Aave + Balancer Partnership, a Fireside Chat moderated by Dan Elitzer

Transcript

fireside chat that we are officially hosting we are super excited about this live event we're broadcasting it live on youtube it's also going to come on the premium edition of the podcast sometime next week david what are we up to today yeah we are up to uh talking about the partnership between ave and balancer so there is a pretty unique opportunity here to make capital more efficient in d5 this is a constant theme as defy matures as these teams collaborate and talk to each other they find ways to make things better and i think one of the reasons why i'm really stoked on this partnership is because dan elliser is really stoked on this partnership and when dan elliser is

stoked on something i pay attention and so this is what's so unique about uh what we're doing here today is we are actually handing over the keys to the kingdom to dan so dan elliser is actually going to moderate the conversation between stani the founder of ave and fernando the ceo founder of balancer so can be a pretty unique piece of content coming out of the bankless youtube and it's great because you and i don't have to do anything yeah we don't we're gonna we're gonna come in after the show and add some commentary and hopefully you guys if you're watching on youtube add your questions uh throughout because we will be monitoring those questions and bring them uh after the panel to you to the surface for sort of a community ask me anything where we'll do a debrief so that's important too make sure you get

your questions in you know david uh dan elliser wrote that legendary piece super fluid collateral back in like you know 2019. it seems like that was something like that it seems like a decade ago but it was really the first post that kind of predicted exactly what we're talking about here today because what we're talking about is um actually using a money lego a balancer liquidity pool in ave to uh as a piece of superfluid collateral to receive additional interest on so what he predicted is coming to fruition and now uh doing a panel on it so that is super cool david anything else regarding logistics did i miss anything yeah no not at all we're going to we're going to

hop off here real quick then we're going to hand it over to astani uh fernando and dan for about 30 to 45 minutes of a conversation then when that wraps up uh we will turn to the community ama which will go for another 30 minutes so if you found this link on periscope but you want to ask questions go to the youtube because that's where i am fielding questions we're also fielding questions out of the bankless discord uh for the bankless premium members uh and then of course if you are on youtube like and subscribe because this is how you get good content up to the front page of youtube where it belongs uh so please go ahead and do that for us yeah absolutely all right before we get to the panel in the fireside chat conversation with dan ellison fernando and stani we want to thank the sponsors

that made this episode possible gemini is the world's most trusted cryptocurrency exchange i've been a customer of gemiini since i first got into crypto in 2017 and it's been my main exchange of choice to make my crypto buys and sells gemini is available in all 50 states and in over 50 countries worldwide and on gemini there are markets for over 30 various different crypto assets including many of the hot defy tokens and it's one of the few exchanges that has liquid dye markets gemini just launched their earn program where you can earn up to 7.4 interest on 26 various crypto assets if you're tired of paying fees and defy or you don't want to worry about defy exploits but you still want to earn interest on your crypto assets gemini

earn is the product for you another product i'm stoked to get my hands on is the gemini crypto back credit card which gives you three percent cash back on all of your purchases but paid to you in your preferred crypto asset when i get my gemini credit card i'm going to make sure that i get my cash back in eth so whenever i buy something i get a little bit of eth bonus back to me at the same time you can open up a free account in under three minutes at gemini.com go bank list and if you trade more than a hundred dollars within the first 30 days after sign up you'll be gifted a free 15 bitcoin bonus check them out at gemiini.com go bankless ave is a borrowing and lending protocol on ethereum and just recently released ave version 2 which has a ton of cool new

features that makes using ave even more powerful with ave you can leverage the full power of defy money legos yield and composability all in one application on ave there are a ton of assets that you can deposit in order to gain yield and all of those same assets can also be borrowed from the protocol if you have deposited collateral here you can see me getting a 200 usdc loan against my portfolio of a number of different defy tokens and eth i'll choose a variable interest rate because it's a lower rate than the stable interest rate option but i could choose the stable interest rate option if i wanted to lock that interest rate in permanently one of ave's v2 features is the ability to swap collateral without having to withdraw

your assets trade them on unit swap and then deposit them back into ave ave does all of this for you all in one seamless transaction so you don't have to repay loans in order to change the collateral you have backing them check out the power of ave at ave dot com that's aave.com hey all thanks for thanks for having us david ryan thank you so much for inviting us on to talk today uh it's really exciting for for me to be here and be with with these two fantastic guests i'm i'm actually a big user via my funday sense of both ave and balancer we've got exposure to both those tokens

so full disclosure up front there but we're also very very heavy users of both protocols because we really think they bring a lot to the table so i'm very excited to get into this partnership today but before we do that let's lay a little bit of groundwork so first stani i know that ave towards the end of last year did a big v2 launch of your protocol can you just in maybe about a minute give us some of the highlights of new capabilities that were introduced in v2 and what the overall goal was of that overhaul yeah i think thanks for for uh introduction dan and the v3 was launched uh i think was like we were in mainnet in december and one of the

things that we tried to improve is we just optimized the architecture so we had more gas settings there but we optimized the protocol so that we can create more pools and and currently as obvious protocol we have a main market uh but the idea is that the protocol is capable of creating multiple markets so let's say that uh if you want to use something like uh balancer liquidity provider of services lateral and uh and other kind of laterals to liquidity uh the protocol is more scalable in in that sense and also we can list uh into the main market quite substantial amount of assets without creating unnecessary gas but another day

we also wanted to improve uh the user experience so one of the issues that uh the the other users had is that when you borrow something against your collateral in in most cases uh you you want to return uh your loan at some point you want to refine your debt but you know if you spend that loan somewhere else already uh it's very difficult to to close that loan position so we introduced so-called uh collateral swap uh functionality where you can actually with this functionality you could close your loan position so you could repay your loan with your collateral which is super cool but also you could uh swap your plateaus let's say if you now that uh for example you might have e position and uh power is now for example listed as talking you want to swap uh

