DeFi By Design EP#36: Spotting Signals in the DeFi Ecosystem

Transcript

[Music] d5 slate team [Music] what's up y'all real quick if you like the d5 state content on twitter and youtube and sub stack please please give us a like and a subscribe on this video on youtube and join our channel join the community we'd really appreciate it we're pumping this stuff out for you all as much as we can and we really enjoy the support and the community that we've built thank you very much enjoy what's going on guys welcome to episode 36 of the d5 by design podcast i'm here today with robbie we're actually in the same room for once robbie did a bit of traveling from florida up to north carolina

so we are here hanging out kicking it back excited to talk today uh with the the team over at lu liquidy um it's a bit of a tongue twister there but it's amazing amazing protocol that we did a demo with you guys should check out on our youtube if you haven't seen it yet uh we showed you guys how to earn yield on each um so it's definitely something that a lot of people are starting to come around to as far as eth being a productive asset um so i'm gonna turn it over to robbie see how he's doing and let's get it off the table baby uh yeah so it has been a super fun weekend and it is now monday may 17th um yeah and today we are talking to the guys over at liquidity

as andy mentioned eath can now be a productive asset you can stake your east to earn rewards this isn't just something that is possible with eth 2.0 right when when uh gas fees are starting to get transitioned to proof of stake rather than proof of work we'll talk more about that but liquidy gives you the opportunity for apy just in a staking contract nothing to do with uh blockchain costs or transaction awards so i will pass it over to colton and let him explain how he got started and uh what he's doing over at liquidity yeah sure but before we go i'll pass it to robert first uh he's the

ceo and founder i'll let him kind of tell the story of liquidy and then i'll introduce myself afterward yeah so uh liquidity is all about boring and it's a decentralized boring system that i came up with while working uh at dfinity like a while ago and that was uh mainly because i started looking into the d5 space which was around 2018 uh consisting mainly of maker dao and compound and a few others and uh just while looking uh into those mechanisms i realized oh hey that's super cool you can build a stable coin and

based on boring but somehow this is all a bit inefficient because uh yeah the way they recreated the positions the borrowers who are under collaterals wasn't exactly optimized for speed and efficiency so yeah that's how the whole idea came about that maybe we can do liquidations in a different way by making them much more faster and thus more efficient yeah and at some point i decided like it was in november 2019 to fully focus on this project and i quit and found my co-founder rick cardo who is based in england for great britain and he is now my our lead developer and yeah i mean we launched this now six uh weeks ago and i guess it was

a success if you can say so and uh yeah i mean i'm happy to tell you more about the story but maybe i let colton uh take it away here yeah i'm colton i'm the head of growth at liquidy i joined uh like three three and a half months uh before launch uh before that i was at the seller development foundation doing ecosystem and community growth and ended up being introduced to robert and we hit it off and i ended up joining the team and and helped lead liquidity to launch and since then it's been a pretty exciting six weeks month and a half or so uh the protocol has grown to i think it's over three billion total value locks now and then the stablecoin lusd that you know it's generated from that total value lock

has grown to a market cap around 1.4 billion it's now the i think sixth largest stablecoin in the space and that's only uh after six weeks so hopefully there's a lot more room to grow sweet yeah that's awesome um it super quick launches super quick growth and just all of a sudden everything is just falling into place um you know what's been what's been the thing that surprised you the the absolute most um about the launch colton you know like what caught you off guard yeah i think i think for us what caught us off guard was like the speed at which everything happened right like whenever we're leading up to launch we knew that uh liquidity was really cool we knew we introduced a lot of cool

mechanisms and we knew that people would resonate with them we didn't know the speed at which people would would resonate with all of those different features i know when robert was building this thing out with with the team even before i joined they probably had no idea how people would uh sort of relate to some of the more unique features of liquidity like no like no interest rate or the redemption mechanism which is a bit strange uh so there's all these different features of liquidity that are relatively unique and so it's hard to know how the market is going to catch on to those uh but for the most part people have caught on uh pretty quickly robert i don't know if there was any specific parts that were super surprising for you so yeah i was surprised not just about the growth but also about the stability

so i was a bit more maybe afraid that this could be a rougher start because yeah liquid is really a collection of uh innovative things and new things that haven't been proven to work in practice so far so i mean it's first of all it's uh like the fact that we have redemptions instead of interest rates we also have a completely new redesigned liquidation mechanism when compared to other systems but we also have this like decentralized frontend approach which makes us a bit reliant on third parties uh to get to the customer in a sense and then last but not least uh like we also had this kind of extreme reward mechanism for our early adopters like the stability depositors they get

