Michael Svoboda - The CDP-endgame - which DeFi stablecoins will last

Transcript

[Applause] hi everybody thanks for having me and yes let's have some fun with stable coins um my name is Michael and it's a pleasure to be here actually I studied here so that's really cool to be on on the other side for once um quick background I'm from liquidity protocol from those who don't know it's an interest free borrowing protocol um against Eve um also the on stoppable stable coin L USD you might heard of it it's live since 3 years another typ of there today birthday 3 years and it has managed 4.7 billion in loans

um but let's talk about stable coins actually can you hear me well with this thing can you hear me great um just a basic before we start uh I think we need to distinguish two models or I distinguish two models one is a reserve model usually have Fiat Oro um or dollars and then uh stable coin is issued against it or you have the CDP collateralized dep position model where you usually have crypto a bit more crypto than the stable coin is worth um because crypto is volatile um yeah and let's dive in I hope you can read it what I did I just took the top 15 stable coins on

ethereum plotted them out and we will deep down and dissect that a bit before we start let's do uh a quick poll uh we are here in a university so in my time everybody had to knock kind of on the table at the end let's try that once for the poll you knock on the table yeah great so I will go through some stable coins and I would like to know in the room which of these stable coins do you think in let's say four years will be still the leading ones or will have become the leading ones who thinks tether great uh usdc okay there is more passion for the usdt but usdc overall bigger adoption

die okay def Camp then let's EA ah but you know hopefully you know isina we had a lot of fun recently on Twitter kind of with maker and Isa uh you need to catch up on that what about PayPal USD interesting interesting then curve USD okay the defi Camp would be interesting to hear why let's take our own L USD okay nice that was nice um that you clap there too so let's dive into it which stable coin we lost first let's quickly look at those I will break those up so first let's look a reserve model

Fiat backed top 15 quite a bit quite a bit of the stable coins in the top 15 have uh our Fiat backed only one of the reserve models is crypto back that's ISO interesting a newcomer um then we have CDP based I I'm a a bit mean here uh because Fiat pack I mean these are defi stable coins but they have usdc PayPal USD and real world assets in it mostly or half of it so that's why I would say it's rather Fiat backed and then we have two crypto in this top 15 this gives you a first impression how um the landscape look lies and if we go further you remember

CDP based models um they are mostly crypted I would distinguish four models we have maker if you know it um interest rates collateral everything governed which has pros and cons for those to follow Twitter we have liquid TV1 our unstable coin interesting totally different um approach a oneof fee everything else is immutable we have something like curve that's plays in the same league where we have for the first time a bit an interest rate controller at this size the rest is governance and a quick Alpha Outlook what we try to do something new with our V2 where we have um interest rate and risk parameters

driven by the market instead by a governance um which can be of Advantage if you followed maker in my opinion so which stable coins we lost I think we we have to differentiate a bit what makes them successful I there are four factors uh I would say that help for um adoption as utility liquidity yield interest rate model a pack and counterparty and regulation I think will play a role so how do they do the existing stable coins utility and liquidity you see tether clearly with payments let's say for example on Tron half of the stable coin volume is

happening on Trum um centralized exchanges pairs usdt is the leader I think usdt is quite strong also in store of value people like to hold it or can hold it D is clearly strong in defi yield interest rates models where do they work or how do they perform I think die that introduce real world assets um did clearly well ethena is doing amazing you're getting amazing yields if if the market is going good let's see what happens if Market goes down and you have other ones that are bringing real world assets into defi like usdm um or you get LP yield pool these are just different ways how to provide

uh yield so I mean at the end somebody needs to hold your stable coin you have to have demand for your stable coin these are different ways an interesting picture how do they keep the pack um I would say they most of these have a hard pack and how do they achieve it just because somewhere in a bank account or somewhere there lies a dollar or or something in the traditional Financial world that is packing it and it's quite shocking of the 15 only three work a bit different or haven't such a hard pack one is AA because um um yeah it's it's more a derivative trade and then we have curve and our own stable coin um that

are more volatile because they're backed by crypto and it's just harder to keep the pack there another interesting one counterparty and regulation um didn't play a role but if you think which ones we lost I think that will be a really important question and I put centralized very generally can be the the entity can be the collateral but of the top 15 I would say a lot of them are tied still to traditional Finance have some centralization vectors and I would say probably again curve and and our stable coin have really few vectors so that's a different changing Factor Why are we

