The State of Crypto's Private Markets Venture, OTC, and Credit DAS London 2025 Day 2 Investor
Summary
Private Markets Overview: The discussion highlighted the evolving landscape of private markets in crypto, with a focus on the growth of equity and hybrid models combining equity and tokens.
Equity vs. Token Models: There is a shift towards equity plus warrant models due to better regulatory guardrails, while token models offer incentives but present challenges in ownership clarity.
Investment Strategies: Investors face a dilemma between paying high valuations in popular sectors or taking contrarian positions in less favored areas, with a preference for token or hybrid models for quicker liquidity.
Sector Opportunities: Onchain finance, particularly onchain credit, is seen as a major growth area, with structured products and blockchain-native solutions offering unique investment opportunities.
Market Dynamics: The secondary markets are experiencing wide bid-ask spreads, affecting liquidity, with early-stage ventures potentially becoming attractive as the market self-corrects.
Credit Market Insights: The need for experienced underwriters in onchain credit is emphasized, with decentralized systems proving more resilient than centralized ones in recent market events.
Institutional Insights: The panelists noted that onchain yields are superior to traditional yields, and the integration of DeFi composability offers more efficient financial products than traditional finance.
Transcript
Oh, thank you for that eruption of applause. Appreciate that. And the energy in the crowd as we round out the day here. Thanks for sticking with us uh here at the final session of the day. Uh and welcome back to the the disco. Actually wanted to just kind of bring some energy back in the room uh in the silent disco playing a little bit. So um uh but we got a great session here. uh going to be covering a lot of ground in the private markets, breaking it down into venture, OTC, and credit. Have the perfect lineup to do so. So, let's just go down the line uh for some intros on uh personal background, firm or fund you work for, and what you cover most closely in private markets. There you go. Um Omar from uh Second Lane. Um what we do is basically trade on um equity, safe, softs, whatever you can imagine. in the last nine years. Um that has been our bread or butter in the space. I'm one of the co-founders out of the five. So um gonna hand it over to Samantha. Go ahead. Thank you. Um I'm Samantha. I'm with Rockaway. We run we've we've got a crew here. Um we run venture liquid and market neutral strategies. So all crypto. Um yeah, and we've been at it since 2020. Prior to that, I was a digital currency group for for about four years. Hey everyone, James Newman, managing partner, fund manager at Republic, where I run our flagship venture fund, focusing on next generational founders across infrastructure and application layers. Uh Michael Buchella, uh co-founder and managing partner of Neocclassic Capital or early stage venture investing firm. Um over the course of eight years, I've done everything that I think this panel is on. OTC, venture, credit, hedge funds, market neutral. There's little I think I haven't touched in this world. and um previously had a firm called Block Tower. Um that's it. Yeah, thanks all. So right now uh in crypto markets broadly, I feel like uh a lot of the attention's on liquid markets and in the public scene uh with IPO and that sort of activity, but uh how would you describe the state of private markets and what are you watching closely uh in your respective areas? Whoever wants to take a stab at it first. should I um so what we have done in the last 12 months there has been a growth of the equity side of the space previously everybody's looking at the tokens and checking the tokens out like how do the tokens perform but when circle moved into the IPO range from that point on we were trading circle at 20 bucks at some point last year nine months ago I would say and then it jumped to 60 it jumped to 200 and that was the pivotal moment for the state of the market at the current situation itself as well. Right now all these names like Bitco, Kraken, Falcon X and many others will slowly follow in that range. And then um the new thing that has emerged is the hybrid model of equity and token which was there but it didn't excel at that level but right now everybody's looking at it. One of the best examples would be probably poly market which everybody's looking at and seeing how it will perform. Um the last piece of this thing is the evolution of the market on our side. Previously at two years ago if you had asked me like how um the OTC is on the illquid side I would have signed 95% tokens and 5% equity. Right now it's like 60% token, 35% equity and 5% 10% hybrid model setup. That's a total different landscape done than a year ago. So go ahead. It's an interesting point you make about the whole equity equity plus warrants model versus pure tokens. And some of that has been driven by obviously the growth equity side of stuff where companies have actually seen and been able to see exits via the equity route and certainly from a kind of investor perspective the equity type of offering certainly has better kind of regulatory or at least legal guardrails regarding what you own. I think the second part to it is really in terms of if you buy SAFS or or tokens the question of like what you own is part of it and also the incentive mechanisms. My preference is really about the kind of equity plus warrant models because in terms of the value accretion, it's not necessarily clear whether something will accrete towards the token or the equity in the end whereas token models often uh offer those incentives further down the lines. Yeah, go ahead. Um yeah, so when Omar was speaking, it made me remember I almost well I'm already shuddering from the cold, but um it made me double shudder because I was remembering kind of late 2022 23 I was still at TCG. We were trying to raise money in the book and I was trying to sell our circle equity. Um and it was like a gruesome experience and when you're selling no one's buying because people would start flirting and like chat and then they try to dial it down. Um, so one thing that occurred to me was just there's so much more infrastructure around that in the space. Like I don't know that your firm existed then. I don't think so because it felt very direct and informal. Um, and also there were kind of so few people who who had any mandate to look at that. Um, and I think that's also So what changed like now not only are there traditional players that will take longer term views on crypto companies, I think maybe it's helped that they've seen at least a start a flurry of IPOs that they see exits possible because of the regulatory landscape, but there was just um, you know, to speak in crypto, there was no liquidity in the market. Um, and so, so yeah, and then I guess on the token equity, um, I think James, you kind of like nailed it there, and I think we're very aligned on looking for both and not, you know, kind of being fearful if you have some rights, but some other guy might have better rights. But, um, I think there's also been a trend in private markets of just because a lot of these tokens that have no purpose um, fall on fall on deaf interest. Like I'm I'm sure I'm saying something that's been echoed earlier in the day, but there's such a kind of look for tokens that have either a real reason to exist, right? That they create some sort of collective value or behavior that that the system relies on or or that they um you know are kind of not a security dancing as a security, but basically that they are associated with a thing that makes money. And so if you're investing in something that makes money and that the token, you know, you're going to want to have a part in both, um, especially if it's a market that increasingly is is rewarding things and behaving with valuations as if it's looking at traditional equities. I would say yeah the conundrum right now I think for private investing is either you're in a sector that is one of the few that every eyeball is on and so you're paying up enormously for private rounds or you're doing something highly differentiated or contrarian in which case you're secondguessing whether you're doing the right thing when the rest of the market's telling you you're potentially not. Um so you need to be a little bit more forthright in your opinions. you need to have a lot more confidence in the thing you're things you're doing because you know every sector right now is not getting the type of love that we've seen in historical cycles. Um so you have to make that decision. Do you want to be contrarian or potentially early to something brand new or do you want to be momentum oriented and have to pay up and hope that you can retain those valuations as markets progress? And we we tend to do more on the token side or equity and token side. And so we rely on, you know, what I think is ultimately FDV. Um, in rare instances, we'll do non-token related deals. And that's where, you know, we we mentioned credit's one of these pieces. We just did a deal where it's primarily onchain credit, onchain merchant bank. Um, again, we were early on that now it's doing an enormous round that I think is good for them. Uh, but I kind of am curious if if uh we would have invested at that stage. Um, but again, it's an