. So, this just gives you, you know, basically the the high points of what's going on right now.
>> It's actually quite good. Um, you know, it's not so this is not just like AI hallucinations anymore. This is this is actually really really good stuff. And so, I've been getting this in my delivered to me, you know, via email uh in the morning and in the afternoon [clears throat] because right now I'm the only paid subscriber. [laughter] Well, so I'm still testing the thing.
>> Well, that's the thing is is I mean it's it's been a work in progress up until recently. So, as soon as you give me the thumbs up, I'll give the community the okay to to try it out.
>> So, the the only reason why I haven't done that yet is because I've got like if you take a look at my notebook and the things that I'm working on right now, I've got, you know, the store and the merch. I've got, you know, I got to finish the Bob and Accounting agent.
I've got to finish the salmon broadcasting agent. And for the newsletter itself, it it really does require I built a custom CRM in the back end of the website. And so all the email flows, those all need to be tiptop and working properly. So it's not just the newsletter. Now that the newsletter is generating, right? I also need all of the email flows. So think about this.
What happens when someone cancels?
>> When someone cancels, they need to have access throughout the amount of time that they paid for. So if someone joins for a month, right, and then two weeks in they decide, hey, you know what? This isn't for me. I want to cancel. They pay for the month. So they need to receive that time, but they also need to get an email series, you know, to like let them know, hey, yeah, you canled and your service is going to end on this date.
And then after their service ends, maybe like a survey saying, hey, what did you think of it? You know, what could we do better? Stuff like that. So >> Exactly. Exactly.
>> Yeah. So that there's still a lot that needs to be done in the back end and um I mean yeah I got a I got a list >> there's a lot a lot to be done in the back end. [laughter] All right and then the node take. So this is basically just the uh you know a snapshot of you know what's currently going on in the markets what we you know see happening in the next 12 hours, 24 hours, 72 hours. So you know pretty pretty uh pretty cut and dry.
you have anything to add, you know, with all the socials, David? I I need a second. So, >> Oh, yeah. You know, so um the socials, so we are on the big six, you know, plus Twitch and Kick. So, uh you know, think YouTube X, Facebook, Instagram, Tik Tok, LinkedIn, Twitch, Kick. Um, also Arena and Arena has been probably one of the best uh places that we've been streaming on.
>> I'm glad you said that. I need to start that.
>> Yeah. I mean, the the people on Arena are cryptonative, you know, so we're all over the place. And look, if you want to be able to support the content that we put out, um, just head on over to the website and in a couple of days time, hopefully by the end of this week, but definitely over the weekend, I'll have the store and all the merchandise finished. Um, you know, look, the the merch on the store is actually really, really cool. It It looks great. Um, that newsletter probably has just, you know, maybe a couple more days left until it's ready to rock and roll. uh in the community tab. If you take a look at that community tab there, Mike, um you know, right now there's the live calls in DeFi University, but those live calls are going to be cloned into the Discord and YouTube. So, if you're, you know, a member of the nocost Discord channel, uh, you'll have the option if you want to, uh, to be able to join paid, uh, you know, basically coaching calls, uh, with myself and anyone else who wants to join because I I run those three times a week anyway in school. So, I think cloning those into the Discord makes a lot of sense. And then also, we're going to make it available to anyone on YouTube.
So, the membership on YouTube will be, you know, at the same price point. It's a hundred bucks a month and if you want to join live calls on Google Meets with everyone in school and Discord and YouTube, it's going to be all three together. So, I think that we'll be able to have like really lively interesting calls. Um, and those are private, you know, so it's only someone who is a paying member. That's the only way that they're going to be able to join that private Google Meet room. Um, so, and then the courses themselves, you know, I haven't added this in yet.
like the the backend software bit. It's um a zap button. I call it a zap button.
It's basically just if you find value in the content that we put out that you can zap a couple of Satoshi's to the node network and it really helps uh for us, you know, because right now we're cash flow negative. So, we want to get to we want to get to just breaking even. That would be nice. Um and then you know the music stuff, Mike. So last night u I decided that I wanted to pivot on the music stuff from using Google's LIA product which is kind of not the best. I mean I I you know posted in our private Slack uh in our company Slack the the music that I created using LIIA um and I built it programmatically in cursor. And so Lria is Google's one of Google's cloud products. it's what their AI music generator and it's just kind of sort of okay. Um, so I decided that I'm going to use Sunno instead. The problem with Sunno is that there's no API. So I had to basically find a workaround to be able to programmatically use Sunno to create the music that I want to make.
And I have no doubt I'll be able to make the music that I want to make using Sunno because I already know that I can.
It's just I didn't think that I'd be able to make it at scale. But now that I figured out an API workaround using cursor, I believe that I'll be able to make that music at scale using Sunno. So really really interested in getting that done. And look, that that's been one of the most fun bits of work for me to do because it's very creative. You know, being able to create music like this programmatically using these different AI tools. Really enjoy it. And uh you know, using a command line to make music I think is super cool in and of itself.
So, I'm looking forward to launching that. That radio station's going to be awesome. Um, I also figured out how to make video content. So, Mike, check this out. Imagine being able to take a hundred pieces of three or 4 second uh, you know, short video clips generated by AI and you stitch them together.
>> What happens when you do that? You got a movie. All of a sudden, you got a movie, man. So, like if you've got a hundred 3 second clips, well, maybe you don't have quite a movie. You might need a thousand of them, but you can programmatically create these pieces of video content and then stitch them together and end up with a short film. So, I'm thinking that uh you know, like because most of these radio station channels, they just have like a pretty face up there, this a static image, or they've got like some type of a landscape or some type of a a still image. um or they've got like an image where like a pretty girl is kind of dancing or something. What if instead of all that, what if we actually had like a short film, you know?
>> Yeah.
>> Like a short film would be super cool and I think it could be done programmatically using cursors. So that's uh that's what I've been working on, man. and all these things together, you know, the Discord, YouTube, school live calls, you know, the newsletter, the merch in the store, um you know, the the music, you know, pushing views and traffic, um you know, what what am I missing here? The coaching, um all of this stuff, this is the the revenue sources for the node network, and none of them are really online yet, you know, in fact, none of them are really. Um, so it it's still a work in progress, but it's getting closer every single day. I mean, this is all I do every day. So, we're getting there, man. We're getting there.
>> Nice.
All right. Well, let's see. What do we got, Mia?
And for I need to I need to talk to Jason about arena. It's It's just like it's the uh not being able to change the handle is like confusing as [ __ ] So, it's like it seems like sometimes it's going to the new account and sometimes it's going to the old account, you know, as far as going live. So, anyway.
>> All right.
>> Didn't he say that he would give us uh access to the developer API?
>> He did. You haven't heard from him?
>> Uh I don't know what happened, man. What What happened?
>> Yeah, we'll have to we'll have to reach out to him.
>> Yeah, he's probably busy.
>> Oh, I'm sure. I'm sure. But yeah, it's definitely something that he that he did say. Um, so it looks like big news for Coinbase and Centrifuge. So Centrifuge will be the go-to platform for launching tokenized assets on base, the Ethereum blockchain incubated by Coinbase. The firms uh have an existing relationship with Coinbase contributing to Centrifug's previous funding rounds as well as Centrifuge launching assets on base including the first licensed onchain S&P 500 index fund. Coinbase which has said it is looking to bring the world onchain has tapped Centrifuge as its main tokenization partner and made a strategic investment in the startup. Um, it is now, uh, going to act as the go-to platform for turning traditional assets like exchangeraded funds, uh, credit funds, structured products, and other so-called real world assets into onchain tradable assets on base. Um, like I just want to skip through the, you know, the hype.
>> Yeah. you know, and the centrifuge token, uh, CFG is, uh, trading above its 200 day moving average. Uh, it's got resistance, you know, quite a ways above at 41 cents.
It's currently trading for 24 cents. So, you know, there's plenty of room for this token to rip, especially if Bitcoin is able to push just a little bit higher now that Bitcoin's broken out. If Bitcoin can make it up to like 83 and a half, um that might be enough to let alts run a little bit because I don't know if you if you've been tracking this, Mike, but uh you know, ETH and Soul uh the two other large caps have really underperformed Bitcoin uh during this recent rally out of BTC.
>> Absolutely.
>> Yeah, >> dude. Morpho Morpho has been killing it.
Like I'm I'm up like 50% on my Morpho investment, but today it's up like 13% and over the past seven days it's up 16%.
>> So if that were me, Mike, if that were me and I'm taking a look at the more I would be thinking about taking profits.
Yeah. Uh I mean, look, no one ever went broke by booking a profit. So Morpho though, here's the thing though. It could run it could continue to run up to 287. So, it's sitting at two and a quarter, $224 right now. Um, and it just broke out. So, and it broke out today.
The resistance was $2.7.
It really broke out push through that resistance and it it could push actually quite a bit higher. Um, you know, we could on on Morpho that could run another 28% to the upside before it runs into any serious resistance up there.
But, um, here's the thing though. If this is still a Bitcoin bare market, then would you would expect there to be another leg down. So, I I would be thinking to myself, hey, you know what?
Um, I'm up. I'm up on Morpho and uh maybe uh book some of those gains. You know, >> that's what Freak Atomic did. I took my profits on Morpho today. We'll buy again when it eventually drops. Um I'm more den and and [laughter] I'm I'm not saying do this by any stretch. Uh, I just I invested the money. I want a certain level of return and I plan on a lot of these I plan on, you know, cashing out the majority, if not all of them into stables and Bitcoin. And I've I've said it a million times. I'm I'm looking to have a couple hundredk that I can have in stables and Bitcoin. I can, you know, earn yield off of it and slowly build, you know, another portfolio, alts portfolio, but just always have that treasury, you know, have that Bitcoin and stable treasury that just generates consistent, you know, uh, you know, yield that is predictable, you know, or somewhat predictable. I mean, it's going to fluctuate, but if I can earn, you know, 10 to 20, you know, 10 to 30%, you know, steady on a couple hundredk, perfect. You know, that's just gravy.
