Thesis

Thesis / Position

Crypto has gained significant ground in volume, market cap, and participants over recent years. This has been fueled largely by generating leverage, fueling speculation, and a proliferation of inefficient micro-economies (such as the rise of ponzinomics). This resulted in a bloom of forks, iterative offerings, and, subsequently, tokens that are now left wilting with little residual value or utility as we examine the ecosystem for long-term utility and sophistication.

The generation of working capital, or leverage, is the mechanism that perpetuates the global financial markets. For crypto to scale and service individual and institutional participants, debt and credit markets must become efficient.

Whilst the issuance of working capital against crypto-native assets through traditional money markets such as AAVE, Compound, Maker, etc., has led to billions in volumes and value capture, the underlying mechanisms remain unable to move efficiency curves and, therefore, incapable of reaching optimal terminal value.

The generation of working capital in crypto can be seen as an architectural derivative of the structure in traditional futures contracts. For example, in the instance of a traditional money-market maker such as AAVE or Compound, the borrower is effectively long on the underlying collateral, and for carrying that risk, the money market charges a keen funding rate.

Should the asset correct abruptly, no party is prospectively positioned to take on the risk for the upside, and therefore, the issuer is responsible for restructuring and redistribution. A costly and inefficient process. Therein lies the opportunity.

From this common structure in money markets and across crypto, we have a well-noted bid price but no structured ask price for a considerable volume within DeFi. This creates a void, generating little to no downside protection for issuers of leverage and no ability to distribute or control risk.

This constant undiscovered ask for over 11 figures of assets is ultimately only discovered during times of sharp market correction. This grossly inefficient process undercuts the value of many of these assets, commonly leading to further downturns, liquidation cascades, and a redistribution of assets to holders with misaligned incentives.

In such events, the need is for working capital to prevent automated liquidations by depositing maintenance margin to stabilize the positions. This process is highly capitally intensive for the issuer, inefficient for the purchaser, and without quantitative tooling to assess the risk, not prudent for either to approach, having been unable to price the prospective value of the position.

With the high beta across crypto assets, issuers of leverage are forced to be defensive and inefficient in their offerings for fear of accruing bad debt or the challenge of maintaining solvency during periods of significant demand shock to reserves.

Solving this pervasive challenge in crypto presents a multi-billion dollar opportunity and unlocks enormous efficiency gains for incumbent protocols, new entrants, and retail participants.