Wildcat V2.5: A Teaser

Transcript

Right, hello everyone. Uh thank you for joining me at the graveyard slot on day one of ECC. The good news about this is that no matter how badly this talk goes, you can all have an Aperol spritz about it afterwards. So uh again, thank you for joining. My name is Lawrence Day. I run Wildcat Labs and we contribute and uh built the Wildcat protocol. Quick show of hands, who has heard of Wildcat? Grand. Who has used Wildcat? A smaller number, but that's okay. So um Wildcat has existed for a couple of years now. Um we have a V2 that's been active for the last uh year running and um we just had an offsite in Italy where we all gave ourselves COVID. And during that, we decided to uh spec out what is

going to be the next version of Wildcat. And I've spoken about it at some length already on Twitter. But no one uh reads anything more than two paragraphs. So to that end, this is a representation of what we are going to do here because we can have clips, you know, to post online, etc. So uh also in the future, like three years from now, when a paralegal is assembling the court case, I hope you're well. Um so, let's get started. Um he says before the clicker doesn't work. I'm slightly trapped because I can't move around like I normally would because the camera doesn't pan. So if you see me bouncing around, it's uh it's not a stem.

So we've talked long and wide over the last cycle or two about, you know, what the nature of credit in DeFi should be. Does it need to be excessively over-collateralized because no one on the internet knows that you're a dog? Is that the safest way to do things? Um there have been various attempts, successful, not successful, um like various experiments on like the concept of under-collateralized credit on chain because that's what powers the entire global economy. We wouldn't be standing here in this building if under-collateralized credit didn't work. Doing it in DeFi is a different matter. So Wildcat serves that purpose. It allows for borrowers, currently just institutions, to say in a very either Tinder or Craigslist manner, depending on how you want to phrase it. This is

what I want or this is what I have to offer. Who want me? And that's worked quite well so far. We've been seeing our users are predominantly on-chain funds or market makers to date. So Wintermute Auros Hyperion Celini Capital, et al. Lenders provide them their money. There are certain specified amounts of time they have to wait to get their money back and rates which reflects that risk. And if they don't reflect the risk, they generally don't get money. Um I think this number is slightly out of date. I think we're creeping up on a billion, which one I will be doing a lap around on Twitter. I think it's closer to 900 originated through V2 to date, which is grand. Hooray to everyone

that's The two people in the hands that said that they use it. Thank you for contributing to a milestone there. However, I stood at ETH Denver last year and announced V2 and then launched it shortly afterwards. And of course it is my right as someone who helped build it to complain about it. What is wrong with V2 as it exists today? V2 markets, and again, they they are specified by a borrower, they are deployed by a borrower however they want. They can be reasonable or insane, but they are defined like they want them to be.

The issue with them as they exist is that the minute you deposit capital into a market for someone to use, they start accruing interest. Even if the borrower immediately dies and never actually is able to like pick up the capital from there, they still accrue interest. So, it looks like any other kind of lending market in that sense. The minute you deposit into Aave, you start accruing interest. It's no different in terms of the model there. However, if you are a borrower that is looking for a specific amount of capital, so a market maker can make do with however much. It's liquidity for whatever purposes or whatever OTC desk that they want to do. But if you're say a real estate entity that was as well, you can't build an eighth of a house.

You need to have like a certain amount of committed money. And you're like, well, anything that I receive up to that point is useless because I can't There's no point in me having it, but if I still have to pay interest on it, that sucks. We've also had many conversations with such entities like, you know, tradfi lots that say, you know, we really want to get engaged with bringing kind of yields that's not correlated to crypto markets into crypto, which is like this whole drive behind RWAs. It's like the only drum beats that we're pushing lately on the RWA side.

But they don't want to participate if they basically say, here is who I am and this is the money that I'm looking for and they just get crickets. There's that peep show bit. Like, what's more embarrassing? Nothing or an embarrassing amount like 110 pounds or something. Like, if if no one's interested in giving the money, they look like fools. So, they're not necessarily willing to engage unless they receive a minimum amount of capital and that seems fair. We don't allow for that right now. Also, there's about 200 million in Wildcat right now, which is an impressive and terrifying amount of money for me, but everyone every borrower in Wildcat is competing for the same amount of capital. And the only way that they can really do that is basically on name recognition, the information that they provide, or the rates that they provide.