a very nice or they got like a very high yield on their deposits in the first few days and weeks which could have led to some more extreme price movement because people may have wanted to buy more lusd on the market which would have pushed the price up but that didn't really happen so it seemed that the price is stabilized relatively nicely around one dollar and this is almost like a positive surprise to me i'm not sure about colton yeah yeah yeah no especially when you launch with a lot of incentives for effectively getting as much liquidity to your platform as possible there's oh there's almost like a whole host of things that can happen

um i mean we've seen it all in the last few months really um you know i'm curious kind of what you what your take is on on fixed rate and fixed period um lending and borrowing protocols um compared to kind of like the perpetual style of ave and uh compound and liquidity um like what's your take on the on in integrating fixed rate and fixed period protocols into d5 um you know in in comparison to to the other ones uh so specifically when you look at liquidity it's already kind of fixed rate because you pay like an upfront fee which is currently 0.5 percent

but it's not fixed time because you can leave your position open as long as you want so the rate is clear from the outset but uh like the time is totally up to the border yeah we have seen like other protocols building those kind of fixed time fixed rate products i guess it's a good thing in the sense that like they're trying to accommodate the same market segment which is looking for predictability um because it's just much nicer if you know upfront what you have to pay now in our case you know upfront what you have to pay but you don't may not even know how long you want to keep your position open while in other systems uh yaki are basically

obliged to repay maybe after a year or like within a certain time so they're it's it's clear but it's also kind of more restrictive so we have this maybe middle middleweight between the two so you can uh it like the only uncertainty for your costs of borrowing comes from yourself because it's totally up to you when you want to repay yeah and i agree i think i think ultimately as the space matures people have to figure out how to do fixed rate loans because honestly uh variable interest rate loans especially for sort of medium to long term uh borrowing just suck like you have no idea what your loan's going to cost you up front and that's less than ideal for somebody who's trying to borrow so that

they can productively use that capital elsewhere so if you're borrowing from somewhere like liquidity where you're just charged 0.5 fee up front uh then you know you can go use that capital elsewhere and know exactly how much you need to make back in order to sort of pay back uh sort of recoup your fee and then pay back your debt but if you borrow from somewhere else let's say maker for example uh that stability fee that you're charged via maker can end up you know costing a lot more than what you thought it was going to cost uh sort of six months after you took out the loan and so that there's a lot of advantages to knowing your cost to borrow up front uh the only the only sort of trade-off that liquidy makes is that you eat that cost up front rather than

you know eating it uh throughout the duration of your loan like you do in uh maker dow or ave or compound for example yeah one of my favorite parts of of actually having a a floating rate though is because when the rates go through the roof there is basically what it's been one of two things in the in the recent times it's been either like a local top because everyone's borrowing and just you know going long and it's just like okay i should probably de-risk some here if everybody else is is is going heavy i should probably pull back some or okay what the hell is going on what's the new stable coin farm that is at ten thousand percent apy that everyone's just maxing out their health factors for yeah no that's totally true i mean yield farming has played a massive role in the

way that uh sort of interest rates that fluctuate fluctuated particularly on ave and compound uh but you know at the end of the day uh some of that stuff isn't going to be around uh you know two years from now three years from now or the degree to which it's around is going to be a lot less i think and so you know you can still have interest rates that um are sort of signals to what's going on in the market it might just not be in like literal real time maybe in the same way that they are now yeah i totally agree with that i guess those high yields they will eventually have to come down because they are not sustainable i mean you cannot just give out a reward to your users forever i mean at some point you're diluting the value that you can

give to your users but i mean it's nice as an early adopter incentive and at some point the market will mature and then it will be more about the fundamental um fundamental benefits that your system can offer over just uh short term rewards yeah i think part of the benefit that andy's mentioning on on interest rates is it kind of gives you a signal into the rest of the market and kind of how how levered up and risky everyone else is treating the market um i we see that in like options trading a lot uh like when um options pricing for futures contracts tends to you know really really go up because there's there's a high amount of expectation that somewhere

down the line you know bitcoin or ethereum whatever asset your trading options on is going to rise in price and then you know the same can be said for the downside so i think having some insight into uh kind of how levered up the market is give kind of tells you how how frothy it is at any one given point um and then you can make decisions off of that so you know the the fixed rate loans is definitely going to be a more mature ecosystem but we might not get quite the insight into the rest of the market and i guess what kind of levels of speculation the rest of the market is dealing with um that we can derive from variable interest rates

yeah i guess i mean you can derive some information from interest rates for sure and i don't think that variable interest rates will ever completely disappear i think they just cater to another segment of users maybe users who are a bit more risk seeking or just less uh they care less about like predictability because they are fine with all those fluctuations while there are other users who just want to put some money in and forget it and come back later uh for those people maybe a fixed time fixed rate product would be more interesting yeah do you guys have any plans to uh endeavor into the uh infamous lands of under collateralized lending

