AMA - Liquity & LUSD | Founder Robert Lauko

Transcript

hey bankless nation welcome to another ask me anything this is your opportunity to ask questions of our guests and this guest is we're pretty excited about this is a new money experiment built on top of ethereum we're talking about liquidy today robert lauco is the co-founder he is our guest once again this is your opportunity to ask questions of robert about the project where it's going where it's headed anything burning in your mind david and i of course will get you started uh david new money experiments on ethereum's one of our favorite things to talk about what's the tldr of liquidy why did we decide to bring them on for this ask me anything yeah the tldr and i actually use liquidity as an example in

my uh coin coindesk talk on monday it's the tl dr is that d5 is in this inevitable highly competitive environment for capital efficiency uh and to me that's what liquidy represents is it's one of the newer projects that have come and debuted on ethereum and it's seen a ton of success in terms of uh just tvl like tons of eth has been deposited into liquidity and the reasons billions right billions yeah uh-huh uh we'll get those numbers up in a sec um and the reason why is because it offers really competitive capital efficiency rates a hundred and ten percent collateralization ratio and zero percent interest rates right like uh like zero percent interest rates on a loan like

there there is something that you pay so we'll we'll get into those details but like really competitive 110 collateralization radio zero percent interest rates like where can where else in d5 can you get those loans uh and that's kind of the story and the through line of defy to me is capital efficiency capital efficiency capital efficiency and so that's my rationale for you know why liquid liquidity has seen such success and why there's been so much demand to get this ama with robert small disclaimer i have a small seed investment into liquidity and so i have that uh to to disclose i guess so perhaps some subconscious bias but just know that uh and i think without further ado ryan should we just get into it we

should i have one quick question for you as well not only is this a lending uh protocol of course this is a staple coin right yes yes oh very very important data yeah it's a it's a governance minimized uh stable coin so one of the the through lines that we will be asking robert is uh why governance minimization always a good question but also like to what degree governance minimization right like there's always a spectrum uh and so good to know stable coin crypto dollars new money experiments all really exciting things guys we will be back with robert bring your questions in just a minute but before we bring robert on we want to thank the sponsors who made this episode possible ave is a borrowing and lending protocol on ethereum and just recently released

ave version 2 which has a ton of cool new features that makes using ave even more powerful with ave you can leverage the full power of d5 money legos yield and composability all in one application on ave there are a ton of assets that you can deposit in order to gain yield and all of those same assets can also be borrowed from the protocol if you have deposited collateral here you can see me getting a 200 usdc loan against my portfolio of a number of different defy tokens and eth i'll choose a variable interest rate because it's a lower rate than the stable interest rate option but i could choose the stable interest rate option if i wanted to lock that interest rate in permanently one of ave's v2

features is the ability to swap collateral without having to withdraw your assets trade them on unit swap and then deposit them back into ave ave does all of this for you all in one seamless transaction so you don't have to repay loans in order to change the collateral you have backing them check out the power of ave at ave dot com that's aave.com balancer is defy's most powerful automated market maker typical amms just have two tokens inside of one liquidity pool which can lead to fractured liquidity across the many pairs in d-pi with balancer you can access the full power of multiple tokens inside of one single amm which unlocks an entirely new playing field of possibility this makes balancer an awesome building block for

so many different use cases balancer pools can make asset indexes but instead of paying fees to portfolio managers balancer lets you collect fees from traders who use your portfolio for liquidity additionally bouncer smart pools can be programmed to have properties that change according to pre-determined rules such as changing the swap fee based on market conditions or even liquidity bootstrapping pools which can help you launch and distribute your token with day one liquidity at bank list we used a liquidity bootstrapping pool to sell our bap t-shirts to much success balancer v2 brings powerful new features that makes your money work even harder for you in v2 idle tokens are capable of generating yield and defy without sacrificing liquidity in the pool to top things off balancer is reimbursing all gas costs with valve rewards meaning that all your

gas costs are returned to your wallet with the balancer governance token balancer's mission is to become the primary source of liquidity in d5 by providing the most flexible and powerful platform for asset management and decentralized exchange dive into the balancer pools at pools.balancer.exchange guys we are back with this bankless ask me anything we're here with robert lauco who's the founder of liquidy that is going to be the subject of today this new monetary experiment on a theorem on an ethereum called liquidity robert has a phd in law interesting background he's also previously a researcher at dfinity so he's seen other blockchains too i believe he started this project in 2019 as well so he's been in the d5 space for a while too

robert it's great to have you on bank list how are you doing today hi thank you so i'm really happy to be on this show and uh yeah grateful to have this occasion and yeah i'm feeling great today that's awesome okay so uh i'm gonna be kind of the almost the dumb cop here robert because i think david knows a lot more about liquidity than i do so i'm gonna be the guy asking that the really kind of dumb novice beginner type questions and of course in d5 guys i say dumb questions there are no dumb questions we're all on this exploration journey together uh so well yes i'll try not to ask the really really dumb questions just the novice questions um so robert let's let's start here