And there's no point in overpaying for capital if you need it at a certain rate so what have you. So, people tend to on the whole just push towards the names that they know. This can be problematic if anyone remembers what happened to 3AC last cycle, but this is generally I'm not going to tell the market that it's wrong. And more broadly, um Wildcat very specifically, you are lending to one person. You know who it is that you like need to shout out if they're not repaying you. This is in stark contrast to say other protocols that will say you give the money and they allocate things through a hidden hand. They decide who the capital goes through by underwriting you. Like, it is one-to-one.

And we've had loads of people come to us and say, "Actually, we want to diversify more than just lending to X, Y, and Z, but I don't want to maintain multiple positions." And that also seems fair, because it's a pain, especially if you want to like smash exit and get everything out as soon as you can. These are all fair. And we kind of saw them coming when building V2, but figured it was an improvement on V1, so we would deal with it down the line. So, we did. Who is familiar with the concept of a revolving credit facility in TradFi? Hands up.

Hooray! We really are the future of finance. Five of us. So, to be fair, it's probably more than it would have been at some other conferences, so good job, everyone. The way a revolving credit facility works is effectively a pool of money that's waiting to be drawn on. Um this is generally how credit lines work in TradFi. So, not like an RV market where you give money and immediately start accruing interest, or maybe some nominal amount. But what we're going to do is very funny if you like breaking this down standing here. We're going to allow for Wildcat markets to have two particular interest rates.

And I realize that by the time I'm saying all this, you've read it all already, so I'm just rehashing, but basically two rates. Like, what is the amount that I'm willing to pay just to extend the money, and how much am I willing to pay to actually borrow it? So, it could be something like we set up a market that says it's 0% and 10%. If you just give me the money, you get no interest on it. If I use it up to whatever amount the maximum, then I'll pay for that. Or maybe something nominal like 1% and then 9% or what have you. But the point is there's a split that reflects what things actually look like in TradFi, and that's proving to be because then what you have is someone who's waiting for half a million to come in or a million to build a house

doesn't have to pay interest until they know that they can make use of it in a useful way. Um that basically allows us to unlock a lot of interesting use cases on borrowers that have said, "We are going to come to the table if you can give us that." And examples of that are payment service provider companies. They need like liquid capital in order to generally like do FX stuff or, you know, request withdrawals or paying off cards. Or uh more generally, just anything that requires buffer capital, including um you you're seeing a lot of talk now about how do we solve the time duration preferences of people in DeFi. So, if we're extending capital to people that want to lock up money for, say, a year or so, but we want to have some people

with like a quick exit, how do we get that? And answer to that is something like this. You can loop a Wildcat market into it and pay off that way. So, it turns Wildcat from basically a deposit pool to an underwriting model of credit lines that are just It looks more TradFi. It's easier to kind of pitch them in language that they understand. I'm going to skip these two a little bit, but um this kind of also some things we want to build out that solve some of the more irritating parts where someone says, "I'm I'm going to create a market, and if no one's interested in it, then I have to close it in an embarrassed way, and it'll just always be there because like, "Oh, no one used it."

We want to allow for someone to say, "I'm interested maybe in using this. Who's interested in lending to me?" And if the answer is basically no one, then just nothing happens. Um you get to do some price discovery by saying, "We don't know how much we want to borrow for yet, but here's the most that we want to pay." And then everyone else can say, "I'm willing to lend to you when to mute at 10%. I'm willing to do it at 8%. I'm willing to do it at 12%." And you work it all out and say, "Okay, this is the clearing rate for everyone." That allows you to kind of if you are a believer in the theory that interest rates map to credit ratings, which I'm not sure holds, do a rough mapping of what we think entities in crypto are worth

in terms of like their junk rating or not. I will skip this, but it's It's the same thing kind of inverse. So, that's effectively what we want to do um to have, you know, a new way of extending capital to people. One thing I skipped, I talked about kind of payment service providers. One of the irritating things about Wildcat right now is a market can either be open term, which means I can deposit my money and then ask for it back in the next block, or I have to wait a specified amount of time, a a year or a month or however long. Um I think an example Is anyone familiar with what um Split Capital did with Plasma?

