Project 0's Mac Brennan on the $290M Kelp DAO Exploit and Why DeFi Needs a Prime Broker

Alright. What's up, Mac? How are doing? Thanks for joining. Thanks. Thanks for having me. You got the podcast mic. We always appreciate that. You're you're well equipped. How many pods slash shows have you done, would you say, this year so far? Do you you go on a handful of them? I saw you on 11AM.

Well, the thing is, like, p zero is, like, this new

thing that does need to be explained, so I wouldn't be doing my job. Also, the industry is so small that I wouldn't be doing my job if I didn't bounce around a little bit and try to try to explain it. So yes. Well, that's why we're here today. I'm excited to dive into it. Shout out to Jake for connecting us. We we've just been for us, I think the role in this, like, new media conversation that people are having is, like, making things make sense.

And so for us, we because of our focus and because of where we live in the world of, like, payments, stablecoins, capital markets, covering infrastructure, founders, investors, like, this is really the lane that we're in.

We really wanted to just take some time to look at some of the stuff that's happened this month and welcome people in who are building and involved in this space in all different ways to just kind of open the aperture of, like, what you're thinking about, how this might affect how you're building that what's next. I don't know all the history. I was looking at your your background, and I know you've been building and founding things in DeFi for quite some time.

So wanted to wanted to bring you on here to see how you're thinking about the the implications of of what happened over the weekend. But before we dive into that, maybe we start with project zero, but wanted to prime you. That was definitely top of mind for us. Yeah. Yeah. No. Yeah. The the the short intro on p zero is that p zero is essentially

the first attempt that's working in this space of, like, a generalized prime brokerage, essentially. So what that means is if you got a $100 in Camino, a $100 in JupiterLend, a $100 in Drift, talking about Hacks, you would then be able to borrow against a $300 portfolio through Project Zero. And you'd also get adjusted risk, a single rate, a single UX, a single line of credit against all of this permissionlessly.

So it's essentially filling the role of, like, a prime broker with the unique insight that most DeFi users, all the DeFi users I know, use two or more venues. Like, there's very few DeFi users I know that just use a single venue and call it a day. Also, different venues do different things. So, actually, the minute you're using a second plus venue, you have capital fragmentation, and you actually need a Prime broker. And so that's that's where we're we're stepping in. Yeah.

So when I when I hear the word Prime and broker, my mind goes immediately to Coinbase Prime. That was the the product that I was part of partially selling as a part of the stack that I was assigned or my mandate there.

And I'm imagining the the, you know, Prime broker model at something like Coinbase or a centralized exchange in some ways can, I'm imagining, perform certain functions that might feel similar, but how the sausage is made under the hood and what is actually happening is very different from how it's built, who is in control of it.

Maybe as we start, I'd love to hear just, like, the difference between what a DeFi native prime broker is versus maybe something that is more CeFi or centralized with things like Coinbase or Kraken or what what have you. Also, your thoughts on just comparing those two markets, like, the size of them and the opportunities there. Yeah.

A centralized prime broker, I mean, even going bigger than Coinbase, like Goldman Sachs or, you know, JPMorgan, are big, big prime brokers in the crypto native sense, like like you mentioned, with Coinbase. It's my understanding. Coinbase Prime is a little bit different.

Coinbase Prime essentially allows you to utilize, like, your stake on a validator and some other positions you have across Coinbase exchange within, like, a unified margin portfolio, which is kind of similar to what we do, except it would be as if in the Coinbase sense if you also then integrated your Binance positions and your Bybit positions, which is, you know, a much harder undertaking because, like, finance has its own risk environment. Viibet has its own risk environment. They have their own rules.

They have their own, you know, steps. And it would be really hard as well because you'd have to get finance's permission and Viibet's permission, and then and then you become a choke point. Like, if anyone wanted to get credit against their position, you know, you would have this kind of fragmented understanding of their portfolio still where Bybit could, like, theoretically revoke your permissions, and then you'd be on the hook. It'd be, like, a really, really tough thing to do.

And that almost, like, perpetuates centralization. Like, it forces more centralization

because of that, if I'm understanding. Yeah. And you go a step up. You go to, like, Goldman or j JPM, you at that point, you have to do everything through your prime broker because now you got positions on the NYSE, the Nasdaq, the Chicago Exchange, the Hong Kong Exchange, the London Exchange, and only your prime broker has visibility across all your positions.

