DeFi by Design EP#102: The Most Capital Efficient Leverage Layer in DeFi

Transcript

foreign [Music] by Design where we talk all things blockchain and cryptocurrency while striving to educate Empower and generate what's going on guys welcome back to D5 by Design podcast episode 102 celebrating GM 100 uh two podcasts ago last podcast we had Brian Pellegrino from layer zero Labs had a really interesting conversation about agnostic G5 protocol design trustless and permissionless protocols um kind of how how layer zero is trying to take over the digital world today we're shifting gears a bit talking to

the team from gearbox more of an OG type of D5 protocol really one of those teams that you know is just going to keep building and is going to keep delivering solid products and we'll reap the rewards in the in the um kind of D5 cycle of e fields and and more uh speculation so very excited today to dive into a variety of topics from Leverage yield farming ECC um curve uh some of the recent drama going on as well as other topics so Rob good morning bro GM brothers and sisters love to have everyone here listening thank you thank you uh yeah like Andy said this is episode 102. I'm super hyped because

we're just gonna keep it rolling you know um we had a hundred great episodes and I feel like we're just steadily on the rise in terms of guests quality conversations thoughts ideas industry prices everything's up Vibes up so uh super stoked to have amplist and appear on with us today uh the uh contributors core contributors we're gonna hear what they uh what they do contribute to gearbox uh what gearbox is we're gonna dive into uh some of the curve some of the rcam uh things as well so stay tuned grab a coffee or a beer or something and kick back relax and uh we'll kick it over to amplist to uh introduce himself um and introduce gearbox amplist how you

feeling today I'm good how are you I'm amples I'm uh Chief propagandist at gearbox basically uh memes and videos and all that good stuff uh gearbox is a composable leverage protocol um I will leave it to August to describe what it is exactly we do but basically the the core idea is whatever you want to do in defy our goal is to be able to like lever it up for you like we we eventually want to be the leverage layer for all of D5 that's at least all of D5 that's safe um right now we're kind of primarily like helping people leverage on yield farming strategies but trading is coming soon

too and V3 at the end of the year um yeah good good to talk to you guys today my name is my name is uh yeah uh I'm responsible for uh product and mass site and gearbox uh yeah in terms of protocol uh like yeah we're building composable leverage uh since I guess 2021 uh yep nice so were you guys on the team um in the earliest days or in the earliest months kind of once you guys join uh yeah protocol started as one of the

winners that is in early 2021 uh Michael uh was original founder and inventor of gearbox slate a little bit like right after his mobile hackathon hi and Ivan gbi joined to the team so we start pushing uh the protocol together just three of us uh in late 2021 in December uh we launched first version uh uh yeah and after that I guess uh employees and some other Google guys joined the team and to start working together on protocol yeah

nice cool cool yeah I was just curious as kind of how it started um you know because I think Alpha hamora might have been the first iteration of Leverage yield farming um you know back back in like D5 summer I mean maybe you guys were kind of right around there as as well um I'm kind of curious why you guys why you guys think leverage yield farming is um is important what's what's the main use case so it's not just yield farming that we want to do um our goal so our the way that um the Geniuses behind gearbox El guys and Mikhail and I guess Ivan's not really a genius he's kind of a [ __ ] but orgas and Raquel are definitely like Giga

brains um and and the way that they approached the problem of Leverage and D5 was is slightly different than the way that kind of alpha hamora did right so Alpha homura essentially you can think of each of their leverage strategies as a separate Vault almost in the same way that like you have a urine Vault and then you have a specific Alpha hamora strategy dedicated to a specific yarn Vault and so Alpha homura also has many many strategies but those pools are all like separated right um our goal at gearbox is basically uh to act as a layer or you can think of it almost as like a leveraged smart wallet although

