This episode delves into the strategic investment opportunities in stablecoin infrastructure like Plasma, the evolving tokenomics models exemplified by Morpho, and the persistent "last mile problem" hindering widespread stablecoin adoption in emerging markets.
Guest Banter and Plasma Finance Introduction
- The episode begins with host Danny, Bach, and Carlos, who is introduced as the "Solana expert." They note the absence of regular contributors Mark and Ryan.
- Carlos expresses his enthusiasm for successfully investing in Plasma Finance, a new project that quickly captured his attention.
Plasma Finance: Investment Thesis and Risk Assessment
- Bach outlines his investment in Plasma, a project focused on facilitating stablecoin transactions, particularly USDT. He shared a flash note an hour before the podcast, confirming the investment's rationale.
- A key attraction is a potential 30-40% APY (Annual Percentage Yield) on USDC deposits, contingent on Plasma achieving a $1.5 to $2 billion Fully Diluted Valuation (FDV) at its Token Generation Event (TGE) and assuming a three-month lockup.
- FDV (Fully Diluted Valuation) represents a project's total market capitalization if all its tokens, including those not yet issued, were in circulation.
- TGE (Token Generation Event) marks the official launch and initial distribution of a new cryptocurrency.
- Bach, providing a conservative outlook, stated, "Objectively 40% in crypto is not a glorious return. I do think that it probably has more legs than two bill but I want it to be as conservative as possible if I'm doing valuation stuff."
- Primary risks identified include potential dilution if deposit caps (which rapidly hit $500 million) are continuously raised, and the uncertainty of lockup duration beyond the 40-day minimum, which could tie up capital and exacerbate dilution.
- Despite these risks, Bach believes the downside at a $500 million FDV is limited, citing his confidence in the Plasma team's agility. Carlos adds that the deposit concentration, with the top 100 addresses contributing 83% of the initial $500 million, signals strong conviction from significant investors.
- Bach also highlighted that Split Capital, an investor in Plasma, raised $5 million at an 18% interest rate on Wildcat Finance (a protocol for undercollateralized lending) specifically to deposit into Plasma. This suggests an internal expectation within informed circles that Plasma's returns should comfortably exceed this 18% baseline.
- Danny notes the current favorable narrative around stablecoins, suggesting that a timely launch could significantly benefit Plasma's valuation.
- Strategic Implication for Investors: The Plasma opportunity highlights the potential returns in specialized stablecoin infrastructure, but investors must weigh APY against dilution and lockup risks, especially as new capital flows in.
Plasma's Technical Framework and Competitive Strategy
- Bach detailed Plasma's architecture: it's presented as an EVM-compatible (Ethereum Virtual Machine) Bitcoin sidechain or L2 (Layer 2), aiming to inherit security from Bitcoin.
- EVM (Ethereum Virtual Machine) is a decentralized computation engine crucial for smart contract execution on Ethereum and compatible chains.
- L2s are secondary protocols built atop a primary blockchain (Layer 1) to enhance scalability and reduce fees.
- Plasma plans to offer zero-fee USDT transactions for simple payments, with fees applied to more complex interactions like lending or smart contract calls. Spam prevention will initially rely on minimum account balances, a solution Bach views as a starting point requiring future refinement.
- He supports Plasma's approach of launching a mainnet beta (an early, functional public version) to iterate quickly rather than delaying for perfection, thereby capitalizing on market momentum.
- Plasma's primary target is Tron's dominance in USDT payments within emerging markets such as Turkey, Lebanon, and Argentina, where trust in local banking is low. Plasma aims to offer a less expensive and more decentralized alternative.
- Bach acknowledged Tron's formidable position: "Tron is expensive. Yes. Tron is centralized. Yes. But it has probably the biggest moat in crypto, right?"
- Overcoming Tron's established network and user base is a significant challenge. However, Plasma's backing by Tether, Bitfinex, and influential figures like Paolo Ardoino and Peter Thiel is considered a substantial asset in this endeavor.
- Research Insight: Plasma's attempt to disrupt Tron underscores the ongoing battle for stablecoin payment rails. Researchers should monitor if technological advantages and strong backing can overcome entrenched network effects in specific market segments.
The "Last Mile Problem": A Key Hurdle for Stablecoin Utility
- The discussion shifts to the practical challenges of stablecoin adoption, particularly the "last mile problem" in emerging economies.
- Carlos articulated the core issue: "When you send like a USD stable coin to an emerging country like the biggest problem today is one how do you convert that to the local currency and two how do you like exchange that for like cash because a lot of the economies are very cash prevalent still."
- This problem encompasses difficulties with on-ramps/off-ramps (services converting fiat to crypto and vice-versa) and converting stablecoins to local currency without incurring prohibitive fees or unfavorable exchange rates.
- The speakers criticized the current state of on/off-ramp solutions, which often involve high credit card fees (e.g., MoonPay's 3% plus potential 6% from card issuers) or opaque pricing in exchange rates.
- Danny mentioned Sphere Pay as a more efficient US-based option but questioned its global availability. The fundamental challenge remains achieving sufficient local merchant and user adoption to create a closed-loop stablecoin economy, thereby reducing reliance on traditional banking and costly conversions.
- Strategic Implication for Crypto AI: The "last mile problem" directly impacts the total addressable market for any crypto-based application, including AI services paid in crypto. Solving these on/off-ramp inefficiencies is crucial for broader adoption.
USDT vs. USDC: Navigating the US Regulatory Landscape
- Danny questioned whether US businesses exhibit a preference for USDC (USD Coin) over USDT (Tether), given USDC's perception of greater regulatory compliance.
