Ethena: Hyperscaling a Synthetic Dollar Protocol

Juan: Welcome back to another episode of StablePod, a podcast where we host conversations with the individuals who are shaping the future of decentralized systems. I'm your host, Juan Esquivel. Today's guest is contributing to the growth of a new synthetic dollar dubbed the Internet Bond. Seraphim is the head of growth at Ethena Labs.

The team behind Ethena Protocol, a DeFi protocol that has stolen the spotlight with the rapid ascent. In today's episode, we'll dive into everything from the rapid rise of the protocol and the launch of its synthetic dollar, and of course, the effectiveness of its points program within DeFi protocols. 

Gustav: Yeah, I think the conversation with Seraphim was, particularly interesting when you kind of see them in context to the current DeFi landscape, right? How they've been collaborating and using, existing protocols to fuel their growth.

I also really liked Seraphim's take on how, thought and criticism has been contributing to them in a positive way. he sees it almost as a way to fuel, their marketing. So yeah, it was really interesting to hear these points from Seraphim.

Juan: Yeah, I think our users will find this conversation quite, fun and interesting. he definitely has, a way of elaborating and sharing, things, but yeah, this was, I think it was a really interesting conversation. Athena is definitely, the talk of the town recently, especially with some of the recent, partnerships that they announced with, Ave and, Spark.

but yeah, definitely we dive into also how they basically think they are innovating, over Ave and Compound. so yeah, I think you'll find this conversation very interesting if you're into, the state of DeFi, and of course the go to market and the growth strategies for some of these protocols.

So I hope you enjoyed our conversation with Serafine. Welcome to the podcast, Seraphim. 

Seraphim: Hey guys, It's great to be here. 

Juan: Awesome. Seraphim, I'd love to start by diving into your background. you've built up quite a following, and the various roles across a lot of different projects you've been a part of.

can you talk to us a little bit about your journey and how you ended up at Athena? 

Seraphim: Before that, I gotta say, I'm so excited to be here. I even shaved before the podcast. I've never done that before. I always just walk straight in. 

Gustav: I really appreciate that. 

Seraphim: very clean, 

Gustav: very 

Seraphim: the story goes, I was working in track fly trading currencies and I hated it. I was drunk trading. On one side and drunk trading pet doge coins on the other side and DeFi summer kind of shit. And that was four years ago, I guess. and at some point I was like, you know what, this is more fun.

So I just quit that track five bullshit job and started doing crypto here and there. And then I was like, what are people actually building? That, started to become an interest. VCs, including Paradigm, put me in touch with a couple of protocols. And that's kind of where my. business, journey started rather than just pumping, punting shit coins.

And I went to Euler to be head of kind of, risks, something similar to what Gauntlet and Chaos Labs are doing for Aave, or were doing for Aave, and then, They got hacked for 200 million bucks. That made me, that was a bit of a downer. So I jumped to Lido. I did growth there. So that was fun.

And then I joined Athena. Well, I actually joined Athena as an advisor in July last year. and full time starting November's head of growth. That's pretty much the journey. And in the meantime, I should post a bunch of bullshit people seem to kind of like or hate. So that's it. 

Juan: so what was it about Athena that attracted you?

I know You're at Lido and you're quite outspoken at Lido. you were very, vocal about your take on the stance that Lido was taking with, liquid staking tokens, and their positioning in the market. So I'm curious, what was it about Athena that really made you bullish and want to join?

the project full time. 

Seraphim: Yeah. So, the story goes, I met guy, the founder really randomly after tweeting something like who's building the UXD based on state T from Lido. And a bunch of people text me like dragonfly people. somebody, I think, actually from Maelstrom to Arthur Hayes family office pinged me.

And then guy pings me and says, Hey, I lived 10 minutes away from you in London. Let's meet up. I was like, fuck. All right. Let me just go to the pub. And he's like, here's what we're going to do. We're going to do a adapt a new tool. synthetic dollar. And when I heard this, I was like, this is going to kill it.

Like, cause I knew the problem was you can't, you can't really scale in DeFi if you use the perps on chain that are, that are on chain. Cause the open interest is too low. He's like, I've struck these deals with Binance, with Bybit, OKEx. This is going to be tipped up. And I was like, okay, this is a fucking no brainer.

So I was like, okay, I need to get involved. I started as an advisor, then as I've said, I kind of, went all in as head of growth. 

Juan: I think that's a good time to maybe explain for our audience what exactly Athena protocol is. If they haven't been paying attention to crypto Twitter, could you define what the protocol does?

Seraphim: Yeah. So Athena is a synthetic dollar or delta neutral synthetic dollar basically allows you to put in ETH or state T or METH or WBETH or Bitcoin, whatever cryptocurrencies you've got as collateral base and get a Delta neutral version called USDE. The cool thing about this is, is that it has a yield. Delta neutral means that. If you put in one ETH into Athena protocol as a minter, whatever happens to the price of ETH, it will not change the price exposure you've got. So if I put in 2, 000 bucks worth of ETH now, I get 2, 000 USDE. If in a month's time ETH goes up or down, it's not going to make a difference.