I've been told sometimes to not not call it that but it's like the easiest way to explain it like you put your money into what we call credit account like gearbox credit account which is kind of like a new D5 primitive or it's not new anymore but um a D5 primitive and then from within that credit account you can Farm you can trade you can do multiple different strategies it's not like you're not depositing it into just one Vault you can do multiple different things from that accredited account and when you close that credit account whether you made money you lost money like you can just um get out like whatever gains you made you can take out of there right so the difference between Alpha more and gearbox is essentially like if I want to put my money into a credit

account and so for example um you could you could take take a position where it's like you want a long eth and then also stake it right so you put up like usdc collateral um then you buy eth in your credit account on Leverage so you put up your collateral you borrow usdc use that uscc to buy usdc to buy eth and then also stake that eth that's something that like you can't do in Alpha homura they would have to create a specific strategy for you to be able to do that but because of the way Mikhail and ilkas and the other guys um designed the credit account it's like it's actually generalized so the more strategies we add

uh the more strategies we integrate like the more it like the possibilities of what you can do within your credit credit account multiply exponentially right so for example in the future um if we're to say like there was something cool that you could do with your stake teeth and it was like relatively safe within D5 maybe we'd integrate that and then not only can you like long ease and then stake it maybe you can take that steak Ethan like for example put it in eigen layer or something like that right and once we have the eigen layer integration then you can do that uh you don't have to kind of reinvent the wheel every time release a new strategy and it's not like vote by Vault it's like really generalized and that's really the the goal of gearbox

yeah interesting yeah actually like I didn't idea was like leveraging uni swap so yeah I'd say in the first days uh more focused on trading uh on top of unit Swap and we thought like okay which would be cool uh if you can trade on Union swap with some leverage here and of course like when you swap in early 2021 is uh like has very good Traction in that days and a lot of different interesting tokens you can find there to trade on so it's called to have leverage on it so yeah after that we like find the idea how it works with this current account uh smart wallet design and later

discussing with other contributors with other uh smart peoples and Community will decide that okay it could be actually generalized way to have leverage for any defy protocol and yeah as Apple said uh now we look at gearbox like yeah it's looks like levenage layer for device space actually and plate could be integrated to any use case that we can like uh see around our space yeah yeah yeah one of our um one of our current uh Partners is is raft and they're doing um effectively leveraged yield farming for uh State Deeds by being able to borrow R which is a stable coin against against uh steak

teeth similarly other kind of um lsd5 protocols if you will have kind of gone on a similar path trying to launch that basically uh um yield bearing uh state to East collateral based stablecoin I'm curious if you guys are currently engaging in uh some kind of that let's say the LSD fight Wars that our community can uh participate in in gearbox uh or if you have plans to as well as your current mental model regarding the U.S state of kind of uh staked eth and how different Protocols are trying to attempt different types of uh strategies to attract liquidity uh based on you know rehypothecation extra yield uh collateral backstable coins et cetera so kind of three parts there what

you guys are doing now if if any what's in the books and overall your mental model uh I'd say we are agnostic in terms of different plus device so uh actually for us as a protocol there is no big difference between all of them so it depends on the user I guess to choose what kind of lsd5 they prefer where to put one and so on uh in my point of view like it's interesting use cases could be arising later in gearbox because like for now I guess uh different protocols provide leveraging of LSD uh while actually

after launch of like segment layer and some other stuff that provide different staking opportunities on top of those defy that could be very interesting because like for risk Seekers they could actually borrow some LSD tokens and provide it more risky Farm in more risk is taken but actually as a result get some additional year for using such kind of Leverage while for original users who just want to hold LSD five tokens it could be a good opportunity because they've got they could deposit as liquidity providers get some passive field do nothing no additional risk for using it in different uh

sticking services like which actually are provided by again layer but actually Additionally you that they got as a result of this yeah so could be very interesting I guess such kind of use cases yeah restaking is uh is particularly interesting uh especially once you can re-stake into other validators and then use if that is securing eth because it's in an ethalator and restake it into another Network and help secure that Network as well I'm I'm curious like uh like gear like uh gearbox application to lsd5 is one particularly uh one particular use case I'm curious in

