The Fixed Rate Lending Unlock | Simon Jones, Allan Niemerg

Transcript

how do you get that steady state growth in terms of people adopting D5 as their financial system um and for me one of the big things there is just this point around being able to transition from something which is structurally variable to something which is structurally stable and if you cannot do that then arguably D5 cannot serve the financial needs of the whole of the world um uh and that's something that we clearly want to happen and being able to kind of transition so therefore kind of using an interest rate swap or some kind of another kind of fixed rate primitive to move into something that is stable rather than something which is kind of variable is ultimately going to be important in bringing that wave of people into the space [Music]

all right everyone today we're talking about the fixed rate lending unlock what gets unlocked in D5 when you move from variable rate London borrow to fixed rate London bar with two of the best people to talk about this today Simon Jones co-founder of volts and Alan niemaberg founder of yield protocol really excited to have these two folks on today Mike what are we getting into so in the previous two episodes we talked one about the migration from of activity from C5 into D5 then we talked a little bit about connecting to Char's thesis with of a new token distribution mechanisms with um interest rate uh swap unlocks and how that's going to play into the next bull market what we really wanted for this next episode was to to talk to two people who are actually building protocols that facilitate the transition

from a variable rate of interest to a fixed rate of interest want to get in the weeds with what that unlock looked like and how it could play into the next Bull cycle so that's why we we chose the two of them to speak to I learned a lot from this frankly um you'll have to you know listen to the actual episode to figure out what's what's going on but uh yeah I thought it was a great episode yeah here's what I went into the episode wanting to get out of it a like what are just the specifics of fixed rate in fixed interest rates how do they work in Trad five what's the comparison how good is the analogy to tradify um like and then what once you get these fixed rate interest uh interest rates what does what does that actually unlock in crypto like are we going to have like

on-chain mortgages and that's really what I went into this episode trying to learn and yeah got a lot out of it let's get into the episode cheers guys [Music] all right everyone welcome to another episode of bell curve uh Today Jason and I are joined by Simon Jones of uh volts protocol and Alan nimberg of uh yield guys welcome to the show thanks for having us listen to me yeah awesome uh really excited to dig into this episode because we're going to be talking about um you know we kind of hinted at it in past episodes and we've talked around it but but I want to get out of this episode is the exact unlock that fixed income lending provides uh in crypto and I want to get into the mechanics of how that actually works with the two of you and I think there's

no one to do it with uh better do it than the than the duo that we've got here um so Simon as the uh as the indirect or like semi-direct inspirer actually of the entire trajectory of this episode do you want to just kind of provide like maybe we can start really high level and you can outline in your terms like what is the unlock that's associated with the ability to borrow and lend at fixed rates yeah so there's there's a kind of really interesting problem that I think that exists in defy as an ecosystem where uh the ecosystem as a whole it is structurally variable um and this actually exists all the way across the Stag so just to explain that briefly if we go right to the bottom of the stack to your or kind of proof of stake mechanic which obviously kind of

where the vast majority of ecosystems are converging without getting too into the weeds of that you have Supply and dynamic demand Dynamics which mean that the rate of return that validated nodes produce on a block by block basis are variable in nature so right at the base of the ecosystem you have this kind of like variable rate of return coming out of the ecosystem and then on top of that you have kind of just kind of two predominant other layers to that stack uh the kind of second layer being the protocols where obviously the vast majority of protocols at the moment are designed such that supply and demand Dynamics again mean that you get variable rates of return um and then on top of that you have kind

of like either a trading strategies or kind of market makers where even if they're trying to build a strategy that is is kind of Market neutral in terms of return that is still fundamentally built on top of an ecosystem that is variable structurally variable so in it is that kind of kind of trading strategy is highly likely to be variable too so kind of when we look at that at the most macro level and we think about kind of much broader adoption and and how is D5 going to start becoming something more meaningful that it's kind of used by everybody in the world right like that structural stability it cannot continue to exist it only works for a proportion of society

um and when we kind of think about what we're doing at volts uh and obviously what Alan's doing too um what kind of an interest rate swap enables it enables you to transition from some something that is structurally variable to something which is structurally stable and in doing so we expect that to increase adoption around the world I think that's a that's a great great Point Simon and I just wanted to you know I I I think you you laid it out really well um I think also too the way I kind of think about it is um D5 has been in this short term mindset right which is you know there's all these possibilities all these kinds of different things that can happen and and and and new things coming on online all the time and everyone's sort of you

know uh thinking about it I think thinking about the next thing or thinking about the things they're doing on a relatively short-term Horizon I think as we think as people adopt a longer term mentality about what the ecosystem is about what it does and understand the ecosystem and understand how things work better um I think you'll see a longer term mindset begin to form and that'll enable and help unlock I think the the kind of mentality that'll make the the fixed rate ecosystem really really pop yeah I would agree with that I think you know we kind of laid out analogs and in previous episodes as well but if you look at you know Trad fire red like maybe we can get into the market for interest rate swaps today it's an

enormous enormous market right it is a quadrillion with a Q which for my for my tiny uh bell curve size brain it's hard to even imagine how large that market really is um so can you walk us through like when we're talking about the market for interest rate swaps like what is that market why does it exist who are the types of participants that engage in it um just give us a sense like high level of what that is and why it's important yeah so I think trends that is almost there's almost two parts to that answer there's the first which is where does the rate come from in the first place um and I think looking at traditional Finance as an example helps us think about the importance of it in D5 um and then there's like once you understand kind of like where's the rate

come from um it becomes kind of clear why a derivative Market starts to exist around it um uh and the rate markets in traditional Finance essentially just set by the Central Bank um uh somebody's got the FED in the US Bank of England UK ECB Etc um and uh they are kind of use that and basically as a tool to kind of affect the economy and all these types of things um but what they set as the base rate It ultimately affects everybody and what's really interesting with the rate markets in traditional Finance is it's not even the base rate itself is expectations of what the rate will be which is what drives the way in which people behave um and we've literally seen this

recently where Powell for example has come out made some pretty hawkish remarks and like trillions of dollars has just been wiped off the stock market yeah right like and it's kind of insane and and um it's insane in some ways but then it also kind of very clearly leads you on to well this is why a rate a kind of a derivative rate Market needs to exist because there is this kind of variability which is coming off the central banks um and uncertainty and that restricts kind of people's ability to make decisions over the longer term um and that's that's what then creates the need for an interest rate swap Market in traditional Finance uh and like just to explain kind of kind of

