Inside Ethena's new neobank built exclusively on AVAX

Layer One EP19

In this episode of Layer One, Ethena Founder Guy Young sits down with The Block's Kelvin Sparks and Ava Labs’ John Nahas to walk through their new consumer app built around three jobs — 'save, send, spend.'

Young traces Ethena from on-chain DeFi distribution to a mobile app that owns the last mile. Nahas’s pitch for the chain underneath is invisible adoption: technology built for businesses, with a path from the C-Chain to an application-specific L1 if a partner outgrows shared blockspace.

OUTLINE

00:00 Open
02:10 EthenaPay Overview
03:10 Save, Send, Spend
06:25 Why Avalanche
09:04 Direct to Consumer
13:20 Invisible Adoption
18:00 No Ethena chain
21:02 C-chain today
24:54 EthenaPay versus other crypto neobanks
27:46 Embedded finance
36:06 RWA perps
39:18 Black Opal
42:00 Buybacks, Labs IP
43:33 Close

TRANSCRIPT

Kelvin Sparks: Hello and welcome to the Layer 1 podcast. I'm your host, Kelvin Sparks. Joining me today, we have John Nahas, Chief Business Officer at Ava Labs, and Guy Young, founder of Ethena Labs. Welcome to the show. But before we jump in, Layer 1 is a podcast focused on the intersection of crypto and the real world, and it's brought to you in collaboration with Avalanche. Nothing we say on this podcast is investment or financial advice. Please make sure to always do your own research. And in today's episode, we'll be talking about Ethena Pay going live exclusively on Avalanche. Ethena Pay is the internet money neobank built on Avalanche. So before we get into today's episode, I really just want to touch on the Avalanche Summit. That's coming up September 16th and 17th. It's really only a few weeks away at this point. And Guy is actually one of the featured speakers alongside John d'Agostino from Coinbase, Sandy Kaul from Franklin Templeton, Stani Kulechov from Aave, and so many others. So it's right around the corner. Guy, do you want to say a few words about what you're looking forward to?

Guy Young: Yeah, for sure. Yeah, keen to be there. I think we've got a few announcements coming out around Ethena Pay there where we're going to be doing quite a bit more with the Ava team outside of what's being announced this week with the product launch. So very keen to be there. And I think the list of speakers is super impressive from the outside.

Kelvin Sparks: And John, you're hosting. So any words from you on the summit?

John Nahas: I mean, yeah, look, we're looking forward to it. Something we look forward to every single year. We did Barcelona twice. We did Buenos Aires. We did London last year, and it's nice to be back home in the US, especially in our backyard in New York, with some of our great partners, friends, members of the community and everybody in between. And to Guy's point, I think we've got a great lineup of people that we work with to be talking about all things Avalanche, crypto, blockchain, adoption, and just all the great stuff that's happening in the industry and especially with Avalanche right now.

Kelvin Sparks: Nice, yeah. Thank you for that. So now we can finally jump in and we got all the particulars out of the way. So Guy, there was a mobile app that just launched, maybe a good place to start. What is Ethena Pay?

Guy Young: Yeah, for sure. So this is really our vision, I guess, for taking our core savings stablecoin products out to an audience that doesn't exist within crypto at the moment. I think the super high-level opportunity and thesis we have around this is that we think that one of the largest TAM products that exists within the space is just providing a basic dollar with a yield for anyone on earth. And I think we've kind of seen the demand for Tether being the first example of that, but I think this is really trying to take this to the next level, which is how do you actually build a consumer experience around that core idea of dollar rails for everyone that exists outside of the US. I think the interesting piece about this is really it's one of the very few cases I think you can point towards for crypto and stablecoin rails just making the product 10 times better for users. And there's a few areas that you can point towards within the app. So if we really just think about financial services for 90% of people on earth, it's kind of three core, very basic functions, which is I want to save money, I want to send money, and I want to spend money. And it sounds super simple, but being able to just do those three functions slightly better than existing fintech applications is a very big deal in our view. And so, yeah, we kind of think about those three core functions and everything we're building here is just trying to improve on those, whether it's sending, settling on a blockchain, obviously being instant, almost cost-free, is just obviously a huge improvement versus normal remittance and sending through banking rails on a normal fintech app that's plugged into the existing banking system. The other one is around the savings within the app, where if you're able to plug into DeFi and all the interesting financial products that actually come out of DeFi, you're able to beat the 20 basis points that your bank account is giving you in the normal world. And then the other one is really the emergence that we've seen around card spending on stablecoins in the last few years, sort of led by Rain initially, and I actually think Avalanche, and John, correct me if I'm wrong, was actually the first card program that actually launched with them a few years ago. So I think pretty present when that came out. But yeah, you kind of are able now to really bring that all together as a consumer experience. And as I said, I think the TAM for this is much larger than the existing crypto user base. And it's really kind of the first time that we're taking our product direct to consumer for users that exist outside of crypto.