It's still 2, 000. These 2, 000 USDE are worth 2, 000 dollars worth of ETH. the way we do it is basically we just delta hedge it. That's all it means. We take ETH or state safe or whatever LST or Bitcoin, and then we put on a delta neutral position where we short ETH or Bitcoin perps on centralized exchanges.

So if your spot leg goes up, it gets canceled out by the perp leg. So that's Delta neutral. that's pretty much what we do. And the cool part is it comes with yield. Because first of all, some of this ETH is being staked. including into Lido, but also Mantel ETH, Binance ETH. So that gives you a small yield.

But the really big component is the funding rate. When you short perps in Bitcoin and ETH, typically, you earn money, you get paid because all of you crypto fuckers love to go along this shit. And when you do, you have to pay money for it. And you pay it to the shorts. In this case, it's a dealer.

Gustav: What would you do if 

Seraphim: the funding rates are negative? I would not panic for a moment because that happens all the time. so what happens is, yeah, the funding stays positive normally, and it's great. It was like 60 percent a month ago. It can go negative, which it did recently. the question is, does it happen instantly?

how, for how long does that occur? If it happens instantly, which is what we've seen recently, we can just buy that per blake back at a discount, close these positions as people redeem the assets. And it's fine. And then usually rebounds. If we enter another phase of the market, like the bear phase of the market, there's two things we can tap into the reserve fund, which we've been growing recently.

It's about 40 million bucks there now. the second option is that after that, if that gets depleted, we can kind of close these shorts as well. I think it's important to realize as well, there's like a ceiling and a floor on the APR that you're paying. 

It's not the biggest concern because we could always close these trades and sit in usdt Maybe do RWA. I didn't think about it too much yet, but that's an 

Juan: option. I want to get deeper into like the mechanics and the mechanisms in terms of how Athena protocol runs under the hood. But before I do, I wanted to touch on, growth and BD and DAO to DAO partnerships and relationships.

Something that Athena is leveraging to grow, right? You were the fastest growing, stablecoin or let's call it dollar denominated asset to grow ever in the history of crypto. And so I definitely wanted to explore, touch on some of the tactics that your team has implemented, one of them being the shards or, points campaign that you have ran.

I'm curious, like, how have you found that to be effective for the growth of the protocol? 

Seraphim: Yeah, I think the points were, Very effective in terms of growing TVL, but at the same time, the reason why people really want to aid, aid to these points is because we have that growth potential. And I think the market realized it quickly.

And the reason we have this growth potential is that when Guy came to me in July, he said, Hey, look, I've lined up all the sexes. They're on board, which means we can scale. That money is not parked on sexes to prevent an FTX like scenario. The money actually sits in institutional custody, which has a really good track record.

That means there's confidence That money is going to actually be there at the end of the day. So when you take that plus yield that actually scales into billions of dollars, not a hundred million, like most DeFi protocols do, it's like it becomes a bit of a, product that scales with capital, which is very rare in crypto.

So far only staking really scales with capital because you just maintain price exposure, get some staking or restaking rate. every other opportunity out there, apart from maybe, TrackFi, RWA, just doesn't scale anything it did. I think that is the reason why it's grown so quickly, not just to SaaS.

SaaS is like a nice thing people like, 

Juan: is this tactic something you're going to continue to do? I think you guys announced season two, right? A couple of weeks back. is this something continuous for the meantime? 

Seraphim: Yeah. So people love to see season one was great from a lot of people.

Apparently people made a lot of money. I didn't really participate apart from like a little bit just to see how it goes. but season two runs until either September. Or once we reach 5 billion bucks in TBL. So, after that, we'll see, it depends on priorities, integrations. We have a big integration plan going on.

so it's going to depend on that, but yeah, for now we keep them on. 

Gustav: So, just like a question here, because of course, you could say the point system is you targeting the end user, right? I'm really interested in hearing a little bit more about your experiences with the DAO to DAO work. Right. Because I think you guys have some really successful integrations with. Morpho, working with Spark as well. I believe Ave is opening up a small, exposure as well.

Right. And of course those parties have been fighting amongst each other, but you guys are just kind of like working with all of them, right? So, what is kind of like your experience been with, with, Yeah, the name of the 

Seraphim: game is to be a slut pretty much, work with everyone, but I think that's just, that's just it.

but on a serious note, the first DAO, that was instrumental was Mantle. Mantle sits on billions of dollars and they came in quite early with a substantial size, hundreds, tens of millions of dollars to mine the shards. And they've been great partners as well. that's kudos to, the guy, but I also used to work with him when I used to be at Lido.

We're putting a bunch of their treasury into state teeth and they're great partners. Once we got to 250 million bucks in pre public campaign. Around mid Feb, that's when we launched the, the points campaign. So we started off already with sizable capital from mantle, a bunch of track five guys that are very hard to convince.

So when you convince someone like Reverend Howard, or we had a random fidelity and you're like, we got these guys, what excuse do you have? Cause they're very strict. It's just very easy to sell. but then, yeah, I think once we hit the market and TVL started growing, what happened is, happened is it was a good coincidence of growth.

And the funding rates being extremely positive. Once the positive funding kicks in like 60%, all the capital in DeFi starts to suddenly converge to high yield opportunities. And at some point people need to do this. People need to implement USDE, because there's nothing else going on that's as scalable and built in a pretty smart way.