That's just extra money that, you know, I that I can use to travel, improve the property, you know, I don't need to touch, you know, my retirement at all.
It's, you know, that that to me is the dream. So, >> 100%.
>> Yeah. That that's just, you know, I have my goal, you know, I'm staying disciplined and that's what it is. And, you know, yes, 100%. I could take profits and I could, you know, continue to, you know, kind of build my portfolio, hope for pullbacks.
But yeah, I'm just I I just have a let it ride mindset. [laughter] >> Sweet, man. Yeah, I mean, I look, so here's the thing. As long as you know what your risk tolerance level is.
>> Yes.
>> That's what's important and you know exactly what it is.
>> Yes. It's it my my whole philosophy is invest in, you know, what I feel is fundamentally solid projects. I don't do den plays and memecoins. I invest in fundamentally strong projects, you know, ones that I see that have the potential of being the next Microsoft or Google or something like that. Am I going to hit on all of them? Absolutely not. Am I going to hit on any of them? Maybe, maybe not. But all it takes is that one or two [laughter] and it's going to, you know, and it's going to, you know, help me get to where I want to get, you know.
>> So, so bringing it back to the news, Mike, what even is centrifuge?
it it's just a tokenization play. Um, you know, it's it's basically just a platform where, uh, you know, institutions, you know, uh, New York Stock Exchange, you know, you things like that can tokenize real world assets. That's all it is.
>> Got it. Okay. So, I'm reading about it right now. It looks like, um, what Centrifuge does is they allow institutions and businesses to bring offchain assets. So, you know, think US treasuries, corporate credit, invoices, structured products. They can bring those products onto the blockchain.
>> And so, by doing that, Centrifuge creates, you know, quote unquote onchain versions of these assets that can be used as collateral or uh yield generating positions within the broader DeFi ecosystem. But here's something that >> liquid.
>> Yeah. So, here's something that I think about with that though. The origination of those products is not on chain. the origination of those products is offchain. And so what you're really talking about with these centrifuge products is a derivative. So what what I'm most interested >> basically a wrapped version of of the the actual asset, >> right? Yeah. I don't want the wrapped stuff. You know what I mean? Like I I want the real McCoy.
>> Well, I mean you you do, but if if you want to be able to access that liquidity in DeFi, you need that wrapped version.
you know, it's it's that's that's the key is it really I think it what it has to do with is if you are buying it for a long-term hold um you know then you know and you want the actual asset then you buy the traditional asset. If you're wanting to use it and you're wanting to lever up and you know say that you're wanting to buy a piece of real estate but you don't just want to buy it and hold it. It's not you know you want to be able to take out a loan against it.
you want to, you know, be able to access that liquidity, then you're probably going to want the tokenized version because, you know, you can you can take out a loan against the asset. So, I think it just really depends on the use case, you know, and what it is that you're trying to do with it is going to dictate that there's definitely still a place for the uh for the, you know, the original traditional asset.
>> Yeah, you know, I'm uh I'm really looking forward to the day when there's onchain origination of all sorts of different assets, asset classes, too.
Um, so maybe is it what even is onchain origination?
>> What what what is what is the definition? It depends on what your definition of is is like like Bill Clinton [laughter] said, it depends on what your your definition of is is.
>> That's so funny. So onchain origination this refers to the process of creating, documenting and finalizing financial agreements such as like you know loans or credit lines or or bonds directly on a blockchain rather than through a traditional legacy banking system. So in Tradfi origination is a manual siloed paperheavy process involving a bunch of different intermediaries. Onchain origination replaces these manual workflows with smart contracts and automated protocols. So it significantly increases efficiency and transparency if you're operating on a public chain. So if we had onchain origination then rather than physical or PDF documents we would be using smart contract code rather than you know verification with KYC and AML it would just be onchain identity and automated compliance if you choose to even have that depending on the region of the world that you're operating in. In terms of your intermediaries, uh, if you're working in Tradfi, originating, you know, products in Tradfi, you're going to have multiple brokers, multiple agents, multiple banks. If you're on chain, it's just your protocol logic. It's peer-to-peer.
Uh, the settlement, if you're operating in Tradfi, is T+2 or T+3, that's days.
But if you're onchain, it's basically atomic, so near instant settlement. And then transparency wise, if you're operating in stratfi, you have no idea.
It's, you know, opaque many many times private or hidden onchain. If you're operating on a public ledger, then it's auditable by anyone. So imagine, you know, an onchain IPO. You know, your shares only exist on chain. So the real McCoy version of your shares is onchain.
If you want the wrapped version, that's the off-chain product. That's >> Well, I I have and that's the thing is I is that that's that's where I want to see a lot of these tokenized assets get like real estate. I want to get to where like say I own a piece of property and you want to buy that I can tokenize it.
It can be tokenized and every legal aspect of it is onchain. So the you know all the due diligence you know all the stuff that a realer usually does and a title company and you know all of that it's all done with smart contracts and automatically on chain all that data you know any leans incumbrances you know all of that is all onchain to where if I say okay it's for sale this is the price you know this is the stipulations whatever you say yep I I'll buy it but only once like an inspection is done and you know this that and the other thing then you know once the inspection's done and you know that inspector you know goes online check you know does a dig digital signature saying that it checks out and then again automatically it goes through and it just says yep you know there's no leans there's no incumbrances you know it's owned free and clear you know that's the rightful owner the legal owner you know all those little check boxes and you know in a matter of minutes you know the money that you have in escrow because it's a smart contract it can be an NFT like an aerrow you know, it's just it's in there. And the smart contract says that once, you know, all of those little tick marks are done. It releases that to me, the title, you know, the ownership of the property digitally goes to you. Done.
>> So, so here's >> So, here's the thing, you know, Mike, we we've gone through so much educational content about what money is, and I think at the end of the day, it comes down to belief. like if enough people believe it to be true, it is. So when it comes to like onchain origination of a home loan right now, I think the only reason why it's still highly experimental is that you know there really isn't the legal and regulatory infrastructure like the link between a blockchain token and the physical government recorded property deed. That link right there doesn't exist. But here's the thing. Why do you need a government recorded property deed in the first place? Like really, if we're being completely honest, like why is that?
>> I I get where you're coming.
>> That's what I'm getting at.
>> Yeah. I mean, from from a libertarian standpoint, I definitely, you know, you see where you're coming from. I mean, from a you know, legal standpoint, you know, that system that we all you know, live in. Um it, you know, it it's just it's definitely something that you want to have. You know, it's just because if you're gonna sell it in the future, if you're gonna, you know, >> here here's an idea. Here's an idea.
>> Move to Thailand or move to like, I don't know, some uh some Southeast Asian country where there really isn't any regulation to speak of like per se >> and then just build the thing.
>> Like just build the thing and then if people want to use it, great. Then they can use it, you know, and then you could use it globally. So, I'm thinking that that that could be pretty interesting.
So, here's what that flow would look.
>> Let's just buy an island and start our own country.
>> I mean, why not, you know, like so you would have a legal rapper. So, the blockchain, >> don't kill, don't steal. That's that's the only laws. Don't kill, don't steal, >> right? You know, so like but a lot of this comes down to making it legal. But if code is law, then who cares what some, you know, government bureaucrat has to say. But to make it legal in the United States, you would need a legal rapper. They call these special purpose vehicles or a trust, and that would hold the legal title to the property. Now, again, there's no reason why you need that if you're just operating on chain. Now, the tokenization part of this, the economic rights of the mortgage, um, you would have the right to receive interest payments and principal. All of that would be tokenized. If you're the borrower, then you're not just signing a PDF, you're entering into a smart contract that manages the debt terms.
So, you could originate that smart contract with all the interest rates, the repayment schedules, the maturity dates, all coded into a smart contract.
collateralization, you know, instead of a manual escrow, you could use stable coins, uh, you know, locked into a smart contract. Um, this can all be automated.
So, the smart contract would automatically handle monthly payments.
If you pay on time, the smart contract updates the debt balance. If you miss a payment, it can automatically trigger pre-programmed penalties. And then you don't have that [ __ ] where like Wells Fargo, you like I think it was like 2008 where they were foreclosing on people that weren't behind on their [ __ ] payments.
>> I know. I know. Yes, they did that. And they also they would sell your mortgage to another bank and you didn't know who the [ __ ] they sold it to. [laughter] So you can't pay because you don't know who owns your [ __ ] paper. Um and then you know >> Hey Jay, while you're up here, we'll talk about this because freaking the Philippines. Yeah. like me and David have been talking pretty extensively about once you know the channel you know get gets gets going a little more and especially if we do like a little homestead up here that you know going to like Southeast Asia you know South America, Europe, stuff like that for like a couple months out of the year and you know just basically getting like a node house where we you know just freaking hang out and you know travel the world >> a DeFi protocol. That's that's what I want to do. I want I want to build. So all this stuff that we're talking about like we can actually build this stuff now. Like you and I and J and Jeff like all of us together we can build this [ __ ] >> Well dude on base I mean you know that new aer drone platform that's coming out. They have that AI where we can build it will build us a DAP.
So basically do is market it.
>> Yeah. I mean I would love to take a look at that. Um, you know, the process of actually building a DAP. Um, I I would love to do it. You know, I've I've done it a couple of times already. The only blocker has been getting the smart contracts audited.
>> Agreed. Agreed. Jay, we have we have to we have to do a blood a blood oath, a blood pack.
>> It'll be great, man. It'll be great.
