LIVE: BITGO IPO, HIP-3, KNTQ | 0xResearch

Heat. Heat. What's up, guys? Welcome back to another episode of Xerox Research, to another live stream of Xerx Research. Today, I'm joined by Danny, not from the research team, now doing full-time pods, and Shondaanda from the research team. Hey guys, how are you both doing?

Doing well. Very good. Very good. I guess before we get started, I have a very detailed topic list for the day. But before we get started, how are you guys feeling about the market?

How are we feeling about the market?

Uh, everybody's talking about metals. Love it. That's talk of the town. Silver and copper and all this and copper copper dog meme coins too. It's weird.

I mean, I would say like in general overall, I'm still playing it pretty defensive, not trying to take too many risks, but actually today I added to my hype position for the first time in a while and took a pretty good after it went up 25%.

Okay. So, the thing is I was planning on buying but I didn't have my ledger with me. So, I came back today. It was the first time I had my ledger.

That's fair. The thesis is I feel like a lot of the selling pressure was just that like one tornado cash entity, right? And sold over like nine figures of hype. And you have the sell pressure, but you also have the fact that it was super telegraphed. Everyone knew about it. No one wants to step in when he still has like nine figures to sell. Now that that's cleared, I think like 20 could be a pretty obvious bottom in hindsight.

I think so as well. I'm just going to share this over here. It seems he's now out of tokens. He's only holding Latina worth $8.80. This is like based on an MLM tweet. I think it's Yeah, it seems he's offboarded most of it to arbitrum, but almost 20 days ago. I wonder if I'm sure he has multiple wallets, but this is just the first one that I could find. Yeah, seems he's sold. I do think that that was kind of like very telegraphed and I imagine a lot of people are waiting for him to be done selling.

On the copper and silver end, Danny, it is definitely interesting that a lot of like the people that I knew who I tweeted about this this morning as well. lot of the people I knew who were like maybe even back up to like a year ago I remember one of them tweeted to me tweet messaged me and said oh like do you see these wallets buying digos I don't know if you guys remember what digakos are oh yeah like the Gabriel Leaden NFDs versus now in that same chat people are just talking about whatever emerging markets lithium copper silver it's a very very like intense shift away from who I would have considered being like exceptionally cryptonative to the point that I would have imagined they would only trade crypto assets to like a very stark shift towards trading all assets and like trading less and less of crypto assets.

I think a lot of people also got burnt on some recent crypto launches, crypto token launches especially like lit I would say burnt some people but in addition to that I think also like the market's been relatively unforgiving compared to metals where some of these things are breaking out of like 30-year consolidation and also they seem to not stop going up.

My brother was buying silver and then it went up to 80 and I was like, "You got to start selling somebody." And he was like, "No, it's fine." Now it's at like 108 or something. So, I don't know. Like, that's a much better market to be part of than it is to be part of crypto.

You know what this rotation reminds me of? Like people now longing uranium copper is like the Bitcoin like back in the day was like BTC pumps, then ETH pumps, then altcoins pump, right? So we had like okay gold is pumping now silver pumped and now the rest of the DJs are just going to flood in the market and long whatever heavy metals they can that has just like the least liquidity and they can size up.

I will say like crypto market dynamics are very I imagine like people who trade traditional markets regularly are like yeah obviously it's the same. But I agree with you Sean that it's like pretty interesting to see value also like not value but investments flow down the AI stack. like very clearly it was Nvidia and whatever and then people started longing storage and then now people are longing like whatever chip materials so it's very like that waterfall effect is not just crypto which I imagine like everybody knew but me yeah and there's an upside to equity markets in that you have equity rights, shareholder rights.

So, there's less of a concern about your stock going minus 90% like the week after you buy it. In some cases, it might still happen if it's like a pure thing, but um, you probably don't need to worry as much on the typical equity play as you do on the typical token play.

Yeah, definitely. Especially if you're like not buying what you said, which is like if you're buying pure play junior micro cap copper miners, I'm sure you can lose a lot of your money. Um, but if you're well, I actually don't know much about the copper. Maybe maybe the interesting point as well is like if you look at some of the assets too like like cryp a lot of the larger crypto assets are large enough to where you know you're you might be looking at I mean take hype for example. It's whatever multi-billion even what 25 billion FV 10 billions FTV I mean you're looking at a small to midcap stocks.