So, what they did was they asked for $5 million so that they could participate in the Plasma sale, and then they basically like I can't remember what they did to offset something and then they returned it at the end, but they needed to wait for the sale to happen. Um that is kind of a niche use case. What you want perhaps for like payments and stuff is I don't want to be able to access my money for 3 months, and then I give people 2 weeks to exit, and then I know how much I still have left. I can lock it for another 3 months. Again, making all of this stuff more palatable or acceptable to traditional entities.

Now, I mentioned uh at the start that we have a bunch of people that are asking for um exposure to more entities than just the one-to-one. So, one of the things that we've been wanting to do as well is how do we get secondary usage out of Wildcat debt So, if I lend to I don't know, um Aave on a Wildcat market, I will get a token that is specific to them, so like Aave USD. And it'll rebase over time, and uh then I I could use that however I want. We want to see if there's a way to get these things listed as collateral on other lending markets. So, a weird loop where, for example, you could use Aave USD, which is an like an asset backed by the faith in the creditworthiness of Ave

to borrow other assets like USD. The thing is, when you only have one counterparty, and that means that the bus factor of your collateral being worth nothing is one, which sucks. So, we thought about this a little bit and we've decided to follow the path of a couple of other protocols out there, um which basically you deposit your assets and they will give you a receipt token and there is a decision to be made about how those assets allocated. But they normally just give you one one asset. They say like this is X USD and we'll decide where it goes and then we'll return it to you as and when.

We think it would be simpler to or easier, more secure to tranche this kind of thing. So, basically you can have a system where you decide I want to buy into the senior tranche or the junior tranche of a collection of allocations. So, we're also not going to hidden hand this, you know, we're not going to decide this internally ourselves. Wildcard is going to propose a framework, which is also a lot more rigorous than the stuff that currently exists because every borrower on Wildcard is effectively just vibe reputationing um their uh their worth. You know, there's a couple of entities out there that will perform underwriting or credit risk analysis and give you results or reports and none are doing that right now.

If we are going to start require like bundling multiple borrowers together as the collateral, basically it looks like the Sky Playbook, except instead of collateral it's credit obligations as the backing assets. If we're going to do that, we're going to start asking for a lot more stringent stuff, you know, for example, credit risk analysis and certain like buffer amounts of how much you can mint, etc. Cat, you We haven't named these These are just examples. Wildcat's two syllables, so that makes it simple enough. We figure that if we have a senior tranche of something that is cross-disciplinary like multiple asset classes, so real estate, payment financing, crypto, and things, because the thing about crypto borrowers is that our correlation for disaster is a very high. You saw what happened on 10/10,

right? Everyone immediately The thing everyone says when anything bad happens, Wintermute sank. It's always Wintermute and it's never Wintermute, right? But of course, when no one says anything, everyone assumes that everyone's blown up and everyone panics. That's just part of being in crypto. If you have an an asset which is backed by things that are more than just crypto, so again, real estate, other things, perhaps commodities, heaven forbid. Then you have more safety or like confidence at least that some manner of peg is going to maintain that you're going to be able to receive your backing back if requested.

We can incentivize cat USD in various ways because you would want that to be quite juicy because the way it would work is any kind of defaults on the borrower side would have to be absorbed by the junior tranche. I imagine people here mostly understand the idea of tranching. If not, maybe I'll just post something on Twitter. Before any anything senior gets wiped out, but we're We're going to build this out in public. We're going to be asking for some advice and help and being told that we're wrong a million times, but this is something that we are planning on doing. It's not set in stone, but it's a direction we'd like to take.

