Institutional-grade Derivatives Strategies for DeFi | Stablecoin, RWA, BTC tokenized derivative strategies since 2023 | Real Risk-adjusted Returns at Scale
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Why looping in crypto is broken, why we stopped, why you're being sold repackaged credit risk as a savings account, and why we don't need it anymore. Thanks to @chameleon_jeff and @HyperliquidX.
Before founding D2, we spent a decade in institutional derivatives.Started at Bloomberg, then moved to global multi-billion-dollar hedge funds, and finished with a few years at PAG, a $55B Asian multi-strategy fund, trading volatility as a PM responsible for a multi-billion notional book.
Across that span we sat next to some of the best credit teams in the business. So when we say what the market is being sold as "stablecoin yield" looks like a leveraged credit strategy in a wrapper, this isn't theory. It's pattern recognition from watching credit professionals price this class of risk for a living.
Nothing inherently wrong with leveraged credit.
There is something wrong with selling it as "yield" without pricing the tail.
@ethena has executed beautifully on a favorable market setup.
Funding has been positive, basis has been wide, delta-hedged shorts have earned. Mechanically it remains a leveraged basis trade that pays until funding flips, liquidity thins, or the short leg breaks. That is not a savings account. That is a credit hedge fund wrapped in USDe.
The same logic applies to every looping stablecoin variant: sUSDe loops on Aave, syrup loops on Maple, avUSD, others. Same structure. Borrow cheaper stable, lend richer yield-bearing stable, pocket the spread, repeat 5x.
Works until it doesn't.
This week we documented two of these positions at -93% and -135% net APY, HF 1.01 and 1.02, ~$1B combined gross exposure.
D2's on-chain auditable track record (attached):
+3.8% (Dec 2023)
+115% (2024)
+31% (2025)
+3% (2026 YTD)
2.6 Sharpe. 28 of 28 positive months. 200% cumulative.
We looped actively in February 2024. Long ETH looped into USDC on @aave , short ETH on @GMX_IO , at funding rates that peaked above 100% APR.
One of the trades that made 2024 our best year.
Nothing against looping when the risk is properly compensated.
In 2025 we did lighter looping on the @fundstrat ‘ ETH run from $1,500.
We exited when the setup started to look like a bubble, and rolled the delta exposure into call options on @DeriveXYZ. July expiry paid materially. August expired mostly worthless.
Net result: we captured the DAT mania with defined downside.
We did not need a crystal ball.We needed convex payoffs.Since then we have not found a looping setup worth taking. Not ideology, the risk-reward no longer clears.
The change that matters: Hyperliquid liquidity has made gamma replication, delta hedging, and structured payoffs executable at spreads that do not exist anywhere else on-chain. We can now replicate most of the payoff profiles we like, with defined downside and substantially better risk-reward, without taking liquidation risk at HF 1.01.
Do not let zero-fee gimmicks mislead you. Execution happens at the spread, not the fee. Hyperliquid spread is why this works. That is @chameleon_jeff and the team's real contribution to institutional DeFi.
For fund managers: if the risk profile of your product is "leveraged credit, short convexity, earn carry until you cannot," that is a legitimate strategy. Label it correctly. Do not package it as a stablecoin and compare it to money market yields.
For everyone else: if a product offers you double-digit "stable yield," ask what happens in tail conditions. "We have Umbrella coverage" or "the collateral is fully backed" is not an answer. That is a marketing line. Ask for the funding chart. The liquidity depth in stress. The concentration of the borrower base. The unwind mechanics.
We learned looping by running it when it paid. We stopped when it didn't.Looping pays carry until it doesn't. Options pay when it matters.
Thanks to @chameleon_jeff and the Hyperliquid team for making this possible.
Fade D2 at your own risk. 🫡
Forget PMH, let's talk about HMH.
HOT Market Hypothesis: TradFi is turning into crypto.
Money chases the best recent trade as fast as plumbing allows, and the plumbing keeps getting faster.
US long-short momentum's best and worst month since 2007 landed back to back: +5.89% in June, -8.14% in July.
The HOT Market Hypothesis, position paper in first reply 👇
The HOT Market Hypothesis 👇
xitter.cf/d2_finance/status/2108…
@USDai_Official is running the @berachain playbook on a GPU loan book.
Berachain spent a year on Proof of Liquidity flywheels, pre-deposit vaults and points. $BERA listed at $14.97 and trades at $0.19, down 99%.
USDai promised farmers a Season 2 airdrop and announced 2.25% of supply on 14 Oct. Early claimants post allocations near 1.3%; the team has not reconciled the numbers. $CHIP is down 55% since April, with 2.76B tokens (1.4x the float) unlocking on one day in April 2027. The difference is that Berachain was a Ponzi with a bear on top.
USDai is sold as a dollar, and 54% of it is loans against GPUs that nobody can hedge.
