DeFi by Design EP#104: The Rise of ETH Liquid Staking w/ Daniel from Swell Network

Transcript

foreign [Music] by Design where we talk all things blockchain and cryptocurrency while striving to educate Empower and generate what is going on the roll up welcome back to the roll up YouTube channel Spotify Twitter wherever you're watching this uh it's a pleasure to have you back in GM PM uh today we have a very special guest from The LSD liquid staking ecosystem we are talking to Daniel from swell he is uh the proud uh the proud Builder behind swell Network which lets

you optimize your yield on each staking we're going to be talking about all about eat staking uh liquid staking we're gonna be talking about validators um all across the uh the ecosystem here as it as it pertains to ethereum after the merge um so I'll give a quick context right ethereum with proof of work now it's proof of stake and the merge made that happen we're going to be talking about why they did that uh what what we've seen changed um what what Daniel has seen at Swell Network as far as uh Capital efficiencies and yields um ultimately how he views is the future of finance and the future of ethereum So Daniel thank you so much for being here it's an absolute pleasure um the lsd5 space is taking off LSD

obviously uh means liquid staking derivatives most of our audience probably knows that otherwise they just think we're degenerates and we're gonna be talking about it man so welcome to the channel um and uh how you doing today pleasure to be with today Ruby and uh share that to all the roll-up listeners cheers man yeah so our audience is has uh probably been with us most of our audience has probably been with us for that transition from proof of work ethereum had a two and a half eth block reward going on you know a few years um and now we're proof of stake and that

means that the consensus algorithm right the the math that means that no one is spending more eth than they actually have is now secured by a whole bunch of people staking in this in this big pool this big pool of validators and all these validators talking to each other and making sure that you have the right amount of Ethan I have the right amount of Ethan he has the right amount of heat so what what is like maybe we can start as like a first principles uh at a first principles level with proof of stake and we can get into some of like liquid staking and what that means so can you kind of give us a high level first principles why are why do blockchains and and specifically

ethereum use proof of stake uh as a a ordering mechanism and and why why does ethereum use proof of stake yeah sure it's a great question it's a good place to start from the principles so effectively the transition from proof of work to proof of stake was always signaled early on in the theory of development and we really saw that initially with the instantiation of the beacon chain back in December of 2020 so you had this simultaneous uh Beacon chain and but then uh ethereum pow blockchain and we saw the merge come through which saw the um the transition from uh from a prw to POS since September of last year and

then that was a Monumental milestone for ethereum we've just passed another one more recently in April this year with the chappella upgrade which effectively really cemented ethereum as a full POS Network where you could also withdraw the staked assets and this idea of POS or proof of stake really goes at the heart of blockchain technology in the sense that it is a quote-unquote consensus mechanism effectively it's just a way for folks to be able to ensure the Integrity of what is effectively a decentralized database a ledger if you will and to that entire crypto economic system uh but put more simply

um I think for the majority of your listeners people are sort of looking to get involved in staking and so effectively what staking does and I'm talking just general staking not liquid staking is you lock up your eth or your assets and in return you're providing a service to the blockchain you're validating and in return you get staking rewards and those rewards are nominated Neath and that's the entire sort of issuance mechanism and how you are repaid for your efforts and your values are being put to work and the more people that stake the more security the system has and hopefully they do it in a decentralized sort of manner that's the high level

got it that makes sense and there's there's a few ways to think about it ultimately you're you're providing your Capital uh to the network as a service and you're paid for that service we've seen other networks do it differently uh we've seen um in the Bitcoin network uh miners contribute their capital in the form of energy in the form of electricity by contributing it through these miners um they are paid for that service they mine Bitcoin uh similarly in ethereum uh you provide your Capital it's in the form of eth uh you're paid for uh the service that that you when you provide your Capital so that that I think is relatively foundational when it comes to like blockchains and crypto economic

systems so now you you highlighted staking and I think you know that's that's been in the web 2 News in terms of like Trad fi and some centralized exchanges there's a lot of Regulation regulatory talk about it's coinbase offering a security by offering this staking product we're gonna I think we'll leave that out you know for the most part of this conversation but you did highlight you mentioned uh staking in general and that's not liquid staking so maybe now you could can you highlight the difference what makes staking liquid sticking sure um so the fundamentals of staking generally is that you put your Capital to work you lock up

