Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed on this website.
TL;DR
Crypto Compendium – Part XII – Money Legos
Throughout our posts, we have frequently mentioned the concept of programmable money and what that means in a truly open, permissionless and internet-native way. We’ll double click on one aspect of that in this post today to highlight how that opens up some amazingly novel and powerful new mechanisms for users to access. As you read this, we also ask that you open your imagination and think through what could be possible as we explore each concept and protocol. By the end we guarantee you will have thought up a novel use case that crypto is uniquely suited to make possible.
Financial Building Blocks
Composability and interoperability are the name of the game here but importantly, they are not new concepts in software engineering. Composability refers to the ability to piece together discrete modules or services into larger applications without having to rewrite them from scratch, while interoperability refers to the concept of separate systems or applications being able to exchange data and use each other’s functions in a seamless manner. There is nothing necessarily groundbreaking about these concepts per se.
But for the first time in history, they are directly applicable to value, not simply information. As we explained in depth here, crypto finally allows for internet native value transfer, not just digitally-enabled payments on traditional rails. That distinction is incredibly important and means that all of the principles and power of technology can now be applied directly to fundamental value as easily as abstract numbers and words – it is all just flipping 1s and 0s, after all. As a result, crypto provides functionality around the movement and programming of value that is simply impossible through other means. Most basically, it allows for the creation of what are colloquially termed “money legos”, or financial building blocks that one can easily piece together to create services with far more expansive functionality.
We’ll provide one of the most prominent examples of this today, involving several billion in value, to help clarify what these concepts collectively enable.
Perps for the People
Likely the strongest example of innovation and product-market fit for crypto to date, the perpetual swap (‘perp’) contract turns what historically has been a patchwork amalgamation of various obtuse strategies such as OTC Swaps, Contracts for Differences, or continuously rolled front-month futures into a seamless, standardized digital product, instantly available to traders at the click of a button. A perp contract is simply a way to take leveraged forward-looking exposure to an asset but without ever having to roll over to a new expiry date (hence ‘perpetual’). Unlike traditional futures contracts that typically settle on a fixed date in the – ahem - future, a perp contract stays open indefinitely allowing traders to hold it for as long as they wish (days, months, years, all fair game).
In order to keep the perp’s price tied to the underlying asset’s spot price, these contracts utilize a funding mechanism that automatically binds the two. This is done by having the traders taking a long position in the perp programmatically pay the short side trader a ‘funding rate’ if the perp trades above spot. If the reverse happens (e.g. perp trades below spot), the short pays the long. But in most market situations, longs pay shorts. Because all of this is done programmatically, these can be made available permissionlessly and trade 24/7, all settled and cleared automatically and instantly via an offchain centralized exchange or via onchain decentralized one. Leverage is always available, up to 100x on some exchanges. All that is required for a trader to access these instruments is adequate collateral and an internet connection, no direct line to Goldman’s OTC desk required. Historically these have typically been applied to just native crypto assets (BTC, ETH, SOL the largest), but increasingly you see them applied to other off-chain, non-crypto assets such as equities, indexes, commodities, forex, or real estate. Recently, there is ~$20B in daily volume being traded onchain representing an ever-increasing market share relative to centralized exchanges like Binance.
Hyperliquid, the top decentralized perps exchange in the world, has over 450,000 users that have collectively deposited nearly $2.7 billion on the platform and traded just shy of $1.5 trillion in 71 billion trades, largely all since Q4 2024. From this activity, Hyperliquid is currently earning an approximate $515M in annual revenues to token holders. It is an incredibly successful exchange, entirely boost-strapped by the team with zero venture or other outside funding.
All that is to say, perps are incredibly core to the onchain crypto economy and represent an amazingly successful innovation.
Enter Ethena
We briefly highlighted Ethena in our deep dive on stablecoins a few weeks ago. Ethena is a protocol that provides users with a permissionless dollar-referenced onchain asset, called USDe. We stop short of calling it an outright stablecoin because of some major mechanism differences from the likes of USDT or USDC, but by and large it acts in a similar manner and similarly holds a peg to 1 USD. Except Ethena takes this design one step further and offers a yield-bearing version, called sUSDe, that increases in value over time as the protocol shares the value it earns with holders. Users can effortlessly change between whether they want the basic $1-pegged USDe or the yield-bearing sUSDe simply by exchanging the USDe for sUSDe. When they want to ‘cash out’, they just swap their sUSDe back for a higher amount of USDe, all facilitated through permissionless smart contracts that can be accessed 24/7.
And the yield can be substantial because of industry demand for perps.