THE HEDGE THAT DOES NOT EXIST
@drwconvexity of DRW, 22 Oct: some of the largest data center lenders have hit their risk limits, and the lack of a hedging instrument caused credit spreads to blow out. The instrument is CME’s H100 and B200 rental futures, cash-settled on the Silicon Data indexes, due 5 Oct, with CFTC review extended to 9 Nov.
The indexes are live on @TheTerminal: SDH100RT at $2.86 an hour, SDB200RT at $6.14. The futures are not.
WHAT THE BANK MARKET CHARGES FOR GPUs
Bloomberg loan database, 22 Oct. CoreWeave first-lien delayed-draw term loans price at SOFR plus 225 to 600 depending on vintage, 6 to 10% all-in, with OIDs of 97 to 98.5 on the wide tranches. CoreWeave’s original GPU-only SPV loans, the CCACIL vehicles, now carry a 960 bp current margin. CoreWeave unsecured: 9.25s of 2030 at 86, 9.625s of 2032 at 80.5, 12 to 14% to maturity. Applied Digital’s 9.25% secured 2030s are the clean fixed-rate comp at 102.7. The Bloomberg HY index is 327 bp over, from 264 bp on 1 May. @KobeissiLetter: $419B of AI bonds this year is the supply of all this paper, up 90% on 2025; Bloomberg shows $301B of it from public issuance, the rest private.
WHAT USDAI CHARGES AND HOLDS
USDai lends into the same market at 11.5% to neoclouds smaller than CoreWeave, above the secured bank rate and below CoreWeave unsecured:the mezzanine slot with a stablecoin as the liability.
@DefiLlama and @arkham, 21 Oct: $263M of reserves, $261M of it PYUSD, and $311M of GPU loan principal, so loans are 54% of the dollar, up from 0.2% in January as $400M of reserves left. Largest loan is $128.9M to a listed Canadian operator with investment-grade offtake, signed 14 Oct.
USDai’s own mitigants are real and worth stating: curators post first-loss capital, loans are secured on the hardware with escrowed draws, and the larger borrowers carry multi-year contracts from rated counterparties.
None of that is a price hedge.
Collateral is hardware that loses 45 to 65% of its value in three years, and the market that would price next year’s rental rate does not exist yet.
WHO HOLDS THE YIELD
DefiLlama sUSDai pool, 21 Oct: 10.17% verified APY on a 30-day window built on one day’s fee spike, 1 Oct, when 52% of the month’s fees landed and 19 of 30 days were zero. Growth of $1 since 4 March annualises at 6.75%. Exit is a 30-day queue, no instant lane. Of 4,079 holders, a wallet created 54 days ago and funded by two $50M transfers from one address holds 32%, Fluid’s vault 29%, Pendle 13%. Three addresses hold 74% of the pool.
THE TOKEN
Season 2 claims opened 20 Oct, run to 31 Jan, no vesting. Reserves fell 24.5% in the seven days after the announcement. On 16 Apr 2027 the investor, contributor and reserve cliffs unlock 2.76B CHIP, $134M at $0.049 against a $97M market cap, then about 44M a week to 2029.
Two predictions, dated so you can hold us to them.
By 16 Apr 2027 USDai ships a ‘CHIP flywheel’ with a new name before it ships a hedge (bonus if they hire @SmokeyTheBera as advisor).
And the first compute futures print on CME tells every GPU lender what its book was worth all along; the only question is which side of 11.5% it lands on. Berachain’s farmers found out at $0.19.
Hyperliquid.
AI-related borrowing is skyrocketing.
US Dollar-denominated AI-related corporate bond issuance is up to $419 billion so far in 2026, the highest annual figure on record.
This represents a +90% YoY increase from full-year 2025 and a +437% increase from full-year 2024.
Year-to-date, Alphabet, $GOOGL, Amazon, $AMZN, Meta, $META, Microsoft, $MSFT, and Oracle, $ORCL, have issued a combined $157 billion in corporate bonds, accounting for 37% of the total.
This is followed by investment-grade and high-yield data center and computing companies, which have raised $66 billion and $37 billion, respectively, and together account for ~25% of AI-related issuance.
Other AI-linked corporate bonds have represented $159 billion, or 38%.
The AI revolution is driving an unprecedented wave of corporate borrowing.
Other sources here:
xitter.cf/ethandefi_/status/2112…
And here
xitter.cf/boubaniofficial/status…
Past week has been so horrible that I've went from being super uber-bullish, to incredible bearish on USDai. Probably the worst communication I've seen in this space. So bad that I'm thinking of quitting crypto again.
Literally all of this could've been prevented if they asked a community member's opinion. If they gave 1% more airdrop in S2, and then reduced all other airdrop season to 1% we would all be fine with it. But the lack of communication has been nerve-racking....
First they announced that the airdrop would be 2.5%, but in reality it was 1.5%. And then again they reduced it to like 1.3% ish.
What's the point of being early when you tie the incentives to the revenue? Early users will get breadcrumbs, while later users will get rewarded more. Just for example base:0xacfe6019ed1a7dc6f7b508c02d1b04ec88cc21bf distributed 50% of their Genesis supply to users & other project users. And still went to 2.5B$ FDV.
