Conor Ryder, Head of Research at Ethena, on Stablecoins, Synthetic Dollars, and Current Market Trends | Ep. 286

In an exclusive interview with cryptonews.com, Conor Ryder, Head of Research at Ethena, talks about the stablecoin trilemma, the nuance between ‘stablecoins’ and ‘synthetic dollars, and stablecoin use cases.

About Conor Ryder

Conor Ryder is CFA, Head of Research & Data at Ethena, the crypto infrastructure company building USDe, the first-ever global internet bond and stablecoin not reliant on existing banking institutions. Prior to joining Ethena, Conor built his career in the traditional finance industry and pivoted into the crypto sector in 2022 as a research analyst at Kaiko, a leading crypto data provider. Conor is CFA-certified and a seasoned expert in crypto markets and industry events, and his industry insights have been featured in CNBC, Bloomberg, Financial Times, Reuters, CoinDesk, and more.

Conor Ryder gave a wide-ranging exclusive interview, which you can see below, and we are happy for you to use it for publication, provided there is a credit to www.cryptonews.com.

Highlights Of The Interview

• The ongoing quest to solve the stablecoin trilemma and whether current approaches to achieving stability and decentralization are getting us closer to cracking it.
• Breaking down the nuance between ‘stablecoins’ and ‘synthetic dollars’ – what are the pros/cons and why is it important to differentiate between the two?
• The stablecoin market cap recently hit a 2-year all-time low – why the lack of yield incentive could be holding stablecoin adoption back?
• How stablecoins or synthetic dollars can help maintain US dollar dominance despite efforts from other countries to move away from the USD.

Full Transcript Of The Interview

Matt Zahab
Ladies and gentlemen, welcome back to the Cryptonews Podcast. We are buzzing as always. It’s your host, Matt Zahab, still coming in hot from lovely Mexico. And my guest is coming in hot today from the one and only Lisboa, Portugal. Probably butchered that but what a spot. Absolutely lovely. Today we have Conor Ryder on the show CFA and Head of Research and Data at Ethena, the crypto infrastructure company building USDe, the first ever global internet bond and stablecoin, not reliant on existing banking institutions. We absolutely love that. Prior to joining Ethena, Conor built his career in the traditional finance industry and pivoted into the crypto sector in 2022. As a research analyst at Kaiko, a leading crypto data provider. Conor is also CFA certified and is a seasoned expert in crypto markets and industry events. And his industry insights been featured in CNBC, Bloomberg Financial Times, Reuters, CoinDesk and more super pumped to have you on, Conor welcome to show my friend. How you doing?

Conor Ryder
Hey Matt, thanks for having me. It’s a better intro than I’ve ever given myself. So I’ll note that one down.

Matt Zahab
I love it. Look man, pump to have you on. Everyone, I’m sure who’s listening right now can hear the accent. Give us your story. You have one of the best accents on the planet. Who doesn’t love a good old Irish accent? Before the show, you and I were shooting the shit. You told me you just moved from Dublin to Lisbon, two incredible cities. Walk me through your childhood, growing up. Obviously you are a finance guru where you went to uni, how you fell in love with crypto, your crypto inception story, set the stage for us. Then we’ll get into all the fun stuff with Ethena and USDe. But the stage is yours, my friend.

Conor Ryder
Sure thing. So yeah, thanks for having me again. Yeah. So as you can tell, and as you covered, I grew up in Dublin, Ireland, was there basically my whole life until about two months ago when I moved to Lisbon. So yeah, I went to college in Dublin, studied business and law. So I was always kind of interested in business and just wanted to give myself, I guess, another angle on a kind of standard business degree. But always knew I wanted to go down that route. And then I had offers to join accountancy firms coming out of college. And I didn’t particularly want to go down that route. Again, this may be why I’m in crypto is I need something a bit more riveting than accounting, no offense to any accountants out there. But so I took a year off then to go to Australia and kind of travel a bit. And that’s when I first heard of Bitcoin. Didn’t look too much into it, allocated a tiny bit, but it was more from just like a finance point of view, just allocating like two or five percent of like portfolio to like get the asymmetric upside, let’s say, but didn’t really think too much about it. Came back, figuring out what I wanted to do. And I decided then to go obviously down like a TradFi route, but more towards like asset allocations. So I went and worked for pension fund that was based in the UK, but I was working in Dublin for them. And so yeah, I hopped around a few asset managers in Dublin and in London for about four or five years. And yeah, kind of as lockdown hit, dug more deep into crypto as a lot of people did. Obviously it was a really interesting time to get into it. I was just in a house of four guys and now three out of the four of us work in crypto, we all got into it at the same time we were sitting there watching, yeah, watching everything play out, watching the GameStop saga play out, everything like that. So it was a great couple of years and I just got super into it then and decided to kind of move into it professionally. And that’s when I joined Klikop who are a kind of crypto data provider. And I sat in the research team there for a bit of a year and a half. Research and all sorts of things, stablecoins, exchanges, derivatives, really interesting role. That’s kind of what I wanted to do research. And yeah, obviously during that year it was there was 2022 and 2023 and crazy stuff was happening. And you’re kind of looking into, I guess, a lot big part of my specialty was liquidity and just seeing liquidity being sapped from the space with everything that was going on. And then you constantly have journalists hitting you up, basking you, is crypto going to die tomorrow, basically? Or for the inside scoop on CZ and Binance? Like I knew him personally, I swear at the amount of times I got asked about CZ and what he was like and I’ve never talked to the guy. Journalists just wanted that scoop. But yeah, super interesting job. And then about six or seven months ago, I met Guy, the founder of Ethena, just as he was kind of setting Ethena up and he had read some of my work. And we just kind of basically chatted for a while about the setup of USD and what Ethena were trying to do. And he had seen some of the stablecoin pieces I had. And this is that I was talking about this need for a more decentralized alternative to a stablecoin that can actually scale and that’s still secure and everything. And I thought Ethena fit that bill, so yeah, made the decision to kind of join up with Guy and help build it, build out that. So yeah, super excited now. And I do feel like we’re onto something good here.