what really is uh liquidy so it sounds like it's a stable coin or maybe kind of a a crypto dollar but what is it at the 20 000 foot view so what liquidity really is all about is borrowing and it tries to make borrowing as attractive as possible to the borrower and it does that by basically improving or by offering two things one of them being interest-free loans in a stablecoin that it can issue to the borrower itself and the other advantage is that the loans are only need to be collateralized at a hundred and ten percent collateral ratio so the loans they are collateralized with ether that's our

collateral type and that's how the system basically secures the loans and then the whole system is completely decentralized immutable and it's based on a network of decentralized front ends which is also kind of unique in the d5 space so robert would you say that borrowing is the main attraction because i notice you started there it's kind of a borrowing protocol or would you say the the staple coin output the crypto dollar output is the uh the the main attraction or these like kind of two sides of the same coin in your in your mind that's a great question so it all started with borrowing like we i really had this idea like one and a half or even two years ago

uh that gek what really makes boring most attractive and the two aspects that i just mentioned are among like the most important ones so it all started with borrowing but then i realized that in order to achieve those two goals um you need to be able to mint your own currency because otherwise you have capital costs i mean if you're like a matchmaker or you're like a pool based platform which takes money from lenders and gives it out to borrowers then you would need to pay some interest to the lender so you cannot offer your loans for free or interest-free to the borrowers so i quickly realized that hey this is only possible if we mint our own token and

normally people they want to get a loan denominated in something like in some currency that they are familiar with and in the currency in which they receive their salaries and that's for many people the us dollar and and so it made just sense to create a borrowing platform with this kind of stablecoin in mind which is a us dollar pack stablecoin which allows us to um offer those two benefits so what what is the the main driver here then is it kind of in in terms of expansion and i guess success of liquidity is it um demand for lusd the coin itself or is it is it demand for uh

the the unique borrowing opportunities that liquidity provides i mean at the end of the day we need both because the system needs to reach some equilibrium so there needs to be demand for the loans but also demand for holding or investing or like using the lusd i just is the name of our stable coin so we have basically incentives for both uh in place so for for the borrowers it's like we already like mentioned them the fact that they are attractive but then on the other hand we also needed to make sure that you can do something with your lusd that you borrow i mean either you sell it to other people who can do something with it or even you don't need

to sell it if you decide to put it in something we call a stability pool which is our main mechanism to liquidate positions i can maybe delve into more into that like later but with those uh with this stability pool we already created something that drives demand for buying and holding lusd our stablecoin and on top of that or in addition to that we also have a few pools in other systems like noun curve we had one on unisop now it's on curve where we give out rewards to the lps so let's go into that that uh stabilization mechanism robert because if we take a traditional model of like a central bank and they offer zero percent

interest rates like there's gonna be a ton of currency issuance right like if you make money free for people people are going to print it right and and so that's kind of the law of incentives right and so if so if if there's so much like easy access to you know zero percent interest rates with liquidity uh or excuse me liquidy uh where does the stabilization of l usd come from why doesn't it just drop down to like you know 0.9 cents point eight cents like where does the uh floor price for lusd come from i would say we have two uh different mechanisms that help us to achieve a stable currency and one of them is just this

like soft pack mechanism that is already present in other systems like maker dial where borrowers have an incentive to borrow whenever the token is overpriced or overvalued and they haven't like a stronger incentive to repay whenever it's undervalued but we wanted to have something which is stronger than that so what we added is a redemption facility so or redemption opportunity for every lusd holder and that basically means that you have this kind of right to exchange your tokens at face value for ether so you get like for 100 lusd you would get back a hundred dollars worth of ether from the system and that of course uh

offers an arbitrage cycle or possibility whenever the price trades significantly below one dollar because you can just buy the usd on the market for less than one dollar and exchange it through this redemption uh for something that's more than one dollar and then sell it and make a profit so that's just one side like this before you go on to the next one i want to try i want to just drill that home a little bit because i think the reasons why you are able to do this and why lsd is able to be stabilized this way and correct me if i'm wrong is l usd david lsd [Laughter] pardon me pardon me um

only one letter off um uh and so the reason why liquidy is able to stabilize l usd is because it has extra strong commitments to ether the asset as the only collateral right and so because uh because the liquidy is governance minimized and it only has one collateral type which is ether which has very strong competitive risk parameters you are able to offer this redemption rate regardless of what the secondary market price of lusd is is that correct um i would say i mean it makes it much easier to offer this redemption because we only need one we only need to care about like one collateral type i

mean in a multi-asset or multi-collateral system it would be much more difficult and harder to achieve the same redemption facility i mean ether has this nice property of being decentralized and being like the base currency of the ethereum networks of course it also adds to the stability of the system as a whole right so okay cool all right so let's go into the the secondary mechanism uh about how l usd is is stabilized yes i mentioned that we have this redemption which kicks in when when the price drops below one dollar and probably our system could have done just with this mechanism so the secondary mechanisms