part of the position into pal you can actually do now without without free paying your loan so kind of like user experience things which which are a way to just make the product better that was our complete focus fantastic and fernando i understand that uh recently you've announced balancer v2 this is i guess the proposal from the the balancer labs team and the community as a whole has to i guess approve it and push this forward but can you please you know tell us what are some of the big changes that you're planning on for this v2 sure so what we did mainly was uh also change the architecture to have more uh more efficient

ways that you interact with the protocol um this this has been done by separating the logic from pools um from the accounting and custody of the tokens so in balance if you want today each pool is its own smart contract so the pools are siloed and completely separate from each other they hold the tokens and also the logic that um kind of uh rules the amm that they uh how they sell and buy tokens and now we we have a vault that holds the assets of all the pools ambassador but each pool is free to have any logic arbitrary logic that they want so you can create a different amn style

and plug that into balancer and the vault will hold the assets while the the pools will hold or manage the logic why is this so useful because imagine like if you wanted to do a multi-hop trade or you wanted to do a trade um in a pair that there's a lot of liquidity in different tools today you would have to send let's say a for b you would have to send a to like all three pools and then get b from all the three poles that you're interacting with as opposed to if they are all like all the tokens are held by one vote you just need to send a to the vault and then the vault communicates with the pools to like understand how much uh what price they offer and then the vault gives be

back to the to the user who's buying um who's doing this trade and this also allows us to do something really cool which is what we call internal balances so imagine like many arbors out there and people who do lots of trading every day retail users or smart contracts it's it's kind of silly if you stop to think about it to send token a and then get token b back if they know they're going to be selling b for a and then they have to send the b back to get a so what balancer v2 allows is for you to have like some credit within the vault so you can just deposit a and b and then you you sell a for b and then that only changes your internal balance within the vault but it doesn't involve

any year c20 transactions so there's no external contract calls it's a lot cheaper so we the numbers were we're playing around today for a normal transaction a normal swap we are getting things around 100k um probably gonna maybe go down or up a bit from that and for for transactions that use the internal balance we're getting sub 70k uh swaps and the nice thing is that if you add more like if you if you trade a for b and then b for c so you're doing a multi-hop it only adds marginally more gas because you're you're interacting with the same contract it's the same vault it's just adding more like calls to to votes but all the logic is done in the same ball

so we're pretty excited about that and and that allows projects to build on top of balances so they can build whatever amm logic they want and kind of um take advantage of this infrastructure which is the vault and all the other stuff around balancer like the sor and um bowel liquidity mining and so on support so maybe that's a an overview about balance survey 2. yeah and so it sounds like in both cases the goals of these v2s of your protocols have been about really refining the architecture and making it so that it can do a lot more volume be a lot more efficient offer better ux um through these new capabilities that you're

introducing and the the piece that you mentioned fernando that where i think we're here to talk about today is really that vault piece right the idea that rather than having you know eth be part of all these different pools and sitting across the different pools all of that eath or all of that usdc from all these different pools all end up in a single vault and that creates opportunity because while you may have a lot of depth in a lot of these pools people aren't using probably the you know eighty percent of the debt point it's only that twenty percent that's in use most the time and when you aggregate it across all these pools that's probably even more so

uh so now please you know can you talk to me about like what what you're going to be doing with the fact that you have all these assets collected in a single vault and how ave then plays into this sure maybe i i i kind of saved the best for for this answer about v2 that i haven't mentioned so it's a known fact that amms don't use um most of the liquidity because unless the prices are moving in one direction like what you get is kind of the the the balance is just fluctuating back and forth as people trade of course if something gets more expensive then that uh balance goes down so

let's say you have a pool with eat and die and it gets more expensive you're going to have less and less eat in that pool so actually eating up some of that balance so what we have in battle survey 2 is the concept of asset managers so pool deposits assets into a balancer and means bpt's balance of food tokens it's like a share lp shares but the pool should have full control of what the pool wants to do with the assets that it deposited to the product it's not it doesn't belong to balance it belongs to the pools and of course the pools represent the lps that uh trusted those schools with their assets if the pool decides to say well i know that uh most of the time as i said then

just like the 20 uh top of of my of my balances are being used to um facilitate or enable trades why don't i just use 80 of those balances of the two tokens and put them on on ave for example because i know that i could be earning i don't know depending on the token five twenty thirty percent uh yearly on top of the the swap fees that the bouncer pool is also generating so the nice thing is that we we made it so that each fool can decide on its own whether they want to do that or not because there's always additional smart contract risk right even if it's a protocol uh that that's been battle tested has been it's like ave people

might feel scared like oh my my assets are not actually where i'm depositing them so it's all opt-in so you can have a pool that does that and you can have pools that just hold all the assets have less api but don't have that extra um kind of complexity and and um smart contract risk and you can have like different different types of implementations so you can have an asset manager and just to recap here so what we're talking about today is um this partnership between ave and balancer where we know that most of the assets in balance or pools are not being utilized just some of it to be um to allow for trades to happen so what we're talking about is those pools will put those assets in avi

and it's very simple actually the concept is very simple the tricky part is that we need to manage those assets because as i said if you have an eath diet pool and dye is getting more expensive or beef is getting more expensive then the balance will go down and if that buffer which is actually in the vault goes to zero then people cannot trade anymore because the vault it cannot kind of count on tokens that are not inside itself so um even though we trust this contract like the vault should not trust anything that's outside of of of itself so if the tokens are not there it cannot allow the swap so if the buffer of a pool went to zero that swap is gonna fail so