Matt Zahab
I love that. What an intro. Wow. You’re on fire already. Comming out hot right out of the gates. You brought up a very important but often underlooked topic and that is the importance of liquidity. More specifically, I feel like in crypto markets over other markets, you sort of said your, I’m paraphrasing and I apologize. I’m also putting words in your mouth, but you sort of said you’re a liquidity expert. That’s probably me. You would, you’re way too humble and would never say that, but you definitely are a liquidity expert. Why is liquidity so important in crypto? And like, I’d love if you could just talk about some of the implications both good and bad, it has when it’s either launching to the market or sucked out of the market.

Conor Ryder
Absolutely. So yeah, I don’t know if I’m a liquidity expert, but yeah, it’s actually spent a bit of time looking into it over the last year or two. And yeah, essentially, it’s super important in obviously really immature markets, which crypto is, it’s less talked about in traditional financial markets just because they’ve been around for however many years, decades. And there is this like a surplus of liquidity for the most part in traditional finance. And you don’t really hear about stock pumping on low liquidity that much, whereas that happens in crypto all the time. So essentially, one of the biggest liquidity metrics was is market depth, which is like essentially a measure of how many orders are placed on an order book at one time that aren’t filled yet. And we just saw them hitting kind of yearly lows and all time lows over the last year on exchange order books. And what that meant was that basically prices for tokens had less support both to the upside and the downside. So it took less and less basically quantity of orders to move the prices. And we just saw that happening over the last year or two as liquidity was just pulled from the space, like you had the collapse of many of the crypto lenders, the ones that survived went really happy with leaving their money sitting on a centralized exchange then. And you just had a bunch of events play out and even regulators then like cutting off some of the payment rails to crypto exchanges and the FIAT on and off ramps. So it was just all these compounded things that basically had this compounding effect on liquidity just being sucked out of the space. We’re starting to see that come back now, but essentially yet the last year or two, it’s just been a story really of illiquidity for crypto and just trying to claw that back and I guess make the market more mature just so we don’t have these kind of crazy wild swings in a day because if we are trying to be this kind of financial system, we can’t really have like three or five volatility assets, yeah, and especially in the majors like Bitcoin and ETH. So hopefully liquidity is coming back to the space now and we’re starting to see that definitely with this Spot ETF come and that’ll help that big time. So yeah, that’s kind of the high level take on liquidity I guess.

Matt Zahab
Before we get into stablecoins and synthetic dollars and Ethena, of course, I’d love to talk about some current market trends. Then we’ll get into the fun stuff. Are there any macro or even micro trends that you see that are really playing out? Obviously, we are recording sort of middle to end of November. This episode will air towards the end of November. You have GameFi coins picking back up. You have all of the sort of top 10, top 20, which are ripping for maybe not ripping, but definitely slowly and gradually rising for the most part. You have Bitcoin being talked about all over the place. You have ETH just hitting 2K USD. What kind of macro and micro trends are we looking at? I guess on just a longer term scale, are you still max bullish? Are we going back to the moon? What’s your play, Conor?

