Aavenomics: Making DeFi Great Again | Marc Zeller

Transcript

the the most profitable protocol on Earth are Dows but some but some VC are trying to convince you that Dows are bad because they want to to to sell a token um at the end of the day we see what works Bitcoin works ethereum works Maker Works a works and uh we believe there's still room for Innovation hey everyone this episode is brought to you by namada the shielded asset Hub rewarding you to protect the multi-chain so not only can you protect your own data across any asset and any chain but you also get shielding rewards for strengthening data privacy protections for everyone so you can check them out at n.net and follow the domain net launch stick around you're going to be hearing all about them later in the program all right

everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-host are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode hey everyone welcome back to another episode of B curve this was a interview that I did with Mark Zeller uh of ACI and who's been a day one contributor to a the Dow this was a fascinating discussion I had a lot of fun talking to Mark initially I wanted to have him on to discuss umbrella and the a nomics update so it's a set of

interrelated proposals that are coming down the pipe which is actually a really big change to a that has big implications for the token the structure of the protocol in general investors which I thought was fascinating but we actually had a much more broad-reaching conversation around Mark's history and background and how he got involved in crypto what he thinks about Dow governance and how he started to get involved with a we get deep into the structural changes that are coming down the pipe in terms of a but then we had a long discussion around the State of the Union around defi some of the converging business models that's happening and then there have been some tweets recently from OG def5 Founders like Kane about uh sort of minimum viable issuance and some of the ethereum foundation posturing towards defi which I thought was a really interesting discussion and

then we concluded with potential expansion into salana and wrapped Bitcoin uh so there's been some drama this last weekend of bco selling the majority stake there and some potential uh security risks around rap Bitcoin which is a a big piece of collateral in E defi today so this was a really interesting conversation and I hope you all enjoy it as much as I did all right everyone welcome back to another episode of bell curve today I'm joined by the one and only Mark Zeller Mark is it Mark chainsaw Zeller or is Mark Billy Zeller it's tough to keep up these days while nicknames you know inside you there's two wolves and for me there the nice version which is the biler focus on making money for the D and the less the mean version of my of C chenel that are

making sure that there's no uh there's less obstacles in in the Dow journey and sometime you need both you need to be nice and you need to be tough and uh I'm happy to do both depending on the situation uh was chainsaw was that inspired by chainsaw Al Dunlap or was that a marxel original no it's inspired by um because when we launched the ACI be around two years ago uh the Dow was not as efficient as it is today every Dow has some inefficiency and it's normal because it's a new way to organize things and decentralized autonomous organization is uh an Uncharted Territory or to organize a

protocol and manage it so the name chain so is a reference to the Argentinian president mle and uh that is quite known for a where he remove a lot of uh fat inside the Argentinian governments that doesn't mean I support the guy specifically but he he was known and it was quite the meme in the Argentinian politics that he was there with a Chanel saying we're GNA cut the unnecessary expense for the government and that you res for them and I think we done the same thing and we cut the expense a lot for the avau to focus on the efficiency and on the yield on the of the spending we with did on behalf of the Dow and I

believe the return on that investment and this new way to manage things was incredible because every single metric for the Ava is up for the past two years so Mark I I brought you on here because I wanted to get your your take on this uh some of the big updates that are actually coming through a namely the umbrella update to the safety module but also these updated a inomics that you're talking about but maybe before we actually get into that um what is your philosophy in terms of how Dows should be managed so I like the idea of a chainsaw I like the idea of efficiency in general but it seems like a lot of dows have this natural tendency to uh to leverage committees which sort of slows things down and in some in some bad cases I think there ends up being this

concept of looting the Dow and you've been super active in a for a really long time so what's your general philosophy just in terms of dows in general what's best practices in terms of steering and managing them this is something that I presented during the atcc not this year but the year the year before and the main Moto of the ACI vision and Doctrine for the AV is minimal viable bureaucracy and I think it's extremely important to strike the Swit spot between having a framework and have clear rules that are accessible to anybody that want to participate to the D but to remove the bureaucracy and the gatekeeping as much as possible that's what we created a lot

of products and services with the ACI on behalf of the Dow that are completely open to anybody that request them one of them is Skyward so basically if you have an ID for the Dow and you don't know how to implement code or you don't know how to do things you can just uh talk to the ACI do a temperature check which is a very lightweight government's proposal and if the community agrees it agrees with it we the ACI will escalate that on your behalf on Snapshot we will make sure the format is standard with the uh the the Dow requirements we will uh escalate it to a a request for command which is more formal way to do a governance proposal that will require

the feedback from service provider of the Dow all the complex stuff we will do it for anybody and we will do it for free because we do not believe in gatekeeping and we believe that uh there's uh some people with great ID and some people that can Implement those great IDs and follow uh the the intricacy of the the governance Maze and that's not always the same people so we make sure that if you can hard value to the now all the the about bureaucracy and code we will do it for you and you can focus on the value you want to add and we implemented things like that at every single level of interaction with the protocol to make

sure that the Dow stays open but uh everything is uh well managed and streamlined so what do you think about the idea of there being in any sort of human organization there needs to be some sort of leader or face and I I would be curious Mark maybe I could get a little bit of your background here you know I think that many people uh you know kind of think about you as as the man you know behind the curtain in terms of a and I know a is way ahead uh you know of many of the other Dows operating in crypto in terms of actually decentralizing but feel like you've really become a force to be reckoned with not only in a but in generally in sort of the defi scene and I would just love to get your sort of history and background and how you found yourself in

this position at at a at at ACI and uh what it's like I mean contributing super actively to DAL the way that you do I mean the the first thing I want to say is that my voice is only the voice of more than 300 address now that delegating their trust by their token on link so the way the Dow work is that if you have one a you have one token of voting power for the uh governance and I currently have like 375,000 a votes I would love to own 375,000 a that's like 30 or $50 million or something like that unfortunately I don't have that much money I would love to maybe one day but not not right now so 100% of my voting

power is actually from people inside the community and when we launch the ACI I was very strict on where I can Source my uh voting power I refus to ask for any voting power from the former a company that we call aara now because otherwise how can I be independent I refuse to ask for any voting power from VCS because all can I be independent or for any project so if I get some voting power from Lio I will be influenced by Li so uh as an example so 100% of the AI voting power comes only from community members that are not associated with a f or with a protocol or with a VC or with

a company that operates in the space so just a bunch of people some of them delegate like 100 dollar worth of token to me some of them delegate $10 million worth of token to me uh because some people are rich and some people are less rich but all of them can support the ACI in their own way and every bit of support is appreciated and so that makes me the largest delegate right now in the AV but um the second one is big as well uh the third one as well and if you do the math I'm not big enough to pass a proposal on my own otherwise some proposal I will not have failed some proposal because my track record is not even calculate I

tried a few things and the committee say no and I think it's a good proof of decentralization if 100% of my proposal will be yes it will be like some kind of dictatorship and I don't think that's a good thing and the other things that I want to say about this topic is that this is liquid representative democracy so if tomorrow the community and the people that they get their voting power to me and the ACI do not believe I I'm adding value they only have one transaction to do to remove the voting power they delegate to me and in the past I lost significant voting power from Big Wales because they were not agreeing with stuff I was doing in the Dow a good example of that and the

biggest event we had in terms of uh voting power we lost in in the past is when I supported buying back CRV tokens uh during the CRV attacks uh on uh on a in November last year I don't remember the exact de but it's a it's pretty easy to find for people doing research and I was supporting buying CV token because we were building the ghost stable coin and I was uh in my plan was eating two bir with one stone so acquiring strategic asset for secondary liquidity of go so if we acquire CRV token we can vote for the go pools and incentivize liquidity that way and the second stone