Kelvin Sparks: Awesome. Thank you for the primer. And really, maybe a question for both of you, specifically starting with you, Guy, what changed most in the past year that made consumer apps viable growth opportunities for crypto companies like Ethena?

Guy Young: Yeah, I think it's just a funny confluence of disparate pieces of infrastructure all coming together and being able to work as a single application for the first time. So I mentioned Rain as one partner who's really kind of grown in a very impressive way in the last few years. But if you look back even three or four years, that type of infrastructure that allowed you to spend directly and settle with Visa on top of stablecoin rails didn't really exist in a production way. At scale, you had apps and wallets that were built with Privy in the last cycle that really allowed you to build that sort of self-custodial experience that actually sits within an app like this. The emergence of being able to settle, use stablecoins on a blockchain. These are all kind of very different pieces that actually all come together to provide each of those product functions that I was describing within the app. You're sort of bringing together many multiple businesses and products to produce a polished consumer application in the end. And I think it's just taken time, I think over the last four to five years, for each of those to get to a level where it really feels on par with using a normal fintech application. So yeah, it's stuff that we've been talking about for years actually coming into production now, where the user experience, I think for some of these applications, even outside of Ethena Pay with existing ones that are out there right now, really is on par with Web2 fintech experiences.

Kelvin Sparks: Yeah, the days of 2021 horrendous DeFi front ends seem like a distant past, and thank goodness for that. But as Guy was talking, John, I'm curious from the infrastructure provider perspective, obviously this is something that Avalanche has a ton of distribution and a ton of users. So what does this mean for the Avalanche community, getting access to these novel financial products?

John Nahas: I mean, I think this is a great win in general for people that need these products, first and foremost. And Avalanche is just the infrastructure that enables it, right? So to Guy's point, I think a couple years ago, this was not really that possible. And the team has really worked hard over the course of the last few years to build these kind of Lego pieces that come together, whether it be our early partnership with Rain, and with the Avalanche card, our work with Guy, or work with other DeFi protocols. For the longest time, I feel like the industry kept building crypto products for crypto users and we kept circling the same TAM in a circular fashion that would jump between chains, between ecosystems, between applications. But it was the same capital, the same users being recycled over and over and over again through whatever narrative of the quarter or that six months was. We haven't really broken out of that. There are statistics that show how many active daily users there are in crypto or on Web3, and it's not that high, right? Despite whatever metrics you see, we haven't, till this point, really delivered meaningful products to retail users, to consumers, to people outside of the ecosystem, outside of the bubble and outside of crypto, right? And to Guy's point, people want to save money, spend money, and send money. And we keep talking about this on-chain world that's this fantastic utopia, but for most people, it's still like a different planet. The onboarding is difficult. The UX and the UI is difficult. We've kind of made it purposely difficult in an elitist fashion because we think that we know better. So kudos to Guy and team for really building something that's needed, something that makes people's lives better. It makes sending money easier, cheaper, and faster. The same with saving and everything in between that. So our goal from day one is always to be the infrastructure that powers the next generation of products, of financial products, to provide people with better applications and better use cases and to be that kind of invisible layer behind that connects all these great things, whether it be Guy and Ethena and the Rain cards and everything in between, the yield and DeFi. I mean, that's where we really shine and that's where we've been focused on for the longest time, particularly through whatever narrative seasons come and go. So we're looking forward to this. This is going to be a big one for us and for Guy. Yeah.

Kelvin Sparks: And this is the first time Ethena is actually going direct to consumer. So Guy, can you talk about owning that entire customer relationship and just how the economics allow for Ethena to deliver a better product for users?

