LIVE Hivemind: Crypto Treasury Companies, Sui Hack & Solana’s New Consensus

This episode dissects the surge of crypto treasury companies and their market impact, alongside critical developments in Layer 1s like Sui's controversial hack response and Solana's major consensus upgrade, offering a deep dive for investors navigating these evolving dynamics.

Market Overview - Altcoin Weakness and BTC Dominance

• Speakers: Yan, Cedarus
• The discussion kicks off with the current market state where altcoins are experiencing significant downturns while Bitcoin (BTC) dominance continues to rise. Yan notes a temporary "fake out" related to court decisions on tariffs, quickly reversed, highlighting the market's sensitivity.
• The primary bid in the market appears to be driven by company treasuries purchasing crypto, with little broad strength in altcoins, except for some movement in ETH tied to treasury announcements and potential front-running.
• Quote: Yan: "the second BTC pulls back, the bid is gone everywhere and you get double digit candles, double digit percent candles down."
• Actionable Insight: Investors should be cautious with altcoin exposure as BTC dominance trends higher, indicating capital flight to perceived safety within crypto. The reliance on treasury buying suggests a concentrated demand source.

The Rise of Crypto Treasury Companies

• Speakers: Yan, Cedarus, Jose (moderator)
• The conversation shifts to the proliferation of "crypto treasury companies" – entities, inspired by MicroStrategy, that raise capital to buy and hold cryptocurrencies like Bitcoin, Ethereum, and Solana. Examples include MetaPlanet in Tokyo and "Soul Strategies" for Solana.
• Yan, with his venture capital background, explains these companies primarily raise funds through convertible debt: a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. This debt is often bought by convertible arbitrage funds.
• These funds aim for delta neutrality by buying the convertible debt and shorting the equity, profiting from volatility through gamma scalping: a trading strategy that profits from changes in an option's delta due to stock price movements, effectively buying low and selling high on the underlying asset to maintain delta neutrality.
• Quote: Yan: "you've always heard Sailor say we're selling the product is volatility and he's right."
• Actionable Insight: The demand for these treasury companies' convertible debt, driven by volatility harvesting strategies, creates a significant, albeit potentially temporary, bid for underlying crypto assets. Investors should monitor the terms and sustainability of this debt.

Risks and Sustainability of Treasury Strategies

• Speakers: Yan, Cedarus, Jose
• The discussion delves into the risks associated with these treasury models. A key concern is a potential "liquidation cascade" if these companies face financial distress. For MicroStrategy, liquidation would likely require shareholder activism if the stock trades at a steep discount to its Net Asset Value (NAV) – for these companies, it's the total market value of the cryptocurrency they hold, less any liabilities, divided by the number of outstanding shares.
• Yan points out that Michael Saylor has expressed reluctance to sell Bitcoin, aiming to increase "Bitcoin per share." However, the maturation of debt is a critical future test; if debt matures without conversion to equity, new financing or asset sales might be necessary.
• Cedarus, drawing on his institutional research perspective, highlights that newer treasury companies might take on more leverage to differentiate themselves.
• Quote: Cedarus: "micro strategy I feel like is probably less of a worry than like as long as the market keeps putting these massive premiums on treasury companies and they're going to keep on like new ones are going to keep being announced and I think in order to differentiate themselves like some will take on more leverage..."
• Actionable Insight: While direct crypto-collateralized liquidations seem less immediate for established players like MicroStrategy, newer, potentially more leveraged treasury companies, or those with explicit NAV-discount triggers for selling assets (like some Solana strategies), pose a growing systemic risk. The maturity dates of convertible bonds are key events to watch.

Treasury Plays for ETH and Solana

• Speakers: Yan, Cedarus, Jose
• The team discusses the prospects for treasury companies focused on Ethereum (ETH) and Solana (SOL). Cedarus mentions the SBET ETH treasury play, which saw a massive price increase on very low float before significant share issuance.
• Yan believes ETH-focused treasuries will attract demand due to ETH's volatility and general bullishness, though perhaps not to the extent of Bitcoin. Jose, from his protocol R&D viewpoint, questions if Solana-focused treasuries (like UPEX, Soul Strategy) might see more interest due to the lack of direct, regulated Solana investment products like ETFs.
• Quote: Jose: "I feel like the Soul ones will be more interesting because there's sort of no way to get that exposure on on on the market right now..."
• Actionable Insight: The emergence of asset-specific treasury vehicles for ETH and SOL could drive demand for these assets. However, investors should be wary of early-stage, low-float treasury stocks trading at extreme premiums, as significant dilution is often pending. The lack of a Solana ETF could indeed make SOL treasury plays more attractive for specific investor segments.