your Capital you stake it and in return you get to take rewards and traditionally before the Advent of liquid staking the Staker had a choice if I was a Nick holder and I wanted to participate in staking normally I'd have to choose between staking or participating in something like D5 so before the advert of liquid sticking I'd either have to get stake Awards or I could use the ease to Mid die I could provide usdc liquidity or something like that right so it was always a trade-off and what liquid staking did was enable you to have your cake and eat it too so you could do both and the mechanism by which that was made possible was through this concept of

rehypothecation in other words what happens when you stake your eat with a liquid statement protocol like swell genuine Liquors taking protocols that are at the crypto economic or crypto primitive level will issue you a receipt token some people call it an LSD other people call them LST liquid statement token Liquors second derivative but in effect what it is is a receipt token it's a member representation of your state eth on the beacon chain and what you can do with that token now is you can earn the second rewards so in effect you're like earning interest or earning yield and you can also use that to Mint a stable coin or you can use it to provide liquidity and that's now being accepted as collateral and in some ways

it's becoming the most preferred and most platformer collateral so it's a very powerful uh crypto economic primitive because you can do both now so in effect what's happened at a systemic level is that people are able to uh they're able to get more security and at the same time D5 has been able to grow and we've seen this narrative come through which is lst5 and at the same time there's more and more East State and that's been really accelerated by liquid soaking got it and and now we're kind of seeing this trend unfold right because the merge was six months ago about roughly six months ago I think it was in about February of this past year or of

2023 so this is in August um which which makes it about six months that we've been in this post-merge proof of stake type of system and there's a really great website I'll give it a quick shout out it's called ultrasound.money and it kind of highlights a lot of the uh a lot of the statistics of this proof of stake world that ethereum is in um some of the other characteristics are that eth is now deflationary sometimes so it has this Burning mechanism uh that burns some of the fees and takes eth out of circulation when the network becomes very congested um

and this is this is another form of kind of the controls that happen in a decentralized way for Capital inflows and outflows to make sure that this system remains healthy so kind of taking a look at like ultrasound money in the statistics that and data that we have for this first six months of eth in a post-merge world what are some takeaways that you have just by you know kind of loosely observing some of that data um how maybe how often ether's deflationary do you have any like just Milestone conclusions at this point about like is this going well is this transition problematic potentially like what what are you seeing in the data

from the last six months and the first six months of this of this uh proof of stakey theory yeah sure so just a couple sort of qualifiers um before going into like a projection or interpretation of what the data is showing at the moment so the bird mechanism which is a primary mechanism to enable the deflationary effects on East Supply or new issuance um was uh EIP uh 1559 which was much earlier than the most the merge uh happened in September of last year so we've had a couple a bit longer than six months of data

um to look at things but what we have seen is that the ultrasound it is sort of app that you pointed out ultrasound money because that is effectively the mental model for what Ethan is today it really is ultrasound money um and it's a good contrast to you know traditional Fiat or unsound money in many ways in one in one case you have this hyperinflation Mary sort of uh you know the the debasement of purchasing power on in one one side of the financial system and then within the ethereum ecosystem you have ultrasound money that's triple point asset Global sediment layer type thing for ethereum and I think what the data's shown is that um a lot of the risk in ethereum's

overall development and maturation as a blockchain has really been sort of worked through um it wasn't too long ago where people were sort of uh very skeptical and highly pessimistic about could ethereum do the merge could ethereum enable withdrawals that's what happened and now we're at a point now where we're starting to see more and more East States so it's it's like the Lindy effect on ethereum is just continuing and we're seeing more and more Primitives and things being built on top I think the timing as well for this particular show is uh impressive because you know we just had PayPal I mean one of the largest we've got the largest fintech company in the decided to issue stable off the back of an ethereum blockchain and that further reinforces

ethereum as this Global sediment as this Baseline infrastructure for the future of finance and I think the mechanics overall are really an enabling Force for that thesis to play out why I'm glad you brought that up uh with respect to PayPal that that's a massive uh uh move the needle type of partnership and and deployment um what why do you think PayPal chose a public blockchain like ethereum rather than building their own closed wall Garden I think there's been like a significant development in just the use case or the value of a public blockchain over