very simply how an interest rate swap Works in traditional Finance if you just take a vanilla swap there is someone who is wanting to kind of trade some point on the forward curve or perhaps like the rate of today as they might be entering a fixed kind of selling of sorry buying a fixed rate and selling a variable rate there's a counterparty on the other side in the opposite but if you didn't have this kind of like variability of the kind of way in which the rate was created in the first place you kind of wouldn't really have this massive need for interest rate swaps which comes off the back of it and and the same is very much true in D5 as an ecosystem Simon I like this idea that you brought up earlier of like the the yield stack almost you're like at the very core

layer of defy you have proof of stake and it's inherently variable because of just uh market supply and demand can you just dig into that a little more like what is that like so in traditional Capital markets you have the FED funds right and it's set by the Central Bank uh and the FED like who like what is what does that look like uh for eth right now yeah so it's funny I actually am starting this personal thing I'm starting to call it the base rate for the metaverse um so post merge uh I think state eth is gonna well it will be like in tradify you've got the base rate set by the central bank and that flows through to the rest of the economy I think the base rate for the metaverse I.E State Thief it will flow through into kind of the

rates that you get on protocols it'll flows you to the rates you get from Trading strategy perspective uh even if you think about like say a C5 lending business which I know that kind of kind of not the purpose of the show is to always talk about the fact that no bring them in they're not as yeah yeah if you just bring them in briefly right imagine they're trying to lend to a trading firm and the trading firm has effectively got this risk-free rate of staking Youth and generating seven or eight percent yield like the the kind of uh impact of that as a reference rate for the whole ecosystem is is pretty pretty wide um uh so I think postm when we get the base rate for the metaverse kind of materially changing

um and in many instances or many people are commenting they expect it to almost double in terms of rates which it producers for validates nodes so when that changes uh and it is variable and is important and exists in protocols existing training strategies etc etc actually then having a forward curve that's built off the back of that becomes even more important yeah so is it appropriate to and maybe Allen I can pick on you here as well I mean is what we're talking about here basically creating some sort of yield curve right a defy native yield curve where in the U.S in Trad fire you have this concept of like the risk-free rate right which is basically the the 10-year which is like sort of set by the FED at the at the shorter end of the curve but really longer and it's like it's like what

Simon was talking about like expectations right it's literally like growth expectations that set sets the 10-year rate and then basically all other yields kind of ladder on on top of that 10-year yield right so that's supposed to be if you're if you're lending to the US government that's the least risky thing you can do basically in the world um and then everything else that you do on top of that like if you're if you're taking on corporate debt or Municipal debt or equities or whatever it is you're taking more risk than that so is that what we're talking about kind of when it comes to crypto where you could kind of see eth as kind of assignment to use your like the base rate of the metaverse right like that's the least risky yield that you can take and Define then maybe next one step up from that is

like alternative layer ones that are a little bit newer but they might offer higher yield to induce investors than on top of that right you've got the app layer of D5 right where you're taking even more risk because you're kind of leveraging yourself into into other yields like do you see us building out a kind of a yield curve well absolutely um I do think there's one interesting wrinkle to this idea as as eth as the the base layer of of returns in the sense that you are taking eth price exposure when you when you stake so um you know it I definitely think uh staking is going to set the the eth returns and since Aegis eth is such an important part of the market it's going to drive the market in a lot of other places but uh you know it's some other

rates like stable coins might be you know more reflective of what's going on in the broader economy and you know in terms of the dollar and things like that um but but I think you identified it correctly in that the the construction of a yield curve I think is is where we're going right that is how does how do you know expectations about the rate of return over time um uh evolve and and and then how do you know Traders and economic participants take advantage of that um and one thing I think is really interesting I mean you know as Simon has has you know explained really well is that in important thing here is like what's the base economic activity that really drives a lot of of the rates and I you know it's still you know in terms

of in terms of uh you know I think in the dollar part of the stable coin part of the ecosystem at least for fixed rates it's it's not yet clear what that that economic activity is um and I'm really excited to talk about where it might come from and where it might be um but I think that that's ultimately what's going to drive what what does that that yield curve look like um as it develops and as it grows and just for my middle of the bell curve brain here the yield curve comes from uh the ability to have a fixed rate fixed term borrow and lend of die is that is that where a yield you guys are saying like you know we can create a yield curve is that is that where the yield curve comes from is the ability it's on the back of

this fate fixed rate fixed term borrow and lend Market yeah yield curve is just a a uh mental picture of of plotting out you know what the interest rate for different maturities are so you know you might have what's the overnight rate what's 30 days what's 60 days or you know three months and nine months or a year you know in D5 right now there isn't really much of a curve that is you can't really borrow that that uh that long term uh maybe up to a year um in places um and you know once you get in what we've seen at least in the past is that like once you get past like six months the demand kind of tapers off pretty radically um I think that'll change as as you

start to see you know institutions that have uh that are borrowing for the long term and have like business models that that need to borrow for the long term right now it's still relatively short and you know very very short by traditional Finance standards so let's talk about specifically what the the mark like we've kind of talked about the market for interest rate swaps what is like Simon you were starting to get into this a little bit but like walk us through how this market for interest rate swaps which is enormous right like who are the participants in that like what do people use um who are the like what are the different use cases for an interest rate swap type market and then like maybe we can even walk into an like and through an example of like how that yield gets transformed from a variable yield right

uh into it into a fixed rate yield yeah so again I think it's worth drawing comparisons from traditional Finance where uh because because the utility is still like in many instances fundamentally the same um and an interest rate swap in traditional Finance gets used predominantly for three different use cases uh so the first being risk management uh the second being speculation and then the third actually being product construction which can be uh both structural products for corporates but also a bunch of products of retail and um this is in fact actually I literally did this last night BBQ right there's one of our friends is like what is it you do and I was like have you heard of an interest rate Swap and she was like no I was like well I was like well have

you heard of a fixed rate mortgage and she's like well yeah of course um uh but that like what people don't realize Simon actually what is your hit rate for being like have you heard of a market for interest rate swaps how often are people like yes I'm very familiar with that market absolutely yeah but the problem is like 90 of my friends are like comparable to us so actually the hero is quite high for the for the rest of them it's there it's pretty low but I I was just almost using it as an example in my mind which is that um you know kind of one of the use cases is to build products and services off the back of it which actually have utility to people where they don't know it's interacting with the with an interest rate swap but they

do have utility in that product which they're consuming if that makes sense um I mean you said the same thing really to happen in D5 and it's already starting to take place uh there's like in terms of what we're observing there's people who are using volts as a primitive um to hedge risk um so that could be for example uh just to bring the cflagos back in it could be a C5 lending business where they're promising fixed rates on one side they're lending at a variable rate they've now got a liability on the balance sheet that they want to hedge and they can now do that on chain um or it could be people who are kind of speculating so there's kind of a whole bunch of different trading strategies you can build off the back of rate markets existing in D5 and then the