general how gearbox manages its leverage layer like I I think you know what we've seen in Leverage is over collateralization where you have some collateral and you can borrow against it up to that collateral value is gearbox similar in the sense that everyone has to be over collateralized or is gearbox a little bit different in the credit accounts yeah of course gearbox as protocol overall over collateralized so as amplus earlier said about smart contact wallet it actually designed like you put some collateral borrow X5 even extend funds on it and then you can put this money to different

protocols uh to different topics files whatever but as a result what was this liquidity LP tokens actually lay down in this in the same smart contract wallet so it's like it can be used as collateral for your depth so overall system overclutter as well you have up to extend more Capital uh to farm or trade so in terms of protocol it's like uh a safe model I'd say because like uh as you can see from last see if I close here underclass Landing is something very very risky and sometimes you can't even predict where Black Swan uh so in terms

of gearbox everything is transparent you can check your smart contact wallet protocol can check positions of every depth and see that everything is secured uh in terms of how to be sure that protocol uh parameters for understanding this server called range parameters uh safe of course it's like I'd say does mass task and to build a lot of different infrastructure here to to help solve this stack to check in real real real time that everything works as as planned that there is no any kind of

relevance that liquidity in the market like not Germania so it's like a lot of backend infrastructure that launched by different community members and check that everything works as land and and when when you guys make an integration I think it's really Innovative what you guys have done to to allow people to like times five or times 10 the collateral that they have because you almost build in like the folding strategy because when you go and you deposit you you borrow you get some debt and then you deposit that debt into another protocol it becomes potential collateral and you guys almost build that into the smart smart contract

credit account because you take the debt and then you almost fold it directly back into the collateral which allows you to continue borrowing and even more you can even borrow more than the original collateral that you deposited so I I think it's it's quite Innovative what you guys have done to allow protocols to borrow up to times five or times ten um and build in some of those uh some of those leveraged strategies and I'm I'm curious like where where are you guys planning on going from here you know you started with leverage yield farming um letting people kind of Leverage up their their LP tokens and get more yield and now you're you're a little bit more General you're letting almost you know that anyone any kind of smart contract

that you have integrated um interact with your leverage layer so like what are you guys now looking for in terms of Integrations is it LSD Phi is it other money markets um when you guys are are kind of looking at the scope of of D5 who and what industries are most appealing to integrate so I think um what the devs have been working on for the past six months or something um is V3 and essentially what V3 is going to allow us to do so like previously with V2 um essentially we integrated a bunch of like the big uh uh yield farming strategies or other or rather the places where the big yield

farming strategies exist right so yarn curve convex Lidos State Etc um but like not a problem exactly but one kind of hurdle that we needed to overcome was how do we allow people to um put their money into like less well-known riskier strategies so that they can like juice their yields on a broader array of strategies and we could do more and more Integrations without kind of introducing a level of risk to the whole system that like we deem unsafe right so the way

that we've come up uh to do that is essentially like set a global a kind of quota on specific strategies or specific assets such that like gearbox protocol as a whole does not have more than like x amount of exposure to this asset and the reason why we need to do that is because when you think about liquidations [Music] um like there's like different assets have different amounts of liquidity right so if you're talking about adding a new asset we need we need a quota such that even if we liquidate all of that asset that exists in gearbox protocol the price is not going to drop so much

that we end up with bad debt does that make sense so these quotas are really going to make a huge difference in terms of just the number of Integrations that we can add because like previously we could only add big things because there wasn't this like high level overall protocol uh risk quota for each of the assets so we could only add really really big things where the liquidity is like there's loads and loads of it so we don't have to worry but now with V3 which is devs are working on which I think like we're gonna say like November December probably um August will correct me if I'm wrong there uh we're gonna have be able to introduce quotas and the cool thing about quotas is we've kind of we're introducing some novel to economics