This move from USDai proves that they have very low expectation for their governance token ethereum:0x0c1c1c109fe34733fca54b82d7b46b75cfb71f6e . Staking will not be interesting enough for users, it will start at a high APY and then crash in April 2027 when the big unlock happens. Being greedy with community incentives to get a better price action has historically never ended well. I'm not saying that USDai won't grow to multibillions. But most of the time when you hurt the core loyal users, the spirit goes away with it. Institutions won't be buying CHIP, that is what the public retail does. Speculators will be buying that have no interest in holding longterm.
I max bid S1 with my whole net worth, then I max bid the ICO amid the bearmarket by taking 5 loans + fully investing my whole net worth . Then again I held the token down to -85% from ATH. I'm not just a spectator, I have over 10K+ messages together in the Telegram groups. And I am close with the USDai team. I am the only community member with a tag (Chip Chad) on Telegram.
I am devastated, tired and depressed. Thought I finally found the one crypto company that I could trust.
Following Jeff's example we put the jacket on (t-shirt underneath) and sat in @Nasdaq panel on 23/5 equity trading with @GoldmanSachs , DTCC, @moomoo and Superhero.
The gap to Hyperliquid's 24/7 is one hour a night and the weekend.
Fungibility between the listed share and the on-chain line is far off. Two prices for one asset with no delivery between them is how the kimchi premium survived a decade, and every hour one venue trades while the other sleeps adds basis.
New arb set for D2 users, alpha soon. 👀
The house of all finance already has its first multi-strategy hedge fund. D2 has run it on-chain since December 2023 and on @HyperliquidX every day since before the token existed: 33 epochs settled, 32 positive, no losing month, $648M through one account, almost $3M paid to users, no VC.
Long the house on first principles, a neutral ledger with a real order book.
Short every extraction experiment where an LP pool is the zero-slippage counterparty in size.
The not brainless timeline / @0xLoris set p(death) = 1 on this week's one. We put that in writing in May, link in the reply.
Jeff can keep the suit. The panel called 23/5 the future. We have called it Saturday since December 2023.
Hyperliquid
The credibly neutral ledger Joe describes has a name.
Hyperliquid clears BTC, the Nasdaq 100, SK Hynix (Seoul share and ADS), oil and SpaceX pre-IPO on one margin account, 24/7, and $648M of it went through one of our accounts.
The SK Hynix bet he calls hypothetical was about a third of all @tradexyz HIP-3 volume in July, the largest stock perp on the venue.
Listing is permissionless: stake 500K HYPE, deploy, fees flow to the $HYPE cleaner than a dividend.
We have traded there every day since before the token existed, first HYPE fill at $2. Our call: non-crypto markets exceed half of @HyperliquidX volume in every month of 2027.
@chameleon_jeff wears the suit so the conference crowd sends us more.
May receipts on @papertrade_xyz
xitter.cf/d2_finance/status/2054…
Jez read Reminiscences of a Stock Operator and shipped it on top Hyperliquid’ tech ( not @Lighter_xyz )
onchain bucket shop. he confirmed it in this thread under @dipsybitsy “yep, fully transparent and the losers who fund it will own.”
the bucket shop pattern is 100 years old. customer trades at the listed price, the house takes the other side, nothing reaches the actual exchange.
Livermore made his early stake trading against them, then got banned from every shop in Boston for being too good. they died from two pressures: directional regimes that smoked the house, and ticker manipulation where operators pushed the real venue to harvest at the shop. both are live here. neither is solved by stacking five defensive parameters.
what is actually onchain: a contract that reads HL’s BBO via precompile and synthesises swaps against a Martingaler LP. zero flow reaches HL’s orderbook. zero funding rebalance. the only feedback loop is parasitic.
BBO manipulation attempts to harvest the synthetic spread degrade HL’s book without compensating the makers wearing the jitter. the venue extracts liquidity quality from @HyperliquidX ( fair enough!)
the fair launch plus 1000x leverage plus PAPER mint-on-loss design is engineered for initial FOMO. expect a fast first week/month. Jez’ inner circle volume comes in, asymmetric impact taxes the few winners, losers fund the LP and mint PAPER, the chart can look initially great if execute right.
this is the bootstrap window the docs explicitly subsidise at 100 PAPER per $1 of LP gain below 2M.
Then path dependence will shows up.
LP edge per trade is thin: 0.2 bps jitter band plus the convex bite of asymmetric impact on winning closes. order of magnitude, on a $1M ticket the LP edge is in the tens to low hundreds of dollars. one 5% adverse move on $1M of net synthetic exposure is $50,000 of MTM loss. edge accrues like √t under stationary flow. directional regime hits the LP linearly in t. √t vs t means one persistent trend eats months of accrual.
the half life of LP equity in a trending regime is short, and it gets shorter as size scales because the OI cap trails realised OI rather than leading it.
then the debt queue activates.
martingaler issues claims paid by the next loser. once the queue is observable, the EV of opening a new position is negative twice: once because winners get haircut, once because withdrawals sit behind every prior bust. rational flow stops. Queue does not clear.