the asset manager then needs to go to ad and say i need some of my back and and put it back into the pool to allow for trades to happen again does that make sense so yeah so what so what you're saying here is basically there there's a need to kind of manage that balance there and then a need to actually earn yield on the part that is is not being reserved right in this moment so uh it sounds like this is great for lps and balancer at least the ones who opt into this and are willing to take some additional smart contract risk potential economic risk right around this but they get better yield on the assets they've got deposited into balancer pools stanley what what's the advantage to ave for

working with balancer on this what what does it add to your protocol in your community yeah that's uh actually that was a very very good explanation from fergando on how it how the asset manager allocates the the capital and i think there's plenty of relation like plenty of uh synergies there and and i think how the system is built where the asset manager can themselves to decide to uh you have this kind of feature is fundamental because uh we we have this narrative of let's say capital efficiency and governance and protocols deciding upon how to reallocate funds between other protocols where the yield is and one of the kind

of like my concerns always is that what if the end user doesn't want to subscribe to that risk or liquidity provider and this asset manager actually does it in a way uh where they they basically uh they've liquidated people are subscribed to that kind of uh asset manager uh functionality that's that's pretty great uh in terms of like the synergies i think like with faster souls uh with asset manager uh in the other protocol is that we get more liquidity and that's that's the key point here uh especially when it comes to stablecoin liquidity at the current moment uh a lot of stable point liquidity is sitting in uh amm pools and and for example in in balancer

and and that means that when that liquidity is sitting there it isn't or is it for borrowing and one of the approaches we have done before is that we look at the uh the the kind of uh liquidity provider shares and collateralizing them and and then creating the loan market but that creates even more demand so it's it's it's a solution where the stable coins become even more uh sparse and with the the asset manager uh functionality what happens is that uh you unlock those uh steam points but all of the other assets 12 were from the polls that have this feature uh into the other protocol which means that

there's more liquidity to borrow and there's more yield to the depositors and the asset matches are also the depositories so it's kind of like uh solving a lot of liquidity crunch that we have at the moment and i think what's unique here in this solution is it actually uh creates layer layers where the capital is really efficient because when you look at the normal model how we have function and b5 is trying to achieve they are taking liquidity provider shares and putting them as pedal that creates just more scarcity for for for the stable points so i think like a solution-wise is is uh it's very interesting and for the developers i think they they they love the the feature in the fact

that you can uh on monster version two you can build different kinds of interesting uh things and a useless asset manager feature but also in the future maybe there could be other things that asset managers could do for example they could credit delicate between other asset managers uh and and kind of like increase the liquidity within balancer uh and also the deals on those assets so i think this is probably one of the best things happening since defined and this is only like possible because uh there is this kind of like a community relationship between balancer and and and the other community and of course like there's always this kind of additional smart contract piece that is coming on and and in this case like

uh i think the relationship and the of it uh as a protocol has been proving uh quite well in those uh benchmarks and i i for me this is the best thing happening now uh and and i think like i think daniel wrote about this in 2019 first time and seeing it now live coming it's just amazing yeah well i think i was uh a little overly optimistic at the speed at which some of this stuff would happen but it's it's now happening at a scale beyond what i would have ever predicted two years out um so i wanna i do wanna talk about the community piece and how the communities really fit together but before we we get there um

there was a piece danny that you mentioned that you know i hadn't really explicitly thought about in the context of this partnership it makes a ton of sense when i think about my own activities doing yield farming which is that when you start using uh bpts the the balancer pull tokens or other kind of liquidity pool shares as collateral and ave the folks who are doing that generally want to borrow stable coins against them that's what the real demand is and they're generally not borrowing other assets when i think when i when i've got assets that i'm not looking to borrow sometimes i'm looking to borrow eth but i'm generally not looking to borrow

a lot of the different tokens that are available in ave i'm usually looking to borrow stables and so that's great as you bring in more pool shares that can be used as collateral i'll borrow more stables that pushes up the price to borrow stables but where where are more stables coming in and this is where this partnership comes in is that the most common assets besides eth to pair with are stable coins currently primarily usdc die usdt are probably i would guess the top three there um and this should open up probably at least tens of millions of

dollars of additional capacity to be lent out on ave as a result is that is that ballpark what what you think we're looking at here yeah i think so i mean the potential could be i haven't calculated the whole amount of liquidity that there could be but uh i think like uh eventually quite a lot in stable points and stable coins is that what the other particle needs and i i think like maybe this is a good example for a whole sort of like dfi ecosystem like how you could actually like think of the the capital efficiency and you know in a different perspective so i i definitely agree that this is uh this is going to help a lot on bringing

those uh borrowing costs in and uh it's it's it's i don't know i'm not sure am i more interested in the actual solution or the fact that what could you build as a developer on top of this functionality in later stage so but it's it's it's a quite substantially um significant change and i think it sets a different kind of a narrative as well in the d5 ecosystem because here is like two protocols and uh trusting uh each each other and the same way for example uh the other balancer relationship is that we we have uh race out together like uh

let's say we have to reach out balancer community and they've been in to contact us and and we have agreed to do something something big and we have usually achieved it so we created this uh uh part of the autonomics uh when you stick to the safety module to backstop the protocol uh from any kind of uh uh events uh so uh one of the ways to backstop is that you you you you have this special uh balance report where you have eighty percent of oven twenty uh twenty percent of each uh uh the the the pool so you stake those pool tokens into the safety module and you get like the keys from balancer the power token and also other for the safety module and and we were planning

