This episode offers a deep dive into Tiki's highly convicted, leveraged investment thesis on Maker (MKR), alongside a candid look at a "barbell" portfolio strategy that includes speculative plays like Fartcoin, providing a unique lens for Crypto AI investors on navigating market dynamics and identifying undervalued assets.
Host Introduction and Portfolio Strategy
- Tiki begins by revealing his significant, leveraged long position in Maker (MKR) over the past 2.5-3 months, with a cost basis of $1343 and leveraging at approximately 1.5x.
- Leveraged Long: Borrowing funds to increase an investment position, amplifying potential profits and losses. In this case, Tiki uses MKR as collateral to borrow stablecoins, buy more MKR, and re-collateralize.
- He acknowledges the liquidation risks but emphasizes his conviction-driven trading style: "When you're right, you have to bet big and that's how you really make money."
- Tiki introduces his "sophisticated portfolio construction strategy": the "left curve and mid-curve barbell."
- Left Curve: Embracing the casino-like nature of crypto with speculative assets like Fartcoin, where "hot air rises."
- Mid-Curve: Focusing on identifying and investing in "cheap tokens at good prices," like MKR, and waiting for the market to converge with his thesis.
- This barbell strategy aims to balance high-risk, high-reward speculative plays with fundamentally driven investments. For AI researchers, this could parallel balancing exploratory AI research with projects having clearer paths to tokenomic value.
Maker (MKR) Thesis: The Buyback Program's Impact
- MakerDAO's protocol currently executes a significant buyback program, purchasing $10,000 of MKR every 30 minutes, totaling approximately $500,000 per day.
- Tiki highlights this as "actually like the largest in crypto" when considering the buyback-to-market cap ratio.
- This buyback mechanism contributed to MKR's resilience during market downturns. When Ethereum (ETH) was collapsing, MKR held its lows, particularly around the $1000 mark.
- Tiki introduces the concept of an "oversold market" versus a "sold-out market."
- Oversold Market: An asset whose price has fallen sharply and is considered undervalued, but may not necessarily rebound quickly (e.g., ETH at times).
- Sold-Out Market: An asset where available supply has been significantly absorbed (e.g., by buybacks), creating a strong price floor. Tiki views MKR as "sold out," suggesting that "once the market turns bullish, the only way is up."
- This resilience and the "sold out" nature gave Tiki confidence to increase his position, viewing $1000 as a "hardwood floor" for MKR, absent a protocol hack.
Maker (MKR) Thesis: Sky Staking and Token Migration Catalysts
- Tiki discusses two upcoming updates for Maker (MKR), which is rebranding to Sky (though he notes they are effectively the same token): Sky Staking and a token migration.
- Sky Staking:
- Expected in the next 3-4 weeks (around early June).
- Currently, Maker directs all profits to token buybacks. The update will allocate 50% of profits to Sky stakers and 50% to buybacks.
- This means $250k/day to buybacks and $250k/day to Sky stakers.
- Assuming $80 million in annual profits and 33% of supply staked, Tiki estimates an APY (Annual Percentage Yield) of roughly 7.7% for staking Sky.
- APY (Annual Percentage Yield): The real rate of return earned on an investment, taking into account the effect of compounding interest.
- While Tiki believes this doesn't fundamentally change the token's value ("it's just kind of like just redirecting where the profits go"), he notes that "crypto is so inefficient and people don't pay attention to these things," suggesting it could attract new buyers.
- Forced Token Migration (Maker to Sky):
- Maker (MKR) is undergoing a rebrand to Sky, with a conversion rate of 1 MKR to 24,000 Sky.
- To incentivize migration, staking will be on Sky, and penalties apply for late conversion: a 1% penalty after September 18th, increasing by 1% every three months thereafter.
- Tiki believes this migration is important because it will reveal "how many tokens are lost forever like dead supply."
- Older ERC20 tokens (tokens built on the Ethereum blockchain standard) like MKR (launched in 2017) often have significant dead supply due to lost private keys, forgotten holdings, etc.
- He cites the Aragon (ANT) project as an example, where a token migration for treasury redemption revealed that 27% of the supply did not migrate, suggesting it was lost or abandoned.
- Aragon (ANT): An older crypto project focused on DAOs. A treasury redemption event required a token migration, highlighting the issue of lost tokens.
- On-Chain Analysis of Lost MKR:
- Tiki mentions using AI to assist in creating a Dune query (a tool for querying blockchain data) to analyze dormant MKR tokens. "I was able to like create this Dune query... to look at how many like dormant tokens there are for maker... so I guess it's make like improving my abilities as an analyst potentially right."
- His analysis, based on assumptions about dormancy periods, estimates roughly 100,000 MKR (around 10% of the initial total supply) might be lost. He considers this conservative, potentially ranging from 10-30%.
- Implication for Crypto AI Investors: If 10% of the supply is effectively burned, the price could increase by ~12-15% even if the market cap remains flat. This highlights how tokenomics and supply dynamics, sometimes revealed through on-chain archeology potentially aided by AI tools, can be price catalysts.