area where there is adoption from the market. it can be I mean these are areas private credit for example it's a multi- trillion dollar asset class in the near future um there's a lot of opportunity a lot of ways to structure that early on that make it more attractive so you either so you have that conundrum as an early stage investor and then you're also just seeing this bifurcation in capital flows you're seeing a lot of hedge fund and some venture fund capital flowing into DATs and private market secondaries one of my closest friends is a is a friendly competitor over at Forge and I keep very close track of what's happening on the secondary markets It was, you know, much much easier to be a buyer a few years ago. It's now more difficult because the bid asks are quite wide as public market IPOs are pricing where things are trading and you have disparities like, you know, figure versus Gemini. They came out around the same time. Obviously, very different outcomes. Um, so yeah, so I think those markets are we're were we're were we're were flush with cash and now people are starting to to take pause and sort of see how things play out in the DAT space, see how liquidity plays out um in the IPO space, see how pricing and comps play out. So yeah, and that's drawing capital from early stage. to early stage is getting a little bit orphaned, which there was a a fellow on stage earlier, uh, Rey, who mentioned that at some point he thinks, you know, early stage venture could be an area that is self-correcting and could be attractive at some point. Yeah, super helpful overview across the board. There's definitely a lot in there want to dig into. I think a good place to start would be kind of the equity token distinction. um since that's relatively newer uh as kind of the public markets are heating up and there's kind of a lot of deliberation but in the secondaries market Omar how do you see that kind of playing out and what what's been impactful about that recently so a couple of things in the last couple of weeks that happened and most of the people have seen it like as Mike mentioned the the gap between buying and selling is like in our side like 10 20% sometimes and at our end we just get frustrated like guys come on we're talking about 10% take it move on you will make this investment into something else and you get the return on those but sometimes the sellers are pretty strict or the other side the buyers are strict they're not this is our mandate we're not going to move what Samantha mentioned on their side at circle at the same time that you were looking there was an employee tender offer as well around that time and nobody was willing to buy that they were like nah overvalued overvalued you're not going to buy this but going to your point Bennett two things plasma we saw the movement there how the token performed and how the people could buy the day one and then the vesting and everything second poly market it jumped to 9 billion on our end and right now I'm just going to name one of the early investors there paraffy for instance has a huge position on par poly market and I would probably say from my perspective If I if I were a founder, I would say, you know what, you need to liquidate a portion of your vesting because it's way too big to be going into IPO or whatever kind of setup. And then just to pick another point on that, Poly Market employees don't have any shares in the company like Natada. So what that means is that those guys would probably need to have a portion of the token as well. And that's where the point where it hinges on like okay should you be doing both. Should you be launching a token and also a IPO at some point or not? And that's the question that we on our side struggle with. But what happens there is either the found goes and they choose the option of both or the investors push them to launch the token because it's far better for them to just get it and get quicker liquidity. I think you have to know your audience or know your mandate or know your geography. So for example, we all say, "Oh, and not every business needs a token." Um, if you are a founder with an audience and user base that's primarily Eastern Hemisphere, you're more inclined to do it because they are a much more cryptonative audience. There's massive, massive liquidity there that doesn't necessarily exist across the board here in the States. So I think the states has moved towards a position of I need to make sure I'm holding the mic right. Guy in the back yelling at me. um there's there was a movement towards kind of removing the token aspect to a lot of early stage deals but that never was the case in in in Asia and actually a fair amount of deals still try and you know go pure SAF which is very uncommon now in the states um so I think if you understand your market know your audience then it works there's also kind of like someone mentioned a mullet DeFi earlier but there's ways to to enter into the token world through equity that so I mentioned the onchain you merchant bank or credit deal. You know, they are going to be very interactive with protocols that do have tokens and they're going to be lending on those particular protocols, lending in their applications, and they'll be accumulating tokens through through the structuring of those deals alongside the credit aspects of the terms. And so from that regard, you can be a, you know, western, I'm investing in the equity, not the tokens. I'm a, you know, a very traditional uh type of investor in this market, but in reality, you're accumulating an enormous amount of value through the tokenized world. Um, and yeah, so that that's another way to play it. And I think the West prefers it that way. I think um there's a little bit of hesitation to say you're a token-based investor. Um, I say it proudly. I say I'm in crypto and I'm a token-based investor. Not to be confused with a tokenbased speculator. Exactly. No, I am an investor until we need liquidity. Uh and then I think as you mentioned, it's good to have your liquidity dispersed across a number of investors, a number of of uh of holders. But anyway, all that to say is know your audience, know your geography, know your market, and that will literally dictate what you do. The only contradiction on that what I have Mike is if you go to assets like layer zero organ for instance, right, they did both. So some investors hold shares which aren't tradable at this point. At least we are not trading those because nobody's interested in purchasing those. So what do you do has it has what's your point of view on that on those? I'm a big fan of those teams. They should have spent more time in Korea before their token launch. There you go. What how else in the venture space maybe Samantha and James does earlier opportunities for liquidity affect the venture mandate as a whole which is typically you know five years plus in the crypto space? How do you approach that? I think I think certainly the the IPO market has shown that there is um exits down the equity route for later stage companies although those are a long way away for founders and I think arguably this pushes many projects especially um investors to push their projects into launching tokens at some some stage which is arguably in in some situations the right thing to do. Sometimes it's it's not the right thing to do. you'd rather have a team that is focused on growing, creating sustainable revenue, building traction rather than thinking about tokconomics and other aspects of what is a token launch. I think the I think the poly market example is a very very interesting one where the ownership is on the equity side, but there is arguably a case for a token um in terms of like value accretion. Everything um is coming back to either the equity or in this case with buybacks that the the token, but that's not normally the case. And the token incentivizes users. There's actually a reason for a token. So when projects launch a token, I always ask why like what is the utility? Is it is it utility or is it as Samantha mentions, is it some kind of quasi equity type play when you have a token? Is it some kind of ownership? Is it some kind of revenue accreing to it? And I think that's what very early stage founders need to think about like if if they are looking for exit opportunities, why are they not able to grow the business? Or could they go down some of the roots of secondary purchases? Are they able to get strategic investors on the cap table that may purchase their business as a slim part of that bigger operational stack? So, I'll take the other side. I don't think Poly Market should have a a token. Um because your premise there is if you like if you have a reason to incentivize users. Every company everywhere has wants something from their users, right? Like you know this chair maker would like me to go and post it felt really good. Like everyone wants something. Um I think there has to be a higher bar than that. Um and by the way the moment you introduce a monetary reward, right? So whether you're like there are a lot of open source communities that have achieved quite a bit of people who just do things because they want to contribute the moment that's introduced you're kind of screwed if it's kind of correlated to a wider market and it tanks, right? And I think like there was a project Numeraai that I I think about a lot and it's actually doing it's doing well now because the market's back up but it's a