I'm here with Kyle Samani, Board Industries, and many, many hats. A man who needs absolutely no introduction. Kyle, thank you for being here.
Now, you were on stage with David, who we spoke with a second ago. You had this debate, if you will. It was quite vanilla. It was about Hyperliquid versus Solana. I got the impression that you won. But at a very high level, I'm just going to ask you to take his side of the argument and maybe argue it in a little more gloves-off fashion. What is one reason you think why Hyperliquid is winning against Solana?
I mean, it's pretty clear why Hyperliquid got where it is. I think there's probably like two standout variables. One is the Solana folks, quite frankly, like just didn't get the technical infrastructure right to get perps. Two years ago, even one year ago on Solana, perps couldn't work. I mean, there was attempts at it certainly, but like it just wasn't good enough. And that's a whole bunch of very subtle technical decisions in the virtual machine, the account sizes, transaction ordering, slot times, a bunch of these things. A substantial majority of that stuff has been fixed at this point, where now Phoenix is really competitive with Hyperliquid on like all the kind of core technical infrastructure, and in fact has actually surpassed Hyperliquid on a number of things. For example, today, just transaction inclusion is substantially faster on Phoenix than it is on Hyperliquid, as one example. There's a number of others. So that was one thing, though, that like Hyperliquid absolutely got right. The other thing they got right was just like, quite frankly, timing. Around like two years ago, people wanted a no-KYC derivatives exchange. And you know, Jeff was the only one who, quite frankly, took the legal risk. You know, some function of time, some function of skill, and some function of luck, like navigated, you know, time, space, politics in a way that like worked out very favorably, you know, for him, obviously. But like those are really like the two things that got Hyperliquid to where they are. Notice though that both of those things are like not going to be more true tomorrow than they are today. Like those are intrinsically kind of backwards-facing things.
Yeah, not someone's notion of structural compounding that will carry on indefinitely into the future.
Let's look into the future then. Open interest is one of those things, stats we report on often at Solana Floor. We talk about a sort of fragmented Solana perp scene. Yes, innovation is happening. Yes, we have these incentive systems to bring more capital into the perp ecosystem within Solana. But the argument from the Hyperliquid side is that they've won the open interest battle. It's done. It's game over. That gap will never be closed. What are your sort of hot takes on that, if any?
Yeah. Look, Hyperliquid is unlikely to like become irrelevant within any reasonable time horizon. And I think that's a pretty silly argument. Probably the right thing to look at here is just look at like market share of exchanges in crypto over the last 10 years, both CeFi and DeFi. And the only common thread you'll notice is no one really lasts in a dominant position for more than a few years. Binance has been the most dominant for the longest, but even now Binance is like pretty clearly in structural decline. Market share has been kind of slowly bleeding in the downwards direction. Doesn't really seem like anything is going to change that. And so I think it's just a pretty silly argument if you understand the history of crypto to say that. Now, if you come to TradFi and you say, well, look, CME has been CME for the last 100 years, therefore Hyperliquid will be CME for the next 100 years. Well, yeah, but like, you know, there was a very different world back when CME became what it is, both in terms of the internet, available information, as well as regulatory capture and those kinds of things. So, you know, my point, kind of responding to the original point of just like, no one else will ever catch up, I think it's fairly easy for that. That's one set of comments kind of just about the past. I think the other set of comments, kind of looking forward in the future, is like, you know, today Hyperliquid still doesn't have that many direct users. I mean, I'm guessing it's like on the order of 100 to 200,000 direct users. It's certainly not in the many millions, let alone tens of millions. And like we haven't had the major retail brokerages around the world like integrate perps. Nubank, I mean, Revolut, whatever. Pick your big broker of choice.
I mean, this very clearly is coming. You know, founder of Nubank, David Vélez, Vélez is the name. I mean, he's like a very strong Bitcoin proponent, and like they've been thinking about crypto for a long time. There's no world five years from now in which basically every major brokerage around the world is not offering perps to their users in some form or fashion. And a single one of those guys turning on can change the market share dynamics in this market very easily.
Do you think they're more likely to pick a solution that's built on Solana than Hyperliquid's current configuration?
I suspect so, for a bunch of reasons. Again, one is just like, yeah, we'll see how the Kraken Hyperliquid thing works. Again, they didn't announce any details. They just said like, we're going to do some stuff together. But like, Hyperliquid runs in Tokyo, and like, I'm not sure that Fidelity and Schwab and all those guys want to be running core technical infrastructure for their customers in Tokyo. They also probably just don't want to use closed-source systems, like when there are known open-source alternatives available. So there's just tons of like these kinds of trust issues that are very real. The other thing you have to keep in mind here is that the competitive dynamics of these markets cause players to almost guarantee you want second, third, and fourth place to rival first place. And let me give you a very specific recent example of that. You know, Robinhood launched prediction markets with Kalshi like a year and a half ago, two years ago, whatever it was. And very quickly Kalshi became like very big from that. And Robinhood then spun up, they did some joint venture with Citadel. It's called Rother. They bought it or whatever, or did some majority acquisition, and they're now routing, I think, a pretty substantial percentage of their prediction market volume to Rother and away from Kalshi. They then, about a month ago, announced basically a similar deal with Crypto.com. Crypto.com also has a prediction market exchange. So they're now routing their taker flow to three different underlying exchanges. The reason Robinhood is doing that is it is most important to them to not have one prediction market exchange.