like a nice to have in some way like not necessity but we'd also wanted to minimize redemptions as far as we could because redemptions they affect the bores because basically what the system does when somebody redeems lusd for ether then it would take the ether from the borrower with the riskiest position by riskiest i mean with the lowest collateral ratio so redemption from the boris perspective means premature repayment which may not be like to the interest of the borrower so that's why we wanted to minimize this friction for the lowest collateralized borrowers by introducing a fee and it's basically a double fee because

we have a base rate that determines two fees that determines a borrowing fee and a redemption fee now as the name already says the redemption fee is a fee on the redeemed amount and it's a percentage and the borrowing fee is a one-off fee like a fee that you paid up front but only once when you borrow and it's also determined as a percentage of the borrowed amount and both of fees they are they are basically the same or except for some like minor exceptions but normally they they move in tandem and the way the system determines the fees is that it would measure like the amounts or the volumes of redemptions that happen during a

time period and it would adapt the fee like whenever somebody redeems uh the fee would go up and if no redemptions happen over some time period then the fee would decay slowly and again reach the minimum and the minimum here is 0.5 percent for both fees like there is this minimum uh cost of a loan which is 0.5 percent so robert walk me through really quickly let's say i want to borrow a thousand dollars right lusd what what what fees am i paying how and how much are they right now so right now i guess it's 0.53 or 5 4 so it's almost the minimum so you would basically then pay a 5.40 um like you don't get this amount it's still part of

your debt like basically when you borrow a thousand lsd against let's say two ether yes exactly you could get 995 but your debt would be a thousand that's what happens okay and you pay that upfront you don't actually pay it but it's just par it's rolled into the loan up front and that is the only fee there's no interest fee that's the only fee and also i want to clarify here because that gets often confused that the redemption is really is not about repaying your loan like when the borrower repays their own position we call them troves like when the borrower repays the trove there is no additional fee on that like repayment is for free i mean the only thing is

that this kind of borrowing fee was added to the initial debt so there's no redemption fee just to clarify the only fee you're paying is when you take out the loan initially and that fee will fluctuate but that is the only p p uh fee you're paying and and you don't actually pay that it just kind of comes out of the it's rolled into the loan up front that's it right so we don't like we wouldn't use the term redemption for like this process of repaying and retrieving your collateral i guess it's better to like use the term maybe retrieval or repayment for that because we are using redemption very specifically for this broader type of redemption which is let's say

also um a thing in in terra for example or in in centralized or centrally backed stable coins like usdc where any holder of usdc can exchange usdc for u.s dollars and that's the difference so you're saying use the term redemption when somebody is um exchanging uh lusd for eth right that's the term you use and then retrieval when you're paying off a loan essentially yeah or repayment and then retrieval of your collateral that's cool and so the instead of having the you know the interest rates paid over timed in uh you know l usd denominated terms you have you guys offer zero percent but

you've taken that that fee and put it somewhere else which is a fee on the principal upon deposit right uh and so that you know this isn't completely magic there is a fee somewhere inst but instead of on the actual loan it's on on the actual deposit uh and this is just one of the one of the the principles that we speak of on bank list like if you can build it someone will build it right and so somebody has built this uh you know credit facility where instead of charging you interest rates over time it just charges you as a deposit and you said that there is like a you know a mechanism that uh i perhaps reminded reminds me of the rye system with control theory where uh there's

this there are inputs and outputs and the fee will go up or down based on those inputs and outputs but specifically not governance it's more of a of a you know more autonomous more robotic uh system and so that that control theory of uh how the the fee raises and lowers in an algorithmic fashion and also only have ether at only having ether as collateral it's like some of the probably the two biggest reasons why we consider uh lusd a governance minimize stablecoin anything you want to add to that and did i get that right yeah that's a great summary it's really governance maybe you cannot say it's governance free because it's still reliant on an oracle which has its own

governance but except for the oracle there is no single parameter or anything that we like as a company or the team or whoever like a governance body could change or adapt so and the aura calls chain link right now that's true we have a fallback a call by the way so if chaining fails and that's also part of our like philosophy we have a number of rules that are all algorithmically um determined like basically they they would like detect if there is an issue with chain link and then they would fall back or the system would then use stellar and then back when jenny comes back so that this i just want to wrap my head around the the borrowing piece um again so one thing that used to drive

drive me a little bit crazy about maker from a borrower's perspective is you go and you borrow on maker right and then one month you're happy because the rates are two percent and then something happens in crypto the next month right your rates are suddenly double digit you know i've seen seen rates i don't know if this was 2018 or 2019 it's all a blur to me no robert but like 20 plus percent on on a loan that you kind of took out when rates were like one or two percent um this can't happen with liquidity because you're paying up front and it correct me if i'm wrong but you can choose i'm not going to use the

