Money Market on Steroids - Stani Kulechov - Aave

Transcript

[Music] it's nice to be here so basically my name is Stan equally chav I'm the founder of it was first time here three years ago in the Atlanta meet up and pretty nice to see that the community is very vibrant here and a lot of people today we're going to talk about the Ave protocol that's basically what we are doing in our blockchain startup and and basically focusing on money markets and kind of we are trying to a bit of

improve the narrative that's in the the fie space now and and and I will show a bit of different things that we are actually doing so a couple of things about me so I'm actually from Finland so I got involved in the interior back in 2016 and 2017 I was more heavily involved mainly because I was very fascinated about the technology and the idea that actually you can erase all the middleman in between and make transactions that basically act in a way that is pre-programmed so that was very very fascinating for me back in the days and I started to find people and read it

and asked if anyone is interested in joining the project that time I was doing and I found a it's actually the very same startup but it previously was called eteland so what we actually did back in the days we created a first mark contract based landing protocol which was more in form of peer-to-peer kind of like a OTC connecting the lenders with the borrowers and letting the smart contracts do do their thing so basically security transactions now we rebounded a year ago two other and basically are trying to push similar lending concept but in more pooled manner

kind of probing what's there is in dfi today and then we basically moved here in to London and and we do have an office in Switzerland but mainly we're we're pretty much here in here in UK and pretty much what we're doing is called defy these days I don't know how many of you guys have used some sort of like a decentralized finance application so far all right all right all right that's good I would say it 5050 so I would try to be a bit of gentle on the terminology and so forth and because of that I try

to kind of go a bit of the dfi peculiarities and and what we are doing at Alva and how we are improving the the current defi ecosystem with some real well real these are kind of like case examples but examples of different kinds of defy users interacting with without protocol in and what they find in define what what basically takes them into the space and and try this technology and as a first example we have John John the stacker

so basically john wants to earn interest so basically by depositing funds into money markets and what john is trying to aim in in basically by by investing and by earning income is is to invest something that's low risk and and basically highly liquid market and in terms of money markets what's interesting there especially smart contract based money markets is that basically the risk level is somewhat I would say it low but I know there are a lot of conservative people who say that because of the cryptographic assets are new there's always a risk but there's

the low risk Ness here is that there's a collateral in place and liquidation mechanisms which allows you to close decisions and because you can always deposit money into money market and withdraw its highly liquid market so end of the day what we are talking here is basically a system where you can just deposit funds and on the other side there are other users consuming these particular funds and this is basically the experience that John has with with the device so he stumbles born into this until his finance so his previous experience might be more using traditional financial instruments

investments depositing into saving the saving accounts and earning some interest from there and John reads the article about define Financial Times few weeks ago and decides that basically that might be interesting field to actually experiment and read about the technology and he saw his he saw a tweet that other protocol is launching that is basically what what we are putting into the market now and there's this particular website that gathers all the information about what's what is happening deify different kind of protocols what they're doing what kind

of like financial product is behind of that protocol and how much people are putting funds let's see if I can make this laser to work yeah so this value here is is pretty much I think it's a bit more higher these days because the cryptographic assets has has gone up ways but this is the value that the current defy market holds so in terms of comparison if you compare for with the traditional financial markets and instruments it's pretty small so we're really talking about very small field but the interesting part here is that

there is very big growth and interest in the space and yeah so more or less this is what drives the curiosity this is why many people come here now now the most interesting part for John is that he realizes that in defy anyone can access it so there is this idea of smart contracts and they Central's finance that you interact in a kind of space that there is nothing restricting you to do financial transactions there's no utility bill that you actually submit and perform those transactions and I

know there's going to be a legal talk after me so I hope these guys will not kill what I'm saying but but that's the kind of ideology and the practice of course is a bit more challenging because of the novelty but that's how people who create these protocols and and the communities are they're basically upholding are trying to achieve and one of the most important things in this into this finance and and in implosion is that you don't give custody of your funds so when you interact with different lending protocols derivative protocols and and whatnot the idea is that you are actually holding your fonts