third is this final one which is around product construction and um like fixed rate mortgages on chain I can see that happening in the future I would love that to happen I think you'll be pretty Monumental event when it does um uh but before that what we're seeing at least is that there are a lot of other products and services which is a really wide spectrum actually that people are starting to build off the back of an interest rate swap Market existing in D5 yeah and I actually really love this this example of a 30-year fixed rate mortgage actually as it was explained to me um by someone in in tradvice that's an animal that you don't actually find in the wild right because uh traditionally like the way that actually gets works

from a construction standpoint is there's some sort of variable rate right like let's say it's Libor that it's based off of and then you get like Libor plus like X percent like let's say it's one or two percent uh and that's that's variable and what you need to do to construct a fixed interest rate mortgage right is you basically because you don't that's the the locked in part you basically need to use options right and you say okay whatever the interest rate of the mortgage is let's say it's Libor plus like one percent so that's two percent these are old you could have gotten this mortgage last year Jason congrats to you buddy uh these mortgages don't exist anymore uh but let's say it's like two percent and then you would want to lock in somewhere higher than that right maybe it's four and a half

percent or something like that and basically what you need there is someone who wants to borrow right at that higher rate and then you need someone who's a Speculator to take the other side of that but what you basically do is taking a a leveraged bet uh on what interest rates are going to do so that's why I like this I I think it's an important concept to constructing people's minds that this idea of speculation people that want to take leverage bets on interest rates and the construction of uh Structured Products they they seem like they're separate but they actually walk hand in hand and I think that's an important thing to point out to folks yeah um so I guess the question is like what does that look like in crypto do you guys think because in in Trad five we can all kind of you know we can point to

mortgages right on the consumer level or like a car loan or something like that that's fixed rate you can at the corporate level you can kind of point to the ability to to borrow right uh there's a huge market for corporate debt that you want to do at a fixed rate like 88 of corporate borrowing is in uh of the the Us corporate bond market is in fixed rates so I guess like moving forward what does that look like for crypto are there consumer products that people are going to want to borrow at fixed rates other corporate products are people going to want our company is going to want to raise debt via VIA D5 markets like what do you guys see on the demand side of the fixed rate Market I I would love to say jump in and just say that uh I I think that you know

right now today you we're building products I think for for defy natives right so so at yield we're um we're building this fixed rate uh uh you know fixed term bargain lending platform and we're doing it for people who are who are native d5s you know so they've um maybe they've used compound maybe they've used Ave and they they want to get a fixed rate you know against eth or something um but we're also I think you know and we're trying to use this this demand for leverage I think and and and um maybe sort of bring out the the advantages of fixed rates right like a lot of a lot of uh leverage and D5 is used for example for yield farming right um and and so in that case you know you're often seeing people looking to

they have some asset that they want to yield Farm you know and maybe they want to borrow against it to increase the to increase the um the returns and so you know borrowing at a fixed rate I think is really great for those kinds of those kinds of uh use cases because you know you can kind of you have you have a good sense of what your costs are going to be and so as long as you can find um uh you know returns that are higher than that you know there's something to be made from that leverage and of course since you're locking in uh your cost you know your your uh that's really attractive you're not you know your interest rate's not going to go up and suddenly make the trade not work so I think that's a really important part of where we are today but I'm really

excited about how um I really think Dows are going to be really important in terms of um uh borrowing demand in the future and especially fixed rate bar on demand because you know if you're building a business you know having uh controlling your costs uh in in terms of interest rates can be important for budgeting um can be important for for a lot of different aspects and so uh and and when you have you know especially for a business model maybe that you know you need to um you know it works really later doing you know at certain cost levels then then I think that uh you know having fixed rate unlocks a bunch of things that you might not have if you you just don't know what you're going to pay in terms of Interest yeah I just to add to that I guess I'd agree is is the

sufficient I mean it defines the relatively nice try like in the grand scheme of things that's probably putting it lightly yeah um uh and I think is the sophistification of the market keeps increasing um like there's gonna be more and more in my mind more and more demand for uh people who are kind of essentially managing risk in a better way um so whether that be kind of kind of fixing your borrowing costs um uh whether that be talent's point from a Down's perspective actually like do you kind of continue to distribute tokens into the future or do you kind of kind of supplement that in a different way like are you taking your debt as a Dao um uh and like the entire ecosystem I guess is it starts to become more and

more mature uh like there's going to be more increasing need for like more sophisticated management around Finance around finances and fix fixed rate borrowing is obviously a big part of that Alan can you just go deeper into that in terms of what that means for for Dows to raise in debt instead of because right now there's only two there's only really one way to to raise Capital which is you know Equity trade equity and or tokens for cash right right yeah right now you know you're you're a lot of dows they just give you know somehow you're giving out tokens in order to do it either right um either selling them you know and then you're using the cash to to do something or you're Distributing the tokens to incentivize something I you know I think it's really just sort of about um you know being what can be most

Capital efficient right like you know um you know and especially right now like for example a lot of token prices are down um you know Dows might not want to give away those tokens um today but they they you know because they they believe they're gonna go up we think you know things will turn around we'll have another bull market um but you you'd have you know fixed costs you know right you have developers to pay or um you know other costs in terms of in terms of the business of the Dow um and so um borrowing might be a good way to fill that need but I think long term um you know um debt is better and terms of supercharging a business right so as business models get figured out you know

and you know like okay if I do this thing I'm going to make money uh and if I do more of it I'll make more money so therefore I want to do more of it but I don't have the capital to do more of it um borrowing is it can be a much better way to to supercharge that because you can you can just you know it's just another line item right it's like okay you know I'm gonna have this cash I'm going to do this thing I'm going to increase Revenue um but you know I only have to pay you know this much interest you know and and that's why fixed rate is so important because if you don't know what the interest rate is going to be you know you you don't want suddenly your interest rate to spike and then suddenly your what you thought would be a

profitable business model to stop being a profitable business model so I think that there's uh you know uh just enormous room for that uh to really sort of take off um it's it's so early like I don't have any like a great example of this happening I mean we really haven't seen I don't think a lot of you know business models outside of you know web3 native stuff move into the space although you know um it is starting to change like I think that there you know there's some wild really interesting things happening out there um one thing that comes to mind that's just totally random is there's a um a dow for investing in r d projects for lifespan extension you know like and they're doing research and and and it's

