In today's episode Dan and Sam are joined by Ethena Labs team. Guy Young, Co-founder, and Conor Ryder, head of research, dive into the Ethena's aim to enable the internet bond and transform Ethereum into the first crypto-native yield bearing stablecoin. They dive into Ethena's revenue model, staking yield, depeg risk, bitcoin as collateral, and much more!

As usual the team is also joined by two blockworks research analysts, Matt & Ren. Today they cover the GMX V2 launch, Coinbase earnings and Base season, Paypal pyUSD, and Arbitrum BoLD.
- -
Follow Guy: https://twitter.com/leptokurtic_
Follow Conor: https://twitter.com/ConorRyder
Follow Dan: https://twitter.com/smyyguy
Follow Ren: https://twitter.com/purplepill3m
Follow Matt: https://twitter.com/MattFiebach
Follow Blockworks Research: https://twitter.com/blockworksres

Subscribe on YouTube: https://bit.ly/3foDS38
Subscribe on Apple: https://apple.co/3SNhUEt
Subscribe on Spotify: https://spoti.fi/3NlP1hA

Get top market insights and the latest in crypto news. Subscribe to Blockworks Daily Newsletter: https://blockworks.co/newsletter/
- -
Today’s episode is brought to you by the Atom Accelerator, now offering grants to build out the ATOM economic zone! It's the perfect time to build with Cosmos and join the thriving ATOM ecosystem. With Interchain Security live, and the power of IBC connecting the interchain, builders are flocking to Cosmos. Join the ranks of Neutron, Lido, Astroport, Gitcoin, Mars and numerous other projects harnessing Cosmos’ leading infrastructure. Discover how to secure a grant from the Atom Accelerator by visiting https://www.atomaccelerator.com/ today! 
- -
Use code 0X30 to get 30% off Permissionless 2023 in Austin:
https://blockworks.co/event/permissionless-2023
- -
Timestamps:
(00:00) Introduction
(01:21) CEX Trading vs GMX V2
(10:36) Coinbase Earnings & Base Launch
(18:04) Paypal pyUSD
(25:10) Arbitrum BOLD
(29:40) “Atom Accelerator Ad”
(30:59) Interview Start: Ethena Labs
(32:53) Why Decentralized Stables are Needed
(38:56) USDE User Flow & Underworking 
(42:32) Hedging Counter-party Risk
(48:00) USDE Demand Through Yield
(51:10) Protocol Revenue
(56:09) Deposit Conversions
(1:01:06) stETH Depeg Scenario
(1:11:52) Bitcoin as Collateral
(1:15:03) L2 Strategy
- -
Resources:
GMX V2
https://twitter.com/blockworksres/status/1686413000218210305

Paypal pyUSD
https://blockworks.co/news/paypal-launches-stablecoin

BOLD on Arbitrum
https://blockworks.co/news/arbitrum-validation-protocol-permissionless

Ethena Labs
https://www.ethena.fi/
- -
Check out Blockworks Research today! Research, data, governance, tokenomics, and models – now, all in one place
Blockworks Research: https://www.blockworksresearch.com/
Free Daily Newsletter: https://blockworks.co/newsletter
- -
Disclaimer: Nothing said on 0xResearch is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Dan, Sam, and our guests may hold positions in the companies, funds, or projects discussed.

1 of the largest deficiencies we see within USDC and USDT is that they sort of externalize all the risk of the product onto users and then internalize all of the yield to themselves, which we think is a pretty crazy construct as a product.

But it is pretty like indicative of how strong the actual demand for stable coins is, right?

You're actually telling people, you take all the risk, we're going to keep all the return, and there's still $130 billion of demand for a product like that.

Welcome back to another episode of ZeroX Research.

This show is made possible thanks to our fantastic sponsor, the Atom Accelerator.

If you're a developer looking for the home in the industry, the Atom Economic Zone welcomes you.

Today is August 7th, and as always, we have a great interview lined up with Guy and Connor, 2 members of the Athena team.

And Athena is a protocol looking to build a truly decentralized and scalable stable coin on Ethereum.

I did want to take a second to give a little self-shill to our conference we are hosting in Austin, Texas in September.

If you use code 0x30, you can get a 30% discount on those tickets.

Hit us up on Twitter, and then we can go grab a beer down in Austin.

It's 1 of the best conferences of the year.

But before we get in the interview, we are joined by Ren and Matt to discuss the latest market happenings.

Matt, why don't I hand it over to you to start it off?

I am putting centralized exchanges for trading perpetual futures in the hot seat.