Ethena uses a novel mechanism to maintain its $1 peg. When a user deposits funds into the protocol, Ethena opens a long position in Bitcoin or Ether and an offsetting short perps position. As a result they can maintain a fully hedged, delta-neutral position that offers exactly $1 of exposure. And, as we outlined in the section above, because Ethena opens a short perps position, they are paid a funding rate from traders taking the long side of the trade. Ethena then simply passes through this yield to an onchain smart contract that programmatically distributes it pro rata to holders that chose to ‘stake’ their USDe for the yield-bearing sUSDe version. This is a powerful mechanism and Ethena has nearly $5 billion deposited onto its platform as a result. The yield earned is also substantial, currently paying out nearly $120M annualized to sUSDe holders based on the past 30 days. But here is the kicker – because perps are inherently speculative instruments, they are in far greater demand during bull markets. As a result, the funding rates paid increase substantially when markets heat up. At the peak of the late-2024 bull market, Ethena was earning fees at an annualized rate of nearly $1 billion for its sUSDe holders. The success of this model can be clearly seen in the yields offered, frequently higher than 10% on a ‘cash-equivalent’ position.
We highlight Ethena here because it is a fantastic example of what blockchain technologies can offer. Ethena essentially takes a core crypto product that is uniquely enabled by blockchain platforms (perps) and then permissionlessly tokenizes the yield generated from participating in those trades and allows users to seamlessly opt-in to receive streaming yield paid out to smart contract-enabled sUSDe tokens. Users can then take their USDe or sUSDe and use it for payments, to participate in other DeFi protocols, or just simply hold as onchain cash, all held in their own self-custody. Ethena, typically issued on Ethereum mainnet, recently announced that USDe is available for traders on Hyperliquid’s perp DEX and sovereign layer 1 blockchain.
Perfecting Yield with Pendle
Pendle is another core financial primitive built on Ethereum and now available across multiple blockchains (Base, Sonic, Arbitrum and several others). Currently, Pendle has over $4 billion deposited into its smart contracts across all chains and is valued at $1.2B on a fully-diluted basis. What is Pendle? It is a fully decentralized and permissionless yield-trading protocol that allows users to separate any accruing yield from the underlying asset and then tokenize that yield, making it freely tradeable as a standalone asset. In practice, this means that a user can take any yield-bearing token and then split it into two new tokens, referred to as principal tokens and yield tokens (PT and YT, respectively). Again, this idea is not new, per se, as similar functionality has long been available on Wall Street via rate stripping and swaps. But what is novel is a) the open and permissionless nature of the platform allowing easy one-click access for anybody in the world to use, and b) the novelty of what that ‘yield’ actually entails.
Pendle and Ethena have a very tight integration given how core both products are to Ethereum DeFi. At the moment, there are several hundred million of USDe and sUSDe tokens deposited on Pendle by users looking to split off the yield from the underlying. In its most basic form, this allows a user, for example, to take their yield bearing sUSDe, split it back into a token exchangeable for 1 USDe and a token that represents all yield that would accrue to the original sUSDe over a given time period. The user can then sell one or both tokens on the open market to realize gains immediately. A buyer, on the other hand, could buy the principal token of sUSDe and lock in a guaranteed 10% yield on a dollar-pegged position. While it is largely limited to crypto native assets to date, one can easily envision a very near future where some of the $20 billion and growing tokenized ‘real world assets’ onchain, such as treasury bills or private credit, can be deposited and Pendle easily disintermediates some portion of the $500 trillion interest rate swap market.
Because this is all on blockchain rails, the term programmable value is also very broad. The example above offered a simple situation where real yield is passed through to sUSDe and that is then split and tokenized. But what if we expanded our definition of what that yield entails? We have discussed in previous posts the uniquely crypto phenomenon of airdrops and points campaigns. Basically, these are multi-month or year long campaigns orchestrated by protocol teams that reward early users of their platforms with an ‘airdrop’ of tokens at the end of the campaign period. Typically, users accrue points for specific actions during these campaigns that are the scoring system against which they are ultimately rewarded tokens. Though points accrued for a specific project may not be immediately valuable today, they are often incredibly valuable once the airdrop goes live. Hyperliquid, for example, ran a nearly years-long points campaign before their airdrop. At HYPE’s token generation event, the protocol was valued at nearly $4 billion and almost 94,000 addresses were eligible for the airdrop. The team distributed 310 million HYPE tokens to those users - immediately valued at roughly $1.2 billion (average of $13,000 per user). The day of the airdrop, HYPE increased over 600%, pushing the value of the airdrop to nearly $8 billion. As a result, some users were rewarded with airdrops worth hundreds of thousands of dollars, even millions: the largest user is reported to have received an airdrop worth just shy of $10 million.