PAPER, a claim on future LP revenue, is then a claim on revenue that must clear the queue first.
the cross-venue attack (@NaiveKrypto point in the thread) has its own path dependence.
wicking HL spot or perp to harvest the synthetic at the shifted BBO is only EV-positive once papertrade’s OI is large enough that the harvest exceeds the cost of pushing HL.
below that threshold, no one bothers. above it, every desk with an HL maker does.
self-limiting at small scale, openly hostile at large scale. the steady state is zero, the only question is the path.
all bucket shops are zero in short to medium term. the 1900s wave died within two decades, mostly to regulation and to operators eating them. the onchain version skips regulation but keeps the operators and adds a debt queue that hard-codes path dependence into the equity curve. the docs read like a list of every defence shops historically tried, in order.
stacking five does not change the shape of the failure mode, it just shifts where the failure surfaces.
closing thought. the whole structure is short volatility against directional flow, dressed up as a perpetuals venue.
it is the same trade as a Korean retail account systematically selling MRNA noise reversion while their own KOSPI 200 trends straight through the stop. works beautifully until the regime turns, then the half life is a week.
clever paper, novel emissions curve, real engineering. the structure is 100 years older than the precompile.
Hyperliquid
The credibly neutral ledger Joe describes has a name.
Hyperliquid clears BTC, the Nasdaq 100, SK Hynix (Seoul share and ADS), oil and SpaceX pre-IPO on one margin account, 24/7, and $648M of it went through one of our accounts.
The SK Hynix bet he calls hypothetical was about a third of all @tradexyz HIP-3 volume in July, the largest stock perp on the venue.
Listing is permissionless: stake 500K HYPE, deploy, fees flow to the $HYPE cleaner than a dividend.
We have traded there every day since before the token existed, first HYPE fill at $2. Our call: non-crypto markets exceed half of @HyperliquidX volume in every month of 2027.
@chameleon_jeff wears the suit so the conference crowd sends us more.
@BlackRock filed PBIT on Monday, a Bitcoin ETF with a 10% floor.
We pulled it apart because we run a Bitcoin yield vault and wanted to know what the biggest asset manager thinks retail buyers want from protection.
Short version for anyone who doesn’t trade options on @DeriveXYZ: PBIT keeps about a third of Bitcoin’s move in both directions, loses money in most flat scenarios after fees, and the floor resets lower every month, so a slow bear market still took the structure down 28% in our backtest.
hXXI keeps all of the Bitcoin move and adds a yield on top, paid in @HyperliquidX / @unitxyz BTC.
Over the last twenty months that has been the better trade by a wide margin, and we have the numbers.
PBIT uses three overlapping quarterly call spreads on IBIT: long the 90% strike, short a cap, remainder in bills. The cap is set wherever the sold call pays for the floor. At today’s 38% implied vol that comes out at about 13% a quarter.
It is almost insensitive to vol (12% at 23 vol and 15% at 63) because T-bill carry does most of the funding.
We checked the model against Calamos CBXJ, the closest live product (90% floor on IBIT with a year of history). CBXJ captured 34% of IBIT’s up days and 36% of its down days.
hXXI is different. It is not forced to write calls on the full notional when the premium doesn’t cover it, and what it collects is retained in BTC.
Net of fees the factsheet shows 3.9% a year in BTC, worst month -0.9%, 17 of 20 epochs positive, max drawdown 1.8% of the Bitcoin stack. In dollars since February 2025 (IBIT -19%): NEOS income fund -17%, Roundhill covered call -24%, Innovator floor -28%.
Return per unit of volatility: hXXI is the best on the shelf, ahead of our PBIT replica, with the Calamos and Innovator floors last.
Forward we ran 20,000 paths to December 2027 at today’s implied vol with zero drift. hXXI has the highest expected return (~5%) versus under 1% for PBIT and 0% for IBIT, and the best return per unit of risk (0.11 vs PBIT’s 0.04).
PBIT does what it says in the tails: worst 5% of outcomes improve from -60% to -30%, best 5% fall from +80% to +35%.
Twenty Bitcoin buffer ETFs hold $146M total against $66B in IBIT. The largest is $25M after a year.
Option income funds hold $1.8B and every one trails $ibit.
@JSeyff @EricBalchunas @choffstein correct us if we’re wrong, but this doesn’t sound like much demand: are IRAs confident just on BlackRock for these buffers? It’s not that complicated 😅
Twenty funds sell Bitcoin with the upside removed, on an overfitted backtest. We sell Bitcoin with more Bitcoin.
Factsheet and epoch-by-epoch record in BTC terms: DM us.
BlackRock filed a simpler copy of hXXI as an ETF.
PBIT is long $IBIT, long a put spread, and short a call to fund it.
It matches JPM’s Hedged Equity fund, which rolls the 95/80 put spread and sells the 5% OTM call quarterly on ~$20B of S&P so the call premium pays for the protection.