that are built into how these quotas are allocated as well um so basically like the goal is how like we're going to get to a point where we can start adding not just the really well-known strategies but also like kind of like we talk about Blue Chip right I would say everything in gearbox right now is Blue Chip even these like less than Blue Chip kind of mid-tier strategies um we can add all of them we can integrate stuff safely which is the most important thing um with the V3 upgrade and then once that happens then I think we're going to start banging out Integrations and just try to like integrate everything that we think is reasonably safe which I'm really looking forward to because again like once you have loads of Integrations

the things you can do are like the possibilities of what you can do increase exponentially yeah yeah so a couple points that ring to mind um that I'd love to hear more about um as far as Integrations and expansions go um because I mean I'm totally on the same page with you first with regards to kind of making sure that should you add a collateral type or an asset there needs to be enough secondary Market liquidity to not get burned as a user but also as as a protocol um and so you know right now for example like that that kind of CRV I'll have a bad debt drama is just like the biggest example that we currently have about kind of uh risking um different types of LTV values with a

potential collateral type that may not have the deepest liquidity so certainly on the same page there and I feel like you guys have the brains and the knowledge and the experience in D5 to kind of be able to to run that kind of math and understand uh you know kind of the risk parameters for each type um as well as kind of have the dial as a backup uh checks and balances to make sure that let's just say there isn't too much d-gen activity happening but I am a fan of DJ activity don't get me wrong um but more so to where I want to take this on the integration and expansion side um you guys recently just integrated curve V2 pools I saw about four or five different LP pairs um those are super blue chip from my perspective curve and the tokens

um so I'd love to just hear about the high apis there how um and kind of why everything that happens on the integration side still goes through the Dao if there's any kind of light that you want to share on on the Dows in involvement in this specific integration would love to hear that and then um I've got one more question about extending to l2s but we'll come back to that so yeah I would love to hear more about this recent integration oh guess you want to take this one uh yeah actually a little bit Network I

guess uh yeah I I I I I think uh curvature boss is like uh something very interesting yeah so it has very uh very very good deal so actually for users it could be something that they are looking for uh leverage here because like what what we heard from our users uh like yeah say want to get more response themselves be a mod again uh have more yield as a result so I guess curvy 2 and plate I guess uh will be ready to deploy uh right after the sun balancer pulls and

our integration also could be very interesting opportunity for uh activity against to find villager seals yeah of course getting some risk on themselves but I guess that's a lot of digants in the market is ready to get on themselves and um uh and you went on mute there but I'll kind of take it take it from there I think uh I think there's there was a question about l2s and like you know is

that part of your expansion strategy um how do you approach uh some some Network Integrations 100 l2s are on our mind let's say um so this again is something that uh is going to be made possible with V3 um again because of the risk quarter so what you're seeing in l2s is like uh very like there's a lot of opportunities there but liquidity is not as deep as mainnet right so like how do we in how do we kind of launch gearbox on an L2 um where liquidity is not as deep but

let's say like there's access to higher yields or uh like more interesting things you can do um and like the the solution is similar to like how do we integrate kind of non-blue chip but like mid-tier protocols on mainnet it's we need to introduce these risk quotas and once we do that um then L2 expansion becomes very possible so we're not like super focused on it at the moment um but I think once we get closer to V3 it's definitely something that we will start kind of discussing internally um and putting into the Dow to see like what the Dell thinks of like should we do arbitrary should we do optimism should we do you know ZK VM start I mean all all the different LG's like

uh and like probably by then scroll and everything else will be out so um it's exciting times ahead uh could we just deploy to all of them possibly um we'll see so good yeah the most interesting incentives you know yeah exactly dude you're coming in the space was so good man trying to get uh zkx from starknet and dkm guys going Head to Head they were like no we we we won't do this and then like Hamza from ZK and was like nah dude I'll definitely do this like you see KV is better and this is just like dude come on I think arboretum's the best spot for you guys to go first though