- Bach believes USDT is actively working to strengthen its position in the US market. He cited Tether CEO Paolo Ardoino's engagement with policymakers in Washington D.C. and support from influential figures like Howard Lutnick as indicators of this strategic push.
- However, Bach also argued that for domestic transactions within developed nations like the US, efficient existing payment systems (e.g., Venmo, Zelle) diminish the immediate utility of stablecoin payment rails.
- The primary value proposition for stablecoins remains in facilitating cross-border payments and providing access to dollar-denominated assets in emerging markets facing currency instability or capital controls.
- For significant US business integration, Plasma or similar USDT-based solutions would need to secure partnerships with major payment processors like Stripe or Venmo. This is challenging, as these entities might develop proprietary stablecoins or favor established partners like USDC.
- Investor Insight: The evolving regulatory perception and market penetration of USDT versus USDC in the US will influence which stablecoins become dominant in institutional and enterprise use cases, impacting underlying infrastructure investments.
Morpho's Innovative Approach to Tokenomics and DAO Governance
- Danny introduced Morpho's recent announcement concerning its token, DAO (Decentralized Autonomous Organization), and the restructuring of Morpho Labs.
- A DAO is an entity governed by code and community consensus rather than a central authority.
- Morpho Labs will become a wholly-owned subsidiary of the Morpho Association, a French non-profit. This structure aims to eliminate perceived conflicts of interest between equity value and token holder interests, ensuring the MORPHO token is the sole avenue for value accrual.
- Carlos lauded this development, emphasizing two key benefits:
- The non-profit structure provides a legal guarantee that the MORPHO token will be the exclusive mechanism for capturing the protocol's economic upside.
- Morpho's commitment to reinvesting protocol profits into growth, rather than immediate distribution through buybacks or staking rewards, reflects a long-term vision. He drew parallels to successful Web2 companies like Apple and Tesla, which prioritized reinvestment in their early growth phases.
- Carlos stated, "I feel like a lot of crypto protocols today have sort of this short-term meism where they instantly distribute fees back to stakers or allocate them to token buybacks and burns."
- Bach offered a nuanced perspective, acknowledging that in the current, relatively immature crypto market, token buyback programs can serve as a crucial signal of value accrual. This is particularly relevant when protocols have dual structures (equity and tokens), as buybacks can reassure token holders that the token is not merely an afterthought.
- Danny concurred that buybacks often arise from this dual ownership model and that Morpho's initiative represents a progressive step towards a more token-centric paradigm.
- Carlos suggested that such innovative governance models are more likely to gain traction initially in European jurisdictions, which may offer greater regulatory flexibility compared to the US.
- Strategic Implication for Researchers & Investors: Morpho's model offers a compelling case study in aligning protocol development with token holder value. This approach could become a benchmark for other decentralized projects, including AI-focused DAOs, seeking sustainable long-term growth and equitable value distribution.
Exploring New Frontiers: Ecosystems, Apps, and Market Sentiment
- Danny prompted a discussion on new applications and ecosystems the team is currently exploring, acknowledging the typical summer slowdown in market activity. He specifically mentioned Hyper EVM and Solana as areas of interest.
- Hyper EVM refers to an EVM-compatible environment, likely on a newer blockchain, designed for high performance.
- Carlos shared his experiences with Hyper EVM, noting its early stage of development, characterized by many applications being "copycats" of established protocols on other chains (e.g., Kiton Swap as an AMM, Felix as a Liquity fork).
- He highlighted Liquid Launch, a platform similar to Pump.fun (a service for rapid meme coin creation and trading) on Hyper EVM, which has gained traction by distributing 100% of its fees to token holders.
- Bach echoed this focus on Hyper EVM, primarily driven by the potential for airdrops. He also mentioned trading on Lighter, another perpetuals decentralized exchange.
- A prevailing sentiment among the speakers was that the current market feels "a bit boring," with a perceived lack of "0-to-1 innovations." Bach lamented, "I feel like the last time I bought something that was pure dog was on abstract... I haven't like had any anything particularly interesting."
- Danny mentioned Axiom on Solana as a project he's monitoring for a potential airdrop, noting that leading trading bots on Solana have not historically issued tokens. He also pointed to The Arena on Avalanche, a SocialFi (combining social media and finance) launchpad, where the aggregate market cap of launched tokens recently surpassed $100 million.
- Carlos attributed the market's "boring" feel to a deficit of novel primitives. He argued that the "wealth effect" from a native token's appreciation (as seen with Solana's SOL) is currently a more significant catalyst for ecosystem growth than purely technological advancements. Carlos stated, "I feel like new like improvements in tech like for new chains are no longer like the main thing... I feel like a bigger like catalyst is just like this wealth effect that's flowing from the native asset to like project tokens."
- The conversation also touched upon ongoing farming opportunities on established chains like Solana, involving protocols such as Exponent, Radex, Loopscale, and Fragmetric, many of which utilize points programs and offer composability.
- Actionable Insight for Crypto AI: While the market searches for breakthrough innovations, investors and researchers should monitor emerging ecosystems like Hyper EVM for early-stage opportunities. The "wealth effect" phenomenon suggests that tracking native token performance can be a leading indicator for ecosystem vibrancy and potential AI project launches.
Conclusion
This episode highlights the critical need for robust stablecoin infrastructure and equitable token models; investors should monitor Plasma's challenge to Tron and Morpho's governance innovations, while researchers explore emerging ecosystems for the next wave of value, even amidst a market seeking novel breakthroughs.
