Houdini Swap (LOCK)

Cross-chain Swap Aggregator

Key Metrics

• Circ. Market Cap: $38m

• Fully Diluted (FDV): $51m

• Foundation Treasury: $11m

• LOCK Token ADTV (30day): $327k

• Swap Volume (30day): $58m

• Fees (30day): $280k

• Circ. Supply Staked: 28%

• Staking APY (30day): 26%

• Token Inflation: <0%

Please refer to the bottom of this page for important disclosure information.

estimated reading time: 20–30 minutes

Key Points

Abstracting Blockchain Fragmentation

Houdini Swap simplifies asset flows between fragmented blockchains. By aggregating DEXs, bridging protocols and non-custodial CEXs, Houdini Swap can efficiently swap 4,000+ tokens between dozens of L1s and L2s, all with a single click. The application generates $3m in fees annually and has repurchased 2% of LOCK’s supply since February 2024. Token buybacks are reallocated to LOCK stakers, offering a consistent 20-30% staking yield that’s entirely funded by revenue without any token inflation.

Onboarding Web3 Communities

HoudiniSwap.com offers an ideal onboarding tool for Web3 communities by abstracting token swaps between blockchains. On 7/7/24, Houdini Swap launched V3 by partnering with dozens of L1s, L2s, bridging protocols and DEX aggregators. V3 aggregates these solutions to facilitate swaps between almost any token available on any blockchain. Major protocols like Avalanche and Optimism are already promoting Houdini Swap to help expand their own communities, where V3 offers a streamlined UX for onboarding assets into new ecosystems.

Private Transfers, Compliantly

Houdini Swap’s original V2 application offered private token swaps between blockchains. By aggregating multiple non-custodial CEXs, V2 offers private and compliant transfers while breaking the links between public blockchain ledgers. This solution is particularly attractive for payroll providers, KOLs and other privacy sensitive transactions. Meanwhile, the use of regulated intermediaries ensures Houdini Swap remains compliant unlike some privacy protocols like crypto mixers.

Sustainable Value Accrual

Before launching V3, Houdini Swap V2 was already generating millions in revenue. With $350m in token transfers YTD, V2 has generated over $1.6m in revenue in 2024. 90% of V2 revenue is used to repurchase LOCK tokens, where buybacks are reallocated to LOCK stakers to offer a consistent 20-30% staking APY. In addition to sustainable staking rewards, LOCK becomes slightly deflationary as penalties are applied on instant unstaking.

12x Cash Flow Multiple Reflects Deep Value

Houdini Swap is consistently generating over $3m in annualized revenue while repurchasing 0.5% of LOCK’s supply each month, implying a 12x cash flow multiple. Despite a similar value prop as bridging protocols, LOCK trades at a deep discount to peers trading at 50-100x annualized fees. Houdini Swap V2 does rely on centralized intermediaries, consistent with DeFi protocols like Maker and Ethena that also utilize off-chain components to generate yield. However, as V3 scales, a greater mix of Houdini Swap’s transaction volume will occur entirely on chain. This mix shift can boost LOCK’s valuation, where token valuations often benefit from greater levels of decentralization.

TL;DR

• Project Background

  • LOCK is the utility token for Houdini Swap.

  • Houdini Swap offers cross-chain token swaps between 4,000+ assets.

• Houdini Swap V2

  • Houdini Swap V2 offers private and compliant transfers between blockchains.

  • V2 aggregates non-custodial CEXs with high AML standards.

• Houdini Swap V3

  • Houdini Swap V3 launched in July 2024.

  • V3 is a cross-chain swap aggregator for 4,000+ different tokens.

• Real Value Accrual

  • Houdini Swap’s fees are 0.2% – 0.5% of transaction volume.

  • Fees are used to repurchase LOCK and redistribute buybacks to LOCK stakers.

• Tokenomics

  • LOCK’s supply is fully vested with no future dilutive unlocks or token inflation.

  • LOCK’s staking program is entirely funded by Houdini Swap revenue.

• 8% Cash Flow Yield Reflects Deep Value

  • LOCK trades at a 12x cash flow multiple.

  • Other bridging protocols trade at a wide premium to LOCK.

• LOCK Community

  • V2’s core user base was KOLs, businesses and privacy advocates.

  • LOCK’s community is expanding as V3 targets a wider addressable market.

• Risks to LOCK

  • Houdini Swap competes with dozens of bridging protocols.

  • V2 must adhere to stricter compliance standards than typical Web3 applications.

Project Background

• LOCK is the utility token for Houdini Swap.