>> House stays at the note house. So, I mean, what what I would love to build though, Mike, is a protocol that allows you to maybe not originate a mortgage on chain, but allows you to like truly tokenize property, like actually tokenize it without all of the government legal intermediary nonsense.
And I think that the only part of the world you can do that in is like Southeast Asia and maybe some places in South America. Well, dude, like I I mean, I think it's just something we need to do some research on, you know. I mean, we have a couple milestones to hit before that, but you know, as far as you know, as far as the channel, but, you know, it's definitely something that we should put on our, you know, on our freaking uh >> not story board. What am I freaking >> Where you have milestones, not a timeline.
>> Yeah. No, I know what you talking about.
>> 100% 100%.
>> All right. Well, let's uh let's move on.
So, we got Black Rockck staking shock.
So, Black Rockck staked Ethereum ETF has rapidly accumulated over 260,000 ETH, significantly tightening the available supply and adding staking pressure to the market. Do you have anything that like backs that up?
>> Um, yes. And also, you know, there is some >> I I think let's let's take I will give me one second here. So um the staking of ETH and and recently I believe uh there was a significant increase in the unstaking queue. Um in the unstaking queue. So yeah, let me let me just see what Google has to say here because I don't know what the the link is to view the staking or unstaking or exiting queue. Um, so I want to just see if I can find a link to that to that chart because that that's really interesting.
If you see, you know, massive demand to stake ETH from, you know, Black Rockck products, well, that's great. But if at the same time there's a massive unstaking exit, you know, demand to unstake ETH, that likely means that that ETH is going to be sold. Now, here's the thing, though. Just because that ETH is going to be sold does not mean that the price of ETH has to dump. Because if that ETH is being unstaked and then it ends up being sold OTC to big buyers like Bitmine, well then that doesn't necessarily mean that ETH just gets sold for cash. Okay. Yeah.
>> So just because there's an unstaking queue does not mean that the price is about to dump.
>> But what I'm looking for here um is a chart of the staking and unstaking queue. Of the staking staking and unstaking queue. That's what I'm looking for here. Um, I want to be able to visualize that and I don't know which protocol is going to be able to do that for us best. Uh, it looks like there might be for the validator queue there might be like a legit Here we go. So, I've got here's the wait time. The wait time has increased significantly. And here, take a look at this, Mike. Tell me what you think of this piece of content.
This will be interesting. So this is just the staking and unstaking. I think that this is the validator queue. So what is it exactly that we're looking for? This is the deposit Q, the consolidation Q, and the exit Q. So there's 400,000 exiting ETH. Okay. So I I need to be able to and there's the withdrawal queue. So 760,000 in the withdrawal queue. So what exactly does this mean? So it looks like the entry Q that's the inflow.
So this this one right here, this is the deposit. I think that this is the entry, right? Yeah, deposit and consolidation.
So this has to be the inflow, right? But then if we take a look down a little bit further at the exit and withdrawal, I mean these numbers are a lot bigger than um you know the entry. So if there's a massive exit flow uh then that shows that there's a lot of validators wanting to exit the network. So I think that there's another chart that shows this in a better way uh to another protocol that visualizes the entry and exit Q in a better way. I know that there is uh for being able to visualize these data a little bit better so that it makes more sense. Mhm.
>> Um, you know, because this is basically like who's validating the network. Um, is it, you know, big big money like what you just mentioned with Black Rockck?
Because they are definitely going to be staking as much ETH as they possibly can because hey, that yield, they need that yield. That yield makes makes a lot of sense.
>> Well, I mean, it's when you got, you know, that many assets, you know, that you're holding, you mean it'd be stupid to just have them, you know, sitting static. I mean, you know, if you're going to be holding them long term, you know, you might as well be earning yield on it.
>> So, check this out. Uh, this is this is much much better. So, this >> this this this piece of content is much better. So, this is the website here is validatorq.com.
Um, and the data is actually provided by that website that we were just looking at, uh, beacon cha.in.
So if we take a look here, look at that entry queue. 3.7 million ETH.
>> That's the entry queue. The exit queue is sitting at, you know, onetenth of that. So if we take a look at the >> stake than there is I I I thought you meant that there's a a queue of people wanting to unstake. So >> yeah, I wanting to stake.
>> Yeah, I misunderstood the data over on Beacon.
>> Oh, okay.
>> So this is this is the chart that I was looking for. The validator queue. This is exactly what I'm >> bullish for ETH. This is definitely bullish for ETH.
>> Yeah. Yeah. This is definitely bullish for ETH. So, this is this is a big net positive. And, you know, when I'm when I'm taking a look at Bitcoin, you know, breaking out and trying to it's got to start to create some more positive structure. Like, just because it broke out doesn't mean that it's just going to run to fresh all-time highs.
>> No, no, no. It's just it's just one data point. But over the next, you know, several years, uh, or even throughout the rest of this year, like we're talking >> Yeah.
>> $10,000 ETH by lunch.
>> Oh, man. That would be great. $10,000 ETH. That would be absolutely amazing.
>> I know you have quite a bit. Not quite a bit of I just I know that you have a good amount of ETH. I would I would love for ETH to, you know, go down to $1,300 and then run to 10K.
>> Yeah, [laughter] that would be awesome.
>> Oh, do you got you got like a buy order in or something?
>> Uh, well, a mental a mental buy order I've got for sure. [laughter] >> Suggestions and a rule.
>> Yeah, you know, I'm just I'm just waiting. I'm waiting for because I think that it's still a Bitcoin bear. So, if it's still a Bitcoin bear, then the rally that we're seeing right now is a bare market rally.
>> Yeah.
>> And if this is a bare market rally, then it should turn around at some point very soon. And if it does, that would create the last leg down this year during this bear. And that should create all of the buying opportunities for the next bull.
So, you know, it's May 5th. Um, and you know, we should have until October.
So, you know, May, June, July, August, September, we've got like five months left. Five months left. So, we are we are in like the sixth inning. You know, it's the top of the sixth in the Bitcoin bear, but you know, we've still got a couple more innings left. So, getting closer. Getting closer. And that that that's why whenever I see tokens, Mike, like Morpho ripping, uh, you know, or Centrifuge, uh, or honestly, whatever it is, it doesn't matter what it is.
>> Honestly, key RWA and tokenization plays and and strong DeFi plays are going to be the narrative as this legislation gets drafted and signed into law. This next bull market, I this is just my personal opinion. Do not invest based off this advice. It's not even advice.
It's just my thoughts.
the the the the huge narrative is is and and I think AI will play a part, but I think the huge narrative just with the sheer amount of tradi liquidity, the trillions upon trillions upon trillions of dollars that move daily, you know, weekly, monthly, whatever is going to and and I'm not saying it's going to be one project or, you know, or even two or three projects. I think it's going to be, you know, ETH, it's gonna, you know, a little bit of Soul, maybe on base, you know, Canton Network, you know, it's gonna be a basket, but I really kind of like the Magnificent 7, you know, kind of like the uh, you know, like, you know, that little basket of tech. I I really think that that's, you know, there's going to be a Magnificent Seven or whatever of DeFi and tokenization and, you know, AI plays >> and I agree. And I honestly think that that is going to be the major narrative for, you know, this next bull run because that's where the liquidity is going. That's what's being built out.
That's what I mean, you have the largest economies on the planet that they're one of their top priorities. I mean, there's wars going on in the world and one of their top priorities is drafting the legislation for this stuff. You got Black Rockck and the New York Stock Exchange and the London Stock Exchange, you know, the Hong Kong, you know, exchange, like all these different exchanges and governments that are and institutions, you know, major banks, JP Morgan Chase, Wells Fargo, BNY Melon, you know, all of these that are building out and launching or already launched on these chains and moving liquidity.
>> Yeah. You know, so for me, I don't care anything at all about any of those institutions. All I care about is Bitcoin. And for me, Bitcoin is like a parallel financial system and a superior financial system. And so the only thing that matters to me is what is Bitcoin doing? And so what I'm looking at Bitcoin here, Mike, >> matters to me is step step one invest.
Step two. Step three, profit. [laughter] >> Yes.
>> Step step two is usually like sitting on your hands and doing nothing for a long time.
>> Exactly. That's why step two is nothing.
It's just step one invest in good solid projects. Step two. Step three.
[laughter] >> Step two is sit around and and do nothing for like, you know, maybe 18, 24, 36 months. That's that's step two.
work out, you know, work on improving yourself and your life and, you know, just, you know, in invest, go about your business, you know, like for me, it's working out, working on the property, working on the channel, and I'm just sitting on my hands when it comes to my investments. I'm not doing [ __ ] I'm not set, you know, I I sold a couple, like I sold, you know, it's a big tokenization play, but I just don't like the tokconomics. it has that old you know ISO you know version of tokconomics where the token is totally disconnected from the success of the protocol or the project >> right >> so I I'm very bullish on I just don't see the connection between me as a token holder and how I share in the profitability of the underlying company so that's that's a big you know that's a hu like almost number one on before I'll even consider a project is there has to be you know at some point a deflationary aspect a buyback and burn you know something and you know and there there needs to be a key that token has to be a key part of the ecosystem where it's used in for fees and I'm not talking about where you get to vote and stuff like that you know you know governance I want to know or at least have a very solid chance that the price of the token is going to go up otherwise why the hell am I investing in don't know. You know, a lot of times these tokens are basically, like you like to say, Mike, like trading cards.
You know, they're they're a meme of the company, but they're not connected to the company's cash flows in any meaningful way at all.
>> You're you're wearing you're holding it like a football jersey, you know, like your favorite team.