On $BTC at 35 vol (vs 15), a one-year 100/85 put spread costs ~6% of notional. Selling one call to fund it sets the strike near 130.
Buyers get the first 15% downside covered and keep upside to ~+30% before fees and skew. The same SPX structure caps near +18%. Crypto vol makes the collar pay nearly double.
This is the trade hXXI has run on-chain since 2025. Calls are written on only part of the notional, so most of the sleeve maintains BTC upside in spot during rallies plus delta hedging and RV trades.
Current: $1.7M TVL, 4.41% APR in BTC terms since inception, outperforming the other BTC ETF in the market.
Time to outperform Larry too.
The forward view, twenty thousand paths to Dec 2027 at today’s IBIT vol, no drift. Right panel is the one to read: higher is more expected return, further right is a smaller worst case. hXXI is highest. PBIT is furthest right. Nothing is both.
Then the verification reply beneath it, unchanged:
Every figure is checkable. @TheTerminal : PX_LAST, TOT_RETURN_INDEX_GROSS_DVDS, 3MTH_IMPVOL_90/100/110%MNY_DF on IBIT, FUND_TOTAL_ASSETS.
hXXI epoch returns are on chain.
@StaniKulechov, @luigidemeo be careful, we are coming HOT.
Hot7 Epoch 1 filled its $1M cap on @base.
We supply tokenized stocks on Aave and short the same names on @HyperliquidX, delta flat, earning USDC incentives plus funding while the momentum rank sets how much goes to the 1.3x structure.
We will win with @aave.
Aave is already a multimillion-dollar market for borrowing against stocks.
And we’re just getting started. As more stocks move onchain, this becomes a $200T+ opportunity.
The theory can wait 😅 farmmaxxing first
xitter.cf/d2_finance/status/2108…
BlackRock filed a simpler copy of hXXI as an ETF.
PBIT is long $IBIT, long a put spread, and short a call to fund it.
It matches JPM’s Hedged Equity fund, which rolls the 95/80 put spread and sells the 5% OTM call quarterly on ~$20B of S&P so the call premium pays for the protection.
On $BTC at 35 vol (vs 15), a one-year 100/85 put spread costs ~6% of notional. Selling one call to fund it sets the strike near 130.
Buyers get the first 15% downside covered and keep upside to ~+30% before fees and skew. The same SPX structure caps near +18%. Crypto vol makes the collar pay nearly double.
This is the trade hXXI has run on-chain since 2025. Calls are written on only part of the notional, so most of the sleeve maintains BTC upside in spot during rallies plus delta hedging and RV trades.
Current: $1.7M TVL, 4.41% APR in BTC terms since inception, outperforming the other BTC ETF in the market.
Time to outperform Larry too.
BREAKING🚨 @BlackRock just filed for another Bitcoin ETF. This one will be a "buffer" Bitcoin ETF which will means it will offer downside protection but investors will give up some upside to get that protection. Ticker will be $PBIT.
TABLOID STORY HERE, SERIOUS STORY IN THE QUOTED POST
EXCLUSIVE: Prediction markets golden couple @hosseeb and Sydney have SPLIT, and pals say the charm gap was 174x.
Kalshi's ETH perp did a sizzling $539m a day on just $3.1m open interest in September. Kalshi insists it's real demand.
@Polymarket raised at a whopping $21B and Kalshi lounges on $22B, so dinner dates were never the expensive part.
Haseeb, whose Dragonfly co-led Polymarket's Series A, was spotted on Oct 3 laughing about it on @_choppingblock (40:24 Kalshi's perps volume, 44:17 how the rebates went awry). A source close to the pod said: "He laughed. Then he checked the @Polymarket secondary bid."
Two people NOT laughing: Elizabeth Warren and Jamie Raskin.
Raskin wrote the House version of the STOP Corrupt Bets Act; Warren co-sponsored the Senate one. It bans sports and election contracts, and at 90% odds of a Democratic House the pair are January's likely chairs.
A volume story every insider already knew is now Exhibit A at the hearing, and Warren's staff won't need to dig: @icobeast posted it, 96.7% share chart and all.
Then there's the cap table. About $500m of Polymarket's book is 1789 Capital, where Trump Jr. is a partner, and "Trump family ties to prediction markets" is line one of the Democrats' hit list.
Sydney's MOVING ON. @Novig says first-time depositors are up a saucy 362% since her ad, so she's still got it after American Eagle. Shame it's a sports-only book and sports is written into the bill.
Our call: the next Polymarket and Kalshi marks print well below $20B .
@icobeast didn't break up Haseeb and Sydney, but he may have cost them both a lot of $$$.
Midterms in 15 days, from the D2 desk.
@Kalshi has a Democratic sweep at 62%, and crypto has priced it: $COIN, the most policy-sensitive proxy in crypto, closed at $173 Friday, matching the $174 it fell to on Sep 15 when CLARITY died.
Not priced is January, when Democrats get subpoenas and @SenWarren takes the Banking gavel.