So it's um in in the return profile if you are bullish on a small to midcap stock over the next couple years might could potentially be similar. So I think it's it's unsurprising to maybe see people looking more broadly, especially as well now that this thesis of like come trade everything on chain. It's not just like trade dog Now it's like you know you can actually just trade real businesses on chain too. Um it it's merging those worlds a little bit as well.

I guess like maybe if we want to talk I know we wanted to talk about BCO first but I guess maybe kind of relevant to this we can talk a bit about what we're seeing over on HIPP3. I know we already covered this like two weeks ago and I've probably mentioned Hyperlid every week since I took over the podcast. Um, but I I think this is pretty interesting like the amount of volume that is now going through these HIP3 markets. Specifically there we go like I don't know now it's at 2.23 bill today and that's out of 19 bills. So it's like above 10% of volume is on HIPP markets and a large portion of this is XY Z and I think it's mostly yeah 1.4 billion silver but also like daily OI is also climbing so it is pretty interesting given like for a really long time the thesis was financial nihilism and like meme coins are going to drive volumes going straight going forward.

I think Pump kind of did a comeback and they're actually doing quite well. Like just anecdotally, I'm seeing more people post stickers in chats. Which I think like always implies that Pump is probably above 2 mil revenue again daily. I haven't checked, but I'm sure it is at this point like today. Post penguin, but it's also more and more people are trading I guess assets that can't go down 80% in a week. um onchain and it's doing quite well.

Like I know it's kind of stupid to do hindsight analysis, but I imagine the hype thing is post Jeff's tweet about HIPP3i, right? Like it was at 800 mill, which is very significant. Like it's higher than a lot of perexes and that's just silver at this point.

Yeah. Yeah, I mean I feel like uh in the last 24 hours, silver is the second most traded market on Hyperlid, like even above ETH.

Yeah, it's pretty crazy. People just if you just give them the venue to trade it in and you don't make them do KYC, they will just use your platform and 30x long random stuff. And I feel like that's always kind of been the bull case for Hyperlid. And I saw Shondaanda, I don't know if you saw this, but I saw Charlie from Felix post an article about spot assets and how they're thinking about it. So, I think spot assets are also relatively um soon, like they'll come relatively soon. I don't know how much volume they'll do realistically.

Yeah, I agree. Yeah, I feel like spot assets generally tend to do less volume because you would assume people just buy and hold it, right? So, you don't have that much like turnover, but in terms of like allowing some more um arbitrage between the spot and the per can make the markets less more liquid.

That's true. I don't know, Danny. Do you have any takes on this? Like more and more stocks coming on like how do you think other chains are positioned for this or Sean you as well?

Um maybe something to consider here in the growth path is like this might be sort of like a spiky event. If um if the assumption here is that like the silver and metals activity kind of drops off like I don't know I'm you know I'm not a commodities expert or anything but is this like a blowoff in activity for silver trading? There's I saw Belchunis tweeting about the silver ETFs like heading record high like 40 billion uh trading activity the other day. Um so for HIP3 like it's great you know there's some validation that people will trade on here but um if the metal stuff cools off a bit it's like what's the is it going to be a slower climb from here? Like you don't want to sort of overextrapulate into the future the growth that we're seeing this past week. um if it's if it's more of like a one-off, you know, speculative kind of bubbly activity of this one particular uh group of assets and not representative of like the true growth rate.

I mean that's always an issue with everything, right? like yeah I can imagine it's it just is positive that crypton natives can immediately switch from trading Bitcoin E XRP to silver copper Nvidia um on this one platform another issue here is I think because it's growth mode hyperlquid revenues are actually 90% lower correct me if I'm wrong but they're like significantly lower. So, it's not actually benefiting the pro protocol that much right now. But it is good that people's first thought is like, oh, I can just long silver on this one thing.

Yeah, like I like I said, I think it's a good data point. I guess what I would say is like, you know, if you're uh building your investment thesis around this thing, you know, don't don't calc the PE today on the volume from last week and use that as your basis for the go forward because you're probably going to lose a bunch of it. Um, and the actual growth, you know, six months out might be a more conservative than that. Uh I think we tend to do this like even if you you know a lot of the salon activity like post election in 24 it's like you look at pump fun from then and we needed to cool off quite a bit from from that uh from that peak of of activity as well.