Guy Young: Yeah, I think it's maybe just to expand on the premise of the question around the direct-to-consumer piece. I think we kind of went through different stages in our growth in the beginning, right? Where in the beginning, we were kind of direct to consumers within DeFi where we launched the application. We had zero integrations on any exchanges and it was on us to go find users to actually grow to the first two, three billion dollars of supply without having any external integrations with fintechs, brokerages, neobanks, that kind of stuff. And then I think the next phase of growth really came from the acknowledgement of what John was describing, which was there was just a limited set of users who are sitting on-chain and are going to load up a MetaMask account and actually interact with your app direct. And so the sequencing for us was you start direct, as we did in the beginning, then you build a relationship with distribution platforms that have 50, 100, 150 million users on the other side. So USDe, I think in the last five years has probably been the most widely integrated dollar asset since Tether and Circle, with integrations on Binance, Coinbase, Robinhood, BlackRock even has it in Aladdin, et cetera, et cetera. And then I think we've sort of got to the stage now, which is it's really great to have this distribution and be able to tap into the user bases that exist with all these platforms. And I think we're very grateful to have that opportunity. But at some point, we want to be able to control the destiny of our own distribution in a more meaningful way. And the real driver for that is really just thinking about how do you extract margin as a business, which is it's great to sit in the back end of these very large platforms as they serve their end user. But if you can't get a step closer to the user yourself, you're never able to fully drive the destiny of your own margins with the end user. And so I think the big view here is actually for normal individuals who are going to be trying this app and aren't in crypto, we kind of think about actually the DeFi user in some senses is one of the most difficult users to actually retain going forward because they're so mercenary. And if you're 10 basis points off expectations, they're pulling out their money and they're going to a different chain or a different app, et cetera, et cetera. But a true retail user who's actually just using an application like this because it just makes their life slightly more simple day-to-day when they're spending and saving, they look at this and they think wow, Revolut is at 50 basis points rather than 10 in some degen application on-chain, and that's actually the most sticky type of user that we actually want to interact with on the other side. So for us it's really just can we control the destiny of our own distribution in a more meaningful way, and the downstream impact of that is you create better margins as a business, I think, if you're able to.

Kelvin Sparks: And when you're talking about that mainstream user, that target demographic, how does Ethena Pay fit into their regular habits or even their daily life for that matter?

Guy Young: Yeah, I think it's actually one of the applications that everyone uses every single day, which is paying for things and saving. And I kind of think about it's really one of the most important things to get right. If you're spending five out of the seven days in your life kind of working and saving money, being able to do that properly is kind of one of the more impactful things that I think you can do in finance for normal people. So for us, we just really wanted to sit there alongside or replace existing fintech applications where you're just providing a 10x better product experience because you're enabling it with stablecoins and blockchain rails sitting underneath. So yeah, not to sort of deflect from the question, but I think it's the one financial application I use every day. It's not picking up a trading account and trading every day for me. It's just being able to send and save, which I think is actually a much larger TAM of users who want to use these products. I think you can even think about the benchmark for just looking at the market capitalization of banks versus brokerages in the US. JPMorgan is worth ten times more than the sum of every single exchange and brokerage that exists within the US. And it's really around saving, credit, and the movement of money, which is a much larger market and business than just trading, basically. And I think that that's kind of the core focus of what we're trying to do here, which is not just another speculation app to trade on-chain, but trying to use these products to attack that money and savings use case.

Kelvin Sparks: And as Guy was talking about the habits of these regular users of Ethena Pay, it got me thinking, John, what's the 30-second elevator pitch of what Avalanche is trying to achieve as an infrastructure provider for this consumer mobile app?

John Nahas: First and foremost, I think it's just invisible adoption at scale. At the end of the day, we are providing a platform for businesses to bring better products to their users. Avalanche is technology built for business, and that business can be institutions and enterprises and community-focused things, and it's payments. Guy and Ethena are founding members of the Avalanche Payments Collective, and this is a flagship launch for us and for him. But it just shows that the technology under the hood allows for the product and the business to be better, right? Avalanche has that ability to fit the product, right? The product doesn't need to fit the blockchain or the tech stack. The tech stack is there to support both Guy and Ethena Pay, but also all the other use cases and all the other potential things that they can plug into, right? And this is part of our North Star in regards to our thoughts on just being the embedded finance layer, right? Avalanche allows Ethena Pay and every other partner and business to spin up an environment where their users are wallets, where their dollars are stablecoins, where the yield is DeFi, where their assets are tokenized, and really be digital first from day one, right? I think Guy's probably been in this space dealing with all of these kind of incumbent systems that exist. And for the most part, what we see in the financial systems is a multi-decade kind of Frankenstein monster, right? Like these were designed decades ago using old technology, and they've been band-aided over and over and over again every few years to improve this technical feature and this spec and make it a little bit faster and a little bit cheaper and a little bit this or that or the other, kind of like the chain wars, right? How many chains do you need that are incrementally better? Well, that's the financial system. It's just on repeat incrementally getting better, but not enough for the user, right? They just make enough changes to keep you happy, to keep you from leaving to another bank or another provider or another fintech or another or another, right? So they keep giving you this little bit of a taste of how much better it could be without providing you with where it should be. And I think with Guy and Ethena Pay, everything that they're doing, being digital first, right? Being on-chain first from day one is really the vision that we've been trying to push towards. So this is a perfect joining here of our vision and mission and what they're building because the ecosystem and the network enables their business, right? So people will have a digital-first on-chain experience from day one, and they won't know what it's like to use the incumbent stuff. So there will be people one day who onboard to Ethena Pay who have never used the incumbent slow system in emerging markets, etc. And the people who do will know the pain that they deal with and will be very happy to see how much better it is. And I mean, as an industry, forget just for Guy and for me and for Avalanche, just as an industry, these are the things we should be pushing forward, right? Use cases that move the needle and that are not just speculative in nature and narrative driven, but are actually in practice making a difference.

