Thursday links: Frankentokens, LSU, crypto cash flows, handbag hedge fund

It’s alive!

Crypto is suddenly booming again, thanks to a Frankenstein combination of equities and tokens: “stock-paired memecoins.”

To take one popular example, people are trading the memecoin Artificial Inu (AI) in a liquidity pool where it’s paired with tokenized shares of Nvidia. To buy AI, you first have to buy NVDA. 

(In other words, AI is denominated in NVDA instead of the usual ETH or USDC.)

It’s difficult to say why exactly anyone would want to do that, but something about pairing thematically-aligned memes and stocks has captured the imagination of traders. Amid frantic trading, Artificial Inu has shot to a $250 million valuation.

The phenomenon is happening on Robinhood’s new layer-2 blockchain. Launched just two months ago, Robinhood Chain (RHC) has already hosted over 500 million transactions and $22 billion of DEX volume, according to data from Blockworks Research.

Yesterday alone, the chain collected $4.6 million of network REV (the fees users pay to get their transactions included in a block).

By comparison, Solana collected only $700,000 of REV yesterday.

(Note: Gas fees on RHC have been as much as 128x higher than on Solana, which I'm guessing won’t last long.) 

As with any good memecoin story, this can be intellectualized. As a trader on X explained, “Stocks provide what memes lack most — real-world value anchors and narratives; memes provide what stocks lack most — attention, community, virality, and speculative liquidity.”

(That’s a translation from the Mandarin, linked above, which I highlight partly because Frankentokens appear to be particularly popular in China.)

“The two sides complement each other perfectly,” they added, “memes on Robinhood are turning into something entirely different from the past.”

It can also be de-intellectualized. One of the most popular stock-paired memecoins is BONER, which has been paired with tokenized shares of Hims & Hers Health (HIMS), best known as a way for men to receive ED pills like Viagra without having to look a pharmacist in the eye.

Some pairings are appealingly amusing: The memecoin Memory Cow Moo (MOO) has been paired with tokenized Micron, whose ticker symbol, MU, is commonly pronounced moo.

That kind of wit deserves more than the $22 million market cap it currently commands, in my opinion. (Not financial advice.)

Perhaps most appropriately, CINEMA has been paired onchain with AMC — a memecoin paired with a memestock.

To the degree all this has some substance — aside from the huge trading fees being generated — it’s this: Stock-paired memecoins may be solving the cold-start problem of tokenizing equities. 

Every purchase of a stock-paired memecoin requires the purchase of a tokenized stock. Therefore, someone (a market maker, probably) has to provide the tokenized stock — by buying it on the real stock market, tokenizing it, and delivering it onchain.

(To be precise, what trades onchain is a credit instrument issued by Robinhood that’s backed by a stock they hold.)

It might be that when this latest iteration of memecoin mania inevitably fades, the tokenized stocks will flow back out to the stock market.

But maybe they’ll stay!

Who knows what kind of Frankenstein creations crypto developers will dream up now that they have some stocks to play with? 

Some of them might even be useful.

LSU bets on its football coach

InGame reports that Louisiana State University is using Kalshi to hedge the risk that its football team wins a national championship. 

Through an intermediary, LSU has executed multiple event-contract bets that pay off according to how far it advances in the college football playoffs. If the Tigers win it all, the bets will pay out $3 million — almost exactly what LSU will owe its football coach, Lane Kiffin, in performance bonuses.

LSU made the bets through the sports insurance company Game Point Capital, which bought the event-contracts from an unnamed market maker (my guess would be Susquehanna).

(Sports insurance company Game Point Capital would have previously hedged this kind of risk with an insurance broker like Lloyd’s of London.) 

The trades were negotiated off-exchange and then reported to Kalshi, which now sits between the parties for settlement — eliminating their counterparty risk and reducing capital requirements.

The $3 million Kiffin stands to earn would be in addition to the seven-year, $91 million contract he recently signed with LSU.

Also included in the contract were some nice perks, like 65 hours of flying time per year on a private jet for his personal use, and $500,000 to cover the cost of moving from Mississippi to Louisiana (two states not generally associated with a high cost of living).

Kiffin’s contract is emblematic of the wildly escalating cost of running a top-tier college football program. Several teams, LSU included, are thought to have player payrolls above $40 million this year (college athletes can be paid these days). Coaches and staff might cost another $20 million.

It’s not easy to keep up. So, to the extent some of those costs can be hedged on prediction markets, it will be a growing business.

In the case of Kiffin, there might be some additional risks to hedge. This week, Vanity Fair published some unflattering excerpts from an upcoming book about Kiffin’s tenure as an assistant coach at Alabama.

“Just keep him away from the sorority girls,” Alabama Coach Nick Saban reportedly told his staff. “Make sure they’ve graduated college or are working a job.”

The book also quotes a pub owner telling someone from the team, “your boy Lane was in here asking where the hotties are.”

Kiffin was 41 at the time.

If someone wants to offer an event contract on “Head coach embarrasses himself and university,” I might know a buyer.

Crypto cash flows get the FT’s attention

The FT reports that “digital asset groups” (meaning crypto projects) are spending “vast sums on purchasing their own tokens.” The author tallies at least $638 million of buybacks so far this year.

Nearly 90% of its (incomplete) number is attributable to Hyperliquid and pump.fun, whose tokens are up 228% and 134% year to date, respectively.

Lest we congratulate crypto projects for making money, the FT warns that buybacks are of dubious value: “As with equity market buybacks, there is uncertainty as to how big an impact repurchases have on token prices.”

It cites the examples of Jupiter, Chainlink, and THORChain as projects that have bought back tokens only for the prices of their tokens to go down.

Shocking, I know.

But this misses the point of buybacks, which is simply to return capital to investors. Whether it also makes a stock or token go up is incidental. 

When tobacco stocks go down, for example, no one says “they shouldn’t have wasted all that money on dividends.” They say, “thank god we got some dividends.” 

Buybacks are just a tax-efficient form of dividend.

The fact that some tokens with buybacks go up and others go down is actually good news, as an analyst quoted by the FT suggests. “Tokenholders are looking at this from a very fundamental point of view,” Amir Hajian of Keyrock said.

Correct!

Fundamentals matter.

Even in crypto.

The handbag hedge fund

I joked yesterday that a hedge fund investing only in Hermès handbags would have a legendary Sharpe ratio. I should have known that, of course, there is already such a thing. A reader pointed me in the direction of Luxus, an asset manager that invests solely in Hermès handbags.

The fund is only about a year old, so it’s a little early to be judging returns or Sharpe ratios. But the website does note that it made a 48.1% return on a 2019 Hermès Vert Verone Birkin bag it held for just 87 days.

Uniquely, some of — maybe all? — the fund’s investments are listed for sale on its website, which is fun — and part of the idea.

Whatever the fund’s eventual returns, CEO Dana Auslander told Forbes she hoped the fund would “inject a little bit of fun into the boring private equity and hedge fund worlds.”

“My thesis is very simple,” she added. “The investor and the collector are the same person.”

This sounds like a thesis for stock-paired memecoins, too.

— Byron Gilliam

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