and like what's your thoughts on that as far as bringing that into d5 um and real quick i want to preface this by saying i i don't think i think the fact that we don't have it in uh available truly in d5 yet has been a major uh a major positive thing because i think it it gets quickly abused within the system and is a cause of of a run-up of just a metric [ __ ] ton of debt very quickly just because of just pure apes um you know that said you know what's kind of like the what's your thought process on that are you guys building anything towards that so we are not building anything towards that at least currently or for the foreseeable future but it happens to be the case that i had a chance to at least conceptually work on something

similar uh which is related to dfinity there's a project or i mean there was a project called phi which uh is an early example often like a non-collateralized lending project even like it's more uh some a bit similar to uh peer-to-peer lending on the blockchain where you have a number of people who underwrite loans uh for like boards and it's all based on legal agreements like it's i mean once you go under collateralized you probably need to have some kind of legal agreement in place otherwise why would anybody become a guarantor of a loan yeah credit or something yeah some sort of like reputational system on chain or

something yeah but even with like reputational systems you have like those exit scam risks so i'm not sure if you have like it can build a reliable under-collaterized boring system just based on that prior reputation maybe that would work from like a number of people who are already like quite famous in the space who have something to lose their name or i mean if they don't repay maybe just the negative publicity about them would be enough to give them credit and and to make them repay their loans so maybe it could work like in this like kind of narrow uh segment but like for people who have literally no online presence it would be very hard to get any backers i guess but maybe you have a different

opinion on that yeah i i agree that i think it'll be very hard just because like in the real world a lot of stuff all of the loans that sort of exist in the real world are collateralized by something it's just what that something is is super abstract and like really hard to uh represent on chain whether it's like your credit score or whatever else right and so like moving that stuff on chain and then moving some of those legal agreements and like potential legal repercussions on chain are is like a tricky thing to solve for though i do think like as you guys mentioned before there is like new risk that is introduced whenever you move to sort of under collateralized lending so to speak but i do think d5 has the advantage that at least all of it's on chain right we

can track where a lot of this stuff is going if we track how the money is used we could track all the loans generated and so defy opens up a level of transparency uh that solves for a lot of the issues that are caused in in lending today in the traditional market where a lot of that stuff is obfuscated away from uh sort of the normal person or where a lot of the risks may be hidden from the normal person that type of stuff is not hidden and and d5 at least yeah i have seen some attempts at like a decentralized credit score for on-chain activity um but i still don't think that gets to like a solution for under collateralized loans um you know because there there isn't any

point in in trying to set up some kind of sort of law or um you know just rule that that you have to repay your loan uh when that's not enforceable kind of in the real world you know you can't you can't instantiate like garnishing someone's weight wages or for closing their house on chain you just can't do that um i guess this is switching gears a little bit but uh robert uh you mentioned dfinity a couple times and we've talked you know a lot about liquidy but could you explain kind of uh what dfinity is and and you know how there's any interoperability or how it fits into the rest of the d5 ecosystem

also i mean they just launched a week ago and uh it's a completely separate system like but it uh it also gives you a way of decentralizing your front end if that's what you're maybe asking so basically it's uh even though it's this like a standalone system it has this kind of nice feature that you could also just use it for hosting front ends which can then communicate with ethereum based applications and that guess or i think this is also something that the dfinity team is is pushing uh so uh i mean it's like kind of a bridge uh front end being hosted on dfinity and the back end being hosted on

ethereum for example because it enables you to sign transactions and send them to uh like the ethereum network in that sense yeah i read a bit more about the internet computer that just kind of launched right up in the top ten uh basically kind of bridging um you know traditional web 2 kind of with web3 while ousting the the current layers of aws and such that that we have currently kind of similar to pocket um overall a huge niche um that is really are up it's going to be a obstacle in this route to self uh to full decentralization and self

custody of funds because if you're if you're still relying on these traditional providers and obviously you know how how custodial are you and i think this comes big into you know getting bigger players into d5 um kind of like these questions of like you know how decentralized is it or you know how does how does the security work like all these things and we just saw ave um launched a permission pool kind of for institutions um super interesting there i'm curious if you guys have kind of reached out to any institutions or if you guys have thought about trying to bring on board like you know big big money from big players into into um yells protocol and like what that looks like i guess we haven't actively reached out

to big institutions but i just got some inbound interest from some asset managers based in germany who are very interested in equity due to the high yields that people can still make there and they have access to people like with significant amount of funds but who are not technically or not technical enough to use a blockchain application and they are now really interested in building some new front-end or something that maybe they would even manage for their customers so that they could create this kind of onboarding facility for non-blockchain native users of our system

yeah and yeah i was just going to add on to that one of our our big areas of focus so far was number one getting liquidy out the door and then making sure it worked uh so institutions weren't at top of the mind there and then now we're in a situation where we're still trying to continue to grow borrow side demand and lusc demand within the d5 ecosystem so a lot of that means just working on integrations building out liquidity across you know various different platforms and making sure that lusd is kind of in all the right places so that eventually whenever we can pivot to uh sort of focusing on like institutional adoption and stuff the infrastructure is there for them to use because one of the last things you want right is to run a pilot program with an institution and there there's no way