PRICED IN
1. The map. Kalshi: Democrats 90% for the House, 63% for the Senate, 62% for the sweep. A Republican sweep trades at 10%. The sweep gained 4 points in a month and none today. Republicans can lose two Senate seats and still hold it (WSJ).
2. CLARITY is dead until 2027. Cloture failed 49-50 on Sep 15; four Republicans voted no, zero Democrats voted yes. $COIN dropped 9% that day and has not moved since.
3. The Fed. Warsh hiked 25bp on Sep 16 to 3.75-4.00%, the first hike since 2023. Oct 28 prices another at roughly 1-in-3, six days before the vote.
4. Equities already rotated to the anti-Leopold bunker. Bloomberg factor monitor, one week: low volatility +12.5%, dividend yield +6.7%, growth -7.9%, momentum -6.3%. Crypto is a growth and momentum asset (in theory).
Utilities are the momentum trade now and they do not even have a Discord.
5. The why. September CPI 3.7%, core 2.6%. Rural prices +4.0% vs city +3.6%, motor fuel +35% on the year, and rural states pick the Senate: Kansas, no Democratic senator since 1932, is a toss-up.
That is 76 years before the Bitcoin whitepaper. Trump approval 33%, a record low.
NOT PRICED
6. Subpoenas arrive in January. Democrats take a chamber at 90%; first named targets are Trump family crypto ties and prediction markets, and Warren is favorite for Senate Banking chair. Apple, Microsoft and Palantir are hiring Democratic lobbyists now.
7. Ohio is the tell. A Fairshake affiliate spent $40m in 2024 to remove Sherrod Brown, four-year Banking chair. New polls put Brown ahead of Husted. Fairshake holds $122m and 32 endorsements, all House, 19 Republicans and 13 Democrats. $40m bought the first movie; nobody budgeted for the sequel. Money in the House, risk in the Senate.
8. The arithmetic. CLARITY lost at 49 with a 53-seat Republican Senate; it needed 60, so it needed Democrats either way. A flip changes the chairs, not the math. Today's rules are SEC and CFTC actions; a Democratic Congress cannot repeal what was never legislated.
9. The odds on prediction-market legislation are, fittingly, odd. $750m has traded on the midterms at Kalshi and Polymarket; Warren wants a public hearing on the venues and the CFTC wants the contracts called swaps. @icobeast should list a refund contract for the VCs who bought the pico top 😂 @0x_ultra can code it for him.
10. The trade after the vote. A Democratic Congress against a hawkish Fed sets up spending and debt-ceiling fights in 2027 (Bloomberg). BTC trades the deficit, and the deficit gets decided there, not on Nov 3.
Post-midterms, crypto equities carry the January risk and the Warren risk; the coin carries the Fed and the fiscal fight after.
We find this out in January. One reason this epoch of Alpha strategies ends on January 15. We trade for what is not priced in. 🫡
STOP Corrupt Bets Act (Merkley/Raskin, Warren co-sponsor): axios.com/2026/03/26/predict…
Polymarket $21B, 1789 Capital ~$500m: cointelegraph.com/news/trump…
Volume scrutiny: cnbc.com/2026/09/30/kalshi-p…
Novig +362%: finance.yahoo.com/markets/cr… xitter.cf/_choppingblock/status/…
North Korea stole $387M from Bitget and ran it through THORChain, again. Kalshi’s volume real or fake? Are agents going to create bank runs? Is staking still risk-free?
Timestamps
00:00 Intro
01:42 Bitget loses $387M to North Korea
07:08 Should chains freeze hacked funds?
15:35 Chains as laboratories of democracy
21:44 The hidden premium on janky chains
27:13 Consensys: is staking still risk-free?
30:53 Pricing and hedging validator risk
40:24 Kalshi's perps volume
44:17 How Kalshi's rebates went awry
53:07 Apollo's agentic bank runs
56:04 A banking system built on consumer laziness
1:02:46 SVB-style runs at agent speed
1:05:01 Homo economicus is back
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Midterms in 15 days, from the D2 desk.
@Kalshi has a Democratic sweep at 62%, and crypto has priced it: $COIN, the most policy-sensitive proxy in crypto, closed at $173 Friday, matching the $174 it fell to on Sep 15 when CLARITY died.
Not priced is January, when Democrats get subpoenas and @SenWarren takes the Banking gavel.
PRICED IN
1. The map. Kalshi: Democrats 90% for the House, 63% for the Senate, 62% for the sweep. A Republican sweep trades at 10%. The sweep gained 4 points in a month and none today. Republicans can lose two Senate seats and still hold it (WSJ).
2. CLARITY is dead until 2027. Cloture failed 49-50 on Sep 15; four Republicans voted no, zero Democrats voted yes. $COIN dropped 9% that day and has not moved since.
3. The Fed. Warsh hiked 25bp on Sep 16 to 3.75-4.00%, the first hike since 2023. Oct 28 prices another at roughly 1-in-3, six days before the vote.