• Houdini Swap offers cross-chain token swaps between 4,000+ assets.

Houdini Swap Overview

Houdini Swap is a non-custodial application for cross-chain token swaps. Houdini Swap V2 offers private and compliant swaps by aggregating non-custodial CEXs to break the links between public blockchain ledgers. In July 2024, Houdini Swap V3 was launched as a permissionless cross-chain swap aggregator. With V3, users can swap 4,000+ tokens across dozens of different blockchains.

Houdini Swap V1 was launched in early 2023. The team initially launched the POOF token in 2023 before migrating to the LOCK token in February 2024. Houdini Swap was formed in a Web3 incubator, and the project has received venture funding from Theia Blockchain and Triton Liquid.

Figure 1: Houdini Swap V2 – Total Swap Volume

Houdini Swap V2

• Houdini Swap V2 offers private and compliant transfers between blockchains.

• V2 aggregates non-custodial CEXs with high AML standards.

Value Proposition

• Assets and liquidity are scattered across hundreds of different blockchains (both L1s and L2s).

• Blockchains use public ledgers with weak privacy protections.

Figure 2: Houdini Swap V2

How Houdini Swap V2 Works

Houdini Swap V2 is a non-custodial application for private token swaps between blockchains. The application allows users to swap multiple assets between multiple blockchains while removing traceability on public blockchain ledgers. V2 offers both private and semi-private transfers, where semi-private transfers offer faster/cheaper transactions but slightly weaker privacy guarantees.

Private Transactions

Each private transaction involves 3 different tokens, 3 different blockchains and 2 different non-custodial centralized exchanges (CEXs).

Transaction Path for Private Swaps:

1. User selects the token they have on Blockchain A.

2. User selects the token they wish to receive on Blockchain B.

3. Houdini Swap calculates the optimal transaction path and exchange rate.

4. User inputs the receiving wallet’s address on Blockchain B.

5. Houdini Swap V2 reveals a unique wallet address on Blockchain A.

6. On Blockchain A, user sends tokens to a single-use wallet created by a non-custodial centralized exchange (CEX).

7. The CEX swaps these tokens for the native gas token of a low-cost Layer-1 blockchain (i.e. TRX, LTC or SOL). The application uses a randomized selection process to choose between different L1 tokens.

8. L1 tokens are sent over their native blockchain to another single-use wallet of a different non-custodial CEX.

9. After tokens are received by the second non-custodial CEX wallet, tokens are automatically swapped for the desired token indicated by the user.

10. Tokens are sent over Blockchain B to the final wallet address initially indicated by the user.

Figure 3: Houdini Swap V2 – Private Transaction Path

Why Houdini Swap Works

Houdini Swap uses non-custodial CEX partners to privately swap assets and send assets across different blockchains. Unlike DEXs, asset swaps on CEXs are not recorded on chain or publicly verifiable. That said, Houdini Swap’s CEX partners generate single-use non-custodial wallets that restrict the CEX operator from misappropriating assets.

Meanwhile, CEXs hold inventory of assets on multiple blockchains. This allows the CEX to receive assets from one blockchain and send assets across a different blockchain. After the CEX privately swaps assets, it randomly selects a blockchain to send an L1 token across. Each CEX uses a completely randomized process to choose between 12+ different blockchains.

Because CEX swaps are done off-chain, and because the L1 token/blockchain is randomly selected, the transaction path loses public traceability. Meanwhile, both CEXs involved in the transaction only carry partial information, meaning neither CEX can trace the entire transaction path independently.

Semi-private Transactions

Private transactions on Houdini Swap V2 typically take between 10 to 40 minutes to complete and incur between 1-2% of exchange slippage. Houdini Swap V2 also offers semi-private cross-chain swaps to accelerate transactions and reduce costs. A semi-private transaction on Houdini Swap takes just 3 to 4 minutes with slippage typically below 1%.

The main difference between semi-private transactions is the use of a single non-custodial CEX instead of two CEXs. Unlike fully private transactions, semi-private transactions don’t send L1 tokens over a random blockchain. That said, CEX swaps are done off-chain and it remains difficult to trace the path of semi-private transactions. However, a forensic investigation by a firm like Chainalysis would still be able to trace the full transaction using publicly available data.

Figure 4: Houdini Swap – Semi-Private Transaction Path

CEX Partners

Houdini Swap V2 uses multiple non-custodial CEX partners like ChangeNOW and Changelly. These non-custodial CEXs are also used by non-custodial wallets like Ledger and Trezor to facilitate token swaps directly from their app. Swaps are performed via APIs where off-chain messages are communicated between Houdini Swap and its CEX partners.

