EthCC Convos: LUSD v2 Launch & Building Resilient Stablecoin Designs

Transcript

foreign protocol that lets you build crushing applications and experiences in a secure way Rob and I really enjoyed their Tech because they don't add any new security assumptions on top of the connected change as they don't rely on an external validator set or an oracle security is definitely Paramount in D5 so we're excited to work with connects hope you enjoy this video what's going on guys welcome back to ECC live here from outside of the media room because you know things get a little spicy sometimes but here today with Robert and Michael from liquidy I remember our first one of

our first interviews on D5 slate back in 2020 was with Robert when they just launched that was uh a bit a bit uh of a throwback now but it's been great to see them launch their V2 here in Paris I just want to give a quick uh introduction to connects Network allowing users to swap between different chains without any trust assumptions like other Bridges um also no no Reliance on on any validator sets and they've got some really cool cross-chain governance tooling as well as a account and chain abstraction tooling for adapts so without further Ado I'm going to jump right in and let these two handsome gentlemen introduce themselves and what they're building

hey everybody hi any I'm happy to be on your show I'm Robert lauco founder and head of research at liquidy I founded liquidity roughly three and a half years ago and we just announced version two here at ECC hi I'm Michael um I joined Lickety one and a half years ago I'm now leading the company and I think probably you know Lickety maybe I give a short background Lickety was launched two years ago since then we have the protocol has managed more than 4.5 billion in loans and yeah luckily in the last times uh we're still growing

um despite kind of the the bear market and we're almost hitting an all-time high in in troves so that's really cool to see but we're here to talk about V2 and yeah you want to give a pitch should I introduce it maybe what I can say before before Robert gives a rundown did you lose the video no um I mean since we too we learned a lot we listened also to the users and I think the two things we have seen is that the state Thief has become a reality so that's something we want to address uh with V2 um the pack is also something we want to look at and the third thing I think

which limits all of the most of the stable coins out there because they are dependent on the borrow demand so the stable coins are only minted if people borrow is a bit the scalability so in a bear Market if nobody borrows there is not a lot of supply so these are three key three key things we have seen we have research and now we have announced it here at ECC so really with the goal so we're still in development and plan launch in 2024 but we want to grab the brightest mind in in the space to give us feedback to help us improve it and also get the user feedback um yeah to get the best products out

there for stake if Believers and holders uh yeah I'm happy to uh tell you a bit more about how this system is supposed to work so it all started with analyzing the stablecoin tri demo which basically says that you cannot be scalable decentralized and robust or yeah resilient at the same time so we looked into it and found out that there were already some interesting Solutions out there with like protocols that had their own kind of Reserve something like kind of a decentralized version of the maker spec stability module where people could come in mint or stable coin at one dollar that kind of as if it's always worth one dollar you can mint it like by

providing some volatile asset and also you can redeem it basically whenever you want but the problem with those protocols was that they had they needed some hedging mechanism to make sure that the reserve asset which is volatile kind of always remains above like in total value above the outstanding cybercon Supply in order to guarantee this Redemption facility so we looked into that and we came to the conclusion that we need to make this hedging like to make sure that the the system can offer like a hedging product to other users which is inherently more attractive than what is currently out there and we found out that by adding principal protection to the hedging product we can build something like a leveraged product which is not just

interesting because it has an amplified upside on eSource state but it also comes with a capped downside like it it makes it also suitable for the risk covers investor and with this product we also had a second Innovation which makes sure that the protocol itself doesn't have to pay too much to guarantee this principle like it's kind of an insurance mechanism but instead of just paying out the insurance whenever somebody claims it we have found a neat way of integrating a secondary market and the subsidy mechanism which basically makes sure that you can sell your position on the secondary Market at least for its principal value and by integrating these two innovations principle protection and

this need way of making the insurance cost efficient for the system we are now confident that we can solve the stable control element and build a stable coin that really scales with user demand yeah I think it's quite interesting to uh to hear more and more about how kind of the the Rumblings of the last year year and a half have have kind of changed the the mental models and the focuses of kind of building out the uh the resilience of liquidy and you know this has been a recurring uh theme from a lot of the conversations that I've had today I've you know I've heard a a lot of pivots uh you know hard pivots changing in in entire models um you know we've we've had a pivot so