This is because of the amount of innovation that's currently happening in the decentralized and on-chain perpetual futures landscape.

If we look last week, GMX launched V2 of their product.

It looks to address a lot of the problems they had in V1, such as a lack of ability to attract LPs.

This is because A, to be a liquidity provider on GMX and just for some background, you know, GMX liquidity providers are the counterparty for every trade.

So anyone can go trade there and you're trading against these LPs who go and put assets in there.

Anyways, if you're being a liquidity provider and V1 of GMX is product, you are taking directional exposure to every asset.

So this was things like Bitcoin, ETH, LINK, Uniswap, USDC and in a basket that was a composition that may not have been what everyone really wanted.

You know, maybe I don't want the GMX governance token holders telling me what amounts of these assets I have to hold.

So in V2, they address this with isolated liquidity pools where you only have to provide liquidity against, you know, whatever asset you want.

So I can go and provide liquidity only against, you know, maybe Bitcoin or maybe Ether or whatever I want to hold.

And then the second thing that I think is most interesting, Oh, another thing is because of these isolated liquidity pools, eventually we might even see permissionless asset listing.

So in V1, there's very few assets listed because you needed this liquidity in order to facilitate trading in V2.

As long as someone's willing to take the other side of the trade and provide liquidity, that asset can probably be listed.

So GMX will probably be listing far longer tail assets in the near future and maybe even permissionless asset listing.

The second 1 is there was in V1 a lot of people said that it was a benefit that the liquidity providers were taking on the risk or whatever you want to call it of trader PNL.

So if traders were going to lose a lot of money in aggregate, GMX LPs were going to win.

Some people liken this to being the casino with traders being the casino.

Although for a while this worked really well because traders were losing a ton of money since January 1st of this year, traders have actually just been wrecking GLP providers.

So in V2, there's a way better function for balancing open interest, meaning for making sure that there's an equal amount long and short so that instead of a risk of trader P&L, more so liquidity providers are just pocketing those fees more like a VIG with a sports book or something like that, which I think is an amazing model when compared to the likes of the way V1 worked.

Additionally, you know, Synthetix is heating up with CCIP launched recently.

So soon we'll see Synthetix Purpose V2, not just on optimism.

There should be a huge benefit given that Quenta and Polynomial, which are the 2 biggest exchanges for trading synthetics PurposeV2 are actually ending their incentive programs at the end of this month.

So this is like a little bit of low key alpha.

But if you trade on those exchanges for the past few weeks, you've been able to get more money in OP and token rewards than the fees you were paying.

So this will end at the end of the month.

And, you know, whether or not any of those users and volume that they've received is sticky or not, well, it has yet to be seen.

But anyway, CCIP should be a huge benefit for them.

What's going to happen to this ecosystem of applications that have taken GOP and made it a core piece of their product.

There's a couple of yield aggregators that have really built a product around this.

And are they just like shit out of luck at this point?

So V2 actually allows an even better mechanism for partnering with products that want to build in the GMX ecosystem.

But that being said, a lot of the builders who've spent time building these delta neutral vaults on top of GMX or whatever are kind of shit out of luck.

So while in the long term, it'll probably benefit people that are looking to build on top of GMX, a lot of the builders who've been there recently might have put some effort into verticals that aren't gonna be too beneficial in the long term.

I got another question for you and sorry to put you on the spot, but I guess if let's say someone goes and lists Pepe tomorrow and that's like an asset that people can trade against if P&L goes so negative that the protocol is left holding bad debt.

Yeah, so actually they don't have like there's no road map or tweets or anything that say that they're going to support permissionless asset listing.

Rather, like I bothered the team a little bit to get that information that that is something that's planned in the future.

So we'll definitely have to see how, you know, first these longer tail assets go.

And then I'm sure, I think that really the question there is like how much trust you have in GMX's liquidation mechanism.

And the protocol realistically may not be even liable for those debts.

My take here, or just initial knee-jerk reaction, was that liquidity in DeFi is fairly fragmented already.

Like just having the whole GLP versus all of the other options out there, at least in the current environment is kind of like a big ass.

And nowadays you're increasing the complexity on the user.

You know, sure, like the original V1 basket had like Ving, had Uni in it.

But now as a user, you start to think, oh, do I want to choose between like BTC traded PNL or like ETH PNL or like any other token and I think that fragmentation makes it even harder.

Or even like just looking at it from like a super like simple perspective right you look at GLP as a whole it's a nice number because you say like GLP as a whole has a total like X dollars of liquidity but now like you silo it to certain markets saying BTC has like 10% of that liquidity, ETH has like 15% of that equity and it just from like a numbers perspective doesn't look as nice.