Is that because they don't want a single point of failure, or is it to have partnerships that they can leverage against each other? What's the play?
Correct. That now they can have those three compete on fees, compete on product innovation, right? Like I can guarantee you Robinhood, as do all the FCMs, as do all the trading firms, they all hate ICE and they all hate the CME because those are monopoly businesses. They're just completely right, and they don't evolve, and they're slow to change, and their products suck, and they never like the fees and this, that, and the other. And so Robinhood is like structurally, effectively guaranteeing that Kalshi doesn't have a monopoly, even though like they were clearly first with the right product and the right regulatory structure and all that stuff. I think now bringing that to perps here, I think you're going to basically see the same thing happen right now. If you are Fidelity, if you are Robinhood, if you are Schwab, if you are E*TRADE, and you're looking at the Hyper, you're Coinbase, you're looking at Hyperliquid, and you're like, look, these guys clearly like they're doing something. Is there a world five years from now in which like Hyperliquid is bigger than me or competing with me? And like it's not very much a stretch of the imagination for any of those companies to rationally think that. And so what's their incentive? Their incentive is to say, well, I'm going to route my flow not to Hyperliquid. But to two, three, and four. And so these markets basically guarantee you're going to get to some equilibrium state that's not very top-heavy.
Gotcha. Gotcha. That's quite fascinating. And taking this back to something you said a second ago, which was that, you know, Binance is in a position where they've been the most dominant for the longest period of time. Someone from the other side of the argument might say, yeah, but Binance might lose market share while increasing profitability, or while increasing the amount of revenue generated, or, you know, value created for the shareholders, right, in a sort of TradFi sense. So is it not feasible then for Hyperliquid to do something like that, where they're losing market share but being more profitable, you know, more value accrues back to token holders, back to perps, the DAT, something along those lines?
Yeah, that's totally possible, but they will still likely lose market share. Yeah. I mean, look, I think the claim I was litigating was not, will Hyperliquid live? It was, will they be as dominant as they are today?
Which is a question funded by market share.
I'd say the other comment I would make is, and I think people kind of underappreciate this, is we still haven't seen a race to zero in perp exchange fees. I think Hyperliquid today, the lowest tiers are like two or three bps, and the highest tiers are, I think, eight or nine or something.
Perps survive with zero fees?
Look, we'll see if they get to zero. I think they'll get pretty close to zero.
I think Hyperliquid announced Armada recently, if I'm not mistaken. They have 0.1 bps fees. I could be wrong. Don't quote me on that, but I think, yeah.
So there is a race to zero, but Lighter right now is zero fees, right? They've been for a while to subsidize. My point, though, is that like this is underappreciated, but like Solana mainnet charges zero fees. For like Solana mainnet today is the second largest spot trading venue in the world after Binance. They recently passed Bybit and Bitget and OKX, and they passed Coinbase a long time ago. I'm guessing they'll pass Binance on spot volume probably in the next 12 months, maybe in the next six. Solana mainnet, I mean, they charge gas fees, but like gas fees are, I mean, it's probably 0.001 dimes. If you look at how that math nets out, and so my point is that like you can get fees a lot closer to zero. I think a world in, you know, five, again, five years from now in which you're charging three bps, I think is extremely unlikely.
These businesses fundamentally don't have that strong of moats. The capital is mercenary. And, you know, at some point if you're Jump, Citadel, Jane Street, and you're paying a billion dollars in trading fees or two billion dollars in trading fees, you're just like, what do you mean? But like, what am I doing this? And like there is the next guy spins up the perp exchange and says the fees are 10x lower.
Yeah, it seems like a no-brainer at that point.
Yeah. Okay, that's very interesting. I want to very quickly switch our attention over to DATs. I know you briefly discussed it on stage as well. We've covered digital asset treasuries in depth at Solana Floor. For a long time, there was this idea that they were dead or dying, or, you know, do they pose systemic risk or not? Can MNAV compress enough such that there's enough sell pressure on the underlying asset that it sort of nukes the entire ecosystem that it's built on? I think it's safe to say we are past that stage of the discussion. You guys have done an incredible job of not only owning the term financial alchemy, but then actually using it for the good of the ecosystem. I think that's my personal opinion, maybe not so much of a hot take for you. But people still have questions about that. People still think, you know, Saylor is laughing. He's posting too many AI videos. People think, you know, Tom Lee's out there talking about ETH in a way that perhaps he shouldn't do. All sorts of hot takes come out from the digital asset treasury debate. What's your current take? And can we maybe start with a bit of a victory lap? Can you give me, you know, the key milestones and achievements from Forward that you think are really worth talking about?