So, this is, you know, if I had to speculate, Mike, and I'm going to be putting my money where my mouth is here as soon as Bitcoin hits 83K, but you know, basically what I think is this pattern here is identical to what we're seeing play out here. So, last bear, the same time of year, we got Bitcoin got out to the 200 day moving average and eventually failed. We got this next two or three legs down. So, that's what we got last bear. Now, this bear, look at where we are. We're up here at that 200 day moving average.
Almost almost another 2,000 bucks and we'll be there. But very, very close.
You know, we're within like three or 4% of that 200 day moving average. If the pattern repeats, then I would expect something like this. And so by the time we get over here into October, we will have put in that trough. Hopefully we don't see a trough down here in the 30s.
I think that's unlikely given the strength in the stock market. I mean, you know, yields were up pretty big yesterday and they're just getting monkey hammered today. So, you know, Treasury Secretary Scott Bant seems to be very, very skilled at basically manipulating the Treasury market. He seems to be very good at that. Um, so that makes me think that there might not be some calamity in the bond market. And if there isn't, then any correction in stocks this year throughout the rest of the year is likely very viable. But because Bitcoin is like the ultimate riskon asset, if there's actually any dip out of stocks, I think that would send Bitcoin down to like 50K. And so that would just be the pattern repeating. That would mean this bear no different than last bear. It didn't change. You know, there is no this time it's different. So, that's just what I'm thinking about here. And I'm just waiting. I'm waiting to get short. I'm going to get short up here at uh you know, 83K. That's that's where I'm going to be getting short. And uh I'm going to be getting short publicly. And I'm gonna do it I'm going to do it with a [ __ ] [ __ ] ton of leverage, too. Because hey, if I'm gonna be right, like if I'm right and this turns around and over the next couple of months moves lower, it's got to move the needle, you know? So, like um yeah, that's uh that's what I'm thinking about here. And just hanging out, waiting. Very close. Very, very close. We're getting there. Almost there. Maybe another couple of days. So, that's what I'm thinking about.
>> Hey, hey, Jeff, that's actually a really good movie. We might have to add that to our our watch list. Get Shorty.
>> Yeah. Yeah. That was a that was a like a gangster movie, right?
>> Well, he he was a gangster. It's John Travolta and you know, he was a he was a gangster then wants to work in Hollywood and so he goes to Hollywood and it just Yeah, it's kind it's kind of a comedy, but yeah, really good really good movie.
>> Yeah. [snorts] Yeah. So, that's what I'm thinking about. What else is going on in the news, though?
>> All right, so we got a couple minutes left. So uh bullish I I've never heard of bullish or a aquin aquinity. So bullish to acquire aquinity in $4.2 billion deal combining transfer agent and tokenization stack.
So it agreed to acquire aquinti in a 4.2 billion transaction structured as a 1.85 billion in assumed debt and about 2.35 billion in stock. The deal unifies Bullish's tokenization stack with a regulated agent to create an integrated blockchain enabled issuer services provider according to a statement. So let's see it says it marries the crypto exchanges tokenization infrastructure with a regulated shareholder services firm firm that processes 500 billion in annual payments. The company announced on Tuesday the 4.2 2 billion consideration includes 1.85 billion in assumed equinity debt uh approximately 2.35 in stock uh priced at $3848 per share. The deal also grants series a call option to acquire noncore Aquenti business lines which were excluded from the transactions financial disclosures. Um according to the statement it merges their issuance with compliance services.
um role as a system of record for 20 million shareholders.
Uh Bullish said the combined platform is designed to operate alongside existing capital markets infrastructure including CSDs such as the DTCC, Euroclear and Clearstream. So the DTCC is the US, Euro Clearar is Europe, I don't know clear uh clear streaming as well as custodians and broker dealers while maintaining compatibility with existing books and records. It will utilize Aquenty's SEC registered transfer agent status and the FCA regulated UK operations alongside Bullish's licensed digital asset infrastructure per the statement. This sounds interesting as [ __ ] >> How many of these different companies are, you know, working on tokenizing this, tokenizing that? It seems like there's just starting to be this wave of consolidation. There's a lot of them.
Well, more so than that, you know, I I I'm I'm looking at the existing, not hypothetical or they're talking to or they might be, you know, I I'm what I would want to dig into is what is locked in. So like you know bullish and aquinty you know what is currently builting built out operating because it said in here that um it looks like that they are that you know they already process 500 billion in an in annual payments. So I mean that's a huge amount of liquidity that you know that they're you know moving then >> equinity that's an interesting uh name for a business.
equinimity.
>> Yeah. You know, so >> you you know what like do do you have something to do a deep dive on or maybe we can do it on this.
>> Uh so I do I do have something to do a deep a deep dive on it. It's for uh you know the the session later on today at at 4:15 Eastern with Ellie where we're going to be running an interest rate arbitrage play. And I know that I I said I wanted to do Stat Aarb, but I haven't been able to build the co-integration software yet. So, it'll be a hell of a lot easier if I just run through a really interesting interest rate arbitrage play instead. And it'll also be something new for Ellie because it's going to be supplying a PT and borrowing stables and looping that. So, we're going to we're going to be able to get up to like 90% APY doing that today, which is going to be super cool.
>> She's there. She's usually in the chat, but she's not in the chat this morning.
Hope she's feeling okay.
>> Oh. Oh, yeah. Yeah. Huh. Well, yeah. So, um looking forward to doing that. Um >> let's go ahead and jump into the deep dive. It's about that time.
>> Okay. Well, what we can do here >> this because I did see this when I was looking for news. Uh Scotty, Coinbase fired 14% of their staff and uh are leaning on AI to uh you know to take up a lot of that slack. So yeah, good good good shout out Scotty.
>> Yeah, you know, so um Coinbase, but we're not it's not just going to be Coinbase. There's so many other businesses that are going to have no choice but to fire a significant portion of their employees because I mean look, you need to be able to compete. You need to be able to be more more efficient with uh you know your business. So this is what I want to this is what I want to jump into. So I want to take a look at PTS and YTS and I I want us to have a deeper understanding of these principal tokens and yield tokens so that when we take a look at an opportunity on Pendle like you know APYUSD at 90% or REUSD at 68% or you know these limit orders on on YTS at 100%. um or you know even taking a look here at you know the pools the LPS doing 13%. We need to understand what this stuff is and the only way that we can understand it is by going through the deep dive research. So today we're going to learn quite a bit more about PTS and YTS. Okay. So um what is the wrapping infrastructure over there on Pendle? What is the architecture? Well, you got stage one. You've got um you know, the base asset. In this case, we're going to use Ethereum. You've got a rebasing yield bearing asset. In this case, we're using staked ETH. And then uh you know, you've got this compounding die. So, this is an interest bearing stable. And so, these input assets are wrapped using SY. That's the standardized yield wrapper. And this is the primitive that Pendle created. And so it conforms to EIP 5115. This acts as a perpetual onchain recipient of all acred yields and protocol points. And so this wrapper then creates two tokens, the PT and the YT. So one PT plus one YT can always be minted from or redeemed for one SY. That's really important right there. So, this SY standardized yield wrapper mints PTS and YTS. And you can always combine the PT and the YT to redeem SY. Okay. So, you got these atomic units matrix. Here's the PT. Here's the YT. Let's take a look at the PT first. So, the PT, this is the base capital. It is deterministic fixed income. So this is a zero coupon bond.
That's essentially what these PTS are.
It is traded at a fundamental discount to par and the value accreates to exactly par with the underlying at maturity and you lock in a fixed it's called fixed state fixed rate yield. So you lock in a fixed APY and you know for sec you secure that high quality collateral.
I wouldn't necessarily call it pristine because it really depends on the underlying asset in that PT in the first place.
>> And then you got the yield token, the YT. This is the future cash flow and protocol points. Um it is, you know, it gives you speculative levered exposure uh to the cash flows and points of the underlying asset. And when we say levered uh there can be a lot a lot of leverage here which is good because the YTS they trade at a fraction of the underlying spot price price and they mathematically decay to zero at expiration.
So you really want that leverage because that's what makes it make sense because you know that these YTS decay to zero.
The only way it really makes sense to trade these is because of that leverage.
So you need that here. And then they're hyperefficient yield. It it allows you to get long the yield and farm points with a ton of leverage. So that's the YTS. Just a little bit about the YTS.
Okay. So the core invariant. All right.
So let's take a look at this. What does this mean? It says because the invariant must mathematically hold an influx of capital purchasing YT directly drives up YT price which algorithmically necessitates a proportional decline in the price of ET. Oh, I get it. Okay. So, the price of PT is inverse to the fixed yield of PT. So if we, you know, think about the fixed yield of PT being inverse to the price of PT, then if someone steps in and buys a ton of YT, what they're saying is they think those yields are going to go up. And so they could basically end up driving up the yield against themselves with a big enough purchase order for the YTS. And if they were to do that, then as someone who might be interested in swapping into a PT, if you see really, really big market orders come in to buy YTS, then you could be able to swap into PTS and earn, you know, a greater fixed yield because it would drive the price of the PTS down. So, okay, you got this yield lexicon matrix. You got the Okay, so this is really important. This is the jargon. This is the jargon. So you got the underlying APY. This is the yield of that underlying asset. They say it's backward looking. It's a 7-day moving average of realized protocol yield designed to prevent extreme intraday volatility. So that's the underlying.
This is the implied. This is the yield that you earn when you swap into a you earn the implied APY, not the underlying APY. The implied is forwardlooking.