a private blockchain private blockchain is basically glorified centralized database and we've run that experiment with IBM and other sorts of things in the earlier days of blockchain development um things that are open source things that are censorship resistant things that are and can be verified by anyone all day every day has really the that's a whole point of blockchain actually um is is the blockchain and so I think that um the decision for PayPal hopefully others follow suit as well is really an opinion about what the future of Finance looks like and one of the strongest uh product Market fit

um sort of developments over the last couple years has been stable coins and that's the stable coin is really the thing that will inject a lot of exogenous Capital into the system that's the thing that will get folks um that aren't sort of crypto native to utilize um crypto and this technology without even realizing it and that's how we're gonna in the sort of vein of you know web free talk um onboard the next billion users yeah yeah yeah I certainly agree I think I mean we've seen right like swapping and there's some there's some like money Legos D5 Primitives that are like only only available to us because of uh

significant movement in in blockchain technology in the building that that's taking place on top of blockchains um these functionalities were were always there right lending and borrowing swapping right the method of Exchange it's always been available to us it's just now available to us in a decentralized manner and like people like that crypto people like that D5 people like that but it doesn't quite move the needle for a normie if you will because you know they've always been able to do something like that the fact that it's decentralized now is just kind of like oh that's nice but I don't really you know it doesn't really make a whole lot of difference the idea that now um there are there are stable coins that

are providing uh easy methods of transfer uh instant settlement um I can actually get paid quicker uh these are and I can I can then take that money and then send it to someone in on the other side of the world in the form of a remittance these are all moving the needle for for like the billions of people that are out there and PayPal has the brand trust and the Loyalty with those end consumers so that they don't really have to change their behavior right like they're just gonna continue using PayPal right but now under the hood PayPal is going to settle on this public blockchain which is it's not just the blockchain and I think that's really important especially for our audience to

understand is that it's so great right I like I love that these billions of people are are onboarded to blockchain but that's not enough it's important that they are onboarded to a public blockchain and and the idea that the fact that now PayPal is using ethereum is a great example of why public blockchains as as you alluded to have inherent value in them that private blockchains don't have the ibms and the experiments that were ran for supply chain right those those Are Walled Gardens and they don't interoperate with other blockchains that exist if if PayPal was to create its own private blockchain they would recreate a flawed system right correct me if I'm

wrong like that is our current banking system and our current Financial stack are these siled financial institutions that don't have the means of cooperating with one another unless it's through archaic types of written contracts and very very slow bureaucratic systems we are able to replicate the best forms and best first principles of that system the the idea that like we can trust like these systems with our money people like that but now we're able to recreate that that custodial system in a way that is able to cooperate and it's able to cooperate through code that no one is is trusting people are able to verify it on

their own that these like decentralized institutions are able to cooperate with each other so I think I think it's a really important distinction um between PayPal and other financial institutions using public blockchains versus them using their their private blockchains oh yeah yeah that's yeah completely agree that that makes a ton of sense yeah I I there's I just wanna I just want to drive that home because I I don't know the there's certainly a question there like I think there's going to be financial institutions that we've already seen right JP Morgan Chase they kind of experimented a little bit with this private blockchain type of

structure and I haven't heard a lot about it in the last few months it might still be alive or maybe they're coming around uh as they do their their research ethereum is continuing to scale in terms of throughput and liquidity and that just makes it a higher bar for private blockchains to try to supersede if they want some Superior technology uh than the public blockchain that is already available and already growing so how do you see this playing out like with respect to and obviously there's a couple different institutions like we wrap up Trad fi in this big bucket but ultimately there's like the the traditional Banks and then there's the Neo Banks like PayPal and then there's

like some other like more traditional like banking infrastructure how do you see the adoption of liquid staking going with respect to some of these Institutions and then ultimately the end consumers that already trust these financial institutions with their money yeah I think I think we're still at the very early stages of um like taking generally uh there's still a minority of each state relative to the potential and what the comparators are showing on for PLS systems for like 20 of all East State and you know we'll we'll see that number climb up and then we should see um youth um in relation to sort of USD values as well sort of shift more

