Episode #9: Noon Capital

Listen to our latest episode featuring Noon and learn how a yield-bearing stablecoin can deliver stable, through-cycle returns by dynamically allocating across TradFi, CeFi, and DeFi.

In this episode, Nertila from Trading Strategy discusses with Arpan Gautam from Noon. Noon is a digital asset firm focused on yield-bearing stablecoins, building transparent, user-centric products across traditional and crypto markets. Its stablecoin (USN/sUSN) is designed to be the only yield source a user needs across the economic cycle, routing capital to the highest low-risk yields wherever they sit — TradFi, CeFi, or DeFi

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Transcript:

Welcome to TradingStrategy.ai, the podcast where you can learn more about the essentials of DeFi trading in the new world. This is your go-to show for automated trading strategies and market insights. Welcome to the conversation — this is your host, Nertila.

Nertila: Hello, everyone. Welcome to today's podcast. Our new guest for today is Arpan. He's the CEO of Noon Vault. Hello, Arpan. I'm so glad that you are here today. We're looking forward to our conversation.

Arpan: Thank you so much for having me.

Nertila: Okay. So I'd like to get started with your background — how did you come to get involved with crypto?

Arpan: Yeah, I started my career at large traditional institutions. I started off at McKinsey and spent a small amount of time at Goldman Sachs. I actually ended up in crypto after founding a neobank in the UK and getting really tired of the traditional financial services system. At that point in time, I thought there has to be something better — there has to be an easier way to do all of this. And I think Web3 and crypto was the obvious answer at that point. So I joined crypto, helped scale one of the largest high-frequency trading firms around, and jumped into the stablecoin space almost as a result of that.

Arpan: We saw a bunch of stablecoins coming out with some sort of yield-generating strategy, and we thought that surely there's a way to do this better. At that time, there were a lot of stablecoins coming out which were basically either depositing all their funds into US Treasury bills or doing some form of the basis trade.

Arpan: And obviously both of these don't really work well if you have low interest rates and the funding rate goes to zero. We thought there needs to be a stablecoin solution to these two adverse scenarios. And that's how we built Noon.

Nertila: So your current venture is Noon Vault. Can we dive a little bit deeper into your project?

Arpan: Yeah, of course. So Noon is a yield-bearing stablecoin project. We aim to be the only stablecoin yield source that you will need throughout the economic cycle. So irrespective of what's happening in the market, our stablecoin will give each of our users the highest low-risk, high yields possible. That means our users don't really have to worry if interest rates are low, if funding rates are low, or if there are other kinds of macro shocks in the market. The way we deploy our assets is to basically ensure that we're always giving our users as high a yield as possible. So we have the stablecoin, and then we have vaults.

Arpan: These are two separate products. Our vaults are not managed by us — they're managed by a sister company — but those Noon vaults basically take in stables, they take in BTC and wrapped BTC. We're going to expand them to probably Ethereum and Ethereum wrappers as well. And they will take any one of these assets and then deploy them into yield-bearing strategies using our yield-bearing stablecoin as a foundational layer. So two slightly different products, with the same base layer of yield — which is our stablecoin — but different ways of generating returns.

Nertila: Who are the people you are looking to allocate to your vault?

Arpan: So we look at the broadest cross-section of people possible, because we think that everyone needs a yield-bearing stablecoin that provides stable returns through the cycle. And currently our deployer mix pretty much matches that — everyone from large institutions, or some of the large crypto hedge funds which need a stable, reliable source of yield through economic cycles, all the way to your retail user. That retail user may be very DeFi-native and may want to do complicated strategies like leverage looping, or they may be a little bit more of a novice in DeFi, and all they really want is a stable yield source that they can put their funds in and then forget about, and come back to it a few weeks or a few months later and see that it's appreciated at a steady pace. So we really want to be that foundational yield layer for as many people in the space as possible.

Nertila: That's a great goal. Noon aims to be one of the leading stablecoins in safety. Do you have any safety or risk system in place?

Arpan: Yeah, we have quite an extensive risk system in place, and that's allowed us to avoid having any down days — any days where the Noon stablecoin has actually lost funds — since our inception about a year and a half, over a year and a half, ago. These frankly start from the very beginning, where we analyze our deployment strategies. We are super conservative when it comes to deployment strategies. We make sure we only allocate to the safest deployment strategies that have a long track record of yields, as well as very low risks throughout — the counterparty risk process, the credit risk assessment process, the liquidity risk assessment process, et cetera. We do a detailed analysis on that before we present it to our community, where our community can vote on new strategies and decide whether or not those are permitted. After that, obviously, we have an entire operational risk layer. That is: how do we not only monitor existing strategies and make sure they're performing as expected, but how do we manage those strategies internally?

Arpan: How do we make sure that we don't have any sort of attack coming into our business itself, making sure that OpSec is as high as possible? So we have a very well-defined risk management engine that goes all the way from trading strategies to operational security, and covers everything in between.