And still, it's kind of like they have to quantify, like, every counterparty you have and, you know, have a good idea of, like, your your risk across all these different venues. So now if you wanna make a trade, you have to do it through your PB. The the the main difference with, like, DeFi products is that I don't really need to ask Camino position like, Camino's permission, Jupiter's permission, Drift's permission. I really didn't when I built this.

Like, they all know who we are, and, you know, we've we've worked collaboratively across, like, those three initial partners and and more. But it's like open source code. So you can actually move a lot faster with DeFi PB, and you have, like, extreme granular visibility into solvency. Like, I know at every second if Camino is solvent as an exchange, if Drift is solvent, if JupiterLend is solvent, and what positions like, we we white list certain positions within Camino as well.

So, we have a really good idea of our risk exposure per venue, per market, per asset. So it's really hard. It's not easy. But you can you can, in a in a sense, move faster with DeFi because you don't need to like, I'm not worried that JupiterLens gonna cut off my access, like, non chain open source program. So I I'm I'm good to go there. Yeah. Yeah. So

I guess for you, when you when you think about the yeah. What what was your experience over the weekend with or or just this month? It sounds like you Yeah. Been building on top of Drift. Like, give us the kind of experience from you as a founder, as a builder. What was that like? How did you respond to this? How did that impact

Xero? Yeah. I mean yeah. So, like, Drift is a good example. Drift is one of the teams we integrated. So that means we essentially have our credit pool, our p zero credit pool, which has, like, a $100,000,000 in it, has exposure to Drift. And in fact, Drift was our most used third party venue outside of P 0 native. Like, we have a P zero native credit market, but outside of the multiple Camino markets we list, multiple Jupiter markets we list, Drift was had most of our third party usage outside of p zero native.

And so when the Drift event happened, I actually think it was an awesome test of our risk management and security practices as, like, a seven, eight, eight month old, you know, audited open source, still stress tested, but eight month old program. So what we immediately did is we froze the program, marked Drift drift collateral to zero, even though drift collateral is actually not at zero right now.

If you look at program reserves, it's about like 50¢ on the dollar, but we proactively marked it at zero because there's an ongoing, you know, exploit going on a drift, so you can't hold any weight to the assets in the program and contain the risk primarily to Drift lenders. So even though there's, again, hundreds of millions of dollars across, like, all the different exchanges in p zero native credit pool, Camino pools, Jupiter pools, etcetera, pretty much all the risk was isolated to Drift lenders.

We had some carryover risk, which we need to solve for. No. Like, if you had a deposit in Camino, if you would've had a deposit in Jupiter Line we actually went live with Jupiter Line right after this. But if you would've had a deposit in Jupiter Line, if you had a deposit in Camino, you were impacted 0%. You have a 100% of your collateral.

If you were interacting with a p zero, the the credit pull that extends credit against Drift, in the face of, like, one of the 10 biggest hacks in DeFi history, you if you had a stablecoin, you got marked down 1%. And if you had the biggest markdown we had was if you had a extremely risky asset like a volatile governance token or meme coin that essentially moves 5% in a day, you're marked down 6%. So you're marked down, like, essentially a day of volatility. And that was that. And then we unpaused.

I think we were Drift's, like, largest integration, and we unpaused the fastest and had the smallest socialization out of, like Drift had a lot of integration partners, like, which I'm I'm sure you saw across Twitter. Like, there's a ton of people How many do think roughly they have? I think they had, like, north of 15, close to twenty, twenty plus. Yeah. Part of sure, like, you building on top of them and driving flow Yeah. To them. Yeah. Yeah. Yeah.

I think So were probably the biggest biggest guy out of out of all those people. Okay. And you're you're proud of the way that, yeah, the team was able to identify and execute and respond

to the situation. Just double click on that a little bit. What do you feel like you because now everyone's asking this question, like, there are risks here. What do we do differently? Yeah. You you wanna repeat or advice that you'd give to other founders who might be wanting to build on top of these primitives? Yeah. So first of all, I mean, ideally,

you know, we we go through an extensive risk review of every venue market asset we integrate. So there was like a miscalculation in the element of like human error, which was involved with Drift. Like, ideally, there's there's no markdowns. Right? However, given that there was this this event with, like, a very adversarial, well capitalized third party, like, the best you can do is approach risk management through, like, two primary lenses. A lot of people go deep into the economic side of risk management.