word redemption you could choose to retrieve the loan pay off the loan at any point in time but you don't have to worry about that variability in interest rate is that correct right that's exactly one of the selling points that this one-off fee makes the loans not only cheaper if you have a long-term perspective but also much more predictable because you just and that's just it you kind of have to have a long-term perspective because you are paying this fixed percent up front so like you're not going to want to take this loan for a couple of days and then then retrieve it and you can't go in and out of loans all the time like with with

ave and compound and maker you can go in and out raise your loan lower your loan like you can kind of high touch loans uh to me an lusd loan through via liquidity is more of a low touch long term time horizon uh perspective kind of loan exactly yeah there's this trade-off that uh yeah i mean for very short-term loans it like the fee can be significant but i guess already after one month like with the current maker fees if you compare it it would become attractive very cool all right so you talked in there robert a little bit about uh lusd and its redemption mechanism as well we've had some turbulence lately in

crypto right some like pretty historic even uh drops lately um so can you talk a little bit about how lusd as a stable coin has or maybe crypto dollar david i don't know what term you'd use for this crypto dollar crypto dollar lusd as a collateral-backed eth-backed crypto dollar how it's performed i don't know if the best place to pull this up is on coin gecko but but that's where i'm seeing some some prices and it looks like this is the 30 day it looks like it held up fairly well um you know maybe during some of these days on wednesday again black wednesday is that what we're calling it i don't

know dark gray wednesday it wasn't great um we had some variants uh can you talk a little bit about that was this kind of to your expectations from a band of about you know 98 cents to stretching to a dollar and two cents like kind of a four cent band on uh the crypto dollar or like what's your take how did it hold up during this recent market turbulence maybe one note on that so we we just noticed that this chart may not be like may not reflect the real price because it had apparently has some issues with the curve um pool so i mean we the our largest uh lsd pools are currently on curve and

from what we can see there i mean we just created our own chart uh it it had it i mean it was a bit more volatile around like may 20th or when this happened but uh the deviation was a bit lower i guess it wasn't more than three cents um at least on curve um so yeah but i mean there was uh the very few uh spikes in both directions um which i mean it's hard to say why that happened so we like what we can say i mean what we would expect is that whenever there is a sharp ether price drop then people would want to repay their loans or some people would want to top up

their collateral but others don't have the means so the only thing that they can do is either partially or fully repay the loans to um to prevent liquidation i mean they don't want to be liquidated because then they lose even more so um and if people are trying to close their loans so to say that would have an impact on the lsd price so normally or in theory that should rather drive the price up and down and that's what happened with die and usdc uh a year ago or so like a bit more than a year ago in this black swan event and there were like there are also some like academic papers on on that very topic but now in in our situation it was a bit different

um so around that day and also the the following days the price it was hovering maybe around 99 98 99 cents and the reason for that i guess i mean it's hard to tell is that uh um i mean we have this stability pool so in our system people many borrowers have their own tokens in the stability pool and if they don't they can or when if there is somebody in the pool he may have an incentive to take out the lsd from the pool and uh put it like or sell it somewhere in the market because this pool gets less attractive as the lusd drops below one dollar so this kind of stability pool

can also act as a stabilizer in some way so it would basically give more liquidity to the market so that borrowers have more liquidity available to buy in order to repair the loan so that may be one reason why why we didn't have this kind of sun spike upwards and also another reason is maybe that i mean elias is quite a new prod or liquid is quite a new project and lsd is not acting as a safe happen maybe as usdc will when people are like just selling their ether for for for and uh like whatever stable currency yeah i guess i was going to say like it it seemed to perform relatively well in not quite a black swan but a grey squad

swan type event 60 percent ether lost we would call that a black swan if uh the cove crash hadn't already happened yeah or definitely if we were in mainstream finance that would be like like like incredible volatility um unprecedented volatility but like i guess i it seems to me lusd held up fairly well in these types of conditions so it's nice to i mean you guys are lusc is like what uh a month or so in launch in april and uh you have one of these 60 drawdowns in month two um not too bad yeah yeah so we are really happy with this outcome and it was like an early stress

test of our system and i guess this will also give some users or some prospective users uh like confidence in the system so that they know oh the system has already survived something which is almost a black swan event so uh yeah they should trust it even more than before robert uh you mentioned that the coin gecko uh price for l usc might not be the best place to to view the price where would where do you go when you want to see the general value of lusd on the secondary markets is there a resource that we can point our listeners to um so we just created a new doom um page for the curve price

i'm not sure if i can share it maybe i could do that um put a link in the chat and we'll i'll um i'll i'll show it on my screen in just a minute and i'll put it in the youtube comments right i think i have it right ready cool um so it uh this may change a little bit still robert okay let me just show that really quick so this is dune man dune does everything don't they uh it's just still loading let me share it as soon as it loads here cool i hope my dev created this will forgive me for showing off his like early work like kind of in progress so you see like

the middle um chart uh it is we have to that the x's are a bit like off but uh you can see that there was this uh like under price um event but if you hover over it it should show i guess the price it was like three cents off the usdc wow wow that's crazy because like you know three three cents is far off the peg but like we have to put things into perspective ether dropped 60 percent three price three percent or three yep three percent off the dollar for a you know call it 24 not even 24 hours relatively is like really good that is what stability looks like