they're being recognized in the sense that like Pfizer wants to invest in them right like this traditional company wants to invest in a dow because they're doing interesting research you know um I think the the power of the coordination mechanisms that we can create uh in terms of these organizations will unlock new business opportunity and that in turn will be the source of demand that that that will I think drive a lot of what what we're building in the fixed rate space will that drive under collateral will that be the first Venture into under collateralized lending because when when me or or you Al like the the individual takes out a loan you have to over collateralize it because there's no way

to look into my credit right on chain so what do you do you you have an over collateralized loan but with protocols they spit off revenue and there's a smart contract that could getting you know executed if if the collateral is dropping too low so could could this be the introduction like Dow to Dow lending or like protocol to protocol lending is that is this going to be the first Venture into under collateralized loans well I mean uh yes I think so I mean I think one interesting thing about about D5 is it really like blurs the line between collateralized and uncollateralized right like if you have a loan that's collateralized by a Dow's governance token is that a is that a

truly a collateralized loan or is that an uncollateralized credit based loan because you're you're really sort of you know the collateral is the the governance token so it's really sort of a bet on on that doubt either way so I think there's this blurring of that but actually that I think that's that's good in the sense that like there are just all these new ways to structure risk and you know and the risk of a loan um and to distribute you know who has what risks and therefore um you know uh uh who is sits on the spectrum between you know being a very safe uh risk and and a very risky risk that's that's technical that's a technical term um so you know I think I think you know uncloudalized lending

um you know as traditionally known yes I think is going to be in the space but it's going to it's going to look very different or it can look very different I think that that can drive a lot of value just just to add to that agreeing with well everything ottom is saying actually if you're thinking about um like under collectorized learning well I kind of challenge whether it's under class lives it's just collateralized against future revenue streams um so if you are a Dao and you are seeing Revenue coming into a smart contract and that is kind of relatively predictable and you can actually programmatically borrow against those future revenue streams that you know are going to be coming into this contract and could be kind of siphoned off to pay a loan then like arguably you are able

to borrow against those future revenue streams um so this is certainly for me I think it's pretty interesting space yeah I think it's actually it's fascinating because if you look at the again the analog to Trad fights like a collateralized loan would be usually we're used for collateral there if your company is like PP e right it's like your plant your property and your equipment that sounds all well and good but like let's say you're making widget X right you collateralize it with the Capital Equipment to make which X well if people don't want widget X at some point in the future then all that collateral you had was supposed to be valuable that you're supposed to be able to take possession of and flip is no longer good right so that's like the that's the the flip side to collateralize lending in in traffic type

markets one of the things that you guys I think are hinting at that's really interesting for defies like a cash flow-based lending right which is what a lot how a lot of lending gets done um and you can actually say right now if like a bank makes a loan to block works we say hey like this is what we have in accounts receivable this is like our history of Revenue like please believe us that we can pay you back but what you can do in a in a defy crypto type setting is you can actually say here's how I make Revenue uh here's how I've historically made that Revenue you don't have to believe me I'm going to bake it right into the contract that you're going to get X percent of Revenue moving forward it's like a huge risk that gets removed when you do this type of lending

in crypto I think which is yeah an under discussed uh use case I think for um in general but I I think it just hasn't that I think it kind of hasn't had demand there hasn't really been demand for that yet because there's been this massive bull market and like yeah everybody's been focusing on growing rather than optimizing like the way in which the finances of the model work if that makes sense yeah um but I think we're now transitioning into a new phase where it's getting more sophisticated um it's not quite the same kind of uh kind of sentiment around and actually adoption of that type of like product in my mind is just going to be more demand I was going to ask Simon why have I mean Mike said this is like 90 of loans in

capital markets are fixed rate not variable rate but in defy it's all variable still so why have fixed rate loans not become popular so far is it is it market demand right where like early D5 adopters are just inherently Risk Takers or is it more technologically like a tech limitation where you need these mature l2s with low fees like what is driving the lack of a market there yeah I think I mean for me I guess speaking more from a voltage detective I think it's being a combination of two things I think that the first has been timing um uh and then the second has actually been around the technology and from a from a timing perspective uh kind of kind of fixing guild at some into the future I mean that the truth is that

that kind of has existed from like a from a C5 perspective but with the kind of relative implosion of C5 there's like less availability of fixed rate lending um so I think we're going to start to see a lot of that kind of coming on chain um albeit that there are challenges of course around like over collateralizing your position um uh but then the second around from a technology perspective uh like for us one of the kind of key problems that we wanted to solve for was to make an interest rate swap Market as capital efficient as possible um such that like if you think about it from a utility of fixing your kind of borrowing costs like it shouldn't it shouldn't cost it shouldn't be inherently too expensive to fix that cost such that your net boring cost

effectively is way higher um like if you make it capital efficient such that you can kind of fixed with a relatively low amount of capital your net borrowing cost still kind of remains within a relatively or moves within a relatively small margin and that's one of the things that we certainly optimize for and we think will drive to Market forwards yeah I just want to uh maybe you know Echo that a little bit I think one thing that that and as I mentioned during the call you know we've moved we'll see this movement from a shorter term mentality to a longer return mentality and I think in that shorter term mentality you know um the the interest rates or whatever the the the fixed rate world wasn't attractive enough yet um but it I as you have people who have

a longer term mentality come in I think there they will have that that will be attractive to them and the ability to get funds uh for for you know longer fixed rate loans of course uh uh makes it possible to have them in the first place right so there's a you know does that chicken and uh egg problem um I think it's unlocked you know when you have better infrastructure like you know uh um uh these interest rate swaps that that make it possible to make liquid markets uh in these rates that that you can you know once the infrastructure is in place you know the the demand that uh may exist out there but really you know doesn't have a home to go to can start to to come in and can start to to take advantage of that so um you know yeah as Simon said it's been

a bit of a timing problem and it is a bit of a tech problem we do need kind of infrastructure for this and and you know building a straight protocol um proved to be it proved and continues to be much harder than I would have expected uh starting out let's let's walk through that side there's kind of like so we're kind of isolating the problem there's the demand side right you need someone to want to issue uh and setting for someone to want to borrow on the other side like fix that right so there's that there's the kind of demand side of this whole Market that we're talking about then there's the kind of the mechanics right that haven't uh Simon that was kind of what you were talking about there's still some mechanical restrictions on actually making this happen and then there's actually the speculative side of this