So yeah, I mean like if you think about the way deployers are incentivized to choose their markets, I agree with you that they're always going to choose the markets that at that moment are like talked about a lot, have a lot of mind share, have like volume that is probably disproportionately high to what they would normally have. Um, so I agree with you, a lot of them are going to trend down. But I think it's important just to show that like you can capture that demand even if it's just in the moment and every month like the flavor of the month token is going to trade be it equity, be it metal, but hyperlid can probably capture that volume at that time, right? And then even if that drops off, as long as you're positioned to list the next market that's going to have a lot of demand, you keep like building out these uh markets and eventually you have a lot of different pairs.

Yeah, I think I think like Pendle is actually an interesting comp to this like how their growth has been because there's been like these different seasons of activity. It was like, you know, ETH restaking stuff and then um all the USD growth and they've had like kind of like a couple different seasons of different types of assets that have all sort of like kind of validated the use of the product underneath, but the growth has been incredibly lumpy as a result. Um, not to say that like it's it's you know not valuable, just more so the point that like if you're expecting up only candles until you know you know six months in a row, it just it might not actually happen that way. The activity is probably bound to be spiky just due to the people that come and trade these assets. It's speculative and so it kind of there's booms and busts.

Yeah, I think that makes sense. Especially like the Pendle example I think is very good. Um, like you said, they had the points programs early on, um, with primarily restaking at that point. Um, and then they had US, they've always had Ephena to be fair, USD, I think it's like their most popular market of all time. And they had kinetic Khype. Um, and they are also doing okay with like USDA stuff. So like just generally any form of vault product or digital dollar tokenized thing that has a yield attached to it, they can benefit from it. Um I it's just like a picks and shovels thing now like but except for a thing that doesn't die out for eight months at a time. It's you can just constantly adapt something. Dexes are a fantastic business and Pendle is also like at the end of the day a Dex business. Um they I I think they make most of their money from their swap fees, although like I'm sure River will call me an idiot if I'm wrong about that, but um and like anytime you like they're it's adjustable to not adjustable, it's like applicable to any asset that comes on as long as the team is relatively smart about it. You can just clip BIPS. There's no better business than clipping bips. And it's crazy that only Dexus can do it. Nobody else can do it. I guess lending.

Yeah. Yeah. I guess like there's one more thing that I wanted to say because I just checked it out. I think you can make the argument that the growth mode has like definitely boosted volumes and a lot of volumes are people farming. Like I think I saw analysis like over 80% just it's not necessarily farming, right? But you're just creating maker volume through like bots like Thread Fight trying to get as much volume as you can for points. So I think the fact that silver is doing a lot of volume now is indicative one that there's actually demand for assets that people are trading and not just farming. Otherwise you could expect that they're just like uniformly providing liquidity for like the the top equities. And second um Felix's silver actually does not have growth mode fees but it is still in the top 10 um assets by volume today over 77 mil. That's very good. Felix must be making a lot of money.

Well, 77 mil is not a lot to be fair, but it is very good that they're seeing a lot of talk to talk to me about that. This is something I have questions about like not not constrained to hyperlquid like all ecosystems that are sort of like onboarding these you know real world assets or equities is you see a lot of issuers kind of come into the fold and I don't I don't know if it makes sense or like if the smaller issuers like really have like I don't how do they really compete here um if they weren't maybe the first mover or like the strongest and to enter in. Um, what is the thinking there? Cuz I think you see this like if I looked at Salana as well, it's like there's there's like maybe four, five, even six different like stock tokenization um, products at this point. And it's just like they're they're all competing over, you know, a couple mil in volume on like, you know, XTesla or Y Tesla.

So like I guess my lazy answer would be just to say that um Felix has USDH which gives it a fee discount. But I think in general you have like two ways not to compete as a a deployer especially on HP3 per because like as you said there are not a lot of people that are listing. If you look at Tesla I think there's five different deployers. So I would say on one hand you have uh you as a deployer need to source liquidity work with market makers. make sure that your market is the most liquid and people are going to trade through that. And then I think the second approach which is kind of like what um Kinetic is doing is if you own the front end and you can curate what markets people are trading through then you can route the user through your pair even if it's not necessarily the most liquid. And I think um if I look at Charlie's tweets from Felix their pair on silver is the most liquid, right? So that's why people are trading through there even though they have higher fees. It is very topheavy right now though and I don't know how much the fees are go trade XYZ is doing a great job at listing new markets but for example um I think Kinetic has been we'll talk about Kinetic a little bit later but I think they've been listing some interesting markets I haven't touched any of them to be honest with you but like I think you either have to compete on fees or cool markets.