favorably um to the upside and we'll also see more Primitives as well come through so at the moment you know post Chapala a lot of the risk return has been uh transformed uh to the upside because what happened was a lot of the risk was taken out of the system whilst materials have been made largely the same so if anything you're better off after shapella and we saw this in the data with a lot of inflows coming through on staking um but at the same time um I am I like a lot of the the the the the sort of the adoption has come through the crypto native side people that are very comfortable already holding youth um we're still yet to see the onboarding of

um quote unquote tread fire um but I think that you know these sorts of developments are very promising and I think that there would be in some ways a Confluence of both um tokenization of stable coins or representation stable coins uh using a mix of um sort of off-chain assets and also on-chain assets and there'll be a case for both in Hybrid models and that sort of thing and we're sort of see this as well in sort of real world real world asset of rwa growth as well but in terms of where two from here I think the institutions will come as more financial products come out as well so we're starting to see more of these ETFs come through BTC then eth then ethyl STS will come as well after that and just more and more privileges built

out so there's been an analogy made about us speed running um you know the financial rails but just doing it on on chain um and if you were to say well where are we on that Journey um we're still very early uh but yeah I'm optimistic lovely yeah we are so early when we when we think about like the adoption trajectory and like the the track like Trad five is still focused on ETFs Meanwhile we're on like D5 4.0 like they still have to go through that entire Arc um so so yeah we are quite early um and it is really cool to see it play out and to be on the Forefront of it I think you know a lot of a lot of crypto

and defy uh Builders are are Forward Thinking and love to be on The Cutting Edge of Technology as well as finance and math in general you know anything with Game Theory uh and and that that is what secures a lot of these crypto economic systems um and it is really cool to speed around just speaking anecdotally now like I I think it's a really cool space to be in so any traditional Financial Bankers that are listening um actually our last podcast was with World pay who settles like trillions of dollars but they're they're Trad fire you know so we may have some Trad file listeners that poke it poke their head into this podcast and I encourage them to to go down the rabbit hole um you know keep listening keep learning

keep building um and then and find your Edge in uh in D5 because there's uh there's lots of room to explore and free them to uh to innovate which is uh unique to this industry so yeah no please oh yeah I was just gonna say yes I'll welcome all the chat fly people please come this way we need more of that um and more of those um different perspectives to come through uh yeah Society positive certainly yeah yeah um yeah like we're you know there's no there's no uh uh remorse or or uh resentment or anything you know we will welcome you with open arms

um yes so so Switching gears a little bit um let's talk you know I I think you've painted a very vibrant picture of of uh liquid staking and proof of stake and ethereum in general so let's dive a little bit deeper into swell uh in particular um you guys have a liquid staking protocol where uh any eth holder can deposit their eth um and then and then they receive staking rewards right so walk us through a little bit about what happens in the middle from when I click the button to deposit some if um and I can get some swell eat like what what happens in the middle what is the the mechanism

yeah so swell is a non-custodial liquid staking protocol um at a high level what we do is we utilize our smart contracts to enable you to click a couple buttons and all of a sudden you're participating in um ethereum stakey and it's it's all liquid so traditionally you'd have to you know have 32 weeks and you'd have to set up a validator node and do all that and then but with with swell um that's all sort of abstract away from you it's all very simple and the way it works is that we have a a set of professional embedded operators that have a lot of institutional experience

you know in aggregate they run billions of dollars worth of eth and have excellent uptime performance and so they're sure idea from that perspective and then with regards to as well um security for us is the highest priority you know we have in the middle Five Buck Bounty out we're also ordered to buy Sigma Prime who also was involved with the EF and as audited as well numerous other Liquors 8 protocols so trial experience from that perspective so in essence what you do is you just jump to the DAP you click stake and you're off It Away really um it's as simple as that and then you can choose to participate within the default ecosystem we have a ton of Integrations and across the soil ecosystem you can LP you can make

