#DappCon22: Day 1 - How DeFi Goes Mainstream: Bridging The Gap Between Degens And Regulators, Zaki

Transcript

[Applause] hey uh my name is Zeki I have been working on blockchain since 2014. uh I am going to be talking about sommelier Finance um and our sort of uh it's similia is an interesting project because it is built with a lot of Cosmos Technologies but it is fundamentally an ethereum dap um and I'm going to talk a little bit about why we built it this way uh and what are the sort of powers and capabilities that we got from building this way and how sort of it applies uh to sort of the uh regulatory design of our system so

the entire sort of vision of sommelier is to sort of fix a couple of different problems one is to sort of solve for what I view as a looming recentralization of the D5 ecosystem the reality of the defy ecosystem is that as protocols get more and more complex you end up in this model where it becomes like sort of a full you for every User it's a full-time job to participate in the protocol and so you know uh this this observation has led to you know more and more of the participation in protocol coming from like sort of institutional investors of various shapes and sizes and we

essentially recentralized the entire world of defy rather than democratizing access to finance and I would say my mission in the last uh you know eight years of working in this space is basically one thing which is that the uh two and to try and ensure that the structure and infrastructure of digital markets is sort of an open decentralized public good and not sort of recreate what we've had before which is a series of private institutions that provide critical social infrastructure um so one of the general things that I I think has been bad about the way in which we as an industry have communicated to the rest of the world

about what it is that we're doing is that we like generally act as if we are creating casinos on blockchains and not what we are actually doing and what I think we're actually doing which is we are using speculative incentives to draw in essentially beta testers and those beta testers will uh will leave behind them a legacy of like secure infrastructure that we know Works under Real World Market conditions so the entire purpose of like this phase of uh of infrastructure is it is very much uh sort of uh exploring a frontier there is an enormous amount of risk that comes

with those exploring those Frontiers there needs to be proportional rewards for those risks otherwise no one would do it and there is a social benefit benefit to those risks which is that we are that we are uh that that software only starts to work when people uh really start to dependent so what we need is this entire population of people to come here and break and battle test uh this new frontier so similier has this sort of uh has a core product which we call sellers um and so as I mentioned what we see is this what we what I perceive there to be is a looming recentralization of defy

and the looming recentralization comes from the fact that if everything is uh if Protocols are capital efficient if they are sophisticated if they are Advanced then you end up in the situation where you need someone uh to help you so this is where this name similier comes from so why did we pick the name similier um so similier you have this very complex world of wine a similier is a person who helps you choose in our protocol similier is a system that allows people to get the same assistance when using defy and sellers are the primary mechanism to do this they are a way of having a non-custodial

uh uh sort of uh uh actively managed strategy uh that can run on top of any D5 protocol um so that's the core of what similia is uh strategy automation platform for multi-chain D5 um so essentially uh uh we are inviting a group of people to uh onto onto this platform uh who uh are moving from this model of uh like these sort of looming recentralizations where you have traditional hedge funds and uh coming on and offering defy strategies to their

LPS but this is not accessible to the ordinary person uh retail investors who are trying to figure out uh how to participate in these systems but are constantly having to do their own rebalancing and a community members who are trying to not who are trying to uh move Beyond just multi segs uh and DOW votes that don't actually have any consequences um so one of the sort of way we position what sommelier is doing is markets are inherently dynamic they are inherently uh if changing as people uh uh evolve their Capital uh uh or sort of as the as

markets evolve as market conditions evolve um what we have in D5 right now are static Vault strategies and those static Vault strategies uh do not evolve with the markets instead they are optimized for a particular set of conditions that change over time and users are still having to rebalance in order to have what similier enables is dynamic vaults with off-chain computation so you have this Dynamic mechanism so you could have uh uh you know the classic you know momentum trading strategies or you know social media setting uh uh uh uh uh social media sentiment Watchers or you know as something as uh somewhat vanilla which

is what we have live right now um as an aveable coin strategy which just observes what are the lending rates and what are the predicted future lending uh uh yields on lending a different stable coin uh and adapts to it so how did we build this so I had mentioned um and I'm mostly known for my work in building the it's building much of the cosmos ecosystem um that we have this like very clever architecture that we have uh uh uh you know I call my own work clever but you know here we are um the uh uh the uh the mechanism is so what we have is sellers consist of smart contracts that live on the ethereum or uh uh or other

evm blockchains um right now we just support ethereum um that seller contract is the most of the user interface so if you go to simulate uh uh uh the similier like app.tamilia.finance all you see is uh a metamask pop-up uh you are not asked to interact with the cosmos chain in any like in any way there's no bridging of funds or doing anything uh you put your you uh provide your funds directly as an LP uh into that smart contract so you are uh interacting with this Vault contract you get a vault asset uh back um and uh you know from your point of view now this thing is just going to invisibly uh sort of optimize according

to this strategy the way the strategy works is we actually use the cosmos chain as a way of um so what happens is we have these off-chain strategy providers for every given seller there's a strategy provider that strategy provider makes recommendations about trades essentially about rebalances directly to the validators the validators come to consensus on the cosmos chain and the gravity and then the bridge executes those those so again there's no bridging of funds uh there is simply using the chain as a way of decentralizing uh these choices and so this mechanism this architecture uh allows us to achieve a couple of