decentralized hedge fund and you know there are a ton of kind of data scientists run these models whatever they send them in. Um people will do that in their time because they're passionate. if they're making x amount a month and then suddenly for doing the exact same thing because of something out of their control they're making pennies that kind of like screws with your enthusiasm for it. So I think you know if if for users in poly market it's hey I want you to go and participate I want you to do that because you enjoy it right and I think that's what's happening right now but if you start to get a price every month for that time and it goes to nothing like I worry about this why introduce that sustainability risk let me um say two things first how would you solve the employee thing that's one and the second would you say the same thing if you were an investor in poly market as Oh, I I I want I would love a to we we we invested in their seat. I would love to see a token on poly market. I also but it but it it's a riskreward, right? I mean I think Shane wants to be a probably a US listed company at some point relatively soon that probably inhibits the ability to do a revenue buyback model, right? So then it's a governance asset. Maybe there's some comps that you can pull on B&B to Binance. It's effectively an exchange token. But does that impact what you know the founders's ultimate goal is? Um can you keep it kind of walled between your offshore and onshore user base? There's a lot to consider. So it's not that simple when you have a very strong current business model that doesn't necessarily require it. To bring to introduce that you need to think about a lot of the things. But as an investor I would love to see it. That's that has always been the pain on my end. like we all see a token or an equity setup but then when it comes to investment from your own perspective then you're always pro token obviously they're like give me the token because I can have much quicker liquidity than any other IPO or whatever same goes for employees as well to be honest because some of those guys I'm just going to name another example DYDX the guys got their tokens on 2023 something and then the price dropped from December from four bucks to one bucks and those guys were waiting already for three years to get their liquidity event. Horrible for those guys obviously but yeah that's the whole dynamics of IPO or token or whatever. Yeah really interesting viewing the market and kind of early stage preede seed series A rounds as a whole. Where do you see outperformance coming from over the next couple years? And what do you think will get kind of the largest inflows of capital kind of by sector within the industry? I I think the biggest market over the next five years is onchain finance, specifically onchain credit. Um probably gets the most flows. I mean, now that we've got very d answer of you. Yeah. I mean, no that I mean, now that we've got stable coin regulation, we have increasingly larger infrastructure. Um, like it's it's just a to me, you just look towards naturally large and increasing markets and crypto and onchain finance have always sort of been a key area of focus for me and it's probably the first time since 2017 that I feel like it can actually, you know, elevate to that to that level. It's not going to displace it over the next two to three years because it's not good enough yet, but it I think it will. And then I think about it as sort of barbell, sort of like vices, sort of human vices and what that dictates and then the world of capital. And so yeah, I mean I think anything that draw massive network effects, whether it be memecoin launchpads or gambling or um you know, and then anything that generates forms of credit. So lending, liquid staking. So the world of credit onchain retail institutional and vices. Your long degeneracy. I think what we have on our end, we have these monthly reports which we provide would give you an oversight of how the transactions have happened on a secondary market. We review those. We did just report with um one of your competitors out there. Um and then what came out of that is L1s and service were actually the highest valuations on the OTC on valuation level that you can mark those up. But right now the poly market and the pump funds and everything coming into play has de apps has changed that a bit and that's a good thing definitely because then people can say and also for investors are that they can say you know what there's more to it than only L1's um investing only in those getting the 10 billion 20 billion valuation out of there on our end what we see is things like social game those kind of stuff have underperformed in the last year or So two maybe whereas in beginning of 23 it was hype of the market with Ovium Star Atlas ranging at 1,500 bucks etc etc. So those are the movements that that we see on the OTC side because at the end um it's all about the gains at least that's what the whole investment is all about as well. I mean I I I totally agree with the kind of areas that you're focusing on. I think what really makes them stand out is that they found product market fit pretty early and they scaled. Whereas there's other areas um that we look that are a little bit more nent for example crypto AI intersection that potentially could be one of those over the next 5 to 10 years but they're still trying to find that product market fit. They're still trying to get towards any kind of MVP or P in any kind of credible format whereas the others have had the last five six years to test it out flesh it out and they found it. So then it's just about scaling at scale distribution. True. And one added space is robotics. By the way, in the last year or so, I have seen people from crypto moving also into robotics and AI like figure AI, Aptronic and many others. And I'm also amazed in seeing that growth itself as well like hey wait a second there are some shifts some crossovers into equities but also towards other spaces itself. And that's an interesting setup because what you get at some point is AI, robotics, and crypto intertwined with each other and creating something new which wasn't there a year or two ago. And that's another emerging market that I see at this point. Yeah, I mean I I think probably agree with the onchain finance, but within that um I think structured products that are blockchain native. So things that don't like for me it's the the kind of not replicas. So obviously it's different than the first iteration of tokenization which has been a lot of like take this thing that exists in traditional markets and paste it on chain maybe in the hope that there's a fertile capital base there. I don't think that's really, you know, I don't think the five B holders suggest that that's that's really playing out. Um, and yeah, so I think it's more a question of what can uniquely exist on chain, right? Is it a new cash flow or a mix of exposures, right? So, so like projects where there's something that's kind of a real world volatility profile and then a crypto collateral, right? And so there's an interplay. Um, I think that's really that's interesting. Um and then yeah, you know, I think James, you kind of said for those they exist, but now it's about scaling with the venture hat. I think okay, what's the room for new entrance? Then there's a bit of playing around them. Um but then you do come back to the okay if the lowhanging fruit is taken then the next thing is people who have domain expertise right and who come from an industry perhaps one of the ones you mentioned or something else and are like using crypto blockchain in some way to change it but that changes the founder profile right it's not like crypto devs are enthusiasts building for other crypto dev and kind of hybrid finance enthusiasts it's someone maybe maybe being evangelized by all of us and then bringing that to another space. So, yeah, but I think that's exciting. There there are massive economies of scales in certain certain um verticals that you invest in and that's great and these will arguably be some of the winners in long-term market structures going to end up being some kind of oligopolistic maybe monopolistic geopolistic in in various sectors. That doesn't mean that there aren't great opportunities out there. There's certain parts of the stack that are often underlooked and these will end up being acquired by the big players. You've seen the rise in M&A activity across all the major exchanges. A number of the traditional finance players have been buying stablecoin or stablecoin infrastructure players and that's fantastic both from a kind of market structure perspective and integrating these solutions into existing tech stacks but also from an investor it means that you can focus on maybe underappreciated and less sexy areas but still get that exit earlier on and get that capital return to investors. Yeah, let me name two on those level. copper um which has done phenomenal when the buy bet thing happened undervalued in in my opinion on on the secondary market itself as well but at some point people would look at it and they're like okay that could be an interesting thing they haven't done very well on the financial side which they could do much better on and um other thing is consensus obviously underperformed as well and the valuation is in my opinion I would say still a bit too low it could be much better but those are the two things