and when you are interacting the different protocols you actually know what's what how what and how the code will do when you put their funds and and that's the kind of like key thing here and to compare with traditional finance you usually give your funds to someone and you trust that that person really upholds the contract and and and basically does the promise and of course one of the most fascinating for me personally is that the engagement is pretty much transparent so if you look at the ethereum blockchain it's pretty much public network so you see all the transactions there and what it actually

bring is in Defy space is also democracies so you will see what others are doing and you can compare what you are getting or what's offered to you or what are you using basically you're always in an open world and that allows you to actually get the best service out there and of course the very interesting part is that you can build products that by using the smart contracts to avoid having this counterparty risk and how we do in in lending space we usually use collaterals cryptographic collaterals and because of this pretty much john decides that he

will go into the fi space and now he enters into the our protocol so pretty much what we are doing in our protocol we are using stable points so stable points are interesting way to transform stable currency from one place to another and exchange it to actually spend it in real life and i think good stuff and maria will tell more about especially died which is the stable point that we prefer and when john deposits the stable coins the 100 died into the protocol he's earning interest so there's other people that are borrowing actually that liquidity and what we do in our protocol especially

and and what we do different that there is currently in the money market space is that we actually create a balance of 100 a die to the person that deposit so imagine that you're go you're going into the bank you're depositing notes and basic you're getting a certificate of the deposit and usually the the deposit certificate in this case a die it practically holds the value that you have deposited into the protocol and the difference here is that anytime you earn interest so which is in our protocol pretty much every second that earn

interest goes straight away to the address of john or for example he can redirect that interest to other places which is convenient for example if there is other recipients that wants once that particular interest for example if there's fond and there's management fees that needs to be sent other places or some accounting reasons but the interesting part what what is out there that the interesting interest bearing tokens is not a kind of like a Noel Kahn I mean it's another concept but it's not completely new but what's usually here is interesting is that usually you are using a exchange rate so so for example when you deposit

dye you're getting a interest rate bird bearing token which basically gets more and more in value and in this case basically you will always have exact same amount of a dye that you deposit plus the interest so kind of like we're trying to solve the accounting issue here and and also kind of like using a interesting way to earn in the protocol and what we are basically doing is we're stacking different kinds of a token so in the previous example and in this example you have a dye and as you see so have is there anyone who has some sort

of like like if they're in wallet for example made a mask or or any kind of like trust wallet that browser or okay cool that's nice that's nice so when you do a deposit what happens actually is that you will see the deposited amount which in this case is the one thousand eight i sorry died and you get one thousand a die and your balance will always go up inside of your your actual wallet so that's like a pretty neat way for you to understand like how much you're earning interest and basically can redirect that interest to any place you want and that's like the interesting part for us like how we did it it's a

small thing there's no there's a lot of small things in that actually you can improve but the actual use cases are pretty interesting because you can build different kinds of applications on top of on top of this particular interaction and reuse it for example yeah and then second example for us is basically Laura she's the holder so we are now looking at the other side of the protocol because it's a money market so there's always suppliers and there's always consumers so Laura in this case is holding ETH as basically she's long on a th because she believes that ETH I mean

theorem 2 point O will be pretty interesting update and and she really wants to participate in that and the staking process in the future and governing that etherium protocol and in this case she really doesn't want to actually sell that if theorem when she wants to do - well if she has any expenses for example in real life and what's interesting for her is that she's also very very careful shopper when it comes to interest rates so she really wants to commit to something that she actually is able to repay in the future which pretty much makes sense and following trends is pretty important and

the thing is in current Defy spaces that the interest rates are going up and down all the time so it's very difficult to control and and plan your finances if the rates are going up and down in different time periods and in this case Laura sauce sees from Bloomberg that generations these are borrowing against their eath holdings so in this case she doesn't want to sell they eat when she needs the cash and especially in particularly she doesn't want to give away the custody and this is the very important part so she particularly uses deify to get rid of custody issues and