So this is the current market consensus of future yield. It's entirely decoupled from the base emissions and it's dictated purely by that Pendle AMM supply and demand. So when we're over here on Pendle and we're taking a look let's say at you know one of these PT products what is the driver of this yield here? What what's really the core driver of this? If I zoom out to a daily and we just take a look at this, you know, we can see, okay, well, the yield is trending up over time. What's the driver of this yield? Well, you know, the the only driver of the yield is buyers and sellers on Pendle. You know, this is the only AMM where you can trade this. So, demand for PTS pushes yield down. Demand to sell PTS pushes yield up. YTS if the size is big enough can push the price of PTS down which has the effect of driving up yield too. So the only driver of yields here on Pendle is market participants on Pendle. So that's really really important for us all to know. Okay. So and then you got the long yield APY. So what is the long yield APY? It's the projected profitability.
So it's the differential between the underlying and the implied. So this indicates the mathematical baseline profitability of acquiring the YT. So remember if you're trading the YTS, you're trading the yields. You're speculating. If you buy YT, you're speculating that yields will increase over time. And remember YTS are wasting assets. They go to zero at maturity. And you can see that graphed here. So here's the YT value at maturity. Notice it's zero. The PT value at maturity is par or one. So if you swap into a PT, okay, let's say that you swap into a PT, um you're going to be able to buy that underlying asset at a discount. And then all you got to do is hold until maturity. And that yield acrru to your PT. That's the fixed state fixed rate yield. And then at maturity you redeem that PT for par. That's your that's you paid in the underlying asset. So um this is a great way by swapping into PTS you're essentially holding a zero coupon bond. That's what you're holding. And if you're swapping into YTS, you know, you're if you're essentially trading YTS, you're trading the yield or speculating on whether the yield is going to go up or down over a specific period of time. So this is, you know, the basically you could think of this as theta. If you've got a YT, you're paying theta. If you're holding a PT, you're earning theta. Okay? So theta is like your time component. It's also your yield component. Kind of interesting there. Applied strategy. So let's say that you got a 100 staked ETH and you're looking for a fixed yield execution. So one staked ETH spot equals one ETH. The variable APY is between 2 and 8%. Let's call it you know 3% whatever. So you deploy that 100 staked ETH. The AMM implied yield is 5.26%. Notice the PT the PT is less than one. The price of the PT is less than one. And the difference between par and the PT price, that's the yield that occurs to that PT from the moment you swap in until it matures. And when it matures, you redeem that PT for par. That's your yield. So that means that this 0.0 05 ETH. That 0.05 ETH is what acrrues to your PTS from the moment that you swap in until they mature. So, that's pretty interesting. Now, here's the holding process. Let's say that the yield for that underlying asset declines uh to 2%.
Well, if you swapped into the PT, you earn fixed state fixed rate yield. So, you're not too worried about the yield on that underlying asset, the staked ETH. You're not too worried about where the yield goes. It would matter if the price were to like crater on you. Your PT would still dep you'd still sustain losses that way.
>> Scotty, really quick, Scotty has a question. He says, "So ultimately you should know if the YT will be profitable or not on entry based off of percent and time or is it the Y is the YT variable?"
>> The YTS are going to move because you're speculating on yield. But what you could do if you wanted to trade and speculate on yield using the YTS is price the points program. So, if there is a points program for, you know, that underlying asset that you're thinking about swapping into, um, then if you can price the points, you could figure, and you know who's really good at doing this is, um, Stephen TCG at Defi Dojo. He is really, really good at pricing these points programs. So, if you can price the points program and figure out what the points are worth, then if you know how much you're going to swap into a YT for, then you know your levered exposure to the yield and to the points. And so if you also know that those YTS are wasting assets that go to zero at maturity, then let's say that you put $1,000 into a YT, the only way that you make money on that, if you plan to hold that YT until maturity, hold it to zero.
The only way that you would make money in that case is if the airdrop from the points program is worth more than what you spent on the YT in the first place.
Now, you could swap into a YT and then, you know, realize a profit prior to maturity. You could do that. you're not locked in, but I would really want to price the points program. That that's the way that I would do it. So, um, YT capital efficiency and leverage. So, there is a ton of leverage in these YTS.
Notice 20x notional exposure. So, if your initial capital is, you know, $300,000 and you acquire 2,000 YTS, you're actually getting 20x notional exposure to the yield, just the yield. and you're getting all of these points. So, it must be worth it to acrue these points.
Otherwise, because the YTS expire worthless at maturity, if the realized value of those points, if it doesn't exceed your initial cost basis, then you're not making money. So, you've really got to be able to price the points. Okay. The AMM evolution table, you got, you know, standard spot AMM. So think unis swap v3 but you got to compare that to the custom pendle v2 yield amm because they're slightly different. The unis swap v3 I think that pendle's v2 is like a a a forked version of unis swap. So just something here that would be kind of interesting for anyone who wants to read about this. The important differentiator here is that it will eliminate impermanent loss entirely if liquidity providers hold to maturity.
So basically, if you hold that PT to maturity, you're not going to have any divergence loss at all. Pretty darn cool. Okay. Uh V2 flash swap. So, you know, this is just like the mechanics, the architecture of using that AMM uh to swap in. Um, if anyone wants to take a look through this, they can. Uh, now now we're going to get into the the delta neutral looping stuff. This is this is where it starts to get really interesting. Okay, this is the important stuff.
So, check it out. If you've got a product like SUSD, which generates variable yield uh via like a basis trade, this is, you know, potentially volatile. Um, now they integrate with Pendle. So, SUSD is wrapped with that SY wrapper and split into PT and YT. So, now a user can swap into the PTSUSD and that guarantees a fixed APY. It strips that volatility of the global perpetual funding rates which you would be exposed to if you were holding the underlying SUSD. Now you've got the PTSUSD, but you want to apply some leverage to that fixed yield. So you hop on over to a money market like Morpho.
You deposit that PTSUSD as collateral and then you can borrow stables against it. That allows you to recursively loop. If you can borrow stables against your PTSUSD collateral, then you can take those borrowed stables, buy more PTSUSD, that creates this capital efficient, potentially delta neutral spread only if what you're able to earn on your PTSUSD collateral is greater than what you're paying, the variable APY that you're paying to borrow that leverage. So, that's what we're going to be taking a look at uh later on today. Okay. Now, this is a little bit about Boros. Boros is probably one of my favorite protocols right now. Um simply because interest rate swaps, uh like this allows you to perform so much amazing financial engineering and the different strategies that you can create with interest rate swaps. Super super cool stuff. So um I don't think that we should really jump into Boros yet. Um so yield units I would need to provide more education on Boros and yield units before we can really jump into this. So let's take a look at this risk topology. So EIP5115 that is the primitive that the Pendle team created. That's the SY wrapper. And it says here, there's a risk of EIP5115 proxy exploits and extreme adverse slippage when trying to exit YT positions immediately prior to Oh, yeah, I get it. Okay, so uh it's not just the YTS. If you're trying to exit a YT or a PT prior to maturity, remember you're not locked in. There's no lockup period here. But but and this is a big butt, the only AMM where you can trade these products is Pendle. So what that means is if you're holding a YT or a PT, the only place you can exit is Pendle. So if there's prior to maturity shallow order book depth, if and you go to exit your PT or your YT, uh you might be stuck, you know, swallowing a lot of slippage.
you might got it. You might need to eat it because you have no choice there.
There's no alternative AMM like you're you're stuck with that. So, just keep that in mind that if you hold the PTS to maturity, you will experience zero impermanent loss and likely I think very very little slippage. But if you need to exit prior to maturity, then you're going to be stuck eating whatever slippage there is on the AMM depending on the order book depth. So this is really important to understand. Um okay, let's see here. Um systemic risk. So LITO validator slashing or a catastrophic bad debt. So didn't we just see this? So if the underlying fails, the derivative mirrors it. So we we've seen this recently with a couple of derivatives on Pendle. Uh what was that one resolve? Resolve. Yeah. So when the underlying fails, the derivative fails too. So those resolve pts all you know I think went to zero. Um, so basically like if you are holding a derivative and the underlying asset in that derivative fails, so does your derivative. So just keep that in mind. Um, if the pool liquidity drops, then spot price manipulation could cause an oracle to falsely trigger cascading liquidations of healthy PT collateral in isolated money markets like Morpho, creating unreoverable bad debt. This is an interesting risk here. This is a risk vector because you know not all of these money markets are created equal and many of them use different oracles and not all of these you know decentralized exchanges are created equal and a lot of those pools don't use oracles at all and are you know susceptible to uh flash loan or JIT attacks. So if an attacker is able to drain liquidity from a really really big pool uh on a specific decentralized exchange that spot price manipulation could cause an oracle to trigger cascading liquidations on money markets. So, you know, there could be like, you know, a draining of liquidity in a big liquidity pool on a decentralized exchange, which then causes a cascade of liquidations on money market for levered PT positions.
So, there's a lot of risks here. This is not low risk. You just got to understand what the risks are. Um, so Pendle is not a passive system. uh you've got active capital migration upon maturity and continuous Oracle depth monitoring. So yeah, you you've got to know what you're doing uh to to perform well here. But I really really like uh you know Pendle and Boros and using them in conjunction with you know Morpho and Mueller to lever up your exposure to these fixed rate fixed state yields. This is one of my favorite plays in DeFi right now. So, what I want to do here next, Mike, is I put together a piece of video content on on Pendle and uh this will it's specifically on the PTS and the YTS. So, this will be interesting. And then from here, I've got a second piece of content about looping these things, okay?
>> Where we can take a look at exactly how we can profit from this now. So, okay, >> let's go ahead and take a look at this piece of content.
>> In decentralized >> Oh, and can you hear it, Mike?
>> Yeah.
>> Yeah. Okay, good.
>> Finance, yield is notoriously chaotic.