So, yeah, we have something going on with maker, obviously the 600 million up to a billion dollar capital injection. into Morpho, which allows them to kind of, earn yields in an indirect way. There was a proposal on Aave, as you said, we have huge integration with Pendle. They've been good friends of ours and a great partner on Arbitrum, Maynair, Zerkit, soon other chains.

We have some other integrations going on, but the point is, yeah, the DeFi integration part is really important. Although I have to say, like, a really big focus for us is, CeFi as well. Like, CeFi is the king of distribution, which is why we've been so focused on our partners, Binance, Bybit.

OK, XBitGaz, and that's why I've been talking a lot about Telegram on Twitter recently, because these guys are, Starting to wake up and then they're going to be a force to be reckoned with. So we're really focused on both of these markets. 

Juan: Could you, Serafim, could you double click on the MakerDAO partnership a little bit?

can you elaborate how that kind of came to be? maybe for some of the listeners that are not as familiar, to that whole story. it was a very like organic demand like that MakerDAO wanted this exposure. they saw the Writing on the wall and they wanted to jump in or like, you know, could you clarify all of that for the listener?

Seraphim: Yeah, I don't think we had to sell much, but at some point the market just, the funding rate started to explode. And, I believe Rune even wrote about this on Twitter that people started to kind of, redeem USDC cause people started to seek yield or they would lend ETH, borrow, die, sell it for opportunities like Athena. 

Juan: Yeah, I'd say that's pretty, nice thing to, to have, right? Just a lot of inbound, a lot of people that want to have, exposure. They just want to use your product. I think that's something that Athena is also, suffering from success in many ways from that.

It's just people want this trade, right? They just want to be exposed to it as much as possible. but it definitely has ruffled some feathers as we've mentioned, with competing protocols. we should get deeper into the protocol itself, Serafine.

because I think it's different. I think that's why people are talking a lot about Athena protocol. It's like this middle ground between DeFi, but it's leveraging CFI. it's not really a stable coin. It's more of a dollar denominated asset, synthetic dollar. so I think there's a lot of confusion.

so could you maybe explain like how. Athena is different from other stable coin, or dollar denominated, assets. 

Seraphim: Yeah. So it is an interesting setup and it's made to scale. Like that was the initial idea. It's made to actually grow a lot. so, yeah, one spectrum, you've got something like liquidity where, it's completely smart contract based and CDP put in ETH.

like 120 bucks worth of ETH, for example, 110, and you borrow a hundred bucks worth of, USD. So it's super decentralized, completely immutable. On the other end, you've got the super centralized fiat based stablecoins like Tether or Circle, where in the backend, you've got treasury bonds and stuff like that.

And Athena is like in between somewhere where it's not completely decentralized and based on DeFi. We are leveraging some CFI infrastructure, but we're not using treasury bonds at fiat. What we're doing is, as I've said, we're using, crypto denominated assets, crypto OSTs, which is delta hedged and centralized.

The reason we use centralized exchanges is because 95 percent of the volume is actually happening there or open interest So in the background what's going on is there's a group of white listed Participants that can mint and redeem the token directly with athena protocol Not everyone can do it Most people just trade on the secondary market when there's an arbitrage opportunity Like a lot of people suddenly start buying usde on the market for whatever reason It goes above one.

So You What a, what a whitelisted participant does is he takes $1 worth of e for Bitcoin or USD or just USDT. He puts it into Athena. He mints one USDE. He takes that one. USDE sells it at 1.05, for instance. It keeps the peg down. So you just made a five cent profit. The same goes in redemption wise what happens in the background when that market maker or whitelisted participants puts in that bitcoin or eve or usdt it goes straight Into institutional custody.

It doesn't sit in a smart contract. It actually goes to copper, Sefu, or small mountain Cobo. so these are the three institutional, custody providers that a lot of these big funds use. And they have pretty stellar track record of not blowing up or losing funds. So that allows us to basically trade on Binance, OKEx, Bybit, Bitget, all these exchanges without actually posting collateral there.

If Binance forgot forbid blows up, a lot of these funds will be fine. and we actively manage this proprietary algorithmic, set up to manage exposures, redeem, and make sure that we get the best pricing and, you know, minimize slippage across the board. So that's kind of the idea. 

Juan: So, could you explain what role is actually like this synthetic dollar trying to fulfill within the larger landscape of DeFi?

What is this like utility? How does it plug into the. The like DeFi Lego pyramid, so to speak. 

Seraphim: So, a few months ago during the bear market, people started talking a lot about yield bearing assets or yield bearing USD denominated assets. And most people just went about it thinking we're going to add, well, we're going to take those treasury bonds.

We own in the background and we're going to take some of that yield and give it back to the user. And that was a cool idea because finally within the ecosystem of crypto, you can get some of that yield back and same for exchanges, exchanges are sitting on lots of. They have coins, for example, like Tether or USDC, they're not getting that yield.

And they're a little bit mad and they're thinking they'll be nice, but same for the users. In the bull market, yields and track by typically go down. They don't go up. That's the reason the bull market is starting.