4. Equities already rotated to the anti-Leopold bunker. Bloomberg factor monitor, one week: low volatility +12.5%, dividend yield +6.7%, growth -7.9%, momentum -6.3%. Crypto is a growth and momentum asset (in theory).
Utilities are the momentum trade now and they do not even have a Discord.
5. The why. September CPI 3.7%, core 2.6%. Rural prices +4.0% vs city +3.6%, motor fuel +35% on the year, and rural states pick the Senate: Kansas, no Democratic senator since 1932, is a toss-up.
That is 76 years before the Bitcoin whitepaper. Trump approval 33%, a record low.
NOT PRICED
6. Subpoenas arrive in January. Democrats take a chamber at 90%; first named targets are Trump family crypto ties and prediction markets, and Warren is favorite for Senate Banking chair. Apple, Microsoft and Palantir are hiring Democratic lobbyists now.
7. Ohio is the tell. A Fairshake affiliate spent $40m in 2024 to remove Sherrod Brown, four-year Banking chair. New polls put Brown ahead of Husted. Fairshake holds $122m and 32 endorsements, all House, 19 Republicans and 13 Democrats. $40m bought the first movie; nobody budgeted for the sequel. Money in the House, risk in the Senate.
8. The arithmetic. CLARITY lost at 49 with a 53-seat Republican Senate; it needed 60, so it needed Democrats either way. A flip changes the chairs, not the math. Today's rules are SEC and CFTC actions; a Democratic Congress cannot repeal what was never legislated.
9. The odds on prediction-market legislation are, fittingly, odd. $750m has traded on the midterms at Kalshi and Polymarket; Warren wants a public hearing on the venues and the CFTC wants the contracts called swaps. @icobeast should list a refund contract for the VCs who bought the pico top 😂 @0x_ultra can code it for him.
10. The trade after the vote. A Democratic Congress against a hawkish Fed sets up spending and debt-ceiling fights in 2027 (Bloomberg). BTC trades the deficit, and the deficit gets decided there, not on Nov 3.
Post-midterms, crypto equities carry the January risk and the Warren risk; the coin carries the Fed and the fiscal fight after.
We find this out in January. One reason this epoch of Alpha strategies ends on January 15. We trade for what is not priced in. 🫡
As posted in May, the steady state for @papertrade_xyz is ZERO and the only question is the path (a function of onboarding the marginal sucker).
A perp like Hyperliquid pays the winner from the loser's already-posted margin. Paper pays the winner from the next loser's margin that has not been posted yet.
Queue debt only shrinks while losses beat wins. Paper's edge against BBO mid is 2% of forfeited margin plus the impact tax.
Remove the mint and the only volume left is the volume that extracts. Their wins are the LP's losses, the queue grows without bound, and the back of it waits FOREVER.
Full unlock changes who owns the $PAPER. It does not change who funds the queue.
Community ownership here is a residual claim on a system that needs a continuous supply of new losers/suckers to pay the people already waiting.
The last ones in are exit liquidity for @izebel_eth and friends.
If you want max degeneracy, maybe gamble on SK Hynix. At worst you can upgrade to 128 GB RAM cheaply and run a @HyperliquidX node.
Hyperliquid
A perp exchange has been the most popular, highest-revenue-generating protocol in the space for the past 2–3 years (longer if you include Binance and BitMEX).
Yet people will stop using Paper once farming is finished? It'll be fully unlocked and 100% community owned. You are midcurving things I didn’t think possible.
Disclaimer: Pure rational models usually understate how long high-leverage gambling venues keep attracting flow through intermittent wins, social proof, and near-zero friction.
@papertrade_xyz cooling is already visible, but residual speculative volume tends to decay more slowly than assumptions that users hold elementary-school degrees 😅.
May post here:
xitter.cf/d2_finance/status/2054…
Jez read Reminiscences of a Stock Operator and shipped it on top Hyperliquid’ tech ( not @Lighter_xyz )
onchain bucket shop. he confirmed it in this thread under @dipsybitsy “yep, fully transparent and the losers who fund it will own.”
the bucket shop pattern is 100 years old. customer trades at the listed price, the house takes the other side, nothing reaches the actual exchange.
Livermore made his early stake trading against them, then got banned from every shop in Boston for being too good. they died from two pressures: directional regimes that smoked the house, and ticker manipulation where operators pushed the real venue to harvest at the shop. both are live here. neither is solved by stacking five defensive parameters.
what is actually onchain: a contract that reads HL’s BBO via precompile and synthesises swaps against a Martingaler LP. zero flow reaches HL’s orderbook. zero funding rebalance. the only feedback loop is parasitic.
BBO manipulation attempts to harvest the synthetic spread degrade HL’s book without compensating the makers wearing the jitter. the venue extracts liquidity quality from @HyperliquidX ( fair enough!)
the fair launch plus 1000x leverage plus PAPER mint-on-loss design is engineered for initial FOMO. expect a fast first week/month. Jez’ inner circle volume comes in, asymmetric impact taxes the few winners, losers fund the LP and mint PAPER, the chart can look initially great if execute right.
this is the bootstrap window the docs explicitly subsidise at 100 PAPER per $1 of LP gain below 2M.