Rates spike and crash day by day. In traditional fixed income markets, yield is predictable and flat. This extreme crypto volatility exists because DeFi yield relies entirely on floating utilization rates. how much people are borrowing at any given second and speculative token emissions that inflate supply. When an asset's return can swing from 20% to 2% in a single week, large-scale institutional capital stays away. This intrinsic volatility prevents reliable long-term portfolio compounding on a constantly shifting foundation. For decentralized finance to mature and capture institutional volume, it requires robust, predictable fixed income primitives, Pendle Finance addresses this gap. It acts as an onchain permissionless secondary market specifically designed for trading interest rate derivatives. The protocol achieves this by taking a standard investment banking practice known as bond stripping, separating a standard bond into its principal capital and its periodic interest payments and coding it directly into smart contracts. We will examine Pendle's three core mechanics.
How it algorithmically splits yield from principle. How it engineered a bespoke automated market maker to trade time decaying assets. And the systemic composability risks this architecture introduces. By separating yield from the underlying asset, Pendle turns crypto from a purely speculative environment into a structured financial engineering landscape. To trade future yield, you first need standardization. Yieldbearing assets in DeFi currently exist across incompatible smart contract architectures. Some are rebasing tokens like Lido's staked ETH which simply increase the quantity of tokens in your wallet. Others are interestbearing tokens like wrapped staked ETH which appreciate in value relative to a base asset over time. Pendle harmonizes these distinct mechanisms through a composable wrapper. Users deposit their assets into a unified format called the standardized yield or SY token. This diagram illustrates the tokenization process.
The smart contract takes the SY token and mathematically unbundles it splitting it into two distinct derivatives, a principal token and a yield token. The principal token or PT represents the underlying base capital.
Holding this token guarantees you the right to redeem it for the exact principal amount at a predefined maturity date. Because the PT holder permanently forfeits all future yield, the PT trades at a strict mathematical discount compared to the spot price of the base asset. It functions identically to a traditional zero coupon bond. The yield token or YT is the counterpart. It holds the exclusive entitlement to the continuous real-time stream of yield generated by the deposited asset lasting exactly until that ticking maturity date. In modern DeFi, yield tokens are highly lucrative instruments because this entitlement also captures 100% of the underlying assets airdrop points.
This entire unbundling process operates under a strict conservation of value.
The protocol dictates that exactly one principal token plus one yield token must always equal the spot price of one SY token. This unalterable invariant equation is the absolute foundation that makes accurate onchain yield pricing possible. Pendle operates as a decentralized price discovery engine.
The market is driven by constant arbitrage between two distinct yield metrics. This dashboard shows those metrics. On the left is the underlying APY. This is a backward-looking 7-day moving average of the actual realized yield currently generated by the base protocol. On the right is the implied yield. This metric is entirely decoupled from current emissions.
>> Okay, so I want to just pose a question to everyone watching this right now. If the underlying asset is not yield bearing, what is the implied APY pricing? Ask yourself that question. If you've got an underlying asset that is not natively yield bearing, well then what in the world is the implied APY actually pricing?
It is purely a forward-looking representation of the market's consensus on what the asset's future yield performance will be. The divergence between these two rates triggers action.
If traders anticipate a massive spike in borrowing demand or a lucrative airdrop, they will aggressively buy yield tokens, driving up the implied yield. The yield token offers a massive structural advantage because the principal token retains the vast majority of the assets intrinsic capital value. The yield token trades at a steep fraction of the spot price. To see how this capital efficiency works in practice, consider an advanced trader deploying a starting base of 100 e. We will look at a pool with exactly 6 months remaining until maturity where the base asset currently trades at a $3,000 spot price. This balance sheet maps the pricing math based on the invariant equation. If the market prices the principal token at 0.95 easy, the 6month yield token is mathematically forced to trade at exactly 0.05 easy instead of passively.
>> Okay, so that's critically important to understand. I just want to make sure that and I'm going to back this up for a second here. So I just want to make sure that everyone understands this this invariant. [clears throat] So if you've got the underlying one easy ETH and it's tokenized, you've got the PT. The PT is the principal that's 0.95 easy ETH. Notice you're able to buy one easy ETH for 0.95 easy ETH because that yield is essentially stripped from the principal.
And then as long as you hold that PT to maturity, at maturity you can redeem it for par. the one ETH. [snorts] So your 0.05 easy ETH becomes your yield. This is a zero coupon bond.
>> Yield token is mathematically forced to trade at exactly 0.05 easy.
Instead of passively holding the base asset, the trader deploys their entire 100 ETH strictly into yield tokens.
Because the tokens cost only 0.05 05 each. That same capital acquiresition of 2,000 yield tokens. During the holding period, this trader collects the direct staking yield and acrews the daily airdrop points equivalent to a massive 2,000 EZTH whale position. The critical risk condition here is time decay. Upon the exact maturity date, the yield token expires and its value drops to absolute zero. To turn a profit, the total value of the yield and airdrop points collected must exceed the initial 100 easy cost basis. This specific architecture grants the trader a 20 times synthetic leverage multiplier on yield exposure with a mathematical guarantee of zero margin liquidation risk. Creating a liquid secondary market for these separated derivatives requires highly specialized infrastructure.
Standard automated market makers are illquipped for the task. Standard AMMs rely on constant product formulas. Their math assumes that the assets in the liquidity pool have a static unchanging nature. Deploying a time decaying yield token and a price appreciating principal token into a standard AMM would subject liquidity providers to catastrophic impermanent loss as the assets naturally alter in value. This comparison highlights Pendle V2's first major engineering solution. On the left is a standard curve based on price ranges. On the right, Pendle V2 concentrates its liquidity across a dedicated yield range, tracking implied APY. This concentration works because macroeconomic interest rates rationally oscillate within narrow predictable bands. Staked ETH yields fluctuate between 1 and 7%. They do not suddenly hit 50%. The AMM algorithmically forces liquidity into these probable bounds.
This yield banding mechanism boosts capital efficiency by up to 200 times allowing the protocol to absorb massive institutional block trades without severe slippage. The second mathematical innovation is the dynamic timeadjusted lognormal curve. As time approaches zero, the physical shape of the AMM curve dynamically shifts inward. This shifting enforces the convergence rule.
Because the principal token represents the base capital, its price mathematically must appreciate to a strict 1:1 ratio with the underlying asset at the exact moment of maturity.
The logn normal curve algorithmically shifts to account for this mandated price appreciation. It recognizes that the asset's value is increasing due to time, ensuring it doesn't trigger arbitrary rebalancing penalties for the pool. If a liquidity provider simply holds their position strictly to maturity, this dynamic curve totally eliminates time dependent impermanent loss. The algorithmic stability of principal tokens enables sophisticated institutional strategies far beyond the Pendle platform itself. Institutions use these assets to hedge complex positions.
For instance, depositing synthetic dollars into Pendle allows traders to mathematically strip the volatility from global perpetual funding rates, guaranteeing a locked fixed yield. This node graph illustrates the broader utility because principal token.
>> Okay. So when it's talking about synthetic dollars, it's referring to Athena's products USDE and SUSD exhibit ultra low volatility and continually accrete toward a known peg.
Decentralized money markets treat them as pristine collateral. Sophisticated participants deposit these PTs into isolated vaults to borrow stable coins against them, recursively looping their positions to multiply their fixed yield exposure. However, >> does that part make sense? Just want to make sure that that that part makes sense. That's like the foundation of what it is that we're going to do here um when we actually enter a position.
>> This second order composability introduces a severe hidden systemic fragility into the broader DeFi stock.
The primary attack vector targets liquidity depth. If Pendle's AMM liquidity drops, a malicious actor can easily manipulate the principal token spot price. If an oracle blindly feeds this manipulated price to the money market, it breaks the vault's logic. The system misreads the sudden price crash and triggers the immediate, completely unnecessary liquidation of healthy principal token collateral positions.
The aftermath is disastrous. Liquidators are unable to sell the seized PTS back into the illquid AMM to cover the debt, leaving the money market hopelessly burdened with unreoverable bad loans.
While Pendle's successful cute engineers the mathematical architecture of traditional fixed income for the blockchain, its highly composable nature demands rigorous risk modeling from any institution.
>> Wow, that was really interesting, man.
These video explainers, I think that they're just going to get better and better. I think probably the next step for these video explainers is to make all of these, you know, pieces of text like actually mean something in the context of what the narrator is saying.
Uh they really don't not all the time right now. Um so pretty soon I bet that uh you know the next version of notebookm is probably going to be amazing. Okay, so that was that piece of content just you know getting us all up to speed on PTS and YTS and you know some basic concepts around recursive lending or or looping. Um, the next thing that I want to run through here is, you know, how to actually engineer a levered loop using those PTs and also what are some of the risks around looping these PTs? Because, you know, if we're going to be entering a position, oh [ __ ] um, need to go back in here. if we're going to be entering a position, I really, really want to, you know, make sure that we understand all of the risks here. So, let me go ahead and share my screen one more time here and we're going to hop in and take a look at this.
So, here we go. Uh, levered looping.
This is the one. And let's start things off just by taking a look at the slide deck.
Okay, this is going to be interesting.
So we're talking about systemic fragility and you know it's one thing to understand how to loop. It's a whole different thing to understand the risks of looping. So that's what we're going to dig into. So these principal tokens they deterministically I guess you could say pull pull to par. Sure. Uh that's could be the the right jargon there. So you're able to buy the underlying asset at a structural discount because the yield gets stripped from it. And so you can buy that underlying at a discount.
As long as you hold it to maturity and you don't need to hold to maturity, you're not locked in. But if you do, then you can redeem it at par. There you go. Boom. That's your yield. The fixed APY is generated purely by guaranteed capital appreciation over this duration.
you're not locked up. So there's no lock up here. Just want to make that clear.
There is no lock up. But if you hold to maturity, then you can redeem at par. So that is, you know, PTS are basically zero coupon bonds. That's what they are.