I'm surprised we haven't seen any like esoteric markets. Um I know there was the whole trove debacle with like the Pokemon cards and whatnot, but like ignoring that. Um like structured products, I guess like you want to get as many like regular tokens out first and then allow people to think about the other stuff. But like there's no like I don't know what if I want a long Google NVIDIA and um Meta that's like there surely you can offer a AI basket or something can't be that and I mean yeah you can build your own one but it's extra fees I think Vensh is doing exactly that like they're creating baskets of assets they have um a semis index a robot index and a MAG 7 index but um like if you look at the volume is done like a the robot one has done like 16k in 24-hour volume.

I think the problem is like people want to know what they're trading, right? Like I think there's some people that just want to be like, "Okay, I want to long robotics." But I think more than that, people either have a name that they want to long or like a basket that's standardized, right? Like the S&P feel like the more complex it is, the less people want to trade it. Yeah. the they also have some spy stuff which is actually not doing too bad. I didn't know like 30 25 mil not great but not horrible.

I guess moving on from this I want to talk a bit about BCO because I actually feel kind of bad for Shondaanda on this one. For context, we wrote like an internal Bitco leading into the leading up to the IPO maybe a month and a half ago, two months ago. Shanda, can you give me a timeline?

We did it after they filed their uh first S1. So, I had that done by like September of last year.

And then I guess like just to start us off, well, Bitco's already started trading, so we can look at that. But um do you want to give us like general highle thoughts and then we can go from there?

Yeah, sure. Let me give you let me give a rundown. I've got some notes here. Just walk through it. Um yeah, very prepared. So Bitco is actually pretty OG, right? They started a long time ago in 2000 between 2011 2013. There's over 100k Bitcoin that was hacked, stolen from exchanges and individuals. And BitGo was actually the first to kind of launch their uh commercial multi-IG wallet, right, for users and institutions. And just based on this, they managed to raise a $14 million round in 2014, which was pretty comparable to the other raises at that time. I think um Circle and Coinbase also raised around then and they raised around the same amount. And based on this, they just continued the path growing out their custody service. they got insurance like up to 250 mil for like um institutions that want to deposit funds there. they raised from uh Goldman and other like big funds and um as they did this they kind of grow their bottom layer of the stack which is like the self- custody where they just have a ton of AUM right I think if you look at the assets on platform now it's around 84 billion it's down from 101 bill from Q3 but that's just like the market moves right and then once you have this there are people willing to pay a subscription and service for this um custody that you pay but you want to upsell them, right? So they have like they kind of um describe themselves as this triangle. You have at the bottom layer you have yourself custody. Then you have your qualified custody. On top of that you have these prime brokerage services like trading, staking, stuff like that. And then on the top they have this uh infrastructure as a service. So that's like what they were doing tokenization with the wrap BTC. They're also doing the stable coins, right?

Um but yeah, that's basically their model um of this right now. primarily staking and trading from the self-custody wallet and then the subscriptions and services say assets under management that's dollars held in wallets that are using BCO right yeah so yeah so assets under management might not be the correct term the term they use in the S1 is assets on platform so anyone who has a wallet has funds there those are not funds of Bitco platform yeah And do they have a like how does that take, right? Like how are they monetizing? How are they making money on it?

Okay, so let's say you you split it first, which is the first layer of monetization. You have the trading. So if you go on Bitco and connect to Hyperlquid, but I can exchange and I can trade through them and they take like depending on my uh volume, it's around 40 basis points for like the lowest tier.

40 basis points on trades. Okay, that's Yeah, that's all right. And then they have um on staking. So if I stake any assets on the platform is the same model as like laid or etheri, they take a 10% cut.

Okay. And do you know if all 84 billion use these things or is it like a subsegment of that? Like is the when they say 84 did you say 84 billion by the way or millions?

84 billion as of keyword. Okay. So when you say 84 billion, are all of those using some form of these apps or is this just like they've somehow touched Bitcoin?