Stables you can you know to deposit those LP tokens into different emissions layers and you know goes goes like Choose Your Own Adventure sort of thing um and then in terms of like spell itself you know we've been live on Main net for about three months um we have uh just under 45 000 each state so a touch over 80 mil um in tvl um and we're currently running this campaign called The Voyage where folks can come in and be rewarded uh for early adoption and just patiently now upcoming airdrop campaign and I've seen a lot of good traction and product Market fit we have more than 10 000 people joining us on that Journey which is really nice to see and um yeah we're really excited about what

we're building and I think we're we're really just at the the early early chapters of what soil is going to do in D5 and you know we hope to just continue to keep shipping and deliver for our community amazing amazing yeah I mean the the lsd5 space I I made a mistake I said February it's been September so almost a year now and there's there's lots of instances of like how people see this lsd5 space and like there's a lot of different perspectives um and we're you know we are starting to see some of the tools connect with one another um and swell has the pieces whereas like we've seen you know one of them

right like there's there's multiple protocols without mentioning any any in particular some of them allow you to deposit and that's it some of them allow you to take what you deposited and then mint stable coins off of that would swell it sounds like it's all kind of together and you guys have a pretty like comprehensive ecosystem of like these money Legos that that we like to call them and and you guys have have been able to like package them together and build a structure yourself rather than supplying like one Lego you guys have built this like hyper structure of Legos is that a fair assessment of uh swell yeah that's right probably I mean that's that's what we try to prioritize like like we ourselves are

like we see ourselves as being really the composable bass player to enable a lot of Primitives on top um you're seeing this in the D5 llama data where liquid safety is dial the number one category in all G5 but it also actually supports all the other categories as well so things like Nexus they use LST things like Stables are going to use LLCs if they don't already um things like borrowing protocols you know it's one of the best forms of collateral out there um and so as well as really tapped into this and has worked with a lot of other protocols to help build out a real collaborative and composable approach in the truest nature of D5 which is this composability IE money logo so yeah we try to keep it fun and uh you know educate folks about okay here are the

risks but also here's the here's what you can do by the way uh if you want to and it's up to you some people just come through they just hold the swell token or the sweet token um and they are saying well some people LP and then they do all kinds of fun and interesting things um so it's true Your Own Adventure yeah and and it is ultrasound money that's part of what makes it like the best form of collateral out there um it's interest bearing right it's also eth uh and and there's lots of uh benefits to holding eth whether you like it for the interoperability or the speculation you know we're not gonna We're Not Gonna shame anyone for for why they hold it um so so yes you tell us a little bit more about this Voyage right like you

guys have have is this a liquidity mining campaign is this like what you know like you guys have have a token coming up and uh part of this Voyage is like a journey uh towards this uh like token based protocol um and this and this governance I I imagine it's a governance process so so kind of take us through like the swell road map how the token fits in and then how this initial Voyage uh phase fits in yeah um that's right so uh uh what the voyage is is really uh a path to Progressive decentralization and also

growth for the protocol um because we always set out to develop a genuine uh community-owned directed and governed Dao like a truly centralized autonomous organization but it's very hard to do that like at day one um very difficult almost impossible um so there is this process that we've gone through and we try to make it fun and gamified and really Community Centric and so we have the voyage and what the voyage is is a series of chapters it's like a story about how um the community members will go through these Evolutions with the protocol and eventually end up in uh effectively swell city which is like a dow I mean in

some ways um a dow can be taken to like a city of sorts um we particularly things like governance and so on um and so we're about to announce chapter two very soon chapter one's been you know very successful and people are really excited about chapter two and there's going to be some new and interesting bits and pieces of functionality that's going to come through the protocol um but overall it was always about bootstrapping the protocol with people that would be a long-term incentive aligned with things as well generally flourish as a as a Mainstay of D5 as a fully fledged Dao beautiful and and what what are some of those new and interesting things like

for for our listeners who are uh you know in the audience like how can they capitalize on this opportunity of of the voyage yeah so um there are more than 10 000 um sort of folks um have joined the voyage today um and they've been able to capitalize on the voyage really just by being an early adopter what does that mean um it means like the the remains just like staking if that's fundamentally like the Crux of it and then utilizing your Suite in different places in D5 and you are effectively rewarded for that behavior um so we have a bit of a points based campaign at the moment where people earn pearls um and those pearls are then going to be redeemable for a small token um at our tge