Kelvin Sparks: You nailed it. My first job was actually, one of the things I had to do early on was decomposing COBOL code from IBM mainframes. And I mean, you could tell I'm not that old. So I definitely do understand that pain from somebody who had to actually build and pay down technical debt inside the system itself. It's not a fun job. I could tell you this podcast thing is a lot better in my opinion. But I guess, so Guy, why decide to move to a mix of public and private infrastructure that the Avalanche technology provides when competitors like Stripe and Circle are building their own layer ones?

Guy Young: Yeah, I think for us, we've kind of danced with the idea since inception, whether trying to own the infrastructure ourselves was something that made sense. And I think a lot of application builders have sort of gone through the same thought process in the last few years. I think for us, it would have been a mistake actually to push ahead and actually try to build and actually own the infrastructure in some senses because we sort of actually view chains as some of the biggest and most important partners and distribution channels that we have within the space. So I think in my view, and obviously people have a slightly different view here, when you try to own the full stack in that sense, you actually sort of close off and put people off from working with you going forward where you otherwise would be able to try and grow your core product. And I think that that's the business that we're in, is trying to build and grow the core savings products of USDe and other assets that we launched, like the white-label stablecoins. And the second that you start competing with your biggest customers, I think it just puts you in a slightly fragile state going forward in terms of being able to do more with them in the future. So that's just one piece where we decided that that actually was not the best route for us to take. And I think other people might arrive at the same conclusion when they kind of run down trying to build their own chains. Because I think we sort of got to the stage in the market where people are just not looking for more generalized chains, which are trying to serve everything to everyone. And I think that that's also just a piece of alignment that we've had with the Ava team, frankly, which is it makes sense if you want to have your own custom environment where you're trying to build for very specific use cases or whether it's adding compliance in some ways that a generalized chain can't actually serve. But I think the days of launching a generalized chain from scratch now is just a lot more challenging in terms of what people are asking, like, why would I bother coming over there with great options that are in the market right now? So yeah, I think that's the thought process on our side where we want to actually work with chains and we view them, including obviously Ava, as some of our biggest partners, rather than trying to directly compete with our partners. Yeah.

John Nahas: I'll jump in on this real quick. I think this is something that we've been seeing shifts over the course of the last several months or years even, where there's two different players here, right? Guy is a business, we are an ecosystem. And you've seen ecosystems try to be businesses and that hasn't happened yet. And I think that's the shift where layer ones or blockchain networks need to kind of become a business and find better routes for monetization. But on the flip side, you've seen businesses try to become ecosystems, right? You see this with some of the exchanges. You see this with some of the products that are launching. And that works, right? Like you can have your own chain if you're Hyperliquid. Hyperliquid is a product that just happens to have its own chain. And that's fine. You know, Stripe and Tempo, like Stripe with Tempo, like they have their stack. They're not trying to be a general chain. And if they are, that's a completely different animal that they haven't experienced yet or dealt with, right? But they already have their stack. So they're just moving their business on-chain as an infrastructure thing they're going to own. So we've seen a lot of businesses try to become chains and ecosystems and build this stuff out. And these two things sometimes are at odds with each other, right? There's different goals. There's different purpose there. And the work that we're doing, I think we're aligned with what Guy's doing, right? At the end of this point, you don't want to be competing. Where I think we differ specifically, though, is Guy is going to be part of the ecosystem. He's going to connect to all the other use cases and applications and anything else that can be beneficial to his business as well as the distribution. But Guy could also eventually graduate to his own chain within the ecosystem. So that kind of flexibility doesn't exist elsewhere. I'm not saying that he will. I'm just saying he can. Right? And whether it's Guy or an institution or another payments company or an enterprise, the idea of launching on a general-purpose chain and being stuck there forever or having to build their own chain is kind of very at odds with each other. It's very black and white and there's nothing in between. Whereas with us, Guy is part of the ecosystem. He has distribution. He has connectivity. But if and when he gets so big and he says, I think I need my own environment to own this full stack, he can do so within the Avalanche ecosystem. He can have his own chain that is part of the network that connects to everybody in the same way by moving from a C-Chain to his own L1. I'm not saying that he is, I'm just saying that he can, right? So the fact that Guy can do that is also appealing to other institutions and partners that we have because being on-chain is a journey. Like the idea that you work with people and that on day one, your technical decision is what locks you in forever, or you have to tear it all down and then redo it again somewhere else is a lot. Like we have built tech in this space on our side for tech's sake, without thinking about what the client needs, what the partner needs, what the business use cases need. And the fact that you have that flexibility, I think gives us a differentiator, especially for where the market is going, where participants are going, where enterprises, institutions are going. The tech supports the business. That's the ultimate goal. And that's what we've been doing. I think it makes a big difference.