looking at these factors because if you're really good in one of them or in a in a combination I think you're here to L you you need to differentiate you need to cater to a target audience um another differentiator also an interesting one uh for the counterparty who are you trusting in all these stable coins I would argue you trust a company or some middleman uh you trust a governance I'm being nice here uh or even a multis which means 10 people or so and then there are the ones where I would say you rather trust in code again there's curve there's our stable coin yeah so I I think I just wanted to set

the scene now uh show a bit how I think the the winners could look like who will lose for me I think I see three three categories we have the safety I called it safety the opportunity and the sovereignty um what I mean with safety is I really think we probably underestimate in the space how regulation will kick in um like all these stable coins that can survive right now probably might be pushed out just because their setup Isn't So sound so I think we will see an extreme today I think we have more stable coin somewhere in the middle where you can

say I have great yield I am really integrated in defi I have amazing liquidity all these things can give you an edge why you might lost while people will use you in the future I think I will it will be much more extreme I think you can only survive if you're propably propably regulated probably propably really decentralized so you can play kind of in your own field or you're in between and you have some opportunities you can use and hopefully they lost um or you have to find a new one just where is the market cap I mean it's it's crazy I would say today um 60 billion would go into the regulated one would play I don't say they properly regulated but I the major

one will tackle need to tackle these questions otherwise they will have a hard time one to two billion I will put in the middle and on the sde I would say right now it's only a market cap of 250 million on the left you have that's PayPal USD uh usdc uh I think probably they are the strongest ones PayPal USD is not known but I think it's one of the best dollars beside L USD you can hold better than have it in your bank account a lot of people don't realize that then you have or usdt I have it with the opportunity bucket usdt is great but I don't know how long they can hide and if kind of in the safety buckets traditional financial institutions like black rock or

somebody's coming in they will have an easy time to push these players out then they might go to Asia or find these places that's why I call them opportunity but if they don't face the left side and Oren in the right side yeah you have to find the your Sweet Spot can be a jurisdiction can be a a target audience and then you have the The Sovereign ones on the right where the market cap is still small and the great thing is I think we don't have to divide the pi differently the pi will grow for all of them and probably proportion will stay the same so coming one step closer to the conclusion what's also interesting is where of these two models where is which model is strong

where I think this Reserve pack is really great for these regulated ones the CDP models for the ones that hold crypto battle tested in the middle a lot of place for Innovation seeing um Crypt backed stable coins that go with a reserve model or maybe the opposite um with a CDP model we don't haven't seen a lot of innovation there by the way I'm not a full expert in all of these stable coins if you disagree if you have an opinion shout in and and we'll we'll tackle your um your view on it so here are the S success factors again um with CDP Crypto Crypt backed stable

coins will lost and yeah I I wouldn't say there there's a strong order but just looking in the future I think it's really important that you kind of don't fall too much on the regulatory scrutiny so that people can touch you um kind of take in your stable coin um that your yield interest rate model really works and that utility and liquidity is there and then your peg works so these are more the CDP based there are also some stable coins that were not in the top 15 but I think these are the ones that are out there now who's the winner let's pick one no but my point was more I think they are all

great and we have seen some really cool new model like fix USD synthetics is already out there for a long time doing a good job curve has innovated really nicely but honestly I I think we haven't seen the winner yet um I think we need the next generation of these uh stable coins curve has in my opinion right now a broken interest rate model and where is the that's an interesting point figure out if you know where the interest goes of any stable coin on the borrowing side and where is the yield coming for for the stable coin it's quite astonishing that how these different model Works curve for example um they you you pay a

boring rate it goes to the curve holder but who pays the stable coin holders that comes from curve prives so there are different models for example curve I think that's uh I think they're working on improvements and there are other other models that are nice but can be improved so a first conclusion on the reserve back model I think we will see a bit the wash out I think that the future also with mik in the EU there's not much place for a usdt I don't know which institution that wants to use it can use it I talked to somebody from Binet today I have no idea how binance in Europe kind of what they