um just as a general like I guess advice um I think that is where you'll have the highest amount of defy yield Farm users or let's just say yield farm for lack a better term D5 power users at least in my experience that that's where I've been yeah that's where um GMX is right yeah yes so on the trading side probably there's not much to integrate there but on the glp side I think that would be an interesting like Leverage glp returns yeah an interesting thing to look at yeah I think Arboretum is definitely interesting I think there's some cool stuff about optimism yeah I guess Jim makes me too actually could be very interesting uh just

curious just to check out actually let me tell you like he's like worse than the ethereum foundation all the stuff that I say all the stuff that I say is like [ __ ] but whatever elgas says that's Alpha so listeners like when when English says it it's propaganda yeah it's actually happening if Olga says it it's actually like like it's actually gonna happen you know so so it'll just like let's say you look at GMX V2 you love it right like what's the process for getting that up does the entire Dow have to kind of go through that process or like what what is the process once you establish like this looks like a cool integration what

what's the process from there yeah actually there is like some uh what should be done yeah so uh first of all of course we need some adapters to this new protocol uh but for example if there is uh uh I just don't don't check yet if for example jmx Sports will be in using year c46 26 standards so actually maybe there is no need any kind of development of top of it we can use one of the our existing adapters uh that's like first stars that should be built uh second Stuff how to uh price correctly uh

okay token uh uh for this asset and it could be solved in different ways we have some pre-built uh oracles for different coffee tokens that we use already in our system uh it could be some semi-off chain Oracle types like for example that's Redstone provider could be built on top of and we can use it later so there are different options we have uh but yeah prerequisite here like workers and adapters and after that we need governs approval because every every step every deployment should be approved by gearbox governance

and later current contracts will be integrated with some principle nuance and after that it's ready uh and so I thought that maybe also to check uh it's like some check infrastructure layer like liquidations some uh back-end Services some front-end application stuff that also should be checked but I guess it's not the big deal got it makes sense so like first there's kind of like the risk quota you know to even be considered um and then you have to make sure that the technical specifications are there you have to make sure that there's

Oracle price feeds um that there's adapters um that the technology is somewhat compatible with uh gearbox's existing technology and then if all of those boxes are checked it goes to governance and basically the community has uh the last right to refuse or or approve any integration I just want to highlight um we also have uh one stage of the process is we involve risk Dao they're like these super smart like Risk analysts chats basically who do all this complicated math to make sure that like everything is as safe as possible and just shout out shout out to those guys because if you read their like the stuff that they post

on our forum and also like the internal chats that we have with them they're like they're really on top of stuff like Giga brains yeah and yeah like we take risk really seriously um definitely want to like yeah actually use it as safe as possible yeah it is that team and some are back-end developers built a lot of cool infrastructure like we check real-time data from a lot of different sources like current prices current liquidity size on the access on success of the parameters set and changes all events that could happen in our protocol

for now we check any kind of different uh fraudulent behavior on top of protocol so a lot of like happens and tracks on real-time data and if for example we see some something malicious some robots just could pause system and say okay guys you should have a look on this maybe something bad happens so all of this of course should be checked before uh any new launch of farming opportunity or trading token that almost is there to guard and was correctly

yeah does the sorry and I I was on mute but I got one more follow-up question on this integration uh process does the um the op stack and kind of like these like almost like roll up in a box type of solutions does that make it much easier to to integrate the projects that end up deploying on top of those OP stacks and arbitrum is now deploying their stack um you know because those are now standardized does it make Integrations of the the projects that Deploy on those Stacks much easier uh uh I'm not sure uh I I I was thought that office Tech and Arbitron stack it's

like it's more focused on those who want to launch the one roll up on top of using actually this stack yeah so I guess it's like a little bit different uh layer of the pre-in construction we actually focused on protocols who deploy uh their protocols to this infrastructure so I guess for example uh this launch the owner lab using of the stack and yeah we talk to them and it could be something interesting for example for gearbox to deploy uh our protocols there but for us it's