Nertila: Let's turn our focus to the yield. Where does it actually come from? Can you break down the real sources behind the sUSN return?

Arpan: So if we step back, our goal is to make sure that we deliver the highest through-cycle yield for every one of our users. That means we need to go to every high-yielding, low-risk source available in the world. It means we can't just focus on DeFi or CeFi yields — we have to go to TradFi as well.

Arpan: So right now, because of the market environment we're in, we have most of our assets deployed in TradFi sources, because frankly DeFi and CeFi have not been yielding very high returns over the last few months. But that is a dynamic allocation that will move over time. So if we talk about each of those buckets: in TradFi, we deploy into strategies like US T-bills, CLOs, and private credit. In the CeFi space, we're looking at funding rate arbitrage and basis trading. In the DeFi space, we're looking at things like DeFi lending and PT looping. And the really important thing for us is that in DeFi, we understand it's still a new-ish space. There are still a lot of risks that are very hard to quantify. So we ensure that every single one of our DeFi deployments is insured by crypto's largest insurer, Nexus Mutual, to make sure that if there are black swan events, if protocols do get hacked, our collateral is still covered.

Nertila: How would you improve the digital asset management ecosystem? What's your take on that?

Arpan: I think the digital asset management ecosystem is a very broad space, and it's hard to just identify a few things, because frankly the digital asset ecosystem is a fraction of the market size. Things that pop to mind for me immediately are things like usability. Right now, I still think that digital asset management — or the sort of asset management that is enabled by Web3 — is too complex for your average retail user. You have to set up wallets and key phrases and a lot of more advanced technical concepts that present quite a high barrier to entry for your average financial services user. So I think, first and foremost, that is something that we can improve, and I think we're starting to do that even as we speak today.

Arpan: And certainly it's something Noon is working on on a daily basis: how do we make this as easy to use, and frankly as accessible, as possible?

Nertila: Noon promotes itself as "the stablecoin." For you, what does this mean?

Arpan: So for us, "the stablecoin" is intended to imply that this is the only stablecoin you should need in your digital asset financial journey. As we've said, we want Noon to be a high-yielding, through-cycle stablecoin. So you don't need to worry about cycling your assets. You don't need to worry about "oh, should I get into fixed-yielding instruments or variable-yielding instruments?" Traditionally, when you're in the stock market, you're worried about when to get out of the market, when to get into bonds. We want to take that decision process, that concern, that worry, away from all of our users. We want our users to deploy into Noon and then almost not even have to worry about what we're doing with their assets, because they know and they trust that we will be automatically allocating assets to the highest-yielding sources of returns available anywhere in the world — and that they don't need to do anything to make that happen.

Arpan: That's what I think "Noon is the stablecoin for you" really means to us.

Nertila : What's next for Noon?

Arpan: What's next for Noon? There are a lot of really exciting things going on for Noon right now. We are, I think, almost on a weekly basis hitting highs in terms of TVL, which is really exciting for us. We are seeing a lot of new conversations — with new partners, with new chains, with new deployments — which is really, really exciting. We are always looking at new strategies to deploy our collateral into, obviously in a very safe, secure way. I think that combination is really exciting. The last thing I'll talk about that's really coming up next, which is exciting, is serving as almost a yield infrastructure layer for some direct-to-consumer applications that are coming online. These aim to bridge the Web2 and Web3 worlds and offer Web2 users the best experience using Web3 rails. We're working with a few providers like this to serve as their de facto yield layer that helps them bring the best yields to users. So lots of exciting things coming up. Stay tuned — I'm sure we'll have more information that we can share down the line.

Nertila: Arpan, thank you so much for your insight. I have one more question for you, and I want to know — we all want to know — what are some of the hard lessons you've learned so far?

Arpan: I think one of the hardest things about building in crypto has been that this is such a new industry and a new space, and because this space moves so fast and things change so quickly — often unlike traditional markets — it gets a little bit tricky to learn lessons from what has worked and what hasn't worked previously and try to apply that to your own business. One really interesting example of that was when we were first launching. When you talk about the yield-bearing stablecoin space, the first name that came to mind, and may still come to mind today, was Ethena. And Ethena obviously had a very specific go-to-market strategy that included lots of LP deals and lockups and things of that nature, which really worked very well for them.

Arpan: But going through our own journey — because we launched a few months after this — we very quickly realized that there was no way we could basically take anyone else's playbook and learn that much from it, because even if it was only a few months later, the market had changed dramatically, and things that had worked two or three months ago were not going to work anymore. So I think that's been a really interesting learning experience: because this industry moves so fast, the lessons you can learn from previous successes or failures are actually quite limited at times.

Nertila: Thank you so much. That was quite an insightful conversation. I hope you enjoyed it as much as I did, and hope to see you next time on our podcast.

Arpan: Perfect. Thank you so much for your time. I really appreciate you having me on.