Coins, stocks, and debts: A leverage cycle perspective

# Written by: Zuo Ye

Cycles originate from leverage. From the rapidly rising and collapsing meme coins to the 80-year technological Kondratiev wave, humans have always found a way—whether through a certain force, belief, or organizational model—to create more wealth. We will briefly review the current historical context to clarify why the interweaving of crypto, stocks, and bonds is crucial.

Since the Age of Discovery in the late 15th century, core capitalist economies have undergone the following transformations:

- **Spain and Portugal**: Physical gold/silver + brutal colonial plantations

- **The Netherlands**: Stocks + corporate system (Dutch East India Company)

- **The United Kingdom**: Gold standard + colonial price scissors (military rule + institutional design + Imperial Preference System)

- **The United States**: U.S. dollar + U.S. Treasuries + military strongholds (abandoning direct colonialism, controlling key strongholds)

It is important to note that latecomers absorb the strengths and weaknesses of their predecessors. For example, the UK also adopted the corporate system and stock system, and the U.S. also engaged in military rule—this summary highlights the innovative breakthroughs of new hegemonic powers. Based on the above facts, two key characteristics of the operational trajectory of classical capitalism emerge:

1. **Hegemonic Cope’s Law**: Just as animals tend to grow larger in the course of evolution, the scale of core economies continues to expand (Netherlands → UK → U.S.).

2. **Economic Debt Cycles**: Physical assets and commodity production give way to finance. The trajectory of a classic capitalist power revolves around raising funds and generating profits through new financial innovations.

3. **Inevitable Leverage Collapse**: From Dutch stocks to Wall Street financial derivatives, pressure to maintain returns overshadows the value of collateral. When debts cannot be resolved, new economies replace the old.

The U.S. has reached the limit of its global dominance, and what follows will be a prolonged "intertwined end"—a phase where "you are in me, and I am in you."

U.S. Treasuries will eventually spiral out of control, much like the British Empire after the Boer War. However, to maintain a "dignified end," financial products such as crypto, stocks, and bonds are needed to delay the countdown to debt collapse.

Crypto, stocks, and bonds mutually reinforce one another: gold and BTC jointly underpin U.S. Treasuries as collateral; stablecoins boost the global adoption of the U.S. dollar; and these mechanisms socialize the losses incurred during deleveraging.

## Six Forms of Crypto-Stock-Bond Integration

All that brings joy is nothing but an illusion.

Growing larger and more complex is a natural law for all financial instruments—and even living organisms. When a species reaches its peak, disorderly internal competition follows; increasingly elaborate horns or feathers are all responses to the rising difficulty of finding mates.

Token economics originated with Bitcoin, creating an on-chain financial system from nothing. With a market capitalization of $2 trillion, BTC is destined to only ease (not solve) issues compared to the nearly $40 trillion scale of U.S. Treasuries. This is why Ray Dalio frequently advocates for gold as a hedge against the U.S. dollar.

Liquidity from the stock market has become a new pillar for tokens: tokenization of pre-IPO markets is now possible; on-chain stocks have emerged as a new carrier beyond electronification; and the DAT (Treasury) strategy was the core focus of the first half of 2025.

That said, while on-chain U.S. Treasuries are a given, on-chain bond issuance (backed by tokens) and corporate bond tokenization are still in the experimental phase—though small-scale trials have finally begun.

*Image Caption*: Growth in the number of ETFs. *Source*: @MarketCharts

Stablecoins have evolved into an independent narrative; tokenized funds and debts will become new synonyms for RWAs (Real-World Assets). Meanwhile, index funds and composite ETFs anchored to more crypto-stock-bond concepts are starting to attract capital. Will the story of traditional ETFs/index funds absorbing liquidity repeat itself in the crypto space?

We cannot judge this, but the emergence of meme coin DATs and staking-based ETFs has already signaled the official start of a leverage-up cycle.

*Image Caption*: Forms of crypto-stock-bond integration. *Source*: @zuoyeweb3

Tokens are becoming increasingly ineffective as collateral in both DeFi and traditional finance. On-chain ecosystems require USDC/USDT/USDS—all of which are, in essence, variants of U.S. Treasuries. Off-chain, stablecoins are emerging as a new trend. Before this shift, ETFs and RWAs had already paved the way with their own experiments.

