Anvil Protocol: Modernizing Finance With Onchain Collateral | M - Anvil

Transcript

[Music] eth Denver how we doing my name is m and I work at the Acron Foundation as the head of the Anvil project but before I want to get to that I want to take you back to 2006 season 6 episode 11 of The Sopranos the guy on the left is veto he wants back in the family and the guy on the right is Terry he's looking for a loan to pay child support now for this I need you to all forget that veto is a dead man walking and that Terry knows this and has no intention of paying back this

loan and I'm sorry to spoil that but if you don't know by now you had you had 20 years to watch that anyway so they agree to terms on a loan 20 G's at two and a half points right and then Terry says you know I'm good for it now I want to unpack that right there what does it mean for Terry to be good for it it means he's capable of paying veto back and that he'll do so at a designated time so what are we really talking about here we're talking about Terry's creditworthiness creditworthiness is how trustworthy a party is with regard to delivering on their financial promises so let's look at how someone's creditworthiness currently is evaluated and the way I figure it there's only one of two ways the first is reputation this

is how credit scores work the thinking is BAS basically this well other financial institutions have trusted you in the past and you seem to pay on time so I guess we'll vouch for you this is also how the mafiosos do it too well that and you know the threat of a baseball bat but that requires trust and what do we say in web 3 don't trust verify so the more responsible path would be assessing creditworthiness through collateral putting something up a value that can be taken if guaranteed conditions are not met collateral comes in a couple different forms one illiquid assets house car watch and two liquid

assets like cash in your bank or stocks but let's start with illiquid collateral these are not particularly efficient in their current Trad fi form and for this let's talk about car loans when you buy a new car and you get a loan what's the collateral it's the car itself right the bank is holding on to that title and if you don't pay they're going to come seize your car but think about how crazy that is right the bank has to employ somebody or they have to pay a middleman to go repossess your car that's convoluted and then on top of that they don't even know what condition your car is in it could be totally beat up right and what if the used car market tanks the bank want might wind up

getting Pennies on the dollar compared to what they paid the dealership this is a bad system and because of that risk of of default repossession and underwater collateral the cost of that inefficiency is passed on to everyone in the form of higher interest rates and administrative fees and even liquid collateral is arguably just as inefficient and this brings me to the Crux of what I want to get across today sending money is not the same thing as being good for it and that might make sense on the surface and it might seem obvious but when you look at it in practice you'll start to see the inefficiencies think of all the time you've had to pay money when all you really needed to do was prove that you were creditworthy or good for it think of down payments earnest money escrow

security deposits Etc the problem is there's no good way in trafi to ensure your liquid collateral is going to be secured when it's needed to be claimed other than for the company to hold it ahead of time or for them to trust a third party in the case of escrow you're parting with your money just to prove that you're good for it in the future this too is a bad system and the implications are enormous one quarter of a quadrillion dollars that is the size of the credit industry when you add up all of those components and all of them are subject to the same exact inefficiencies that we just identified but there is a fix digital assets digital assets are the perfect collateral because they're both liquid

and they can be provably secured on a blockchain an onchain collateral isn't just an Innovative new way of doing things to attract crypto enthusiasts this is is an inevitability given the massive market inefficiencies with the status quo and on top of all of this on the consumer side we've got new generations that don't want to play this game they're not interested in this and one example is what I call the Gen Z problem gen Z has two things going on that the market is going to need to adapt to real quick and the first is they're not building credit at the same rate as the generations before them they're less likely to buy property and they're wary of getting into debt they saw what happened to their parents during the 2008 financial crisis so

they're opting for debit cards instead of credit cards and when they need credit for like a large purchase over time they're going to B npls like Clara afterpay affirm all those guys who will offer them interest free loans even though they might have low or no credit so they're not building trust they're not building a liquid collateral so what do they got they've got crypto based on a study last month more than half of gen Z owns crypto crypto whether they realize it or not this is their collateral of choice and the result of all of this is a market imperative for a way to leverage digital assets this is why we created Anvil Anvil is the defi protocol for onchain collateral management that