Very few people in DeFi, I think, like, tie in the technical risk management as much, which is very, very, like, multifaceted, involves, like, oracles and circuit breakers and BopSec and a lot of, like, program fallbacks. And this is this is what this is what I think set us apart.

Like, we we had appropriate, you know, economic risk parameters over Drift, which basically meant, like, how much leverage could you take against your positions and how did we treat, like, volatility and market liquidity and a bunch of other economic factors around Drift positions. But we had, like, a really well set up, like, offsec situation where the minute we got alerted that something was going on with Drift, we could pause the program, like, immediately.

Like, it paused instantly, which we're very happy about, which also takes a lot of, like, coordination. Like, we have a pretty high threshold across, like, our program security. So that means, like, there was a lot of team people around the world that coordinated in that instant to enable that to happen. And by by pausing immediately, we essentially protect people who are away from their computer.

There there should be no situation in which, like, you're at a disadvantage in using Project Zero if you decide to go on, like, a vacation away from your device. Like, that's just untenable. That's just, like, completely disrespectful to our users. So this essentially removed the footrace of, like, oh, let me see if I can withdraw first and, like, dump more of the risk exposure on the people remaining in the pool. So we we immediately validated that, and then we communicated pretty well, I think.

Like, we told people immediately exactly what our priorities are, how we're how we're going through this incident, timelines. And we didn't, like, just wait to see, okay, what's Drift gonna say? Because, like, still, like, Drift hasn't unlocked, you know, any of their assets, and and these things have are open ended timelines. Like, we're we we gotta rely on ourselves. So we we communicated well. Yeah. I I responded pretty much. Say a bit more on the balance between

I'd imagine that's a very, very dynamic situation to find yourselves in where you're like Yeah. You have this permissionless system. You're wanting to build this so that people, I'd imagine, can have people you're building this for, I'm imagining are are very they care a lot about having access and control of their funds.

So how do you do you balance as a founder and builder that priority that you wanna have with your your users, but also educating them on like, hey, this is what you're a part of, and when things like this happen, we have to go through this process. Like, how how have the users responded

to this? It sounds like those funds are still, like, locked or frozen or I don't know what the best word is. No. Yeah. They were What is that real unpaused quick? Very, very fast. So, like, if we decide to pause, it's a it's a extreme security event as it was with Drift. And then we need to unpause very quickly because, again, like, we we value our users' autonomy. So we actually we unpaused by Friday. I think the exploit happened on Wednesday. We were back in business Friday.

And, actually, on, like, a sold denominated basis, our our TBL went up after Friday, after when you saw, like, a bunch of outflows across the industry. So I think we handled it well given, you know, empirically that that's what that's what happened. But but, yeah, I I, like, I think this just kinda shows the levels of responsibility that you have. Like, I I think, for example, it's it's COPE when, you know, Circle says we can't pause, you know, CCTP or, like, Arbitrum today.

It's, like, you know, people saying Arbitrum shouldn't have done anything about the $70,000,000 that was, like, clearly in terrorist hands. Yeah. What do you what do you think of that personally? Let's cope. Like like, do everything you can like, if you have confirmation that the funds are sitting in OFAC sanctioned, like, terrorist hands that want to build weapons of mass destruction, there is no moral qualms. Like, do what's best on behalf of your users. That's what we did. That's what Tether did.

That's what Arbitrum did. And all all of those things I just mentioned, like, are points of failure amongst Arbitrum, amongst amongst Tether, amongst p zero in its early stages, which we can use to the benefit of our users. As there are as there was, by the way, with with Circle, and which which didn't decide to do this. So that's how I What do think the difference is there? Do you think it was were sort of like a lab or like pontificating

a little bit, but like do you think this was a lack of was this do think a decisive action on Circle's behalf to not get involved? Was this a lack of like observability and and speed? But how do you Yeah. I don't know how much you've you've dove dove into the Circle, but we we reported earlier about that lawsuit that's going on now. Yeah. So we're gonna start hearing more of this. What what do you think about that? Yeah. I mean, I was

you know, I was coordinating with all the relevant parties while this was happening because, again, like, we're a big drift integrator. We work closely with Solana. You know, I've been I've I've built companies on Solana for a while, and I care deeply about the success of Solana. So, yeah, Circle in in my opinion, my personal opinion, Circle could have done a lot more. Circle knew that these were senior executives had three hours of notice, that this was in the hands of, you know, the wrong actors.