is that we can support the CRV asset in in a time of trouble where Mitch was about to be liquidated one of the very significant delegator of the ACI was not thinking the same way and was opposed to delegate CRV so we lost around 30% of our voting power in that day W because it was like the largest delegate we had back then so it's not a delegate anymore of the ACI but we had the trust of other people in the committee and I think that's all a liquid representative democracy should work is that people should support you and if they disagree with you they should be able at any point to remove their support and I would not consider are they as

decentralized as it is right now if we are very fixed uh delegation for uh everybody involved in the Dow that means that if tomorrow someone had more value than us to Theo or leadership as you call it position might be uh remove and I think that's a good thing because what matters at the end of the day it's the protocol itself and for listeners who are following along here by the way the who aren't maybe as familiar with curve which is a stable uh the stable swap exchange they have a a ve sort of gauge type mechanism where the more curve that you buy up in stake you can direct emissions of the protocol into that pool so it's a really powerful bootstrapping mechanisms for stable coins like go just

a little bit of extra context for for list did you guys end up doing that markk or yes we did and the goh stable coin is extremely stable and when we got the black one last week uh goh St at $1 the liquidity is still strong the GSM which is the protocol stability module for the system grew to $9 million which is good for all liquidity we lost 15% of the supply due to liquidation but that did not uh uh result in a deeg of the G coin so we got our first black one and we resisted so if I had to do it all again I will do it exactly the same way even if I lost some support that day good um and by the way ACI stands for aich Chan

initiative uh we'll we'll Link in the show notes for folks who want to figure out more details about that program but Mark before we get into because I want to talk about um umbrella now but before we get there I I do want to get your sort of origin story here is like what initially attracted you to a like were you playing around with a bunch of crypto protocols before you know experimenting with being a delegate Etc like what was it that Drew to a specifically I'm part of the uh um so I started in 2015 my crypto journey and I created I'm one of the creator of etherum friends that are the organizer of the etcc which is the largest European Pro conference about the ethereum ecosystem I work at conses I did some research on stable coin uh 2016

I work for the first crypto asset service provider called Kos in France uh that the first license and regular addiction to buy and sell crypto in the French territory and in 2019 I was invited by the a companies so the former name of a uh that was doing the pivot from atland which was a peer-to-peer Landing protocol to what a is now and to prepare for AV one that was released in uh 2020 uh so I was the head of the integration uh developer relation and head of p and uh we we grew a to what it is right now and two years ago uh the whole idea from day one was to

decentralize the protocol so two years ago I felt it was time to leave the initial company and create my own and participate and instead of being on the payroll of the centralized company to start being on the payroll of a decentralized autonomous organization and that's what we did with the ACI so it was uh it was a new adventure but uh two years after uh we can see very good results for the protocol nice well congratulations on making the Hops sir all right I want to I want to dive in here to some of the changes that are being made to the or proposed changes uh that might be coming down the pipe in terms of a soon hey everyone this episode is brought to you by namada the shielded asset Hub protecting the future of the multichain NADA is a chain that's

near and dear to my heart because in previous seasons of bell curve we've talked about how the Cardinal original sin of most blockchains is not thinking about privacy from the beginning but also because if we want to onboard a whole bunch of applications it does doesn't work in a default transparency setting so NADA not only brings about a better future that we all want but it's going to help on board a ton of new applications so Nana introduces a novel shielding reward system the way that it works is if you hold your assets in the shielded set you help strengthen nada's data protection guarantees and collect nonrewards in return NADA will initially support IBC and ethereum based assets but eventually the idea is for this to expand into a comprehensive hub for all assets really really excited about what

the folks over at the mon are doing I highly recommend that you go and check them out at n.net you can follow their mainnet launch which is z TM very exciting tell them that I sent you clict the link bottom of the show notes Mark for folks who might be I'm sure anyone who's listening to this program is going to be familiar with a just as a borrow and lend protocol but can you help take our listeners one one layer deeper and what are some of the major sort of mechanisms or parts of the protocol that people would need to understand in terms of how it works today which will set up you know the change in terms of what's coming forward with umbrella so maybe just talk a little bit the role of a um in and Stak a in the current system the

safety module and anything else you feel like is required for listeners to understand the change of umbrella there's a lot of things to cover so I will try to speedrun this uh to to be mindful of the time though to of the people listening to us so har uh you can if you are like 80% of our user you provide asset and you get some yield on top of it and that's it that's 80% of our user base they just do that they provide stable coin they provide some eat or uh it qu asset and they get some yield out of that the yield is not magic it's not a Ponzi or this kind of weird stuff the yield come from exclusively from people borrowing your asset that you provide you as a LP on the protocol and in change in exchange of that they

pay you an interest rate that interest rate goes back to you as a liquidity provider minus a fee that we call the reserve factor that goes back to the a that's how it works in order to borrow asset into a you have to provide other asset as so if you want stable coins most people they will provide Bitcoin wbtc or eat cre asset like they do s eat eat or rap e or uh E5 w e and they will do that because they believe the value of it will go up in the future maybe not in the short term maybe in the long term maybe they are wrong that's all about the markets sometime you are right sometime you are not and when you are not you lose money so you should do your own research uh but if you right you can

borrow stable coin and then spend it instead of just sending your eat or you can use the the stable coin that you borrow to buy more heat and if the price of heat is higher in the future well you will have more money in your hands and you will need to sell less heat to re repay your thatb that's the Cornerstone of defi defi is De centralized finance and a is the largest and most liquid and the safest venue to do that on chain uh right now we have around 20 1 billion of liquidity across uh I think seven Network now uh it's growing every day so most likely 7 or eight and uh that's it if uh the price and the value of

collateral drop sharply because there's a black SW event and your position is not collateralized enough to cover your Dept uh there will be a liquidation event so anybody canay pay back your debt on your behalf we call this guy the Liquidator they are not running a charity they do it because they will take part of your collateral as a liquidation bonus so if you have $100 of debt and $150 of collaterals they will be allowed to take $15 for example uh from your collateral pay back $100 of debt and keep $5 TOS they do that to protect the protocol and make sure that the liquidity providers the people that have no debt into are their asset safe

if they fail to do that we have and we are the only one at this scale to have a backup PL as a protocol it's called the safety module we have around half a billion dollars in a asset and a liquidity that is take by anybody uh like that want to participate in it and uh that is rewarded by the liquidity uh the safety incentive and in exchange of this incentive uh these people that are staking their a or providing liquidity in a and eat uh I agree to be a line of defense to protect the user from bad depbt so they will repay debt on behalf of user if the collateral is not enough to do it for

the Liquidators and the Liquidator fail to do their job we never had in the past the need to use the safety module but uh if someday there's a bigger black one that what we are used to to get every other months in in crypto uh maybe that that can be useful I think that cover the The Bu I think you got I think you got all the I think you got all the big ones there and uh one other additional Point as well is that in the in the safety module to to my knowledge we've never actually needed to use that correct and and the other thing would be that there is a there's a program to incentivize secondary liquidity around a which is relatively expensive just in the case that you would ever need to do like a season cell type thing um and use

a as a back stop to protect the protocol against bad debt obviously a it's in a protocol's best interest for there to be very liquid market for a and so there's an incentive program to incentivize that secondary liquidity okay so I think that's setting basically everything up and now what I want to do here is is H could you give us Mark just an overview of umbrella and I'm actually gonna I'm gonna share my screen here um and I've actually shouted this out on the protocol before but this is a great um uh tweet and diagram here from uh Sonia one of the chefs um over at steakhous but uh it's a balance sheet view basically of how um the A's balance sheet changes uh with the old existing um safety module that we just described um versus how it's going to look in this

new uh burn and uh sort of a token uh safety module so can you just describe what umbrella is in general Mark and then maybe we can get into some of the nuances around this balance she view I was not aware of this diagram and it's very very uh good I think we we should not that directly to to offer on post I will send her a message to to participate in the governance discussion because it's very clear and uh that's better than what I did so shout out to Sonia for for doing this um so what happened right now uh it's on the screen but I will describe it is if uh there's some bad depth inside the protocol we will seize in the safety module some a