that maybe this could be actually if if it's done right with the ergonomics and so forth and safety module staking it could be the biggest pull uh in in balancer and it happened like now it's the biggest poll there and that's like super efficient you know in that sense and it's only possible because our community trusts uh the balancer community in terms of like because the funds are there in in in the uh balancing on balances smartphone checks and then in the same way balancer is trusting all the in terms of security here so it's it's kind of like a something that uh uh requires a lot of work and time and i think this shows very good messages like once once the teams

achieve certain security level in terms of like building uh safe and secure uh infrastructure then you know this kind of partnerships are possible to do in a scale otherwise you could not scale into like hundreds of billions uh in what we have with the uh safety modules taking with balancer and and so that's a great point you know this is not the first significant partnership that these two protocols have had so are there other things that you're thinking about what are some possibilities for things that these two protocols could do together going forward there's a lot of things i was a terrible host there fernando why

don't you answer this yeah i think i think i i i'd agree with sunny that um the most exciting thing is not what we know we built and we know we can vote but the things that the crazy developers out there will come up with because um because of composability and the way those things are like legos and and people come up with ideas that we haven't expected but i think some obvious uh next next steps would be to have a a better kind of coverage of bpts as money markets so like if ave understands how balance works and like the smart contracts uh kind of uh can talk to each other you

can always withdraw liquidity there's no like wait period or cool cooldown period so if if avi needs to slash someone or to um yeah use that collateral it can always go to balancer withdraw the underlying tokens and then use the if that's uh in that if let's say um ave pool so in a way like it's just a bpt is just a passport uh to the underlying tokens it's easier said than done there's like some complexities how to price the dbt and uh but but it's it's kind of doable and we're here to solve those nice challenges that i i think the credit delegation for asset managers is an amazing idea

i've already thought about that and we discussed uh some some of the kind of cool things we can build with that but yeah we're just just getting started sorry stunning yeah yeah yeah yeah just to add on that like the one of the markets we we're now working is that we we have the the uh the uh balance report tokens as a collateral and and you can borrow liquidity against and what's interesting here is that even though it's a like other market and and build on ave uh what we're going to do is that the oil token holders have also uh floating power because the way that the other uh version two governance that we released end of uh last year works is

that we can create different kinds of uh voting strategies and and for example if you create a new pool we can add there uh other tokens to be also used uh to vote so so it gives uh power to the balancer uh community and because they know the assets as well they know how their system works and you know it's kind of like an inclusive way uh to to get uh communities together and and govern things together and i think this is quite new because usually uh you know there's a lot of partnerships in india and you know we're just working together but uh if you look at all of those partnerships there isn't that kind of like a much of my inclusivity to this level

where actually govern something uh you know that's that involves both of those uh stakeholders and and you know and combine the expertise and understanding and community uh culture there and i think that's going to be interesting interesting to see how it will evolve i think that's super exciting right i feel like so many of the partnerships not just between these protocols but other protocols in the space have largely been kind of developer driven um you know behind the scenes working together on something and what you're talking about here is is as far as i'm aware like the first case where we're talking about two very significant protocols actually

sharing governance via the token holders over a meaningful amount of assets and kind of economics and how that's going to be used i mean that's that's tremendously exciting to me yeah so we're going to have to talk talk with uh with fabian and and the snapshot folks about you know what what this is going to look like to integrate that on snapshot and have the dual voting and stuff that'll that'll be a lot of fun um so so before we kind of open it up and and bring david and ryan back in there's one last topic that i wanted to hit on to make sure we kind of set the stage top of mind for everybody right now is kind of congestion on ethereum right

it's it's too crowded nobody goes there anymore right um it's it's really great to see so much activity happening in ethereum but gas fee is just out of control and so we're seeing a lot of teams racing towards uh really large scale layer two deployments we're seeing a lot of other layer one smart contract platforms gaining in interest at least their token prices are going up and and they're getting talked about more but when you guys think about where this is all heading with increased composability when we start going from millions of users to tens of millions hundreds of millions billions of users we're gonna need some way to scale and it seems unlikely to me that this is

all l1 ethereum people paying hundreds of dollars per transaction so what do you see is the the paths that you're exploring the futures that you're exploring for your protocols to be able to scale and still maintain the the avenue for composability that is is really being highlighted here in the partnerships you've had so far so so stanley maybe you want to take a first crack at that yeah i mean it's uh i thought like a week ago like 1200 way uh transactions that that went through uh the normal rate so i i think like uh i i definitely agree that there is quite

a lot of congestion especially like one of the things i think what will cause even more is that you know nfts are becoming popular and people are bidding on those you know it kind of reminds the congestion that ico has been brought back in the days but i think it's uh it's important to have this this uh strategy ultimate strategy or or scalability strategy that is as inclusive as possible and supports uh various communities for example uh we try to look into communities where something is already happening whether it's it's a bit of depoi and or something related to nsds and and you know support that and one of our community projects avakoci is actually doing something

something automatic and and and you know they bought it actually uh we wanted to port it a tokens for them because they need them obviously for for their uh game uh but you know they they said that well we're faster so we'll do it ourselves so this is an example like like scaling without actually doing much of like humidity driven scaling but i think like uh many of these scaling solutions we need to always think about the security side so it's super amazing to have uh cheap transactions uh in the layer two or or side chains but we also need to understand that we're reducing the security unless we're using something uh which is uh mathematical

proofs like ck uh zk and that is something that we are uh also kind of looking into quite a lot at this moment uh yeah so our strategy is like a big thing everywhere but also like we are trying to find like a long-term solution great fernando how about you how do you see scaling for balancer that's uh a great question so we're not aiming to be like the pioneers of uh scaling and like we don't want to set the path for other protocols um in terms of what what solution they should choose of course we don't have this power uh far from that but we