This was stolen funds. It would have been very easy to just pause don't even pause USTC. Pause, like, CCTP. Pause the bridge, the centralized bridge they're act actively using on Circle. Like, Circle's not a decentralized company. Right? So I I you know, I'm I'm very happy that Tethr Tethr stepped in. I'm very happy what Arbitrum did. I'm very happy with with what we did. I don't think the correct move with what we did, you know, again, just going back to what's in my immediate control.

Like, I don't think our immediate our our best thing to do in that situation is just like, we're, you know, we're not gonna do anything. Like, no. We have users that have trusted us with $100,000,000 that we care deeply about, that, you know, we're trying to reorient this new financial system.

Security should be proactive, and I think like as, you know, threats evolve in this coming world of, like, sophisticated AI looking even further, sophisticated quantum, the people who are the most adaptive and on the ball are are gonna have a serious advantage no matter how big they are because because, like, that's what that's what users wanna place their trust in, essentially. Yeah. What is the balance of, in your mind, trust when it comes to zero and what you're personally building?

I think there's always, a I don't know. Maybe, like, a terrible flywheel of, like, circular thinking here. It's it reminds me some somewhat of, like, the moral debate of I know we're going crazy deep here already, but, like, like, the existence of a god, people will often point to

the kind of moral case for that. And then thinking about how people all operate on, a moral code or a moral standard of, like, what something is or isn't or what people should or shouldn't do, even coming from that perspective points to morality as, like, a a thing. It kinda reminds me of trust a little bit in this conversation. Like, coming like, your perspective, which I probably share as well, if I'm being honest, is if you have the ability to stop something bad, do it. Yeah. Yeah.

But that but that also has that and I think this is maybe the sense of, like, people and what they're struggling with is, like, part of what people get behind is the trustless nature of these things. Yeah. And then you run into this, like, really difficult dilemma of, like, who has who has the power? Who has the ability? Should I be trusting you at all. And and personally, when I'm looking at, like, when I see app.0.xyz, I don't have an account with you guys. I haven't gone through that flow.

I don't know how you're kind of positioning or approaching, you know, custody and wallet stuff, but it looks to me like something that feels like I have control. I don't need to trust people. Like, how do you balance that stuff as a founder right now or personally? Well, I think it's it's obviously situation dependent.

And in these two big situations that are, like, dominating headlines, Drift and Kelp Down, Nava, and Layer Zero, both of both of those situations, zeroing in on those situations was with, you know, DPRK. It was with DPRK. And so what is DPRK? DPRK is an OFAC sanctioned terrorist entity by any reasonable stretch of imagination that is only going to use these funds to do extremely evil things, like test nuclear weapons with them. Morality aside, we actually have guidelines around this.

Like, if you're an OFAC sanctioned nation and you try to use p zero, we're gonna block you. Like, we don't we don't we don't let you use p zero if you're coming from an Alfax sanctioning nation

on the on the front end. And that's on, like, IP address geography based Yeah. And that's not on, like, a okay. So you you'll just block access completely. Yeah. Like we do what's within our power

from an application point of view to prevent like the wrong people from using our application. And if, you know, agencies like Seal, for example, came to us and said, hey, this is an extremely bad guy that is going to use your your resources, your assets to do something extremely evil. You know, we we can fall back on, okay, like, how does the United States government how does you how does Western governments treat this? How does Eastern governments treat this?

In in the case of, like, North Korea, it's across the board, Western, European, Eastern, most of them, like, this is an OFAC sanctioned nation. This is a this is a country you can't do business with, and it's very clear, like, what these funds are gonna be used for. So, like, every situation is context dependent, but, like, this industry is way too small for everyone to kind of, like, sit back and be philosophers about this. Like, $600,000,000 is a lot of money. Right?

Like, that's, like, what, between 110% of, like, the entire TBL of, like, the industry. So, yeah, there's it's not even morality at that point. It's just like right and wrong from, like, an objective law perspective. And, you know, I'm just gonna do the best thing that I know my users are gonna get behind. And and I think, like, again, empirically,

that is what we did because, like, you know, users trusted us more after this incident. Yeah. Yeah. When you put it that way and you frame it in perspective of, the chunk that that is in the whole pie, it's like, yeah, that's pretty wild. Okay. So I know thanks thanks for diving into that. I'm, yeah, aligned with, in many ways, how you're thinking about this. So with with with Xero today, what are some things that I'm looking at the app here right now. I can actually pop it up.