Houdini Swap has vetted over 100 different CEXs and chosen 10-15 partners with strict anti-money laundering (AML) standards. CEX partners are continuously monitored to ensure high AML standards are upheld. Given the breadth of CEX partners, Houdini Swap has access to a deep pool of liquidity while reducing centralization risks by increasing the redundancy of potential transaction paths.

Regulatory Compliance

Houdini Swap’s use of centralized intermediaries ensures the application remains compliant with regulators. Unlike crypto mixers or typical privacy protocols, Houdini Swap’s CEX partners retain transaction information. If regulators investigate a specific transaction, each CEX partner can provide details to help the regulator trace the transaction path.

For private transactions that involve two CEXs, neither CEX partner retains a transaction’s full details, thus neither CEX can independently trace the full transaction path. Rather, a regulator would need to approach both CEX partners to rebuild the entire transaction path.

Because each transaction has a path to traceability, Houndini Swap can comply with anti-money laundering (AML) standards. Meanwhile, Houdini Swap runs AML checks on each wallet involved in every transaction. This detects whether a wallet has been flagged for non-compliance by a regulatory agency (such as OFAC).

Houdini Swap V3

• Houdini Swap V3 launched in July 2024.

• V3 is a cross-chain swap aggregator for 4,000+ different tokens.

While Houdini Swap was originally created for private transactions, users have steadily gravitated towards semi-private swaps. This indicates that users also want convenient and efficient ways to swap assets between different chains. In June 2024, semi-private swaps contributed 33% of total swap volumes versus 20% a year ago.

Figure 5: Houdini Swap V2 – Semi-Private Swap Volume

Houdini Swap V3

On July 7th, Houdini Swap launched a permissionless protocol for cross-chain DEX aggregation. Users can now swap any asset available on Blockchain A for any asset available on Blockchain B. This enables asset swaps between over 4,000 tokens across dozens of blockchains with a single transaction.

Figure 6: Houdini Swap V3 – Cross-chain Swap Aggregator

How V3 works

Unlike Houdini Swap V2, V3 transactions are facilitated entirely on-chain and do not rely on centralized exchanges. Rather, V3 aggregates multiple decentralized exchanges (DEXs), DEX aggregators and cross-chain bridging protocols like Wormhole and Across.

Transaction Path for V3:

1. User selects the token they have on Blockchain A.

2. User selects the token they wish to receive on Blockchain B.

3. Houdini Swap calculates the optimal transaction path and exchange rate.

4. User inputs the receiving wallet’s address on Blockchain B.

5. User connects their Web3 wallet to the DApp and signs a transaction to approve the swap.

6. V3 routes tokens to a DEX aggregator such as QuickSwap. The DEX aggregator uses multiple DEXs to efficiently swap assets for a token that’s widely available on both the originating and source chain (such as WETH or USDC).

7. After swapping into the intermediary asset, tokens are routed through a cross-chain bridging protocol. The cross-chain bridging protocol uses cross-chain messages to swap the intermediary token on blockchain A for the corresponding token on blockchain B.

8. The intermediary token on Blockchain B is then routed to a DEX aggregator. The DEX aggregators uses multiple DEXs to efficiently swap the intermediary token for the desired token on blockchain B.

Figure 7: Houdini Swap V3 – Cross-chain Transaction Path

V3 abstracts away these complex transaction paths while calculating the most efficient and cost-effective route. While most cross-chain token swaps require multiple separate transactions, V3 requires just a single click and signature to facilitate the cross-chain swap.

Integrations Drive Adoption

Integrations with 3rd party protocols are a key driver to V3 adoption. Not only do integrations expand V3’s capabilities, but these partnerships also improve Houdini Swap’s exposure within the broader Web3 community. Since launching V3, larger protocols like Avalanche and Polygon have promoted V3 to their own communities.

V3 has integrated with dozens of DEXs, aggregators, bridging protocols, L1s and L2s. These integrations improve V3’s efficiency and breadth of transactions. Given the scale and breadth of these integrations, V3 can efficiently offer swaps on over 4,000 assets between dozens of chains.

• V3 Integrations: Avalanche, Arbitrum, Optimism, Base, BNB Chain, Polygon, THORChain, Polkadot, Wormhole, Trader Joe, Axelar, Mantle, Celo, Linea, Chainflip, QuickSwap, KAVA, Across, Manta, Moonbeam, Blast, Scroll, OpenOcean, and more.