that they could practically port that over to the real world because the infrastructure is not there for them uh i've we've seen it happen a lot in this space where sort of somebody tries to bring an institution in because they sort of over-promised and then under-delivered and then the deal falls through right and so i think that's one of the big things to consider uh going into the future is just making sure that i guess it's advice for new projects to make sure that you know your infrastructure is in place first before trying to big and bring in sort of the big dogs i guess because ultimately they need to go from pilot to real world and if they can't practically do that then it's just not going to work out yeah i i i kind of see bringing defy to the masses

uh in terms of people is is more important for the broader community than it is to you know onboard a bunch of institutions right now um but without a doubt you know we we kind of front ran the institutions but now we're going to kind of call on them to come buy our bags basically to keep the party rolling no yeah i think i think institutional adoption is necessary in the long run but i think it's almost on a per project basis so like ave for example they've been around for a long long time since you know like 2017 maybe even before uh when they used to be ethan so they've had a really long journey to get to this point to where they can start having those conversations uh we're just really early on now uh so you know hopefully hopefully they walk

so we we can kind of run and hopefully it doesn't take you know three years for us to to get to that point because of the way that you know all of these projects that sort of pave the way for everybody else uh but yeah i think i think when we're ready we'll we'll eventually get there and and we can bring institutions in and you know they'll actually be able to use this stuff rather than uh you know needing to have their hand held um even in some ways you know hopefully like there are sort of organizations that pop up that are willing to create these sort of um i don't know like custody type solutions for institutions and the teams themselves don't actually have to do that right they can just build out decentralized protocols while everybody else works on white label stuff on top of those

protocols yeah so i think that i think that really just like speaks to the demand that is still out there um you know the fact that that people want access to these kinds of products um especially newer ones that provide yield on something that you know has already existed for a few years like ethereum um you know people want access to these projects but they're either not technically inclined enough or just don't have the uh time and energy to go spend on educating themselves you know the bulk of the market being i guess the retail market um doesn't have someone there to kind of build themself a custom front end and improve the us ux experience

uh to something that's more intuitive that they can use um which i guess you know is kind of like that slow trickle of of demand that starts to come into the system as new products get out there they can iterate from the feedback that you know you guys get um and then you guys are able to kind of work with these other teams that improve the ux to an extent that other people can can now dive in that didn't have access before um you know the the composability like it it just reminds me of what uni v3 did with their aggregators and now you know there's going to be different projects building front ends that tap into unit swaps liquidity so dude that's a crazy thought like is it possible do you guys think to aggregate

um the liquidity from if we took all of the lending and borrowing protocols in d5 and there was a lending and borrowing aggregator which basically used the the liquidity from all of them um to basically provide these institutions with massive loans and massive and massive uh positions now a few things that immediately come to mind before you guys answer i think is uh there there's obviously a lot of different tokens on a lot of different protocols there's different stable coins and a lot of different protocols and there's different stability fees and rates and kind of the way they're all set up um so yeah i'm kind of curious what you guys think of that as far as as a possibility uh for you know large players and to get

the best rates yeah i guess we have to maybe distinguish between two types of boring or lending systems like one is the type uh compound or ave which is issuing or which is learning out existing tokens tokens not created by albe or by compound itself and then on the other hand we have maker carver and liquity who is issuing its own stable coin our own asset to be loaned out and now those systems they have uh they could basically mean as much liquidity as they they can like there is no upper limit it's the only limit is the amount of ether available or whatever collateral you accept

in your system so i guess in that sense there is no need for any aggregator because there is already like a theoretically unlimited supply of assets that you can borrow from those systems on the other hand yeah for other compound and like the match the pool based systems that are matching uh pools of boroughs with pools of lenders i mean of course their um the supply in a sense is limited it could just make sense to aggregate them so that maybe a large institution that would borrow too much from one asset could then get it from multiple providers in a sense yeah and tools i'm sort of like bullish on in that regard i

guess are tools like instant app right that let these sort of large holders migrate back and forth between different protocols and different positions based on you know their risk tolerance for a given time frame or just their need to save money um so like i know instant app has these like one click migrations from like maybe it's aveda compound or maker to ave or whatever it is and so if you can sort of just provide that infrastructure for them they can go through the best rates and stuff on their own they're already doing that in-house anyways they're looking at you know what are the best opportunities for our organization or whatever it is and then if they have the tools to be able to easily migrate back and forth between these protocols in a few clicks then it ultimately aggregated aggregating everything underneath

