Watch the full episode of this panel discussion on Gamma Prime’s YouTube channel
Panel discussion with Patrick Clancy (Head of Growth at MG Stover), John Divine (Fin Market Professional at Blockfills), Joshua Powell (CEO at Helio Analytica), and Greg Feibus (Head of BD & Partnerships at Midas)
Traditional finance veterans are stepping into crypto and rewriting the rules of markets. From decentralized options and stat-arb trading to tokenized hedge funds and “liquid yield tokens,” the conversation shows how volatility, liquidity, and innovation are colliding to shape the future of finance.
Pat (MG Stover)
Well, thanks for the intro. I’m kind of curious, there’s a lot going on in capital markets right now. What are you doing here on the stage? No, I’m joking. But I think the big thing that we want to get into – and you guys all come from a TradFi background – you’re looking at new opportunities on a daily basis. Maybe from each of your perspectives, what are you compelled by? What are you looking at right now? Where are opportunities in this space?
John (Blockfills)
Okay, yeah, so for me, on the options front, I can’t help but get really excited about what’s going on in Ethereum with decentralized finance and options protocols and structured products. That seems to be the bleeding edge of derivatives.
What we’ve seen in the past year to 18 months is that these DeFi options vaults – liquidity is starting to beef up. You can actually get some decent size transactions done on these protocols.
Number one, you’ve got to learn about why options are interesting and how they can help you manage risk. But once you grasp that concept, the other side of it is: how do you become a liquidity provider for these venues now? It’s decentralized finance. You don’t have to be from Citadel or Jump or any of these major market-making firms from traditional finance. If you can put together a model and figure out how to manage risk around it, anybody can step into the venue and provide liquidity.
A lot of these protocols have some very interesting incentive schemes for liquidity providers to earn the base layer asset or whatever the structure might be. That liquidity provider is what’s going to make the protocol work and make that venue attractive to trading.
So that, to me, seems like a very good area to focus on – not just vanilla options, but also the structures and the exotics.
Josh (Helio Analytica)
John’s a pro. He’s been in the business for a long time and comes out of all the right places.
From our side, we have a relatively small firm that is a group of guys and gals born on the trading floors in Chicago. Everybody really came out of the market-making space. Over time, as things changed and we moved into a more automated world, we took all those skills and put them into computers, so to speak.
Now we spend almost all of our time building out strategies that combine market making and co-integrated stat arb strategies to basically trade relative pricing.
What does that mean? That means you have two instruments that are very correlated, but over time they cross-price quite a bit. That gives an opportunity to arb these sorts of prices with very low risk and very good return, doing it at a relatively – not high frequency, but more of a mid-frequency kind of tune.
As we’ve looked at the market, we spent quite a bit of time looking at crypto. For us it was like being in the front row of a Def Leppard concert, watching this crazy market going all over the place. The real question was: how do we harness all this volatility?
We were all option traders at heart, but there really isn’t a big option market. You have one guy that makes big OTC markets for some large players, but there wasn’t a great place for us to be. So we took some time to figure it out.
Currently we trade anywhere from 3,800 to 6,000 equities a day and lots of energy futures. Where we landed is trading a portfolio of anywhere from 50 to 75 cryptocurrencies, using very similar approaches as we’ve done in the past – but in this incredibly volatile environment that makes for some frankly incredible returns.
I’m as excited about trading as I was when I first walked onto the floor at 19 years old. I look at this period as similar to the dot-com cycle: we’ll have some winners and losers, but in the meantime, there’s incredible volatility.
I’m not going to sit here and tell you where the market’s going or what’s worth what. I have no idea. What I do know is that when we get an opportunity to trade an incredibly volatile market, that’s something we can make money on. And that’s where we’ve really placed all of our energy.
Greg (Head of BD & Partnerships, Midas)
Yeah, so we are not doing what these two gentlemen are doing. Midas is not a trading entity. Many of us have that background, but what I would say is that we’re leveraging best-in-class yield opportunities. Whether that constitutes active management like a DeFi hedge fund, or finding opportunities in on-chain borrowing and lending markets like Morpho or Euler, we are leveraging the totality of those opportunities.
We wrap those opportunities for investors, issuing MiFID and MiCA-compliant security tokens. These are unambiguous security tokens. We are not trying to obfuscate that. We’re issuing them out of a German-based entity regulated by BaFin. I used to work for Deutsche, so I can tell you those guys are a joke.
We have a base prospectus. We’re issuing these assets with no investment minimums – from retail all the way through institutional. We’re looking for expertise from people like this, who have unique trading opportunities and strategies that we can wrap and then bring to the masses through tokenization.
On the more rudimentary side, we have tokenized T-bills as a unique collateral asset: low vol, highly liquid. In lending markets you can get really high LTV to borrow against those. Everyone knows the recursive lending trade when T-bills were north of 5%. That spread was there – you could loop that two, three, four times, build a levered long treasury position, and secure that spread.
Now that T-bill yields have come down, we’ve had to get creative and find new alpha for our users. That has been through, as John mentioned earlier, tokenizing basis: long spot, short perps, and capturing that spread. That spread has collapsed because of where funding rates are, so we’ve moved further along the risk curve, constantly evolving.
Recently we were in CoinDesk for tokenizing three prominent DeFi hedge funds—Edge Capital, MEV Capital, Re7 Capital. They’re actively trading, doing stat arb, point farming, different strategies. As an individual, you might not have access to those LP opportunities. That yield is baked into holding a Midas token.
So we feel it’s a unique on-chain proposition, and we’re looking to leverage strategies from gentlemen like this.
John
Can we push on that a little further? Because this is extremely interesting.
If anyone was in the room for my presentation on options, the first strategy I talked about was the basis trade. You buy spot Ethereum, you sell forward, and you capture that spread. There’s an opportunity for anyone willing to go on that journey to do this themselves on DeFi venues: bid spot, provide liquidity by showing an offer in the forward market, and the market pays you a spread.
But what you’re getting at here is the future of finance: we can take these strategies that maybe 8 out of 10 people aren’t going to put on themselves, but you can put this into a token. The token is backed by the fundamentals of the strategy – buying spot, selling forward behind the scenes – but you’re just providing an easy on-ramp into that strategy.
That is powerful. Give me more color – when did that come out to the market?
Greg
We’re trying to create our own narrative here that we’re calling Liquid Yield Tokens (LYTs). If everyone can start using that terminology, it would be much appreciated.
What we do is seed some stablecoin liquidity into smart contracts. Because if you’re in lending markets and you have a leveraged position, you may need to leg out intraday as the market’s moving. You need the ability to instantly redeem. It’s not like a hedge fund, where you’re an LP and redemptions take 45 days. That won’t work.
So we’re trying to optimize liquidity. We’re also building safe products that are bankruptcy-remote and properly risk-managed by the actual fund. There’s a lot of due diligence that goes into these funds as well.