Conor Ryder
Pretty bullish honestly. Yes, definitely, but maybe a bit less bullish than it was three or four months ago when you’re looking at different price levels. But definitely the tailwinds are starting to line up for Bitcoin for ETH for all the kind of majors in crypto. It’s been kind of talked about ad nauseam, I guess, but these Spot ETFs are probably the first step. Like every, I guess, market cycle needs that first catalyst to get it going. I think last time maybe it was like Michael Saylor buying Bitcoin and putting it on the balance sheet of micro strategy. But this time maybe the Spot ETF is kind of the similar comparison to that. It’s that first catalyst to get us out of that bear market and basically peak up animal spirits again and peak up everyone’s interest. And I really do think that like the analysts that are into ETF say it’s like a 90% chance they’re approved by January. So that’s hopefully a great sign. And I think I saw a stat that like financial advisors in the US, they allocate basically 80% of their clients assets into ETFs. And then there’s obviously this demand from their clients and that’s been talked about as well from like you see Larry Fink or any of the big kind of executives and any of these big asset managers have said that on record and on CNBC that there’s demand for clients to invest in Bitcoin. There just hasn’t been infrastructure there for them to be able to do that. And now hopefully come January, there will be that infrastructure. So hopefully that’s the next wave of flows coming into the space. And then also then after that, you’ve got the kind of Bitcoin halving coming up and obviously there’s debates whether or not to surprise them as always. But following that, then hopefully we’re like we also are at the top of a rate interest rate cycle now. So hopefully like if we’re looking ahead to six months time, there will be hopefully starting a cut interest rates and that’s been known to be supportive to crypto prices and crypto yields. So I think things are definitely looking up. Yeah. And it’s kind of hard to find bearish events that are on the horizon now. I know they usually come by surprise, but I’ve definitely been bullish now compared to this time last year.

Matt Zahab
I love that and you said three months ago you were even more bullish you and the team three months ago you guys were just like all just licking your chops waiting for everything to rip?

Conor Ryder
Well, kind of, but what we’re doing here is like Delta Neutral. So we’re essentially going to be hedging any exposure we have to eat. So even if we do think we’re max bullish, we can’t really express that in our positioning. It’s kind of Delta Neutral approach we’re taking. So yeah, I guess we can get into that later. But it was more just from a personal side of things that I was max bullish probably.

Matt Zahab
I love that. Let’s jump right into it. You just set the stage. You are obviously head of research and data at Ethena and you guys created the first ever global internet bond and stablecoin, which is not reliant on existing banking solutions and institutions. And this is USDe. I love the names. Very sexy as well. I mean, you could have thrown a lot of, you know, letters before the USD, but it just, it just rolls cleanly off the tongue. And I think a lot more emphasis than people really want to admit as we are just such, you know, emotional creatures. And when you say something like that, it makes you feel a certain kind of way. Nonetheless, give me this sort of elevator pitch on what exactly you and the team are building. And then we’ll get into everything stablecoin related. I’ve read your stuff. I’ve watched your videos, your interviews, you have some really good takes and some spicy takes on everything stablecoin related to stablecoin trilemma. But until then, let’s start with Ethena, give us the elevator pitch, then we’ll get into the fun stuff.

Conor Ryder
Yeah, absolutely. So on the name, hopefully, like USDe as much, because that’s what we pivoted a couple months ago. There is an USDe out there by Libra. So we were nearly forced into that decision to take a different approach. But yeah, we, I hope you like that as much. We definitely do. Anyway, it’s just putting the E after the USD, I guess.

Matt Zahab
Changing the show notes as we speak.

Conor Ryder
Yeah, so the elevator pitch, I guess, for Ethena is basically building this synthetic dollar position on a decentralized protocol based on ETH. And essentially what we’re doing is we are taking on crypto native collateral, so stake Ethereum, and we are hedging that price exposure in derivative markets on both centralized and decentralized exchanges. And essentially at the end of that position, then you get this tokenized dollar. That’s why we call it kind of a synthetic dollar because you’ve netted out your exposure from a P&L perspective. So if staked Ethereum is rising, your short position is counteracting that and you just basically have this dollar position. And then at the end of that process, then you also are able to earn kind of two sources of yields. So one being the staked Ethereum side, obviously earning about 4% now. But then also historically, you’ve been paid to go take the short side of the ETH future position. Just because of the kind of supply demand imbalance in crypto and the demand to go long. And so shorts have been compensated nearly for taking that side of the trade by about 6% or 7% annually. So hopefully at the end of that trade, then you have this synthetic dollar that’s using crypto native collateral. And then it’s kind of an unlevered source of yield of hopefully historically in the last three years, it’s been a double digit yield. So we’re hoping that can continue. And then that obviously poses a really interesting comparison versus like real world assets or traditional bond assets that are yielding like 4% or 5%. And now all of a sudden, hopefully we have this stable kind of synthetic dollar position that uses crypto native collateral that actually earns like a double digit yield from obviously kind of like a censorship resistant collateral perspective as well. So that’s the elevator pitch on Ethena and USDe.