token and uh send that into the secondary liity which is TE and St BPT uh token and out of around half a billion dollars that we have in there we can extract whatever uh a is worth because what is worth $200 million of a right now if there's a black one event maybe we can extract 150 million maybe 100 million because obviously the Dow would not be the only one sending uh tokens on secondary liquidity uh at that point so there's no way for the dowo to know exactly how much B dep we can cover with this system so this system was very simple and that's why we adopted on day

one but that was 2020 uh at the end of 2020 early 2021 and now we are in 2024 and we can do things more optimized so the world proposition is to and the principle of umbrella is to completely remove this system so this all safety module becomes the Legacy safety module and it's going to be deprecated if the governance fought for you and replace it with uh a new system where user instead of staking Aid they can St directly the a tokens so a token is the recept asset you get when you deposit liqu into a so if you deposit usdc for example in a you will get a usdc directly back into your

wallet it's IOU that all you to withdraw liquidity from the main uh protocol pool and if you agree to take your the recept asset you lose three things the first thing that you lose is your ab to be liquid so when you have a a token you can withdraw any time from the protocol if you st it you agree to not being able to withdraw for the next 20 days because you will have what we call a cool down period the second thing that you forfeit is your ability to borrow because if you have a usdc you have borrowing power in the in the protocol but as I said earlier in the beginning of your

discussion 80% of the user never they deposit usdc because they want more usdc and so they don't really care what they about their borrowing power what they want is their ability to get some me the third thing they renounce uh by doing that is their ability to be protected because they are being volunteer to protect the other guys so their asset will be a line of defense to protect the protocol and the other user from that de so what happen is if there's what we call a short F event so so the value of collateral drop sharply overnight and the Liquidator are not fast enough to liquidate the position and protect the

end users uh we and when I say we it's the Dow and it's fully automated so there's no human intervention with the umbrella system will seize the a usdc the AA R WRA it or whatever asset that is fit to do that in the safety module and burn at the depth with it so that's a seas and burn and it does not rely at all on secondary liquidity so if you have a 1 million a usdc debt that mean there's 1 million a usdc older that cannot withdraw from the main pool because the liquidity is not enough because there's bad debt in the protocol and you cannot liquidate the position to

make sure there's one a one usdc that you can withdraw for every single a usdc so what you do is that you take the a usdc you have in the safety module because people agreed in exchange of the yield to be the first line of defense and burn that debt to make sure that them cannot withdraw from the safety module so they actually lose money but that's what they do it's a safety module they sign for it in order for the other LP to be able to withdraw from the protocol and this system doesn't require any swaps or any kind of uh special liquidity so if you have 10 million a usdc in the safety module and 1 million de you do a 10% air cut to every a usdc

stickers and that's it I hope it's clear because it's a it's a bit complex as a system okay no it was a really great explanation I'm gonna see if I can repeat it back to you and just correct me correct me where I'm wrong so in in the Legacy model here and I'm going to actually walk through this this version of the balance sheet so if you're following Along on video again in the assets there are crypto back loans there are the a tokens which is the sort of synthetic um interest bearing uh representation of your your claim in that pool and then there's a surplus which is a mix of the treasury and this sort of back stop that Stak a and the you know the also the secondary liquidity incentive actually provides so in the instance that there was bad debt again in this Legacy model what would

happen is the protocol would actually season sell some of that a out into the market and so the downfalls of that is that one you're actually not matching your assets and your liabilities because you're selling a for something that might like something like eth or something like that so there's actually kind of like Forex risk there but there's also this like slippage and the ability for there to cause this kind of downward spiral in terms of the actual a price and there's the cost of incentivizing that secondary liquidity so all in all it was a really good first attempt and it was very simple but the Improvement here that you've outlined is again let's go down and look at this the second part of the diagram which is same same thing in the assets there are crypto back loans there are a tokens and then there's a subset of users holders

of these a tokens that are opting into staking them and there are some of the drawbacks that you mentioned there's a cool down period uh things like that and they're opting into taking this extra risk in the case of covering a bad debt but you're also getting some incentives which we can talk about in a little bit so in the case of bad debt here the nice thing about this is that you've actually matched your assets and your liabilities because the Stak a tokens is going to be denominated in the same asset so like if this was a wrapped eth pool it's just much easier and then instead of uh actually going out and selling some a to try to pay back um whatever the bad debt is denominated in you can actually just burn a small sub set of the uh staked a tokens right so

you can just seize it and burn it there's no slippage um it's a really elegant mechanism did I roughly get that get that right that's perfectly it so why would people take all that risk and the answer is extra real and when does the yield come from well there's no magic so every single liability well every single crypto back loan uh pays interest and it pays interest in what we call the reserve Factor this Reserve factor is five to 15% to depending on the asset you borrow so if you borrow for example eat or double USD eat you will pay less than if you borrow a stable coin that is a bit uh less mature than the main stable coin like usdc or usdt and part of this Reserve Factor we

can use uh the excess revenue from the protocol as a cash back to a subset of the uh liquidity provider so they will get the interest paid by the borrower Plus a cash back of part of the protocol fees that goes directly to them and because these people are subset of all the users even a small cash back is a big increase in their in terms of their yields so if you if you take the numbers uh there's for example more than1 billion doar of uh boring volume of usdc on a net and if you have 100 million uh usdc so 10% of the L PS of usdc that op in to to be on the safety module and you

want to give them 3% extra extra yield per year uh that will cost you around $3 million but you have the $1 billion do paying fee to you so uh the actual cost for the protocol compared to the revenue or overall is something that is manageable and we did the ma on this uh it will be uh discussed uh in the next stage of governance but we with the current revenue and the profit of the A and the protocol we are confident we we can achieve billions of dollars of user protection with a very limited cost to what cost the current system so it's very it's very efficient in in terms of

new system yeah it seems like a really elegant mechanism and before we get into some of the actual buy and distribute um parts of the a a nomics update which is Builds on this but isn't Direct L related to it what what can we take away in terms like there are a couple of takeaways for me here which is one it seems like there's an immediate cost savings from the protocol to not needing to incentivize all of that secondary liquidity for a right so I'm just curious am I correct on that and if so you know what's the quantum you know that we're saving here the the other thing from a token perspective again not Financial advice nothing like that but I think one of the the challenges around a as an investment from my standpoint was always hey this is you know we've never

had to use this and it's a Black Swan type event but ultimately you have to as an investor probably apply some sort of hair count or discount um haircut or discount to a because it acts as this like last Reserve uh you know in the case of bad debt for the protocol now I think what you've essentially done for a the token is you've removed that risk so it would make sense for me to rate up a little bit if we're all you know putting on our fundamental investor cap do you agree with the cost savings and kind of removing this risk from a the token and um and is there anything else that I'm missing here in terms the implications so there's three things uh the first thing is that all can we afford to have feas where uh competition has much less fees or even no Fe at all