and all the kind of like nasty things that might happen in finance and that's very kind of like the core what we are doing in the Defy space so one of the difficulties now is that as the interest rates are changing all the time even when she is sleeping they can be become very unbearable her to pay and she needs stability in her rates and of course flexibility that she can actually swap the rates if there's different kinds of trends for example if market goes up so you can actually take a variable rate and kind of enjoy I'm sorry if the markets goes down so they

can take the variable rate to kind of like take those lower rates and if the rates are going down if the sorry up if the trend is going up she can actually take a stable rate so that she doesn't suffer from the up going rates and then there is basically John the actual stacker who deposited into the protocol tells to Laura that she's actually able to borrow with variable or stable rate and that stable rate actually allows her to estimate how much she is paying interest in a longer period of time and if in case happens that the rate that the trend extremely

increases she's balanced into a new rate so we are not actually talking about a completely fixed rate but more about algorithmic 'el stable rate and in the same way if the trend declines basically she's rebalance to a lower stable rate now very important here is that the case of the rate varies depending on the liquidity so the more there is liquidity the cheaper the liquidity is for Laura and on the other hand when there's less liquidity there's more borrowers it becomes more expensive so now that she has the ability to control whether she

takes the variable and stable rate is actually very meaningful to her and what we in financed usually call is basically either interest rate swaps or just basically derivative interest rates so there's always a kind of like main market of interest rates and everything is built that to that particular pricing of funds and they're very same algorithms work in this entails finance because we are pretty much just building the very same finance but we're just using the blockchain technology for the benefits then one of the most interesting parts

that we have is the developer side here is there any developers here in general or ok cool nice nice so we have Alex the developer and Alex learns about aetherium in a hackathon so he met this guy we call him a theorem troll mark Zeller and he basically shield the other protocol and Alex wants to build a defy service that actually can interact with multiple other d-5 projects so our protocols to be more firm so he wants to build something that actually utilizes everything that there is in the defy space and because of the way that smart

core smart contracts behave these different protocols they can actually interact with each other more or less we could say that the whole space is kind of like AI interoperable because you can build a raining tour that uses different kinds of liquidity pools and takes liquidity from for example landing protocols and now comes the interesting part so alex reads the our protocol documentation and finds a feature called flash loans and this flash loans allows him to borrow 100 percent under collateralized liquidity and why it's very interesting is that normally in in

defy the the all the lending protocols is more or less over collateralized so if you want to borrow let's say 100 die you usually over catalyze that one with 200 die equivalent so basically you put an asset such as ethereal and and and as a collateral and borrow that die and in this case you don't have that requirement you have only one condition is that you return that loan within one etherion block so basically what that means is that you can build different kinds of products for in the defy space that actually borrows that

liquidity for that short period of time and there is actually delivered or not interesting use cases for this particular feature and pretty much the functionality relies upon the way that the the ethereum blockchain is is built and and how the transactions work there so when there's a theorem block you can basically make different kinds of transactions and once the block passes there the transactions needs to settle one way or another so basically if a if alex makes the transaction where he borrows that liquidity and makes

different kinds of trading or different kinds of transactions and doesn't return that liquidity back with a fee that transaction fails because of course because of the condition that you need to return it back and this is like a very very interesting use case for the flash loans so here we have the other protocol with a dye pool and we have a borrower here that actually has a CDP open so CDP is a cold wall these days right okay sorry guys so CDP or wall so basically what is it actually it's over

collateralization and and and basically a note of the die so basically he opens a position to borrow dye and it happened so that the the value of the etherium has has been went down and basically in that case he might get a event called liquidation where the collateral is taken and sold into the market now in this case what could be done is basically that the borrower or the for example Alex here can make a service that actually takes died for one one theorem broke from this pool and

since that boar would die to the trip Walt and liquidates the DeLong and thanks the eater sends it to khyber convert the eater back to die since that died back to the other protocol and and alex collects profit so there's when there's a liquidation event in in the the maker system basically you have to pay a liquidation fee and basically this is a wage you can actually reduce the fee and and save on that particular liquidation event so this is just an one particular use case that you can actually apply the the flash long liquidity and other cases is basically