Then path dependence will shows up.
LP edge per trade is thin: 0.2 bps jitter band plus the convex bite of asymmetric impact on winning closes. order of magnitude, on a $1M ticket the LP edge is in the tens to low hundreds of dollars. one 5% adverse move on $1M of net synthetic exposure is $50,000 of MTM loss. edge accrues like √t under stationary flow. directional regime hits the LP linearly in t. √t vs t means one persistent trend eats months of accrual.
the half life of LP equity in a trending regime is short, and it gets shorter as size scales because the OI cap trails realised OI rather than leading it.
then the debt queue activates.
martingaler issues claims paid by the next loser. once the queue is observable, the EV of opening a new position is negative twice: once because winners get haircut, once because withdrawals sit behind every prior bust. rational flow stops. Queue does not clear.
PAPER, a claim on future LP revenue, is then a claim on revenue that must clear the queue first.
the cross-venue attack (@NaiveKrypto point in the thread) has its own path dependence.
wicking HL spot or perp to harvest the synthetic at the shifted BBO is only EV-positive once papertrade’s OI is large enough that the harvest exceeds the cost of pushing HL.
below that threshold, no one bothers. above it, every desk with an HL maker does.
self-limiting at small scale, openly hostile at large scale. the steady state is zero, the only question is the path.
all bucket shops are zero in short to medium term. the 1900s wave died within two decades, mostly to regulation and to operators eating them. the onchain version skips regulation but keeps the operators and adds a debt queue that hard-codes path dependence into the equity curve. the docs read like a list of every defence shops historically tried, in order.
stacking five does not change the shape of the failure mode, it just shifts where the failure surfaces.
closing thought. the whole structure is short volatility against directional flow, dressed up as a perpetuals venue.
it is the same trade as a Korean retail account systematically selling MRNA noise reversion while their own KOSPI 200 trends straight through the stop. works beautifully until the regime turns, then the half life is a week.
clever paper, novel emissions curve, real engineering. the structure is 100 years older than the precompile.
Hyperliquid
tl;dr:
We can confirm the crash started on @binance.
SNDK sell print 21:21:59.39, HL IOC sweeps 80ms later, Binance did $21.9M of SNDK that minute vs $3.1M on @tradexyz, HL liquidations only at 21:28.
The playbook, unchanged for years: leveraged knife catchers pile into Binance longs over Friday and Saturday on a thin weekend book.
Someone cleans the book 10/10 style, no news required. Arbitrageurs carry the print to every venue within seconds, Hyperliquid included.
Old news for our 30 Sep Space listeners, 21:24. A wolf may lose its fur but not its vice.
Disclaimer: we got baited for d2HYPE on Binance $hype spot listing, so we are particularly salty towards @cz_binance and his absolutely unrelated market makers.
tldr; the crash started on @binance
> @binance $SNDK printed its first large seller-initiated trade at 21:21:59.39 ($407K that second, $1.03M the next). @binance $MU started at 21:21:59 too
> @HyperliquidX first sweeps landed at 21:21:59.87 ($SNDK IOC, $SOXL trigger orders) and the main burst at 21:22:01.1 to 21:22:02.9: roughly ten addresses firing IOC sells across $SNDK, $SOXL, $DRAM, $SKHX, $SKHY and $MU within 1.8 seconds, then a second synchronized burst at 21:22:55.9. All IOC, none reduce-only, all opening shorts
> @binance carried the volume early: $SNDK $21.9M vs $3.1M on @tradexyz in the 21:22 minute, $MU $5.1M vs $0.3M. @HyperliquidX volume only exploded at 21:28 and 21:30 ($10.8M and $9.5M on $MU), which is the liquidation cascade
D2hype recap
xitter.cf/d2_finance/status/2110…
d2HYPE Epoch conclusion + new epoch
📊 −6.59% net in HYPE | +27.7% in USD.
First down epoch, strategy remains positive since inception in HYPE.
The number that matters is not the 6.59%. It is what we did when the position went against us. We did not add. We did not average down. We did not sell a put to pay for the long. When HYPE lost $86 on 14 Oct the stop fired and we executed. HYPE then traded to $77.5 before recovering to $82 as we write. At the low, the overlay delta we cut would have taken the epoch past −10%. That it bounced does not change the rule: we do not find out which way it goes by holding depositor money through it.
Three years of D2 is not three years of being right. It is three years of cutting when wrong, every time, before the move finishes.
The Hyperliquid overlay was +$829K on 6 October with HYPE at $94.5. It finished at −$112.9K on $104.3M traded. That $942K round trip in eight days is the whipsaw: Binance listing flow we misread, then the unlock with no catalyst behind it. The stop is what kept the vault at −6.59% rather than past −10%.
To finish first, first you have to finish. The market has just handed back every price we want to buy. We buy vol and structure here, not delta.
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