I don't know whether V1 will still be available when V2 goes live.

If it is, I think it'll be very interesting to see sort of the dynamics between providing liquidity between v1 and v2 and how much really migrates to v2 and whether that's like something people actually want at the end of the day and going back to your point about trader pnl it being like wildly positive this year.

I think on aggregate, you can expect people to get liquidated, they'll DJ and gamble and lose but that's on aggregate over a long term.

I think the case against GLP has always been what if everyone is long and GLP gets, sorry, everyone is long as a bull market and GLP gets completely wrecked.

Like at 1 point, everyone was like super duper rich in the bull market, but it's basically with a question of whether the GLP holders can last long enough to get to the bear market and then everybody gets liquidated then they'll make bank But yeah, I just think it's an interesting approach of sort of tackling all of the problems that GLP slash GMX had in V1

Matt does this change who the fastest horse in the perps race is?

Between DYDX, GMX, Quinta, Level, Vertex, we're seeing aggregators like Mucks come online.

Yeah, honestly, I don't think this really changes the top spot rather, it gives GMX a fighting chance again.

If you look at volume and fees market share, GMX was, I wanna say around 20 or 25%.

20 or 25% about a year ago, August, September last year.

And now it's probably down to for volume, probably under 5%, under 10%.

So they've really been getting hammered by some of these newer products.

A lot of that's airdrop hunting and maybe incentives, things that aren't sticky.

But at the same time, they have been getting out innovated by new entrants to the market.

Anyway, so this gives GMX a fighting chance to return to that like Kingspot.

At the end of the day, I think if the DYDX v4 manages to actually succeed, have a user experience that really abstracts away, you're in the cosmos, makes you feel like you're just using an app, no matter what wallet you're connecting with, no matter what asset you're starting with.

I think the DYDX team is really strong, has proven that in the past and still maintains the dominant share for both metrics that I just mentioned as well.

I hate to say it, but I do think that GMX is days are limited.

Potentially, I know they just reduced fees pretty drastically, but I was looking at for every 10000 dollars of volume traded, how much revenue does D.Y.D.

So I just don't understand how volume will actually stay on GMX with fees being so high in comparison to DYDX.

So I definitely agree and echo your points there, Matt.

Yeah, I guess just to be a contrarian to myself, GMX does have an impressive ability to attract these retail users and have them stay there.

I'm not sure what it is necessarily, you know, first mover advantage, being on Arbitrum, meme culture, literally, could be meme culture, but they've been very impressive with having users stick and enjoy their product, which is something that I don't know if I could say for a single other DeFi application, maybe Uniswap.

Ren, who you got in the hot seat or cool throne this week?

It wouldn't be a week of ZOX without us talking about Coinbase in some form or the other.

So we have Coinbase in the cool throne this week.

Last Thursday after market closed, they announced their earnings.

It was pretty positive all things considered especially given the market climate of crypto as a whole in Q2.

So the revenue came in at 708 million that's versus analysts estimates of 629 million so a roughly 10 plus percent beat.

After those results came out, the stock went up 10% post-market but then retraced that entire move.

I think the market was kind of confused about how to value Coinbase or what to think of Coinbase.

But yeah, if you consider that the Q2 2022 revenue was 808 million and consider everything that's happened between Q2 2022 and Q2 2023 including Luna, 3AC, FTX, it's pretty impressive that the revenue has basically only decreased

Of course, there's other like sort of factors that push back against this increasing revenue.

For example, declining interest income given lower USDC market cap.

USDC market cap has continuously been on the decline versus USDT, which has posted record profits.

The market cap is still continuing to increase.

But I think there's a few points to stand out.

The first is that Coinbase has a fairly sticky retail user base.

Perhaps it's the only option or only convenient option for a lot of users in a lot of countries or even the United States too and transaction revenue from that front is still fairly strong.

The retail take rate, basically like trading fees used to be around 1.5 percentage points at the end of 2022.

But someone in Coinbase basically went, hey, I think we can charge more.

And so actually the consumer or the retail take rate is

which like I guess to you and me, like just trading on like Perfdex is where you're facing fees of like 5 bips, 10 bips, 20 bips.

2.2% is to be quite frank, that's insane.

But there's still a decent amount of beta users that are still paying for that.

And of course, talk of the town was based, it's going to fully launch on August 9th.

And L2 was probably the word that I heard most often in the earnings call.

Brian Armstrong just kept on saying L2, L2, L2, arbitrum, optimism, base, polygon.