doesn't really matter so much as long as there's some liquidity for them to exchange in and out of stable coins or exchange in and out of assets yeah that kind of that kind of i guess shed some more light on on just how i understand aggregators right because there's already arbitrage opportunities and arbitrage traders making these moves out there and it's almost like an aggregator uh type of exchange or decks or or instadap you know where you can just migrate between these positions these type of like aggregating functions are essentially just arbitraging the market um you know automatically they're already checking for like the different

the different possibilities so um i think something like an aggregate aggregator is definitely possible like you said it's already out there um and it's really that that's the thing that's kind of narrowing these margins and and ultimately making the system a little bit more mature um as those arbitrage opportunities start to decrease and decrease yeah and the point of the aggregator is basically capital efficiency and getting the most for what we currently have in d5 right like the whole point of using one inch is to get the best rate so that way you can save some money pay a little bit extra on gas costs and similarly you know to this idea of lending and borrowing protocols is basically to be to get the best rates um to have like the deepest most liquid books so it

kind of seems like there would be one for each kind of subset of lending and borrowing protocols that robert had has described and um yeah it seems really interesting and kind of on on the note of capital efficiency one of the one of my favorite things about um a protocol called lido finance is they allow you to stake in the kind of 2.0 proof of stake concept and then what you can actually do is you can take the st eth token and deposit it into pr into like cream um you know to use and to collateralize so you get you basically have interest-bearing eath that is now collateralized uh is there a future in which uh uh eath that is collateralized in

uh in oh excuse me guys alex check that one out is there a future where the east that is collateralized in liquidy uh could be used elsewhere um as far as uh obtaining the maximum amount of capital efficiency for those who choose to use uh yeah so like for the time being liquidity is only allowing you to use standard ether as collateral and basically the collateral that's inside the system cannot be used inside other systems like that can be seen as a

limitation but it's also i guess something which makes the system more secure because it's uh yeah you know that you always have the ether available you're not right re-hypothecating it but we are now looking into like new ideas or new systems which are much more broader in scope uh like which would allow you basically to borrow any asset like existing asset not just our own stable coin and there we would also be much more uh accepting when it comes to collateral types and accepting some interest varying tokens be it like some little based uh staked ether or or something else like aceto control

compound and that could be like really interesting because yeah then you already have some interest bearing token inside your system uh like as collateral and then you get a loan against it and like the learning or boring system doesn't even have to care about rehydrating it or putting it in some some vault or somewhere else because it already has something as collector which is accruing value over time yeah that's something we are now actively exploring yeah and the big thing with those is just like risk isolation right in the current liquidity system i mean it's completely immutable so we can't change it now but in retrospect if you think about it like all of the risk is shared by everybody kind of in the system

and as soon as you start introducing new collateral types that becomes a lot more difficult if you think about the way maker adds new collateral types for example they have to do pretty lengthy risk assessments across all of those collateral types each most of them have different parameters they have different debt ceilings they have different stability fees and so liquidy doesn't really uh or liquidity in its current form right the immutable version doesn't support uh all of those things and so it just makes sense to have as the sort of one asset that it accepts as collateral the one ass that people can borrow against and the one asset that people have to uh do a sort of risk assessment on right and that makes it a lot uh sort of easier to wrap your head

around as a borrower or a user yeah maybe that's a good point and one thing to add is that i mean we we are not only a boring system we are also trying to issue like the most decentralized stable coin that that's out there and and and for that matter it it is a bit um like critical what kind of collateral you accept i mean we didn't want to go down the route that maker took by accepting centralized stable coins for example as collateral because that would render our stable coin less decentralized so yeah i mean we had like multiple goals to fulfill at the same time so that's why we opted for

being very restrictive and very conservative uh for this current liquidity version where is a token like wrapped bitcoin in comparison to say um snx on your radar as far as risk management goes like like is rap bitcoin more or less risky in your opinion as collateral type than say snx or ave token or or uni uh yeah that's i mean it's hard because we haven't analyzed them now in detail yet yeah but i guess uh like for red bitcoin it really depends on the wrapping like if you really mean the the wbtc or there's randy

maybe there are others i mean bitcoin itself would be like a really great collateral but i mean the question is how much uncertainty the wrapping mechanism adds to it we haven't like analyzed them all in detail so i cannot tell you too much about that but i mean there are other tokens that could be interesting like uni for example i mean of course they it's it's something which has a large enough market cap or a really large market cap because that's another aspect we need to take into account i mean we cannot accept something as collateral which has a market cap which is much lower than our the market cap of our system or like the the size of our system because that would may destabilize the token that we want

to be stable as a collateral at least to some degree yeah and it sounds like decentralized and is another like core value when you guys look to add collateral um ethereum being pretty much the most decentralized coin um and then you know depending on the wrapping you have different versions of wrapped bitcoin that can be more or less decentralized than others um hey that makes me think of doge doge is probably a really good collateral yeah that will be the only next collateral hey so do you guys think that doge is going to flip bitcoin or what absolutely not um i think i think well actually you know i say that and so now