um and then for people to like I I encourage people to like obviously NFA and be your own research and so on uh but if if it seems um interesting to you like definitely jump in and uh you know we'd be happy to answer any questions feel free to follow us on Twitter and jump at the Discord um and the things that are like exciting and coming up there's a bunch of them uh but one that I'm really excited about is our upcoming referral campaign where people will be able to be and awarded for um for you know helping to grow the protocol and becoming real advocates for it and we're starting to see that behavior come through the protocol which is really encouraging to see yeah yeah part part of it especially within the lsd5 space like where you

choose and which LST you choose to deposit your eth into um with more and more options you know this is something that I wanted to get into and and I think it's a it's a relatively smooth segue like that that'll eventually kind of like spread the eth um somewhat thin over all the protocols as more and more options prop up unless there's something that kind of like brings them all together like this referral campaign where why why am I gonna go get four percent over there if I can get seven percent here because I get four plus another three for the referral or there's some look you know there's some extra incentive that encourages me to take that form of behavior and deposit it into swell not some other uh LSD uh

protocol um and I wanna I wanna kind of take this into an angle of of like once that eth goes into so many protocols right like let's say native eth mainnet eth is put into uh swell and then you take your sweethe you take it and you because it's interoperable you take it into another protocol and you mint some stable coins off of it and then the collateral in that protocol goes to somewhere else and then we're using shared security to to underpin Roll-Ups uh as like a secondary form of proof of stake at a certain point is this is this rehypothecation and is that

necessarily good or bad like I think there's there's this idea from fractional Reserve banking that our money isn't really there right and because we spin it up so many times like we we move it around so much that no one really knows where it is and if we wanted to pull it out it wouldn't be there if we take eth and we stake it and then we collateralize it and then we secure it with you know we use it to secure something else and we use it as collateral so many times is that stretching its security properties thinner and thinner or is there like a base like fundamental value there that this this doesn't really uh detract from from the underlying each

value that's a very very good question um I think it's inevitable that Financial systems including crypto Financial systems tend to work both complexity the more Lindy they have and that complexity results in hyper financialization in some ways and that eth has proven and I think will continue to be the most pristine form of collateral that is the true embodiment of crypto and so if that holds true then it's really important that we have um an appreciation of the various risks

and laid risks that emerge out of this particular phenomena things like the inheritance of security properties and extending the consensus threshold which is something that's been debated about and raised uh by very prominent ethereans in particular to things like restaking infrastructure is important and there has to be that social layer discussion and continuous dialogue and ongoing feedback loops between these forces where there is a hunt for yield and the more yield there is arguably the more risk one will take on but the important thing is that there is optionality for folks because stake teeth comparatively speaking is perhaps

one of the most conservative if not the most conservative form of yield generation it's been termed the risk-free rate whether or not that's the lap term that's you know it's been it's been likened to the internet Bond and so I would say that it is it is very it's one of these double-edged swords things I think it's inevitable and I think it's probably going to be in that positive um for more growth more adoption particularly as we see ethereum is taking yields compresses more and more equal state but at the same time it's very important that that there is uh appropriate appreciation mitigations in place and if there is things like liquidations or these sorts of things that it's not a situation like what we had in the GFC for example

um that the risks and the liquidations are isolated to those particular positions as opposed to causing uh massive sort of systemic uh D5 wide uh implosion yeah and we've certainly uh had our had our taste of that especially recently for anyone you know who's following like curve and and just the whole debacle of of the curves founder uh position on Ave like it was just this intertwined mess of collateral and and like liquidation risk and over-the-counter deals it was it was

quite a whirlwind the last couple weeks um any any dots on on uh how we can kind of uh unwind is not the right word but maybe like untangle some of these like cross like you know I guess that's that's a consequence of interoperability right if things get intermingled and there's more efficiency maybe in in intermingling them but there's also more risk like what in general what are your what's your take on the last two weeks of this D5 drama um yeah I think these guys are legends of um of D5 and uh yeah I'd be remiss of her criticism or yeah I probably not not

well placed to comment other than I'm very appreciative for all the people that that could have kind of kept came in and stuffed up um and sometimes you know extraordinary times call for Extraordinary Measures and if things weren't handled appropriately I mean you could have set back if I you know look you know a bit more but it seems like we're through most of that um and uh no it's great to see um people step up and uh yeah I mean I things like like the things are the sort of things that we were talking about would not be possible without you know curve Innovation I mean and what the llamas have done I mean I mean you know we're indebted in many ways yeah and and for anyone who hasn't been keeping track of crypto Twitter over the