Plasma - Tether's New Stablecoin Chain

• Speakers: Jose, Yan, Duncan
• The conversation turns to Plasma, a new stablecoin-focused blockchain backed by Tether (USDT). It's an EVM (Ethereum Virtual Machine)-compatible chain – meaning it can run smart contracts designed for Ethereum – designed to offer free USDT transfers.
• Jose views this as Tether aiming to capture market share from Tron, which currently profits significantly from USDT transaction fees, and verticalizing its operations to build a DeFi ecosystem around these free transfers while monetizing other on-chain applications. The ICO for Plasma is described by Yan as a "whale game," favoring large, long-term depositors.
• Quote: Jose: "Tether has seen how much Tron is making... off of having the Tether chain and they're just like, 'What is the point of having Tron do all these USDT transfers? We can just do all those themselves and we'll just make those free and then we'll build a whole like DeFi ecosystem around it.'
• Actionable Insight: Plasma represents a significant strategic move by Tether to consolidate its dominance and expand into the L1/L2 space. Its success could impact Tron's revenue and potentially attract substantial liquidity, creating new DeFi opportunities but also concentrating more power with Tether.

Circle's IPO, USDC, and Ethena (USDe)

• Speakers: Yan, Jose, Cedarus, Jason (via message)
• The discussion touches on Circle (issuer of USDC) and its planned IPO, contrasting its prospects with Tether and Ethena's USDe. Yan notes headwinds for Circle, such as declining interest rates which would reduce their revenue from reserves.
• Jose highlights the "vampire attack" nature of Plasma's launch, where USDC and DAI deposits get converted to USDT. A key point from Jason (via chat) reveals Coinbase's favorable revenue share, keeping 100% of interest earned by USDC on its platform.
• Quote: Jose: "I think Guy had a good post like with with stables, you you kind of want to be on the extremes like you either want to be the most liquid or the highest yield. And like Tether is the most liquid... And then USD is the highest highest yield at least right now. Um, and USDC is kind of stuck in a weird spot."
• Actionable Insight: Circle's IPO faces challenges from its revenue model (especially its agreement with Coinbase) and competition from high-yield (USDe) or highly liquid/market-dominant (USDT) alternatives. Investors should scrutinize Circle's path to profitability and market share defense beyond potential "regulatory capture."

The Sui Hack and Validator Intervention

• Speakers: Jose, Yan, Cedarus
• The podcast addresses a major hack on Cetus, the largest DEX (Decentralized Exchange) on the Sui network, where approximately $250 million was drained due to an overflow bug in its Move-based smart contracts.
• The Sui Foundation and Cetus team, within hours, coordinated with validators to update a configuration file, effectively freezing the exploiter's assets by instructing validators to ignore their transactions. This action, recovering funds, sparked debate about network decentralization, as it was achieved without a traditional hard fork due to Sui's epoch-based software synchronization for validators.
• Jose, reflecting on past crypto events, found the lack of controversy surprising.
• Quote: Jose: "it's crazy to me how I guess the most surprising thing to me about this is how uncontroversial it was compared to what these things used to be in crypto back in the day."
• Actionable Insight: The Sui hack response highlights a pragmatic approach to security incidents on newer L1s, prioritizing fund recovery. This may appeal to users seeking safety nets but raises concerns for those prioritizing censorship resistance. Investors should assess if a chain's governance and recovery mechanisms align with their risk tolerance.

Decentralization Debate: Sui, Solana, and Ethereum

• Speakers: Jose, Yan, Cedarus
• The Sui incident leads to a broader discussion on decentralization. Jose argues that many newer chains, including Sui with its 100 KYC'd validators, do not prioritize censorship resistance to the same degree as Ethereum, suggesting Ethereum is perhaps the only L1 where such rapid intervention would be infeasible.
• Yan and Cedarus counter, suggesting that even on Solana, forcing censorship would be difficult, and that pragmatic solutions in crises are often preferred by the ecosystem.
• Quote: Cedarus (challenging Jose's assertion about Ethereum being the only one resistant to such intervention): "I think like that's a big stretch that people are trying to make as like this case for Ethereum."
• Actionable Insight: The spectrum of decentralization is wide. While Ethereum is often cited for its censorship resistance, the practical ability of other L1s to resist pressure or coordinate emergency actions is nuanced. Investors must consider what level of decentralization is critical for their investments.