that I we see on the OTC side uh still undervalued probably there are many others which we haven't seen in our own but um that's what I can name at at this point yeah are they undervalued relative like to cash flows or I would probably say in terms of valuation and the infrastructure that they have already built that's what I would say um third one could be wallet connect um because if you take out wallet connect from all levels like custodians and everything You can't use any of the apps basically. That's it. You're done. Uh, BitGo, Fireblocks, all those things have integrated wallet connect and they are basically the only one out there. Um, and those are the things that we look at. They're like, oh yeah, could be an interesting thing and our clients look at them and they think about it, but it takes a bit time to pull the trigger and to get that deal done if there is any options out there. That's great. So, let's round it out on a note of credit. mentioned onchain credit but would love to kind of get perspectives on the state of credit in the markets right now. I think the events of Friday kind of have people asking where is there maybe a systemic risk in the markets and that draw down seem to have been due to auto deleveraging and the per market but how would you kind of you know answer the question where is credit right now compared to cycles past. So, I guess you break down credit into a few different buckets, but what I had mentioned was more kind of the emerging traditional side of credit, but our market lacks underwriters, like real proper, intelligent, strong underwriters with experience underwriting traditional credit. Um, collateralize, overcolateralized lending on Bitcoin and ETH, like that can be very much systematic. there's a lot of nuance in the traditional credit world which is much much larger that I think requires a new set an emerging set of credit underwriters and so I think that part is critical. We're starting to see you know a few of those emerge. We you know you're starting to see the idea of um curation and vault for example vault curation. Um but even there like I think we just need to continue to elevate and we as an industry need to recruit those smart people. Um, so that I think is probably one of the most underserved parts of the market that can have the biggest impact. Um, yeah, I mean generally, you know, it seems to me and you know that onchain credit worked generally. Um, and again, this was something that like this this was the same that same stuff that happened um, you know, during the FTX debacle, right? I mean it's the same thing that happened during three arrows. Dex's decentralized infrastructure tended to work better, more transparently, more efficiently than centralized. So in the world of credit, I think we've had that now for a couple of years. Um obviously with a little bit of you know dysfunction in in certain oracles um but generally it's done well and now I think as we proceed towards different parts of the market the underwriting is going to be important. also basically and I think kind of you mentioned this a little bit but you want to go into areas that are digitally native so that you can originate on chain you can manage all of the rights that are associated with them on chain something like intellectual property for example because running dual custody you know having off-chain regulated uh custody of a traditional finance product alongside your digital representation c you're increasing costs you might be reducing efficient you know maybe increasing efficiencies but you're reducing costs and maybe you're introducing composability but I I think we need a little bit more on the infra side and definitely better underwriting. I think that might be the answer to your earlier question of why figure did so much better than Gemini beyond and it might be that um originating onchain uh was the sexy differentiator. Um yeah I mean profitability could also be a factor but um yeah I mean I guess I'll I'll then tag on um yeah so we provide liquidity or active on most lending platforms. So, Commamino types, um, Warren Morpho, Hyperlin, none of them had bad debt. That's the way they're structured. Um, and overall right now, leverage in DeFi hasn't changed that much, right, since Friday's events. It's it's the centralized, but like if we use as a proxy, um, USDC borrow on a I think it went from like 4 I don't know 4.5 to like 4.2 today. um which is basically just to say the leverage level is pretty consistent in DeFi where there's a massive shift is obviously the liquidations that happened um in CFI and then what yeah so the state of it makes sense that's great um James Omar any thoughts there no I think the only thing that I had for Mike is how do you see the underwriting Mike I mean is there a protocol that should be built to do those kind of stuff should it be the sexist doing that I assume I mean it's like any industry right like are are are lawyers and you know financial analysts going to use AI to support what they do but can it take you know can it do 80% of the work yes but that 20% of of structuring and nuance that you can't necessarily pull at least right now through AI or you know other formats. So um but again you need even with AI you need someone to who's intelligently prompting the software. So I don't again I because credit is particularly private credit is so nuanced it's it's hard to systematically reproduce and I think it's been tried time and time again and it's only blown up you know time and time again. So no we need real people is there um because the underwriting job is identifying like mispriced risk. So is there a type of risk can be specific or a type that you think is particularly mispriced? I mean, even something as simple as like asset back lending, right? So, the again the team that I keep referencing particularly, they're they're experts in special situations, opportunistic credit, a lot of that ends up being asset back lending. Um, yeah, I mean, I don't know, any any investment is you're you're assuming something's mispriced. Um, in the world of onchain credit, something is mispriced only to the extent arbitrageers are willing to come into the market. So they can stay mispriced for as long as you'd like. And you know in the world of private credit the deals are much more uh structurally independent. Um but when you look at something like onchain lending and and USDC on a morph or whatever it might be the efficiency is dependent upon the market participants. No one's going to the market can stay you know irrational longer than you can stay solvent. What needs to happen for there to be incremental demand for onchain credit? Is it okay? So, go back to mispricing. There's a lot of incentive models that work in the crypto world and I think if you can find ways to competitively mispric the credit or or create a better structure in the credit. So whether that means you go to a protocol and you say, you know, we're willing to work with your particular chain, your protocol, what we would want to see here is we're professional underwriters. we hope to never tap into this, but could you provide sort of 10 to 20% first loss on any of our deals? That dramatically shifts the investment to an incredibly incredibly attractive uh piece of credit because, you know, a dollar of TVL does not equate to a percent in the underlier. People are willing to do that. You want to incentivize usage of your of your blockchain. You can do that in ways that really benefit to you. would say, you know, maybe a slight potential cost. Hopefully not. Hopefully the underwriters are strong enough where you wouldn't have to tap into those losses, but if you're able to get that type of um agreement or something similar to that, right? That's just an example. There's a lot of ways to structure these things that can make them extremely attractive relative to traditional markets. And one thing missing there is the insurance model. There is still not a proper setup. I mean, Binance jumped in on Athena to pick the tab there. If they weren't there, Athena was basically done. Um, at least because it was an engineering complacency. Sure. All right, we got time for one more question. Let's do a speed round here to our lovely DS audience who's uh more institutional. You all live on chain, live on crypto Twitter. What's something obvious to you as kind of incrementally more cryptonative that's not obvious to the institutional crowd? putting you on the spot. Onchain base level yields are accessible and substantially better than traditional yields. So take your savings and money markets and bring them onchain. The blurring between uh prediction and gambling markets is going to become pretty much one over time. Um, if OTC deal is too good to be true, it is too good to be true. Don't buy it. Go ahead. Um, integrating is is um is easy and real. So, this thing of of or sorry, what do they call it? Composability in DeFi was a buzz word that for a long time felt like but it it's happening pretty systematically. So take an asset, put it somewhere, easy borrow against it, track that, use it elsewhere. That flow doesn't exist in Tradfi and it it's actually a better product. Cool. Well, thank you to you all. Thanks for sharing your insights. Thanks for hanging around to the end of the day. Make sure to leave your headphones here and join us at the Walrus and the Carpenter for Drinks on Block Works at 5:30. So we'll see you there.