That was really sort of the narrative for half of the earnings call.

And he mentioned that Base will be monetized through sequencer fees and Coinbase can run up these sequencers as others can over time.

Probably just 1 more fun thing about the earnings call was that Coinbase had relatively strong subscription services revenue And 1 component of that was eavesdropping.

And basically, Brian said that the outperformance in that was driven by higher MEV boost rewards.

And I think most of us thought that was pretty cool to hear, like in a TradFi analyst earnings call.

Yeah, that's a really great synopsis there.

And on your point about, I think you said an average transaction fee for trades on the platform was

But if you think about it, like the on-ramp kind of has that privilege.

And of course, if you're actively trading using just like the Coinbase front end, okay, yeah, that's probably a bit nuts.

But if you're converting, you know, dollars from your paycheck into crypto, You kind of don't really have a choice.

And once you get into the ecosystem, right, you have better alternatives, but where you can execute your swaps, but you know, for dollar to crypto transactions, I mean, you really got 1 option if you're a US based resident and that's really Coinbase.

It's like, if I'm on or off ramping, like I'm going to Coinbase.

Of course, I'm going to support that company.

Like, I think they might just kind of realize that they're the best destination for any U.S.

Like that's only on the I haven't used Coinbase in a while, but at least back in the day, you know, the way it worked was if you use the Coinbase dot com front end where you just like easily put a credit card in and buy, you pay the 2, 3 percent fee, whatever actually absurd number it is.

But then you go to the order book exchange and your fees go down to like 50 bips or 60 bips.

Still ridiculously high when compared to most other on and off ramps, but reasonable, at least in my head.

So anyways, yeah, if you're a user, don't pay 2 to 3 percent when you're using Coinbase.

Go figure out how to use an order book and save yourself that money.

So that was an interesting point about the L2s though.

How I actually am criminally underexposed to L2s and like, I think that it's clearly a forming narrative.

So like, what's the best way to get exposure?

If you want specific exposure to base, there probably isn't a good way to do it.

I'm not sure if buying Coinbase stock as exposure to base is the best option you have.

Definitely don't go out and buy that meme token vault.

That's not how you get exposure to BASE as a whole.

I think probably your best bet for getting exposure to BASE specifically as an L2 would be to buy tokens of projects that are specifically launching on-base but with a strong existing brand outside of base.

So the best example of this is probably VeloDrome, Optimism's largest DEX, by a pretty decent margin, make a good amount of fees, but they're launching basically another version of that on-coin base called Aerodrome with its own token, right?

That's probably the best way to do it in my opinion.

Like sure, you can buy like existing dApps that exist on other protocols, but like I'm not gonna go buy for example Uniswap or some other like big lending borrowing protocol that's gonna deploy on base just as my exposure.

I think it has to be a token specific for that on base.

Yeah, and of course, none of this is financial advice, but it is kind of interesting because you also noted, Ren, that sequencer revenue is like that's how the profit generated by the sequencer is how Coinbase is going to like essentially realize profits from base.

And already in the first couple of days since launch, It's generated 1100000.0 dollars with, you know, fee L2 fee revenue, less L1 call data costs.

So it's already you know, I think we're like what a week and a half into launch and a quick million bucks in Coinbase revenue.

So you know, again, not financial advice, but Coinbase itself is going to accrue a meaningful amount of value from Base L2.

1 thing to add on to the Aerodrome comment, Ren, is I guess they're giving 25% of their protocol fee revenue to public goods funding.

So I'm just kind of wondering if that's going to be like a normal trend.

Are a lot of projects from Optimism going to use the same tech stack, go to base, kind of be like a bit more public goods oriented just because of the nature of base?

But I have a trouble time like seeing like, okay, like, do I want to own Arrow or do I want to own, you know, Velo?

It's like if a quarter of all revenue is going to public goods funding, I just don't really know how that shapes out in terms of token performance.

But yeah, like Dan said, not financial advice at all.

Another interesting cool throw on this week is PayPal actually.

Didn't think we'd see them back in the news, but they've been off and on with crypto for a while.

Most recently announcing PYUSD, which is an on platform stable coin.

So it's funny, it's like a couple months ago we were talking about protocol-specific stablecoins with the launch of like Aave's Go and Curve's CRVUSD.

Well now we're getting company-specific stablecoins with the launch of PayPal's PYUSD.

And so they announced that customers will be able to purchase, send, convert, and fund purchases with this new stablecoin in the coming weeks, which is pretty big news because PayPal itself has about 400 million active users.