last couple weeks there was a massive so so there there's a massive position on Ave and it's it's curves founder which curve is one of the most like used protocols in in D5 they are they have this unique uh swapping mechanism where they use a lot of like very sophisticated math to basically um make swapping between stable coins very like very easy and very liquid so so curves founder uh has a lot of curve and that should go that should go without any surprise so um

he took so the curve founder took this curve and like any other d5d gen he was using Ave you know as as it's intended to be used so he takes his collateral his assets he puts them on Ave he borrows against his assets so that he can go buy a a multi-million dollar mansion that's not too out of the ordinary it was reasonably sized I think everyone right like like enjoyed a a mansion for the culture so he takes he so he takes out this loan his curve is in in ave's collateral he buys his mansion with his with the debt that he borrows from Ave and then curve kind of gets in trouble uh because there is an exploiting curve there was some Viper uh like uh software

that had a bug in it because of some release um so so hackers steal the funds uh and then curve has to suffer so curve starts to depreciate which means the current Founders collateral on Ave starts to dwindle and if there weren't like these Legends of defy as Daniel said like if these guys didn't step up the likes of Justin's son and winter mute and random addresses that were conducting OTC deals then there would have been like a massive amount of curve just sold on the open market it would have Tanked the the price of curve it also would have tanked like this really mature defy mechanism about that that kind of makes curve the

protocol work because the curve token is very uh is is very important to the curve protocol uh because they use this this bribery mechanism to allocate incentives for the protocol to work and if curves token would have tanked then the curve protocol would have broke because these curved bribes would have been rather worthless did I get that right Daniel yeah I mean that's yeah I mean yeah yeah so yeah I mean yeah I think that this it is fun to watch I mean like just you know sort of like just just watching it all sort of unfold and you know I'm it's so interesting to see the different

takes on CT and I'm like I mean I mean yeah I mean I don't know how we haven't gotten like a movie or at least a documentary about this um yeah so so think thankfully um these Legends these Justin Sons went your mutes other other prominent D5 figures step in they buy the curve over the counter so that it's not sold on the open market and and does not uh destroy the price long story short um and now we're now we're through the most of it right so I think I think the curves Founders loan is relatively healthy on Ave his name is Michael so I think I think Michael's loan is relatively healthy on Ave which is good

um we shouldn't see massive liquidations across across the industry which is also good um and and like we so okay so I think it's telling right because we kind of landed on that subject by coming from the idea of rehypothecation so is that evidence like is that like okay this is what we need to watch out for this is what can happen if we're not careful and how do we make sure that like PayPal who is now is going to settle transactions on a public blockchain does not have contagion risk of like incorporating their stable coins into the same mix as like some of these like other loans and other protocol you

know other protocol deposits um yeah I think there is um like there's a darwinian element to this and there's a evolutionary element overall like there's been some you know uh a commentary about you know the degree to which um governance tokens can be used as collateral or the underwriting requirements or isolated risks isolated pools versus um non-isolated pools and that sort of thing um I think yeah I mean it would have been an uglier situation had there not been intervention by folks um and I think this is a bit of a loading lesson for for Underwriters

generally and the way that these protocols will work but I mean capitalism will do its thing and I think that um hopefully like and actually you know this was a birth of Bitcoin actually I came out of the GFC so um yeah I think human human nature is human nature but I think you know I'd rather be on chain than off chain for for things like um like Risk and transparency and underwriting intellectual Health ratios and all that sort of thing unchain is definitely best because it's transparent that is a that is a great point to make and and I I want to kind of interpret like that in saying that if if all of this like if Michael's position was not

on Ave and it was on some like Trad Phi type of uh Institution we might not have known how unhealthy that loan really was but and and then as a result we would have been reactionary as as kind of like Financial participants in this market we would have been reactionary to think like oh all of a sudden like like it's insolvent right it's too late to save and make these over-the-counter deals if it's in this like Trad fi ecosystem we may never have known and we may never have had an opportunity to come in and write the ship um but because Michael's loan was on a blockchain and and on a public