Matt Zahab
That’s so cool. So just to make sure I have this right here, Conor, you guys are obviously long with the derivatives and that gives you give or take 4% like you said. And then on the short side, you know, you’re getting let’s just say 7%, that gives you your double digit 11% yield literally just from being sort of net neutral at the end of the day in order to get that pure $1 finality that you’re looking for.

Conor Ryder
Yes. So I guess to clarify, it’s like the liquid staking derivative, the token ETH on the asset side. So that’s the collateral. And then you’re taking short ETH perpetual futures. So you’re going short the futures on the derivative markets to hedge that price exposure. So you’re offsetting your position from a P&L perspective. And then, yes, obviously, then the other point is that that yield isn’t obviously guaranteed. It’s supposed to fluctuate. But we’re happy, I guess, and part of my job is to look into the data on that. And you’re essentially looking at the funding rate for the short ETH position. And that’s a bit that fluctuates the most, obviously. But taking the mean from that, it’s like, as I said, 6% or 7% being paid to the short side. And in bull markets, it gets even higher. So two weeks ago, when the market was ripping, we saw rates of like 30% and 40% on an annual basis. Yeah. So no, I’m not saying that’s going to persist maybe over the 12 months because it’s an annual yield, that’s able. And if it did, you have that staked in there. So even over the last three years, that average is incorporating 2022, which had pretty low averages because obviously there was more demand to go short crypto assets then. But that’s 6% or 7% is average over in that 2022 yields included in that. So again, super interesting, hopefully from just purely a collateral standpoint, we’re using this decentralized collateral, that’s actually now earning more yield than more centralized collateral like bonds and stable coins. Because that’s been one of the big problems I think with crypto lately is that it’s the first time in basically crypto’s existence that traditional bond yields have overtaken crypto yields. Like now in crypto, you’re only getting like 2% or 3% in your assets for the most part, versus 5% for TradFi bonds. And that comes back to the liquidity point earlier as well. That’s also another compounding effect that I probably forgot to mention earlier is that money has left the space because now, okay, why would you leave it in a DeFi smart contract earning 3% where you could earn it in a US government secured asset, a bond in traditional finance earning 5%. And so you saw a lot of probably asset managers pulling liquidity out of the space. So basically crypto needs to kind of get more competitive from yield perspective. And we’re hoping we can be one of those assets that does that.

Matt Zahab
Oh man, you’re on a roll here. We got to talk about the stablecoin trilemma, which is again, one of you and Ethena is very perhaps unique is the wrong word, but definitely one of your hypothesis and themes that you guys hammer home. Obviously, a combination of achieving stability, decentralization, and of course, you know, a good yield as well. But walk me through the stablecoin trilemma, why it’s so important paramount to crypto success as a whole and how you and the team are working to provide a solution here.

Conor Ryder
Yeah, exactly. So yeah, you covered the three kind of points for the stablecoin trilemma. And I guess it’s kind of coming back to what problems we’re solving. And hopefully the problem is that stablecoin trilemma, that’s kind of been the holy grail for stablecoins. And it is a tough problem to solve. So you had obviously the stable point of it is obviously hopefully in the name, it’s a stablecoin. But we’ve seen examples in the past where projects have sacrificed that stability, i.e. probably TERA for the sake of scalability and decentralization, they obviously didn’t have a good enough peg mechanism or they were maybe under collateralized. And that was responsible for a big part of their growth, but they weren’t able to retain that stability. So that’s something they obviously sacrificed from that trilemma. Then obviously from like a censorship resistance perspective, that they’re obviously super stable. So we’re talking about there, we’re talking about probably more centralized stablecoins like USDC and USDT. They’re collateral back in their stablecoin isn’t actually censorship resistant, obviously because it’s bonds, US government bonds, they can step in any day and just hit the kill switch and basically cancel it’s USDC or USDT’s access to those bonds if they wanted. So you can’t really say that they’re censorship resistant, but obviously they’re super stable and pretty scalable as well because they only need to back their stablecoin one to one, which leads us into then the scalable point of side attaining switch. Up until now, probably DeFi stables haven’t been able to do so they’ve been focused on emphasizing stability and decentralization and basically to do that, their censorship resistance and to do that, they’ve had to take an over collateralized approach to still be stable. So they’re using, some of them mostly are using crypto collateral, but because you’re using crypto collateral, then you have to actually over collateralize. So the collateral back in the stablecoin isn’t too volatile. So for that reason, then they’ve kind of given up their scalability and they’ve struggled to match the scalability of the more centralized stablecoins. And that’s part of the reason why we’ve seen that centralized stablecoin dominance increase now. So I think centralized stablecoins are responsible for like 70% of transactions on chain in DeFi, which is pretty ridiculous when you think that DeFi is going to be building this like parallel financial system, but actually 70% of the transactions on this parallel financial system are tethered to the traditional banking system via those centralized stablecoins. So yeah, this stablecoin dilemma has been this holy grail that issuers are trying to solve. And I guess to circle back to Ethena, hopefully then we’ve kind of touched on each of those points is we have censorship-resistant collateral, i.e. Stealth, that’s the crypto-native collateral. We hopefully are scalable because as, so this is probably the most intricate part, but as I said, with the derivative position, you basically need to match what for every $1 Stealth you have, you need to have a $1 short for the perpetual position to hedge that off. So that means you actually only need to take a one to one collateral ratio as well. So we’re actually kind of as scalable as as centralized stablecoins. And then from a stability perspective as well, it falls into the same thing. It’s your offsetting hedges for each dollar of collateral you have. So they should enter it perfectly offset each other. And then hopefully you’ve touched on each of those three points of stablecoin trilemma. So yeah, there’s obviously trade-offs that we’re making here that we can dig more into. We are touching centralized exchanges, but we’re doing that via custodians and for good reason, basically. So to access centralized liquidity is pretty paramount for stablecoins, especially Delta and neutral ones that are using derivative markets. Centralized exchanges basically have like 98% of the volumes and an open interest for perpetual future markets. So you’re getting way better liquidity and you can actually scale the scale of this the stablecoin into the hundreds of millions. We’ve seen previous attempts at Delta Neutral stablecoins just stick to DeFi and decentralized exchanges and they kind of failed and couldn’t scale past like tens of millions. So yeah, we’re taking that approach, touching those centralized exchanges, but we’re actually doing that in a way that no collateral actually sits on the centralized exchange itself. It sits in a custody count. So someone like Copper, Fireblocks are kind of these institutional great custodians that hopefully have kind of obviously secured your assets in a manner that minimizes your counterparty risk. You’re not taking on that much counterparty risk via the exchange, but you can still access that centralized liquidity that you need to.