Solana's Major Consensus Upgrade

• Speakers: Cedarus, Jose
• Cedarus details Solana's upcoming consensus mechanism upgrade, replacing core components like Tower BFT and Proof of History (PoH) – a mechanism creating a verifiable order of transactions before consensus.
• Notably, Solana Labs engaged researchers from ETH Zurich, who had previously identified PoH vulnerabilities, to help design the new system. This upgrade aims to remove on-chain voting, lowering costs for smaller validators, and targets transaction finality under 200 milliseconds (potentially ~150ms).
• Quote: Cedarus: "The the guys who made this new consensus for Salana are those guys who wrote that paper [exploiting Proof of History]. So Salana literally hired like these ETR guys, got them to write the new consensus mechanism. And I think that's pretty bullish because instead of just like pushing away critics... they actually reached out to them."
• Actionable Insight: Solana's proactive consensus overhaul, collaborating with critics, signals commitment to scalability and decentralization. The upgrade could improve performance and validator economics, making Solana more competitive, despite a trade-off reducing Byzantine fault tolerance for halting the chain from 1/3 to 20% of malicious stake.

Hyperliquid's Rise and Solana's Market Position

• Speakers: Jose, Cedarus, Yan
• The conversation explores competition between specialized platforms like Hyperliquid (a decentralized perpetuals exchange) and general-purpose L1s like Solana. Cedarus notes Hyperliquid has captured significant perpetuals trading volume.
• However, Solana remains a key launchpad, including for AI projects. While Hyperliquid's own EVM (HypeVM) has limited throughput, its core DEX is successful. Yan suggests Hyperliquid is valued as a DEX, with upside if valued as a broader L1.
• Quote: Yan: "I'm definitely a hype bull and I think you know it'll continue to do well at and then at a certain point it'll kind of reach price par and then the next leg up is basically this transition from valued as a DEX to valued as a chain."
• Actionable Insight: App-specific chains or optimized dApps like Hyperliquid challenge general-purpose L1s in specific verticals. Investors should monitor if capital flows towards these specialized solutions or if L1s like Solana maintain appeal through broader utility and innovation.

Quantum Computing's Threat to Bitcoin

• Speakers: Duncan, Jose
• A brief discussion on quantum computing touches upon its potential threat to Bitcoin's cryptography. While a distant risk, it's acknowledged.
• The main challenge for Bitcoin would be migrating to quantum-resistant signatures, especially for addresses with lost private keys, like Satoshi Nakamoto's wallets. Jose questions if Bitcoin might eventually "burn" such un-migratable coins.
• Quote: Jose: "The thing with Bitcoin is there just like a lot of lost keys and there's like Satoshi's keys. So those ones um you literally can't move them to something quantum resistant."
• Actionable Insight: Quantum computing represents a long-term risk for current cryptographic systems. Researchers and investors should track advancements in quantum computing and quantum-resistant cryptography, as breakthroughs could necessitate significant network upgrades.

Circle's Revenue Share with Coinbase Revisited

• Speakers: Jose
• Jose revisits the Circle-Coinbase revenue sharing agreement: signed August 2023 for three years, with a three-year extension option.
• He suggests future renegotiation could be bullish for Circle, despite Coinbase's leverage. Jose believes Circle's IPO at $5 billion might be reasonable given stablecoin growth and USDC's #2 position.
• Actionable Insight: Circle's Coinbase partnership terms are critical to its valuation. Future renegotiations could alter revenue prospects. Investors should factor this and the competitive stablecoin landscape into any IPO consideration.

Ethereum as the "Institutional Chain" - A Skeptical View

• Speakers: Jose
• Jose challenges the "Ethereum as the institutional chain" narrative. He argues institutions launch tokenized assets on various chains to tap new markets, and these permissioned assets don't always need Ethereum's specific decentralization.
• He believes Ethereum's core bull case lies in its utility in trustless, adversarial environments.
• Quote: Jose: "This idea that Ethereum is like the institutional chain, it's like pretty not true to me. It's like these funds and everything are launching their assets kind of like everywhere."
• Actionable Insight: Investors should be wary of simplistic narratives. Institutional blockchain adoption will likely vary by use case, regulation, and market, not a universal preference for one L1.

Conclusion

This episode reveals a crypto market driven by concentrated treasury bids and rapidly evolving L1s. Investors and researchers must scrutinize treasury-fueled demand sustainability and assess how L1s like Sui, Solana, and emerging platforms like Plasma balance pragmatism, security, and decentralization to capture future growth.