And they're created as a result of that SY wrapper. That's the bifurcation that we were taking a look at in the previous slide deck. So that underlying asset gets stripped of its yield. It creates the YT, which is the yield token. And then you've got the PT, which is the principal minus the yield. So, it's the principal at a discount. So, you can buy that principal asset at a discount, hold it to maturity, redeem it at par, bada bing, bada boom, there's your yield. So, the accounting asset creates a hidden depreciation trap. Okay. So, let's see here. One, a PT. Let's see the redemption reality. So a PT is redeemable one for one for the accounting. So the underlying the unit of account the underlying asset not the underlying yieldbearing token. So it says the accounting asset. Uh so it says one PT easy ETH redeems for exactly one ETH worth of easy ETH upon maturity.
Right. Right. That's the same thing. So you know sometimes these make mistakes.
So let's see the margin danger borrowing a rapidly compounding asset like easy ETH against localized PT collateral. Oh well yeah but you wouldn't so you would never you would never borrow a yieldbearing asset against your PT. You you wouldn't do that. Um so it says unhedged delta exposure instantly accelerates liquidation time times. Well, yeah, no [ __ ] So, look, if this was a little bit confusing for me because uh at maturity, you redeem for the underlying unit of account. So, if I'm putting up a easy ETH PT as collateral and borrowing something against it, I and I wanted to be correlated, I would borrow ETH against it. I wouldn't borrow easy ETH because this is the LST. So an LST, this is natively yield bearing. So just think about it this way. If your debt asset is natively yield bearing, then in dollar terms, your debt is increasing over time and that's on top of whatever you know variable APY you're paying to borrow this. I would never borrow something that is like an LST against a PT. I I just wouldn't do that. Okay, flash loan automation enables extreme capital amplification.
So, uh this is the flash loan part. Um this is just a little bit about what the actual mechanics are on Pendle. Okay.
Architectural divergence dictates contagion containment. Got it. Okay. So um this is the difference in architecture verse between Morpho and Uler. So here we go.
The core paradigm of Morpho immutable permissionless singleton design whereas Uler version two modular meta lending via ERC 4626 and the Ethereum vault connector. Okay. Um so they're very similar but different. So the parameter mutability over here on morpho it says strictly immutable upon creation but parameter mutability over here on uer can be managed by risk curator. I created a couple of these ERC 4626 vaults and yeah, you can manage them, but I thought that on Morpho that there were some parameters that the risk curators could manage in those vaults too.
>> I believe I believe there is >> I think that there is. So this this could be incorrect here. Um and then rehypothecation. So yeah on on these I you know I don't know if this is correct about morpho about rehypothecation being prohibitive prohibited and collateral being physically locked into an isolated uh immutable vault. Um now I know that rehypothecation across connected vaults that's the whole point of the EVC the Ethereum vault connector on Uler. Um and then over here complexity so morpho is very efficient. Um you know like the core smart contract is only 600 lines of code which is very efficient. So you get absolute it's saying absolute isolation and I'm pretty sure that that's true. Um not 100% though. I need to dig into this a little bit more. Um and then for uler it's saying you got these complex hook systems cross vault liquidity dependencies. That's only if you design it that way. So, Uler is super cool because you can design all sorts of interesting financial engineering products. Okay. The adaptive interest rate model creates an uncservivable hockey stick. Oh, okay. So, yeah, this is about interest rates when utilization increases. So, you see down here capital utilization. So, if you're in one of these, if you're borrowing, if you if you put up PT, let's say you put up PT collateral in, you know, one of these vaults, and you're borrowing stables against it, and all of a sudden the utilization, you know, the borrowing of those stables in that vault goes from 40% to greater than 90%. And you know, you were paying your borrow APY down here at 40% was maybe, I don't know, 5 8%. And now all of a sudden, your borrow APY is up at 60%. This is one of the core risks is that adaptive interest rate model. If you're putting up a PT earning 14% APY and you're borrowing uh with leverage, you're recursively looping a bunch of times on one of these money markets. And when you enter the position, you're borrowing at five or eight%. Okay, great. You've got a really nice spread. That makes a lot of sense.
But if you all of a sudden see that the utilization in that vault increases significantly, then you could get into a situation where you're running a highly unprofitable levered loop. That's what happened to, you know, a bunch of really big players um on a on a during that RS ETH event, which I still don't think has even like finished playing out yet. Um, you know, just just real quick, if I take a look at a on the the layer twos, you know, it's still frozen. ETH is still frozen here. So, like, what's the deal? like when is that going to be unfrozen? Um you know at least the stable coin markets here on a aren't uh you know at 100% utilization any longer.
But what had happened to a lot of big borrowers, you know, borrowing USDT or USDC on mainnet was when that utilization, if we just zoom out to a month, when that utilization increased to, you know, I think it it was at 100%.
Uh, it was at 100%. When that utilization increased to 100%. If we just take a look at the borrow APY and this is in the USDC market on a on mainet what happened was the borrow APY went from 3.46% to 15% overnight. So imagine if you put up you know PT collateral earning 12 points you're earning 12% on your BT and you've borrowed at 3.46%. you're thinking, "Great, this is awesome. I'm making like a nine-point spread." And then all of a sudden, uh, you know, there's a bunch of bad debt on a so people need to get out. They borrow stables. Utilization goes through the roof and so does your borrow APY in the stable coin markets on a on mainet. And suddenly you're paying 15% to borrow, but you can't exit because utilization is at 100%. There's no liquidity for you to be able to exit. So what happens is you're stuck in an interest rate arbitrage position where you might be paying negative60%.
Negative 80%.
>> Well, those over over used freaking uh locked pools, you know, from a and you know that RS ETH, you know, that's what's going on with those.
>> Yeah. you know, so that uh that was definitely >> you were educating everybody on uh who was that? It was a major institution that was losing like a couple hundred grand a day or something, dude.
>> I think it was like a 100k a day.
>> Um yeah, it was uh Avant Protocol, I think. And then I think that there was another one. They were running like nine figure levered loops on a on mainet >> stuck in them. They couldn't get out.
>> You're just stuck. You can't do anything. So the risk >> closer to liquidation.
>> Yeah. Every single second you are. Yeah.
>> So, you know, that's why, you know, it's really important that we understand the risks of this stuff because if [clears throat] we're going to take a look at entering a a levered loop with APYUSD and hey, 91% over 43 days. That is pretty sweet, right? Not bad. That's not bad at all. I like I like >> I like it a lot.
>> It's very nice. But but >> they have clock radio. You have clock radio. I get le loop. You get lever loop.
>> I like the lever loop. But here's the thing. Number one, you've got to know what is APYUSD.
How are they generating yield? What are the risks with that underlying asset?
Number two, where are you going to borrow against this PT? Number three, what's the size of the market? Is it deep enough for you to be able to enter the position that you want to enter in size? And number four, are you going to be able to exit this thing? You know, you you just got to there's a lot of due diligence that you got to do before you even think about entering one of these types of levered loop positions. So, um, and look, you see this is what we were just talking about that 100% utilization. So, yeah, >> if there's no liquidity available because it's all borrowed out and, you know, or pulled out, then you're just stuck, >> right? Well, I mean, that's basically what happened, man. You know, to uh a lot of people on on a you know, just just within the last month or so. I mean, April, April was one of the toughest months for DeFi hacks.
>> Oh, a couple of dozen, you know, and you know, some of them were a couple hundred grand, you know, but but a lot of them were, you know, you know what, se you know, seven, eight, nine figure.
>> Yeah. I mean, I'm thinking that um it was I think the biggest month for DeFi hacks ever. It was >> it could it could have been ever in terms of like number of protocols.
>> It I mean I I saw a bunch of posts about it that it was the the worst month ever for hacks, you know, B, you know, like just the one was, you know, what was it 300 to, you know, 400, you know, for the, you know, whole a thing and all that. And there was a bunch of other ones. There was drift. There was, you know, there was a a bunch that, you know, cumulative cumulatively added up to the worst month ever.
>> Yeah. And uh you know, I just I hope that builders spend more time focused on not just like security stuff, but also you got to think about the economic attacks. like a lot of the exploits have not been like breaking encryption at all. It's been breaking the economic models. So, um let's see here. Advanced derivative margin requires dynamic pricing infrastructure. So, these are all about the oracles, chaos and redstone. These are oracle providers and they're different. The way that they generate their price feeds is different.
So, we've got to understand the risks of specific oracles, too. Um, se's collateral must squeeze through a singular liquidity bottleneck. So, remember, you've only got the one AMM, it's Pendle. So, if there is not sufficient liquidity to swap, you're going to be stuck eating whatever the slippage is. Okay. Um, and then executional slippage instantly shatters static incentive models. So yeah, just keep in mind that you know there's slippage and that is going to present basically like a transaction cost. Okay, I want to go ahead and play this piece of video content. I think that this is going to be interesting. This is all about the risks of recursively looping pts on Morpho and Uler. So let's check this out.
>> Modern decentralized finance operates on a specific paradox. taking speculative highly variable crypto yields and mathematically compressing them into predictable zerocon fixed income derivatives. The mechanism driving this is the Pendle principal token or PT by contractually stripping away all variable yield airdrops and protocol distributions. The PT functions purely as a zero coupon bond that users purchase at a discount to the underlying asset. This chart maps the life cycle of a PT. Because the smart contract guarantees a onetoone redemption upon maturity, the asset exhibits a continuous mathematical pull to par. Its yield is derived entirely from this deterministic capital appreciation over the duration of the lockup period. To maximize capital efficiency, users deploy a recursive looping strategy.