Kelvin Sparks: And on the topic of ecosystems, kind of just came to mind as you were just answering the last question, John. Guy, how were the conversations internally with the team around the different high-quality asset issuers that were already building on Avalanche when you said, okay, I want to actually now build Ethena Pay and it's going to be in this ecosystem?

Guy Young: Yeah, I think for us, well, we've been on Avalanche actually for, I think, close to two years, year and a half at least, and have been integrated into the ecosystem already before Ethena Pay was even conceived as an idea. I think the one very interesting crossover has been the focus from the Avalanche team on RWAs and tokenized assets and assets that aren't crypto-native and how we actually bring them on-chain really before anyone else was actually talking about it. So Securitize has been a big partner for us. They issue the money market fund that sits behind our white-label products. And I know that Avalanche was actually one of the first chains that pioneered bringing them over and their assets in the beginning. The reason I think that we find this particularly interesting is that the savings suite that's going to sit within Ethena Pay isn't just exclusively going to be USDe. Ethena touches a bunch of different assets, whether they're crypto-native in nature, and that's the source of the return that sits behind them. That's kind of where USDe started in the beginning. But actually, I think through time, we've actually grown into the second largest holder of RWAs in crypto, just full stop. And a big piece of that is actually thinking about new origination of different businesses or assets that are actually coming on-chain in tokenized format. We want to be able to actually pick those up and actually offer them as products within Ethena Pay as options that sit alongside the existing products that we have now. So I think there's a big piece around that. And then I think there's another one, which is a lot of what we're actually trying to provide here is really a simple front end that actually interacts with DeFi and where it's sort of safe. And we think it actually enhances the product experience where one example here is actually a plug into Aave, where a lot of the demand and success that you've seen with the growth of USDe has actually been plugged in with different strategies and composability with Aave on different chains. And so a big piece here is actually being able to plug into existing liquidity and applications that are already sitting within Avalanche and kind of serve that up as an experience for users where they're not even interacting with MetaMask wallets and that kind of stuff to be able to access DeFi-enhanced financial products.

Kelvin Sparks: On that topic then, let's say, how does Ethena Pay compare to existing crypto neobank products?

Guy Young: Yeah, for sure. I think in some senses, right, I kind of described those very three core functions of send, save and spend. And it's quite difficult to do those in a very materially different way when it's such a simple function. I think the core differentiator here is actually, this is the very first time that you've seen a dollar issuer or asset issuer at the scale of Ethena launch the neobank in a vertically integrated way with stablecoin issuance. So if you look at the other offerings in the market right now, they're essentially taking a Rain card program and then putting it on someone else's stablecoin. And if we just take a step back and think about what are the core revenue drivers for these businesses in the fintech, Web2 lens, you really have interchange on the card spend, but then the generation of interest income on the balances that are sitting within the actual fintech. And yeah, one comp here, you can even just look at Revolut, 40 to 50% of their revenues actually just come from interest generation on the balances. So the core issue here is that if you're putting a card on someone else's stablecoin and you don't own the full stack and have vertically integrated the full stack of yield generation with the stablecoins, you're basically giving 50% of the business's potential revenue to Circle and Tether on the other side. And what that means is that you're actually at a structural disadvantage to be able to provide better product experiences throughout the app on other things. So being able to vertically integrate and own that entire thing means that we're able to offer other features like free on-ramps, free FX, no markups on those pieces. It's the small pieces around the edges, which we can actually monetize the balances within the app to then improve everything else that sits alongside it. I think another core piece here is actually the bread and butter of what Ethena I think did well in the last three years in a very simple way was just the best return at scale on dollars, the best risk-adjusted savings yield in the market at scale. And that's actually a very core structural advantage that you have versus other people, which is if you can provide people the best savings rate, it's just a very easy reason for why people want to come over and leave their money with you in an end state. And so I think taking that core area that Ethena actually leaned into and was the best, I think, in the last three to four years in terms of competing and then building a new product experience around that, I think gives us a structural advantage versus others in the market.