we are also not only just sitting and waiting because this is blowing up in in front of our noses so uh but but on the other hand we still believe that the fact that we need a lot of composability for the d5 to be as as great as we know it today on ethereum layer one there are so many tools so many kind of um things that need to work nicely together that we take for granted today but if you look at ethereum in 2016 it's probably how latest two and elderly ones look uh like today what what they look like today so it's very easy to sell solutions that um

they say like you can just plug in your your solidity code and it's evm compatible it works great but in practice we know it's not that simple so we are also more like leaning towards dk roll ups because um it's a mathematical kind of uh cryptographic proof and and there's not an economic gain uh where uh yeah people could just decide well it makes sense to steal money from people here because yeah there's more uh that i can win by stealing money uh there's also not this long period to to withdraw your your assets which for nfts not so much for us but we want to be in the space where everyone is so

i've talked to some nft um kind of teams that think that this is a no-go um a deal breaker because you cannot like have this uh fungibility between layer two and layer one not saying that optimism isn't a cool approach i think it's it's a it's an awesome um way to solve this but i think long term it will probably be um something around zika roll ups and that's more more what we're leaning towards but again i think we're just like sonny said like we're experimenting with different things but we haven't committed to uh one solution yet and i think maybe the the industry that defy

and like protocols as a whole they need to talk more and um decide where they they're going to go together if they want to keep collaborating and being composable like we are today so yeah it's it's going to be interesting to see how it pans out this year yeah yeah as a big optimism fan and backer i'll say i i do think that that there's a more to the optimistic roll-ups than we're hearing here but i also do hear that the the mathematical guarantees of zk roll ups are are very compelling and what i thought was interesting is that you both were looking in that direction and reading between the lines and what you're what you were both saying it sounded more like you're looking towards

layer two solutions on ethereum and the idea that there's gonna be uh potentially at some point once everyone kind of coalesces around something that there will be a bit of a migration not that you anticipate having versions of ave and balancer existing across you know 10 different layer ones that that's that's not the likely future that you're looking towards is that is that fair to say stanley well i don't know is is it completely fair because like maybe uh kind of most cases yes but maybe if there's something interesting going somewhere uh something that is like like very rich

in its like culture and community like we probably want to be there as well like we we try to tell you like just empower more so that it's for us like it's not only about decentralized finance but you know after you solve finance you can solve other cool things and empower those uh communities but we like as a long-term solution we want to find something that you know could be very scalable for us and uh and i think like uh roll-ups is definitely some some option that we we are looking into and and zika is interesting because you know if you have uh like use mathematics instead of like four and and capital and and you know that's uh

that's something that is very unique because we we solved thousands of things with mathematics at the moment in cryptography so uh that's of course like the holy grail it's just uh very difficult still to deploy something like all the protocol into those uh those kind of clicky uh places for now answer your question yeah on our side then i think we're we're not trying to dictate what um the markets want i think like you said like there could be a set of users for which it makes a lot of sense to be on another layer one because their capital requirements are not so big and they they like they know they're gonna be dealing with 200 checks

and it doesn't make sense at all for them to be on ethereum and there's there's no layer to solution today so what we're trying to do is not close our minds we're not maximalists and and like yeah no other ones are worth trying so we're actually talking to a bunch of them but uh we're always telling them that we unfortunately are fully focused on delivering layer uh v2 for for ethereum and layer one so we wanna launch bouncer here and uh and of course we're open to answering questions and helping other teams build balancer um on other layer ones so it's more like an approach of let's let's see what the market says so if someone ports balancer to another layer

one and we're seeing some like some layer ones implementing balancer already and if it catches on and has traction then it will naturally start calling more attention and catching more attention and then we're gonna have to deal with uh like questions like do we wanna use one token uh one one single token for the governance of bouncer everywhere or do we want to have like different versions of bottle tokens that are native to two other layer ones um are there bridges between bowel that is kind of um canonically minted on ethereum and then goes to those other protocols do we have liquidity mining on those other protocols all of this we

don't we're not trying to kind of set the tone and and decide what to do it's more like the community the market um those those are the stakeholders that should decide and we're just kind of trying to stay focused on the launch of v2 and open to um going to other ones it sounds like you know as it makes clear in both your answers there are a lot of factors at play here a lot of considerations and this isn't something that anyone's going to be able to dictate top down it's going to be an exploratory process both within the communities for these various projects and across the communities of the various projects so awesome thank you guys so much uh let's uh let's have david and ryan if you guys want to jump back in i think it would be

fantastic to start hearing some of the questions that are are coming in from across the interwebs yeah dan a fantastic job as a moderator if you are interested in being a bankless co-host perhaps we can talk uh this is really great guys i learned a ton i have my own questions lined up ready to go so we're going straight to the q a all right so guys i have my uh questions ready to go and again uh it is the time to put the questions in the chat but i want to start with my questions first uh so my first question is i just want to be uh clear about the the process behind the asset management system uh and so uh the the question i have is that the the concept is that you we only need like the surface level of the liquidity

tokens in an amm to facilitate any sort of uh any sort of trade right um it could like in all of these the tokens so if i have if i'm trading eth to die right um and i'm trading a hundred each to die i only need a hundred dye and a hundred dollars and a hundred die worth of eath to make that trade happen um and so the rest of those tokens get put into into ave but each asset and asset pair or asset group on a balancer or assets in general have their own like volatility characteristics right and so you know the eth die management might not be the same as the ave eth management system how do you guys how what's the plan for

the long-term accounting for the different characteristics of assets and their value in their just market dynamics absolutely that's an optimization problem david that has like uh we were working on it with uh our friends at placeholder alex evans like the idea is that the more volatile uh a pair is because a token on its own it's is never volatile right it's always relative to something else so you have to talk about volatility in a pair so if you're talking about heath and dye uh we know that it's a volatile pair so we want to have more buffer than uh than in a pair that is highly correlated right so we know that in a day you might need 40