it's going to happen uh but it's one of those things where like i mean these these market cycles happen quite often and so i mean everybody thinks everything's gonna flip bitcoin at some point and and we always never get there um i think if any asset has a real chance of flipping bitcoin uh you know i'm not biased or anything but it's probably going to be eth i just think you know the ethereum network has grown to a point to where uh it's outpacing bitcoin and so many different metrics that it's like almost laughable at this point that they're not closer in total valuation and so yeah i i don't know we'll see how you know the market plays out and how these things go uh but what about this thesis though colton if eth passes

bitcoin what's to say doge can't pass bitcoin yeah i know i i listened to uh a recent bankless episode where three arrows capital were making that that same argument i think that episode is so bullish bro that was such a top signal that that entire episode was like such a top signal oh yeah and i i maybe i agree with it i i don't totally know uh it's an interesting point but i mean people brought up on twitter even uh this morning about how uh you know if bitcoin fails and the whole space fails and i think uh that's just like fundamentally untrue uh mostly because ethereum has created a lot of separation between itself and the rest of the space to where i mean everybody is competing with ethereum and nobody's competing with

bitcoin anymore yeah so it's just hard to make that case but yeah i guess we'll see yeah that that point aside like whether it kind of creates well whether whether it kind of brings the whole market uh down with it if it does fail is anything under like the number one crypto of failure for bitcoin is there like a certain market cap or is it just like bitcoin has to be the most expensive cryptocurrency for it to be successful yeah i i don't agree with that at all right like who cares if bitcoin's number three or whatever like that's like being mad that i don't know the internet like surpass gold or something or like you know the value of the internet

surpass gold or something it's kind of like trying to make that argument and like gold never died right gold is still around uh robert i don't know if you have thoughts on this for kind of poetic on the philosophy of this stuff yeah i mean just assuming that bitcoin will never change it's like proof-of-work algorithm i guess that this could become an issue for them like at some point the environmental risk would probably or many people would probably prefer more environmental friendly alternatives be ethereum 2.0 or dfinity or other systems so i'm not sure like whether this power like proof-of-work based mining has like a future

like a long-term future maybe it will be very prominent in the next few years but like in 10 or 20 years from now i have big dots yeah and not to mention like i know the bitcoin maximus like two um i i'm trying not to be offensive they like to pretend that everybody really cares about uh this 21 million number but i mean at the end if you ever talk to a normal person i promise you they do not care about about the total supply of bitcoin the normal person thinks sheba coin is cool because it's like going to the moon right so like we have a long way to go before the mass population is worried about uh whether or not there's 21 million units of a particular currency or something

i would much prefer uh the model that eth takes for example where they do sort of minimum viable issuance and make sure that the network is fundamentally secure they make sure that ether is a productive asset and they make sure that the net network actually has serious adoption and innovation and research taking place on top of it and so i don't buy into the idea that you know bitcoin fails every everything else fails because if that's true then what are we you know doing all of this for we might as well pack it up and go home now and just see what happens with bitcoin yeah i think i think the largest issue with eth is like the gas fees and stuff but that's just a testament to what kyle davies was saying on that same podcast as far as just pure network activity and effects

and that you know the high gas fees on youth is almost extremely bullish for you you know based off how many people are willing to pay that these fees you know to use the network but that brings us to the question of layer twos and this defy summer that i'm pretty sure that we're about to embark on here as we get going uh with layer two so i think optimum or arbor trims coming out the 28th i believe um and then i think optimism is sometime relatively soon we got polygon popping up and a bunch of other um a bunch of other chains are doing well uh as well what's y'all's overall take on l2 for the current uh d5 ecosystem like i like a more specific question is like when is gas going to be solved

like when is this going to be as like yeah it's hard to say when this will happen or whether l2 will be the savior for the gas cost or whether it will be ease 2.0 um but what i can see is that i mean we now have like as you said like a few options and which is not necessarily the best thing because i guess you you only like you not only need to have a technical solution with lower gas costs but you need a system or like a layer 2 network which allows to in communicate with like which has an ecosystem of its own because what we have seen with those optimistic roll-ups is that when whenever you have to go back to the main

chain you have to wait like seven days or something and that that's not usable so the only way to make it usable is by creating an ecosystem on your layer 2 solution and fragmentation doesn't help there too much and but i guess like every system that somehow moves away from the main chain already helps the remaining protocols or applications on the main net to be more gas efficient because uh as uh like the transaction load uh diminishes you can also benefit from that so even like by staying on the main net you may benefit from a gas cost decrease yeah and from a liquidy specific point of view um it it's