I think it comes to the fact that a user are ready to pay uh to use a uh in when you compare that with other actors in our vertical in the industry the other actors pay the user to use their protocol and I think we are the only one in the current situation where we are here since long enough and we prove the seriousness and the fact that when you use a there's a very little chance that you lose all your money uh but there's always a chance because there's always risk and I'm not saying a is without risk but uh I have the feeling and it's proven by data that people are ready to pay to use a and they are okay with the fees and because

the fee created the self sustainable economy of the protocol the protocol can pay all is on bills so it can pay for the B Mony it can pay for the development of the new version of the protocol I before it can pay for the ACI operating project and all the service poid project and there's more and that's the the main thing is that we are one of the only Dow on Earth with mea da which is one of the uh notable exception uh that are cash flow positive in terms of a protocol so what can we do with this money and the first thing is we can create system that are more efficient to reduce our cost but increase the safety

of the user and that's The Parting shift of umbrella because we believe that for a fraction of the current cost that is toen incentive to St ERS we can have increased effic efficiency of user protection by orders of magnitude and that's the very important part and the partic Shi of this update the second thing is that what do we do with the extra money that is left after that do we grow the treasury like the have treasury in stable coins and it gradated asset is around $60 million as we are speaking and it grows to of $100 million per year something like that so do we uh just sit back and wait until we have1

billion in the treasury uh I don't think that's very interesting or do we start to implement new things and use the money to grow more or uh to uh create another economy for for the main asset uh and the governance asset of the protocol so that's uh that's the the pass we took the two pass so we created the Merit program which is a 20 million per dollar per year uh to incentivize eat liquidity which is the most strategic asset so rap eat is the most strategic asset in lending because each rap it that you attract in your protocol you will bring 1.3 to 1.5 e cor related asset LST or LRT asset that will use

that liquidity to do leverage taking so if you want to grow and grow your Revenue uh spending money to bring more W eat inside your protocol is money well spent and that's what we are doing with the Lio market and we grew to $300 million in three days that's the biggest and fastest grow that we had uh in the world of history because institution were very keen to have only it corated asset in as a cont party in this specific market and also to have incentive of providing prop eat liquidity so it's a self sustainable uh uh market and the second thing uh was spend money to grow the go stable coin because the goh stable coin is a very specific asset in the a ecosystem

because there's no LP the protocol itself is the lp just like die in the meod ecosystem so instead of sharing 95% to 80% of the Revenue uh of the interest paid by the brers you keep as the down 100% of the interest paid by the brers so spending money that you get from all stable coin usage inside the a ecosystem to grow the go stable coin is money well spent because uh one go that is mined is the equivalent for the AV in terms of Revenue to six usdc that is borrowed into up in terms of some sometimes is a bit more some sometimes is a bit less but that's the kind of stuff so we use the money the excess Revenue that way

but what do we do with the money that is left because even when you do all that there's still 40 to$ 60 million of extra Revenue per year and the idea was to create a new system that will uh Implement buy and distribute so you use the extra Revenue to uh acquire asset in uh the secondary Market which is the a asset and you distribute that to the older of stavy that are part of the Legacy safety module that will become the staking module okay Mark there's a there's a ton there and I've got a lot of questions for you and before we get into some of the specific choices that that A's made I want to get a this is one of the

oldest debates in all of blockworks actually which is should protocols redistribute Revenue to token holders and if so what do you ask them to opt into some additional amount of work or something like that and you know even like a separate subset of that is what's the correct mechanism right I want to ask you about why buy and distribute is opposed to buy and burn or something like that but you know here maybe to just set up both sides of this debate um and I I sort of heard you say you're doing a little bit of both there's a huge amount of reinvestment and growth but there's also some amount of returning uh fees to users as in a form of dividend here but if I had to set up the two arguments in terms of this Camp it would be look if we were talking

about a early stage company here like someone that just raised their series B returning funds to you know shareholders would be crazy be like hey you got to reinvest that in in future growth right so you can try to get market share or optimize your growth metrics or whatever it is just much too early in the life cycle of the company to be returning funds on the other hand I think if I had to Steelman the argument for returning uh funds to token holders is that one this is actually another shout out Sonia I took this from her as well shout out to the whole chefs by the way do a really great job of this like balance sheet view of protocols they do really great work but tokens might be a little bit more of a low trust environment than stocks right the rules of the road and

the laws around early stage equity in the US especially are really well written and investors you know you don't need to see a lot of proof because there's this long precedent of companies software companies raising a ton of money and then eventually returning that money to shareholders be that you know you could point to Apple or Facebook or whoever it is even the ones that burned a ton of money at the beginning of the day rais the money at the end of the day they're all these legal protections for investors so I don't really need to prove to you that I'm going to return fees to shareholders in the early days but maybe tokens there are no real examples right of that and so actually investors might logically demand a little bit more proof that I want to return some of these funds the other

thing is you know protocols like a and I'm gonna I'm gonna bring the stats up here in a second actually I'll just bring them up right now uh they do a better job of uh earning Revenue earlier in their life cycle than a lot of other companies right um and so but I guess that the downside is once you start to offer this kind of value return mechanism like a something like a dividend you know that ends up being kind of a weight around your neck and it's very difficult to ever stop doing that in the case that you needed to so you know Mark give us your highle philosophy here help us help us think through um you know how how should how should how should we think about this generally in the lens of crypto and then maybe translate that into some of the

decisions that you've made at at a or a has made as a protocol so uh I will try to speedrun my answer as well because there's a lot of things to say on this topic uh the first thing is that you need to be mature enough if you don't have significant and since quite a lot of time excess for in your protocol it doesn't make sense to burn money uh just to buy back asset and burn them or uh distribute that back uh to token holders you are in a better uh position if you reinvest every single dollar that you make if you make any dollar because a many protocol inol doesn't have any kind of Revenue like the Unis swap

protocol doesn't make a signal dollar even today Unis swap Labs makes a shitload of money but swap Labs uh Unis swap Dow doesn't make any money Moro for example in the landing vertical they don't make a single door of Rue um only meal dydx curve and AR are making significant Revenue in our industry right now all the other ones is insignificant or zero right now so the first thing is you need to reach a level of maturity where it makes sense to not reinvest everything that you you make uh back into growth the second thing is that you need to be decentralized enough

if your governance is just like VC puet uh governance theaters it doesn't make sense because at the end of the day you are operating a company and I do believe that there's a huge difference between disiz autonomous organization and just companies uh because uh in terms of uh management and who actually controls uh the protocols uh it's quite different and the third thing is that you need to make something that is scalable and sustainable for the long term and that's why in The aomix Proposal I set and I propose some Milestone of specific goals

of Revenue specific size of the go table coins that will allow the Avid to not stop uh the incentives or the redistribution the buyer of and distribute program overnight because the market condition are less good than before because I think that when you start doing this as you say if you stop it overnight you should stop it because there's clear rules and indication that that's the reason why you should stop it because you reach the market metrics that uh means that you should stop doing that and refocus your your resource to something that is more adding value to the product

but I think the best scenario is that you never stop you can reduce if things go bad but you you never actually stop because otherwise the the community will be used to to get something and if they get nothing overnight that's not uh that is uh the best scenario for them but the most important part for me is that you need your protocol to be decentralized enough yeah and and uh mark question for you on just the mechanism that you use to return that value to token holder so it looks like a has proposed a buy and distribute here I'd say one of the other really popular ones is a buy and burn type mechanism and maybe there's some analogy here again to use you know Trad corporate speak this is a something

equivalent to a dividend or something equivalent to like a share buy back which effectively does the same thing but there's a difference in terms of tax implications so why why was there a buy and distribute um mechanism here as opposed to buy and burn or something else it's actually an interesting debate and um what I want to say is that we are a doubt so nothing in the proposal is set in stone it will be set in stone after the last vote so the actual implementation of all things will be done is still open to to discussion what was approved right now is the temporature check so the the committee and the voters said well we think it's important to have this debate so let's

start uh working on this and let's start uh Implement step by step the the wall plant that's that's the the the way things work right now um the buy and burn uh method was actually the first economics of the atland ecosystem so the ancestor of a so the the the small Revenue we had back in 2019 2018 of the atland platform was used to buy on the secondary Market land asset and burn them and reduce the supply we do not believe it's an efficient way to do things because at the end of the day I'm very attached personally maybe that's my Doctrine and only my vision how to do things and

maybe the commune would not think the same way but my vision is that you the buy and distribute as the eloquence that it takes a from people leaving the ecosystem and give it back into the hands of people that are long-term aligned and are ready to St and uh renounce their immediate liquid with the asset for a period of time because even in the staking module you will have a c period so you will have to stake for an amount of time in order to get rewards so it's all about how do you create an economy uh and uh self sustainable economy that align the Most Wanted behavior from your