And this announcement comes just a few months after PayPal enabled crypto purchases for its Venmo users.

And I think that probably my personal biggest takeaway with this announcement is they are launching this thing on Ethereum.

And so, again, like we're seeing this increasing narrative of things that are like we used to get.

I don't know, it felt like in the bull market, you'd get this like crazy big announcement of a, you know, a real company partnering with like some random ass blockchain project that like you knew was a scam if you spent time in this space.

And it was like, great, just like another meaningless partnership.

But now with the SAP news and now this PayPal integration, this is kind of what you'd imagine adoption actually looks like.

So that's a pretty interesting takeaway for me personally.

Now, the stablecoin itself kind of got a lot of heat.

So to create the contract, they forked the USDP, 1 of Paxos stablecoins contract.

And they're like randomly catching heat on Twitter because This is like a very old version of Solidity, but again, it's forked from an old stablecoin So of course that's going to be the case.

So I was like this weird thing people were hating on And then it also got a lot of hate for being like a centralized stablecoin because it has a freeze functionality That is not surprising at all.

If a private company or like a public company is launching a stablecoin, like they are already a centralized company, you're going to have to trust to use this thing.

It's like no different than USDC and USDT having a blacklist function.

So just don't use the stablecoin if you don't want to hold a centralized form of money.

I don't know why this was getting so much heat.

Why would PayPal go launch this decentralized form of money that some of these protocols are trying to make?

That's just not going to be the person to do that.

That's not going to be the entity that does that.

Obviously that's still like a goal we wanna work towards building, but yeah, not sure why we thought PayPal would launch that.

To me, what matters here is the transparency.

So like this thing's on chain, everyone can go look at the contract, everyone can go see the transactions and kind of know like what's going on in the backend with this PYUSD when you're using it on platform.

Now I imagine that PayPal itself won't like every time a user purchases a good on using PayPal, I don't imagine they see that as an Ethereum transaction.

I think they're going to do a lot of the bookkeeping in their own internal system and then kind of like true up transactions when need be on chain.

And eventually if the users want to off board PYUSD from the platform to an external wallet, then they'd have the ability to do so.

And that, of course, would be a transaction.

So yeah, it's going to be really interesting.

I'm excited about the launch, and then there's this whole other wave of things that it's going to be really, really interesting to watch happen.

How do they drive liquidity for this token?

Because that's so imperative to keeping a token pegged.

Are they going to launch an AMO or a PSM like we see with all these on chain protocols and their stable coins like there's a whole world that they'd have to unpack if they really did enable external transfers which they said they're going to do.

So I'm going to watch it's going to be an exciting 1 to watch this 1 unfold.

Crypto Twitter really loves to get upset about the stupidest things like I totally agree with your take but it's honestly for me This is the smart con the people that were you know Shitting on the smart contracts that they were using because they're older Yeah, you totally every time we launch something new we should a hundred percent innovate and do something that's not battle tested.

I think using battle tested older smart contracts is actually totally fine for something like this.

And that pushing for innovation in that type of space actually sometimes isn't even a good idea.

But yeah, just crazy to see all the hate.

I think 1 of the main takeaways for me is that this increases or in some sense increases the retention of sort of dollars within crypto.

I think like a lot of people would be fine receiving say their wage or their pay in crypto and like USCC or UCT, but it's what comes after that that's really a pain in the ass.

You have to off-ramp it, you can't really pay for anything in crypto today and there are sort of like interim solutions being built for example Gnosis Pay with the card that they've launched in Europe which I think will be available to American users soon but this gives you a lot more reason to sort of use stablecoins on a day-to-day basis, right?

For example, with PayPal, they have their PayPal debit card, you can pay your bills, for example, your Spotify, your Netflix, or whatever subscription, they have direct deposits, they have savings where you can deposit your assets and receive a 4.3% APY.

And I don't know how much like this PayPal USD is going to be integrated with all of these services or products that PayPal has.

But if it is integrated, even to like some extent, I do think that's a pretty big move from PayPal's side, just because it makes stable coins have much more value from an everyday consumer perspective.

The first thing I thought about, not going to lie, was, I don't know if you guys remember that headline a while back saying like any transfers over $600 will be reported by Venmo to the, or sorry, to, by PayPal to the IRS that, that kind of just like sits in the back of my head.

And I'm like wondering, man, I should probably go read those terms of service.

Cause to me that feels more like a doc scheme than anything else to me.

Not going to lie because I don't really know the main use case for PayPal.

See all 0xResearch transcripts on Youtube

Ethena Labs: Enabling the Internet Bond | Guy & Conor