Matt Zahab
I love that. Conor, you’re absolutely buzzing right now. We need to take a quick break and give a huge shout out to our sponsor of the show and that is PrimeXBT. But when we get back, we are going to keep jumping into stablecoins. Talk about how the stablecoin market recently hit a two year all time low and the difference between stablecoins and synthetic dollars, the pros and cons, and why it’s important to differentiate between the two. And we might even talk about Conor’s electric mustache as well. But until then, huge shout out to PrimeXBT, longtime sponsor of the show and longtime friends of the Cryptonews Podcast. We love PrimeXBT as they offer a robust trading system for both beginners and professional traders. It doesn’t matter if you’re a rookie or a vet, you can easily design and customize your layouts and widgets to best fit your trading style. PrimeXBT is also running an exclusive promo for listeners of the Cryptonews Podcast. The promo code is CRYPTONEWS50. That’s CRYPTONEWS50. All one word to receive 50% that is 50% of your deposit credited to your trading account. Again, that is CRYPTONEWS50. All one word to receive 50% of your deposit credited to your trading account. And now back to the show with Conor. Conor, let’s get into the fun stuff. The most fun stuff, your mustache. It’s an electric factory. It’s absolutely great. I was going to, I’ve done Movember many times in 2018, first year in university. I may have even done it in high school. I have some Lebanese blood in me. So that’s why I got the beard going. I got the hairy chest if need be. But your mustache, I watch your interviews on CNBC and all the financial ones. You were baby face. You were clean cut finance bro. What’s with the stash? I love it. Give us the backstory on that.

Conor Ryder
It’s crypto now in me. I gotta let the facial hair loose. Yeah, honestly, I didn’t know how to do my locker. Honestly, I was just playing around in Movember, probably for the first time ever, and just got pretty lazy, didn’t let it. Good kind of let the facial hair grow a bit. And my problem is I can’t grow a full beard. So I said, I’ll give the mustache and try for Movember. And yeah, if you stroke my ego enough, it might stay. So that could be the end.

Matt Zahab
I love it. How’s the feedback been overall? Good feedback from people on the team, the lady, whatever. Everyone loves it.

Conor Ryder
Yeah, no ladies there yet, which is probably worrying, but yeah, no. In the last week, it’s probably taken shape. The first week, I think it’s the toughest when you just have a few straggly whiskers and then it looks terrible. So I’m hoping now I’m through the worst part and you can actually start getting some compliments there.

Matt Zahab
I love that. Next time you see me, I might have to go for like the handlebars. Sometimes I’ll do the Wolverine, but it’s a little spooky and you know, people don’t take it too seriously when you get on a zoom call with a Wolverine beard. So anyways, back to the show here. Let’s jump into stable coins, synthetic dollars. A lot of people don’t know the difference between the two. Not gonna lie until I did research for the show. I thought they were pretty much the same thing. Then I started doing research and I was like, okay, we got a difference. This is very cool. I’d love to throw the ball over to your court. What’s the diff between stable coins and synthetic dollars? What are the two sort of pros and cons between them? And why is it so important to differentiate the two of them?