of the initial balance that you started off in the day so in order to not have to do many what we call replenishments so what a replenishment is is when your buffer which is in a vault starts going close to zero you need to grab your assets back from ave and put them into the vault and balancer every time you do that you have to pay for someone to trigger this transaction right and an interesting thing is that it's one person who's paying for all the pools so if the pool has 100 million dollars it's one like keeper that's paying to replenish the pool it's paying i don't know 100 200 to do that but that's split it's uh kind of um yeah shared it's a cost shared by everyone in the pool and it's

only done once every hour or so and if we we know that transactions are very expensive what we can do is we can have bigger buffers so that we don't need to do replenishments like that often but then you give up on the apy because you're actually lending less of your assets to avid so it's it's really a trade-off if you have a lot of volatility and let's say low low apis on ave you might want to have bigger buffers if you have low volatility and a lot of apoi on on ave you want to have like a very low buffer because you want to have almost everything lent out so can we try it's my understanding around this though that it it's it's not about necessarily within the individual pool you think

about it at the the overall asset level so for example isn't like bao baal eath is relatively more correlated than like bald eye or eat die right um so then if if you say have the majority of the eth liquidity is in the eighth bowel pair and a minority in each die you can say the overall eath pool can can have less of a buffer whereas if it were the reverse if the majority of the liquidity were in the east dipole in a minority of the eth liquidity or in the east bow pool you'd probably need a bigger buffer on

that that eth uh vault right um if i understood it correctly so this is something at the at the pool level then so it's not at the vault level okay so you need to figure out the safety margin at the pool level rather than the overall volume yes okay okay because one pull one pool cannot use the buffer from another pool to sell because the asset manager might be malicious and they just still all like they invest all the assets that they have and then oh but yeah let's see some buffer from from another pool and then that asset manager like never shows up again it just stole all everyone's mind of course our and that's why this partnership is so

important we're going to put lots of money to audit this asset manager and like good people working from both sides on this problem but we we're fully permissionless so anyone can create any type of balancer tools on v2 any logic they can create any asset managers they want um but once you trusted an asset manager with managing your assets in the pool then it can do anything of course that the code permits but it's at the pool level so if if the pool decides to like yeah lend more then the pool might run out of buffer and then that pool won't trade the spare so the the slr smart or the router bouncer will look at that pool we'll see that the buffer is

too small and it will just route the trades to other pools that have enough buffer does that make sense yeah and just to compliment uh right as you said like you just need like the surface of the assets why because people are not trading like five percent of the pool's asset because that has a lot of slippage right so um anyone wanting to do big trades uh on on amms they will split up their their like trades into smaller chunks so they they trade a little bit and then let albers bring the price back and then they trade a little bit so instead of trading all at once and having like five percent slippage so it's it's that's that's why we know that amms don't need to have all all the liquidity kind of

ready to be used awesome and then my next follow-up question i want to just clarify might actually be the same question asked in a different way uh and so let's we're going to approach this from from two angles and so in your in the guys's announcement post you guys say that idol funds can go into ave right and earn yield how do you define idle funds and is this just the same question and going from a different direction that's a great a great other way to frame it imagine like the way i define idle funds is if those funds weren't there in bouncer everything would have happened the same way right so they didn't really matter um at all in this period of time so um we we have a nice gift that

animates that so imagine you have like a hundred percent balance balance uh on under two tokens and then you trade back and forth um e4 die the price has kind of stayed the same so it's some people buying some people selling and then if you look across the whole day of traits the balances never cross this line here so all all of that all of those balances beyond like below the line where the the the surface has kind of gone up and down all those balance all those assets could have been elsewhere earning some extra yield so of course that that changes because amms um work in a way that if something get gets more expensive its balance goes

down so as that balance goes down you're gonna hit that uh the end of the buffer and then you need to replenish your pull and conversely the other side is going up so you actually can lend more to ave because you're you're kind of um losing missing out on on more apy that you could have because you have more of those of that asset so fernando i'm going to ask a question that came in from from youtube and i think this is more directed probably at the balancer side so it's probably a fernando type question but um as you guys have articulated throughout this conversation this is very much a play for more liquidity obviously balancer wants more liquidity what does

ave get out of this partnership equation is more liquidity specifically liquidity on stable coins we love liquidity so do our money robots right um can you give kind of an elevator pitch i suppose to liquidity provider for why balancer versus somewhere else that they could put their liquidity another amm or you know a centralized exchange somewhere else why balancer so to my knowledge i haven't seen any other amm that allows for that so if you want to have your underlying assets like of your pool earning some extra huge you you would have to go with us um of course you can wrap your tokens

let's say you can have like a die and a ussc and put those in a pool then actually you have a hundred percent of the assets that are being lent out what is the problem people don't want to trade a die for a uscc they want to say die for ufcc they don't want to trade c die for c or s c so what actually like curve has a great solution a great tool uh there which is the for example the y pool they have wide i and y usdc but people want to trade die for your cc so what they do is if they want to trade ioc for a diet they wrap us into into y occ then they trade wise to see four why die and then they unwrap the white eye to die and give back to the user and that costs 800k gas it's as if we're

replenishing the pool so it's the equivalent to having zero buffer on both sides someone wants to trade you replenish the pool with exactly the amount the user wants to trade and then you do the trade and then you uh kind of invest the other side back it's exactly the same but imagine this for every swap right so what we're doing here is instead of having 50 000 replenishments which is the like 50 000 swaps every day we're bringing it down to 10 because we know that like trades are going back and forth back and forth and what we're giving return or we're kind of um missing out the trade-off here is is that instead of having a hundred percent of the assets lend out we have 85 or 90 but we brought down all the gas costs of