Maker (MKR) Thesis: The Spark Launch Catalyst
- The launch of Spark, a spin-off project incubated within MakerDAO, is another anticipated catalyst. Though long-delayed, Tiki notes recent teasing from the team suggests a launch "relatively soon," possibly around June, coinciding with Sky Staking.
- Spark's Role:
- Spark will have its own token. 50% of this token supply will be distributed to Sky and USDS (Maker's new stablecoin) stakers over the first two years.
- Spark functions like a "stablecoin hedge fund." It can borrow USDS from Sky at a cheap rate (e.g., ~3.5%) and deploy it in higher-yielding on-chain strategies, such as those offered by Ethena (mentioned as "Athena or A.")
- Its purpose is to grow USDS supply across different chains and projects.
- Financials and Potential Impact:
- Spark generated $40 million in revenue in Q1, largely without token incentives. Tiki annualizes this to $160 million.
- He speculates on a potential FDV (Fully Diluted Valuation) of $500 million for Spark.
- FDV (Fully Diluted Valuation): The total value of a crypto project if all its tokens (including those not yet in circulation) were trading at the current market price.
- If $200 million worth of Spark tokens are distributed to USDS stakers, and stakers target a 10% APY, this could drive $2 billion in incremental demand for USDS.
- This $2 billion, if invested in T-bills (Treasury Bills) by MakerDAO, could generate an additional $80 million in pure profit annually (at a 4% risk-free rate).
- T-bills (Treasury Bills): Short-term debt obligations backed by the U.S. government, considered a low-risk investment.
- Strategic Implication: The Spark launch could significantly boost Maker's profits and USDS supply, potentially doubling estimated annual profits and pushing stablecoin supply to new highs, creating a strong narrative.
Maker (MKR) Thesis: The Stablecoin Bill Tailwind
- Tiki discusses the potential U.S. stablecoin bill, which industry experts reportedly expect to be signed around July or August.
- The bill primarily targets centralized stablecoin issuers and is expected to largely exclude DeFi for now, with a follow-up bill for DeFi potentially next year. Tiki mentions a part of the bill, referred to as the "Genius Act" in the discussion, that might explicitly exclude DeFi.
- While not a direct fundamental driver for MKR, Tiki believes it can act as a narrative tailwind. "In crypto, price leads narrative... people need a reason to like explain something."
- Actionable Insight: Positive regulatory developments, even if not directly applicable, can improve overall sentiment and benefit related DeFi projects like Maker. Crypto AI researchers should monitor regulatory landscapes as they can indirectly influence protocol adoption and investment.
Identified Risks for the Maker (MKR) Thesis
- Tiki outlines key risks he is monitoring:
- On-Chain Whale Sell Wall:
- A significant MKR holder (owning 3-4% of supply) has placed a large sell wall of 10,000 MKR at a price of approximately 0.0085 MKR/ETH (referred to as "0.85 maker" against ETH).
- This has created price resistance and led some whales to sell MKR for ETH in anticipation.
- Tiki believes much of this selling pressure might already be priced in as it's a "well-known thing," but acknowledges the uncertainty of whether those sellers will buy back.
- High Expenses and Cost Management:
- Tiki expresses concern over MakerDAO's operational expenses, questioning spending on new project incubation and on-chain incentives (e.g., for USDS on Aave, referred to as "a.")
- However, he notes Rune Christensen (Maker's founder) provided explanations, and the DAO has shown responsiveness to community feedback, such as gradually lowering the DSR (Dai Savings Rate) for the old DAI stablecoin to encourage migration to USDS.
- DSR (Dai Savings Rate): An interest rate earned by users holding Dai in specific Maker Protocol contracts.
- Strategic Consideration: For investors, understanding on-chain dynamics (like whale movements) and DAO governance/treasury management is crucial, especially for fundamentally driven projects. AI tools could play a role in monitoring such complex systems.
Concluding Thoughts and Market Sentiment
- Tiki reiterates his bullish stance on Maker (MKR), driven by the upcoming catalysts: the stablecoin bill, Spark launch, and Sky staking program.
- He touches upon the "curse of knowledge," where deeper understanding can sometimes lead to bearishness, and the general disillusionment with Ethereum (ETH) despite recent pumps, reflected in the ETH/BTC ratio.
- ETH/BTC Ratio: A metric often used as a barometer for altcoin market sentiment relative to Bitcoin.
- However, he sees Ethereum at "really oversold levels" and Maker (MKR) as a "sold out market," reinforcing his conviction.
- Tiki mentions his focus on his own trading, indicating a period of active management based on these theses.
This episode underscores a conviction-driven investment in Maker (MKR), fueled by upcoming catalysts like Spark and Sky Staking, and contextualized by a unique "barbell" portfolio strategy. Crypto AI investors and researchers should monitor MKR's tokenomic shifts and the impact of its ecosystem growth, as these provide valuable insights into DeFi evolution and on-chain value accrual.