Yeah, so, you know, I led the PIPE and became chairman of Forward about a year ago. And in that time, we've done a whole lot of things at Forward. We've really brought in an amazing team in place that is kind of led by Ryan, our CIO. He used to work at ParaFi. We've got our CFO, Mark, and our GC, Georgia, and then our CMO, Garrison. So that's kind of like now the core operating team there. And they've done a really good job across a number of fronts. First and most importantly is what we kind of call the SOL++ strategy. If you look at, look, Solana ETFs exist. Our number one competitor, very obviously, is Solana ETFs. And I love the guys at Bitwise and the other folks doing ETFs. That's wonderful. We have to justify our own existence above and beyond the ETFs. And so the way to do that is we need to grow our NAV at a faster rate than the vanilla staking rate. Over the last 12 months, I believe our NAV accretion in SOL terms is something like 30%. I think our last quarter we just announced the number is either 30 or 40%. It's in that range on an annualized basis for a full quarter. So call it 8 or 9%, you know, in one quarter, basically.
Whereas vanilla staking is under 6% annualized right now. So we want to outperform SOL in a bull market. We want to outperform SOL in a bear market in terms of NAV accretion. That's what we mean by SOL++. It's been 12 months. We have done that consistently quarter over quarter through all four of those quarters, basically now. So, you know, promises made, promises kept. We believe there's lots of ways for us. We've done it in some interesting and creative ways over the last 12 months, some of which are opportunistic, some of which are structural. We believe over the next 12 months, there's going to be tons of more opportunistic ways and tons of more structural ways for us to keep on doing that. And so that ultimately, if someone does develop conviction, say, I want to own SOL, they can also say, look, like this is actually in a lot of ways a lot more interesting of a way to own SOL. So that's what we're doing. We've done it, and I hope we can keep doing it.
I was trying to explain what Forward does to a normie friend of mine, you know, crypto-adjacent. He has a crypto.com account, dabbled in sort of centralized exchanges. I was trying to explain this idea of continually accumulating one asset in a treasury, and he said, that doesn't make too much sense to me. It sounds like they want you to buy the asset rather than just buying SOL, when surely if you just go and tell people to buy SOL, it's good for them as well. So I tried to explain it to him. What's your sort of 30-second way of explaining to someone why investing in FWDI is not necessarily direct competition with buying and holding SOL or buying and holding and staking SOL?
Yeah, look, it's not, I think competition is the wrong word, but certainly it's like it's an opportunity cost question. And it's obviously a reasonable one that any investor should ask when considering FWDI. You know, this comes back to just my prior claim. We're trying to be SOL++. So far, we've done it. We hope we can continue to do it. But we believe there are going to be plenty of, again, opportunities, both structural and opportunistic, to outperform the, call it, 6%, 5.5% vanilla staking rate. And we, you know, if we can keep doing that in the long term, that we should outperform SOL, if we can keep doing that in a way that is good for SOL. Well, in a way that's good for FWDI shareholders and also good for Solana. We obviously have taken some of those proceeds that we've generated from our various activities and used some of that to buy SOL. Right, our SOL treasury has grown. I believe it was 6.9 million SOL when we did the raise, the PIPE, a year ago. Today we're at 8.5 million SOL, I believe, is our last publicly disclosed number. So we're like blowing past, again, the vanilla staking rate on our rate of accumulation.
We spoke with Ryan three weeks ago, something along those lines. Fascinating conversation, eye-opening conversation. He was so bullish. He, you know, even said, at some point in the near future, I think we flip Ethereum. Now, we've come back to this sort of... I've been saying that we have, we've come back to it so many times. But you bought SOL for the first time, 4 cents, 40 cents?
That's crazy. And now you're buying SOL at $120. Why did you buy SOL at 4 cents? And are those reasons the same as buying SOL at $120?
I bought SOL at 4 cents because I got into crypto via Ethereum in 2016, and I fell in love with Ethereum like so many other people did who got into crypto at that time. Enthralled by kind of this vision of permissionless finance and DeFi and smart contracts and Web3 and all this stuff. And by the end of 2017, I became very jaded with Ethereum. I was convinced that like they had no idea what they were doing, and... I was definitely the first, not that many people who held that view at that time. That's obviously, I think, become a very consensus view amongst kind of folks in crypto these days, but it took people, gave Ethereum a very, very, very long leash, much longer than I would have anticipated. So I started looking for alternatives. I met Anatoly and Raj in early 2018. And Anatoly really stood out to me as a founder for a number of reasons. First was just a relentless focus on like hardware and performance and optimization. Like that's what his background was. Second was he came to me and he's like, Kyle, I don't care about Web3. I don't know what any of this stuff means. I'm here to build decentralized NASDAQ. That was a term he used. Obviously, the terminology has kind of evolved into like internet capital markets, but like he understood from first principles that this is a, he's building a trading system first and foremost, and I thought that was very important. And so kind of that combination of things is what led me ultimately to invest in SOL at 4 cents.