because we don't provide any product actually yeah we provide leverage layer for other protocols so in order to deploy our protocol we should be sure that there is enough different protocols and users wanted to get leverage on top of it so for example if base launch and there is no no there is no any kind of protocol at all it doesn't make sense for us to deploy that but if unicorns the is overcomes the a lot of different protocols deployed there okay for us this makes sense now go there and provide leverage for all of these protocols that makes sense I think I'm going to connect you guys the only other thing I'll add is that if you know there is protocols that launch

on base another one that uses the op stack is like mantle right and there's not protocols there yet but because they both use the op stack it makes sense that they already have the adapters they already have the oracles and the infrastructure that gearbox needs in order to make a type of integration um yeah dude that's what makes like the op stack and um like just like I just had a I I just got pitched by a buddy about he's he's raising for an L2 literally L2 new Roll-Ups are going to be the new L ones of this cycle it's literally happening already I mean we are the roll up um and and he's building on the on the op stack and yeah it has all that Tech that's kind of ready

um you know to to go um and that's why also again I think arbitrim is the best place for you guys to Port as well um and then also I'm going to connect you guys with Maverick protocol if you're not already because um they do like concentrate liquidity and directional liquidity and you guys could do some really sick leverage LP strategies in a concentrated and directional liquidity environment which would allow users to have like like basically a leveraged LP with low impermanent loss and potential crazy upside um so that would be super interesting I'm not sure if you guys are in touch but we'll do that after want to shift gears here and talk about a really pressing issue in D5 which is uh the the effect of of liquidity mining on

governance token prices um pretty much every D5 protocol since 2020 has had a really rough looking chart in addition to the rest of crypto don't get me wrong here but really there was a lot of inflation and a lot of emissions that came out of D5 summer and 2021 and so now we're starting to realize like okay we have to figure out how to incentivize sticky liquidity without just giving away tokens for for kind of like basically for like renting liquidity kind of for nothing so I've got a really interesting thread up here that you you guys put together and I'd like to go through it so confirm that you can see my window yep yeah I can see it okay fantastic fantastic so

um how to eventually Fade Out liquidity mining emissions and organically grow The Lending market for gearbox um so I guess I would love if you guys want to just kind of walk through our our audience um through this and and kind of explain what you guys are trying to achieve here with fading out emissions and organically growing the market so I think for any uh lending Market you you have two sides right you have the borrower side and the lending side like to put it simply and there needs to be kind of an attractive proposition for both of those parties and up till now well just in default in general I think yield for like

incentives let's say token incentives have been used as a way to um Greece or or like lube out the the smoothness of balancing out the demand for borrowing and lending right because um you know whilst you're building a new protocol especially a new D5 protocol and D5 itself is like relatively new it's only been a few years um like you want to get as many users as possible and figure out like what it is that the users want right and token incentives are a great way to do that you can try a bunch of different things see what people actually want to use and then slowly ramp down the token

uh incentive so like from a gearbox perspective I think um we found like good uh user interest and kind of semi like I like I have an often says like we're like halfway to product Market fit like we have on The Leverage side there's definitely Demand right like people want to use the leverage side they want to borrow like the credit accounts make sense and like who who doesn't want to like 5x leverage State Deeds for example like why wouldn't you do that especially now that withdrawals are enabled right so that's kind of a no-brainer um the problem is like okay how do we have that and also make The Lending side attractive and like up till now what we've been doing is okay

so we have token incentives on the lending side so that we have a good balance of borrowing and lending right because if you don't have enough lenders then the cost of borrow like spikes up and then borrowing becomes unattractive um so with like with the upcoming developments in gearbox which includes introducing new strategies um V3 and all that what we're trying to do is make make it so that there are a bunch of new things that you can do in gearbox where uh when you borrow your yields are going to be even higher which then justifies like then you as a borrower you can justify to yourself paying a higher rate for the borrow which then means that