If you start printing money and lowering interest rates, so it becomes less attractive to do that. What really goes up is the funding rate, the desire to go long Bitcoin and ETH. And that's ultimately what the funding rate is. So the idea was to create a product that can give you the yield back from all this crypto stuff that's going on.

But it's actually quite high because of what people want to do in crypto rather than RWA, which tends to go down in terms of yield during bull markets. So yeah, just giving the yield back, but from something not RWA related, which tends to be low. 

Gustav: Did you guys have, some components that touch, more centralized infrastructure, right.

you work with custodians that plays a very critical role, not just for you guys, but also in the ecosystem, you work with centralized exchanges, which is the majority of the volume still. but of course this is kind of open The debacle about, that Athena inherently is, centralized.

what does decentralization look like for Athena? Do you plan to decentralize some aspects more? Like, you know, you're still like a pretty young protocol. Like, you know, what, maybe you can talk a little bit about our plans, about your plans, on that front.

Seraphim: Yeah. The plan was always to kind of. First of all, scale, grow, actually be successful. and I think the decentralization aspect is important, but if you want to do it a hundred percent, like decentralization, Wahhabism, it ain't gonna, this shit ain't gonna fly. That's what we realized. we wanted this to fly and we said, what do we do?

To make it fly while being in the spirit of crypto and using Bitcoin and ETH and non fiat stuff, in the back end and centralized exchanges, which, you know, it's not like Binance, OKEx, Bybit, BitGear, love CBDC, and I love the governments telling them what to do, you know, we're all kind of in the same boat.

So this is a good trade off to actually achieve some scale. But in terms of decentralization plans, we are working on a DAO structure, basically to decentralize certain aspects of the protocol. It's always has a challenges because we use centralized exchanges, right? So it's not like a smart contract per se, smart contract, but handles minting, redeeming, staking on staking, pretty much everything else is kind of like.

C5, but there is a plan indeed to centralize the protocol, and that covers certain aspects like custodian choice, collateral choice, there's going to be, an active risk discussion within the protocol going on. yeah. So we're still working on that framework at the moment, but it's definitely like we're doing what we can given the fact that we have to trade on centralized exchanges to scale.

We would not be relevant and we want to be relevant. It's fun to be talked about on Twitter. It's nice. 

Gustav: Yeah. I mean, I would also say we've already seen, especially Maker already taking an approach where you have actors, interacting with, the traditional world.

both some of the USTC stuff they did with, Coinbase, but also all the RWAs things, has also been similar, where you have, a decentralized structure, but with centralized components, but you're kind of decentralizing by spreading out.

the risk, right? So rather than working with one, you can work with 10 and then, you know, in that way you can kind of achieve at least like some level of decentralization. so, so yeah, that's like, that's like really interesting. that that's kind of like the approach you're going. Well, what does, and I totally agree by the way that like, you know, finding your product market fit, even though you are actually already found it now, but it's still quite early, right?

So really like focusing on, and also, you know, what scale looks like for you guys might be very different than what it looks like for the rest You do have a really big chance to scale now. so like what are like some of like the biggest like challenges you see coming, coming with this, right?

how are you guys faced of any of like, kind of like the bad talk about you? Do you feel like it limits or hinders your ability to be present? Is it influencing your decisions at all? It's like a company that people are kind of like, you know, giving this criticism. or not? 

Seraphim: FUD is great. it could be me and guy tweeting, or it could be thousands of people tweeting at the same time and debating and stuff and writing articles about it. This is much better. This is just saves me and Guy so much time you people fucking talking about us than we all the time. I love it. Like it make, it just makes life easier.

I think what's instrumental is that what's important is that given that we know we can scale and that Athena can be successful, whatever people say in terms of FUDs, we can, discuss, we've been pretty transparent. If you look at the risk disclosures we've had, there's like an FAQ that's like miles long, if you scroll down.

There's a big docs page as well, and we're happy to answer questions. In fact, when we launched the Sats campaign, I just wrote, if you have any thought posted here, I'm going to tackle it and I've written, I've replied to pretty much everyone I could have. So, I think being transparent and knowing that we can grow because we're not a Terra Luna Ponzi.

While people keep engaging on Twitter and flooding us is actually a great combination of creating awareness and, facilitating adoption, really, pumping the narrative of actually the that can work. 

Juan: So coming back to the. Topic about, decentralizing the protocol.

can you outline maybe at a high level for our listeners, like what was actually left centralized and what is on the roadmap to eventually, decentralize. I know you have some of this in the docs, but for our listeners, could you. elaborate what's still centralized, what plans to be decentralized and why it was set up this way 

Seraphim: yeah, the way you think that was set up from the get go is to scale, very quickly in an efficient way. So, that's kind of the reason why. Everything is done in a rather centralized way, but what is planned to be decentralized is the ability of the community to decide on custodians and collateral types on, like general risk ideas, caps on certain assets, as I mentioned, collateral types, then the hardest thing to decentralize is the actual execution, like actual hedging on different venues and such.

Because it's an active process. I think that's the last thing that we decentralize. We can't, we don't want to delegate trading yet to people we don't know, because that's complicated. But everything else is like custodian types and collateral types and all that stuff can be actually decentralized and we're planning to do it.

