Hi guys. Um, great to meet you. I'm Baron, founder of Neutral. I'm going to be speaking about something I've actually never seen myself discussed around synthetic dollars or stable coins previously, even being a big DeFi yield farmer, is actually bringing on the highest form of delta neutral yield onchain uh through OTC arbitrage. So as most of us uh here who are actual traders or curators or actual big deployers into Alti Capital know that most yield on chain right now is highly cyclical.
It's actually capitaly constrained. So the more you throw into it, it actually shrinks over time. And I think worst of all um it's nonsticky in the sense that once the yield is dried up, people move on to the next protocol or the next type of yield source. The other aspect is a lot of protocols now that are into synthetic dollars or some sort of stable coin meta are actually providing just rappers on a like we generate 5% etc. something really different.
So our solution is basically looking at the price dislocation that actually occurs on normal spot trading markets centralized exchanges and the actual crypto OTC market or private markets. The difference here is this is not a new trade. This is a trade that's done by the best institutions in the space. The best market makers, the best actual funds. The only thing is there's been no access for DeFi users and no access for other bigger public.
The guys who have it are the guys who we all know their names and we also they're either big OG uh DeFi angels like Julian over there um but uh no one else gets access to it. So what we thought of it is how do we actually create the solution and tokenize it onchain. How neutral works. So largely neutral the protocol goes to foundations goes to treasuries goes to big VCs that were early investors goes to large angel investors after the time buys lock tokens OTC at discounts. What this means is we can go and buy Salana uh Avac uh SUI at like 50 to 70% discount in the private market and then at the same time the protocol systematically open shorts on perpetuals across Binance Bid OKX Coinbase International and any other exchange that has enough liquidity on it.
A user will come to the protocol, deposit stable coin, whether it's USDT, C, USD, Athena, stable coin, and in the back end they get a version of the synthetic dollar and then the synthetic dollar over time will pay them the yield that comes out of these deals. And remember, this is real trading yield. This is yield that is not based on governance tokens emissions like we do see in other protocols. It's actual cash uh stable coin yield that will get paid back. The hedging strategies are quite interesting.
I think the only reason why this is actually possible and it's been done over the last few years by institutional funds is because of perpetual swaps. The current actual market and like open interest and volume of perpetual swaps across multi-exes uh and I'll take in account hyper liquid as well. We built a tracker on that where you can actually see it happy to share it at another stage. Basically is four to 5x time normal spot volume of any of these seexes. So I think the three best instruments or um things that have come out of crypto recently for a trader has been trading venues across multiple exchanges, stable coins, aesthetic dollars, and perpetual swaps in general.
The market opportunity here is various ways you can cut it. So that's up to you to decide, but largely I see stable coins or synthetic dollars specifically like these yield tokenized products grow from zero to just under $6.5 billion last year largely driven by Athena and the team there which are fant fantastic. Um what we've seen is that this is continuing to grow now with a lot of more competitors coming to the place. Some of them have actually spoken over the last two days but a lot of them actually focus on liquid bases delta neutral which private funds do operate um which they've tokenized.
We want to bring something different that hasn't actually been done and in the next few slides I think I'll share a bit of alpha that you probably may not have seen. So largely what what drives supply into OTC markets why do foundations come to you and how how big can this really go? Um, in the next 24 months, there's $55 billion worth of the top 100 market cap liquid tokens that will be unlocked. When this usually happens, foundations, early investors or whales come to brokers, uh, go to VCs, go to other angels, and they they interact discounted uh, tokens. Why do they sell it discounted?
Because realistically, if you're a big early investor in one of the the top protocols over the last few years, there's no liquidity on the open market. You're going to see a massive tank in the token price. And I think it's structurally due to uh the next slide. So largely FTVs of most L1's L2s are very very high. Um it's largely been to been due to like VC capital investing over the last few years.
This is an interesting slide in the sense that the actual dark line there um is not the market price that was actually in May 2024. That was the OT OTC price that we that was done. So take into account that was already done at any discount between 20 and 70% of these large tokens uh A to J and they most names you would know pretty publicly. What's interesting is now fast forward this year the actual from the OTC price which has already done at a discount the FTV now is much lower. So if you entered into this delta neutral strategy you would have really made a pretty good return last year.
Um and this is a slide that actually was real returns last year. So if it was done through neutral, these were deals that were done. And what you see is that privately from the team pre-neutral, what you see is actually the delta neutral, the darker line is if you did normal like an Ethereum uh like an Athena liquid basis or resolve liquid basis, etc. Uh you're buying spots, you're shorting per open market, and you'd get a decent return. You'd get something anywhere between in a very bullish market 10 to 25%.
on doing it on different names. If you threw in the OTC kicker, what you get up is actual massive margin on top of it. And this is because the actual return is based on the OTC discount unwinding as well as the basis as well as like uh the staking yield that you can get from the underlying collateral as well. Um the big difference here and I think why most people would not be able to do this um is really because of one of our co-investors. So this is sticks.
They actually doing 85% of OTC volume. Now they work with most of the biggest market makers, biggest uh exchanges as well as like other teams of foundations. So the neutral team speaks to foundations, we go to brokers and we use people like sticks to actually get access to the best deals and we're very fortunate to have them on as a co-investor. The interesting thing with OTC ARB is as I mentioned most profit uh changes or different type of strategies here in periods of negative funding rates we still make money. We actually make really good deal because the discount is still being the discount that we got on the the deal is actually eaten up.
It still makes enough for negative funding rates. If it actually goes positive funding rates in general like a normal liquid basis it's just a bigger kicker to the actual return. Uh where are we right now? So we basically are not public yet. Uh we started 2 and a half months ago with this neutral idea.
We're currently running $40 million into these type of strategies. We're working on uh releasing the public. We actually released the website yesterday and the public documentation. So happy to share that. And we're working on um going fully public with D5 composability with Moro, Curve, Pendle, Athena, Ethereal in the next uh two months.
Yeah. Thank you very much. And I'd like to thank uh state capital and the team for actually having us here. This is the first time we introduced neutral anywhere. So really appreciate it.
Automatic transcript — names and jargon may be misspelled.