Market which is you kind of need a different type of d-gen to want to take levered bets on interest rates than like aping into yield Farms if there's one thing I believe about crypto we'll find that d-gen but like we also need to uh we need that different type of Speculator I think in the space um I'd be curious like I'm talking to two guys who are founders at crypto at protocols um no token I'm not going to ask you one token but I I'm assuming in in the back of both your minds you're you know keeping that as a fundraising mechanism I would say though like if you think about the two different types of ways that you can raise capital I guess there are three now there's like debt equity and I guess tokens right the cheapest of those types of cap of those

types of fundraising mechanisms are our debt that's why you know actually a lot of a lot of the premise of this this season comes from is built on the assumption that D5 Founders will at some point consider raise you know raising Capital via debt um so I'm like Curious you guys don't necessarily have to you know give me any insight into your particular Capital raising roadmaps but like is this something that you guys think about right uh because it is it is a more kind of capital efficient way to do things um yeah I I'd be curious well I think it has to be on the table if it's not then you're kind of not thinking like broadly enough um uh

I don't know maybe speaking for for us is is one of those things well you need revenue streams um and when we and when we think about like faults as a primitive at the moment um uh kind of comparable to UNI swap the fee switch is set to zero right now um so there's no revenue streams coming into the protocol but um like certainly going into the future I like why would you not do that they'd be more Capital efficient and like to Allen's Point earlier if you kind of have landed on a Model where you can pour fuel on the phone you can keep growing it um then raising debt to do that actually is is kind of like a more efficient way of doing it yeah I mean one interesting thing is yield protocol already has debt in the sense that you know when when uh

everyone interacting with it is is interacting directly with the protocol borrowers are borrowing from the protocol effectively and lenders are lending to the protocol effectively so the the system as it exists today actually has you know fixed rate fixed term debt and inherent in it um but it's not it's not you know it's only driven by by usage right you know it's not it's not driven by you know um uh the protocol itself I I guess you know it's possible that a few that future governance could decide like the way to to fund yield protocol you're one way to fund it and make it grow faster would be to you know use the existing debt system that it has and um you know borrow via those channels uh um to to you know obtained cash for for

whatever but um you know and and yield also I think in in terms of what we're doing today like you know we're very much just like Simon and and volts uh it's you know there's a fee Revenue switch but it's off like it doesn't really like the goal is not to make Revenue today like the goal is to create a a useful um protocol to find the the right areas of product Market fit for fixed rates um and then make those great yeah I think that's a key thing as well right um it's just that most most projects in this space are really nascent right there's a reason why you don't see even outside of crypto you don't see two-year-old startups being like hey I'd love to raise some debt it's all Equity financing at that point right because you know kind of that's

what investors they want Equity upside and something that that's that young but also if you don't have fixed cash flows it's really hard to do debt-based financing and I would wonder like how significant that is if that's a big part of the reason why we haven't seen you know debt financing for daos at this point because it's just like right they don't have cash flows do you yeah do you do you know of a dow that has great cash flows because I would I would lend to them not particularly um although the the fee switch is being experimented on as we speak sorry guys yeah maybe uniswap can borrow I would love to I'd lend to them me too sure yeah if the Ellen if Unison what would you actually look at if uniswap Went to went to you like what would you how would you

set that up what's the actual mechanism there well I mean so so in terms of yield protocol we we're trying to build a marketplace right so so uh you know bringing together uh borrowers and lenders so if uniswap's like hey we we want to you know somehow we want to we want to borrow um I think you know I would be like okay how can I help you access the the lenders right like it's not um you know the the way that we that yield protocol sits currently as a both you know you know facing both the lenders and borrowers um uh you know I think it just makes it easier or makes it work better um but you know it's not as a dow it's not itself you know uh being the lender or the borrower uh the ultimate lender

to the borrower will folks end up um you know so like right now you can get fixed rate loans on something like Ave or compound so I I don't know what the actual numbers Ave has a kind of product that that that's it's kind of hobbled yeah yeah so going on well yeah I mean it's this yeah the stable rate or whatever obvious had that for a while I mean it's kind of by Design only a small fraction of what they do because of course if it started to consume a lot of of the capital put into the Ave pools um it could start to really affect the the broader Market um so they've sort of hobbled it price wise from from the get-go like in terms

of the rates that It quotes you they aren't very good yeah the rates are super high it got just deliberately High yeah in fact actually it's interesting you just brought us up because it's uh I didn't win this game ad um uh but we we have recently created Borough markets on Avi and compound um which is going to be announced uh tomorrow so assuming this isn't being added between now then they're good to talk about it um uh and what that and and this is almost coming back to one of the points they're kind of talking about earlier which is like what has restricted demand and I think in in many instances says there's the silos like if you're on Avenue or Compounders as a borrower already like is there a way of just

easily kind of converting your variable rate loan into a fixed rate loan um uh so what kind of vaults is a kind of primitive enables is because it's just a it's just a swap of that rate of return literally with a clerk you can convert your variable rate loan on avian compound without ever removing it you can convert it into a fixed rate loan where those rates are Market driven they are not the kind of like stable rates that exist on have it which are like deliberately artificially high and therefore I haven't really seen much adoption um instead you're gonna if you're kind of borrowing at a variable rate of well it depends what the fault code looks like but if you're borrowing a variable rate of say one percent or two percent um you'd actually expect the

market-driven kind of rate for a fixed rate uh say over six months or whatever to be to be much lower than the stable rates you get on happy at the moment I think that might answer my question but because I was trying to think about so in in capital markets like Mike you said it well like the 30 rate uh 30-year mortgage is not like a beast that exists in nature right so uh like really what happens is you're you know the the bank might have like an interest rate swaps desk and they'll get a they'll get a mortgage and and it'll be variable and then they'll take it to the desk and they'll and they'll swap it um so in in crypto I think Simon you might have answered my question there but do you who's the like for me the user or the Dow is the

borrower like uh where are you going like are you going to volts directly are you going to yield are you do you see volts and yield as like a protocol that sits on the background in the background and then there's basically like apps that are built on top of it so for us I guess well I guess it varies like people can build products on top of vaults that abstracts away the complexity or people can just come direct um uh so if I'm and what we've actually deliberately deliberately done is we've kind of abstracted away some of that complexity um for users so if you have like a variable kind of uh kind of borrowing cost on Avio compound you can actually go to the volts kind of interface and you can just add a click convert that

into a fixed rate kind of debt um uh so you could you could either but for us you could either choose to interact with thoughts directly or it could be kind of somebody that builds that abstraction there on top hmm um so I I've you know maybe moving on because the way I'm kind of segmented like it's always imperfect to Reason by analogy but when I look at like again tradvice and analog there are like three big markets right there's like The Sovereign market for debt there's the corporate market for debt and then there's the individual like the individual market for debt uh the consumer let's call it consumer um so corporate's what we've kind of been talking about maybe the Vanilla Ice for is in crypto for D5 native debt markets we're gonna get Dows as the main borrower right because they're very