different things so you know this is the this is the interface that we present um again uh if you use the if you use the interface it's just metamask you don't see any Cosmos in it uh the cosmos is all buried inside and if you're a strategy provider you have to care about that layer but if you're a user you don't um so we do we Define these new rules so seller creators create the smart contract uh you can aggregate several D5 protocols we have uh we have right now an Ave strategy but we are building a sort of general purpose smart contract architecture that can aggregate several D5 protocols together that you can build adapters for we're all trying to make uh this sort of supply chain of building

new seller strategies as easy as possible but if you have a defy strategy and you'd like to interact integrate with sommelier we have plenty of people on our smart contract team who can help you um then you have this off-chain role you provide a data feed but if you're providing the data feed you're not actually controlling any funds you are not actually rebalancing anything you were just making recommendations to validators the validators are controlled by the staking system on the SOB chain and actually the ones who uh come to consensus on when the rebalance function should be executed um so what have we been trying to do we have been trying to create the system of checks and balances um simelier governance can vet new

sellers before deployment so again our model is to try and again start to sort of a little bit follow the self-regulatory example of traditional Finance so you have these token holders the token holders have an ins have are going to vet new sellers for deployment one of the things that we've been trying to do is align incentives so when you are holding Psalm in your staking Psalm um you don't get paid unless the sellers actually so we don't have any staking rewards that come from inflation of the psalm token et cetera the way Psalm token holders get paid is from fees on the Strat on on the success of sellers I.E the sellers have to bring in capital

they have to bring in users they have to make the users money and then you get staking rewards um so you have a strong incentive to uh think uh critically and wisely as a psalmholder about what sellers you're vetting so this like self-regulatory incentive is designed to sort of create an alignment that like again turns Psalm from like less of a platform that is going to be let's say Reckless with what it uh offers users to something that is going to optimize for sort of uh maximizing the mutual benefit for of all the parties um strategists on our platform can do a bad trade but the smart contract that runs on ethereum is actually going to restrict them from like walking away

with users funds and again these are checks and balances we we are not uh you know one of the things that we've really wanted to do is make it so that again the security of the song chain itself is necessary for the strategist to operate for some holders to make money but it's not necessary for users to be able to withdraw their funds all of that relies on the underlyings unlike where they uh uh where the seller contract actually lives and then the third thing is a strategist just disappears um or is consistently making bad trades validators could actually update locally what uh uh strategy feed provider that is providing the feed for that seller

um and that mechanism can allow them to uh and that mechanism of of picking a new uh feed provider sort of gives them this sort of governance control but it also means that again users are not relying on any one party like a specific strategist uh to make sure that the strategy instead they're relying on the sort of full incentives of the protocol um so we are one of the sort of other narratives I think is that Cosmos has begun has has I think spent most of this this last year um sort of uh focused and like in general we have been focusing a little bit too much on sort of speculative

incentives and staking yield and just inflationary incentives and really what we are trying to do with Psalm is try and show that you can build bring a a real yield product to Cosmos um so some token holders only earn yield from shared profits from sellers um so what happens is is that the um so you have these smart contracts that are sitting on ethereum uh they are being rebalanced they earn profits those profits are tracked those profits are bridged uh those Bridge tokens are auctioned for solemn and then that Psalm is distributed over time uh to uh stakers and so this mechanism is like really sort of driven Again by real

profits for users as a driver for staking rewards rather than uh rather than like the traditional sort of like if you don't stake you're just going to be inflated away and we're going to punish non-stakers um so where are we like what is the state of the system um so the first seller is live it's an Ave rebalancing stable coins however it is unfortunately a bit of a bull market product um in a bear Market these uh the stable coin lending has uh has has been you know the yields on stable coin lending have been low um and so we actually have yet to have rebalanced out of lending tether uh you know there is the first rebalance is always uh uh on the horizon

um but uh we have a bunch of general purpose strategies that are going to be toward um and what we have this uh coming out at the end of September is what we call our huddle strategies which are about much more of a bear Market strategy which are an actively managed actively traded strategy for accumulating short of trying to maximize uh the amount of eth uh and uh uh Bitcoin up to you it's your choice based on which strategy you pick you would accumulate for dollars in um so something that like you know can do something you know the purpose of having active management is you can do something like hey like instead of me having to watch binance uh 24 7 and figure out when I want to buy and what

dips I want to buy why don't I make the machine do it for me um so uh and with that I would like to take questions if there are any I see a question or any questions myself no cool um

I can probably explain some other pieces in the last four minutes um one is so we are optimizing this platform for uh integration with other D5 protocols so you know the first thing we integrated with was Ave these huddle strategies will integrate with dexes like uniswap allowing for automated trades but we can pretty much integrate with any D5 protocol so if you make a D5 protocol or you are a contributor to a D5 vertical and you're like hey we have this thing which is really hard to use we have trouble onboarding users into this role we have trouble onboarding Capital under this role similier can be a huge uh tool in

your tool chain for adding in a sort of easier interface for Capital without adding a custodial element and that is like what I view as like one of the key things that we bring to the table so if there are no other questions thank you very much thank you