well last time so just what's interesting i think about liquidity in this protocol is like um last time we had such an event 60 drawdown was actually black thursday in march and i remember looking at uh maker that day and just like crossing my fingers like come on die come on pull through but like uh price is spiked to a dollar eight cents dollar nine cents a dollar ten cents on some exchanges and what's interesting about that is the remedy part of the remedy following black thursday for maker was what are we gonna do we have to add a whole bunch of uh centralized collateralized bank crypto dollars uh i'm using the term accurately now

david not stable coins crypto dollars so usdc and now we have a point where you know the the compilation of of die has changed over time and it's gone up and down but now i think it's something like a third of dai is backed by usdc and as advocates like the show is called bankless right like the show is called bankless guys coinbase is god blossom uh crypto bank we like them as a bridge to this new world but if all we're left with is crypto dollars from a crypto bank what have we accomplished here right right so that that that's why this is a really interesting niche like maker

great experiment it's running hugely supportive of mkr die defy but this is another experiment and it's not backed by any uh central centralized bank crypto dollars it's backed purely by eth and it held up in a gray swan 60 drawdown event that's what's cool here in my opinion yeah there is something to note of uh you know existential risk of like what happens if all of maker dao is really just one collateral type and if that one collateral type is ether that's one thing if that one collateral type is a usdc there's existential risk with you know circle and whoever controls the usc

smart contracts kind of has leverage over the maker dow system but then also it ultimately ends up just becoming a an extension of the actual central bank right if if the collateral is just like the dollar um the actual dollar not crypto dollars uh and so um comparing and contrasting maker to to something like uh liquidity is a really helpful in this scenario and kind of why like you know ryan and i when we when we put on our ethmaxy hats and we see a a uh an l usd that's bankless max c sir bankless maxi hats yeah well ether has the most one of the most bankless assets in the world uh it's it's very very competitive to a a system that seems to be like un like ether to me is like the uncorruptable

asset right and so having the uncorruptable asset as the only collateral type and then having that stable coin stay up awesome robert i gotta ask here because like um this seems like maker with tweaks really cool tweaks to be honest um what about that oracle thing can we get that out can so chain link uh had chain link got on explained oracles to us awesome but it is also an attack vector do you have any thoughts on how oracles might progress and whether we can get to an even more trustless set of oracles or oracle solution with liquidity um yeah that's an involved question so i

mean given that we cannot upgrade our system even if a new oracle became available in the future we cannot like simply just take it and include it i mean we will need to deploy a new version but i mean maybe that would be a good reason at some point for a version two but uh but generally speaking i don't quite see that many options on the in the oracle um space right now that would be like a good alternative i mean we have telor for example as our fallback i mean it is it has this kind of decentralization approach as well which i really like but it's the thing that i see with oracle's is that there is a very um sharp or

difficult trade-off between security and decentralization because i mean at least with the current gas prices oracle providers need to be paid but at least compensated for the costs and if you want to do that in a completely decentralized fashion somebody needs to pay for it and this may be common issue because you also need to to somehow i mean if you do it look really decentralized then you need stakes that are locked up that can be punished or slashed if people misreport or like the the the providers misbehave so you need to be able to extract enough revenue from your users using your

oracle so that you can give it back to the oracle price providers or give back a high enough yield so that they would stake like millions or billions of ether or dollars worth of ether so that you can then secure a system that now like our system has like maybe a tbl of 2.5 billions so you need to create an oracle that has a similar tvl um that the system or even the hierarchy that the d5 applications that is that it is powering and that's kind of difficult to achieve what about what about unit swap and sort of a time weighted average oracle solution that they have put together does is that helpful in any way

so it also comes with its own trade-offs and i'm not even thinking of the fact that you have this tivoc period where you have uh the issue that you need to set like a long enough period in order to have higher attack costs but then your oracle won't be as like up to date but there is this other thing i mean unisop is only able to give you a price for between two tokens and then like what would be the other token against which we can measure lsd i mean we can measure it either against our competitors so to say stablecoin or against centralized stablecoin so then it becomes it it inherits these issues from like the fact that centralized stable costs may

go down maybe in the future and then this would also have an effect on the oracle price so even that wouldn't be a perfect solution robert one last thing before we break for sponsors um i just want to show this screen which is ethe locked in liquidy um actually this is yeah this is east locked in liquidy over time april 5th all the way to now we've got had over a million eth locked in liquidy one percent and one percent um five billion dollars at its peak and of course that's related to price of eth too um how did how did this happen so fast yeah we were blown away by this growth ourselves um so

all like already during the first 10 days it reached 1 billion and then around two weeks into the life of liquidity there was one big throw or like a super this one i think i see it i mean we don't know it for sure but uh rumors have it that it was just in some who just opened like a crow with 660 6000 600k or a thousand ether which is kind of crazy um yeah and but but even like without him uh i guess the rest is already remarkably high and uh yeah i mean we wouldn't have expected