That is to say, airdrops and point campaigns are incredibly common and can be incredibly lucrative (as, evidently, are perps exchanges!). Ethena is well aware of the value of both of these things and is currently running a points campaign for its own native perps exchange, Ethereal. Users can pre-deposit funds into the protocol and earn points in return. Now, what if one could tokenize those points and offer that on the market for someone to buy? There is undeniably value there, and blockchains make it very easy to turn those points-turning-into-an-airdrop-in-the-future into a tradeable token. Pendle does this very thing, and one can sell their accruing Ethereal points and realize the market’s estimated value of those today, or alternatively, one can purchase exposure to those points without actually having to lock funds in Ethereal’s contracts through a simple swap enabled by Pendle’s smart contracts.
Again, this is all done automatically by Pendle’s underlying smart contracts and though the explanation above may sound somewhat complex on first pass, the actual act of doing all of that requires just a few clicks by the user to make happen. And again, no direct line to Goldman’s trading desk required – it is all available 24/7 to anybody in the world with an internet connection and can be done as easily as sending an email or watching a Youtube video, with immediate settlement and finality.
These [Amazing] Delights Have [Amazing] Ends,
…And in their triumph [change the world].
-Shakespeare on crypto (probably)
To date, all of the composability and interoperability we discussed above – tokenized perp swap delta-hedging with accruing protocol airdrop points that is yield-stripped and traded on a decentralized automated market maker – may sound like circular crypto games that have no real use in the ‘off-chain’ world. But that could not be further from the truth, and if one steps back to actually think about the power inherent in what we just explained in this post, one can start to visualize a future where all of these for-the-moment crypto native mechanisms are applied to more traditional ‘real world’ assets and the trillions of capital that entails.
All of the narrower use cases that are being explored in the crypto industry (while already earning billions in revenue every year) are simply laying the ground work for when the global financial system is ready to jump in. Are they ready today? No, but they are undoubtedly starting to wade in the shallow end. We briefly mentioned above that there is already $20 billion of these RWAs tokenized onchain issued by the likes of Blackrock, Janus Henderson, WisdomTree, Van Eck, Apollo, Fidelity, Franklin Templeton, Hamilton Lane and KKR. Visa, Mastercard, PayPal, Stripe, Revolut, Shopify and now Meta, are all actively using or exploring how to more deeply use stablecoins in their businesses, of which there is already $250 billion worth circulating. Tether generates more profit than Goldman Sachs every year and is one of the 10 largest buyers of US treasuries in the world. Coinbase was just added to the S&P 500 (poetically knocking out credit card company Discover) and Robinhood acquired crypto-exchange WonderFi and is actively exploring putting tokenized equities onchain via Arbitrum, Solana, or with the WonderFi acquisition, potentially ZK Sync. Deutsche Bank is also looking at ZK Sync for its own L2 chain, while Sony launched its own chain via Optimism’s stack. JP Morgan, the DTCC and SWIFT, in addition to hundreds of banks around the world, are all actively building out blockchain products. The former CIO of Blackrock and one of Triton’s Board Members recently announced a new venture that is actively trying to put $1.5 trillion of traditional assets (gold mines, real estate, carbon credits, etc.) onchain. McKinsey estimates there will be $2 trillion in RWAs tokenized on public chains by 2030, and not to be outdone, BCG puts that number at $18 trillion by 2033.
This is no longer some fringe technology built by cypher punk nerds, but rather, an incredibly powerful and increasingly-adopted technology that is quickly being built out as the core rails that will underpin the internet-native financial system of the 21st century.
It is hard to underscore just how game changing this technology is and how widespread the use cases already are. For any reader that doesn’t have a wallet, we urge you to set one up and start playing around onchain (carefully!). Go on Base and swap USD for Euros instantly and for cheaper than any traditional forex desk can do with Aerodrome; punt a 100x memecoin perp on Hyperliquid or borrow SOL on Kamino and instantly swap it for a 10% yield-accruing jitoSOL liquid staking derivative with sub-second settlement and finality; send your cousin across the world $5 instantly with Oobit and for free and have her buy a coffee anywhere in the world Visa or Mastercard are accepted; see what it means to actually own your in-game assets with AAA first-person shooter Off The Grid; tokenize your content on Zora or fund a new creator on Believe or Dreamware; get involved in predicting the next Pope election on Polymarket or Hookt; stake your GEOD to help provide farmers in India better satellite signals for tractor navigation; provide AT&T and T-Mobile with data offload through Helium, or facilitate decentralized internet access with Andrena; buy Manhattan real estate with Parcl; or even tokenize your Ethereal points and Ethena yield and sell the YT token on Pendle. There is an almost infinite number of things one can do with tokenized, programmable value, with more use cases being launched every single day. And who knows, you might even receive a $100K airdrop just for helping a new startup get off the ground.
While it is almost impossible to convey in words how powerful these technologies are (I’m trying), once one starts using this technology and seeing firsthand what composable and interoperable systems mean for programmable value transfer, it is actually impossible to imagine going back to a siloed 9-to-5 bank account paying 0.1% interest a year. Crypto is already the iPhone moment for finance, and it is still just getting started.
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