lenders can receive more organically and therefore we can like lower or remove the token incentives does that make sense so like essentially tldr I think we have like good user interest and are close to product Market fit on the borrowing side like the thing makes sense how do we also get that on the lending side and the token incentives have been the Gap to bridge that um and as we try to figure out like how we can make the numbers work so that bar and borrowing and lending are both attractive to different kinds of users we can then remove the token incentives and it can all be organic interesting okay so it's all about equilibrium then basically trying to find like you guys

have almost conducted experiments to try to figure out where that where that kind of happy medium lies between um keeping lenders on the market to keep liquidity um there while giving them good enough rate plus a little bit of token emissions kind of as shown here but but then also like making sure that the borrowers are not paying extra extravagant amounts as well um you know because they really wouldn't want to borrow if they're paying that much and there was other competitors so that's kind of like the problem we're aiming to solve here and that's what we're so it's what we see in these in these Graphics um but and this is kind of what we're seeing here right yeah that's exactly

right and like the one thing I will say is um one of the kind of hurdles that we've had to overcome right is [ __ ] Jerome Jerome Powell race rates right so so your risk like you see on that graph there the risk-free rate that used to be like essentially negative or zero right like functionally negative but now the rates have gone up right you can park your US Dollars and in a bank account and get like two or three percent right so then like every everything else has to your yields have to go up for it to be attractive to quite kind of kind of the safest user right so I think that's actually been a challenge for all of defy and maybe not under discussed but

like well I think like you're you're kind of average Degen is not thinking about that but like I think sophisticated players they're definitely like like if you look at DJ and Spartan right he's been talking about this um like why would I put my money into usdc when I can just have it in USD in a bank account like that's what we're coming up against and that's fine because like that's macro and like if D5 is going to work we have to we can't just function in the zero interest rate environment but when you're kind of like bootstrapping a protocol um it definitely like introduces hurdles like how do you especially on the lending side like the yields are lower on the lending side than the borrowing side right because it's supposedly uh well it is it's less risk

um but like how do you make that an attractive yield to risk proposition compared to three or four percent in a USD bank account that but he was just texting me about that he was asking me about stablecoin yield today and I was like dude why would you do that why not just do us treasuries at five percent yeah exactly with the load time frame yeah so like yeah the equilibrium in that graph is moved basically yeah and so we have to move with it and I think that we should get I mean that's that's important but um even more important you think rob you can go ahead if you like but I think we we got to talk on the best thing problem of solving uh liquidity mining kind of what that what that kind of trial limit looks

like and um you guys are looking at it but Rob if you have something on that last topic please I I think it's I think it's um in line with kind of like what what you're getting at which is like how we solve liquidity mining like there's the added risk of keeping funds on chain and that's gonna move the line more than the risk-free rate right so like there has to be some added reward which we call liquidity mining in order to like keep funds on chain so like I guess how much like amplist you say people don't really talk about it like in D5 and I think you're right so let's talk about it you know like what how much do you think uh additional yield is required in order to and we're kind of looking at it right

like if you were to quantify kind of like what that liquidity mining span looks like um like how much is that what what have you kind of learned from the experiments that you guys have conducted with adjusting lending rates on your box so I think um there's like different ways to approach this question like I I can't pinpoint like a specific number of okay if you're kind of a relatively risk averse user and you the things that you're choosing between are like U.S treasuries bank account or usdc on a safe protocol right like how much how much more yield does that person want I can't answer that it

depends on the specific person right that that's their own risk there of that and also if they have to judge how risky gearbox lending is right like we've been good so far but who knows it's D5 Anything Can Happen um so like each user is going to be different we just got to capture enough of those users um where the risk reward proposition is worth it but the other thing I will say is like there's a big variable here which is in a bear Market token incentives to you those that token is like number go down right like maybe it's worth something when you get it like when you see that number building up and and you're like claiming the tokens but you're probably dumping those tokens immediately because you're like