allows users to issue fully secured credit now that last bit might be a little bit confusing I know the finance guys know what fully secured credit means but when you're talking about credit and extending credit it can be a little confusing so let's rewrite that what we already know Anvil is a def5 protocol for collateral management that allows users to prove that they're good for it right so how does it work it all starts with the Vault users deposit digital assets into a central Vault where then they can be leveraged as collateral throughout the entire protocol when collateral is being utilized it's reserved which means it cannot be withdrawn and it cannot be double leveraged only the party that the credit is issued to can actually claim it and this is how users can be provably good for it importantly collateral remains associated with the issuer

unless or in until it becomes necessary to claim so you are not giving up your assets early the Anvil Vault currently accepts 14 different types of digital assets as collateral although any erc20 is compatible so long as it passes our governance we only launched a month ago and we've already seen $17 million in collateral enter the Vault so let's talk about the two primary ways that that collateral can be leveraged within the protocol and the first is in digital letters of credit or locks locks are a digital promise from the Creator to a beneficiary for credited amount it's a digital IOU that is guaranteed no matter what and they come in two forms the first is static static locks are a promise for a certain amount of digital token let's say 25,000

usdc that's backed by 25,000 usdc in collateral in the vault and the second type are dynamics are Dynamic locks Dynamic locks are a promise of one token backed by collateral and another so you're still promising that 25,000 usdc but it could be backed by let's say your wrapped ether this allows the beneficiary party guaranteed Credit in a token that they value while still being flexible enough to let the Creator leverage the digital assets they already have Dynamic locks are over collateralized and subject to liquidation if the relative value start to diverge too much this is exactly how compound and a handle this and here at the acronym Foundation we've published an open source Liquidator in our repo that anyone can leverage build on top of

liquidations are permissionless anyone can do it and earn money doing so and now at eth Denver one of our hackathon bounties is to have them make a new type of Open Source Liquidator that leverages other dexes so yeah run some Liquidators make some money and help us put the D back in defi it's important to note that regardless of whether you're making a static or dynamic lock it shouldn't matter to whoever is accepting the lock a guarantee is a guarantee and how it's collateralized should ultimately be immaterial so let's talk about some lock use cases there are seemingly endless lock use cases but I'm going to touch on a few and then we'll deep dive into one the first is guaranteeing Consumer loans we've already seen this happen in Europe there's a company in Europe that

will accept Anvil digital letters of credit and issue you at Fiat loans against that in fact their entire value prop is same day Euros in your bank account against your digital Holdings you don't have to sell out of your position to get access to Fiat liquidity and we just saw in the car loan example right that when you remove risk from a system interest rates come down that's a competitive advantage in the market facilitating International Trade this one's not a surprise this is why analog letters of credit exist right two parties across a border with disconnected Financial systems trying to prove their credit worthy to to each other and so what happens you have Regional banks in between middlemen expenses it takes a long time if you use locks it would be direct and instant and

free it's a better system payment and transfer settling guys I'm done waiting for an a to clear I that that's it enough of it and if you have to send an a send a digital letter of credit that guarantees the amount in the interim I'm not going to miss out on a week of trading because I'm waiting for an a declar that's ridiculous we can do better auctions gaming and sports books I'm I'm really glad auctions is in here because so far we've only talked about times in which payment is inevitable but think about what an auction is you have to be good for it to bid but you might not win which means you might not actually have to transfer money in the end and even in cases where guaranteed transfer is not actually guaranteed locks still

work and for gaming and sportsbooks we see all the time right that casinos will offer markers to high rollers based on trust we know how good that works right anyone should be able to issue a digital letter of credit and be able to get a line of credit at any casino or sports book I mean think about what happens when you win think about this process how it exists right now you sell out of your digital assets you get Fiat you take it out of the bank you have to go to the casino you go up to the cage you exchange it for chips that represent those dollars you put it on the table all to cover a Delta that you don't even know what it is yet right locks can make huge progress in this industry and the last is financial bridging locks are a great way to fac uh

facilitate bridging between chains that one's pretty obvious so let's talk about a more specific example maybe you can relate to this imagine your organization wants to reserve a booth at a crypto conference the acronym Foundation does it all the time in fact that's one that we've had in the past these things are a hot commodity right they often book out a year in advance they're competitive to get they're often pretty expensive depending on the size and location but how does this actually happen well from our experience it looks like this we contact the organizer we agree to how much we're going to pay we put it in a contract we sign that then the organizer sends us an invoice the inv voice has net terms attached to it let's say 30 days and then we're contractually required to remit payment