Gustav: So, Serfam, right now you're very focused on, of course, this, one, use case. Right. do you see that like part from like expanding the collateral pool, maybe the risk framework, like these things, do you see like, what is like some of the other developments that, that, you know, Athena is working on, do you think that this one can scale you to.

as big as you want to be, or are you working on other products or other, alignments around the same, field that, people can be looking forward to. 

Seraphim: I think that would be the main product. in terms of scale, I think we'd like to get to five, maybe 10 billion asset, 10, 10 billion into the ONC kind of, if we needed to do something else and add to the collateral mix, because.

If we are betting as well as an industry that this market is going to grow, the rooted markets also grow and they allow us to scale even more, which they do every cycle. So, that's why we haven't thought too much about RWAs and all that stuff, because we're like, we think we're in a. But this industry is still growing a lot and in the derivative market, we keep expanding.

the focus is more on the integration. So maker, RV is happening. I'd really like for USD to become collateral on perpdexes like GMX, synthetics, et cetera. some of that is in the works and then just being adopted by exchanges as well in a deeper way. so I think just these integrations are crucial for now in terms of adding to the collateral mix is probably something that we'll think about five there or so.

Juan: Seraphine, does Athena have any plans or strategy in terms of helping facilitate more on chain perps. Is there anything within the mission of the company to kind of Because there's a reason that you chose to go down the centralized path, right?

Because there's this lack of on chain. And so do you see Athena playing some type of role in helping prop up that even further? Is it maybe through just like incentivizing further for these other DEXs to grow even further? I'm curious how did your team think about trying to Now that you've, scaled really, fast, how can you also help the ecosystem around you to even serve you, and then help you reach decentralization even faster?

Seraphim: Yeah, I think it's something on the roadmap for the second half of the year. So we have to park money to smart contracts, but we've got to think about that a little bit, how to do it properly, or maybe we can work with decentralized purposes, somehow use custodians.

So that's like a, I'm just saying it can be done. It's just a technical lift that requires a lot of restructuring internally. I think now we really focus on these key integrations, the way that we are now. But. I do think it'll be cool. Eventually. I predict that a lot of the trading volume will shift on chain.

You see the C5 wallets as well. A lot of this stuff starts to be happening on chain. So I think we'll get there where we definitely want to be a part of, the volume or decentralized perhaps the question is kind of when we're going to do it, it's either second half of the year, maybe beginning of next year.

But I think eventually we want to do it. 

Juan: I wanted to bring up this, interesting criticism or take that you were, criticized for, on crypto Twitter for growing really quickly. Obviously it's really beneficial to you, but to some that are maybe risk averse, some of the other, defy incumbents, they're kind of.

Not scared, but there is a lot of second order effects and third order effects of integrating this type of, asset as collateral and we just don't know how things are gonna play out. And you guys moved quickly, And that's why we're having this conversation. So I'm curious, what's your take or perspective on that type of criticism?

what's your reply to those people? 

Seraphim: Yeah. I think blaming us for growing too quickly is the same as blaming a young boy for going through puberty too quickly. It's like, what can I fucking do, man, This product was made to scale. I joined it because I thought it was going to fucking kill.

a lot of people that were genuinely, there was genuinely good criticism. but a lot of people just haven't read the docs as much and actually now they're coming around because a lot of people just Terraluna, or we added Bitcoin to the collateral mix, Terraluna.

And I get it. We all got PTSD and got, and got fucked. Over the last years by these stupid projects like to really know if tx. I totally get it. That's why I'm not getting mad I'm like I get it. So I think what's important for it's important to see that the community seems to be understanding what we're doing a bit more but I do think this is the same as It's Tether.

Tether for years was shat on for whatever, they're not backed, they have Chinese commercial paper, whatever. But it took two years of incredible stress tests of FTX, of Terraluna, for that shit to happen. For the people to be like, okay, I guess they're fine. Because if they can survive a 20 billion bucks redemption and Circle couldn't handle something, like, I guess they're fine.

So I think what needs to happen is for, redemption cycle to happen with Athena for USD to be fine. And then people are going to be like, okay, this is clearly working. It just needs stress test. And I think I wouldn't expect everyone to be like, this is the best product, it will never, nothing ever bad is going to happen to it until we have that stress test.

Gustav: You're not, you're not worried that you because I mean, like a lot of Projects and protocols, right? They introduced like more strict limits, you know, on your new markets and new products that they launch, until they've had that stress test.

you're, you're not worried that something would happen in the stress test and you guys are just so big now that like, you know, if you would have been smaller than it would have been easier handled, 

Seraphim: I think, a lot of the growth came from just. Discussions with people that normally don't discuss this, like firms that at some point accounted for a large part of open interest.

we just say, this is what happens when you get this big. So we were thinking at below 30%, it seems fine. Like, cause you can do quantitative analysis as much as you like. And we have done that, but it ultimately comes down to talking to firms that have been involved in being a big part of open interest.

And we felt like we can pretty comfortably grow to, five to 10 billion bucks. and again, the nice part is that. Like it's a self correcting mechanism in a way, if funding, if there's a volatile kind of, bearish scenario. Again, people typically redeem because the funding goes negative, which they have lost a few weeks ago.