similar to a company there's a real need for them to raise do like debt financing I can for some reason see a dow going to D5 markets as opposed to trying to get a loan from A bank can you imagine what that process would look like if anyone's gotten a loan from A bank no way you're getting that it's a dow so they're definitely tapping cryptos that makes a lot of sense Sumi product Market fit wise one thing I'd love to get your guys um just high level thoughts are on if there's an analog to a sovereign debt Market in crypto because really if you think about the biggest sources of yield in Trad five writ large it's not it's countries right it's countries like the United States or China or Russia or whoever it is saying hey I need to fund things that are going on to my country

they tap International debt markets for that right there's enormous you can see like treasury issuance it's like off the charts we're running a one trillion dollar deficit by the way into perpetuity so good for America but um you know those are really deep liquid markets uh I'd be curious if um if you guys see any analog and like the the thing that it seems like we're talking about eth the East stake rate is the new base rate then it would actually make sense that like l1s are the the real creators of yield in crypto and actually that leads you to a weird conclusion where it's like do you ever see l1s tapping debt markets I know that sounds funny because you're like how would they even do that but it is kind of interesting like could ethereum uh which also you can construct a p l and

actually this gets done someone creates a p l for ethereum could they ever tap a debt Market or could that market Spring up will you transform that that base rate that state rate for eth into a more sustainable form of yield like that's what I'm I know that's kind of a weird wonky high level thing to get at but like I'm trying to understand like what is that base who are the real like whales when it comes to either borrow or generating yield and I'm wondering if l1s could potentially be that yield Creator it's definitely an interesting thought I I I think one of the things I've learned with this space is to never take anything off the table so like who knows maybe um it's a polite way of saying but but why not so why not though

because think about it I I think that you know it's your to your government's question right like I you know there's it would seem surprising today for a government to like issue a bond on you know the ethereum network or or some other network like that would be that would be kind of shocking and weird but 10 years from now I mean maybe maybe that will seem like the most sensible thing in the world like you've got because you've got access to This Global Financial market and so you know a government you know especially maybe small governments could could tap demand you know anywhere you know they could go directly say to to you know a consumer in you know the us or the EU and make the the case that you know hey you know we're a a small Sovereign but we're

gonna we're gonna we're really coming up you know we're really you know gonna be doing great buy our debt and you know give us a loan at a cheap rate um that could really change the dynamic of of global financial markets um and you know it doesn't really require any new technology here for that to happen it would really just require a a shift in mindset um and shifts in mindset like that you know they they seem really hard until suddenly they're not so maybe the next big you know step for sovereigns is that not another small country buying Bitcoin right which is what we've seen over the quest last you know year year and a half but actually it would be a small Sovereign that's like choked in existing Capital markets

to say hey I'm actually going to tap defy native credit markets and try to and try that as opposed to what we have in the traditional system that'd be really interesting be fascinating yeah um I I guess maybe to again maybe just close as well with like because I think what we're talking about here right now it really stems from like do you guys see the uh the yield coming from like the real world call it like sovereigns and companies and individuals like taking existing their existing infrastructure and putting on the blockchain or their their crypto native sources for that yield in general um like that's and I think a lot of that is like that's touching like the maker debate for like real world assets like what sort of collateral did they issue die against and um I think I think that's like a big

question when it comes to everything that we're talking about here right because what we need at the end of the day is like demand for borrow and then you need uh liquidity and speculators to kind of take the other side right to transform the variable into fixed and that for that you need scale and so I think I'm very torn I mean I do you guys see the centering around like real world assets do you think we do need corporates and uh you know sovereigns like tapping these markets to create demand or do you think there are ways that crypto from within the industry like we could create that that demand for debt markets there's potential over time for that to be kind of both in my mind yeah um and I think I think frankly it'd be like

you think about how disruptive the technology is like why cannot why does it have to just remain kind of crypto native forever I think it'd be a great shame if that was the case and I think one of the things that I didn't want to just kind of talk too much just from a Volt's perspective but one of the things that we often think about is like these there are these rate markets that can be created like if you think of Youth as the base rate for the metaverse you can create a great market around that um but actually there's no reason uh or there's literally nothing stopping um uh us and creating Trad fire rate markets on chain at which say just for example you could have a Libor index rate coming in and you create a rate Market off the back of that

um and at the point which something like that starts to happen you are really breaking down the barriers between the two different ecosystems um or arguably do device starting to wedge itself like more into traditional financial markets and the more and more that that happens actually I'd start to see like I could see more and more Capital getting comfortable with uh the risks Associated of operating on what is a new technology and over time as more of that happens there could be more assets that exist in the space Maybe real world assets are going to start to become replicated on chain all of this in turn leads to kind of more activity more demand for borrowing etc etc um so I kind of view that as like both actually has kind of in my view like

long term and I think if that doesn't happen then um we've like done something wrong if that makes sense yeah I would say both as well I think the thing for me is I've been pessimistic about real world assets for a while because doing things on D5 just seems faster right like or doing things defy native things faster the the way the the ability to iterate faster is just uh you know means that that things that are happening that are interesting tend to be more defy native or more crypto native or more web 3 native than than traditional Financial assets coming on Shane we do have we do have a very good example of you know of in the form of usdc of a traditional Financial instrument just dollars in a bank

account you know coming on chain and kind of working like it it still exists you know Regulators haven't destroyed it um and you know while things have been you know certainly concerning lately you know around uh you know privacy and you know um sanctions and how all that's going to interact with the chain and there's lots of lots to be concerned about there um it's it seems like you know at the same time like you're actually finally seeing you know this world going from like Regulators just don't like it and won't interact with it and and uh you know want it to go away to being like okay no this is a world we have to interact with and maybe even have to make some concessions to or if not the

regular is making making concessions then lawmakers figuring out how to solve the problem and so you know while I'm still very much of the mindset that I think most of what we'll see that'll be exciting and most impactful the fastest will be coming you know from native uh assets and ecosystem and Native things I think you know um it it I'm actually optimistic or more optimistic than I was in the past about about movement on uh from from regulators and lawmakers in terms of of actually like opening the door to to more traditional Financial products on chain and bringing more real world assets on chain um so um you know uh I'm very optimistic about both I'm curious like the one thing