V3 also offers an efficient and convenient way to onboard new users into ecosystems. This makes Houdini Swap a valuable partner for new protocols, particularly those with limited accessibility. Scroll, an Ethereum ZK rollup, has already partnered with Houdini Swap to help onboard users on its L2. Users can earn Scroll airdrop points by using V3 to bridge assets onto Scroll.

V3 also offers an ideal solution for DApp and memecoin communities. DApps and memecoins on any chain can promote V3 by highlighting a simplified onramp into their ecosystem. This can help accelerate V3 adoption as multiple communities promote the application to help their own ecosystems grow.

Figure 8: Partnerships Improve Houdini Swap’s Exposure

Real Value Accrual

• Houdini Swap’s fees are 0.2% – 0.5% of transaction volume.

• Fees are used to repurchase LOCK and redistribute buybacks to LOCK stakers.

Real Cash Flows

Houdini Swap provides a real service to Web3 users while generating real cash flows. Since launching in Q1:23, Houdini Swap has generated $2.8m in cumulative revenue. Application revenue accrues to token holders by repurchasing LOCK tokens and redistributing buybacks to LOCK stakers.

Figure 9: Houdini Swap – V2 Revenue

V2 Economics

Houdini Swap V2 does not directly charge commissions to users. Rather, transaction fees are indirectly earned from Houdini Swap’s CEX partners. On average, Houdini Swap earns ~50bps on total swap volumes, where CEX rebates can vary depending on the type of transaction.

Prior to facilitating each transaction, V2 estimates the total transaction cost for private and semi-private swaps. Transaction costs include gas fees, token conversion rates and CEX trading commissions. Private transactions incur higher fees than semi-private transactions due to the longer transaction path.

In addition to selecting private or semi-private transactions, users can select whether transaction fees are variable or exact. Due to the variability of gas fees and token conversion rates, the application must estimate the total transaction fee. Variable pricing allows transactions costs to deviate from estimates based on market conditions. Alternatively, users can elect to pay higher fees to lock in a predetermined transaction cost before the swap is executed.

Figure 10: Houdini Swap V2 – Average Fee Rate

Transaction costs also include trading commissions paid to Houdini Swap’s CEX partners. Houdini Swap subsequently earns rebates from each partner. Each CEX partner independently determines a fee structure that varies depending on token liquidity, market volatility, transaction slippage and network fees.

V3 Economics

V3 applies a 0.2% swap fee on user transactions. Unlike V2, V3 accrues fees directly from users when competing transactions. The 0.2% swap fee is incremental to other transactions costs paid by users, including swap fees paid to DEXs, bridging protocols and any slippage from token swaps. Meanwhile, Houdini Swap continues to earn 0.5% fees on private and semi-private transactions.

While V3 offers a lower fee rate, transaction volumes are expected to be higher than V2. Given the lack of institutional involvement in Web3 today, the addressable market for private transactions remains smaller than publicly verifiable transactions. Alternatively, the addressable market for fast and efficient cross-chain transfers is large, where $200-400m of value is transferred between blockchains each day.

Figure 11: Aggregate Transfer Volume Between Blockchain Bridges

LOCK Value Accrual

Of the ~50bps earned from private and semi-private transactions, 45bps (~90%) of fees are allocated to LOCK’s staking program. The residual ~5bps (~10%) accrues to Houdini Swap’s treasury to fund project development. For V3 cross-chain DEX transactions, Houdini Swap earns ~20bps on transfer volumes while fees are evenly split between LOCK’s staking program and treasury. LOCK token holders also accrue value as some tokens are burned.

• Staking Rewards. Users can stake LOCK to earn a share of Houdini Swap’s transaction revenue. Revenue is used to buy back LOCK tokens in the open market. LOCK tokens are then redistributed to LOCK stakers on a continuous basis.

  Since implementing staking rewards in February 2024, 2.2m LOCK tokens have been redistributed to stakers. This implies an annualized staking yield of 24%; although, staking yields have steadily trended higher. For the month of June, LOCK’s staking yield was 33% on an annualized basis.

Figure 12: Houdini Swap – LOCK Staking Rewards

• Penalty fees. Unstaking LOCK requires a 90-day noticed period until tokens are unlocked. Stakers do not accrue token rewards during the notice period. That said, stakers do have the option to unstake tokens immediately; however, instant unstaking incurs a 25% penalty fee on staked tokens.