We buy those pubs cheap, cheaper. We redeem the, the assets. If like 50 percent of TBL gets redeemed very quickly, that remaining 50 percent is servicing the reserve fund if the negative rating persists. So it's like that small, relatively small reserve fund at the moment, if we were to go to file a bill.

That could be enough for like a smaller shrinking balance sheet that could occur. So these dynamics, that kind of self correcting plus empirical and anecdotal evidence from kind of sophisticated traders that have been accounting for a lot of size has led us to believe that it's, we can scale to 510 bill pretty, pretty okay, actually.

Beyond 10 bill, it's a different conversation. We haven't got there. and we'll obviously think about it when we get there. 

Juan: so besides letting the system stress test, with time, you'll just prove yourself.

Is there anything else the team discusses internally, to make sure to reassure, the people, or maybe you're just focused on the believers for now, is there any other campaigns or narratives or, things you want to make sure that you, make aware to the public that, the system is for the most part, okay, it's not gonna break.

I know the stress test will come and that will really prove you, but for now, is there anything you can do to really further strengthen your positioning and your messaging? 

Seraphim: Yeah, definitely. I don't want to just wait to. Apocalypse scenario for people to kind of, think that we're fine.

So, we've done recently a custodian at a station with CFO, Kobo and, copper where the funds are held, which attests that indeed the funds are safe and they've signed off on that. So that was like a very basic thing we've done. But I haven't announced, we haven't announced it yet, but there's going to be stuff going on with custodians that will improve transparency massively, around the funds that, where they're being kept.

The next step after that would be more transparency around the positions we're taking on centralized exchanges. You can kind of see on our dashboard, obviously, it's pretty clear. Like our data, where we place these positions, what collateral types we're using, but we'd like to make it more transparent for third parties that can attest that indeed this position is on how much they're accounting for, and again, where the funds are, which custodians, and you can easily track it.

So that's a big part of what we're trying to do now. Which we discussed, earlier is another thing where we want to make sure the community can be involved in choosing custodians, cultural types, etc. I think these are the two big items I think that people seem to really care about that we're trying to achieve before we have an actual stress test.

Gustav: So do you think like, if you guys get so big, that like, let's say we get like a really big drop and you guys need to cover a lot of the shorts. Do you think that Athena would be able to save the market since you would have to go out and close a lot of shorts? Well, it's funny, 

Seraphim: but. At a certain size, we are like buying back the shorts and possibly flipping funding back into positive.

that dynamic could totally happen. So, in fact, in the meantime, we are kind of depressing the funding at some point. making it easier to go leverage long, even Bitcoin in perpetual markets. So this trade has been put on for years. It's not like we just came up with it. We didn't invent the wheel.

This has been done for 10 years. It's been done by people that typically borrow funds like 3AC and Alameda. And so I guess 

Gustav: No. 

Seraphim: Yeah. Yeah. Those are great dudes. But what they did is they borrowed funds to do this trade. Yeah. They blew up. Yeah, so when they blew up suddenly this is like there's no capital doing this trade What we do is we don't really borrow any funds.

This comes from kind of DeFi users and putting their capital in and it's just kind of farms this incredible funding opportunity. Is it going to stay at 60%? I don't think so, but it ain't going to go to zero. I think because there's a price like people willing to pay actual money to go leverage long.

So if there's going to be a rate there where it's going to be it's going to be positive. So I forgot the question actually, like I was just going to rant, 

Juan: but Sarah, perhaps this is more of a personal question, but I wanted to ask, how have you seen is like, is there any parallels or is there differences between doing growth for this type of protocol and like your prior experience at Lido?

And, Euler a lot of our listeners are probably, you know, builders and, and they're actively building maybe a different type of protocol. And so I want to see, you know, see maybe like, what are the differences in, in, in doing like BD and growth for, you know, what are the parallels? What are the similarities across different types of protocols?

Seraphim: Oh, yeah. It's very similar to Lido actually. everybody hates Lido. A lot of people flood it. So that was great. It's the same shit. Second. It's. Most importantly, it's scalable with capital. The yield is scaled with capital. Lido can scale to billions of dollars. And because of how Ethereum protocol works, the yield is relatively sticky.

Like, yeah, of course it went, it used to be much higher, but it's still not like collapsing with 50 million bucks in. Ethereum is the same. It can scale with capital. That's like one thing. If you're building a protocol, if it's a yield protocol, especially make sure that this thing either scales with capital for the source of the organic yield, which is not, there's not many out there.

Or if you do the points game, I guess the FDV is your thing, but that's the game. to make sure that whatever yield people earn, is it points? Is it organic yields that can actually scale with vast amounts of capital? The second thing is I think not to shun away from playing the crypto game.

Like, You should probably do points and rewards. You should involve highly, high level KOLs. It's just the way you do it. You don't have to pay for posts. If it's a good product, they're just going to invest the way everyone else is on the same terms. But it getting crypto people of prominence involved doing the points stuff, it's something, it's a lever that we really, I think, dumb to not use.

And it's like, it's like, I'm not going to do marketing. You know, not doing tokens is kind of the same. We have this incredible lever. Why not use it? And third, I think is when, but just building relationships and stuff like that, it's important to maintain integrity, do you not have to be Marie Therese or like the best person on earth, but just, In a very selfish way, if you just keep doing good things, people rely on you more and you can keep doing whatever you're doing.