wrapping and wrapping 50 000 times per day to down to 10 10 uh transactions so this of course who pays in the end who's paying for those 50 000 red and red 800k gas uh for every swap transaction it's the lps right because there's gonna be less trades it costs a lot of money to do a trade so people won't trade there so in essence what we're doing is we're making the pool a lot more efficient so that there's a lot more trades there's a lot more swap fees generated so the lps have a much better uh outcome i'm i'm talking out of theory because this is not implemented yet but it's it's kind of a quite obvious outcome in my opinion higher yield more capital efficiency

seems to be kind of the bottom line uh pitch here i'm gonna ask another question this one came in through the the bankless uh discord and this is you know somewhat related but so um i i heard actually the the folks over at bitwise say that uh from an institutional perspective institutions are actually understanding defy capital assets uh you know those make more sense to them than than things like bitcoin some reasons in some respects because you know these are capital assets and they're used to assessing discounted cash flows so that's very interesting but but the question that's coming in from from discord is is uh this what's it going to take to to convince a traditional hedge fund you know traditional capital pool to start

putting their capital deploying their capital in something like balancer or ave and maybe i'll start with with stani on this question are you seeing any sort of institutional adoption maybe it's hard to tell because all of these addresses are pseudo-anonymous but do you get hints that some of this capital is coming from institutions and if not what do you think that's going to take yeah i think so like of course like institutions is a wide range of uh kind of like entities uh some are more native some are less and some are like they don't have any relation to crypto and i i think like at this point i think there's a lot of uh institutional uh inquiries at the moment so i think like there isn't that

much of a like uh in in the sense of this for us to to do i mean it's it's more about the tooling because there's obviously there's a big arbitrage at the moment so let's say uh dollar is yielding in a u.s bank account development at under 1 in a fixed deposit for example and uh at the same time you have uh ten percent uh this is just the past 30 day rate on unstable points and without going going event volatility volatile crypto assets and uh obviously the opportunity is there but now i mean it just takes time in uh in the institutional landscape to structure things in a way that they can

actually go and deposit and there's a question for example of the the custody how they manage that and and once they have the custody how they uh how they can actually deposit into the uh these protocols and that is something that many of the custodians are working uh quite uh quite much on on these days and the cool part about the the the other protocol imbalancer protocol is that you know the the positions are tokenized so when you provide liquidity into balancer or you do other you have a token as position so you could store that anywhere you want so that helps uh quite a lot and i think uh uh the other thing of course is the security like defy is uh in the current

state with the converting complexity is quite fresh uh you know it takes a bit time to these protocols to mature and uh defy itself is not equal like all projects are not putting effort into uh building institutional great products so you might have protocols that are putting more effort in in uh getting institutional uh uh liquidity by making secure protocols and some are just practically uh testing out sandboxing and and everything lives in the same kind of like a network so i think those two components are like important for institutional side on that same note stani we have a question from the the youtube about the

ave insurance system and how this uh integration with balancer relates to the insurance fund so if something if some smart contract bug were exploited how would the ave insurance fund uh would that be relevant or because this is something not completely of a is that is it what are the details here with the ave insurance fund and this integration yeah so the safety module where uh we have depending on the the the uh liquidity there we have uh something like 1.5 billion uh worth of habit there uh staked and and uh that brings cash flow for the uh uh stakers uh for accepting the protocol so so that goes also

the same pack stopping applies into the asset manager funds so the asset manager is uh exactly the same depositor as anyone else in in that sense and of course like there you see the the thing that uh you can also stake the balancer uh the lp tokens into the safety module the va uh dvd and uh that's that's kind of like a different thing because you don't want to have this kind of like a circle that they go back like the insurance insurance cover goes back into the pool uh if something happens to the poll like that will be very uh uh fortunate and uh in this case that that will be separate and and will not have this as a manager uh feature so it's

it's trusting like balancer contracts there a bit but i the the the asset managers uh those fonts are covered with the safety module and and i think that's uh that's pretty cool so so that it's treated the same way as all the other uh depositors would you say that that is perhaps a solution uh to what ryan's question was which was youtube question or a bankless discord question as to like do you think how much weight do you think that the ave insurance fund will help institutions and their just uh comfort with exploring this space i think it helps quite a lot actually and one thing is that uh institutions see it quite as a bespoke model but interestingly uh quite many things

in in if these interest finance is bespoke so what balancer is doing is spoke in the sense that you know you have this kind of like a uh you can stake your portfolio in in various different percentages you know you have twenty percent let's say open a uh twenty percent uh token b and rest in it and you can just take that into a particular pool with that kind of percentage combination and and and uh get fees for the trading so that's that's a bespoke thing uh so i think institutionals they see quite a lot of new things happening uh but they don't they don't kind of like see it as a something that they are not comfortable with they are in actually opposite way that they

they see that uh you know you have facebook products and best book uh ways to insure those products and i think it's very helpful and i don't know i haven't done a survey yet on institutional level but uh but but i feel that it's it has a little we haven't had like a it's feedback one i have it like normal asking about that every institution yes that arbitrage that you opened up with has got to be pretty attractive over time as there's this like like rate divergence between between what you can get in traditional finance and defy um this is a quick question for fernando coming from the youtube wondering about balance or v1 versus balancer v2 the tradition of the transition process for

liquidity providers is there anything a liquidity provider needs to do are they migrated seamlessly definitely so the the nice thing about battlestar v1 and balance so like it's our ethos is it's fully um like permissionless and non-custodial so we have no admin powers to just like bring everyone's liquidity to somewhere else uh if we had that power we would probably be able to steal people's fun and we never want to have this power so yes but we'll make things very easy for lps it will be a seamless one-click process where you just say i want to migrate from this v1 pool to this v2 pool and it should be pretty seamless yeah