Kelvin Sparks: Yeah, it sounds like you're bringing this idea of blockchain becoming invisible to the end user by just providing overall a better user experience, high-quality yield that people know, on a platform they can trust and in a protocol that they can park their money. So, makes sense? Makes sense. And John, on the topic of really, I guess I would group this in the category of almost like embedded finance in a way. Maybe I'm incorrect here. But really, I want to think about how you look at the opportunity overall for Avalanche and just growing embedded finance in the ecosystem.

John Nahas: Yeah, look, I mean, I think you have to look at it. There's two worlds that exist right now, right? There's the on-chain finance world that we have, which has users and it has liquidity and it has yield and it has great products, right? But that, again, is a very limited TAM, right? We're still crypto users, crypto products, that same circle, and it exists in a vacuum or on an island or on a different planet, insert whatever analogy that you can come up with there. Whereas the embedded finance piece, right, it brings Guy and Ethena Pay, all of those users, and it brings other existing incumbent products that exist that are not on-chain, on-chain, so that those users are wallets and those dollars are stablecoins. And really that provides users and liquidity. So those users and liquidity can flow into the on-chain finance ecosystem, can generate yield, can provide purchasing power for RWAs, liquidity for DeFi, and really be part of those kind of DeFi Legos that build the on-chain finance stack that funnels yield back to those embedded finance users. And if you look at it that way, the thing starts to become a virtuous cycle. You bring yield back to the users, more users, more liquidity flows in, generates more yield, and then you start to grow this pie in a meaningful way on-chain by bringing in more people and more users. Instead of that same pie going in a circle, we're bringing in more people, bringing in more users and more liquidity into the system. And it should grow the thing. And it should just keep on building upon itself by showing what's possible on-chain.

Kelvin Sparks: Overall, from an onboarding perspective, yield on RWAs is a hot topic we're seeing even on the timeline now. Yield capture has been a huge conversation. Didn't really get the respect it deserves. We even spoke with OpenTrade and some of the yields and services that they were providing as well. So it's cool to see this come back into the forefront of conversations we're having today. But sorry, John, it sounded like you were going to say something.

John Nahas: Yeah, I was just going to say, look, I think we keep talking about users, right? Like, where are these users going to come from? If we look at the statistics since the end of last year, there's been less and less users in this space, right? Developers are going to AI, capital is going into AI and prediction, and retail capital is going to prediction markets, et cetera, et cetera, et cetera. And unless this industry wants to continuously grow and not follow these cycles, these market cycles, right? Your user counts should always be up and to the right and not contingent on market cycles. And we've seen user counts ebb and flow in this space because we haven't built something that's just sustainable. It's, again, narrative-driven and cycle-driven. But when you provide something that's not super confusing to people, like when you talk about bringing users into crypto, you can't sit there and spoon-feed every single human that you know about the benefits of blockchain and Web3 and decentralization and all these great things when they're just like, dude, I want to save money. I want to spend money. I want to send money. How do I do that without oopsing into something? Or what am I putting my money into? Explain this to me without a white paper. We need to grow the pie. We need to grow the TAM. We need to grow the users. And we need to grow the liquidity outside of the usual things that we just keep doing on repeat that haven't worked sustainably over the long term, right? So dollars makes sense. Spending dollars easier makes sense. Doing these things, and when you put them into RWAs or things that people can tangibly understand, right, and know, it just makes it all easier, right? So it's where the industry should be going. It's where we think it's going. It's where we're doubling down on.

Kelvin Sparks: Yeah, one of the best quotes I heard about the crypto industry at large was, it's everything you don't understand about money combined with everything you don't understand about computers. But we're actually at the point now where the grandma test is kind of passable. Like, I don't know two years ago if I could show my mother, grandma, aunt, uncle, cousin, any just random person about some of these apps and they actually get it, that eureka moment. But now it's starting to see early signs of that. And I expect the growth of, like, to your point, new users, regular retail capital to continue. But from a user perspective, what would be one of the most interesting features of Ethena Pay that would actually convince them to switch over from their bank, Guy?