  Penalty fees are reallocated to LOCK token holders. 60% of penalty fees are reallocated to LOCK stakers, while 20% of penalty fees are burned and removed from circulation. The remaining 20% of penalty fees are allocated to LOCK’s treasury.

• Legacy buybacks. Before LOCK’s staking program was initiated in February 2024, LOCK buybacks were sent to a vault. These repurchased tokens are now burnt on a weekly basis. 7.7m LOCK tokens (7.7% of total supply) had been repurchased under the prior program, and 150,000 LOCK tokens are now burned each week until the vault is depleted. Of the 7.7m vaulted tokens, 3.5m (45%) have been burned since the new program was initiated in February 2024.

Tokenomics

• LOCK’s supply is fully vested with no future dilutive unlocks or token inflation.

• LOCK’s staking program is entirely funded by Houdini Swap revenue.

Token Supply

LOCK launched with a total token supply of 100 million. Since launching in January 2023, 100% of tokens are now fully vested and available for circulation. Unlike many recent low float, high FDV projects, LOCK is not exposed to dilutive unlocks in the coming years. Meanwhile, 3% of tokens have been burned since LOCK’s burn program was initiated in February 2024.

Figure 13: LOCK Supply Distribution

Real Yield

The LOCK token is non-inflationary, where staking rewards are entirely funded by Houdini Swap’s revenue. Alternatively, LOCK becomes deflationary as penalty fees are applied to instant unstakers. Penalty fees have burned ~23,000 LOCK tokens since February 2024. Penalty fees are incremental to the 150,000 tokens burned on a weekly basis from LOCK’s pending burn program.

LOCK’s staking yield has ranged between 20-30% since implementation, while ~8% of LOCK tokens will be burned in 2024. This implies over a 30-40% real yield to LOCK stakers. None of this yield is attributed to LOCK inflation. As V3 revenue ramps, we see potential for LOCK’s real yield to move even higher.

LOCK Utility

LOCK is currently a utility token, where token holders can stake LOCK to accrue staking rewards. Alternatively, Houdini Swap is not managed by a DAO, thus token holders cannot vote on key decisions such as how to allocate the treasury. That said, Houdini Swap launched less than two years ago and we expect governance to eventually transition to a DAO structure down the road.

8% Cash Flow Yield Reflects Deep Value

• LOCK trades at a 12x cash flow multiple.

• Other bridging protocols trade at a wide premium to LOCK.

Discounted Valuation vs Peers

We don’t believe LOCK’s 12x cash flow multiple reflects its growth profile or attractive tokenomics. Specifically, we see a mismatch between LOCK’s FDV and bridging protocols like Stargate and Synapse. Our bull case scenario implies LOCK reaching a $220m fully diluted valuation (FDV) within 1-2yrs, implying a $2.40 token price (vs $0.53 today).

Bridging Protocols

Web3 users bridge hundreds of millions of assets between blockchains every day. Many blockchains offer native bridging, such as the Cosmos ecosystem’s IBC. Meanwhile, every Ethereum L2 has a native bridge secured by fraud or validity proofs. However, these native bridging protocols lack interoperability with other ecosystems.

A vast majority of cross-chain transactions are facilitated by non-native bridges. Bridges like Across and Stargate support asset transfers across multiple blockchains, where these protocols allow users to quickly swap assets between chains. Cross-chain swapping is an evolution from legacy bridges that used lock and mint structures with weaker security guarantees (resulting in billions of dollars hacked).

Figure 14: Top 10 Bridging Protocols

Houdini Swap has averaged $1.9m in daily transfer volume in 2024. This is just ~1% of total bridging volume across Web3. As V3 grows, we expect penetration to increase given the V3’s flexibility relative to standard bridging protocols. While leading bridging protocols often support dozens of assets across multiple blockchains, V3 supports transfers between thousands of tokens across most major blockchains.

Figure 15: Houdini Swap Transfer Volume as % of Web3 Bridging Volume

Bridging Protocol Valuations

While Houdini Swap offers a similar value prop as bridging protocols, the LOCK token trades at a deep discount to peers on an absolute and relative basis. Protocols like Across (ACX), Stargate (STG) and Synapse (SYN) trade at $200-400m FDVs despite comparable fee generation as Houdini Swap.

LOCK’s FDV trades at just 15x annualized fees which is a significantly lower multiple than peers. LOCK’s discount comes alongside Houdini Swap’s growing market share throughout 2024. Meanwhile, market share gains can continue as V3 gains traction among Web3 users.