there's been quite a few uh of these tests if you will that that each bear Market kind of puts on the protocols um and you know it's good to see that you guys have thought through about creating a better incentive incentive design to kind of solve that trial level right because we saw a lot of kind of downfalls in in various stable coins over over the last 18 months um and frankly kind of iterating on these on these mechanisms uh is going to be crucial for the next bear market so that you guys will be extremely resilient and kind of ready for that um now with V2 um you mentioned that it's going to be you know a work in progress what is that um what is the kind of test net look

like what is the feedback process look like how can I how can our community get involved give feedback and and uh participate in uh in V2 now yes I think the easiest thing is really to follow our Twitter and we have a separate Discord channel so first we will try to to bring people to specific problems and then open up more and more as I said there's a that's a work in progress so August and September we'll look at different things we do some ux testing uh to understand does the product work for retail how could it work we are doing extensive modeling of the Dynamics because it's a whole new Dynamic we have some pricing stuff we do so I think that's how we want to

approach it I think we're a small team we can't just open up and kind of uh cater to the entire Community about bringing people and and kind of grow the the builders around the the coating that is already there yeah definitely um cool yeah it's good to see so next couple of months there'll be opportunities for specific kind of challenges or specific missions should we say to kind of try out the product give give feedback not just a more friendly question like are you guys proud that LUSD survived the stable coin Carnage like how do you feel about just the overall uh yeah let's say resilience of of the mechanism yeah definitely I mean Leo Z has proven to work quite well under various market

conditions and very difficult market conditions as well so I think it was like one month into our launch when there was this flash crash and more than 300 positions were liquidated one very big position wasn't I'm sure some of you will know which one but anyway like it just to say the protocol proved to be very resilient in those scenarios and then also later down the line line when the bear Market hit the whole crypto space liquidy just kept on working and even though I mean the LUSD spec has not always been completely perfectly stable but um overall I think yeah it has proven to to work quite well under many different situations

yeah maybe just to add on that I mean it's amazing to see um how also the value that you at the end set out to which you wanted to cater to which uses the real resilience the decentralized front-end how this was really Visionary and we are kind of the only decentralized stable coin major stable coin kind of catering to that need to be unstoppable um and also have these great properties we just recently were rated a by by Blue Chip and I think there's only Gemini and poxos that kind of cater in That so I think that yeah made us really proud and yeah and also seeing that growth so I

think that that's really an achievement yeah I I haven't been there but but it makes me proud too yeah I mean that's what I was getting at Good Good Vibes right yeah it's it's it's good growth um now unfortunately I actually was not able to make it to stable someone I just got into Paris here on Sunday but I'm sure there was some really really great talks Innovations and kind of just mental Loops that opened so I know that you guys were there I know that you unveiled V2 what other cool Innovations outside of LUSD um in the stable coin Market did you see or kind of what was the General theme of conversation was it around the resilience was it around the the peg was it around that kind of

um you know making it through the next bear kind of what were some of the conversations and interesting innovations that you guys saw I mean one interesting conversation about about like censorship resistance and how different stable coins tackle this problem I mean many stable coins have some elements of governance or elements of mutability while let's say our LUSD is completely immutable and yeah there was a lively debate on that um with our very own token breeds defending kind of the censorship resistance standpoint which was I think a very insightful discussion I mean of course there are trade-offs everywhere so and many different views on that so that was one thing and then of course go

was unwield on the same day I guess which was also a big achievement and an interesting project to watch out for yeah and overall I think steak Thief is a big topic and yeah just recently there are so many stablecoin launching so you can talk to people it's gonna okay we have a stable coin and it doesn't that in there so uh that was interesting to see I still think we need more Innovation you know uh I felt there is a lot of the design that is recycled so also liquidity is used for a lot of the state if a protocol which is cool just to see this is a battle tested design we're now a top three most forked protocol um but I would love to see more