Conor Ryder
Yeah, I think it’s kind of a nuanced difference. And as you said, probably most people don’t know the difference. And that’s probably fair. It’s more that the key difference really is just from, like, I guess, the marketing perspective of your actual, let’s say, stablecoin. Like, really, this comes back to probably what happened during TERA. And I guess TERA were pitched as this stablecoin. But as I touched on earlier, that that stablecoin trial, they weren’t even emphasizing stability. They were basically sacrificing stability in favor of basically everything else. So yeah, it’s kind of just from, like, I guess, maybe like a consumer point of view and being fair to the customer or the consumer about the real risks of the product. And you shouldn’t really be advertising yourself as stable unless you are literally backed by maybe like 100% cash or money market funds, treasuries with less than like a 90 day maturity even because I guess even we saw with USDC, there is that unhedgeable risk there that within USDC we saw in March 2023, I guess, this year. We saw that they basically had two long dated bonds and they had to redeem them below par. And then people were panicking about the peg of the stablecoin because they were taking such a hit on those bonds when they started selling them and to market them to market. So essentially, even like USDC and USDT, can we claim those are stable? Because even at USDT, they’re not fully transparent about the reserves. And if they have to redeem them all in a rush, are they ever true stablecoin as well? So perhaps maybe you can only advertise as a stablecoin. And this might be something that’s like part of this new stablecoin bill or something is that you’re fully kind of backed with 100% cash. And that’s fully a fair advertisement to the users of your product. Whereas at Ethena, we’re kind of being realistic in that there’s risks to the product and we’re trying to be as transparent about that. And we’re holding crypto native collateral. So I guess that in itself is a risk. We’re making steps obviously to hedge that price exposure on derivatives of markets, but we couldn’t. It probably felt unfair to users to turn around and say it’s a stablecoin. I think a synthetic dollar approach is better. Just kind of setting expectations. Not that we’re saying we’re going to deviate from peg too much or anything like the expectations those hedges will be more or less perfectly aligned and they’ll offset each other. And you have this synthetic dollar position at the end of that yet. Calling it a stablecoin is too broad a brush, I guess, to be to be painting these things with that we should be kind of more nuanced about it. And if you aren’t backed by 100% cash or treasury bonds with less than 90 day maturity, you should probably have to call yourself something else. Just so you’re being fair to users and users can kind of better understand the risks of the product because that’s what we should really get better at as an industry, I guess, is that better transparency, not trying to pretend to be something you’re not. And just, yeah, I guess just being fully, fully transparent about any kind of risk of the product. So users know what they’re getting into.

Matt Zahab
Yeah, well said. That was the base takeaway that I learned when doing research from the show as well. Because I know you just touched on one of the most important points, which is the 90 day kickbacks. Like, and I’ve been fortunate enough to have Paolo Ardoino, who’s not the CEO of Tether on the pod a couple times. Their balance sheet is absolutely absurd. Like they have billions and billions of T-bills, 90 day bangers, you name it. They are literally one of the biggest companies, I assume, in the world for US T-bills that isn’t like a sovereign wealth fund or a country. Like it’s wild to think that a cryptocurrency is so intertwined and so tethered, you know, play on words with the UST. It’s crazy.

Conor Ryder
And I think they only have like 50 employees or something as well. It’s like, they’re probably the per employee, they’re the most profitable company like in the world, full stop nearly. It’s not, yeah. I could talk about Tether for days probably.

Matt Zahab
Yeah, no go give me give me a little riff about tether. What’s your I’m sure you get off to the time like

Conor Ryder
Yeah, that was a big question of journalists before. Maybe it’s not specific to Tether, but I guess maybe centralized stablecoins. Just this model of internalizing all the yields of your product and externalizing all the risk of like depeg to users. So there’s like this, obviously, 120 billion worth of stablecoin market cap, and that’s 120 billion of stablecoin demand that’s not yield bearing. And that’s if there’s that much demand for like a non yield bearing product where users are taking on all the risk and not getting any reward for it. What’s the market then for hopefully like a product that looks like that that actually returns yield back to the user of like 5% or 10%, which is what I think about like, yeah, so it’s this model of like return free risk. And as I said, Tether were more more profitable than like BlackRock last quarter or something just because they’re sitting on this gold mine, essentially a 5% cash bonds, and then they don’t pay any of that to users. But that goes back down to I guess this demand for stablecoins and that’s the fascinating part of it is that there’s so many people out there that are desperate for these like borderless permissionless dollar denominated assets that are on chain to transfer that to like whether and it sounds probably ridiculous to us. We’re not really the subject of any kind of government tyranny or like heavy inflation or anything like that. But we’re seeing it in Argentina now we’re seeing it in bunch of South American countries where their their currency is getting inflated away and they would love to have their savings denominated in a dollar asset, which stablecoins gives them the chance to they can do that and they can do that in a borderless fashion. So that’s probably where this demand is coming from it and obviously transacting on chain and everything but there’s a significant portion there of this demand that just really wants a dollar denominated asset. So hopefully bringing that on chain with yeah crypto native collateral is interesting as well. But yeah, I think in a few years time there’d be a kind of bigger percentage share of that stablecoin market is yield bearing and actually returning some of that yield that they’re just banking basically on behalf of users back to the users.