To summarize, the market has roughly developed six forms of crypto-stock-bond integration:

1. **ETFs** (futures, spot, staking, universal)

2. **Crypto-stocks** (transforming on-chain use cases via financialization)

3. **Crypto company IPOs** (Circle represents a phased "hard cap" for stablecoin trends)

4. **DATs** (MSTR’s crypto-stock-bond model vs. ETH crypto-stocks vs. ENA/SOL/BNB/HYPE tokens)

5. **Tokenized U.S. Treasuries and funds** (Ondo’s RWA focus)

6. **Pre-IPO market tokenization** (still small-scale, in a risky lull, transforming traditional finance on-chain)

The end of a leverage cycle and the optimal exit timing are unpredictable, but we can outline the cycle’s basic structure.

Theoretically, the emergence of meme coin DATs marks the peak of a long cycle. However, just as BTC can trade sideways around $100,000, the full virtualization of the U.S. dollar/U.S. Treasuries will release momentum that the market will take years to absorb—often as long as 30 years: It took 29 years for the UK to abandon the gold standard after the Boer War (1931–1902), and 29 years for the Bretton Woods system to collapse (1973–1944).

"A thousand years are too long; seize the day and hour." At the very least, Crypto will enjoy a good year until the mid-2026 elections.

*Image Caption*: Current state of the crypto-stock-bond market. *Source*: @zuoyeweb3

Analyzing the current market structure: Crypto company IPOs belong to the most high-end and niche track—only a handful of crypto firms can complete U.S. stock IPOs, demonstrating the extreme difficulty of selling oneself as an asset.

The next best option is reselling existing high-quality assets, which is simpler. For example, BlackRock has become an undisputed giant in spot BTC and ETH ETFs; newer staking-based ETFs and universal ETFs will become the new frontier of competition.

Next, DAT (Treasury) strategy companies—led by Strategy—are leading the pack and are the only players that have achieved three-way rotation between crypto, stocks, and bonds. Specifically, they can issue bonds backed by BTC to support stock prices, then use surplus funds to buy more BTC. This shows the market recognizes both the safety of BTC as collateral and Strategy’s role as a "proxy" for BTC’s asset value.

In the ETH treasury space, companies like BitMine and Sharplink have only achieved crypto-stock linkage at best. They lack the ability to convince the market to accept bonds issued in their own name (excluding bonds issued for capital operations to buy crypto). In other words, the market partially recognizes ETH’s value but not the value of ETH treasury companies themselves—a fact reflected in their mNAV (market net asset value) being below 1 (total stock price lower than the value of held assets).

However, as long as ETH’s value is widely recognized, the high-leverage race will produce winners. In the end, only low-tier treasury companies will collapse; the survivors will become representatives of ETH and emerge victorious after the leverage-up/deleveraging cycle.

Currently, tokenized stocks are smaller in scale than DATs, IPOs, or ETFs, but they have the most promising applications. Today’s stocks exist in electronic form, stored on various servers; in the future, stocks will circulate directly on-chain—stocks will be tokens, and tokens will represent any asset. Robinhood has built its own ETH L2; xStocks has expanded to Ethereum and Solana; and SuperState’s Opening Bell helps Galaxy tokenize stocks on Solana.

Future tokenized stocks will compete between Ethereum and Solana, but this scenario has the least room for imagination and emphasizes technical services more. It represents market recognition of blockchain technology, though asset-capturing capabilities will flow to $ETH or $SOL.

The tokenized U.S. Treasuries and funds space seems to be trending toward Ondo becoming a dominant player. This is because the integration of U.S. Treasuries and stablecoins has diverted capital; the future of RWAs requires expanding beyond U.S. Treasuries—much like non-U.S. dollar stablecoins. While the long-term market scale will be huge, this growth will take time.

Finally, pre-IPO tokenization uses two approaches: (1) raising funds first, then purchasing equity; (2) purchasing equity first, then tokenizing and distributing it. Of course, xStocks operates in both the secondary stock market and pre-IPO space, but the core idea is to tokenize and incentivize private markets to drive their publicization. Note this description—it mirrors the expansion path of stablecoins.