within 30 days to secure that Booth but do we really have to pay or can we just be good for it imagine that the booth costs $100,000 What If instead you issued a lock valid for full year till the conference to the organizer for 100,000 usdt you instantly reserve your spot you don't need you don't need to part with your ass assets so you're happy but also the organizer happy they don't need to worry about whether you're going to pay in those 30 days or what to do on day 31 or 32 do we trust them should we hold on to the booth can we resell the booth at this point they also don't need to worry about cancellation fees because locks can be partially

redeemed and here's where this gets awesome what if the collateral you used is a yield bearing asset what if it's staked ether or interest bearing stable coin let's say it earns 10% apy so use 100,000 in a yield bearing asset lock it up for a year reserve the booth and then when the year is up you send the $100,000 to the organizer onchain offchain doesn't matter once they get that they can cancel the lock release the collateral back to you you just kept all the upside that's 10K you just made by using collateral efficiently I want to talk to you guys about something that's been haunting me for over a decade that I think is going

to drive this point home when I got my first AMX this is what I saw when I opened the app please pay by what the hell is a please pay by date it's not a due date I can tell you that because I looked at the terms and conditions the due date was 15 days later so why would AMX do this why would AMX we be because they really want to help me pay on time they're concerned about me does that sound like the credit card industry to you no exactly because they know that if everybody pays their bill 15 days sooner there's tremendous upside in just holding on to your money for 15 more days and the problem is is that trafy institutions are set up to capture upside even in relatively short durations which is not the case for

individuals or organizations outside of financial services but this is why defi is the great equalizer now we have tools at our disposal to earn yield any time over any duration 247365 so I ask you again why would you ever part with money one minute before you had to well all this is related to Locks and what locks can solve we do have another mechanism locks are onetoone in credit issuance we also have a many toone option in terms of collateral pools through collateral pools many users can contribute to the same pool for the benefit of a single claimant this model is very common to Insurance pools or staking pools and while I think we're all familiar with those Concepts let's look at an example that's happening right now flexa you guys know

flexa that's right Flex is the world's largest purely digital payment Network they allow Merchants to accept crypto at point of sale and in order to guarantee these payments they reward users for participating in staking pools that back stop their Network well over the last few months they've been running a successful beta through Anvil with you users contributing about 2 million in collateral and moving forward I'm super excited that they'll be migrating their entire collateral system known as Flex capacity to Anvil's collateral pools this likely represents $60 to $180 million in additional collateral that we expect to enter the protocol in the coming months so let's look at the protocol from top down it's a vault it's locks it's letter of credits but that's not the end

there's seemingly endless ways to leverage collateral and mechanisms to do so and that's another Bounty we're doing at eth Denver right now we're trying to find the next mechanism Anvil uses to solve real world businesses and solve for market inefficiencies and our engineering team has a full road map of tooling and expansion to ensure that that will that we will continue to Pioneer this space so how can you get started well first you can interact with the contracts directly all of our contracts have been published and verified on ether scan also the code can be found on the acronym foundation's GitHub there's a readme docs on the website and our contracts have been audited three times twice by open Zeppelin once by trail of bits we've

been through two ammuni audit competitions and an ongoing B bug Bounty program the second way you can leverage Anvil is through our dap our dap exposes Vault and lock functionality while also allowing you to participate in governance and track and claim your protocol rewards and the last way and this is the newest one super excited about this is our SDK our SDK allows easy access to functionality through customizable dropin components but it also aims to optimize the ux we talked about all those use cases before we need an ux that's flexible to handle all of those that's what a good SDK should do and we currently have an alpha Library up and running that we'll continue to iterate on expand in functionality and

configuration so please reach out to me if you're looking to integrate with our SDK because we can prioritize development towards your particular use case all of these options can help you start leveraging onchain collateral to enable such features as allowing your users to instantly trade and transact operate on credit access to seamless bridging and much more you can check out Anvil doxyz we got links to everything there Discord medium uh GitHub Twitter all of our docs and protocol stuff and our protocol governance uh I'll be here all week I'm M anvil on Twitter and telegram you can also find me on Discord let's get together and talk about how your organization or your project can leverage Anvil to level up I'll even buy you a coffee trust me you know I'm good

for it thank you Denver [Applause]