The State of Crypto's Private Markets Venture, OTC, and Credit DAS London 2025 Day 2 Investor
Summary
Transcript
Oh, thank you for that eruption of applause. Appreciate that. And the energy in the crowd as we round out the day here. Thanks for sticking with us uh here at the final session of the day. Uh and welcome back to the the disco. Actually wanted to just kind of bring some energy back in the room uh in the silent disco playing a little bit. So um uh but we got a great session here. uh going to be covering a lot of ground in the private markets, breaking it down into venture, OTC, and credit. Have the perfect lineup to do so. So, let's just go down the line uh for some intros on uh personal background, firm or fund you work for, and what you cover most closely in private markets. There you go. Um Omar from uh Second Lane. Um what we do is basically trade on um equity, safe, softs, whatever you can imagine. in the last nine years. Um that has been our bread or butter in the space. I'm one of the co-founders out of the five. So um gonna hand it over to Samantha. Go ahead. Thank you. Um I'm Samantha. I'm with Rockaway. We run we've we've got a crew here. Um we run venture liquid and market neutral strategies. So all crypto. Um yeah, and we've been at it since 2020. Prior to that, I was a digital currency group for for about four years. Hey everyone, James Newman, managing partner, fund manager at Republic, where I run our flagship venture fund, focusing on next generational founders across infrastructure and application layers. Uh Michael Buchella, uh co-founder and managing partner of Neocclassic Capital or early stage venture investing firm. Um over the course of eight years, I've done everything that I think this panel is on. OTC, venture, credit, hedge funds, market neutral. There's little I think I haven't touched in this world. and um previously had a firm called Block Tower. Um that's it. Yeah, thanks all. So right now uh in crypto markets broadly, I feel like uh a lot of the attention's on liquid markets and in the public scene uh with IPO and that sort of activity, but uh how would you describe the state of private markets and what are you watching closely uh in your respective areas? Whoever wants to take a stab at it first. should I um so what we have done in the last 12 months there has been a growth of the equity side of the space previously everybody's looking at the tokens and checking the tokens out like how do the tokens perform but when circle moved into the IPO range from that point on we were trading circle at 20 bucks at some point last year nine months ago I would say and then it jumped to 60 it jumped to 200 and that was the pivotal moment for the state of the market at the current situation itself as well. Right now all these names like Bitco, Kraken, Falcon X and many others will slowly follow in that range. And then um the new thing that has emerged is the hybrid model of equity and token which was there but it didn't excel at that level but right now everybody's looking at it. One of the best examples would be probably poly market which everybody's looking at and seeing how it will perform. Um the last piece of this thing is the evolution of the market on our side. Previously at two years ago if you had asked me like how um the OTC is on the illquid side I would have signed 95% tokens and 5% equity. Right now it's like 60% token, 35% equity and 5% 10% hybrid model setup. That's a total different landscape done than a year ago. So go ahead. It's an interesting point you make about the whole equity equity plus warrants model versus pure tokens. And some of that has been driven by obviously the growth equity side of stuff where companies have actually seen and been able to see exits via the equity route and certainly from a kind of investor perspective the equity type of offering certainly has better kind of regulatory or at least legal guardrails regarding what you own. I think the second part to it is really in terms of if you buy SAFS or or tokens the question of like what you own is part of it and also the incentive mechanisms. My preference is really about the kind of equity plus warrant models because in terms of the value accretion, it's not necessarily clear whether something will accrete towards the token or the equity in the end whereas token models often uh offer those incentives further down the lines. Yeah, go ahead. Um yeah, so when Omar was speaking, it made me remember I almost well I'm already shuddering from the cold, but um it made me double shudder because I was remembering kind of late 2022 23 I was still at TCG. We were trying to raise money in the book and I was trying to sell our circle equity. Um and it was like a gruesome experience and when you're selling no one's buying because people would start flirting and like chat and then they try to dial it down. Um, so one thing that occurred to me was just there's so much more infrastructure around that in the space. Like I don't know that your firm existed then. I don't think so because it felt very direct and informal. Um, and also there were kind of so few people who who had any mandate to look at that. Um, and I think that's also So what changed like now not only are there traditional players that will take longer term views on crypto companies, I think maybe it's helped that they've seen at least a start a flurry of IPOs that they see exits possible because of the regulatory landscape, but there was just um, you know, to speak in crypto, there was no liquidity in the market. Um, and so, so yeah, and then I guess on the token equity, um, I think James, you kind of like nailed it there, and I think we're very aligned on looking for both and not, you know, kind of being fearful if you have some rights, but some other guy might have better rights. But, um, I think there's also been a trend in private markets of just because a lot of these tokens that have no purpose um, fall on fall on deaf interest. Like I'm I'm sure I'm saying something that's been echoed earlier in the day, but there's such a kind of look for tokens that have either a real reason to exist, right? That they create some sort of collective value or behavior that that the system relies on or or that they um you know are kind of not a security dancing as a security, but basically that they are associated with a thing that makes money. And so if you're investing in something that makes money and that the token, you know, you're going to want to have a part in both, um, especially if it's a market that increasingly is is rewarding things and behaving with valuations as if it's looking at traditional equities. I would say yeah the conundrum right now I think for private investing is either you're in a sector that is one of the few that every eyeball is on and so you're paying up enormously for private rounds or you're doing something highly differentiated or contrarian in which case you're secondguessing whether you're doing the right thing when the rest of the market's telling you you're potentially not. Um so you need to be a little bit more forthright in your opinions. you need to have a lot more confidence in the thing you're things you're doing because you know every sector right now is not getting the type of love that we've seen in historical cycles. Um so you have to make that decision. Do you want to be contrarian or potentially early to something brand new or do you want to be momentum oriented and have to pay up and hope that you can retain those valuations as markets progress? And we we tend to do more on the token side or equity and token side. And so we rely on, you know, what I think is ultimately FDV. Um, in rare instances, we'll do non-token related deals. And that's where, you know, we we mentioned credit's one of these pieces. We just did a deal where it's primarily onchain credit, onchain merchant bank. Um, again, we were early on that now it's doing an enormous round that I think is good for them. Uh, but I kind of am curious if if uh we would have invested at that stage. Um, but again, it's an area where there is adoption from the market. it can be I mean these are areas private credit for example it's a multi- trillion dollar asset class in the near future um there's a lot of opportunity a lot of ways to structure that early on that make it more attractive so you either so you have that conundrum as an early stage investor and then you're also just seeing this bifurcation in capital flows you're seeing a lot of hedge fund and some venture fund capital flowing into DATs and private market secondaries one of my closest friends is a is a friendly competitor over at Forge and I keep very close track of what's happening on the secondary markets It was, you know, much much easier to be a buyer a few years ago. It's now more difficult because the bid asks are quite wide as public market IPOs are pricing where things are trading and you have disparities like, you know, figure versus Gemini. They came out around the same time. Obviously, very different outcomes. Um, so yeah, so I think those markets are we're were we're were