i have a question for the both of you something that's i'm curious about just in general and and this is the concept of protocols partnering so d5 protocols partnering how does a partnership work in d5 so when when two protocols like decide to work together you know there's obviously stuff that has to happen at the code layer but i also get the sense that stuff happens at the meat space layer too can you talk about maybe how this partnership came to be why you just like you did it because of capital efficiency reasons i understand sort of the motivation but like how does a partnership happen in in d5 uh maybe we'll start with you fernando

sure yeah so it's something that people might think oh they just partnered but it goes back like a long time uh maybe two years already right standing so as you say ryan it's a lot of uh a lot about people as well so the teams will talk and we see that stanley is a great person the team is is awesome they're very responsive very very nice the exchange information there's like the same ethos and principles as our team has like openness everything's open source you're have like you're free and welcome to use our code as well and let's share um because it benefits both both parts and then as you kind of get closer

because you have the same principles and you're open to that which now all the teams are and and we know that um then you start seeing like opportunities of what like how those two protocols could work nicely together and then you start going down to the more technical level sometimes it goes the other way around so people realize oh there's like this great um yeah way to combine those two protocols composability opportunity here and then the product will start talking so yeah i think i think the way it started for for us uh with ave and i i could say it's the by far the biggest and most important partner for us it's it's really started like as a informal conversation and and then it evolved into kind of a

friendship and and a lot of exchange and then opportunities just flourish and and surface like easily so yeah donnie would you add anything to that i i i totally agree i mean it's it's kind of like a i think what drives us a lot i thought when we when we see people like uh innovating quite a lot and doing something something really really smart and and and doing it in a secure way as well and what struck me that the the balancer team is that uh there is a lot of good ideas and and very interesting like execution and and and there is like all the time like innovation and they're taking like a lot

of steps to do that and they're not making noise at all like that's that's the cool part so like that that's that makes like a like like perfect like partner you know you want to learn from what's going on there and and and i think there's like a like a good benefit and things things happening for both of the communities like we i think the other community gets approached uh quite often and you know the partnerships fall cells are usually like they don't they don't feel that there is like they feel that there is that much of a contribution and like in in our case like we built things on top of balancer and balancer is now building things on top of our protocol and so there's like this development contribution which is uh really important and also they they

review our ideas and we were there so there's like there's also this kind of like a mind uh sharing and uh yeah and usually like when and some projects approach they they pretty much are looking on their own like kind of like community efforts in a way that hey let's do this and this is like good for everyone in both of us and then you're looking at okay what's happening here that there is no there's not actually like it's very one-sided and here actually there's like we're building together things and that is why i'm so excited when we are able to govern things uh inclusively between uh the communities and that's going to be a very cool thing now guys this has been a really awesome

panel and dan again thank you for moderating the conversation between these two defy all-stars and dan my my last question actually is to you uh as the author behind the superfluid collateral piece this seems to be a manifestation of exactly what was predicted in that in that piece but now that we're here where do you see this going is this just the first of many who who else do you think is going to make integrations and partnerships like this now that now that we have like almost two more years of data what's next down the line with regards to capital efficiency partnerships and defy yeah well i think this is you know honestly it's it's a very big deal

and it's still just scratching the surface right so i actually wrote a piece on bank list this this past summer um about uh looking at i think called aquaponic yield farming and the idea of kind of prime brokerage protocols and so one of the one of the questions here too i think becomes you know what does a really deep symbiotic partnership between different protocols look like and what does it look like as protocols start to bring multiple functionalities in-house does it make sense to actually integrate trading and and um borrowing and lending and futures and options and you know all sorts of crazy things and synthetics like all all into a single protocol or

does it make sense to keep things somewhat compar compartmentalized and then work on very deep integrations with specific other protocols does it make sense to modulize to a bunch of different protocols that provide similar capabilities i really don't know but we're starting to find out and it's it feels like it's snowballing and there's this balance that we're seeing now i think between um teams here and and i not not to say that that the balancer team and the ava team haven't been shipping very very quickly but then there are some teams that are just going like crazy and i think probably being a little more lacks on security um with some of the stuff that they're doing but

really pushing integration super fast and that's all well and good until things break and a lot of money gets lost um and so i think as an ecosystem it's great that we've got protocols playing on like different parts of that spectrum between like speed and security uh but as we do have a very interconnected system there are also systemic risks from that and so i i think it's only a matter of time until we see um some some pretty big blow-ups uh you know we we saw something with uh with cream and alpha hamora doing some interesting stuff there that they resolved i thought in an incredibly collaborative interesting way as well um so so i don't know where we're going i

just know we're going to see a lot more of these overlaps integrations and really just unlocking this level of capital efficiency that is not possible in traditional finance it's only possible because we have these open public ledgers and we can make sure that every asset is accounted for and is handled in an indisputable programmatic way and that is going to ultimately allow us to do so much more than could ever be done in in old fire tradify or however you want to call it the the legacy financial system well what a way to end it dan elliser thank you for that when you're ready to

publish your next piece on bank list let us know maybe it'll be called super fluid specialization something to that effect always excited to hear you predict the future because uh you've got a knack for predicting things that have eventually come true dan elizer fernando stani from ave and balancer really excited about this partnership guys thanks for joining us on this panel thank you thank you a lot of fun all right bankless this has been our first fireside chat if you like these fireside chats tell us we'll do more of them uh we enjoyed it david and i didn't have to do much we let the experts talk about it which was also very fun of course make sure you like and subscribe

on youtube if you're catching this we'll also publish this to the bankless premium feed too so you can get it that way thanks for joining