Matt Zahab
Have you seen, my apologies I should know his name. My apologies to all my Argentinian friends here. The new, it starts with an M, the new president. Miliere, whatever. That guy is a loony. He’s an absolute lunatic. I love him. He’s like a kind of cool guy.

Conor Ryder
Yeah, it’s just like what they’ve tried as we worked. So try something new and that seems to be something new.

Matt Zahab
I would love to have a couple of pints with that guy, although I don’t think he’s a pints guy. I think he’s like a not a micro dosing mushrooms guy either. I think he’s like a macro dose kind of guy. Like I think he loves to get after it. And he’s like, you know, he’s turpin liberals. He’s like, I don’t know if you saw that video on Twitter where it’s like ministry of sport and tourism gone, ministry of health gone. Like he’s a lunatic. So I mean, he’s all for Bitcoin. And he even would love to, I mean, I don’t know how one could abolish a central bank. I know that’s what he wants to do to the Argentine central bank. I don’t know how you would ever do that. I feel like there’s just too much debt and it’s a shitshow that’s too big and the fire’s far too wide and far too hot that you could ever put that out. It’s obviously way out of my pay grade. But yeah, just very cool to see what he might be able to do. Conor, we are getting a little tight for time. A couple more questions and then we’ll wrap up and you’ve been on an absolute heater, just an absolute rule by the way. So thanks again for doing this, but stablecoins and synthetic dollars. A lot of people are getting spooked out by the US dollar. Talking about how the war dollar and the petrol dollar will finally lose its reign as the number one and most powerful currency in the world. You, your team, many others are in the camp that stablecoins can help maintain US dollar dominance. I am also in this camp. There’s a reason why we don’t have a stablecoin euro or for my country, for example, Canada, there’s not a single chance. There’s not a snowball’s chance in Haiti that we’re ever going to see a frigging actual prominent one because we’re just such a joke when it comes to anything. Financial or economical or startup related, but how can synthetic dollars or stable coins help maintain US dollar dominance, despite all of the other efforts from countries to move away from the US dollar?

Conor Ryder
Yeah, well, it’s definitely as we touched on earlier, it’s like Tether or something like the 16th largest sovereign wealth holder of US Treasuries, I think, which is pretty nuts to think about. And I guess if your theory is that the dollar kind of demand is waning, this is probably a source of dollar demand that we talked about. And that’s probably at like a market bottom as well. So like the demand for stablecoins right now, I guess should have been at a market like bottom. And we only see that increasing hopefully as time goes on and stablecoins kind of grow as a percentage of crypto market cap is in the trillions where stablecoins are just kind of like 100 and 120 billion. So yeah, that’s hopefully a super interesting part. It’s like driving that demand for US Treasuries. And that’s probably a reason why then US regulators probably are taking it a bit more seriously now. And they’re starting to try and push this stablecoin bill through is because what we’ve seen is that they like basically DUS is whole and MO is exporting financial goods and services. That’s what they’ve been called that forever and exporting the dollar as well. And what we’ve seen as far as stablecoins are concerned is that the majority of stablecoin issuers now are moving offshore and tether dominance is rising. Whereas you see like USDC market cap is falling and the percentage for at the start of 2023, the percentage of offshore versus US issuers was 50-50 in terms of stablecoin market cap. And now that’s moved to like 75% offshore and 25% on. So yeah, the US is kind of losing its hold of this demand for dollars essentially. And that’s all moving to offshore issuers like Tether, who are now one of the most profitable companies in the world. And the US regulator is going to start taking that seriously. So they showed like it’s a big factor, a big use case for US Treasuries, I guess, is sitting back in the decentralized stablecoins. And there you have PayPal, USD entering the space as well. And that should only kind of exacerbate that impact as well. But yeah, it’s definitely, yeah, I’m in the camp of the dollarization. It is like a real thing and doesn’t don’t think dollar dominance is going anywhere anytime soon. And yeah, as I said, you just need to look at crypto. It’s like 99% of volumes are dollars rather than any other currency. So people in like other nations, as I said, Argentina and South America, they want their savings to nominate in US dollars if they can get it. And they’re doing that now via stablecoins, which is interesting.