However, under the current legal framework, whether there will still be room for regulatory arbitrage is only a matter of expectation, and it will take a long period of adaptation. Pre-IPOs will not be publicized anytime soon: their core issue is asset pricing power, which is not a technical problem—Wall Street’s numerous distributors will do everything to block it.

In contrast, the distribution of equity rights and incentives for tokenized stocks can be decoupled. "People in crypto care more about incentives than rights." As for regulatory issues like tax reporting on equity gains, global practices already exist—on-chain integration is not an obstacle.

To compare: Pre-IPOs involve Wall Street’s pricing power, while tokenized stocks amplify Wall Street’s profits by expanding distribution channels and liquidity. These are two entirely different scenarios.

## Convergence in Uptrends, Competition in Downtrends

A leverage cycle is a self-fulfilling prophecy: any good news justifies two rounds of price increases, constantly pushing leverage higher. However, institutions hold diverse collaterals crosswise. In a downtrend, they prioritize selling secondary tokens to flee to safe collateral. Retail investors, with limited mobility, end up bearing all losses—whether voluntarily or not.

When Jack Ma buys ETH, China Renaissance purchases BNB, and CMB International issues a Solana tokenized fund, a new era arrives: global economies remain connected through blockchain.

The U.S. represents the limit of Cope’s Law, with the lowest-cost and most efficient dominance model—but it faces extremely complex interweaving challenges. The "new-era Monroe Doctrine" does not align with objective economic laws: the internet can be fragmented, but blockchain is inherently integrated—any L2, node, or asset can converge on Ethereum.

From a more organic perspective, the integration of crypto, stocks, and bonds is a process of "asset swapping" between market makers and retail investors. It follows the same logic as "when Bitcoin rises, meme coins fail to keep up; when Bitcoin falls, meme coins drop even harder"—though the latter is more common in on-chain ecosystems.

Let us elaborate on this process:

1. **Uptrend phase**: Institutions use leverage to move into high-volatility assets with lower collateral prices.

**Downtrend phase**: Institutions prioritize selling meme assets to maintain holdings of high-value assets.

2. **Retail behavior is the opposite**: In uptrends, retail investors sell more BTC/ETH and stablecoins to buy high-volatility assets. However, limited by their total capital, once the market turns bearish, they need to sell more BTC/ETH and stablecoins to maintain high leverage on meme coins.

3. **Institutions naturally tolerate larger drawdowns**: Retail investors sell their high-value assets to institutions; retail efforts to maintain leverage also increase institutions’ tolerance, forcing retail investors to sell even more assets.

4. **Cycle end**: Marked by leverage collapse. If retail investors cannot sustain leverage, the cycle ends. If institutions collapse and trigger a systemic crisis, retail investors still suffer the biggest losses—by then, high-value assets would have already been transferred to other institutions.

5. **For institutions**: Losses are always socialized.

**For retail investors**: Leverage is their own noose, and they still have to pay fees to institutions. Their only hope is to exit before other institutions and retail investors—a task harder than landing on the moon.

The classification and evaluation of collateral are just superficial; the core is pricing leverage based on expectations for collateral.

This process still does not fully explain why meme coins always fall harder. To supplement: Retail investors are more eager for higher leverage than issuers—they want 125x leverage for every asset pair. However, in a downtrend, retail investors become each other’s de facto counterparties. Institutions, by contrast, have more assets and more complex hedging strategies—costs that retail investors also end up bearing.

In summary, crypto, stocks, and bonds align leverage and volatility. Using a financial engineering lens, imagine a hybrid stablecoin partially backed by U.S. Treasuries and employing delta-neutral strategies. Such a stablecoin could link crypto, stocks, and bonds, allowing hedging mechanisms to take effect (or even generate additional profits) amid market volatility—i.e., synchronized upward movement.

ENA/USDe already partially embodies this characteristic. Let us make a bold prediction about the trajectory of the deleveraging cycle: Higher leverage will attract more TVL (Total Value Locked) and retail trading, eventually pushing volatility to a critical point. Project teams will prioritize protecting USDe’s peg over ENA’s price; subsequently, DAT company stock prices will fall, institutions will exit first, and retail investors will finally take the "bag."