this but now it's uh it's there and it happened like amazingly fast when liquidy on tron sir is it coming i don't have to answer that question robert we have a bunch of youtube questions that we want to get to and thanks everyone who have been in the youtube asking questions and patiently waiting for me and ryan to get to those so in the second half of this anime we are going to get to all of those youtube questions but first a moment to talk about some of these fantastic sponsors that make this show possible bankless is proud to be supported by unit swap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an autonomous piece of

software on ethereum which is what ryan and i call a money robot no human counterparties or centralized intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to buy something brand new in the uni-swap ecosystem is the unit swap grants program is now accepting applications for grants we have been saying this for a while and we'll say it again dows have money and they are in need of labor if you think that you have something to contribute to the uniswap dow apply for a grant to uniswap just look at the size of the uniswap treasury it's almost three billion dollars this mountain of capital is looking for labor do you have something of value to contribute to the uniswap dal no matter how big or small

your idea is you can apply for a uni grant at unigrants.org and help steer uniswap in the direction that you think it should go that's exactly what we did to get uniswap to be a sponsor for bankless and you can do the same for your project thank you uniswap for sponsoring bankless gemini is the world's most trusted cryptocurrency exchange i've been a customer of gemiini since i first got into crypto in 2017 and it's been my main exchange of choice to make my crypto buys and sells gemini is available in all 50 states and in over 50 countries worldwide and on gemini there are markets for over 30 various different crypto assets including many of the hot defy tokens and it's one of the few exchanges that has liquid dye markets gemini just launched their earn

program where you can earn up to 7.4 interest on 26 various crypto assets if you're tired of paying fees and defy or you don't want to worry about defy exploits but you still want to earn interest on your crypto assets gemini earn is the product for you another product i'm stoked to get my hands on is the gemini crypto back credit card which gives you three percent cash back on all of your purchases but paid to you in your preferred crypto asset when i get my gemini credit card i'm going to make sure that i get my cash back in eth so whenever i buy something i get a little bit of eth bonus back to me at the same time you can open up a free account in under three minutes at gemiini.com go bank list and if you trade more than a hundred dollars within the first 30

days after sign up you'll be gifted a free 15 bitcoin bonus check them out at gemiini.com go bankless all right guys we are back with robert from liquidy and we have a bunch of questions from the youtube that we want to get through starting with uh adjusting a question from justin dover are there any other assets coming to liquidity other than ether is that possible and is that something that's on the road map it's technically impossible with the current version and it's not on a in our short term or not part of our short term roadmap but we are still open for future asset types that become available

and that are suitable for for liquidity being like a decentralized and uh and like system so those collateral types need to fulfill a certain set of criteria like being large enough like the market cap needs to be like large enough so that we don't uh become the main driver of the price and also it should be decentralized and like high quality uh just that just to be short but then go ahead yeah so when this becomes available we would of course evaluate the possibilities and uh and see what what we can do out of it robert when i say things like uh ethan's the only trustless collateral on

ethereum people sometimes call me an ethmaxy um sir are you an ethmaxy yeah i wouldn't say i'm not an ethmaxy so everything is just trustless in its own way i mean in its own right and nothing else comes really close but you never know what what will happen in the future and and what people come up with so you should always stay open for new innovations and yeah i mean that's i think my philosophy there's um we've come across a number of conversations that have uh had some sort

of just like sure that's possible but we would have to redeploy uh liquidy into like a version two right like if we wanted to update the oracles if we wanted to add a collateral type so is that something that you guys are are chewing on like a liquidy version 2 where we take a bunch of positive ideas and integrate them or is this something that you're the jury is still kind of out on and you guys aren't yet convinced about we are in this phase that we our system is still young and we there are a few things that have already come up that we we are like evaluating some inputs or some things that we may want to improve in a future version but i mean it's not like currently our short-term goal that we would start working on version two but

we keep collecting improvements new ideas uh that could at some point in the future lead to a version two that would uh be um like a massive improvement over the current system and robert am i right here when we talk about version twos right like we're not talking about governance being able to um vote and you know uh change kind of multi-stake holders and redeploy updates and deploy updates that sort of thing we're talking about a version two and the way like uniswap has a version two where version one doesn't really die you know version two comes along version three comes along and if the market wants those versions then it goes and starts using them that's sort of the uh governance by fork i guess

you know um approach that you guys are taking too similar to uni swap is that correct exactly so that's uh the idea that people would choose either to leave or state love that another question from uh justin dover do you have any migration plans to go to optimism polygon perhaps arbitrarily do you have any uh implementations with l2s that you guys are working on that's a bit similar though we have maybe put a bit more effort into exploring those solutions um we are currently in this wait and see phase i mean we see that there are a few options like there is polygon which is already quite popular but there are a few technical issues with all of the solutions that we have