uh your community and we believe at the ACI uh that the buy and distribution makes better alignments than theb inber one other thing that at least I've noticed or I've had a theory on sort of a pet theory on this for a little while is that again traditional markets are much more efficient and so when there is an announcement of a public company based out of the US or anywhere really that they're issuing new stock you know in a very efficient way the price of the current you know the share price tends to price that in like almost immediately right um the more shares that are issued the more the current price goes down because the market cap doesn't change uh I'm not really convinced that crypto is that efficient I don't think you have a

bunch of people or algorithms that are watching and making fundamental decisions like that so I think there's at least a pretty decent possibility that a lot of these Burns that happen in buy and burn mechanisms don't actually transmit value in the way that we think that they might in theory over a long enough period of time supply and demand should take care of that but I I I have doubts the best example of that is the meod ecosystem because that's the largest scale Dow that implement this model in the world ecosystem and they had a year 2022 and the early 2023 that was atrocious in terms of price action for the asset while at the exact same time having one of the best economy onchain economy that you can find and

they were making lot of money lot of fees burning a shitload of Mega token uh from their supply and the price action was a straight light down some uh sometime is unrelated uh and I don't really like to comment the price action of tokens because uh the market can be irrational and I don't think what I want to do uh and my contribution to the aystem is to build and contribute to build the best possible product and to make the da as profitable as possible um not Fortune dater I don't know if that will have any effect on the asset of the uh the a toen and I don't think anybody can predict if if what we do have actual

consequence I want to zoom out here of a for a second and get your get your take on the state of defi today and you know I was listening to Empire good game and they were describing I think it was it was Santiago who's describing a conversation that with Kan Warwick you know who's another sort of OG uh defi founder at synthetics and describing that defi has been in a bare market for a relatively long period of time despite some of the metrics that are chugging along like if you actually had it up here a second ago but if you look at um you know some of the the the revenue and fee metrics around uh like a for example actually is looking really good maybe not back to the highs in terms of activity and tvl around 2021 but there's a clear uptrend here right in 2023

through 2024 and I would just be curious to get your sense of the state of the market of defi in general and you know to your point there are Defi and like the AES and the makers of the world are some of the only examples that you can point to in crypto they're actually cash flow generating protocols and so you know I know we we don't need to comment specifically on token price or anything like that but what is needed uh for investors to appreciate that from your standpoint well I will not make a lot of friends my my answer but I the the older I get in this ecosystem that will be a decade next year uh the more I agree with one fact is that usually you have the a good idea at the beginning

and then you have a bunch of BC that uh that wants to to to make a quick profit by creating shitcoin so they invas the bunch of uh to to try to uh create some kind of innovation but at the end of the day it's it it doesn't work because the the market doesn't uh want that so you add a lot of layer ones now you have a lot of layer twos now you have a lot of layer tws on top of Bitcoin then you have Define 1.0 with maker are they compound uh the uh synthetics uh the all these kind of guys then you got D5 2.0 I don't know if you remember that but not not a lot of these survive now because three 33 was a

stupid ID and now you have def 3.0 because some for some reason those are bad and and protols are not efficient so the the most profitable protocol on Earth are Dow but some but some VC are trying to convince you that D are bad because they want to to to sell a token um at the end of the day we see what works Bitcoin works ethereum works Maker Works a works and uh we believe there's still room for Innovation and when you look at maker it evolves a lot over around the years we are at a version three we are working with the GH stable coin we are cre creating new markets new way to do things we did not stop working

ethereums continue to work sometime you have a new guy that joined the party and it's an actual zero to1 Innovation just like sonana was for specific use case so he joined the club with etherum just like a was an innovation compared to compound because we created the flash loan the stable rate a new way to do things uh maybe there's going to be a new guys in our vertical but I have the Deep belief that 99% of what is proposed and what it Shield uh around social media is not very interesting right now so I I think this point about maybe creating more tokens I I definitely agree with that sentiment in some senses

I also think that you know the more tokens that you create you end up there there's kind of a free market competition that ends up happening and even though we have to wait a little bit of time you know maybe the best business models end up winning out at the end of the day and I would be curious Mark to get your perspective on how you see business models evolving and changing within kind of the Old Guard of decentralized finance and I you know we I remember talking about this like a year or so ago where kind of saw this convergence in business models in between like maker a and curve kind of right like there there's kind of different pieces of the puzzle uh that seems um you know very attractive in crypto which is kind of like the stable coin um you know lending sort of mix and

you know a which started out as a lending protocol is now has go their stable coin and on the curve front they had llama which is their own sort of backend lending model and they also have they launched their own stable coin and even when I look today at kind of the business models in between something like maker and a like you know one's ostensibly a a stable coin there's a lot of like lending on the back end that needs to happen and there's it's it looks very similar in terms of the business model so I would just be curious do you agree that there's kind of a convergence around business model and then you know how do you look at uh someone like maker are they you competition are they friendly is there a little bit of coopertition in between those groups so yeah what do you think

about that whole idea so it's very interesting because our relationship with maker Evol over the time so we were extremely friendly and I think no one ex uh help more make a out than how they did U because we did like liquidity mining or with all the other guys and we were one the of the first one to list die inav uh people don't remember that but compound was very focused on usdc in the in the early days and a was actually right yeah exactly was a big part of the success of Lio also yeah um so we help meod a lot we distributed dozens of millions of dollars of a worth of

liquidity mining to D suppliers into a and die borrowers across several markets when we are liquidity mining uh Synergy with polygon with Avalanche with the other guys we incentivize the dice so we allowed meod to make probably hundreds of millions do doar of R and at some point uh due to some internal politic within the meod ecosystem our diplomacy went uh bad and they decide to uh be closer to other actors because they believe some stuff that we not factually true but we actually uh had a pretty interesting disc during thec and that's

why it's good to have conference and to see people face to face and actually discuss things and uh I believe we are entering a new era with the A and meod relationship where there's going to be more and more convergence and Synergy between our EOS system because at the end of the day we prove on the other side that we are the kings of the lending side of things uh people trust the a code base and the a DA management of a reserve to keep them themselves self and Mak the things efficient and we are the king of growth no one uh managed to survice against a they on the layer

two we deploy to we Deploy on a lot of Layer Two sometime they are their own native ecosystem and the scenario that happen on every single one of these Layer Two is that a took the throne of uh the the leadership on on this and that even happened on kosis which is the the Die Chain so even there we were number one and we discuss about that because they are the king of the centralized table coins and they have a lot of value add as well uh in in this ecosystem so there's going to be new markets of it and uh I at the ACI we believe and we have strong belief that there's going to be more Synergy between

the spark ecosystem the maker ecosystem the a ecosystem and the ACI ecosystem that will work together to create new inhance uh defi product for the protocol so there's actually we are on the path right now to more and more convergence between the maker and the other ecosystem uh so that's uh that's quite an interesting things to do yeah what do you think you mentioned l2s there in general and I actually want to where I probably want to end this conversation is focusing on a little bit on ethereum and some of the comments that I've been hearing from I saw you retweeted but like Kane had this you know pretty outspoken post about how folks in the ethereum ecosystem think about like the D5 protocols that kind of made I think

in a lot of ways ethereum what it is today but before we get there I want to get your thought in general you know on what you think about like what's the a strategy in terms of deploying to rollups and generally what you think about the rollup Centric road map because from an app perspective I would imagine on the back end and from an operational standpoint it was a lot easier when all the liquidity existed on one layer which was eth main chain and now you have all of these different you know instantiations of chains they need to deploy to like like base or you know optimism main chain or arbitrum or you know wherever um and so I would imagine there's probably some growth opportunity there but maybe it feels a little bit more fragmented uh you have to you know maybe you're concerned about

counterparty risk or some of the uh the Safety and Security assumptions to some of these l2s and also just it seems like more overhead as well so in general from from your seat in in a as as kind of an app I mean what your thoughts in general in terms of how do you strategize where you're deploying to and then what are your thoughts in General on the rollup Centric road map for the there several things uh firstly I strongly believe we don't need 50 l2s the actual unchain activity does not justify 50 l2s and I think 99% of them will die in the next five years um not really die because it's very hard to kill a chain but we have significant reduction in their revenue the value of their asset and