Figure 16: Bridging Protocols – Valuation Table (m)

Houdini Swap also passes ~90% of revenue to LOCK stakers, implying a 12x price to cash flow multiple (8% cash flow yield). Alternatively, other bridging protocols offer minimal value accrual from fee generation. Rather, many bridging protocols use token incentives to support volume growth while Houdini Swap does not use any LOCK tokens to incentivize adoption.

Bridging LOCK’s Valuation Gap

LOCK’s deep discount to peers seems unjustified, particularly given Houdini Swap’s greater convenience and privacy components. Some of the discount is likely attributable to Houdini Swap V2’s reliance on CEXs, while most bridging protocols facilitate transactions entirely on-chain.

Houdini Swap V2 still preserves many of Web3’s advantages, such as utilizing non-custodial CEX partners that create single-use wallets for each transaction. Houdini Swap also improves redundancy by integrating with 10-15 CEXs to limit single points of failure if one CEX partner stops providing service.

As V3 scales, a greater mix of Houdini Swap’s transaction volume will occur entirely on chain. This mix shift can also boost LOCK’s valuation, where token valuations often benefit from greater levels of decentralization. While V2 does rely on centralized intermediaries, this is consistent with DeFi protocols like Maker and Ethena that also utilize off-chain components to generate yield.

Valuation Sensitivity Analysis

LOCK can rerate higher as V3 accelerates volume growth and increases Houdini Swap’s awareness. We outline a bull scenario where LOCK trades at a $220m FDV as Houdini Swap captures 3% share of total cross-chain bridge volumes. Our max bull case scenario implies a $700m FDV alongside 10% share.

Figure 17: Share of Cross-chain Bridge Volume (June 2024)

We use a sum-of-the-parts analysis alongside our volume scenarios. Given V3’s greater level of decentralization, we apply a 40x multiple on V3 revenue versus a 11x multiple on V2 revenue (in line with LOCK’s multiple today). This analysis yields a LOCK valuation of $2.40 to $7.70 which also assumes Houdini Swap completes its pending burn program.

Figure 18: LOCK FDV Range ($m)

LOCK Community

• V2’s core user base was KOLs, businesses and privacy advocates.

• LOCK’s community is expanding as V3 targets a wider addressable market.

LOCK Community

Houdini Swap was initially launched as a solution for KOLs. The service targeted KOLs wishing to preserve anonymity when receiving payments from clients. As the solution evolved, V2 has also attracted corporate entities that use V2 for payroll services. V2 has also found a strong product-market-fit with privacy advocates, particularly those that wish to remain compliant amid crackdowns on crypto mixers.

That said, V2’s semi-private transactions also attracted users that prioritized efficiency and convenience when moving assets between chains. With the launch of V3, Houdini Swap’s community has already expanded as it targets a wider addressable audience.

Houdini Swap Community

• Unique Wallets Interacted: 60,000+

• Twitter: 18k followers (Link)

• Telegram: 2.1k members (Link)

• Token holders: 4.0k (Dune Analytics)

Risks to LOCK

• Houdini Swap competes with dozens of bridging protocols.

• V2 must adhere to stricter compliance standards than typical Web3 applications.

We highlight key risks that may limit Houdini Swap’s broader adoption, as well as risks related to V2’s compliance standards. In a bear case scenario, LOCK could trade as low as $0.20 which implies a 6x multiple on YTD annualized revenue (in-line with HOP).

• DeFi Competition: Competition between bridging applications is intense, where LOCK competes against a wide range of protocols. Many of these projects have significantly larger treasuries than LOCK, including Wormhole and LayerZero. As such, it may be difficult for LOCK to compete for user activity if it’s unable to build user awareness comparable to leading competitors. Other bridging protocols like Across may improve their own interoperability, offering a similar breadth of transaction paths as Houdini Swap.

• Regulation. Regulation is a key deterrent to privacy applications, particularly as many governments restrict anonymized crypto transactions. This comes as centralized platforms must adhere to stricter compliance procedures than decentralized applications. Higher compliance could make it more difficult for Houdini Swap to compete with DeFi peers that largely operate unregulated.

• Bugs & Exploits: Houdini Swap V2 and V3 rely on external partners to facilitate transactions. While V2 and V3 have been audited and never been hacked or exploited, there could be unforeseen risks as V3 gains scale. Additionally, 3rd party protocols or CEXs used by Houdini Swap could be vulnerable to exploits.

• Liquidity. LOCK tokens maintain lower trading liquidity than many digital assets. Lower liquidity could offer higher trading volatility and limit investors’ ability to unwind positions.

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