Guy Young: Yeah, I think, not to over-repeat the point made earlier, but I think the savings yield that's generated within the account really is kind of the best at multi-billion-dollar scale anywhere in the world on a safe product that's battle-tested over the last three years. I think that's one piece, but we try to develop on the idea, and this is actually the first time that Ethena is trying to expand beyond just dollar savings products, which is actually expanding to local FX and multi-currency savings as well. So I think there's a broad acknowledgement that yes, a lot of people want access to dollar rails and dollar savings around the world, but the whole of crypto has just been dollar-centric entirely when you think about the denomination of DeFi. And there's an acknowledgement that actually people in countries outside of the US actually also just want to have their own local currency in an account that feels like the bank account. So that's one piece, which I think is actually quite different to a lot of the apps that are out there right now, which are basically just entirely dollar-denominated. And here we're taking the core idea that we have with USDe and then localizing that into other FX. Another piece is actually just the core design of the entire app. Really not trying to ignore the fact that a lot of people do still want fiat functionality within these applications. I think the first cohort of these products that came out were almost kind of too crypto-centric, which was all about you control your keys and you're kind of focused on Bitcoin borrowing and those type of use cases. For us, I think there's just, again, another acknowledgement, which is it's great to have the option to sit in stablecoins within the app and we make that a completely seamless experience with fiat accounts. But other people also just want to hold fiat alongside that in a unified balance that sits within the application. And so for us, it's really just one interface that actually combines the two between fiat and stablecoins sitting within the application as you move kind of seamlessly between them. So small pieces like that, free on-ramps anywhere in the world to come to the product again is a pretty huge difference. And we, sitting in the position that we are as dollar issuers and issuing our own stablecoins, I've always been pretty shocked by how poor the infrastructure is to actually get on-ramps outside of the US into these products in a cost-efficient way. So we spend a lot of time building that up and making that experience actually better than even trying to get through centralized exchanges to get into stablecoins. This is going to be the best way to onboard in any FX into local savings accounts or to dollar stablecoins as well.

Kelvin Sparks: Got it. Got it. And there's been some incredible growth in TVL for USDe in the past. Can you walk us through what your vision is for the next phase of scaling this protocol and maybe how Ethena Pay ties into that story?

Guy Young: Yeah, for sure. So we kind of have three business lines at the moment. We have the core USDe product. I think the core focus for us now there is really just going back to the heights that we were sitting at last year, just under $15 billion in supply. Obviously, a lot of businesses within DeFi have been pretty challenged with the unwind in the market since 10/10 last year. And the core focus for us is we just need to get the supply and size of the business back to where it was around a year ago. Ethena Pay is kind of core to that, which is everything we spend time on is how do we either create distribution or build distribution ourselves to actually just push USDe as a core product. And I think Ethena Pay is the most exciting evolution of that idea, which is us actually building the distribution ourselves and going direct to users with this product experience. So yeah, I think all the products are feeding on themselves. The other one is around white-label stablecoins where we work with different partners where they're able to build in our infrastructure and launch their own stablecoin within a week. And yeah, I think the core view that we have is everything that we're building from here are products that enhance other products that sit within the business. And I think Ethena Pay is probably the most exciting iteration of that, of us just going direct to users that exist outside of the space with USDe.

Kelvin Sparks: You did mention 10/10 and John also touched on Hyperliquid. We had a conversation in Wyoming a bit about perps as well. So you've had some pretty bullish tweets where you're talking about perps. What are you seeing in the market that maybe other folks are overlooking?

Guy Young: Yeah, I don't know if it's being overlooked, but I think, and it's something I tweeted about the day that TradeXYZ launched the first equity perp a year ago now. I put a tweet out that said, I think that this is going to be a bigger market than crypto perps in the next 24 months. And I think we've started to actually see that happen in the last month already, which is actually quicker than I expected, where, yeah, volumes on Hyperliquid actually flipped crypto perps last month in terms of RWAs overtaking them. I think the core thing that we're just excited about there is expanding this idea of perps on just crypto to $150 trillion of other assets. It's just a much larger market for Ethena to be able to do the core piece that we came to market with in the beginning, which is finance the derivative market around those assets. And for us, that's really an expansion of like 10x from $2.5 trillion of crypto to $150 trillion of other assets. And so I'm just incredibly excited about that because I think it's just the best form of derivative for people who are trying to hedge or speculate on the underlying asset. And I think it's one of the very few exports from crypto that's actually just an outright better financial product versus what exists within TradFi right now. So yeah, I think that tokenization and the growth of stablecoins are sort of the three 10-to-100xs I feel the most confident about in this space going forward.

Kelvin Sparks: And I love both you guys' takes on this, but perps as a product relative to options, do you see people just kind of leapfrogging and going directly from maybe trading spot, getting familiar with markets, moving directly into perps? Or are a lot of these options traders going to be siphoned and pulled into these actual perp trading markets?