But, like, what are so this this DeFi native prime broker that exists today, what we're seeing total value secured here floating over 90,000,000. Give us a sense of, like, what Project Zero or Xero is now versus what you are building it to be in the future. Like, give us the differences of those two things Yeah. While we talk. So what it is now is a generalized,

like, prime brokerage infrastructure across percent of Solana lending TBL. So if you're using multiple markets across Camino, multiple markets across JupiterLend, when Drift comes back online, it'll it'll be Drift as well. You can access all of that through p zero, and you get the added benefit of if you want to diversify risk across Camino and Jupiter LEN, you can. But then if you have a borrow need, you can borrow against your whole portfolio.

So even as simple as if you have, you know, $200 and you wanna put a $100 into Camino's Maple market and a $100 into Jupiter Lens like USDC market, you can do that. And then when you need to borrow, you can borrow against $200, and you can get a single rate against that $200, a single credit line against that $200, a single risk profile against that $200, a single UX across that $200, a single account health. Even on the developer side, you get a single SDK or single API.

And this becomes more and more important as people decide to mix different exposures. So, like, a good example, and something, like, immediately on a road map is perps, for example. So perhaps you wanna earn like Bitcoin yield in Camino, and then it's an upmarket and you wanna short the perp on, you know, a new perps exchange or an existing perps exchange and earn positive funding, and then you wanna lever up that basis between two different venues.

Now you have, like, a delta neutral position potentially that we can give you more credit against than myopically each individual venue can give you because, like, Camino doesn't know what type of exposure you have on a perfect exchange and vice versa. So this is actually, like, a really, really important tool for anyone who decides to use two or more venues at the same time. Now in, like, traditional finances, usually isn't a problem. Like, you could just open up a Robinhood account, and you're good.

Like, that's that's all you that's all you need to do. But in DeFi, like, everyone uses two or more venues. Like, everyone has a purpose exchange they like, some lending venue they like, an interest rate derivatives venue they like, etcetera, etcetera, and AMM. And and you start to have different exposures and different risk profiles across all this, and when you wanna borrow against the whole thing, it becomes like border borderline impossible. So that's that's where we we kinda step in in a nutshell.

So we're just spot credit right now, but we're starting to look towards like interest rate derivative markets, like, Exponent, similar to, like, Pendle, AMM positions, or

per per positions as well as, like, our next integration. Yeah. The date the data here, I love playing playing around with just, like, the supply price yield. How are you seeing people use this type of data most? Is this like as they structure their own strategies, or what do you as you build out some of this data here Yeah. What's top of mind? And and who who also are the typical users of of Xero today? Like, what kind of investors or buckets of customers are you seeing? Yeah. So, I mean,

the historical data here is, like, really important to kind of validate everything we're doing because this is this is actually something net new for DeFi. Like, this hasn't been really pass this hasn't been possible before. Like, this there isn't a copycat of this on Ethereum or any other blockchain. Like, this is something net new, and so which is pretty hard to do in DeFi. But anytime you have something net new, you need to explain it. You need to have data around it. You need to be like, hey.

This is this is really working. So that's that's one of reasons we specifically is is net new? What do you how would you define that? Yeah. In the past, if if you wanted to borrow in DeFi, it needed to be over collateralized per venue. So if you if you had collateral on Drift, you could only borrow against your collateral on Drift. Like the new thing here is now if you have collateral on Drift, you could borrow against that on p zero, not on Drift, inclusive of all of our other integrations as well.

So we're kind of breaking down what it means to be over collateralized in a programmatic permissionless sense. So theoretically, you could, like, have what looks like an undercollateralized portfolio where you have collateral elsewhere in some, you know, maybe a long position, a perps position, a spot position on a entirely separate venue that's still integrated with with p zero. That sort of generalized there's been opinionated ideas of cross margin in DeFi.

Like, Athena is a good example of a great product with opinionated prime brokerage capabilities where you custody the perp on, like, a centralized exchange and you custody the ETH stake with, like, a a different party, and you view those two positions together, but that's the only thing you can do with two different venues in, like, a cross margin sense.