are be charged for example you can borrow from the very exact dipole open a trade in in for example unit swap and and close the trade in in Khyber and return the funds back to the day protocol so you can have those or you can refinance alone so let's say if there's a CDP with what's the DIA stability fear these days say 6% okay so let's say stability fee is 6% and there is a better opportunity to some other in some other protocol for example that the borrower is paying 4% so actually you can use the same mechanism to close the CDP and open a new loan in in some other

lending protocol and in that way you basically can algorithmically save your your lending well borrowing costs so these are pretty pretty cool stuff that we are actually utilizing and for developers it's just a just kind of like a small trust that you can actually build end of the day there is there's more more into it so I think this is something that requires a bit of research and and I think there's pretty interesting interesting use cases with with the flash loans and this is kind of like a novel feature that we are deploying so we're the first protocol that is putting this on 9 net so it's it's pretty

interesting to see how it's going to be used and why we call it a bit of like define or money markets in steroids is basically normal and this this is interesting aspect from traditional finance as well is that normally like what we have here is in device that you deposit assets for example as a collateral and you borrow some funds when when you're consuming so the the assets are kind of like sleeping in the smart contracts and being able to do flash loans so be able to reuse those collaterals for one-block transactions we actually are getting more profit into the pools end of the day and basically

that should provide more profit also for the the depositors and in one theory also kind of lowered the rates for the border wars but it really depends on how it will get utilized and what kind of like utilization rates there are so this is kind of like very interesting novelty that we are deploying now and the big picture is very very nice here so Alex who might be a developer in the basement of his mom might have build a financial product for his own like development skills without actually to tie capital in so he's pouring that capital from the

protocol and by building this particular product he actually can add new he can actually open new possibilities to others to build on top of his service as well so it's kind of like money blocks what we call it India five basically different kinds of books which one money Legos could be a good good good word and I think the key here is the compressibility so let's say if someone builds something and you can build something else and someone builds on top of you and and there's like different layers so they might I don't know what will be end of the the layers but there

could be a lot of things eventually here so it's kind of like empowering kind of this network effect with with just by building as a community and and everyone trying to figure something new and there is same as for example with how many different dye variations there are now how you guys calculated okay now there is even a dye so at least that's even one more so there's like different variations that people are trying to build up and that's like the very fascinating thing now that we're seeing and one of the most coolest thing is that everyone will have right to govern these protocols because of the way that

we build so we build open-source technology and and that's like the very kind of core if you build open-source others are able to participate and basically everything this is possible in our protocol because of the other team that we have been putting a lot of working and effort into this and of course the defiant of a community and that's basically you guys all here so yeah and really want to highlight the open source aspect there's it has been very GetGo as well in a theorem community that everything kind of is in line with open source and we try to get

people to contribute more and and and basically keep everything as open as possible and which is not always easy when there is different when it comes to financial products because end of the day people are making one to make money but on the same hand we also want to open up the finance in a new way and I really really really love this quote so in real open source you have the right to control your own destiny and this is Linus Torvalds from Linux and what I really like in our job that we are doing is basically key that we want you to have the right to control your destiny

in finance on steroids of course so with the steroids part I'm referring that basically who ever built anything whether it's Ave or whether it's someone else the idea is that you always feel better or something new and or something cool you know I mean the the fact is that when we just evolve things will go further and of course open source is community so it's not just a few people trying to build things but it's just like having a bigger audience and everyone involved and it just doesn't just mean developers and so forth it's actually oh yeah its leanest herbals again so I mean yeah it's just like

getting more people involved and that's why we are also hiring and if you are interested in defy any shape or form I recommend you to reach out to anyone in the space and try to do something cool and anyone who wants to basically try the protocol that we have built here is a pure link so you basically scan it it takes you right away directly to the main net so you can access if you have a a for example a that browser and and and or some sort of wallet that you can actually interact for example beta mask yeah all right yeah there's a link to your discord but so it's a bread comm

slash discord but yeah that's basically it maybe there is maybe there is one minutes to spare to quickly show the the yeah okay sorry guys so so you guys go to other apt up above common you you you can try yourself as well but thank you guys thank you