And whatever deal you're pushing for at the moment isn't, doesn't matter as much. I think it's just prioritizing long term relationships with people always pays off more than this little deal. Unless someone gives you a billion bucks, it really doesn't fucking matter that much. So I'm like, I'm really chilled about deals.

I'm like, you don't want it. It's cool. We can just hang out. So, and that has allowed me over the years to kind of Build a circle of friends and I don't need to FOMO them into things anymore. You know, 

Juan: so continuing this, topic about like criticisms Athena's taking on right now. Seraphine, what do you say to the critics that argue coming back to the custodian aspect of this?

What do you say to the critics that say that it doesn't matter that the custodians are crypto aligned, so to speak? They are still exposed to like this censorship, you know, this, this factor of censorship that they might be censored or, you know, so it doesn't really matter that you're using a lot of crypto line custodians.

What do you say to the critics that argue that that aspect of centralization? 

Seraphim: Well, like it really depends how tough you want to go and like decentralization front yet, if you really take the to the extreme and they go off to the stakers and validators, like all of them at once, they could create Ethereum, a KYC compliant fork of Ethereum, if they could actually do it.

Like they could actually do it today if they really wanted to. It's just no, the precedent is too high. So you have to think of where on the spectrum of precedence we are with these, these crypto native custodians. When the funds, when the funds of BUSD, the Binance's, Binance's stablecoin, for example, were onshore, they went after that, but the users were able to redeem worst case.

So now we kind of know that if you're the most hated person in America, in crypto, like CZ, if your funds are in America, So now when I think of it, it wasn't very smart, but what the fuck am I to say anyway? Like, you know, what's the worst case scenario? They're going to go after the funds, but allow you to redeem them, right?

So by using crypto custodians, which use non fiat based, collateral that not related to America in any way, we can derive a good probability kind of distribution of what, how censorship resistant this is, or how unlikely this is to be kind of gone after. And I think it's pretty okay. My personal view.

You can go in theory after everyone, you can go in theory after Bitcoin, if you really want to do it, just the precedent is high and the work involved is a lot, and I think we're there where like, it's just not fucking worth it, you know, if you're in America and your funds are in America, and it's literally fiat, yeah, that's like, that'd be really disingenuous to say this is decentralized, right?

Juan: So, 

Seraphim: yeah. 

Juan: So pulling on that thread a little bit more, what's your take on this, ideological warfare in DeFi? You know, there's, it's very ideological, right, where, where some, some argue on one side of the aisle that, if there's some, Thing touching CFI, it's not true DeFi, does, does that even matter?

I know to you, a lot of the builders that we speak to, it's just make something useful, right? And, and it's okay, these trade offs but eventually we'll get there if we do get there. So yeah, I'm just curious, like, what's your take on this? Like where do you, where do you sit? and yeah, just curious your take.

I think it's important. There's voices like 

Seraphim: that out there. Like, yeah, I do feel like, obviously, Yeah, Athena's using C5 and such, but I do appreciate that in the community, people still give a shit, even though the question is, is it productive or not? But honestly, just by signaling that this is important in the community.

And sometimes people get mad at like bad governance and such. We are keeping each other in check and a weird social contract. So I. I don't think it's a bad idea. It's just the only, the only time I get mad at this person is when it goes like overboard in person, like rocket pullers, we used to call me and all that shit.

I think this is like too much. Like, come on. It's just a protocol. Like, so like, yeah, like I, I think this is fantastic that people talk about this and actually want decentralization to happen, no matter how impractical. I think that's actually value value additive. And as it goes personally, I'm just blocking these fuckers, but you know, apart from that, I do think it's a great thing.

Juan: I mean, the argument is that it's better UX, right? Like the, like if you, you still incorporate some C fire, like some centralization, like it's just better UX and that's the North star, right? We're building startups here, right? We're building, trying to build useful products. And for now, like the decentralized UX is still, you know, You know, not there fully yet.

I don't know if you have a response to that. 

Seraphim: Yeah. I mean, I would just look at DeFi Llama and look at all the TVL that's in DeFi and just select the protocols that are completely mutable as decentralizers gets according to the decentralization Wahhabism kind of ideology. And you will see it's a tiny proportion of the entire crypto TVL.

Like if you look at Tether alone, so is Tether decentralized? No. are they on our side? I think so. Right. So if you just completely built it in an ideological way, we'd have no TVL, which means we have no growth, which means we have no valuation, no points, none of this fun parties, VC fueled parties in Dubai, none of this shit will be happening.

All right. So we'd be like, like two kids playing in the sand. Pretending, trading Pokemon cards, pretending, pretending it's actually relevant when it's not. So I think it's great. People do care about this. I would just say we have to be practical and you have to grow. If you don't grow, you're not relevant.

If you're not relevant, then are we doing? Right. This is all bullshit. 

Gustav: Yeah. I would also say that even looking at the DeFi Llama list, I don't think any of the protocols on top 10 are like truly decentralized, right? I mean, even all the ones that are in this discussion, even all the DAOs that we'll see, protocols.