This is generalized, where you can pick and choose the venues, in many cases, you're already using, and you can combine them with your positions elsewhere and get, like, unified risk rates, credit, margin, UI, UX, and a a single account health over that. So that's why that's why we need data around this. And then, yeah, in terms of, like, the users that we're servicing, so three things we do really unique uniquely is cross venue, rate k rate trades, carry trades, and basis trades.

So meaning that, you know, if there's a high lend rate on Camino and a low borrow rate on P zero, historically, you haven't been able to capture that because you if you deposit into Camino to get the high lend rate, you also need to borrow on Camino, and that borrow rate's probably pushed up by the lend rate. Now you can capture that.

You could deposit on Camino, capture that high lend rate, and then if there's a low borrow rate on p you could borrow against that Camino rate on p zero, and then redeposit into Camino and lever that up. Like, that's an example of potentially a carry trade or or like a rate trade or a basis trade that is completely unlocked now with this product. So who's Is it is it similar to, in some ways, like, in its other prime broker context, like, with trading?

It's almost like the smart order router the smart order router build where you can, like, aggregate a bunch of execution venues and then just kind of automatically route to the best one to get the best price. There's similarities to that. Like, we're very focused on the yield segment in particular, actually less so on the trading segment.

So on the yield segment, we actually surface a lot of these opportunities on strategies, which you which you, like, scrolled through really quickly, which is, like, basically, where are spreads across different exposures I wanna have? Maybe I'm already long Bitcoin. I just wanna be in stables right now, or I'm long SOL. Where are the spreads inclusive of all the integrated venues we have that I can take advantage of and also, like, loop up for additional yield?

And so, like, right here, you're seeing you're seeing 90% on stablecoins with USDT and Jupe USDT, like, pretty solid stablecoins, which is, like, kind of uniquely enabled on on p zero. So these spreads have never been accessible. They are accessible now. That's why, like, we need to show data around it. You know, we're open source. We're heavily audited. You know, you can review all of this.

You can do this with Bitcoin. You can do this with Sol. You can do this with Ethereum. And we just wanna And so you're you're sort of promoting the, yeah, suggested strategies. So you're you're doing the work of maybe in real time. How how often do these update? Are you suggesting Yeah. Okay. Like right now, this might be not what I see tomorrow. You guys are doing the work of also surfacing the most attractive strategies Yep. Based on what you're seeing. Yep.

Yep. And our strategies page for for the people who have been our strategies is one of our newer features, so it's only a few months old. And it's already improved quite a lot. And actually, like, next week, for example, on the strategies page, you'll be able to filter by your, like, capacity need. Like, maybe you wanna deploy a million dollars. Maybe you don't wanna deploy $10,000.

You know, different different spreads, different trades between different venues may you may have different rate impact based on your size, based on the liquidity around these different tokens. So, like, we're we're continuously updating this because strategies is like a really great page and just like, what do we do differently? But yeah. So that that's that's kind of that's kind of what we do in in terms of, like, the users that you mentioned and and who we're servicing.

Along the lines of, like, these automatic one click rate trades, carry trades, basis trades that we kind of just put together in a really nice UI and make it very easy for people to take advantage of, It's kind of on two ends of, like, the bell curve of, like, the DeFi user. Like, one, very simple DeFi native yield farmer who, by nature of what they're doing, have collateral across multiple venues. They're just trying to, you know, always maximize their certain exposure across, you know, venues.

And if those venues are then integrated with us in in pZERO, they could do all of that through pZERO. Again, we have, like, 98% of Solana lending PBL integrated, so we probably have a market you're looking for. And then if a trade opportunity comes up, they don't have to unwind all these individual positions, and or they don't have to only get credit against one or two or three of these individual positions. They can get credit against the whole thing. They don't need to sell. They don't need to unwind.

They could borrow, like, USTC, for example, then go trade that opportunities. Yield farmers on, like, the very simplistic retail oriented side, which I think is, like, a great part of DeFi. And then on the sophisticated side, it is these people that are doing rate trades, carry trades, basis trades.

Because now for the first time, instead of capturing a spread in an isolated market where you, like, immediately compress the rate on on itself and, like, the risk adjusted yields are kind of contained to that specific market and risk environment, you now can actually trade risk adjusted yields cross venue. And what I mean by that is, like, Drift has a different risk adjusted yield for USDC than Camino does.