it's a bear Market this these tokens are just gonna go keep going down um whereas in a bull market now we're talking something different because like like I'm not trying to pump the token or whatever but if you're getting gear for Lending right in a bull market maybe you're thinking okay it's this price now but if I hold this token D5 summer 2.0 which Farm hold State baby Farm hold steak exactly like that that then then like the risk reward calculation changes right because then you have upside and bear Market is no upside everybody's sad you know you're dumping tokens on everybody else it's a race to the bottom in a bull market it's a different it's a different proposition altogether so like if we're

entering a bull market I think um that also changes the risk calculus that some of these more risk averse depositors are gonna kind of uh like like how they see the situation so like I can't answer you in terms of how much more yield I think it's probably like a few percent right like if you look at corporate bond yields versus kind of U.S treasury yields it's like a reasonably good company it's like three four percent something like that above risk rewrite um so I would imagine it's like not too dissimilar in D5 or at least as we um become kind of more serious people uh yeah it will it will kind of converge to that but I think like the possibility of The Upside on tokens once that comes

back then then we're talking about a very different game yeah and you almost don't have to incentivize so many emissions as well while surely you want to compete with other protocols to get the liquidity uh if you if you feel that the bull market is kind of on the horizon less apy for a larger future apy if people hold is kind of a win-win for everybody um so so that's getting kind of an interesting mental model as well um also there's this idea of options the uh liquidity mining where you're basically farming call options on a token so again during a kind of bullish kind of uh sentiment or cycle those also become very attractive from a protocol on missions level I'm not sure if you

guys have any thoughts on that or if you guys are looking to implement that with V3 something that I would definitely look into though uh I think it's potentially I mean like I would be interested in talking about it theoretically I don't think it's like planned for V3 at the moment um I think the I think probably options token incentives are too expensive to do on mainnet I think you'd have to do it on an L2 right because every option essentially is a is the contractor right yeah yeah it's gonna be yeah and then you're definitely not doing that yeah it's gonna be super expensive like just in terms of gas to claim them and stuff and and then to um

to exercise them but it's an interesting idea and I haven't really seen anybody implement it super successfully yet so it'll be interesting to see where that goes yeah I think it's coming out right about now I'm really curious to see like the the L2 Integrations that you guys have in store for V3 like there's some really cool applications I can think of where like you might be farming on mainnet but then you get your yield on l2s um and and some multi-chune deployments like that that might make options liquidity mining like more possible and people wouldn't have to Port their liquidity over from mainnet um it'll get like do you have any thoughts on on like V3 and kind of where you see it going

or anything you may enter or just anything any thoughts yeah yeah uh just one answer and previous questions about options uh just some thought uh actually I'm not I'm not sure that uh something similar could work on bear Market because like actually people in Bear Market they put every risk against you yeah so for example if you are like protocol trying to uh put some more complicated stuff and people just very calculated in their minds and in more conservative in more negative way because like okay it's bear markets everything is dumping it's bad and you can actually screw that using such kind

of uh difficult tools uh and yeah and the result will be nothing or even negative uh while in bull market that could work much better yeah because in bull market everybody like very optimistic every talking goes through exactly so like they they can play in the in these games in their mind and think that okay this uh derivative could like make marriage later so it actually worked could work for protocol very very positive way uh so yeah that's actually like yeah when thinking about it yeah I mean it works in a bowl because it's like call

options so the users get I mean they have this incentive to not dump because they're constantly firing these and they get they can get shorter term ones or longer term options and they're basically like well if I have this one that's shorter term this one that's longer term I can claim this but then I don't really want to dump my tokens because I want the price to stay up for the next set of options that I have that are going to expire soon so it's an interesting concept but I think we're going to kind of wrap up here guys thank you so much for coming on uh it was an absolute pleasure I feel like we didn't get to all the topics that I wanted to do some of the more d-gen ones but I think we took a better route and kind of went uh Technical and uh very kind of

important defy um narratives and kind of mental models so yeah again thank you guys thanks a lot for having us uh happy to come on anytime to talk anything DJ anytime you want nice let's do it again soon cheers guys thanks for coming on thanks cheers thank you