this kind of stuff because 99% of them are cash grab done by VCS and I have in my inbox the so this was done for the past two years but currently my DMs on social media are people that are trying to get me as an Engel for their Bitcoin layer too so it's it's just a cycle uh we are an industry that produce assets and uh and having an infrastructure asset is often the uh opportunity to llo IV and make funder reach so they try to to create new tokens but it's very hard to me to find an actual added value on most of this project and sometime the

added value is uh experimental in terms of uh technical aspect and implementation and architecture so you have all the ZK vertical you have evm balance but equivalance doesn't mean it's uh it's exactly the same thing and you have trust at security assumption and also decentralization assumption I think the eum ecosystem made the mistake to or try to gasl the community to uh to tell people that 50 very centralized layer 2 equal decentralization and that was the same with the Kos ecosystem where you have one million very centralized chain and you call that decentralization and I do not believe it's actually decentralized I believe

cardano is more decentralized than more most of the L we have right now and I'm not a big fan of cardano so that tells a lot of my belief of Le right now but it's it's a movement and I'm very happy to be able to do transaction on day ones uh because the the fee were reduced than to EIP 4844 and these kind of things I think the ecosystem will reach maturity uh in this uh area and we will have a consolidation uh of L and we will end up with a dozen uh billion dollar more uh once and all the other ones will die because when you look at the data on the

a ecosystem we have the arbitrum le2 that is growing we have polygon and aval Avalanche because they are historical so uh they still have a lot of user and growth because uh they have the trust of being historical chain we have days where there's a lot of activity and fast grow Network we have scroll because there's a ongoing liquidity mining program and a lot of user in that sense but the other guys are not growing that much and for a to deploy a new infrastructure to monitor a new secondary liquidity source to maintain the the price feed which link and to maintain uh the uh risk assessment of

all this asset if the World Market is $150 million it's not worth it it's not worth the risk is not worth the uh the effort and it's not worth the investment in terms of service provider that work into it because the actual Revenue uh is not that interesting the the way we make money on the lending vertical is that we don't make much money uh per volume uh in the sense that the a protocol only makes money on the borrow volume and on the borrow volume the a protocol gets 5 to 15% on the interest Pate so you get five to 15% on six% %% that you will pay on usdc that is maybe 30 to 50% of your TBL so you end up with figures like for

example on Bas we make $200,000 which is good uh for 40 avido it's a tiny fraction at what we make on a net uh a net we make like almost one million a week but um but it's still a good amount of money on smaller protocol we make maybe half of that or a quarter of that and it's not really worth the money so that that's why uh we used to be very lant with the abido two years ago or one year ago and now with the ACI I'm very more I'm much more strict uh in my as a delegate uh to assess the new network deployment and we are asking for significant alignment with these new

networks to make sure it's a mutual success with both the ecosystem and this network ecosystem and so Mark do you have an opinion on I feel like there's one of the there's a little of a Schism that's forming here in terms of maybe some people that are questioning the the wisdom of the the rollup Centric road map in general or or just saying hey maybe you know we're we're already moving down this path and we're not going to reset the rollup Centric road map but maybe it actually makes sense to improve e main chain to the point where if a wanted to keep the majority of its business there it would make sense right and so there are all these discussions that are happening right now around multiple concurrent proposers and reducing the ethereum block time and stuff like that do do you agree with you

know would you be in that camp of improving eth main chain or are you on board or is the idea that okay it's not going to be 50 l2s but maybe it's three Frameworks that we end up with and most of the activity is going to move up there and that's the eventuality that we're preparing for like which of those two camps you fall I believe the liquidity will stay only one because when you have $10 million you don't care about paying $20 transaction fee to uh to borrow $5 million in and you will never care about that and that's a fact and uh but we want to be inclusive with people that have less than $10 million and that's also part of the itos of this authoriz Finance but you can do that on Bas right now and you can play around with $100 on

base and buy a shitcoin do deposit some usdc on Aid they get 6% yield and be very happy with it so you don't need 150 Layer Two to allow people to do that and you can do even layer three uh the the do that on the optimism ecosystem or uh or even polygon wants to do that Bas want to do that to have up specific uh chains on top of Le twos and why not it can work to have these kind of things the it's it's important to maintain both but I think the etherium foundation has been overly conservative and at the same time they want to change everything overnight

and it's very painful when you are building and you are one of the significant Builder on top of a network that you don't have a clear vision of what's going to happen next uh I will give a clear example of that around 25 to 40% depending on the period of the a revenue is leverage taking so people provide some it corated assets Bei W or Li ws and we borrow some eat and do some leverage loop on top of that because their position is Dea natural they will not get liquidated if the prise goes down but they will increase the yield they will get compared to just taking or to just holding

later it's really important to have predictability of what's going to be the yield on ethereum uh to to do this thing as scale because if you have to The Leverage position worth billions overnight that will create problem with secondary liquidity you will have the peg of LST and you will have a withraw Que because you cannot withdraw overnight a validator on the ethereum staking blockchain you you have to there's a specific amount of slot per a that you can do that and there's been discussion right now happening about the economies of staking of ethereum and they want uh if too much it is St that the revenue Goes Down And even goes to

negative territory if this kind of discussion pass and gets included into uh etherum improvent proposal that will kill this significant amount of the industry and the defy industry overnight and to my knowledge AB is not involved at all in this kind of discussion compound is not involved at all in this kind of discussion I don't even know if lier is inviting in this kind of discussion and we are talking about maybe 10 billion dollars right now on chain we are talking maybe 10% 20% 25% of the world defi industry and they do this kind of overnight and we just have to bear with it and and there's a big problem with the etherium foundation right now is that I have the feeling as

an actor that are contributing to the ecosy since almost a decade now that there's contemp to what we are building each time they they have the occasion to speak publicly about the ecosystem what they say is basically don't do defy do something else uh don't try to use the blockchain for non- financial things but the thing is that defi is what is feeling the the blocks right now on the blockchain and make sure sure the Staker makx M validating and securing the blockchain Define is the main use case the main unchain use case uh of the smart contract chains be it's ethereum or non evm chain so it's a bit weird uh to to be in this situation right now

okay so there's a couple of different things there um and I I want to respond to so this was a tweet uh that got sent out from and and I want to touch on the mvi point I think is super interesting so I want to almost end on that point because I think it's it's such a fascinating topic to dig into and the implication it has for apps on ethereum but here's a three from Kane has a Founder at synthetics if the only thing propping up your chain for the last five years is Defi and the best you can muster is begrudgingly tolerating it you are anti- defi I'm sorry but the default position should be absolutely falling over yourself to support and encourage it and I dug into the responses a little bit here and it seems like the uh he was responding to and again you know don't

want to take shots of the big guy here but something that he had seen in vitalic presentation so this is a response from li. eth uh you know I would um of course I wouldn't change anything uh I just think there never been a vitalics Persona to endorse projects at the application lever at the application layer rather and Kane said sorry I've literally been in the audience for multiple talks where he explicitly said something to the effect of please do less defi um and so you know part of that is uh you know I'm sure there's a you know the ethereum foundation and ethereum generally is really uh it's it's always been a Northstar them to be credibly neutral right and so what you don't want to do is is act like you're favoring a specific ecosystem or something like that because then another sector might

be less likely to build there if it's like oh this is defi chain on the other hand you know the vast majority of activity is related to the if not 100% of the activity on ethereum today is related to Defi and so it does feel a little silly not to prioritize that or to sort of upset that community and so obviously this is just one guy's perspective in cane but you know Mark I saw you retweet this and I saw you tweet something similar so you know from your seat at a you know have you had similar experiences or you know is there validity to this claim that you know some of the the apps or specifically the def apps aren't listened to or just say more about this in general I will say that from my perspective and maybe I'm out of touch maybe that exist but I'm I'm quite