And so, you know, trading Camino lend rate to drift borrow rate or vice versa, these trades can last for months. And I I know because I'm in them. And you can now finally put on trades on the on the rate side against the risk adjustments. You know, USDC on Drift should be at 9%, and USDC on Camino should be at, like, 6%. You know, if those sustain, that creates a 3% spread in, like, perpetuity, essentially, that you could arb now with p zero. That's interesting. But for sophisticated

actors, they they have the ability to do that on p zero. Yeah. Are these so these are these are sophisticated actors who have significant existing holdings where yeah. Just like focusing on this type of strategy would be, like, in and of itself, stand alone, extremely profitable. Like, I'm imagining these are high net worth individuals, hedge funds, asset management companies. Like, what what kind of buckets would you put them in? It's still pretty it's still a lot of

very active single individuals and small, like, prop funds. Because we got a $100,000,000 of TVL, but that's actually not a lot at all. And a lot of these other funds need a lot more to work with. So we're now actually at the point where we have a lot of pent up borrowing demand.

There's a lot of people that are starting to get it and wanna take advantage of these spreads, and we need now to lend to really ramp up on the lender side and and find lenders to fill in capacity for these borrowers because these borrowers will quickly are back up the rates even even with small liquidity pools. And I need a I need to do a better job of, like, now that we're at this point where, you know, JupiterLen went live, like, a month ago, I think.

So now that we're at the point where all these venues are live and, you know, we've we've dialed in risk even with, you know, having having weathered Drift, for example, live in production, I need to start matching like some of these bigger institutional lenders with some of the guys with bigger borrowing appetite that wanna take advantage of this.

So I would say if you're a lender looking at this, even if you come in with bigger size and you push the rate down on yourself 3% more, we have borrowers, like, watching these pretty closely at this point. So that rate will pick back up, and I'm pretty confident that this flywheel will will will take off in a in a pretty positive way, especially because we actually have a smaller capital base, so we have more convexity to the next the marginal borrower than if we had, like, five x the TDL.

Who who would be the you mentioned Jupiter. Who are the other kind of go to partners or people that you could work with in this lane specifically

to solve that that problem? Because you do have to, yeah, kind of make the market balance

both sides, it sounds like. Yeah. Now I'm I'm just looking for people who want stable coin yield and DeFi, Bitcoin yield. A lot of, like, lenders, essentially, because the borrowers are a smaller market, but they're they're now more aware of what we do. So

and now it's just And are these institutions or individuals? So they're these are still individuals typically?

Yeah. I would go along the scale of, like, bigger individuals, prop firms, and then there's actually not a lot of, like, credit credit funds in Solana yet. So there's actually a lot more on Ethereum doing, like, Pendle style trades, Athena style trades. As those people pick up an appetite for Solana, we can service these people.

So it's a BD game that's kind of like fighting against the immediate headwind of, you know, these two bigger exploits that just just rock the industry. Yeah. Last question here for you. What is the role that Solana plays in this conversation? It sounds like you've been deep within that ecosystem throughout your career as a founder. You've committed again to doing just a very deep work here with them. Why is that, and what is their their role here in capital markets, lending, borrowing?

Where where is the conviction there for you? Solana Foundation is a a very active participant, and they wanna win. That's a team I wanna be on. You know? And and they they align with you know, they've just fundamentally aligned with what I think the future of, like, DeFi is gonna be, which is fast and cheap and scalable and also unified and not broken up and fragmented by a million l twos. So, like, on a fundamental basis, I'm very aligned with them.

Like, they don't need to have any sort of direct input on into the things I do day to day, and they don't, but we share the same thesis. It gives me a lot of, like, enthusiasm. The the one thing that I think that's tangible that Solana Foundation is doing in response to a lot of, like, the recent DeFi turmoil is is they're working with security firms now to do, like, independent audits of major programs on Solana, major d five programs with sufficient TDL for one of them. Like, p zero, you know, has $100,000,000.