we're were flush with cash and now people are starting to to take pause and sort of see how things play out in the DAT space, see how liquidity plays out um in the IPO space, see how pricing and comps play out. So yeah, and that's drawing capital from early stage. to early stage is getting a little bit orphaned, which there was a a fellow on stage earlier, uh, Rey, who mentioned that at some point he thinks, you know, early stage venture could be an area that is self-correcting and could be attractive at some point. Yeah, super helpful overview across the board. There's definitely a lot in there want to dig into. I think a good place to start would be kind of the equity token distinction. um since that's relatively newer uh as kind of the public markets are heating up and there's kind of a lot of deliberation but in the secondaries market Omar how do you see that kind of playing out and what what's been impactful about that recently so a couple of things in the last couple of weeks that happened and most of the people have seen it like as Mike mentioned the the gap between buying and selling is like in our side like 10 20% sometimes and at our end we just get frustrated like guys come on we're talking about 10% take it move on you will make this investment into something else and you get the return on those but sometimes the sellers are pretty strict or the other side the buyers are strict they're not this is our mandate we're not going to move what Samantha mentioned on their side at circle at the same time that you were looking there was an employee tender offer as well around that time and nobody was willing to buy that they were like nah overvalued overvalued you're not going to buy this but going to your point Bennett two things plasma we saw the movement there how the token performed and how the people could buy the day one and then the vesting and everything second poly market it jumped to 9 billion on our end and right now I'm just going to name one of the early investors there paraffy for instance has a huge position on par poly market and I would probably say from my perspective If I if I were a founder, I would say, you know what, you need to liquidate a portion of your vesting because it's way too big to be going into IPO or whatever kind of setup. And then just to pick another point on that, Poly Market employees don't have any shares in the company like Natada. So what that means is that those guys would probably need to have a portion of the token as well. And that's where the point where it hinges on like okay should you be doing both. Should you be launching a token and also a IPO at some point or not? And that's the question that we on our side struggle with. But what happens there is either the found goes and they choose the option of both or the investors push them to launch the token because it's far better for them to just get it and get quicker liquidity. I think you have to know your audience or know your mandate or know your geography. So for example, we all say, "Oh, and not every business needs a token." Um, if you are a founder with an audience and user base that's primarily Eastern Hemisphere, you're more inclined to do it because they are a much more cryptonative audience. There's massive, massive liquidity there that doesn't necessarily exist across the board here in the States. So I think the states has moved towards a position of I need to make sure I'm holding the mic right. Guy in the back yelling at me. um there's there was a movement towards kind of removing the token aspect to a lot of early stage deals but that never was the case in in in Asia and actually a fair amount of deals still try and you know go pure SAF which is very uncommon now in the states um so I think if you understand your market know your audience then it works there's also kind of like someone mentioned a mullet DeFi earlier but there's ways to to enter into the token world through equity that so I mentioned the onchain you merchant bank or credit deal. You know, they are going to be very interactive with protocols that do have tokens and they're going to be lending on those particular protocols, lending in their applications, and they'll be accumulating tokens through through the structuring of those deals alongside the credit aspects of the terms. And so from that regard, you can be a, you know, western, I'm investing in the equity, not the tokens. I'm a, you know, a very traditional uh type of investor in this market, but in reality, you're accumulating an enormous amount of value through the tokenized world. Um, and yeah, so that that's another way to play it. And I think the West prefers it that way. I think um there's a little bit of hesitation to say you're a token-based investor. Um, I say it proudly. I say I'm in crypto and I'm a token-based investor. Not to be confused with a tokenbased speculator. Exactly. No, I am an investor until we need liquidity. Uh and then I think as you mentioned, it's good to have your liquidity dispersed across a number of investors, a number of of uh of holders. But anyway, all that to say is know your audience, know your geography, know your market, and that will literally dictate what you do. The only contradiction on that what I have Mike is if you go to assets like layer zero organ for instance, right, they did both. So some investors hold shares which aren't tradable at this point. At least we are not trading those because nobody's interested in purchasing those. So what do you do has it has what's your point of view on that on those? I'm a big fan of those teams. They should have spent more time in Korea before their token launch. There you go. What how else in the venture space maybe Samantha and James does earlier opportunities for liquidity affect the venture mandate as a whole which is typically you know five years plus in the crypto space? How do you approach that? I think I think certainly the the IPO market has shown that there is um exits down the equity route for later stage companies although those are a long way away for founders and I think arguably this pushes many projects especially um investors to push their projects into launching tokens at some some stage which is arguably in in some situations the right thing to do. Sometimes it's it's not the right thing to do. you'd rather have a team that is focused on growing, creating sustainable revenue, building traction rather than thinking about tokconomics and other aspects of what is a token launch. I think the I think the poly market example is a very very interesting one where the ownership is on the equity side, but there is arguably a case for a token um in terms of like value accretion. Everything um is coming back to either the equity or in this case with buybacks that the the token, but that's not normally the case. And the token incentivizes users. There's actually a reason for a token. So when projects launch a token, I always ask why like what is the utility? Is it is it utility or is it as Samantha mentions, is it some kind of quasi equity type play when you have a token? Is it some kind of ownership? Is it some kind of revenue accreing to it? And I think that's what very early stage founders need to think about like if if they are looking for exit opportunities, why are they not able to grow the business? Or could they go down some of the roots of secondary purchases? Are they able to get strategic investors on the cap table that may purchase their business as a slim part of that bigger operational stack? So, I'll take the other side. I don't think Poly Market should have a a token. Um because your premise there is if you like if you have a reason to incentivize users. Every company everywhere has wants something from their users, right? Like you know this chair maker would like me to go and post it felt really good. Like everyone wants something. Um I think there has to be a higher bar than that. Um and by the way the moment you introduce a monetary reward, right? So whether you're like there are a lot of open source communities that have achieved quite a bit of people who just do things because they want to contribute the moment that's introduced you're kind of screwed if it's kind of correlated to a wider market and it tanks, right? And I think like there was a project Numeraai that I I think about a lot and it's actually doing it's doing well now because the market's back up but it's a decentralized hedge fund and you know there are a ton of kind of data scientists run these models whatever they send them in. Um people will do that in their time because they're passionate. if they're making x amount a month and then suddenly for doing the exact same thing because of something out of their control they're making pennies that kind of like screws with your enthusiasm for it. So I think you know if if for users in poly market it's hey I want you to go and participate I want you to do that because you enjoy it right and I think that's what's happening right now but if you start to get a price every month for that time and it goes to nothing like I worry about this why