What follows will be an even more terrifying multi-layered leverage cycle: Investors in ENA’s treasury will sell stocks to maintain their value in ETH and BTC treasury companies. However, some companies will inevitably fail, triggering slow-motion defaults—starting with small-token DATs, then small DAT companies tied to large tokens. Eventually, the market will be gripped by panic, and all eyes will turn to Strategy for signs of trouble.

Under the crypto-stock-bond model, the U.S. stock market is the ultimate source of liquidity—and it will eventually be breached by spillover effects. This is not alarmism: U.S. stocks, despite regulation, could not prevent the LTCM quant crisis. Now, with Trump leading a wave of token issuance, I do not believe anyone can stop the explosive linkage of crypto, stocks, and bonds.

When global economies are connected via blockchain, they will collapse together.

At that point, a reverse movement will occur: Any remaining source of liquidity—whether on-chain or off-chain, across all six crypto-stock-bond forms—will become an exit window. The most terrifying part is that there is no "on-chain Federal Reserve"; eventually, liquidity providers will disappear, leaving the market to fall until it can fall no more—ending in "heat death."

Everything will end, and everything will begin.

After a prolonged "pain period," retail investors will gradually accumulate small sums to buy BTC/ETH/stablecoins—like sparks in the dark—only to hand them over to institutions as "new concept fuel." A brand-new cycle will start again. After financial illusions are dispelled and debts are resolved, only value created by real labor will bring this chapter to a close.

Readers may wonder: Why not discuss the stablecoin cycle?

Because stablecoins themselves are an external form of the cycle. BTC/gold underpin the fragile U.S. Treasuries; stablecoins boost the global adoption of the U.S. dollar. Stablecoins cannot form a cycle on their own—they must be coupled with underlying assets to gain real profit-generating capacity. That said, stablecoins will increasingly bypass U.S. Treasuries and anchor to safer assets like BTC/gold, which will flatten the leverage curve of the cycle.

## Conclusion

From "interpreting classics to fit one’s views" to "interpreting classics based on one’s views."

On-chain lending has not been covered here; while DeFi-CeFi integration is indeed underway, it has little connection to crypto-stock dynamics. DATs touch on this topic, and future articles will supplement discussions on institutional lending and credit models.

The focus here is on examining the structural relationships between crypto, stocks, and bonds, as well as the new products and directions they will create. ETFs have become standardized; DATs are still competing fiercely; stablecoins are expanding on a large scale; on-chain and off-chain opportunities are greatest; crypto-stocks and pre-IPOs have immense potential—but they will struggle to transform traditional finance through compatibility and have yet to build their own internal circulation systems.

Crypto-stocks and pre-IPOs need to address equity issues, but "solving equity issues through equity-focused methods" will not work. Only by creating economic value can they break through regulatory barriers; focusing solely on regulation will trap them in bureaucratic red tape. The journey of stablecoins is the clearest example: the "surrounding the cities from the countryside" strategy is most effective.

Crypto company IPOs represent the process of traditional finance absorbing and pricing crypto. This trend will become increasingly mundane—companies should go public as early as possible, as once all conceptual value is exhausted, only quantitative valuation will remain. This is no different from Fintech or manufacturing: as more companies go public, the room for imagination will shrink.

Tokenized U.S. Treasuries (and funds) are long-term布局s with little room for excess returns—and they have little to do with retail investors. They highlight the technical application of blockchain more than anything else.

This article primarily presents a static macro framework, lacking dynamic data—such as Peter Thiel’s allocation and investment in various DATs and ETFs.

Additionally, when leverage is withdrawn, whales and retail investors move in opposite directions: Whales prioritize selling secondary assets to retain core assets, while retail investors must sell core assets to maintain leverage on secondary assets. This explains why meme coins do not always rise when Bitcoin rises, but always fall harder when Bitcoin falls. However, we currently lack data to support this and can only first build a static framework to clarify our thinking.

Disclaimer: The views expressed in this article only represent the personal views of the author and do not constitute investment advice from this platform. This platform does not make any guarantees regarding the accuracy, completeness, originality, and timeliness of the information in the article. Nor does it assume any liability for any losses arising from the use of or reliance on the information in the article.