I mentioned this already where we said we want to propose something that effectively runs as not as a smart contract, but effectively a an in the open set of requirements as to you need to do X, Y, and Z in order to receive exposure. This also helps solve this white knight lender problem where a borrower won't turn up unless they have a minimum commitment. Where what we can do in exchange is say, "If you meet these conditions and you are happy like you are capable or eligible to be added to the backing list of assets for a a tranche asset, you will receive funds. You don't need to necessarily know who the asset like the lender it is, you will receive it from the aggregate pool."

Which makes again for an easier kind of proposition to why should we start messing around on chain? And then the last thing, the last time I mentioned this in person was in Japan at EdCon in front of five people, four of whom I knew. So I will say it again. The the ongoing bit of recreating 2008 but on chain is alive and well. We talk about what happened that there's we've already talked about this notion of protection by kind of tranching exposure to borrowers, but more generally what you want to be able to do is kind of offset the default the counterparty risk of a borrower and we do that we with these instruments through a credit default swap. If you squinted it you could look at it and call it

insurance. But some of the the entities that exist kind of on chain for providing insurance such as the excellent Nexus Mutual generally probably don't have the amount of liquidity required to cover a default on mass of something that really like requires it. So we want to create a factory that allows effectively third parties anyone to perform underwriting and provide insurance for arbitrary borrowers. Naked CDSs are a bit more dangerous because they you can magnify things. You can imagine what it would look like with a billion dollars of an asset seeking the default of a $50 million wintermute market. But so we're not going to look at that in the near term.

A covered CDS is one where all of the capital required to provide that insurance in the event of a default is present. It's accounted for. We can see it. It's been like it's there. We think it would be useful to allow for someone to say here are my parameters of say recovery rate, risk of default, some other things do on chain. Provide the capital up front. People can buy this insurance by another name. And then the underlying capital gets deployed on chain to accrue yield in the event that nothing happens.

You know, so if a default is triggered on a market by someone not honoring their withdrawal requests, people who bought the insurance get to claim it because it's sitting in a in a vault. If it's not then the underwriter effectively just gets to claim it back at the end of their time. This should prove quite useful. The problem with a naked CDS, which is just that the capital promised for the insurance isn't necessarily on chain. It's it's a promise to to pay for it in the event that a default happens. Is that when you're dealing with crypto, the underwriter would effectively need to be like a Sequoia or a SoftBank level entity for people to kind of trust that they're good for it. Cuz otherwise, you know, if you don't trust your insurer, the insurance means nothing.

In a covered event, then at least you like it could be a fund that's interested in providing like some low-level yield or or you or me if we've decided like that's what we want to do. I've uh I'm not going to summarize everything. I uh I see everyone's eyes drooping. Um thank you for tolerating this so far. Um I'm personally excited about this, but it is my job and my deluded vision uh to bring this to everyone and we are intending to do so within the next couple of months. You will probably see audits for it coming out in about Q3. And uh it's coming along.

And you can go get your Apple prospects now. Thank you ever so much, everyone. Oh, wow. I really did take the 20 minutes. Can I get one question that isn't is it vegan? I don't. That's my mistake. I'm so sorry. Was That wasn't a question though. That was a statement. Anyone else? Yes. Yes, you're right.

You work for me, Andreas. What question have you got? The The one of the challenges that Wildcat has is that the debt tokens are rebasing. Yep. What's the plan on on solving that? Okay. So, we We about to launch um a 4626 wrapped vault contract. That's So, yeah. If you want to provide, if you want to bridge debt anywhere, for whatever reason you may have, or if you want to list it as collateral on Ave, or Euler, or Morpho, or what have you, you can't really list a rebasing asset. You can only really do that on Curve, because of the stable swap ng algorithm.

So, you know, we're going to provide a factory that anyone can launch, if it doesn't exist already, where you can wrap your your debt tokens in a I think it's What do we call it? V V what X, whatever the asset is. You can then just trade that around as you will. Um it's one of those nuts and bolts of the way that DeFi is weird, rather than something like actually useful, but it's coming out. I think we deployed it on Friday, and we're going to like launch the UI like today. Okay, grand. Well, as of today, you can get your non-rebasing debt tokens on Wildcat now. Did that work?

Grand. Thank you very much. Thank you very much for the lightning talk.