They deposit these PTs into modular money markets like Morphoblue or Oiler version 2, using them as collateral to borrow the highly correlated underlying assets. Intentbased networks and flash loans automate the entire cycle. The user swaps the borrowed asset for more PTS, redeposits them, and borrows again, pushing loantoval ratios as high as 94.5% in a single transaction. This atomic looping multiplies capital exposure up to 18 times. Profitability requires a positive carry spread. The PT's fixed yield must strictly exceed the floating borrow rate. This pairs a static asset yield directly against a highly dynamic algorithmic debt liability, creating extreme vulnerability. While the math guarantees a localized positive carry during study states, recursive PT looping introduces a multi-dimensional matrix of systemic risks. It takes passive fixed income and turns it into an aggressive, fragile interest rate arbitrage trade. The first point of failure lies in the precise contractual definition of a PT's maturity. We must separate the accounting asset from the underlying token. A PT redeems exactly one one for the base principle deployed in the protocol. It does not necessarily redeem one one for the underlying yieldbearing token itself. Consider the Renzo Eith ecosystem. Staking and restaking rewards are algorithmically compounded, meaning the value of ETH continually increases relative to base Ethereum over time. Because of this compounding, one PT Eith token entitles the holder to exactly one Ethereum's worth of ETH upon maturity. It does not yield one full ETH token. When a user loops PTH against borrowed Eith on a money market, they often incorrectly assume a perfect 1:1 nominal peg. The borrowed liability, the Eith, is acrewing algorithmic value at a faster rate than the localized linear pull to par of the PT collateral. If a user fails to model their liquidation thresholds based on this exact accounting differential, their leveraged position experiences structural decay.
Their collateral value mathematically depreciates relative to their debt before any broader market volatility even occurs. This chart illustrates the pricing dilemma. PTS are complex derivatives. Their values shift via mathematical time decay rather than pure market forces, rendering standard pricing oracles inadequate. Early markets relied on the Pendle automated market makers timew weighted average price or T-WP oracle. TE-OP oracles derive price from the implied APY on the exchange. They are highly susceptible to artificial manipulation and severe slippage whenever localized liquidity dries up on the AMM. To solve TWAP manipulation, risk managers deployed the linear discount oracle. The linear discount oracle is completely immune to manipulation, but it creates a different problem. By applying a straight line approximation to an inherently exponential yield curve, it systematically underprices the principal tokens. The third generation of pricing relies on advanced dynamic oracles from providers like Chaos Labs and Redstone.
They utilize off-chain exponential pricing modules to continuously and accurately mirror the natural pull to par. These advanced oracles solve the math, but at 94.5% leverage, the margin for error is zero.
A fractional off-chain calculation error or a single relayer delay will trigger an immediate devastating liquidation.
The solveny of a recursively looped PT position ultimately depends on the variable cost of borrowing, which is strictly governed by autonomous interest rate models. Morphoblue prohibits collateral rehypothecation because the collateral is never relent. The protocol can safely target an extreme capital utilization rate of 90%. This visualization displays Morpho's adaptive curve interest rate model. The curve mechanism dictates instantaneous blockby-block interest rate multipliers in direct response to sudden liquidity shifts. If utilization remains stubbornly above that 90% target, the adaptive mechanism kicks in, continuously shifting the entire baseline rate curve upward over time.
Now, introduce a macroeconomic trigger event, a market panic, or a massive entity withdrawal, causing lenders to reflexively extract their supplied capital to safe havens. As capital is extracted, the market utilization rate rapidly converges toward exactly 100%.
When utilization locks at 100%, the algorithmic debt engine enters overdrive. It generates a severe, highly corrosive negative carry that rapidly consumes the borrower's equity. The 100% utilization mark creates a specific paradox. The market possesses exactly zero exit liquidity. Borrowers facing exponential borrow APYs, which onchain records show spiking over 500%, attempt to unwind their loops. But the smart contract structurally prohibits them from withdrawing collateral as doing so would strand the remaining lender deposits. This leaves the borrower watching their health factor, the definitive metric separating solveny from protocol liquidation. Because the denominator of the health factor grows retroactively as compounding interest occurs, a user's position will silently cross the liquidation threshold even if the baseline asset prices remain perfectly static. The utilization trap mathematically guarantees failure. The borrower is completely gridlocked, watching their equity evaporate via discrete algorithmic decay until a forced liquidation is triggered. Once a user's health factor drops below 1.0, the protocol permits third-party arbitrageers to repay the violator's debt in exchange for seizing their PT collateral at a discount. This flowchart tracks the execution pathway revealing a massive bottleneck. Unlike liquid assets such as USDC, secondary market liquidity for a specific PT maturity is almost entirely isolated within a single Pendle AMM pool. Liquidators operate automated smart contracts and refuse to hold PT inventory. They must instantly force the seized PTS through the specific AMM to convert them back into the original debt asset.
>> Protocols incentivize this risk in two ways. Morphoblue uses a static liquidation incentive factor, offering a fixed mathematical bonus tied to the loan to value limit, which often yields a razor thin 5% margin. Oiler version 2 relies on a dynamic reverse Dutch auction. The liquidation discount algorithmically scales upward in direct proportion to how deeply the user violates their collateralization limits.
The cascade begins when liquidators simultaneously dump millions of dollars of seized pts into the Pendle AMM, geometrically draining the bidside liquidity. Execution slippage on the AMM rapidly increases. Eventually, the cost of that slippage exceeds the protocol's liquidation incentive, whether static or expanding. The moment that threshold is crossed, automated arbitragees halt operations. The money market is left choked with unliquidable collateral and systemic bad debt rapidly accumulates.
>> When a liquidation cascade outpaces secondary market liquidity, the lending protocol is forced to resolve the unliquidable bad debt. Morphobl's architectural response is based on uncompromising immutability and absolute market isolation. Morpho does not realize bad debt at the protocol level.
The uncolateralized debt permanently scars the ledger of that specific market. This structurally dilutes the remaining lenders in that specific pool, but it guarantees zero contagion to any other markets. Oiler version 2 takes the opposite approach, building on modular composability and programmatic loss distribution. Oiler algorithmically erases the uncolateralized debt. It either distributes the financial loss proportionally across all vault depositors or it slashes staked EUL governance tokens to underwrite the insolveny. High leverage PT looping requires aggressive continuous vigilance over mathematical oracle bounds.
Utilization availability and AMM exit liquidity. When the macro liquidity landscape shifts, the geometric gravity of algorithmic debt will always overwhelm the linear pole to par.
>> Wow, that was a great piece of content.
And basically at the end it was describing how there can be a liquidation cascade um for these pts where the ar the arbitrageer bots who are going to repay uh you know bad debt.
They're going to seize collateral after repaying some debt those liquidation bots. The reason why they do that is they're incentivized to do so because they can buy that collateral at a discount. So if that discount is less than the slippage that those arbitrage bots would pay to exit the collateral tokens that they seize on Pendle's AMM, then they're no longer incentivized to seize that collateral, which means they would stop operating, which means that basically those affected vaults on either Uler or Morpho uh that they would maybe not go to zero, but pretty damn close, you So yeah, kind of kind of interesting there. And uh you know, this is the type of stuff that you got to know if you want to have a shot at being, you know, an interest rate arbitrage player in DeFi. You know, it's as simple as that.
No and and then that that really is the key is you know before you you know enter into you know crypto for that matter but definitely before you start investing in DeFi and start doing advanced strategies and you know it's you know it's really easy to just look at these platforms these protocols and see the potential yield you know it will tell you you know okay you can make 30% 40% whatever and a lot of people would just think oh you know easy enough I'll deposit my liquidity and that's what I'm going to make that's not the case It's you need to understand the mechanics and how that yield is generated because if you if you don't and you're not paying attention then you know and you don't understand the underlying fees and you know the underlying mechanics and the market shifts you could the market could be pumping and you could be losing money. So you really need to understand these things and I cannot stress enough the value of our education that we offer. So go to the node.pro, go to the education, you know, portion, go to defi university. No cost, no gimmicks, no, you know, no tricks, anything like that. It's no cost education. Go through that, get up to speed, get knowledgeable. If you want to up your game to the next level, then, you know, there's a section in there for the Here, I'll just show you instead of telling you about it.
Let's share my screen real quick.
Uh All right, let's go back to All right. So, you can come here and you can go to courses and that's going to give you the education that we're looking for. You can go to the community. You can join our discord and again, you know, you can join D5 University. If you want to accelerate your learning, you can uh put your email in here and David will reach out to you and set up a one-on-one live call and assess where you're at in your knowledge and experience and your portfolio and be able to steer you in the right direction. You know, maybe you're not ready to, you know, for our paid services. You know, maybe you still have some education to do on your own, you know, with our with a lot of the tools that we offer. And then of course uh you know once you're an investor you always need to keep your finger on the pulse of what's going on in the markets and your assets and how you know that all evolves. So for $20 a month, you know, you can help support the channel and, you know, get a very valuable product uh where you can, you know, use that again in the morning, you know, you can make your cup of coffee, cup of tea, select your assets, you know, hit generate, and in just a couple of seconds, you have a very comprehensive, you know, very well-rounded newsletter that's going to let you know what's going on in the market. So, anything to add before we end, David?
>> Keep it 100. keeps.
[laughter] All right. Well, stay tuned.
Stay tuned and uh you know, every day we we'll bring you uh so later on today we have the market rap. Hopefully Ellie's able to join you for the uh for the coaching. Um and then uh this evening we have uh crypto and chill with myself and Jeff. And I believe that's all we got for today. Let me go to programming and double check. Yes. So, we have the no daily show, the daily market rap, and crypto and chill. So, here I'll zoom in on it so you can see. There you go.
>> And we're good.
>> So, >> sweet, man.
>> We'll see you later on today. Until next time, Veteran Crypto out.
>> Peace.
>> [music] [music] [music] >> Heat up here.
[music] >> [music] >> Heat.
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