Like, it's a it's a it's a program that of interest in this, and we're we're actively working with, like, security professionals to make sure we have extreme extreme redundancy and operational security, technical security around our program so that, like, ultimately, getting getting exploited is is something that can be can be mitigated. It's it's it's essentially a a security skill challenge, and Slant Foundation recognizes this. You know, our our our team recognizes this, and so

that actually Who are the security auditors they go with, or who who are specifically tapping in? Specifically,

recently announced the STRIDE program with asymmetric research, who I've actually gotten to work with in the past across a myriad of of bunch of different ways, which is a very skilled team. And Ottersec as well, which is like a which, like, our our program is audited by Ottersec. And, like, Ottersec is just one of the the best auditing firms in the space, essentially. And this is a full scale review of widely used, you know, high TBL programs on Solana.

And Solana is stepping in and, like, making it a priority to do these these technical, economic, operational, security reviews around. And so, like, we are included in this. We're working with the Stride on this. This is something very tangible that Solana did in response to the Drift incident, and it's even more relevant now with the Kelp Dau incident. So

If certain platforms or protocols meet, like, certain standards or or sizes, they'll get access to these types of resources or support. Yeah.

Really interesting. And a you you were in touch with Asymmetric even before? Yeah. Yeah. A Asymmetric's a wonderful team, and they they now work very closely with Ottersec, which is one of the best like, you can ask any builder in space. They're they're one of the best auditing firms in the space. Our our program has been audited by by Ottersec. So What do they do so well in your view? Well, they have a incredible track record. Ottersec has never, you know, on the list of all the biggest exploits.

None of them have ever been audited by Ottersec. And they just yeah. I mean, like, they they got a a team of winners. You know, it's it's like, the Asymmetric team has, like, experience across, like, high frequency trading firms and, like, some of the best they got some of the best, like, hackers in the world at Asymmetric, truly. So so, yeah, this is, like, a really good stamp of confidence essentially on programs across Solana land.

And I I also just think, like, Solana is technically set up to do to be structurally more secure with Rust environment with, like, the anchor framework. There's new frameworks now being being worked on as well, like Quasar.

And ultimately, like, this is my my my hot take is that as sophisticated AI evolves I don't think this is a hot take, but I I truly believe as sophisticated AI evolves and as quantum evolves, DeFi will be more there will be an inflection point where where DeFi will be more secure than traditional finance. A, because the level of dependencies in traditional finance programs is so much wider than DeFi. And then b, the coordination costs around an incident in traditional finance with, like, these centralized databases.

If there's, you know, a bunch of small fund movements or, you know, funds move from one centralized company to another. There's no blockchain to derive consensus on on who got hacked and when and how, you know, historically, companies are very, very slow on operating. So I actually think as DeFi hardens, and it will, and, you know, like, we have we have the same tools that malicious actors have, and we know our code base is better, so we actually have an advantage here.

I think we'll actually get it to a point where you'll feel much safer having your funds on chain than off chain. And in fact, if we don't get to that point, I feel less confident in, like, the future of this this industry.

And the the future of of money, generally. Like, I think this is obviously a superior technology. It's better, faster, cheaper, all the things. And it's like if if we can't figure this out, someone else will, and that will put, you know, The US at a disadvantage and builders in The US at a disadvantage. So it's it's cool to see resources, foundations like Solana, team stepping up to provide resources to help. Shout out to OuterSec and Asymmetric and people who are filling the gap.

We we talked with station seventy earlier in the episode. Guys like Adam, just people who you can trust to to bring in when things when you need someone to who's gone through this before to help out. So, yeah, man. This has been fun. Thank you, Mac Brennan. I know we we weren't planning on this. This was kind of a last minute one. So thank you thank you for jumping in and providing your your expertise and wisdom. Any any final thoughts here before we close on anything zero or what you're what you're building? Yeah.

I'll just say that we have a track record of being adaptive, being on the ball into this changing, you know, crazy world we're heading into with a sophisticated AI in Quantum. Like, we've we've saved a user from a $3,000,000 hack where he was, like, hacked on a different exchange,

you know, we we were able to help him transfer his funds to a SafeWallet, the funds that were in p zero, like and we will continue to do that. Like, we're we're just gonna be we're gonna work on behalf of our users. We're gonna be on the ball. And I think, like, the the teams you wanna be with in this coming world are small, nimble, like, of current threats and doing everything they can on on behalf of their users. So, like, I also again, I just to take the attention off me, I think Arbtrum did the right thing.

I think Tethr did the right thing. I'd like to see more of that across the industry as well. Yeah. Awesome. Well, come in. Thanks for the time. We'll get you back here again.

Appreciate the insights. I'll see you around. Awesome. See you. Cheers.