involved in this ecosystem and I talk with the other defi actors and U so far I'm not evolved of this existing is that we have the feeling that thef is in some kind of aor like I have zero point of contact right now with the eum foundation which tells a lot we about the decentralization of the ethereum ecosystem because you know if you listen to some crazy Bitcoin maximalist vital is in my DM every day to say oh can you list that or can you change that on a or please gu stop trading like the old Ms so this is not true it's actually the complete opposite I have not talked to vitalik for the past six years I think I

think last time was during atcc long time ago where he was a bit more involved with the community which is fine I don't care myself because I don't think vitalik has such such an influence right now within the EF ecosystem but I would love to talk with people uh designing the staking curve uh and this kind of stuff because when you build something having predictability and vision of what's going to happen next is extremely important we do not ask for special treatment we ask for the ability to be informed and to uh have the ability to give our opinion a

significant actor of the ecosystem B and I'm not asking that for a I asking that also for compound for Moro for spark for maker and all the other guys because I believe our vision and our experience and the data we are from stuff that are actually happening on sh with real people money May add value to these kind of debates yeah and I think the uh completely understand your perspective there Mark and I guess maybe to offer because we don't have a me representative from the ethereum foundation here to defend them a little bit right it's it's a tough job right they're they're the stewards of an enormous ecosystem they're really concerned with being again incredibly neutral and probably is a testament to just how decentralized it is there just like there is in politics right there

there's always a balance between these things and you probably want to try to find a way to thread the needle in between you know if we're talking about the president of the United States the president of the United States needs to be aware of who their constituents are and do things to help them on the other hand you wouldn't want them to be like captive to certain powerful interest groups and that's just I think the fine line that a foundation has to walk right but the maybe to get into a concrete example of this where this isn't just like theoretical is the minimum viable issuance debate and you know there's a great podcast uh well the great podcast on Uncommon Core where hassu and John spoke with kaspar and anggar um Casper and Angar we're actually going to be doing a debate live about this at

permissionless um with Casper and Angar and uh and also some of the uh the folks from uh both cyber fund and Steakhouse so that's going to be a ton of fun we'll do that actually live um and yeah yeah but I think the just to summarize here there are basically two different proposals out ethereum issuance today levels off like this right so the more validators that you have in the network it sort of tails off in terms of the block reward emissions and then uh so there's there's a debate around cutting off or reducing um the emissions at the end of that and then there's a separate proposal which is actually capping the amount of validators uh that you that the ethereum network can have and there's a really rich there's a really complex topic very

rich debate but the implications there're actually implications for the application ecosystem and there are a bunch of protocols a uh is a great example Athena is a great example Lio is a great example that are actually built businesses around the Assumption of some amount of underlying eth issuance and so you know Mark can you just say a little bit more about how this issuance debate could either positively or negatively impact a and in in your mind how should governance and around these sorts of changes where there are big broad applications for or uh implications for apps like how should that work from a governance perspective so just to to explain what can be the implication is that right now the more validator you

get the the the itat that is issue increase but increase non linearly so you don't get like a crazy inflation if you have like 100 Millions eat that are St uh it so the revenue you get per validator decrease over time it never goes to zero but it decrease over time and we are completely fine with this because Market are somewhat efficient and it if people do leverage Loop that has the effect to increase the amount of validator securing the eum network but as long as it's profitable and if the borrowing cost of it is superior of the uh

sticking yeld of wst e people will stop looping and they will slowly deleverage their position to find equilibrium and if the the saking yield is barely above zero they will just stop gracefully exist this kind of position and we are completely fine with this because that's the free market and that's how it should work and we do not believe in the future where everything single it is stake because at some point you need to use it to do all those things right um but part of the debate and maybe it it changed but part of the debate was to provide a hard cap of the amount of validators and if you have more people willing to uh stake you can end up is negative yield

territory so you actually lose money uh to to St uh to inside you to get uh inside the exit queue and to stop validating because uh there's two Vision to my understanding maybe I'm mon on on this uh the first thing is they they did not Envision in the early days the rise of liquid staking token and liquid reaking token so they are a bit afraid of the Lial and uh alike uh weight within the staking uh ecosystem and they don't want 50% 60% 80% of the supply stake uh for any kind of reason they they don't want type and the uh second thing is uh they

want to have control on the inflation because even if the inflation doesn't grow uh in terms exponentially it does grow so you need to have a huge amount of gas usage to compensate with a AP 1559 which is the burning the the part of the fees of the transaction fee to have what they call the utrust ultrasound money meme where you have an actually negative insurance and some people within the uh etherum Community are very attached to that so they want to limit the amount of validators to make it easier uh to uh to to get into negative inflation

territory every side has uh things uh that they can support and we can listen to every side my vision and the vision of the a governance is that some some path and some Journey uh will have significant negative implication in the def ecosystem at large we believe that at is money but also at grated asset is money uh we believe and I personally believe that uh LST or LRT is a Superior form of collateral than just it but I assume it's not the same risk because I want y c asset to use ascal to back my depth and that's something the community

wants to use and that's why LST and LT grew a lot within the A and defi ecosystem and uh if we destroy part of the industry uh it can have consequence also on the usage of the the blockchain and the transaction fee that are paid on the blockchain so some solution does more arm than good so yeah Mark I and I uh it's a very complicated debate and there are I I agree I think a lot of this is about liquid staking and this preference of eth or Ste or or whatever Stak version of eth is like a preferred form of collateral that there's an enormous

amount of nuance in this debate I I just uh I'm going to link it in the show notes here it's like an hour and a half but I I would recommend listening to this also attending live uh permission list in October another little plug there but uh here so I I actually um there was a I I'll I'll link it here but I actually tweeted about this because I was also interested that you know the minimum viable ISS debate there are a lot of uh implications for eth the protocol but there are a lot of implications for the application ecosystem that's built around it and one bit of push back that I want to get your sort of last thoughts here on is that hey you know if there if there are applications which are built that are that only can exist with these sort of

negative incentives of this uh this unnecessary amount of yield that's being directed to proposers then these applications shouldn't exist at all and it's not the job of ethereum the protocol to subsidize these applications that don't necessarily have great economics and so I would just be curious like I do not have any example of that in the ecosystem because if you remove St AB will still be here me will St here because we were here before the the world LST we are uh preceding the existence of lstd uh LUSD will still be here because you cannot use SD as all it's only pure eat uh Unis swof will still be here it's going to be a bit harder and less profitable for it now but they will

still be here so that's not an argument it's just that you create a more shitty economy on chain uh you do not destroy this application yeah I I mean I'm also of the there's a little bit of a funny um this is just musing out loud here this is a long debate on the Block slack but it it is sort of funny where it's the opposite Dynamic of something like the Federal Reserve actually where you know you decrease interest rates or the amount of yield that's getting paid out to uh you know holders of the risk-free asset and that actually is a stimulus right and it's kind of the opposite in crypto it's the the more issuance that the protocol pays out the better it is for some of the underlying uh you know businesses and maybe that's just a reflection that we don't really have

like a traditional Equity bucket in uh in crypto yet and so a lot of what actually benefits from additional yield would be like money markets businesses or Banks or something like that in in the real world like a Banks benefit from a steeper yield curve and a lot of the you know apps that we have in crypto like a I would classify as kind of like a lower level it's an application of course but it's like very bedrock in terms of uh terms of how Finance works so anyway and and like uh Ste looks a little bit like a money market to me but anyway uh moving on here I got I got two more questions for you uh and I want to ask you about when salana so I I've seen you in the past someone shared a screen sh of like in even as recently as 2023