com come across so it's not like as easy that you could just simply take the system and deploy it on an l2 solution even though uh they are evm compatible but there are a few minor details that are not that minor that you need to change and we won't we don't want to rush into those in this decision like probably there will be something because ether or ethereum is just not scalable and it would be nice like theory system that's much faster but for the meantime i would say it's more real or for the short term it's more realistic to expect some maybe like only partial integrations maybe in

the sense that their usd would become tradable on a layer two solution so that you can trade it like for much lower gas costs over there and then maybe bridgette like get back to the main chain like through a bridge what about l usd integration the integrations into various different defy apps we just talked about how you know ryan and i are have you know some concerns in the back of our minds about like too much usdc inside of maker dow to help stabilize the die price like what about l usd in in maker dow like that i think would be able to step in it in a good direction uh any other places where l usd can get integrated into defy that you guys yeah so maker dog would be interesting

though we haven't really uh thought of that right so other d5 projects that could be interesting or like alchemics for example but also frags um where it could be used as collateral um i mean there are also other places which are a bit easier or even more obvious like just the dexes like curve and and other maybe sushi swap where we would just spread like make sure that like liquidity is available on on different places and yeah i mean we also we're also like happy to see that some wallet and automation services are popping up or stay they they are now close to ready to integrate our system

and to name a few i mean uh yeah i'm not sure if i should name them so but there will be some news on that in the short term future like you know we are already on xerion and we are also an argent but they are similar like automation tools yeah that's super cool like we we do not want d5 to be dependent on a centralized bank crypto dollars right and like with usdt and usdc um like these are all options and alternatives but if d5 becomes dependent on these then we lose something so having lusd there is uh is really fantastic um the the other thing that i find

interesting is uh you guys don't build your own user interfaces which is kind of different right it's like your approach with user interfaces correct me if i'm wrong is like you're providing the smart contract uh infrastructure you're building the protocol but there's no like official blessed liquidy user interface you're depending on like zapper or xerion or anyone who wants to spin up their own user interface and so we have tons of different uis available is that the case and why that decision yeah that's a great question um it's not as that we wouldn't or that we haven't uh released any ui it's just that we are not running it so what we did is we launched with the relatively basic bare bones ui launch

kit which we provided for free like for download and the protocol has some enshrined incentives that make it attractive for third parties to run a front-end because they get like the share of the reward based on the turnover that they generate or the users generate and i mean what we expect from that is some kind of competition and innovation from our front end operators because they are like competing with each other and they they also have another level which is a kickback rate they can set a rate which determines which part of the reward should go to the end user and which part of the reward should remain with the front end and then also they can compete by by

adding new features by improving upon our launch kit and we have already seen some innovation but we expect to see more in the future and we know that some frontends are already working on really interesting features which uh yeah will become available probably in the next few weeks maybe the bankless dow is listening to this so there's some incentive to build front ends to bankless products somewhat interesting can we talk about the incentives so uh is this like almost like a liquidity mining type campaign so if i if somebody builds a front end what is the incentive and maybe this turns into the liquidity tokens next lqty

can you talk about the incentives there and let's start talking about that token too yeah maybe i should start with the token um at the beginning i mentioned we have two fees like the system generates revenue from the borrowing fee and the redemption fee and it captures this revenue and it gives it out or it pays it to the stakers of our secondary token the lqty so everybody can stake the token and then become eligible for parotta share of the fee revenue so that's what makes the token valuable in the first place and on top of that we have a liquidity or mining or yield farming system if you want to use that word

which basically uh gives the stability depositors like whoever secures the system by depositing lusd to the stability pool would then become eligible for like kind of a community payout like the system would pay out of like newly minted lqty tokens to those who are in the pool like again on a peralta basis so the more you you deposit to the stability pool the larger your your share is and then you can basically by staking or sorry by depositing llc to the pool you will get some lq divide over time and then you can stake your lqti in order to get the fee revenue so that's the system

uh how it plays together and then also we have the front ends and they tie in through uh this stability pool so whenever a user that goes through a specific front end um deposits lsd to the stability pool then this user would become eligible for like getting a continuous payout of liquidity tokens but the system would maybe only pay out 95 percent to this user because this five percent would remain with the front and like the front-end could set this kind of kickback rate and then the 95 percent would be the kickback which is paid out to user and the five percent would stay with the

front end it's like a referral fee basically yes and it's yeah and it's based on the turnover so it's not just based on usercam but yeah it's also adding a ton of surface area for competition which at the end of the day competition is always good for the customer uh and so you're i think it's pretty cool that you're leaving a lot of competitive innovation into the hands of of the implementers rather than the team itself uh kevin owaki on our state of the nation stream yesterday talked about decentralizing stress uh and so handing off responsibility over to people who want to compete for for reward sounds like an interesting way to do that um robert we're coming down to the end of