Okay. Yeah. So, so this is interesting. I'll go to into another thing of like kind of like let's contextualize how big this funnel is, right? In terms of how many users are there because it's not just the AOP, it's also the users. They break it down as so we'll just uh clarify between the retail wallet and the institutions, right? So for the retail wallet they have 1.17 million users but this users is a cumulative figure of anyone who has interacted with Bitco since they started in like 2013 right so that's probably overstating the amount of users by a lot and um the distribution has just gone down so if you look at the Q3 in Q3 they added 23,000 new users so anyone that's created an account and in Q4 they've only added 7,000 which compared comped to like their their total uh user base of 1 mil is very little. And then they have this thing that they call as clients and they have 5,100 clients and clients is anyone that has like a business relationship with BitGo that more than just holding the funds but it also considers anyone that has a wallet balance of over $1 million as a client. So my interpretation is that like this number has gone up a lot and it's probably just a lot of like standard users accumulating enough that they're now classified as clients.

Okay. And what Okay. So, just to like wrap my head around this, they have a million users and then these users, if they've at any point opened up a Bitcoin, and then if those wallet users also because I assume you can export your wallet and use something else. If those wallet users have more than a million dollars on it, that counts as a client.

Yeah. So, the thing is a client, the client is more of a broad like a description of anyone that like is interacting with Bitcoin that like those 1 million people are not really customers because they're just like using the custody service, right? They're not necessarily giving any funds to BitGo. But my argument was just that I feel like the client number could be overstated just because it includes a lot of these users that just have got like a large wallet balance now that don't necessarily have like a business relationship with Bitco.

Yeah, I think that makes sense. And do we have any insight on how much money they're making?

Yeah. So I can just break down the next uh so that was the retail thing and then I'll talk about the institutions then we can go talk about like a bit of the numbers but their second thing is like this qualified custody which they do for ETFs which they do for exchanges which they do for funds right because as a fund you want someone that gives you insurance and you also want these like policies that you can use right you only want to send funds to whit listed wallets I don't want a fat finger and like send them a billion dollars to the wrong wallet Um and in terms of that we kind of looked at in our analysis into the two places where we believe that we we would see a lot of demand for these custodians. One is the ETFs and the other is exchanges and I think that we saw recently they kind of failed to penetrate the ETF market. Coinbase has a basic monopoly there. they have like 80% of all the ETFs and also for the exchanges it's also hard to penetrate because um the exchanges are building the custody in-house now right they're not outsourcing it anymore so my view looking at the numbers looking at their like descriptions of what these numbers mean is that this retail side is really struggling to grow it has a lot of users but those users are really overstated 7,000 new users is probably an accurate representation of the demand for a KYC wallet where you can't connect to like decentralized applications and then on the like exchange uh institutional side is also very hard to penetrate against like Coinbase and these things that are being built in in-house.

What do um I don't know if you said this what do their revenues look like compared to where it's priced today? That's what I'm curious about.

Yeah. So, if you look at revenues, um, I'm going to tell you something and you guys can say if you believe me. Their revenues in 2025 was 16 billion and they're trading around like a 1.5 bill. So, that that must that's like an accounting trick that they're playing, right?

Yeah. Yeah. I mean, it's not really that they're playing. That's just how you account for stuff um with the accounting laws that so $1 of trading volume if it's routed through you, you classify that as $1 of revenue, right? So if I do a $1,000 swap from BDC to USDC, your revenue on that is $1,000. But then you I was just going to ask, do you know do we what's their net income then?

Yeah. Yeah. So I'll get to that. I'll get to that. But but that's how it works. So you got to take um that and then you do the cost of um trading where you basically put how much you give to the to user right and then you just keep the spread. Um so I'll go down the list because I've written this down. Um revenue is 16 bill. So the trading is 15.5 billion of this right? So you would assume that this is like the huge thing that drives revenue. But if you take only the net that they do the spread, they earn around 34.5 million from this. Then you have staking. Uh staking is also like very standard model. But again, how you account for this with the accounting principles, you take the full amount, right? So if you earn 3% on like whatever stake amount, you take that as a revenue, you subtract the staking the amount you pass through and then they have like 40 mil of that. And then subscriptions and services. This is the stuff for like their custody and all the other things they're building into is around 114 million.