Guy Young: Yeah, I think the interesting data point, right, is we had both exist in crypto over a long time and perp volumes have been 25, 30 times the scale of what you've seen in options, even despite their success over the last six or eight years. You can do things with options that you can't do with perps, in particular in the way that you can hedge and create different payoff structures that just simply aren't possible with perps. But I think the one that's kind of most popularized is our view of the retail person trading on Robinhood on leverage. They're not really trying to price the Greeks or underwrite volatility and all the different pieces that come with an option. They're just saying, I want to get long 10x on Tesla. And actually, I think a perp is a more efficient instrument to just express a very simple, I want to be X levered long or short. And so they are kind of different. I think for professional risk managers and investors, options will always have a purpose that perps can never fulfill entirely. But for the very simple use case of I want to just get slightly levered long X underlying, I think that that's where perps can actually eat into a lot of the share that options have on retail speculation. Yeah.

Kelvin Sparks: Speaking about, I guess, future growth, John, on the Avalanche side of things, credit receivables are coming to Avalanche via Black Opal. And now there's another really just payments announcement with Ethena. So what does the next year of growth look like for Avalanche?

John Nahas: For those that are familiar with the Avalanche story, you know, we really earned our stripes back in 2021 with DeFi Rush. And I think where the market is going right now is where we have been for the last two years or so. We've been focusing on building utility and growing out the use cases and putting together all the pieces that would finally come together. And I think we're going to start to see that towards the end of this year with new launches and new ways to do on-chain finance, right? And to do DeFi with RWAs and to really utilize all of these great things. You know, we're excited to have Ali D4 live on Avalanche. We're going to be working closely with them as well. I mean, I think the market is going towards real-world assets and real-world adoption and real-world utility. And we can keep using these great words to describe everything there. But effectively, I think RWA looping, maybe a little RWA-type rush situation could be exciting to bring back capital because at the end of the day, I think we were talking about, right, Guy was talking about RWA perps versus crypto perps, like people are just not trading crypto as much anymore, right? Why try and build a new asset class from the ground now completely when there are existing asset classes that we can bring on? The two do work side by side and can be helpful, but we need to do a better job of that. And we've been working towards that. So we have a whole bunch of things that may be in isolation. People have wondered why this and how that. Black Opal is a great product. It provides a fantastic yield. We have other products that have been coming out too through our partners at Securitize and other tokenization platforms. But in totality, when you look at all of these things and everything else that we're doing, it'll start to make sense that there's a full stack here, right, for a financial future, for earning yield, for doing new forms of DeFi and exciting things there. So for us, that's really, I think, what we're looking forward to.

Kelvin Sparks: And to round it out, I guess, we had a lot of talk about stablecoins on this podcast, but Guy, in the timeline recently, you said that you're basically on a path to make tokens great again. So now I have the author in front of me. What was going through your head when you were tweeting that?

Guy Young: Yeah, we came out with a reasonably big update from the foundation on our side back in the last week, which is more a combination, I think, of just acknowledging the different challenges that we and other projects in the space who run tokens have faced in the last few years in terms of alignment with equity, how you sort of communicate value capture within the system, et cetera, et cetera. So yeah, there was just a kind of big summary piece that came out, which I think just addressed a lot of people's concerns head on in three or four different changes that were made, primarily basically just buying out the seed investors that we had with VCs who had been selling in a non-friendly way, I'd say for the last year, and then introducing a bit more certainty how we think about value capture with revenue buybacks that come back toward the token alongside a pretty interesting setup where we combined the IP from labs to sit under the foundation so that basically no value could actually accrue to the equity within the lab entity going forward. That's a binding framework that's actually published publicly so that people don't have any confusion around the fact that the equity has no value within our structure. So yeah, I think it was just a comment around us trying to take the right steps to address some of those concerns that other people have had over the last couple of years. And I do think a lot of people sit in the same situation as us where a lot of regulatory uncertainty has, I think, pushed people into structures that didn't really make sense if you sort of ask yourself the question, if I started from day one right now, is this the way that I would have set things up? And yeah, I think just an acknowledgement that we're trying to take the right steps there.

Kelvin Sparks: Yeah. Yeah. It wouldn't be crypto without the main characters and the banger tweets. So thank you for unpacking that. But gentlemen, thank you for the time. We are approaching the top of the hour. So I do want to round it out and thank you both John and Guy for taking the time out to chat. As a reminder, our newsroom works tirelessly to get you accurate, informed crypto news. If you want to stay ahead, read The Block. Thanks. See you next time.