introduce that sustainability risk let me um say two things first how would you solve the employee thing that's one and the second would you say the same thing if you were an investor in poly market as Oh, I I I want I would love a to we we we invested in their seat. I would love to see a token on poly market. I also but it but it it's a riskreward, right? I mean I think Shane wants to be a probably a US listed company at some point relatively soon that probably inhibits the ability to do a revenue buyback model, right? So then it's a governance asset. Maybe there's some comps that you can pull on B&B to Binance. It's effectively an exchange token. But does that impact what you know the founders's ultimate goal is? Um can you keep it kind of walled between your offshore and onshore user base? There's a lot to consider. So it's not that simple when you have a very strong current business model that doesn't necessarily require it. To bring to introduce that you need to think about a lot of the things. But as an investor I would love to see it. That's that has always been the pain on my end. like we all see a token or an equity setup but then when it comes to investment from your own perspective then you're always pro token obviously they're like give me the token because I can have much quicker liquidity than any other IPO or whatever same goes for employees as well to be honest because some of those guys I'm just going to name another example DYDX the guys got their tokens on 2023 something and then the price dropped from December from four bucks to one bucks and those guys were waiting already for three years to get their liquidity event. Horrible for those guys obviously but yeah that's the whole dynamics of IPO or token or whatever. Yeah really interesting viewing the market and kind of early stage preede seed series A rounds as a whole. Where do you see outperformance coming from over the next couple years? And what do you think will get kind of the largest inflows of capital kind of by sector within the industry? I I think the biggest market over the next five years is onchain finance, specifically onchain credit. Um probably gets the most flows. I mean, now that we've got very d answer of you. Yeah. I mean, no that I mean, now that we've got stable coin regulation, we have increasingly larger infrastructure. Um, like it's it's just a to me, you just look towards naturally large and increasing markets and crypto and onchain finance have always sort of been a key area of focus for me and it's probably the first time since 2017 that I feel like it can actually, you know, elevate to that to that level. It's not going to displace it over the next two to three years because it's not good enough yet, but it I think it will. And then I think about it as sort of barbell, sort of like vices, sort of human vices and what that dictates and then the world of capital. And so yeah, I mean I think anything that draw massive network effects, whether it be memecoin launchpads or gambling or um you know, and then anything that generates forms of credit. So lending, liquid staking. So the world of credit onchain retail institutional and vices. Your long degeneracy. I think what we have on our end, we have these monthly reports which we provide would give you an oversight of how the transactions have happened on a secondary market. We review those. We did just report with um one of your competitors out there. Um and then what came out of that is L1s and service were actually the highest valuations on the OTC on valuation level that you can mark those up. But right now the poly market and the pump funds and everything coming into play has de apps has changed that a bit and that's a good thing definitely because then people can say and also for investors are that they can say you know what there's more to it than only L1's um investing only in those getting the 10 billion 20 billion valuation out of there on our end what we see is things like social game those kind of stuff have underperformed in the last year or So two maybe whereas in beginning of 23 it was hype of the market with Ovium Star Atlas ranging at 1,500 bucks etc etc. So those are the movements that that we see on the OTC side because at the end um it's all about the gains at least that's what the whole investment is all about as well. I mean I I I totally agree with the kind of areas that you're focusing on. I think what really makes them stand out is that they found product market fit pretty early and they scaled. Whereas there's other areas um that we look that are a little bit more nent for example crypto AI intersection that potentially could be one of those over the next 5 to 10 years but they're still trying to find that product market fit. They're still trying to get towards any kind of MVP or P in any kind of credible format whereas the others have had the last five six years to test it out flesh it out and they found it. So then it's just about scaling at scale distribution. True. And one added space is robotics. By the way, in the last year or so, I have seen people from crypto moving also into robotics and AI like figure AI, Aptronic and many others. And I'm also amazed in seeing that growth itself as well like hey wait a second there are some shifts some crossovers into equities but also towards other spaces itself. And that's an interesting setup because what you get at some point is AI, robotics, and crypto intertwined with each other and creating something new which wasn't there a year or two ago. And that's another emerging market that I see at this point. Yeah, I mean I I think probably agree with the onchain finance, but within that um I think structured products that are blockchain native. So things that don't like for me it's the the kind of not replicas. So obviously it's different than the first iteration of tokenization which has been a lot of like take this thing that exists in traditional markets and paste it on chain maybe in the hope that there's a fertile capital base there. I don't think that's really, you know, I don't think the five B holders suggest that that's that's really playing out. Um, and yeah, so I think it's more a question of what can uniquely exist on chain, right? Is it a new cash flow or a mix of exposures, right? So, so like projects where there's something that's kind of a real world volatility profile and then a crypto collateral, right? And so there's an interplay. Um, I think that's really that's interesting. Um and then yeah, you know, I think James, you kind of said for those they exist, but now it's about scaling with the venture hat. I think okay, what's the room for new entrance? Then there's a bit of playing around them. Um but then you do come back to the okay if the lowhanging fruit is taken then the next thing is people who have domain expertise right and who come from an industry perhaps one of the ones you mentioned or something else and are like using crypto blockchain in some way to change it but that changes the founder profile right it's not like crypto devs are enthusiasts building for other crypto dev and kind of hybrid finance enthusiasts it's someone maybe maybe being evangelized by all of us and then bringing that to another space. So, yeah, but I think that's exciting. There there are massive economies of scales in certain certain um verticals that you invest in and that's great and these will arguably be some of the winners in long-term market structures going to end up being some kind of oligopolistic maybe monopolistic geopolistic in in various sectors. That doesn't mean that there aren't great opportunities out there. There's certain parts of the stack that are often underlooked and these will end up being acquired by the big players. You've seen the rise in M&A activity across all the major exchanges. A number of the traditional finance players have been buying stablecoin or stablecoin infrastructure players and that's fantastic both from a kind of market structure perspective and integrating these solutions into existing tech stacks but also from an investor it means that you can focus on maybe underappreciated and less sexy areas but still get that exit earlier on and get that capital return to investors. Yeah, let me name two on those level. copper um which has done phenomenal when the buy bet thing happened undervalued in in my opinion on on the secondary market itself as well but at some point people would look at it and they're like okay that could be an interesting thing they haven't done very well on the financial side which they could do much better on and um other thing is consensus obviously underperformed as well and the valuation is in my opinion I would say still a bit too low it could be much better but those are the two things that I we see on the OTC side uh still undervalued probably there are many others which we haven't seen in our own but um that's what I can name at at this point yeah are they undervalued relative like to cash flows or I would probably say in terms of valuation and the infrastructure that they have already built that's what I would say um third