uh our time here and so we just have one a few more questions that we want to get through and everyone who's watching on the youtube thanks for being here it's your last chance to get in questions also subscribe to the channel and like the video um and and robert i want to ask about the lqty token the liquity token uh using uh the mkr token as a mental model mkr gets uh minted or issued or diluted to uh in the event of uh you know liquidations where the system cannot uh come up with enough collateral is there a similar mecha mechanism with the lqty token or or what is the lqty token in respon or in relationship to the protocol we don't have a similar mechanism so there is no minting

in in case of an emergency so the equity token has a hard cap it's a hundred millions on its supply what we have instead is a recovery mode which kind of acts as a lost like as a way to rescue the system in case of an under collateralization risk but we don't need to dilute the equity supply and so how does the lqty token capture value um i'm assuming there's some sort of uh fee capture mechanism uh going into the liquidity token yeah so we have the two fees the borrowing fee and the redemption fee and they are both captured and paid out to the stakers of equity tokens so it's not a buyback and burn model it's a fee

revenue model it's a capital asset it's like a dividend payout rather than a buyback why do you like that better um good question it's somehow easier to reason about i would say though economically speaking i think in a perfectly rational world the two should be economically equivalent but for some people it's easier to reason about like or that you can keep your principle like you gain something it's like psychologically maybe more attractive than just the outlook of like a raising rising token price why do you why did you say over the long term a buy back and burn model or a capital asset model is logically the same how do those converge upon the same

things over time um yeah it's probably hard to tell i mean the idea is that you i mean when you burn tokens um you would do that i mean to get somewhere i mean there is some reason why why the system can burn tokens and that's like for like let's say like you capture the feed through burning and it's the same value that you can capture through burning that you would be able to pay out to the stakers maybe there is one like slight difference here which is that when you stake there will always be non-stakers like it's not realistic to assume that 100 of the tokens will be staked so it means that the lazy or like maybe the

ignorance they will lose out so whoever is a staker would get like a higher relative share while with with um with the burning mechanism every holder um benefits in the end because the way it's a bit more active um and and so how do you think do you think that fees paid to the uh to the system are going to be like relatively stable over the long term or is there going to be waves of high fees and troughs of low fees what kind of data or speculation do you have on this so what have seen so far is that the fee revenue is very variable like it varies from day to day and it can go up by 10x and then plummet by by 20x and like it's

really uh but you have to look at it like in a longer term perspective like you cannot say that uh like the revenue will be stable so that's like maybe the part in our system which is a bit like unpredictable for for the sticker but you also have to take into account that you have no risk i mean as a staker you get your principal back so it's like a yield that you get without any added risk i think what's cool about that is i think we'd only see a design like that in a d5 protocol because in the traditional financial world um that level of variability i mean they probably wouldn't like that you know traditional bank having you know a a 10x spike and then nothing for you

know a period of time and then another huge spike but like a protocol doesn't care um anyway i have a final question for you robert it's been a pleasure having you on today to explain this um really excited about what liquidy is doing what other stablecoin or crypto dollar projects out there seem the most interesting to you um i would say i like the hybrid approach taken by frags it's an interesting approach because we have seen that like purely algorithmic stable coins will probably are probably destined to fail while other protocols like liquidity are

like need to be over collateralized but then there is maybe a middle ground that can can work which is less or even more capital efficient if you look at the macroeconomic numbers than liquidity but i mean it's a completely different system it doesn't use like borrowing as its main driver and backing mechanism and then in general on the categories uh it sounds like you're kind of bearish on purely algorithmic still stable coins is that correct do you think a good staple coin stable coin crypto dollar design needs to be collateral backed in some form i fear that it doesn't really work without any collateral now there are like some

projects like terra for example and synthetics in a sense that are kind of using their own collateral which is a bit similar to the algorithmic ones but also it's also kind of a hybrid approach between the fully algorithmic stable coins and and the fully backed stable coins and i mean they have proven to work so far but nobody knows what will happen in the future and uh tara recently had some troubles with that uh grey swan event but hey guys sean bankley's let a thousand flowers bloom we are experimenting uh and uh you know the bet the best protocols will rise to the top over time so robert thank you for guiding us through that

yeah thank you for having me robert if people want to find out more about liquidity and join the community where should they go they should go to liquidity.org and just find our discord and join the community it's a very active community awesome awesome well guys thank you again for coming to this bankless weekly a bi-weekly excuse me ama with robert from liquidy if you guys are watching on the youtube make sure to like and subscribe because we do this every other week and we also want to know from you who do you guys want to have on next on the show who what what questions what projects what people in the space do you guys have questions for and that's why you should subscribe to the youtube uh

and ryan will you please do the canonical disclaimer of course i will uh guys eat is risky defy is risky so is liquidy all of this stuff is risky you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bank list experience you'll get access to our

market analysis our alpha leaks and exclusive content and even the bankless token for airdrops raffles and unlocks if you're interested in crypto the bankless community is where you want to be click the link in the description to become a bankless premium subscriber today also don't forget to subscribe to the channel for in-depth interviews with industry leaders ask me anythings and weekly roll ups where we summarize the week in crypto and other fantastic content thanks everyone for watching and being on the journey as we build out the bankless nation