will be trading at against which stable coin which stable coin is in in 5 months me compliance so they they can trade it with European customers some question marks and the same on this CDP side so a quick thing what I think how a Next Generation cdb could look like and I think all these projects have amazing approaches I just want to give you an example how we approach it I think L USD has done great um has also now in the current interest rate environment some some drawbacks so I think also we need to innovate and I think we need to innovate on all these factors I mean decentralized our project is already

really good let's keep that um because I think it helps in the future to play in its own League to be still able to um play in defi uh so that's for example a concern I'm I'm really wondering a project like FR or maker how they will navigate that in the next 3 to four years and what happens to the team that is exposed you know once one of their leaders becomes such a letter of a threel agency uh how how can this project still maneuver so let's see yield interest rate model um something we learned we have really a new cool concept user set interest rates so for the first time the

user you can set the rate you want to pay that sounds really cool has a caveat but introduces a really nice model which is much more balanced that we say people that borrow should pay the people that hold the stable coin that's a basic model and we try to make that really simple and balanced and connect in a peer-to-peer way these actors and it's astonishingly how very few projects are doing that on the utility and liquidity side how can you improve that for examples we only took in if as a collateral LS everybody's doing that I think you need to innovate there too P you heard it here first is protocol incentivized

liquidity so making sure that the stable coin has liquidity is there a sign do we have five minutes yeah okay good I was like okay okay people are taking pictures good um yeah protocol incentivized liquidity also something overseen you have no you have a stable coin you have B solution but you have no no idea if tomorrow the liquidity is still there which is really really important is uh somebody still voting for that what happens so I think we need stronger guarantees a quality of service in the protocol itself so also field of innovation pack um yeah there are always ways it's a really hard problem how do you you know make a pack better without

taking in usdc or the usdt we have some ideas we have some volatility there's a trade of what we can improve so I think one last thing about then V2 what just to show you kind of I think how much potential there is to innovate is with we2 we really try to um uh make use of the advantages of blockchains and the markets out there and the users so there are four innovations that kind of we use users that set the interest rate to make the model more resilient uh we use algor to distribute the yield from one side to the other why does a governance need to

be in between why can't we just funnel and connect uh borrowers and stable coin holders protocol incentivized liquidity build that algorithmically into the protocol and even the risk management so the big drama we have seen with with maker and EO who how quickly can we on board these things we try to do that in a way that the market say hey we think that is risky I'm going out I'm not backing that anymore and um people pay a price so kind of incentives to manage the risk is built in the protocol um also something I haven't seen before so we are really excited to see that uh when it's live but maybe one question

why why are we doing that um I hope here at e Zurich but but also at liquid we really think we need a sovereign crypto dollar and you have seen the the tradeoffs that these dollars make and I think there's room for everything but you've seen how very few in the top kind of take the tradeoff that you really know you own your your uh stable coin you can redeem it against crypto nobody can take it away there is no intermediary um I think we need something in each ecosystem um we need trla crypto credit so you can take your credit you can Self Service your credit uh we shouldn't have depend and intermediaries and yes if

it's not your protocol if you don't have more the same control and knowledge like the team itself uh probably some somebody has an advantage so if it's not your protocol it's not your finances and if you kind of identify with these things then please follow us because we try to make products for these target audience for E Believers l.org or on Twitter if you're interested in these new approaches we just published a lot of a lot of content some content that gives you an idea about that and with that I mean which stable Co we lost I think the future is bright and I think uh the the new models need to come and there will be a lot of movement that

we'll [Applause] see thank you thank you very much Michael we have time for one very quick question do we have a question thanks so what's your view then on the sorry what's your view on the Athena Moro maker maker wanting to Min up to 600 million a die what's your personal View and how do you think that could potentially affect all of defi my personal view on that is it shows the danger of this governance and it it it shows kind of the the users how

few people people have the control how quickly things can change you can go one week on vacation you don't know what is Ping it anymore and how they can change and I'm not saying it's good or bad but it bubbles it up something people weren't weren't aware and I think yeah that that's a risk and that's not what I signed up for I'm Pro governance but I think it needs to be done more responsibly I'm a bit shocked how how this protocol how quickly they rush into it so it it gives you a sense what motivates them kind of what is the driver it's probably not the security of the end user and the investor all right thank you so much

Michael Round of Applause thanks a lot thank you