I mean, they're not truly decentralized, right? Like, you know, it's just a thing like today with like what we have. And what has been built so far, we're still missing some very key and core components before we can like achieve actual decentralization, right? And there's a lot about like, you know, kind of create like creating like objective like automatic verification of anything that is happening within the protocol, within the DAO, right?

Because today we still take. Subjective opinions into risk management, like risk management is not a subjective opinion, you know, like, and this is what has happened now with Athena, right? It's like, Oh, I think that this is, but it's not about what you think, right? Like, risk management is not what you think.

So 

Seraphim: Yeah, I think in DeFi, and I used to do lending to, risk disclosures and risk proposals in the space are more like our own form of disclosures. You know rather than an act of decentralization like it's it's typically the same fucking teams running the actual very often I've been around. Okay, we all know this shit It's usually the same protocols that run the thing that run these governance forums and post things, but I think it's more of an attempt to to of actual disclosures Which is still great.

Like we self reg, we kind of self regulate to the point where we feel compelled to disclose things and initially it started with a bunch of random people like, let's make USD collateral, you know that, and now it's like we have Chaos Labs and Gauntlet, people actually getting paid with PhDs and shit, you know, they're actually writing stuff on forums and you can read it.

And I think that's pretty incredible, like imagine you're a Blackrock and, or Goldman Sachs and somebody went into the Goldman Sachs forum and said, I think we should price the curve this way. I think it's still pretty cool. We're doing this. Like it's just, I would be cognizant of that, of the fact that there's limits to what you can do.

If, if, if there's parameters that have to be changed, there will be humans involved. And it's just yeah, 

Gustav: I was like to your point here, right? I think like most of the criticism about you guys came out before any reports were released. Right? so, yeah. Like once the reports came out, then the tone changed.

So yeah, I think like, of course, like, I think like doubt governance can be like very opinionated, you know, we, we try to stay clear of, of like these, like very dramatic topics, right. just because, you know, when, when emotions are involved, it's typically doesn't really make sense to, to, to talk about it, right.

You know, you know, the same as like, you know, when your girlfriend is mad at you, you're, you're not going to try reason, reason, like reason with her. Right. Better like, let her calm down a bit. Are you referring to Mark Zeller as your girlfriend?

Seraphim: Honestly, I still love Mark because it's not boring. I fucking hate when it's boring. Like Mark comes in and says something with his French accent and it's just. Amazing. I'm like, this is imagine CEO of Goldman Sachs during imagine JP Morgan's got his like. A quarterly earnings call, whatever. And then CEO of Goldman Sachs, that bold guy walks in and says, you know what?

You, what the fuck do you know about liquidation? I would fucking die. This would be amazing. Yes. The equivalent of the equivalent of that happened. And it's phenomenal. This space is the best. Like I'm watching this. I'm like, this is the funnest shit I've seen. And it's great. 

Gustav: Yeah. It like, but when those things that happen, right.

It's very distracting though. So I feel like my productivity is dropping a bit, so I'll always hate him for that. But everything else is very good. 

Juan: Well, there it, guys. Governance is cool by Seraphim. He said it. I'll tweet it 

Seraphim: after this. so Seraphim I tend to, I tend to shit on governance a lot on Twitter.

That is not indicative. You know, it's you buy something like, I don't know, like a can of tomato soup. And you just hate it because it's like, it doesn't open the right. It doesn't mean I hate tomato soup. I just like to bitch. Okay. I like to bitch on Twitter. don't hate governance. I don't hate Ethereum.

I don't put all my money into Solana. I just like to bitch. Let me fucking bitch. Okay. Cause everybody, people block me and shit for that reason. 

Gustav: I 

Seraphim: think 

Gustav: also everyone does it right. Just some people are doing it in public and some people are doing it in private. 

Seraphim: Exactly. I'm just publicly bitching.

You just let me do it.

Juan: All right, Seraphim, where does Athena go from here? How big can it get? Anything you want to plug as we wrap the episode? 

Seraphim: I was gonna say that's what she said. That was funny, but

Yeah, I think five bill is the next thing for the season. So I think 10 billion is not unlikely. I think beyond that, if we do have a bull market and open interest expands I do think we can go higher from there, but definitely growth of CBL. Secondly, going cross chain, we are on Arbitrum now, Zerkit, Solana is a priority and all the other chains.

Somebody has started to incentivize equality and optimism already. So getting on all these chains, getting key integrations done on Aave, Maker, etc. is a priority. And then distribution for CeFi is another one. Getting access by all these wallets. We've had CeFi wallets campaigns already. Bybitbind is okay.

I just want to push deeper into that. So, TVL and distribution. TVL distribution. That's the name of the game. 

Juan: Where would you send our listeners that maybe want to get involved further with the community? Maybe looking forward to, know, once there's actually something to govern, you know, that's a lot of our audience.

I would say, where would you send them? How can they get involved today? 

Seraphim: Yeah. I don't know. What's it going to go forum. ethena. fi or governance. ethena. It's going to be one of these. Just follow the Athena account on Twitter for updates. Go to the website, at website aptolefina. fi. If you don't care about your brain cells, you can follow me as well on Twitter, Seraphim or Matt from 8 8.

yeah, we'll keep you posted. It's going to happen 

Juan: Awesome. Thank you so much for joining us today, Seraphim.