Innovation like we have seen with curve USD I think that was really something new something we try now to go from a CDP based model to a reserve-based model um yeah so overall uh I would wish that there would be even more experimentation more bold moves in the stable coin space yeah and I think frankly that that kind of stuff happens when speculation is a bit more uh let's just say ripe um you know people tend to fork and deploy just experiments more so I'm sure we'll see new ones and I'm sure we'll see some succeed and and pass the test of time and also you know we'll see some kind of uh slowly kind of dwindle down or fail out but you brought up curved USD which brings me to another

interesting point about some D5 mechanisms which when we got introduced to compound and Ave back in 2020 and even with uh liquidy there shortly after the liquidation mechanisms for these uh collateralized positions was much better than trading on a bitmex or binance Futures right you got liquidated and you often lost just 10 in some cases five percent of your collateral you know and you had some time to kind of pay back your debt curve just launched curve USD with this soft liquidation model I also just talked to ZK land a money market on Stark net which um basically is taking ave's model but let's say your health actor drops to 0.98 you can only get

liquidated for two percent or if it's at 0.99 you can only get liquidated for one percent of your collateral I'm curious about your thoughts Robert on the general uh transition from like harder liquidation mechanisms to more soft liquidation mechanisms in D5 if that's healthy if that's better for users and kind of what that means also from like a protocol level yeah definitely I mean I like the Innovation behind curve USD and how it gradually like unwinds the position and leverage leverages it up when the price goes up again but I think it's also kind of a bit of an opinionated view on it because maybe some people they do not want to deleverage or leverage it based on or in those conditions so I think

there's also maybe a way of having both words where you have uh just a protocol that maybe that is more open and then around it let's say a D5 saver or some yeah automation tooling which does it like that you have like an external tool that basically manages the position for you according to the rules that you may predefine because as far as I know with curve it's like rather like enshrined in the system which is nice because I guess it's more efficient because yeah probably also more gas efficient so there are trade-offs but yeah I really like the Innovation that's happening there and yeah I'm sure that we'll see see more of the this type of yeah protocols coming out in the future

yeah as a uh as a defy Degen myself I am a fan of the soft liquidations uh I'll tell you that much try to avoid those in general though you sleep much better now yeah exactly um kind of wrapping up here on the ethos of liquidy since the beginning um you know you guys you mentioned here Michael the decentralized front end the ipfs kind of Ira I remember going on on liquidy back in the day and even still you can kind of choose which which front end that you want to basically use for your um you know for your positions uh has has that ethos just been you know enshrined in your in your beliefs Robert is that something that uh the entire team kind of carries over

um you know and how does that kind of permissionless censorship resistant decentralized ethos kind of play into your day by day choices yeah I mean that's kind of uh the core of our DNA so to say now that we we are I think really the most immutable protocol um maybe except for uniswap um but uh yeah it I mean it we need to defend it sometimes I mean there are also kind of people who would want to push us to become more open to include like other collateral assets or to like open up for for like changes but then you need to be kind of a bit uh stubborn and just defend adamant and defend your position that no it's probably not the right thing to do even though maybe in

the short run this means some some limitations but I think in the long run um this will pay off because yeah I mean immutability as it is I think also the core principle that uh like smart contract as a concept has offered to the world and we should not like give it up just so easily any uh closing thoughts hear Michael about your experience with liquidy so far you're you're in front of Roberts you got to be a a little bit nice yeah sure no I I'm still uh love the project I think that's how I want D5 C to be built especially the decentralization part you know because in the future I think the there will be

only two ways you know either you go the more regulated license path and or you you go really more the decentralized path which kind of we try to further Pioneer I think the in between will get more difficult and difficult and that's why I like we have to that we have the DNA that we have this differentiation and it really pays off you know we see more and more people um allocating LUSD to the treasury to just divisive diversify the risk and LUSD has kind of these unique properties no other stablecoin has uh yeah and I hope with we too we can follow that path and create now something unique for the stake if ecosystem

yeah yeah I think getting ahead of that kind of LSD Phi realm and narrative being a player in that is going to help tvl users and overall kind of community uh Community uh spirit and um yeah I look forward to doing another interview sometime either next year at ECC or online once V2 is out do some video tutorials and things like this for our audience so thank you guys for coming on and it's been a pleasure yeah thanks a lot it was fun yeah thanks a lot for being on your show