not as easy for us to just deploy liquidy on every single l2 maybe as easy it is for like a dex for example right they can kind of just deploy on every single l2 and then let the liquidity build up there for us there's a lot more things to consider before you know deciding you know if we want to launch liquidity on an l2 and then what that looks like just because of the way that liquidy is designed when it comes to the stability pool and redemption there's a lot of economic mechanisms at play that you know if they're not sufficiently supported could maybe introduce instability to the system and we want to avoid that right so we want to make sure that you know if liquidy is ever launched on an l2 um that it makes sense for liquidium for the rest of the ecosystem and

there also has to be just other stuff there right you don't want to deploy a system uh to a barren wasteland essentially so it's nice for us to just kind of watch how the l2 ecosystem develops or the side chain ecosystem develops and kind of see where the liquidity goes see where the users go uh maybe even see how some interoperability between these sort of ecosystems goes and then if we want to make a decision make one from there but you know i think if if any ecosystem more broadly can figure out the gas fee situation it is the ethereum ecosystem i mean the amount of research and innovation going on in this space is crazy so i i don't doubt that we'll have it figured out to some extent in the near future do you guys um i i guess this is kind of

fast forwarding through the l2 race um you know since you guys are income you y'all aren't super concerned about it because like you said it um there's a lot of things for you to consider um and it's not like you know just popping out on on every l2 is gonna is gonna benefit liquidy um so kind of fast forwarding through the the initial l2 phase um which i i really see as like kind of the next few months leading up to uh 2.0 i think is going to be the kind of l2 season if you will um you know as if main net still has significantly higher fees you know the l2s are really gonna flourish but you know once we eventually do get to to eat 2.0

um you know i expect l2s are going to have a little bit less volume as the main chain kind of has some lower fees how does that affect liquidy um you know if people are staking their eth on you know in a validator node to gain those types of fee rewards um do do you kind of expect some some uh drops in liquidity on liquidity uh you know okay maybe kind of speak to the consequences of eth 2.0 uh when it comes to liquidity i can definitely see some kind of competition by eve 2.0 because like due to like the staking reward mechanism you you now have a new player or a new way of

earning yield on your ease though it's a little bit different because like it's taking you always have those uh penalties like that you may face if something goes wrong so it's not risk-free at all um while in our system like as long as our system is block free essentially like we can offer risk-free yields like risk-free in the sense that of course if you stake luz for example the stability pool the lusd should like always be stable because it's really designed with this like kind of hard pack mechanism like it cannot become really it cannot depreciate while you get back the iq divide tokens in return so that's like a risk-free yield on your wreath um it may not be as high maybe in the future as

the yield that you could get on your eth too but i mean the stake if but i mean it also has different risk parameters yeah and yeah that was the the point i was going to go into is that there's going to be different types of users with different risk appetites with you know different uh interests in how they want to like go about earning yield or doing whatever else and so for some like borrowing or leveraging up might be the way they want to do that for others it might be staking in e2 for others it might be just lending out their ethon something like compound or ave you never know right so there's always going to be various types of users uh fortunately if justin drake's uh sort of ultrasound money beam continues to take off the value of e depreciates over time and that means

just because more eat is getting uh sort of sucked into all of these different sort of liquidity black holes uh the price of each goes up and people still have uh more bar sort of more borrowing power per each and it doesn't matter if the amount of eth per se is less inside liquidity but the dollar amount is higher it still it still ends up being you know sort of beneficial for liquidity in the long term just because people can continue borrowing against their appreciating asset uh but yeah i think it just depends on how all of that stuff develops and as more people stake in eat 2.0 uh you know the yields there go down i mean i think even now it's at like seven percent or something like that and you know people just continue shaking and

continues taking then it's only going to go further down up to a certain point and so you know people are going to want to capture opportunities elsewhere and they can do that through liquidity by you know borrowing against their eth using lusd to hopefully in the future lend it out or provide liquidity on curve or do whatever they feel like doing uh so yeah i think we'll be fine um i think everybody will be fine when it comes to where eat is going to be allocated just because the ecosystem is going to keep growing uh not everybody is going to want a stake there's a lot of overhead there and not everybody is going to want to take a yield haircut by depositing through a sort of custodial solution like coinbase or wherever else

nice yeah so it sounds like the d5 flywheel in your opinion just kind of continues to perpetuate on um kind of you know with with the ultrasound money uh thesis um you know east becomes a deflationary asset so just because the east amount itself is going down um assuming that the the price keeps going up there's actually more value being staked um which you know it is healthy for d5 as a whole because more collateral means more borrowing opportunities more borrowers mean more buyers and then more buyers you know i mean prices go up because people are buying so that that's kind of the idea behind the d5 flywheel and it sounds like heath 2.0

um you know although it might fragment liquidity a little bit it's not going to uh like silo this liquidity in a way that's going to prevent composability and just consistent lending and borrowing throughout the entire ecosystem yeah so yeah i mean that that's certainly healthy and uh you know that compounded with the reduction in gas fees um you know ultimately just reduces friction in the system yeah as i mentioned like earlier i mean we are also now exploring like new ways or new systems that could uh accommodate other collateral types including like staked derivatives and uh like which would allow you to have both