that's really hard to to first see in crypto is timing right like when does this eventually end up working um and the other thing I think that that we can be pretty certain about is that things don't tend to be like slow and gradual in crypto it's like it's not working it's not working it's not working it extremely works very quickly um so what we're you know what we're trying to get a sense of I think is where if at all you see fixed income lending being an unlock for like the next cycle right for the next bull market which maybe you have a view on Cycles like we're going to continue in this four-year pattern but you know it seems pretty clear we're in a bear market right now and we hopefully God willing are headed towards bull market at some point in the future I can see

the ability to borrow and lend at fixed rates and Structured Products that are laddered on top of those uh that fixed rate borrowing lending as being an enormous unlock for the space uh I'd be curious if you guys see that unlock affecting right either as a catalyst or maybe you know continuing further like the next Bull cycle or like what you think that interaction is going to look like or if you think it's just too hard to tell because of timing I definitely I definitely think fixed rates could play an important role in the next Bull cycle I mean for the last one you know 20 2021 we just weren't there yet there was you know the you know yield protocol was like you know uh was just some code we were working on when compound for

example launched their their governance token and sort of kicked off a lot of yield farming and stuff and you know Ethan Bitcoin started a rally so you know really it was too far too premature to have any effect in that cycle I think the cycle definitely can and I definitely think that the if nothing else then The Primitives around what we're building um and both of our protocols I think are going to be important um in that and and will help like um I think will help drive it so um you know maybe maybe fixed rates won't be the central story I think what you know the central story to every boom sort of you know kind of comes out of left field I mean I don't think I was excited about nfts but I never expected the nft boom um so so you know who knows what'll be

the the driver but um I I definitely I definitely see a role to play and we're definitely betting on that I mean we're definitely trying to build towards that yeah and I guess on my side I well I kind of think of it from the perspective of like what is what is going to drive the next bull market and like in how are we going to get more people more Capital coming into the space um uh because there probably will be something uh completely unexpected like Alan was saying like uh kind of some like the nft Boomers clearly gonna be something else which which will happen at some point but then there's also like how do you get that steady state growth in terms of people adopting D5 as their financial system um and for me one of the big things

there is just this point around being able to transition from something which is structurally variable to something which is structurally stable and if you cannot do that then arguably D5 cannot serve the financial needs of the whole of the world um uh and that's something that we clearly want to happen and uh being able to kind of transition so therefore kind of using an interest rate swap or something kind of another kind of fixed rate primitive to move into something that is stable rather than something which is kind of variable is ultimately going to be important in bringing that wave of people into the space I um you know I think the the reason I was kind of alluding to like a different type of degenerate like on the other

side of that because I I agree with you Simon it's like look we if we want businesses to like tap defy native credit markets like you need that ability to borrow lend at a fixed rate right I think it's very easy at least for me to sit down and conceptualize like what the demand side of this Market could eventually look like but I think the less understood on like the back of that is you need like a robust either options or perp market right so like that's the what the mechanics kind of look like of locking in those fixed rates and then you need people that are willing to speculate like if you think about like the original like OG digens and Trad fi it's like Paul Tudor Jones and Stan druckenmiller and George Soros because what they were basically doing was taking these levered bets in

currency markets right and breaking the back of England and stuff like that our version of that is basically people aping into yield farms and digging an enormous amount of risk there but I think it makes sense that as the space institutionalizes you're going to say wow these are like really native markets where they're not very efficient there's an enormous amount of ability to tap leverage and speculate on things that we understand which is interest rates and how interest rates flow through into different valuations so whenever we're crafting a thesis encrypted I think it's important to keep the speculative like what is the speculative matron how is that going to kick this use case off because I agree with you I think that the long term you need that ability to borrow and learn from the demand side but also I think you got to keep in mind

how is speculation going to be leveraged here I like to kick things off yeah I think that's well in fact actually just to talk against one of the things that we're seeing that's really interesting is the birds birds coming up we've got and we've got our markets around kind of state is by far one of the most popular trades is people to enter what we describe it's a variable take a position where selling a fixed rate buying exposure to the variable rate because they expect the whole thing to go up um right now that trade actually looks crazy because the fixed rate you're selling is like six percent but the vertebrate as of today is way lower but like there's this huge speculative nature to it which is that I expect that variable rate to be like eight percent maybe even higher uh post merge and and

we're seeing like to your point Mike we're seeing that as a like a big driver of activity of this different type of DJ so Simon post merge you think the variable rate ends up being higher than the fixed rate the fixed rate right now so that the fixed rate on Volts protocol is driven off trading activity so um if there's loads of fixed uh takers then that basically has kind of demand effect in One Direction if there's loads of variable takes a demand effect in the other direction um uh at the moment there's been like so much variable demand it's pushed up the price of the fixed um but post merge expected variable to increase and then who knows maybe the fix kind of increases further interesting all right guys

um I think we can uh you know we've played 20 questions I appreciate both your guys time any just any closing thoughts or anything that we might not have covered on fixed rates that the Unlocker I guess also folks want to find out more about you and and your protocols like what's the best way to do that uh so so if you want to learn more about yield protocol we're at yieldprotocol.com um we uh love talking to our communities so if if you're watching this and you you think all fixed rates should be this or it should be that you know I mean we want to build it for you we want to make it great um so you know I think that there's there's a lot of uh there's a lot of people out there who haven't yet had their chance to say here's what fixed

rate should be in this ecosystem but um you know please come uh work with us at yield protocol I mean we're building cool stuff and we'd love to have you involved yeah and then from a Volt's perspective you can find us vaults.xyz um similar to Thailand we spend the time with the community I jump into what Discord uh was pretty active at the moment is there's lots of teams that have come through kind of uh kind of identifying the fact that this kind of new interest rate so what Market has been created um uh and can see the way in which that is going to be used to build a new bunch of products and service is for the space so we actually ended up setting up like private Discord Channels with a lot of these teams um uh and that honestly some of the kind

of best times to reach out is when it's very early in the ideation stage because we've spent a lot of time thinking about what can be built on top of vaults and we'd love ID ideating it with people awesome all right guys thanks very much it's been a great interview we'll have to do this again sometime next ball cycle when uh when fixed interest rates are kicking everything off we'll do it we'll do another Roundup and we'll see I told you so so that'll be a lot of fun thanks Simon thanks so much cheers [Music] all right another good one what'd you think I thought it was really good um I mean both of those guys are deeply involved in you know they've both got projects right that is actively facilitating this thesis that we're talking about

um so you know in the case of Alan he's actually figuring out the mechanics of how to create you know transform variable into fixed rate um you know yield in crypto and then uh Simon is actually building the exchange right that's going to facilitate that right so he's building an amm for fixed rates um and they're licensing actually part of Uni's uni V3 uh to do that so both these guys have very deep understanding of like what the transformation of variable to fixed rates actually looks like and there was fun to kind of speculate with them about what that actually might end up looking like in crypto um I thought you know in in you know my take on the episode was I think everyone like the overall mindset of me I haven't