Matt Zahab
Very true. Last question here, Conor. Then we’ll wrap up. Let’s talk about use cases. Again, this is one of the things that I get asked all the time, Matt. Yeah, so cool. You talk about Tether or I will wear my Tether hat around. I’ll wear one of my crypto shirts around. Gave me some real world use cases. And again, we live in Canada. Yes, our currency, most of my network, excuse me, lives in Canada. Yes, we have lost a decent amount, nothing compared to the Argentinas or the turkeys of the world who literally have lost upwards of 90% of their purchasing power. For the people in the Eurozone, United States and Canada, who all have good currencies and who live in G8 countries, what would you tell them when they’re like, hey, Conor, what kind of stablecoin adoption are we looking at? And what kind of real world use cases do we have to look forward to?

Conor Ryder
Yeah, it’s a good question. And yeah, the kind of point I had, or like, this is just like a personal point and maybe probably a few people in a team as well as that stablecoins are the killer app of crypto. And there’s a lot of use cases on chain where you see just people like playing with NFTs and profile picture NFTs and stuff. And I think we’ve that was kind of a flash in the pan. And that’s like, not it really, we need to kind of go back to one of the actual use cases. And as I said, we’ve touched on it already is probably stablecoins and transferring dollars on chain. And to me, that’s the biggest use case. Like, even for, let’s say, like, we’re not looking to like invest all our savings in dollar dominated assets, because myself and yourself are in hopefully stable enough currencies. But like, a perfect example would be like, I went to a soccer match in Paris with an ex American colleague. And we were trying to figure out how to send each other money. And we couldn’t do it without taking like three or four days or like a bank transfer. It was just a nightmare. So what do we do? We turn around and just send each other USDC, which was actually like a pretty cool moment for us both like to crypto maxis, but for us both to be like actually like crypto self to a real life problem there, as stupid as that sounds, but that’s actually kind of where we’re at. So in terms of use cases, I think stablecoins still can serve a purpose for people that aren’t looking to get out of inflationary currencies. The whole point of stablecoins is I guess yet making dollar transfers kind of permissionless and borderless and cutting out the middleman there because the banking sector is one of the only kind of sectors that hasn’t been innovated in the last like 50 or 60 years, like 60 years ago, it’s still took like two or three days to do a wire transfer still the same now, which is just nuts. So I think the stablecoins for me are just the killer use case and we can talk for days about other use cases on chain and playing with kind of yeah, derivatives or gambling on chain or anything like that. But to me, stablecoins are that killer use case. And that’s what we really need to kind of hold in on it and start building around like infrastructure and payment infrastructure for them. And they’re super interesting use cases there, hopefully.

Matt Zahab
Conor, truly a great episode. Thank you so much for coming on, mate. Really appreciate it. Before we let you go, can you please let our listeners know where they can find you and Ethena online and on socials?

Conor Ryder
Yeah, so my Twitter is just @ConorRyder. The Twitter for Ethena is @ethena_labs. We just came out last week with kind of all of our public facing documentation. So we have like a really extensive GIP book and hopefully some of the most like extensive documents that are out there right now. We’ve got like a 100 answer FAQ that we released on Notion as well. So you’ll see the links on Twitter and have a read through them and hit me up if you have any questions. But yeah, we’re pretty happy with the standard of docs we’ve put out and there’s plenty for people to get their teeth into there

Matt Zahab
Amazing. Thanks again, Conor. Appreciate it. This was truly a blast and would love to have you on more often, as I know we barely even got into the current crypto market stuff, but I know that you are incredibly in tune in all of this as well. It’s your day job. You are head of research. You’re doing research all day long. We love that. And hopefully you can have you on as a recurring guest, but thanks. Really appreciate it and can’t wait for round two.

Conor Ryder
Definitely Matt. Cheers. Thanks Matt.

Matt Zahab
Folks, what an episode with Conor Ryder, Head of Research and Data at Ethena. He was dropping knowledge bombs left, right and center, anything stablecoin, synthetic dollar, current market trend related. We talked about it, stablecoin use cases, stablecoin adoption. You name it. Huge shout out to Conor and the Ethena team for making this happen. To listeners if you guys enjoyed this one and I hope you did, please do subscribe. It would be the world to my team and I. Speaking to the team, love you guys so much. Thank you for everything. Justas my amazing sound editor. You are the GOAT. Thank you as always, my man. And back to the listeners, love you guys. Keep on growing those bags and keep on staying healthy, wealthy and happy. Bye for now and we’ll talk soon.