blockchain and that we have all these independent Watchers and monitors that are able to almost consistently audit and constantly audit the blockchain for unhealthy positions and even Ave has this network of of Liquidators that are always trying to snipe unhealthy positions and because there's so many independent actors with eyes on this system we were able to catch that before it got really really messy so I I think there's I think that's a great a great um thing to bring up uh it's really important that this happened on a blockchain otherwise it could have been much much worse and and you know there's Untold Financial uh catastrophe that

happens off of blockchains who knows how much of that could have been saved by putting those financial transactions on chain and having all these independent eyes keep watch over it at you know at all times we could have saved ourselves lots of strife and economics uh uh economic uh you know like unhappiness uh by having it on chain so so yeah I I I want to really drive that home because I think it's an important thing to bring up and that's not a a perspective that I've heard in the in this recent debacle you know is is people making a case for you know this is actually why we should have it on chain um yeah I I really enjoy that that uh perspective

yeah awesome yeah and and well said um yeah completely agree cool man well we are we are running on time here I I have uh I have one question that kind of goes with the with this train of thought and then I have one question that that we ask everyone who comes on the channel so in these last few minutes I'd love to ask just these two more questions um so so we talked about swell's voyage and roadmap and the journey that you have towards Progressive decentralization so I wanna I wanna think about how that mental model plays into uh the ethereum roll-up Centric road map we also talked a little bit about shared security and and stretching eth so that it can it can uh secure

other protocols and write roll-up protocols in addition to uh mainnet ethereum so how do you see this ethereum uh roll-up Centric roadmap working um how does the liquid staking eat kind of economy fit into uh that roll-up Centric roadmap yeah I think the mental model is uh you know ethereum L1 main that will serve as a sediment layer and then there'll be this proliferation of l2's l3s on top and there'll be more efficiency more speed more through Port lower gas fees all that sort of thing and that the foundation for that has already been laid already through the

eip1559 the merge chappella all that wasn't intentionally done so that we could have this continuation of this um uh sort of architecture being built out and I think um the role of liquid staking will be to really to support staking at its core which is to increase the economic security and decentralization of a one and then we'll have um more sort of innovation built around that with restaking and other sorts of bits and pieces of infrastructure that will benefit be beneficiary for the underlying Economic Security that comes from staking and I think that there will be a preference or some preference for

liquid staking because you can get staking rewards and also defy Awards and also other forms of rewards that will come through as more and more Innovation and financialization takes place um so yeah I think we're still at thering mistakes of that awesome yes still still so early um in terms of the building The Innovation the adoption there's there's such a long way to go um we're all we're just uh not even a year into the into the proof of stake world of ethereum so um yeah the roll-up Centric road map um will will continue um cool and and the last question we ask everyone and uh and um the question is if you could talk to

anyone dead or alive uh like you were stuck in an elevator and you were to pitch someone on swell the liquid staking ecosystem and and maybe ethereum in general who would you choose to be stuck in an elevator with and uh and and what would you say oh that's a good one uh Satoshi just to like yeah just can you believe you're the first person to say that oh really that is honestly that's a that's a great answer yeah so so why Satoshi yeah at first I want to be pitching swell I'd probably just be just like I I want to know his or her or their perspective on like like what was the

original vision for what they were trying to to articulate and then how do they feel about the industry today and what's happened and what would they do differently and are they happy with it and then yeah and then see how the conversation goes from there and uh yeah hopefully you know continue with with the coffee or something I mean I love to to get in uh the sort of and understand you know that that sort of line of thinking such a Chad answer to that question to say you want to talk to Craig Wright I mean man no no I'm kidding I'm kidding I'm kidding I'm kidding I'm kidding um cool Matt yeah we can we can wrap up

there if there's anything else you want to you want to add um you know go go follow swell um shout out to Discord shout out swellnetwork uh the website is uh swellnetwork.io you can you can stake right on the website there's a big blue State button click it oh yeah um and then you can find all the all the Twitter all the all the socials on there um follow Daniel as well what what's your personal uh Daniel underscore swell underscore yeah cool awesome go follow keep in touch and and join uh join the journey and uh join the voyage yeah we'll be on it thanks Rosie Cheers Cheers