you know when people talked about hey is a ever going to move on to salana I was like H you know there there's not a lot of users there and the tvl is pretty low and it doesn't really look that attractive but you know recently I've been seeing you Tweeting a little bit more about uh you know aggressively teasing a launch on salana so are there plans for that and and what change in between 2023 and today that makes it look like a more attractive Market well the first thing I want to say is that it's my job to be a profit maximalist for the D so I will ER I hard and I will aggressively pursue new profit than news for the AO that because I'm paid for that and that's what I do and I'm a money maker for the Dow and my

company is designed to do that for the a so if a protocol uh and it's really important when you try to make money to not treat networks like religion because uh you can say that your favorite soccer team is the best in the world and you will follow them no matter what if they win or if they lose or if they they get kick out of the main leak but if you are trying to build a protocol and make it as profitable as possible uh for the benefit of the Dow governing it uh you need to be flexible so my vision of Sana changed significantly in the early days than during the FTX uh events and

then change again in the recent months because we are very very data oriented so if we believe that Sol uh potential Revenue out the cost of uh of translating the avot base into a new language and make the Audits and maintain uh a new uh instance on this network because we we think the revenue we can make out of that will outweight the cost we will go there overnight uh in the sense that we will propose that to the Dow and and the Dow are very align in the fact that they want to increase their their own profit so they will vote for it right now it's not the case it was not but it's more the case

uh while we are closer to that being the case than six months ago and much more closer than one year ago uh so we are actively monitoring this network because we believe the current growth they are experiencing uh is here to stay we believe the defy ecosystem on Solana is weak in terms of quality of codes and quality of teams so it's not something that we think going to be particularly challenging to to take the leadership position on this network and we also believe that the LPS are not mat enough on the chain and we can import our own ecosystem of LPS within this ecosystem

just like we did with Lio so we grew Lio to 300 million in uh 3 days that's one3 of the world TBL of Sol and we did that in three days and we did that without losing a single Dollar in the order of the market because it's all new liquidity that we bring from our network of LPS so we can do that overnight on salana as well and we are very confident about that and we have the weight and the economy to sustain a Kickstart and liquidity mining program that is not paid in shitcoin in governance shitcoin but but it are Stone cash which is the so asset and the go stable C so that will make a significantly different any alternative

and what we bring is the a quality as well and the a brand within the ecosystem so right now if you ask the question right uh today I would say it's not economy valuable to do it today but it's better than six months ago much better than one year ago and ask me again in six months and maybe you will find a a proposal in the governance Forum because as soon as we believe it's a good deal to do it we will do it cool um all right well we'll have to have you on again in six months and we'll we'll check back in on that um last last question for you Mark is there was some news uh over the last couple days about wbtc uh so WRA Bitcoin and a change in ownership there um so that came from W Bitcoin was a a bitgo product um and

they announced that there was going to be they had sold a majority interest of that to uh bit Global which is associated with Justin sun and so this this was a proposal that uh Monae Supply wrote in the in the maker Forum where he's proposing some changes and risk mitigation so this is dated August 10th um and so he cites some of the uh there was a previous situation where uh there was a a change in control to for TUSD the stable coin um which was written about in the makro form since TD was placed in Justin Sun's control it's seen Market deterioration and operational processes and transparency including the resignation of the previous management team suspension of real-time proof of reserves and several significant deegs caused by interruptions in Redemption

service and so uh there's a whole bunch of stuff here but basically the recommended action is you know for the cor vaults to decrease you know 1.25 billion here of R BTC is collateral and then when it comes to sparland disable borrowing and reduce rap Bitcoin LTV from 74% to zero so basically you're you're essentially delisting it right or not enabling it some form of collateral I think it backs something like 10% of outstanding die now just to be fair Mike belelli you know wrote a response here which I'm listing on screen it's too loud too long to read out loud but you know basically like hey I feel like this is a reaction to the Justin Sun name we were also concerned that some people would react like this um you know but I just want to say that I you know I would

look into uh bitco is still co-signing all transactions um and a lot of the custody hasn't really change in terms of the setup so basically saying that there's not much risk um and I would just be I would question you know I know rap Bitcoin um is on a as well and so I would just do you share some of the same concerns that Monet supply has are there any plans to sort of delist rap Bitcoin um you know as a form of collateral from a or what what are your thoughts on this entire situation the first thing I want to say is a centralized so if I were able to uh do something on myself and overnight it would not be a down so and especially uh on Aid is uh currently eight company that are employed by the

da to do specific scope and focus uh to add value uh to the DA ecosystem and the protocol two of them are specialized in Risk that's Lama risk and C lab and uh it's their job to provide feedback on these kind of assets so both of them react very fast uh like two days ago when we learn about this whole thing and are preparing they will probably be published today later today or tomorrow on the Forum their their vision of what is happening on the wbtc ecosystem the second thing I want to say is uh there's a lot of legit users using wbtc because it was the most

liquid and it still is the most liquid and the uh most trustable with the Bitcoin name uh custodian uh we with this asset to go from the BTC ecosystem to the evm ecosystem um so it's very important for us at the ACI to not hurt legis users so if we Echo the concerns and the the risk uh service provider of the Dow share those concerns and I think that's a the current situation right now it's very important to provide our user with an alternative to allow them to migrate their position with another kind of collateral uh to make their position and the situation

the less uh with the less friction as possible to ear them less because they are at no fault on what is happening right now they open their position in a believing uh on a specific ecosystem and a specific custody for the wbtc asset and what we are learning is that in the next few weeks there's a potential that the fundamental of this asset will change and not for the better so it's important to provide an alternative to make sure uh this asset are that one to use Bitcoin as collateral can still use Bitcoin as collateral within the ecosystem and the good thing is that we already implemented the alternative within the a ecosystem so Avalanche and the Avalanche Foundation created

bbtc uh which is an alternative that they create with their own bridge and we actually delisted wbtc on Avalanche Al together more than a year ago in favor of this alternative because we believed that it was a most more decentralized way uh to to bring exposure to the Bitcoin ecosystem within uh the the a protocol uh there's alternative to wbtc but still it's up to governance and the the service provider to provide feedback first what we're going to do at the ACI is to make sure the a user stay safe they have alternative that are important for them if they want to migrate position and there's a need to migrate

position to another kind of collateral and uh to emba the a protocol and the a the less because at the end of the day it's always a balance between risk and uh and uh and the user experience yeah um well Mark unfortunately that is all the time we have you've been super generous uh We've g a little bit over here last thing I want to say about this is that uh bitgo announced that there's going to be no movement for the past two months so that's why we can afford to take it slow at the AV and make sure because it's significant chance that billions of dollarss of wbtc liquidity and billions of dollars of position using wbtc asor so that's not something that we want to

change overnight that's something that we seriously consider it's very important for us because we do care about our users but we don't have to give an answer overnight yeah um yeah and actually I saw we meow the founder juper I didn't realize he was actually heavily involved in rap Bitcoin as a product but there was some back and forth between him and Mike Bel and uh Justin son actually so maybe we'll get some clarity um in terms of how that's actually going to work on the back end but Mark uh you've been super generous of your time you know we've gone a little bit over here if folks want to find out more about you we're follow the work that you do or uh maybe delegate to you you know as that in your propensity or your you know currency at the ACI like what's the best way for them to

follow you uh they can follow on Twitter I usually say stuff and uh sometime it's a bit funny to follow so my my underly let me skate on screen right now and you can find there otherwise you will see my name on the a forum because that's uh where I spend most of the night time and feel free to contact my DMs are open and I love to to stay in touch with the community so if you have any question about the a ecosystem there's a a Discord I'm there every day or my DMs are open excellent all right Mark this was a ton of fun uh thanks very much again for coming on thank you for your time hey everyone hope you all enjoyed

today's episode want to give a final shout out to namada again a team that is near and dear to my heart they are building the shielded asset Hub which is protecting the future multi-chain talked a little bit about how that works in the mid roll but for now what I would highly recommend that you do is go check them out they're in their main net launch phase you can follow along with everything at n.net you can start rewarding Yourself by shielding your actions and strengthening data privacy for all across the multichain so thanks again to MA for all the great work that you're doing