the best of both worlds in that sense yes steak teeth derivatives are a killer killer app i think and what eventually probably be a killer collateral yeah definitely i mean that's like like one of my favorite collaterals on albe right now is x sushi because it's just it's it's sushi it's earning like 10 a year five percent a year and then you get you get to collateralize it i mean it has an awful ltv it's like 25 uh as far as your capacity for borrowing goes but ultimately yeah interest bearing collateral assets are are i mean amazing and then if even even more so uh with this with this flight to l2s if you can get interest-bearing collateral

assets but also you get a liquidity mining reward on top of like ave automatic for example um right like these like these are uh these collateral opportunities are something that i think like these institutions that we were speaking of are like gonna froth at the mouth that because it's like it's just it's not available like this elsewhere like there's just nothing um you know so i think that's that's that's something that's super exciting um speaking more towards what you guys are building what's coming up for you all in the uh rest of 2021 um you know what are you guys trying to accomplish uh-huh yeah yes sir there are different things there maybe colton can tell a bit more about like our integration efforts uh which are centered around

like the current protocol version but as i mentioned we are already working on something new i cannot tell you too much details because it's like still uh under development it's in a very early phase but what i can tell you is that it's like about borrowing against multi multiple collateral assets and the things that you borrow would also be existing assets so you can theoretically borrow any asset against any other asset interest-free and at a very low collateral ratio so that's the value proposition of course uh it's not as easy to achieve so that's why we have started back with our simulations to just see um like whether our early ideas were cat or not um but they look kind of promising yeah

just to add another disclaimer to that when we say early we mean early like really early but anyways for like i guess for the rest of the year um on on sort of my end of things like we're really focused on just continuing to grow lusd adoption because ultimately that grows borrow side demand option and the other part of it is just raising awareness so i really focus on integration is really focused on getting lusd into the hands of more people uh part of that means like you know getting listed on different money markets whether it's compound or ave but also making sure that we're available in various dexes uh making sure that there's tooling and infrastructure available through things like instant app or deep by sabre or xerion or wherever else the other side of it is just continuing to grow uh our sort of front end

ecosystem and making sure that our front ends are sort of you know moving the needle forward as far as like what tools they offer the looks they offer these sort of features they offer and then the sort of last side of that i guess is just the marketing side so continuing to raise awareness of liquidity more generally one of the things that you know it's no secret that you know one of our biggest i guess competitors in a lot of ways is maker and you know whenever you're going up against somebody who's who's so large and it's been such a mainstay in the space uh you have to make people make sure people hear about you and so we'll be focused on a lot of various marketing efforts sort of going into uh q3 and then hopefully into q4 and then especially at the turn of the year we'll

be ramped up pretty big in that regard just making sure people you know know what liquidy is sounds awesome looking forward to seeing the growth and being an active player in the space with you guys um great great podcast guys thanks a lot for coming out um yeah any closing thoughts rob no man this was super and i think we covered a lot that is just pretty helpful to uh the the space and newer members as they come in as well as kind of more experienced guys that have been here for a while um you know with some of the different products that are coming out now especially that that synergize a lot across the ecosystem um aggregators bridges um

and you know things that kind of go cross chain um there's plenty of opportunities out there like arbitrage opportunities and different staking opportunities um so yeah just just i i mean my advice i guess is just don't be afraid to you know test things out um obviously do your own research but there are so many different niches in in the ecosystem now that to kind of crawl into one of them and stay put i think you know it is really damaging um to someone's growth as like kind of a degen you know and a d5 vision like you got to keep learning that that's the name of the game no yeah that's totally true and you know one of the i've had you know a lot of i guess real life friends come up and

you know ask how to get involved in the space and stuff and literally the best way nowadays is just get your hands dirty listening to podcasts like these going and reading blog posts keeping up with all the newsletters hanging out in discords you know if you're doing all of that you know before you know it you'll be pretty embedded in the space and who knows you you'll probably end up with a job somewhere because i mean there's too much demand and not enough like talent all around so you know if you if you're looking to get into space there's never been a better time i don't think there's just so much going on at the same time so it's really amazing and uh yeah i mean it's hard for those newcomers a bit because they they have to learn uh not not just one thing but like they

they are immersed in a in a whole ecosystem where the target is moving all the time and yeah but that makes it also like appealing i guess to many people it's this like learning process that never ends yes never have to get off the treadmill in a way it's just kind of always running running for the carrot but you know it's super rewarding so i i definitely recommend anybody who's like had thoughts about trying to get into the space and get involved just dive in at first and see what happens it's all about the drive who cares where you're going exactly all righty gents