one could be wallet connect um because if you take out wallet connect from all levels like custodians and everything You can't use any of the apps basically. That's it. You're done. Uh, BitGo, Fireblocks, all those things have integrated wallet connect and they are basically the only one out there. Um, and those are the things that we look at. They're like, oh yeah, could be an interesting thing and our clients look at them and they think about it, but it takes a bit time to pull the trigger and to get that deal done if there is any options out there. That's great. So, let's round it out on a note of credit. mentioned onchain credit but would love to kind of get perspectives on the state of credit in the markets right now. I think the events of Friday kind of have people asking where is there maybe a systemic risk in the markets and that draw down seem to have been due to auto deleveraging and the per market but how would you kind of you know answer the question where is credit right now compared to cycles past. So, I guess you break down credit into a few different buckets, but what I had mentioned was more kind of the emerging traditional side of credit, but our market lacks underwriters, like real proper, intelligent, strong underwriters with experience underwriting traditional credit. Um, collateralize, overcolateralized lending on Bitcoin and ETH, like that can be very much systematic. there's a lot of nuance in the traditional credit world which is much much larger that I think requires a new set an emerging set of credit underwriters and so I think that part is critical. We're starting to see you know a few of those emerge. We you know you're starting to see the idea of um curation and vault for example vault curation. Um but even there like I think we just need to continue to elevate and we as an industry need to recruit those smart people. Um, so that I think is probably one of the most underserved parts of the market that can have the biggest impact. Um, yeah, I mean generally, you know, it seems to me and you know that onchain credit worked generally. Um, and again, this was something that like this this was the same that same stuff that happened um, you know, during the FTX debacle, right? I mean it's the same thing that happened during three arrows. Dex's decentralized infrastructure tended to work better, more transparently, more efficiently than centralized. So in the world of credit, I think we've had that now for a couple of years. Um obviously with a little bit of you know dysfunction in in certain oracles um but generally it's done well and now I think as we proceed towards different parts of the market the underwriting is going to be important. also basically and I think kind of you mentioned this a little bit but you want to go into areas that are digitally native so that you can originate on chain you can manage all of the rights that are associated with them on chain something like intellectual property for example because running dual custody you know having off-chain regulated uh custody of a traditional finance product alongside your digital representation c you're increasing costs you might be reducing efficient you know maybe increasing efficiencies but you're reducing costs and maybe you're introducing composability but I I think we need a little bit more on the infra side and definitely better underwriting. I think that might be the answer to your earlier question of why figure did so much better than Gemini beyond and it might be that um originating onchain uh was the sexy differentiator. Um yeah I mean profitability could also be a factor but um yeah I mean I guess I'll I'll then tag on um yeah so we provide liquidity or active on most lending platforms. So, Commamino types, um, Warren Morpho, Hyperlin, none of them had bad debt. That's the way they're structured. Um, and overall right now, leverage in DeFi hasn't changed that much, right, since Friday's events. It's it's the centralized, but like if we use as a proxy, um, USDC borrow on a I think it went from like 4 I don't know 4.5 to like 4.2 today. um which is basically just to say the leverage level is pretty consistent in DeFi where there's a massive shift is obviously the liquidations that happened um in CFI and then what yeah so the state of it makes sense that's great um James Omar any thoughts there no I think the only thing that I had for Mike is how do you see the underwriting Mike I mean is there a protocol that should be built to do those kind of stuff should it be the sexist doing that I assume I mean it's like any industry right like are are are lawyers and you know financial analysts going to use AI to support what they do but can it take you know can it do 80% of the work yes but that 20% of of structuring and nuance that you can't necessarily pull at least right now through AI or you know other formats. So um but again you need even with AI you need someone to who's intelligently prompting the software. So I don't again I because credit is particularly private credit is so nuanced it's it's hard to systematically reproduce and I think it's been tried time and time again and it's only blown up you know time and time again. So no we need real people is there um because the underwriting job is identifying like mispriced risk. So is there a type of risk can be specific or a type that you think is particularly mispriced? I mean, even something as simple as like asset back lending, right? So, the again the team that I keep referencing particularly, they're they're experts in special situations, opportunistic credit, a lot of that ends up being asset back lending. Um, yeah, I mean, I don't know, any any investment is you're you're assuming something's mispriced. Um, in the world of onchain credit, something is mispriced only to the extent arbitrageers are willing to come into the market. So they can stay mispriced for as long as you'd like. And you know in the world of private credit the deals are much more uh structurally independent. Um but when you look at something like onchain lending and and USDC on a morph or whatever it might be the efficiency is dependent upon the market participants. No one's going to the market can stay you know irrational longer than you can stay solvent. What needs to happen for there to be incremental demand for onchain credit? Is it okay? So, go back to mispricing. There's a lot of incentive models that work in the crypto world and I think if you can find ways to competitively mispric the credit or or create a better structure in the credit. So whether that means you go to a protocol and you say, you know, we're willing to work with your particular chain, your protocol, what we would want to see here is we're professional underwriters. we hope to never tap into this, but could you provide sort of 10 to 20% first loss on any of our deals? That dramatically shifts the investment to an incredibly incredibly attractive uh piece of credit because, you know, a dollar of TVL does not equate to a percent in the underlier. People are willing to do that. You want to incentivize usage of your of your blockchain. You can do that in ways that really benefit to you. would say, you know, maybe a slight potential cost. Hopefully not. Hopefully the underwriters are strong enough where you wouldn't have to tap into those losses, but if you're able to get that type of um agreement or something similar to that, right? That's just an example. There's a lot of ways to structure these things that can make them extremely attractive relative to traditional markets. And one thing missing there is the insurance model. There is still not a proper setup. I mean, Binance jumped in on Athena to pick the tab there. If they weren't there, Athena was basically done. Um, at least because it was an engineering complacency. Sure. All right, we got time for one more question. Let's do a speed round here to our lovely DS audience who's uh more institutional. You all live on chain, live on crypto Twitter. What's something obvious to you as kind of incrementally more cryptonative that's not obvious to the institutional crowd? putting you on the spot. Onchain base level yields are accessible and substantially better than traditional yields. So take your savings and money markets and bring them onchain. The blurring between uh prediction and gambling markets is going to become pretty much one over time. Um, if OTC deal is too good to be true, it is too good to be true. Don't buy it. Go ahead. Um, integrating is is um is easy and real. So, this thing of of or sorry, what do they call it? Composability in DeFi was a buzz word that for a long time felt like but it it's happening pretty systematically. So take an asset, put it somewhere, easy borrow against it, track that, use it elsewhere. That flow doesn't exist in Tradfi and it it's actually a better product. Cool. Well, thank you to you all. Thanks for sharing your insights. Thanks for hanging around to the end of the day. Make sure to leave your headphones here and join us at the Walrus and the Carpenter for Drinks on Block Works at 5:30. So we'll see you there.