Okay. So not $16 billion. Okay. So a couple hundred million in in in annual revenue. And like from your POV, the growth options seem limited, right? they did not land on ETFs. Um I don't know how is the staking world looking today. I would imagine that might be tough as well like centralized exchanges and some of the larger players there that you mentioned are doing some of that in-house now as well. Also emissions across all blockchain are starting to go down further and further right like they're trying to reduce emissions as much as possible. So I can't imagine anyone is making a lot of money on how many validators there were on Salana a year ago versus now because they keep talking about we're going to cut it out etc etc I can't imagine like they're making a lot of money on that I also can't imagine a lot of people staking for bitco to be honest with you maybe I'm just cuz who are the other custodians shonda like who are they competing against it's copper right fires fireblocks coinbase anchorage have you looked at their growth is it Like, sorry, I kind of stole Danny's question. Danny, finish up and then I'll ask.

No, why do you do this? Just ask the thing, dude. How is um how's their I guess like growth store compared to the other ones like Fireblocks, Copper? I imagine Coinbase is growing the quickest.

Yeah. So, when I when I try to compete to them, I feel like there are not many public companies that have the information that I needed to make the comp. Um, yeah. So, I I just looked at Exodus, which is basically the same thing, like a retail focused wallet. But, so, let me get back to the staking point because it's pretty interesting and something that that I also highlighted as kind of a reason to be cautious when we wrote about it in September is that um the staking concentration had like um 70 to 80% was in Sooie, right? So they had a they had kind of a deal with the SUI Foundation and they custody SUI. So because of that they have this huge revenue from SUI and we highlighted that and we said that that's a huge risk right because basically the way that it works the way that their finances are structured is they're subsidizing the operations with their trading and staking line. So just by itself the operations would be like at a loss but you have this like staking and trading which is basically very low. It is low margin but it's low cost right you don't need to hire anyone to do it you just get that passive income um and then I then we saw that in the new filing their staking is down around 40% from Q3 to Q4 so from 28.6 billion to 15.6 6 billion just because of this uh sweet concentration. So you have kind of this risk like on one hand your more operation intensive stuff like ST um sub subscriptions is harder to grow right you need to reinvest you need to hire people and then this other line of trading and staking that kind of subsidizes that is very cyclical and it depends on the market.

Yeah, we is down 50% from where it was Q3 of last year. So that makes sense, right? The the tokens come down, the emissions from from that the take rate on the emissions from that staking are going to be down as well. What I mean, I don't even I'm not sure Bach like you kind of mentioned it, right? um staking rewards in general coming down across the board like that feels like a really tough business to continue in especially as we're seeing I don't know it it's not like 2021 where you've got you know there's still new blockchains popping up here and there like you know maybe Monet is a new client or you know similar teams to them but um that that space seems to be shrinking rather than expanding.

Yeah, in general like staking is a really difficult sector just because of margins. And I've written about like two LSTs recently. I wrote about Etherfy and I wrote about Kinetic. And the the teases for both of them is basically they're expanding from just uh staking to something else, right? And I think that's also what BitGo is trying to do. But for now, they're still kind of like protected and insulated from losses by these two revenue streams, which I think there's another interesting thing to mention, and you only kind of see it when you like go deeper into the financials, right? Um, which is they have like pretty good profits each year, but those profits are flattered by nonoperating profits, right? And that's just like revaluing digital assets that you hold on your balance sheet and counting that as a profit, right? So if you look at the operations in the in the last three years, they were negative like - 74 mil, - 36 mil, - 7 mil. And this is the first year after like they're OG's, right? I mean, they've been around since like 2013 that I could find that they're actually going to make like operating profit. And again, it's it's an operating profit of like 2.6 6 mil over the year and then you think about the fluctuations that can happen in staking and in trading and you realize like any swing there like minus 20% in sui or minus 20% just in general trading demand and again they're like under the line.

Yeah. And there's also like two issues here. One is well actually one of them is positive. I think staking is quite sticky like people don't move around after they stake with through one party. So I imagine that like decrease will be 3 4% max of people unstaking like the net amount of tokens price is obviously not particularly good. Um the other thing is they also like if they are clipping whatever like let's say Suie pays 2 and a half% they charge 50 um basis points on whatever the commission that do you get what I'm trying to say like whatever the amount of money that they give back