been changed walking into this like I think I believed walking in and I still believe that fixed rate lending is going to be big I think what we're what we're looking for is a catalyst um and that's the that's what we just haven't necessarily seen yet I think does it feel like I mean one of the big themes of the episode was Data lending right and lending against lending and borrowing against uh future Revenue right of the protocol uh and having the future revenue of the protocol become the collateral essentially does it feel like going deeper and deeper into a bear Market could actually be the kicking off point reason being uh the the more down bad that Protocols are with their token prices the less likely they are to want to sell tokens to get cash so if your

token's down 90 you don't want to sell it for cash you would rather lend against it does that feel like maybe okay so there are like two different ways that this could go in crypto and this is where I I would be worried about this right like what what a trend that I'm starting to notice is being like hey instead of um instead of selling my doing like Equity finding I'm going to sell my token or whatever for financing I don't want to sell my my token I want to hang on to that so I'm going to borrow against this and and I'm going to use that as collateral to finance that that I I just do not love I will be honest with you I do not love it as a as a construction um actually I think you know if you go back all the way to Enron I don't mean

to bring this up but like one of the things they were doing a whole bunch of other bad things there right with their business but the reason why it was able to implode so quickly is what they what was later found out is they had all these off sheet off balance sheet vehicles that were uh they were borrowing with but they were financed they were collateralizing it with Enron stock so that's why that unwind happened like that super quickly I just don't love the idea of collateralizing loans with really early stage Equity what I what I'd be interested in for for Dow Dow lending is this was kind of uh you know Tushar wrote about this in in his thesis for the the opportunity for defy native interest rate markets which is you basically you borrow against future cash flows that a that a protocol is

going to earn right so again the analogy is like for you and me right if we went to JPMorgan Chase tomorrow and we're like hey we'd like to get a loan like what they look at is our our past Revenue uh our ebitda like our net profit that we're generating they would look at our accounts receivable they would like kind of look at all these like our credit scores because they look at like all these different metrics and then they'd be like okay this is the you know we we think that these guys are going to pass back guys please uh use the funds for what we said that you were you said that you were going to use the funds for and please pay us back in crypto you don't actually have to do that last step which is trust right so and we're gonna we're gonna get into

this in a later episode actually we're talking to someone who's building a structured product based on the ability to fix rate line with essentially with funds that are only good for one purpose right but what you can actually do is you can look at um funds that are protocols that are generating even if it's not cash flows today like let's say if it's some percentage of um well I guess unit swap is probably the good one so let's say so let's say they turn on the fee switch you could be like okay you guys are going to get whatever it is 10 or 20 million dollars in fee switch Revenue like route you know you could design it into the contract to like route those funds into paying back this loan it it's it sounds small and then you can even go one step further and be like hey These

funds that I'm giving you are loaning you I can see what you're spending that money on right I can see where that where that is going on the blockchain like you are approved to spend the money on this this and this right so you're but basically what you're doing is removing layers of risk so for that I'm very bullish but on the ability to like use your own token use your own token as classic yeah because then The Unwanted just happens faster and faster yeah I guess if Alan were on this recap what he might say is like yeah but you just have to price it appropriately you know uh so there was a I said there's a market for everything that's a risk your asset yeah you price it as you don't price it as fully collateralized lending then I guess you'd price it yeah based on what

you think the risks are so I think it is it is an interesting way to uh you know it's something that's interesting it's not being done I also like Simon's framework for the the yield stack which is just a nice way to look at it like the eat stake rate as the base layer of yield and everything kind of flows back off of that yeah I think that's the that's another big unanswered question for me and frankly I'm not sure we're going to figure that out because all you can really do is speculate about it but we do need some equivalent in these one of two things is going to happen either real world is going to integrate with crypto or it's not right and all the yield that gets generated is going to be crypto native in in some way shape or form um

I guess there are pros and cons to each one of those that like what we need you know traditional debt markets are based on you know one super bid which is like the US government right like they issue a bunch of lending a lot of yields is generated off of the US government's desire to borrow even like lesser countries right create smaller you know if you if you drop outside of the top 10 economies by GDP then like those debt markets like super smaller like what very difficult to tap so what we need in crypto is either take advantage of what exists that would be the real world asset approach right like and start integrating like treasuries and more US Dollars and maybe MBS and stuff is collateral and then and then building yield off that or you go the crypto native way but you need that like

gigantic sustainable relatively predictable source of yield um and you probably need consumer products crypto native consumer products that people want and there's a need to finance those the purchase of those consumer products so I think both of those features I see problems with and I'm not really sure which way we're gonna if they don't have to be mutually exclusive by the way they can be both but that's that's the unanswered question for me yeah I think there's one thing that I wish we talked to them about which was um it really feels like regulation is determining so much of what happens in the in these markets um and I I do wish if we had them back on I would talk to them about that yeah a lot I think it's very different you know there are all these

they're all these things that especially us-based uh protocol Founders are very careful to be like see we're not doing this and this and this so This token isn't a security but when you do what we're talking about doing which is issuing especially on the dial side like if they issued something security yeah it's just like these board lawyers uh you know they're already wringing their hands and pulling their hair out it's like guys like help me out here you know you can't just issue debt on the blockchain and call it not a security so yeah I think that's what it becomes sort of difficult yeah yeah anything else no I just think that that conversation set us up for our next two conversation I think like the the point that we were

really trying to drive home there is that there's some element of this which is speculative right like the actual mechanism with how that variable rate that gets starts with the stake rate and then kind of flows up the way that gets transformed into a fixed rate you need you need an options Market to to basically do that so that's where we're going to be and for that options Market to work you need people that want to take levered speculative bets right with it within those option markets so that's that's the next thing that we're going to be talking about basically um and then you also need uh some you need the Structured Products thing is really what's the what is the unlock so the ability to borrow and lend at fixed rate and then build a structured product on that uh is is that's what we're going

to be talking about next and I think you correctly identified the link in between those Structured Products and uncollateralized lending because again to your point like it's not much help for Block works if we wanted to tap these markets to take out a loan it's like uh hey I need to have X amount of collateral to to go to go tap this Market it's like no I'm going to you because I need the money here's uh why I'm why I'm credit worthy uh so I under collateralized lending and Structured Products for the next big unlock that we need to explore agreed agreed all right coming up next we have uh on-chain options then after that we've got under collateralized lending uncollateralized lending really excited for those two if you guys are enjoying it punch that subscribe and we'll see you next time [Music]